<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 1998
REGISTRATION NO. 333-39373
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SOVEREIGN SPECIALTY CHEMICALS, INC.
PIERCE & STEVENS CORP.
SIA ADHESIVES, INC.
OSI SEALANTS, INC.
MERCER PRODUCTS COMPANY, INC.
TANNER CHEMICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2891 36-4176637
NEW YORK 2891 31-1557383
DELAWARE 2891 16-0951610
ILLINOIS 2891 36-2361148
NEW JERSEY 3089 22-3061500
NEW HAMPSHIRE 2891 02-0352196
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
225 WEST WASHINGTON STREET
CHICAGO, ILLINOIS 60606
(312) 419-7100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROBERT B. COVALT
225 WEST WASHINGTON STREET
CHICAGO, ILLINOIS 60606
(312) 419-7100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copy to:
CARTER W. EMERSON
KIRKLAND & ELLIS
200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS 60601
TELEPHONE: (312) 861-2092
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 1/2% Senior Subordinated Notes
due 2007, Series B.............. $125,000,000 $1,000 $125,000,000 $37,879
- ------------------------------------------------------------------------------------------------------------------
Guarantees of 9 1/2% Senior
Subordinated Notes due 2007,
Series B........................ $125,000,000 (2) (2) None
==================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f).
(2) No further fee is payable pursuant to Rule 457(n).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 3, 1998
PRELIMINARY PROSPECTUS
, 1998
SOVEREIGN SPECIALTY CHEMICALS, INC.
OFFER TO EXCHANGE ITS 9 1/2% SENIOR SUBORDINATED NOTES
DUE 2007, SERIES B FOR ANY AND ALL OF ITS OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007 SOVEREIGN LOGO
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.
Sovereign Specialty Chemicals, Inc., a Delaware corporation (the "Company"),
hereby offers (the "Exchange Offer"), upon the terms and conditions set forth in
this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal
(the "Letter of Transmittal"), to exchange $1,000 principal amount of its 9 1/2%
Senior Subordinated Notes due 2007, Series B (the "Exchange Notes"), registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a Registration Statement of which this prospectus is a part, for each $1,000
principal amount of its outstanding 9 1/2% Senior Subordinated Notes due 2007
(the "Old Notes"), of which $125,000,000 principal amount is outstanding. The
form and terms of the Exchange Notes are the same as the form and terms of the
Old Notes except that (i) the Exchange Notes will bear a Series B designation,
(ii) the Exchange Notes will have been registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof and (iii)
holders of the Exchange Notes will not be entitled to certain rights of holders
of Old Notes under the Registration Rights Agreement (as defined). The Old Notes
and the Exchange Notes are sometimes referred to herein collectively as the
"Notes." The Exchange Notes will evidence the same debt as the Old Notes (which
they replace) and will be issued under and be entitled to the benefits of the
Indenture dated as of August 1, 1997 (the "Indenture") by and among the Company,
the Guarantors (as defined) and The Bank of New York, as trustee, governing the
Notes. See "The Exchange Offer" and "Description of the Exchange Notes."
The Company will accept for exchange any and all Old Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time on , 1998,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
See "The Exchange Offer."
The Old Notes were sold by the Company on August 5, 1997 to Chase Securities
Inc. and Donaldson, Lufkin & Jenrette Securities Corporation (the "Initial
Purchasers") in a transaction not registered under the Securities Act in
reliance upon an exemption under the Securities Act (the "Initial Offering").
The Initial Purchasers subsequently placed the Old Notes with qualified
institutional buyers in reliance upon Rule 144A under the Securities Act.
Accordingly, the Old Notes may not be reoffered, resold or otherwise transferred
in the United States unless registered under the Securities Act or unless an
applicable exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered hereunder in order to satisfy
the obligations of the Company and the Guarantors under the Registration Rights
Agreement entered into by the Company, the Guarantors and the Initial Purchasers
in connection with the Initial Offering (the "Registration Rights Agreement").
See "The Exchange Offer."
Interest on the Notes will be payable semi-annually on February 1 and August 1
of each year, commencing on February 1, 1998. The Notes will mature on August 1,
2007. Except as described below, the Company may not redeem the Notes prior to
August 1, 2002. On or after such date, the Company has the option to redeem the
Notes, in whole or in part, at any time at the redemption prices set forth
herein, plus accrued and unpaid interest thereon, if any, to the date of
redemption. In addition, at any time and from time to time on or prior to August
1, 2000, the Company has the option to, subject to certain requirements, redeem
in the aggregate up to $40.0 million aggregate principal amount of the Notes
with the net cash proceeds of one or more Public Equity Offerings (as defined)
by the Company after which there is a Public Market (as defined), at a
redemption price equal to 109.5% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of redemption; provided,
however, that at least $85.0 million aggregate principal amount of the Notes
must remain outstanding immediately after each such redemption. The Notes will
not be subject to any sinking fund requirement. Upon the occurrence of a Change
of Control (as defined), the Company will be required to make an offer to
purchase the Notes at a price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the date of purchase. See
"Description of the Notes."
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DESCRIPTION OF CERTAIN RISKS TO BE
CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE> 3
(cover continued)
The Notes will be general unsecured senior subordinated obligations of the
Company and will be subordinated to all existing and future Senior Indebtedness
(as defined) of the Company. The Notes will rank pari passu with any future
senior subordinated indebtedness of the Company and will rank senior to all
Subordinated Indebtedness (as defined) of the Company. The Notes will be fully
and unconditionally guaranteed (the "Guaranties") in compliance with the
requirements necessary to obtain relief from the reporting requirements of
Sections 13 and 15(d) of the Exchange Act of 1934, as amended (except to the
extent that any Guarantor's obligations under the Guaranties constitutes a
fraudulent conveyance or fraudulent transfer under state law), jointly and
severally, on a senior subordinated basis, by each of the Company's direct and
indirect subsidiaries (other than Foreign Subsidiaries (as defined)) on the
issue date of the Notes (the "Issue Date") and by each direct and indirect
subsidiary of the Company (excluding Foreign Subsidiaries and Unrestricted
Subsidiaries (as defined)) formed or acquired thereafter (collectively, the
"Guarantors"). As of the Issue Date, the Guarantors under the Indenture were
Pierce & Stevens Corp., SIA Adhesives, Inc., OSI Sealants, Inc. (formerly known
as Laporte Construction Chemicals North America, Inc.), Mercer Products Company,
Inc. and Tanner Chemicals, Inc. (formerly known as Evode-Tanner Industries,
Inc.). The Guarantees will be general unsecured senior subordinated obligations
of the Guarantors and will be subordinated in right of payment to all existing
and future Guarantor Senior Indebtedness (as defined) (including Indebtedness
outstanding under the Amended Credit Facility). The Guarantees will rank pari
passu with any and all future senior subordinated Indebtedness of the Guarantors
and will rank senior to all other subordinated Indebtedness of the Guarantors.
The Indenture permits the Company and its Subsidiaries to incur additional
indebtedness, including Senior Indebtedness, subject to certain limitations. See
"Description of the Notes." As of December 31, 1997, the Company and the
Guarantors had outstanding in the aggregate $159.3 million of indebtedness,
including $34.3 million of Senior Indebtedness and Guarantor Senior Indebtedness
(as defined). See "Description of the Exchange Notes -- Ranking,"
"-- Subordination of the Exchange Notes" and "Description of the Exchange
Notes -- Guaranties."
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder that
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes. See "The Exchange Offer -- Resale of the Exchange
Notes." Holders of Old Notes wishing to accept the Exchange Offer must represent
to the Company, as required by the Registration Rights Agreement, that such
conditions have been met. Each broker-dealer (a "Participating Broker-Dealer")
that receives Exchange Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a participating Broker-Dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with resales
of Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any such
resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter is
being used in connection with the Exchange Offer. Holders of Old Notes not
tendered and accepted in the Exchange Offer will continue to hold such Old Notes
and will be entitled to all the rights and benefits and will be subject to the
limitations applicable thereto under the Indenture and with respect to transfer
under the Securities Act. See "The Exchange Offer."
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active
i
<PAGE> 4
market for the Exchange Notes will develop. See "Risk Factors -- Absence of a
Public Market Could Adversely Affect the Value of Exchange Notes." Moreover, to
the extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Old Notes could be
adversely affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MAKE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE SUBSIDIARY GUARANTORS. NEITHER THE DELIVERY OF THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER, SHALL
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE
OFFER), ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
THE EXCHANGE NOTES WILL BE AVAILABLE INITIALLY ONLY IN BOOK-ENTRY FORM.
EXCEPT AS DESCRIBED UNDER "BOOK-ENTRY; DELIVERY AND FORM," THE COMPANY EXPECTS
THAT THE EXCHANGE NOTES ISSUED PURSUANT TO THE EXCHANGE OFFER WILL BE
REPRESENTED BY A GLOBAL NOTE (AS DEFINED), WHICH WILL BE DEPOSITED WITH, OR ON
BEHALF OF, THE DEPOSITORY TRUST COMPANY ("DTC") AND REGISTERED IN ITS NAME OR IN
THE NAME OF CEDE & CO., ITS NOMINEE. BENEFICIAL INTERESTS IN THE GLOBAL NOTE
REPRESENTING THE EXCHANGE NOTES WILL BE SHOWN ON, AND TRANSFERS THEREOF WILL BE
EFFECTED THROUGH, RECORDS MAINTAINED BY DTC AND ITS PARTICIPANTS. AFTER THE
INITIAL ISSUANCE OF THE GLOBAL NOTE, NOTES IN CERTIFICATED FORM WILL BE ISSUED
IN EXCHANGE FOR THE GLOBAL NOTE ONLY UNDER LIMITED CIRCUMSTANCES AS SET FORTH IN
THE INDENTURE. SEE "BOOK-ENTRY; DELIVERY AND FORM."
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "SUMMARY," "UNAUDITED PRO FORMA
FINANCIAL STATEMENTS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL THESE FORWARD LOOKING
STATEMENTS, INCLUDING THOSE RELATING TO INDUSTRY GROWTH EXPECTATIONS, ARE BASED
ON ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF THE COMPANY WHICH, ALTHOUGH
BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN. THEREFORE, UNDUE RELIANCE
SHOULD NOT BE PLACED UPON SUCH ESTIMATES AND STATEMENTS. NO ASSURANCE CAN BE
GIVEN THAT ANY OF SUCH ESTIMATES OR STATEMENTS WILL BE REALIZED AND ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING
STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE: (I) INCREASED
COMPETITION; (II) INCREASED COSTS; (III) LOSS OR RETIREMENT OF KEY MEMBERS OF
MANAGEMENT; (IV) CHANGES IN GENERAL ECONOMIC CONDITIONS IN THE MARKETS IN WHICH
THE COMPANY MAY FROM TIME TO TIME COMPETE; AND (V) DEVELOPMENTS IN COMPETING
TECHNOLOGIES. MANY OF SUCH FACTORS WILL BE BEYOND THE CONTROL OF THE COMPANY AND
ITS MANAGEMENT. FOR FURTHER INFORMATION OR OTHER FACTORS WHICH COULD AFFECT THE
FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD LOOKING STATEMENTS, SEE "RISK
FACTORS."
ii
<PAGE> 5
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, covering the Exchange Notes being offered hereby. This
Prospectus does not contain all the information set forth in the Exchange Offer
Registration Statement. For further information with respect to the Company and
the Exchange Offer, reference is made to the Exchange Offer Registration
Statement. Statements made in this Prospectus to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Exchange Offer Registration Statement, reference is made to the exhibit
for a more complete description of the document or matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. In
addition, the Company files periodic reports and other information requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with
the Commission, The Exchange Offer Registration Statement, including the
exhibits thereto, and periodic reports and other information filed by the
Company with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or at its regional offices located at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511
and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of such site is http:/www.sec.gov.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the holders of the Notes and, to the
extent permitted by applicable law or regulation, file with the Commission all
quarterly and annual financial information that would be required to be filed
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act or
any successor provision thereto. In addition, for so long as any of the Notes
remain outstanding and prior to the occurrence of certain events, the Company
has agreed to make available to any record holder, in connection with any sale
thereof, the information required by Rule 144A(d)(4) under the Securities Act.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents are available without charge upon
request from Louis M. Pace, Director of Corporate Development of Sovereign
Specialty Chemicals, Inc., 225 West Washington Street, Chicago, Illinois, 60606.
In order to ensure timely delivery of the documents, any request should be made
by , 1998 (five business days prior to the Expiration Date).
iii
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless the context otherwise requires, all
references herein to the "Company" refer, prior to the consummation of the
Transactions, to Sovereign Specialty Chemicals, L.P., its consolidated
subsidiaries and its predecessor and, after consummation of the Transactions, to
Sovereign Specialty Chemicals, Inc., its consolidated subsidiaries and its
predecessor, and all references herein to the "Parent Partnership" refer to
Sovereign Specialty Chemicals, L.P., the sole stockholder of Sovereign
Speciality Chemicals, Inc.
THE COMPANY
COMPANY OVERVIEW
The Company is a leading developer, producer and distributor of a wide
variety of adhesives, sealants and coatings utilized in numerous industrial and
commercial applications. The Company's broad line of over 1,300 products is sold
to more than 6,000 customers. The Company's products are frequently designed in
cooperation with its customers to meet unique specifications, resulting in a
significant number of primary supplier relationships. Many of the Company's
products provide critical performance attributes to its customers' products, but
represent only a small portion of total costs. The Company focuses on select
value-added niche markets in which it has strong market positions and advantages
in product development, manufacturing and distribution. The Company markets its
products for use by customers in the following applications: Housing Repair,
Remodeling and Construction; Industrial; Overprint Coatings; and Flexible
Packaging. On a pro forma basis for the year ended December 31, 1997, the
Company had net sales of $208.3 million.
INDUSTRY OVERVIEW
Total sales of adhesives, sealants and coatings in the United States in
1996 were approximately $26.4 billion. Adhesives, sealants and coatings are
utilized in numerous applications across a wide range of industries for a broad
variety of end uses. The industry has experienced strong and stable growth over
the past decade. The industry is expected to experience similar growth trends in
the future as a result of the increased use of adhesives, sealants and coatings
by end users to simplify product design and manufacturing processes and to
enhance the surface appearance and/or performance characteristics of the
products in which they are used. For example, adhesives are increasingly
replacing mechanical fasteners in many manufacturing processes, and adhesives
and sealants can reduce parts requirements and provide superior protection
against corrosion and vibration. In addition, the industry is expected to
benefit from the increased use of adhesives, sealants and coatings in developing
markets, particularly in the Far East, Eastern Europe and Latin America, where
penetration of such products is lower than in more industrialized economies. The
U.S. industry is highly fragmented with over 500 competitors and is expected to
consolidate as competitors seek to enhance operating efficiencies in new product
development, sales and marketing, distribution, production and administrative
overhead. Larger competitors, such as the Company, benefit from a greater
diversification of end-use markets, customers, technologies and geography, which
reduces the impact of industry or regional cyclicality.
HISTORY
The Company was formed by Robert B. Covalt, First Chicago Equity
Corporation ("FCEC") and other investors to acquire and consolidate specialty
chemical businesses in the highly fragmented adhesives, sealants and coatings
industry. The Company has successfully grown its business through its strategic
acquisitions. In March 1996, the Company acquired SIA Adhesives, a manufacturer
of specialty adhesives used primarily in the automotive, aerospace and general
industrial markets, for $15.6 million. In August 1996, the Company acquired
Pierce & Stevens, a
1
<PAGE> 7
developer and manufacturer of specialty coatings and adhesives for
performance-oriented niche applications, for $45.7 million.
Pursuant to an agreement dated May 22, 1997 (the "Acquisition Agreement"),
the Company acquired on August 5, 1997 (the "Acquisition") the U.S. adhesives,
sealants and coatings division (the "Division") of Laporte PLC ("Laporte") for a
cash purchase price of $132.5 million. The companies acquired from Laporte
comprise OSI Sealants, Inc. ("OSI Sealants"), Mercer Products Company, Inc.
("Mercer") and Tanner Chemicals, Inc. ("Tanner"). OSI Sealants, Mercer and
Tanner manufacture, market and distribute adhesives and sealants primarily
utilized in housing repair, remodeling and construction and industrial
applications. The Acquisition has added significant depth to the Company's
product offerings, including the well-known OSI, Pro-Series and Polyseamseal
brands. The Acquisition has also significantly enhanced the Company's
distribution network, particularly in the professional builder and retail home
center channels, and has provided access to new customers and markets for its
existing product line.
Pursuant to an agreement dated March 5, 1998, the Company has agreed to
sell all of the outstanding stock of Mercer to Burke Industries, Inc. for a cash
purchase price of $35.8 million. Mercer manufactures extruded vinyl flooring
profiles and related products for the commercial and residential construction
and renovation markets.
See "Risk Factors" for a discussion of certain factors that should be
considered before tendering Old Notes in exchange for Exchange Notes. These risk
factors are generally applicable to the Old Notes as well as the Exchange Notes.
These risk factors include, but are not limited to, the following:
Substantial Leverage and Debt Service Obligations, Subordination of Notes and
Guaranties, Restrictive Financing Covenants, Change of Control, Risks Relating
to the Company's Growth Strategy and Fluctuations in Raw Materials Cost and
Supply.
THE TRANSACTIONS
Concurrently with the consummation of the Initial Offering (as defined),
(i) the Company acquired the Division for a cash purchase price of $132.5
million, (ii) FCEC, management and other investors made, through the Parent
Partnership (the Company's sole stockholder), an equity contribution to the
Company of $33.8 million in cash (the "Equity Contribution"), (iii) the Company
and the Guarantors borrowed $30.0 million pursuant to a new senior secured
credit facility (the "Senior Credit Facility") providing for a term loan of
$30.0 million (the "Term Loan") and revolving loans of up to $30.0 million,
subject to a borrowing base and other conditions (the "Revolving Credit
Facility"), and (iv) the Company refinanced $41.4 million of indebtedness (the
"Refinancing").
The Initial Offering, the Acquisition, the Equity Contribution, the
Refinancing and the initial borrowings under the Senior Credit Facility are
referred to herein as the "Transactions." Consummation of the Initial Offering
was conditioned upon simultaneous consummation of each of the other
Transactions. See "Use of Proceeds" and "Description of Senior Credit Facility."
2
<PAGE> 8
After giving effect to the consummation of the Transactions, the
organization of the Company and its wholly-owned Subsidiaries is as follows:
SOVEREIGN CHART
The following table summarizes the sources and uses of funds at the closing
of the Transactions on August 5, 1997:
<TABLE>
<CAPTION>
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES:
Senior Credit Facility:
Revolving Credit Facility(1).............................. $ --
Term Loan................................................. 30.0
Senior Subordinated Notes due 2007.......................... 125.0
Equity Contribution......................................... 33.8
------
Total Sources...................................... $188.8
======
USES:
Acquisition cash purchase price............................. $132.5
Repayment of indebtedness................................... 41.4
Fees and expenses........................................... 14.2
Cash........................................................ 0.7
------
Total Uses......................................... $188.8
======
</TABLE>
- ---------------
(1) The Revolving Credit Facility provides for borrowing of up to $30.0 million,
subject to borrowing base availability.
------------------------
The Company's principal executive offices are located at 225 West
Washington Street, Suite 2200, Chicago, Illinois, 60606 and its telephone number
is (312) 419-7100. The principal executive offices of each Guarantor are c/o
Sovereign Specialty Chemicals, Inc. at the same address and telephone number.
3
<PAGE> 9
THE INITIAL OFFERING
Notes...................... The Old Notes were sold by the Company on August 5,
1997 (the "Initial Offering") to Chase Securities,
Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation (the "Initial Purchasers") pursuant to
a Purchase Agreement dated July 31, 1997 (the
"Purchase Agreement"). The Initial Purchasers
subsequently resold the Old Notes to qualified
institutional buyers pursuant to Rule 144A under
the Securities Act.
Registration Rights
Agreement................ Pursuant to the Purchase Agreement, the Company,
the Guarantors and the Initial Purchasers entered
into a Registration Rights Agreement dated as of
August 5, 1997 (the "Registration Rights
Agreement"), which grants the holder of the Old
Notes certain exchange and registration rights. The
Exchange Offer is intended to satisfy such exchange
and registration rights which terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered......... $125,000,000 aggregate principal amount of 9 1/2%
Senior Subordinated Notes due 2007, Series B, of
the Company (the "Exchange Notes").
The Exchange Offer......... $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of Old
Notes. As of the date hereof, $125,000,000
aggregate principal amount of Old Notes are
outstanding. The Company will issue the Exchange
Notes to holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business and that
such holder does not intend to participate and has
no arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes.
Any Participating Broker-Dealer that acquired Old
Notes for its own account as a result of
market-making activities or other trading
activities may be a statutory underwriter. Each
Participating Broker-Dealer that receives Exchange
Notes for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This
Prospectus,
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<PAGE> 10
as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer
in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old
Notes were acquired by such Participating Broker-
Dealer as a result of market-making activities or
other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration
Date, they will make this Prospectus available to
any Participating Broker-Dealer for use in
connection with any such resale. See "Plan of
Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes could not rely on the position of the staff
of the Commission enunciated in no-action letters
and, in the absence of an exemption therefrom, must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. Failure to
comply with such requirements in such instance may
result in such holder incurring liability under the
Securities Act for which the holder is not
indemnified by the Company.
Expiration Date............ 5:00 p.m., New York City time, on ,
1998 unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time which the Exchange Offer is
extended.
Accrued Interest on the New
Notes and the Old
Notes.................... Each New Note will bear interest from its issuance
date. Holders of Old Notes that are accepted for
exchange will receive, in cash, accrued interest
thereon to, but not including the issuance date of
the Exchange Notes. Such interest will be paid with
the first interest payment on the Exchange Notes.
Interest on the Old Notes accepted for exchange
will cease to accrue upon issuance of the Exchange
Notes.
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions."
Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof (or, in the case of a book-entry transfer,
transmit an Agent's Message (as defined) in lieu
thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile (or Agent's Message), together with the
Old Notes and any other required documentation to
the Exchange Agent (as defined) at the address set
forth herein. By executing the Letter of
Transmittal (or transmitting an Agent's Message),
each holder will represent to the Company that,
among other things, the Exchange Notes acquired
pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such
person is the
5
<PAGE> 11
holder, that neither the holder nor any such other
person has any arrangement or understanding with
any person to participate in the distribution of
such Exchange Notes and that neither the holder nor
any such other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of the
Company. See "The Exchange Offer -- Purpose and
Effect of the Exchange Offer" and "-- Procedures
for Tendering."
Untendered Old Notes....... Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but
who do not tender their Old Notes will not have any
further exchange or registration rights and such
Old Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Old Notes could be
adversely affected.
Consequences of Failure to
Exchange................. The Old Notes that are not exchanged pursuant to
the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Company, (ii) pursuant to
Rule 144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States to
a foreign person pursuant to the requirements of
Rule 904 under the Securities Act, or (iv) pursuant
to an effective registration statement under the
Securities Act. See "The Exchange
Offer -- Consequences of Failure to Exchange."
Shelf Registration
Statement.................. If any holder of the Old Notes (other than any such
holder which is an "affiliate" of the Company or a
Guarantor within the meaning of Rule 405 under the
Securities Act) is not eligible under applicable
securities laws to participate in the Exchange
Offer, and such holder has satisfied certain
conditions relating to the provision of information
to the Company for use therein, the Company and the
Guarantors have agreed to register the Old Notes on
a shelf registration statement (the "Shelf
Registration Statement") and to use their best
efforts to cause it to be declared effective by the
Commission as promptly as practical on or after the
consummation of the Exchange Offer. The Company and
Guarantors have agreed to maintain the
effectiveness of the Shelf Registration Statement
for, under certain circumstances, a maximum of two
years, to cover resales of the Old Notes held by
any such holders.
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Old Notes, either make appropriate
arrangements to register ownership of the Old Notes
in such owner's name or obtain a properly completed
bond power from the registered holder. The transfer
of registered ownership may take considerable time.
6
<PAGE> 12
Guaranteed Delivery
Procedures............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes (or
comply with the procedures for book-entry
transfer), the Letter of Transmittal or any other
documents required by the Letter of Transmittal to
the Exchange Agent (or transmit an Agent's Message
in lieu thereof) prior to the Expiration Date must
tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m. New York City time, on the Expiration Date.
Acceptance of Old Notes and
Delivery of Exchange
Notes.................... The Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant to the Exchange offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer -- Terms of the Exchange
Offer."
Use of Proceeds............ There will be no cash proceeds to the Company for
the exchange pursuant to the Exchange Offer.
Exchange Agent............. The Bank of New York.
General.................... The form and terms of the Exchange Notes are the
same as the form and terms of the Old Notes (which
they replace) except that (i) the Exchange Notes
bear a Series B designation, (ii) the Exchange
Notes have been registered under the Securities Act
and, therefore, will not bear legends restricting
the transfer thereof, and (iii) the holders of
Exchange Notes will not be entitled to certain
rights under the Registration Rights Agreement,
including the provisions providing for an increase
in the interest rate on the Old Notes in certain
circumstances relating to the timing of the
Exchange Offer, which rights will terminate when
the Exchange Offer is consummated. See "The
Exchange Offer -- Purpose and Effect of the
Exchange Offer." The Exchange Notes will evidence
the same debt as the Old Notes and will be entitled
to the benefits of the Indenture. See "Description
of the Exchange Notes." The Old Notes and the
Exchange Notes are referred to herein collectively
as the "Notes."
7
<PAGE> 13
THE OFFERING
Issuer..................... Sovereign Specialty Chemicals, Inc.
Securities Offered......... $125.0 million aggregate principal amount of 9 1/2%
Senior Subordinated Notes due 2007, Series B.
Maturity................... August 1, 2007.
Interest Payment Dates..... February 1 and August 1 of each year, commencing on
February 1, 1998.
Sinking Fund............... None.
Optional Redemption........ Except as described below, the Company may not
redeem the Exchange Notes prior to August 1, 2002.
On or after such date, the Company may redeem the
Exchange Notes, in whole or in part, at any time at
the redemption prices set forth herein, plus
accrued and unpaid interest thereon, if any, to the
date of redemption. In addition, at any time and
from time to time on or prior to August 1, 2000,
the Company may, subject to certain requirements,
redeem up to $40.0 million of the original
aggregate principal amount of the Exchange Notes
with the net cash proceeds of one or more Public
Equity Offerings (as defined) by the Company after
which there is a Public Market (as defined), at a
redemption price equal to 109.5% of the principal
amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of redemption;
provided, however, that at least $85.0 million
aggregate principal amount of the Exchange Notes
must remain outstanding immediately after each such
redemption. See "Description of the Exchange
Notes -- Optional Redemption."
Change of Control.......... Upon the occurrence of a Change of Control, the
Company will be required to make an offer to
purchase the Exchange Notes at a purchase price
equal to 101% of the principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the
date of purchase. Such right may not be waived by
the Company or the Trustee without the consent of
the Holder of each Note affected thereby. See
"Description of the Exchange Notes -- Optional
Redemption" and "-- Offer to Purchase upon Change
of Control."
Subsidiary Guaranties...... The Exchange Notes will be guaranteed (the
"Guaranties"), jointly and severally on a senior
subordinated basis, by each of the Company's direct
and indirect Subsidiaries (as defined) other than
Foreign Subsidiaries (as defined) on the issue date
of the Exchange Notes and by each direct and
indirect Subsidiary of the Company (excluding
Foreign Subsidiaries and Unrestricted Subsidiaries)
formed or acquired thereafter. The Guaranties will
be general unsecured obligations of the Guarantors.
The Guarantors have guaranteed all obligations of
the Company under the Senior Credit Facility (as
defined), and each Guarantor has granted a security
interest in all or substantially all its assets to
secure the obligations under the Senior Credit
Facility. The obligations of each Guarantor under
its Guaranty will be subordinated in right of
payment to the prior payment in full of all
Guarantor Senior Indebtedness (as defined) of such
Guarantor to substantially the
8
<PAGE> 14
same extent as the Exchange Notes are subordinated
to all existing and future Senior Indebtedness of
the Company. See "Description of the Exchange
Notes -- Guaranties of the Notes."
Ranking.................... The Exchange Notes will be unsecured and will be
subordinated to all existing and future Senior
Indebtedness of the Company. The Exchange Notes
will rank pari passu with any future senior
subordinated indebtedness of the Company and will
rank senior to all Subordinated Indebtedness of the
Company. See "Description of the Exchange
Notes -- Ranking" and "-- Subordination of the
Exchange Notes."
Restrictive Covenants...... The Indenture under which the Exchange Notes will
be issued (the "Indenture") limits: (i) the
incurrence of additional indebtedness by the
Company and its Restricted Subsidiaries (as
defined); (ii) the payment of dividends on, and the
redemption of, capital stock of the Company and its
Restricted Subsidiaries and the redemption of
certain subordinated obligations of the Company and
its Restricted Subsidiaries; (iii) investments;
(iv) sales of assets; (v) certain transactions with
affiliates; (vi) the sale or issuance of capital
stock of Restricted Subsidiaries; (vii) the
creation of liens; (viii) the lines of business in
which the Company and its Restricted Subsidiaries
may operate; and (ix) consolidations, mergers and
transfers of all or substantially all the Company's
assets. The Indenture also prohibits certain
restrictions on distributions from Restricted
Subsidiaries. However, all these limitations and
prohibitions are subject to a number of important
qualifications and exceptions. See "Description of
the Exchange Notes -- Certain Covenants."
For additional information regarding the Exchange
Notes, see "Description of the Exchange Notes."
Use of Proceeds............ The gross proceeds of $125.0 million from the
Initial Offering were used, together with the $33.8
million proceeds from the Equity Contribution and
the borrowings of $30.0 million under the Senior
Credit Facility, to pay the cash purchase price of
the Acquisition, to consummate the Refinancing and
to pay related fees and expenses. See "Use of
Proceeds."
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<PAGE> 15
SUMMARY HISTORICAL FINANCIAL DATA
The following table presents the summary historical data of the Company for
the periods indicated. The data for the year ended December 31, 1995 and the
three months ended March 31, 1996 are derived from the audited financial
statements of SIA Adhesives (the "Predecessor"). The data for the period ended
December 31, 1996 and the year ended December 31, 1997 are derived from the
audited financial statements of the Company. This data should be read in
conjunction with, and is qualified in its entirety by reference to, the
information set forth under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements, and
notes thereto, which appear elsewhere in this Prospectus.
10
<PAGE> 16
SUMMARY HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
PREDECESSOR
------------------------ THE COMPANY
PERIOD ---------------------------
YEAR ENDED ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, MARCH 31, DECEMBER 31, DECEMBER 31,
------------ --------- ------------ ------------
1995 1996 1996 1997
------------ --------- ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $21,129 $5,410 $37,792 $134,771
Cost of goods sold.......................................... 13,734 3,580 26,637 92,889
------- ------ ------- --------
Gross profit................................................ 7,395 1,830 11,155 41,882
Selling, general and administrative expenses................ 5,633 1,603 9,613 30,131
------- ------ ------- --------
Operating income............................................ 1,762 227 1,542 11,751
Interest expense............................................ -- -- 1,666 9,080
Other....................................................... -- -- -- 163
------- ------ ------- --------
Income (loss) before income taxes and extraordinary item.... 1,762 227 (124) 2,508
Income taxes(1)............................................. 705 91 (99) 1,315
------- ------ ------- --------
Income (loss) before extraordinary item..................... 1,507 136 (25) 1,193
Extraordinary item(2)....................................... -- -- 281 1,409
------- ------ ------- --------
Net income (loss)........................................... $ 1,057 $ 136 $ (306) $ (216)
======= ====== ======= ========
OTHER FINANCIAL DATA:
Capital expenditures........................................ $ 106 $ 131 $ 555 $ 1,834
</TABLE>
- ---------------
(1) Income of SIA Adhesives (a limited liability company), and the Parent
Partnership is taxed at the member or partner, as the case may be, level
and, as such, no income taxes are reflected prior to the Company's
reorganization on July 31, 1997. After the Transactions, the Company and SIA
Adhesives became subchapter C corporations and, as such, are subject to
income taxes.
(2) Extraordinary item relates to the write-off of capitalized deferred
financing costs and other costs associated with the early extinguishment of
debt.
11
<PAGE> 17
RISK FACTORS
Prospective purchasers of the Exchange Notes should consider carefully the
following factors, as well as the other information and data included in this
Prospectus before tendering Old Notes in exchange for Exchange Notes. The risk
factors set forth below are generally applicable to the Old Notes as well as the
Exchange Notes.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
As a result of the Transactions, the Company is highly leveraged, with
indebtedness that is substantial in relation to its stockholder's equity. The
Company's aggregate outstanding indebtedness was $159.3 million as of December
31, 1997 and the Company's stockholder's equity was $52.1 million as of the same
date. The Senior Credit Facility and the Indenture will permit the Company to
incur or guarantee certain additional indebtedness, subject to certain
limitations. See "Summary -- Summary Combined Historical and Pro Forma Financial
Data," "Unaudited Pro Forma Financial Statements," "Description of the Exchange
Notes" and "Description of Senior Credit Facility."
The Company's high degree of leverage could have important consequences to
holders of Exchange Notes, including, but not limited to, the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired in the future; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to the Company for other
purposes; (iii) the Company is substantially more leveraged than certain of its
competitors, which might place the Company at a competitive disadvantage; (iv)
the Company may be hindered in its ability to adjust rapidly to changing market
conditions; and (v) the Company's high degree of leverage could make it more
vulnerable in the event of a downturn in general economic conditions or its
business.
The Company's ability to repay or to refinance its obligations with respect
to its indebtedness will depend on its financial and operating performance,
which, in turn, is subject to prevailing economic and competitive conditions and
to certain financial, business and other factors, many of which are beyond the
Company's control. These factors could include operating difficulties, increased
operating costs, raw material or product prices, the response of competitors,
regulatory developments and delays in implementing strategic projects. The
Company's ability to meet its debt service and other obligations may depend in
significant part on the extent to which the Company can successfully implement
its business strategy. There can be no assurance that the Company will be able
to implement its strategy fully or that the anticipated results of its strategy
will be realized. See "Business -- Business Strategy."
If the Company's cash flow and capital resources are insufficient to fund
its debt service obligations, the Company may be forced to reduce or delay
capital expenditures, sell assets or seek to obtain additional equity capital or
to restructure its debt. There can be no assurance that the Company's cash flow
and capital resources will be sufficient for payment of principal of and
interest on its indebtedness in the future, or that any such alternative
measures would be successful or would permit the Company to meet its scheduled
debt service obligations.
The Senior Credit Facility matures prior to the maturity of the Exchange
Notes. In the event that the Company is unable to refinance the Senior Credit
Facility at maturity or repay the facility with cash on hand, through asset
sales, equity sales or otherwise, its ability to repay the principal and
interest on the Notes could be adversely affected.
In addition, because the Company's obligations under the Senior Credit
Facility will bear interest at floating rates, an increase in interest rates
could adversely affect, among other things, the Company's ability to meet its
debt service obligations.
12
<PAGE> 18
SUBORDINATION OF NOTES AND GUARANTIES
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Exchange Notes will be subordinated to the
prior payment in full of all existing and future Senior Indebtedness (as
defined) of the Company, including all amounts owing or guaranteed under the
Senior Credit Facility. The Guaranties are similarly subordinated to Guarantor
Senior Indebtedness (as defined). Consequently, in the event of a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding with respect to
the Company or a Guarantor, assets of the Company or such Guarantor will be
available to pay obligations on the Exchange Notes or Guaranties only after all
Senior Indebtedness of the Company or Guarantor Senior Indebtedness, as
applicable, has been paid in full, and there can be no assurance that there will
be sufficient assets to pay amounts due on any or all of the Notes. In addition,
neither the Company nor any Guarantor may pay principal, premium, interest or
other amounts on account of the Exchange Notes or Guaranties in the event of a
payment default in respect of Designated Senior Indebtedness (as defined) unless
such amount has been paid in full or the default has been ceased or waived. In
addition, in respect of certain Designated Senior Indebtedness and unless
certain other conditions are satisfied, neither the Company nor any Guarantor
may make any payment on account of the Exchange Notes for a designated period of
time. See "Description of the Exchange Notes -- Subordination." At December 31,
1997 the Company had $34.3 million of Senior Indebtedness and/or Guarantor
Senior Indebtedness outstanding. See "Description of the Exchange
Notes -- Ranking."
In addition, since the Company's existing and future Foreign Subsidiaries
will not be required to guarantee the Company's obligations under the Exchange
Notes and the Indenture, the Exchange Notes will be effectively subordinated to
the claims of creditors of such Foreign Subsidiaries with respect to the assets
of such Foreign Subsidiaries.
DEPENDENCE UPON OPERATIONS OF SUBSIDIARIES
The Company is a holding company and derives all of its operating income
and cash flow from its subsidiaries. As a result, the Company relies entirely
upon loans or distributions from its subsidiaries to generate the funds
necessary to meet its obligations, including the payment of principal and
interest on the Exchange Notes. The ability of the Company's subsidiaries to pay
dividends and make other distributions to the Company are currently subject to
contractual and legal limitations. The Senior Credit Facility contains
restrictions on the ability of the Company's subsidiaries to make payments to
the Company if there is an event of default under the Senior Credit Facility.
Pursuant to applicable corporate law, the payment of dividends may be limited in
certain circumstances. For instance, Delaware law permits such payments (i) out
of the payor's surplus, defined generally under Delaware law as the excess of
the net assets of a corporation less its stated capital or (ii) if no surplus
exists, out of their net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. The Indenture prohibits the Company
and its Restricted Subsidiaries (as defined) from creating or otherwise
permitting to exist any consensual encumbrance or restriction on the ability of
any subsidiary to make certain distributions to the Company, subject to certain
exceptions. See "Description of the Exchange Notes -- Certain Covenants."
RESTRICTIVE FINANCING COVENANTS
The Senior Credit Facility and the Indenture will contain a number of
covenants that will restrict the operations of the Company and its subsidiaries.
In addition, the Senior Credit Facility will require that the Company comply
with specified financial ratios and tests, including a minimum interest coverage
ratio, a maximum leverage ratio and a minimum net worth test. There can be no
assurance that the Company will be able to comply with such ratios and tests in
the future. The Company's ability to comply with such ratios and tests may be
affected by events beyond its control, including prevailing economic, financial
and industry conditions. The breach of any such covenants or restrictions could
result in a default under the Senior Credit Facility that would permit the
lenders thereto to declare all amounts outstanding thereunder to be immediately
due and payable, together
13
<PAGE> 19
with accrued and unpaid interest, and the commitments of the lenders under the
Revolving Credit Facility to make further extensions of credit thereunder could
be terminated. See "Description of the Exchange Notes" and "Description of
Senior Credit Facility."
CHANGE OF CONTROL
The occurrence of certain of the events that would constitute a Change of
Control (as defined) may result in a default, or otherwise require repayment of
indebtedness, under both the Notes and the Senior Credit Facility. In addition,
the Senior Credit Facility will prohibit the repayment of indebtedness on the
Notes by the Company in such an event, unless and until such time as the
indebtedness under the Senior Credit Facility is repaid in full. The Company's
failure to make such repayments in such instances would result in a default
under both the Exchange Notes and the Senior Credit Facility. Future
indebtedness of the Company may also contain restrictions or repayment
requirements with respect to certain events or transactions that could
constitute a Change of Control. In the event of a Change of Control, there can
be no assurance that the Company would have sufficient assets to satisfy all of
its obligations under the Exchange Notes or the Senior Credit Facility. See
"Description of the Exchange Notes -- Offer to Purchase Upon Change of Control."
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
RISKS RELATING TO THE COMPANY'S GROWTH STRATEGY
The Company's strategy includes making acquisitions, but there can be no
assurance that suitable acquisition candidates will continue to be available. In
addition, acquisitions that the Company may make, including the acquisition of
the Division, will involve risks, including the successful integration and
management of acquired technology, operations and personnel. The integration of
acquired businesses may also lead to the loss of key employees of the acquired
companies and diversion of management attention from ongoing business concerns.
There can be no assurance that any additional acquisitions will be made, that
the Company will be able to obtain additional financing needed to finance such
transactions and, if any acquisitions are so made, that they will be successful.
The Senior Credit Facility and the Indenture will limit the Company's ability to
make acquisitions and to incur indebtedness in connection with acquisitions. See
"Business -- Business Strategy."
The Company intends to increase its international sales through increased
sales and marketing activities in targeted regions, by entering into strategic
alliances and through acquisitions of foreign businesses, joint ventures and/or
other business combinations or arrangements. The Company's efforts to increase
international sales may be adversely affected by, among other things, changes in
foreign import restrictions and regulations, taxes, currency exchange rates,
currency and monetary transfer restrictions and regulations and economic and
political changes in the foreign nations in which the Company's products are
sold. There can be no assurance that one or more of these factors will not have
a material adverse effect on the Company's financial position or results of
operations in the future.
FLUCTUATIONS IN RAW MATERIALS COST AND SUPPLY
The Company uses a variety of specialty and commodity chemicals in its
manufacturing processes. These raw materials are generally available from
numerous independent suppliers. The Company typically purchases raw materials on
a spot basis. Certain of the Company's raw materials
14
<PAGE> 20
are derived from ethylene. There have been historical periods of rapid and
significant movements in the price of ethylene and ethylene derivatives both
upward and downward. The Company has historically been successful in passing on
price increases to its customers within 90 to 120 days, but there can be no
assurance that it will continue to be able to do so in the future. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Combined Results of Operations" and "Business -- Raw Materials."
TECHNOLOGICAL CHANGE
The market for the Company's products and services is characterized by
rapidly changing technology and continuing process development. The future
success of the Company's business will depend upon its ability to maintain and
enhance its technological capabilities, develop and market products and
applications that meet changing customer needs and successfully anticipate or
respond to technological changes on a cost-effective and timely basis. There can
be no assurance that the Company will effectively respond to the technological
changes in its applications.
POTENTIAL RISK OF PRODUCT LIABILITY
Because many of the Company's products provide critical performance
attributes to its customers' products, the sale of such products entails risk of
product liability claims. A successful product liability claim (or series of
claims) against the Company in excess of its insurance coverage could have a
material adverse effect on the Company's business, financial condition and
results of operations.
CYCLICALITY
Demand for many of the Company's products is cyclical in nature and subject
to changes in general economic conditions. Sales to the building and
construction market are driven by trends in commercial and residential
construction, housing starts, and trends in residential repair and remodeling.
Sales to the automotive industry are also cyclical in nature.
COMPETITION
The Company competes with a wide variety of specialty chemical
manufacturers. Certain of the Company's principal competitors are less highly
leveraged than the Company and have greater financial resources than the
Company. Accordingly, such competitors may be better able to withstand
volatility within industries and throughout the economy as a whole while
retaining significantly greater operating and financial flexibility than the
Company. In addition, a number of the Company's niche product applications are
customized or sold into selected specialized markets. There can be no assurance
that these specialized markets will not attract additional competitors that
could have greater financial, technological, manufacturing and marketing
resources than the Company. See "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
The success of the Company's business is dependent upon the continued
services of its Chairman, President and Chief Executive Officer, Robert B.
Covalt, and other key officers and employees. The loss of Mr. Covalt or such
other key personnel due to death, disability or termination of employment could
have a material adverse effect on the Company's financial position and results
of operations. The Company does not currently carry key man insurance on Mr.
Covalt or any other key officers and employees.
CONTROLLING STOCKHOLDERS
All of the capital stock of the Company is owned by the Parent Partnership.
The Parent Partnership is owned by FCEC, its affiliates and Mr. Covalt who
control approximately 57.7% of the
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<PAGE> 21
voting stock of the general partner of the Parent Partnership. As a result, they
are able to direct the election of the members of the Board of Directors of the
Company and therefore direct the management and policies of the Company. Their
interests may differ from the interests of holders of the Exchange Notes. See
"Security Ownership of Certain Beneficial Owners and Management" and "Certain
Transactions."
ENVIRONMENTAL MATTERS
The Company is subject to extensive laws and regulations pertaining to the
discharge of materials into the environment, the handling and disposal of solid
and hazardous wastes, and the remediation of contamination, and otherwise
relating to health, safety and protection of the environment ("Environmental
Laws"). As such, the Company's operations and the environmental condition of its
real property could give rise to liabilities under Environmental Laws, and there
can be no assurance that material costs will not be incurred in connection with
such liabilities. There are certain conditions at the Company's facilities which
will require environmental remediation. While the Company believes that any
costs relating to such remediation that are not covered by indemnification or
insurance will not be material, no assurance to such effect can be given.
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. Should Environmental Laws
become more stringent, the cost of compliance would increase. If the Company
cannot pass on future costs to its customers, such increases may have an adverse
effect on the Company's financial condition or results of operations. See
"Business -- Environmental Matters."
FRAUDULENT TRANSFER CONSIDERATIONS
The incurrence of indebtedness by a Guarantor under its Guaranty may be
subject to review under federal bankruptcy law or relevant state fraudulent
conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf of
unpaid creditors of such Guarantor. Under these laws, if in a bankruptcy or
reorganization case or a lawsuit by or on behalf of unpaid creditors of a
Guarantor, a court were to find that, at the time such Guarantor incurred
indebtedness under its Guaranty, (i) such Guarantor incurred such indebtedness
with the intent of hindering, delaying or defrauding current or future creditors
or (ii) (a) such Guarantor received less than reasonably equivalent value or
fair consideration for incurring such indebtedness and (b) such Guarantor (1)
was insolvent or was rendered insolvent by reason of such incurrence, (2) was
engaged, or about to engage, in a business or transaction for which its assets
constituted unreasonably small capital, (3) intended to incur, or believed that
it would incur, debts beyond its ability to pay such debts as they matured (as
all of the foregoing terms are defined in or interpreted under the relevant
fraudulent transfer or conveyance statutes) or (4) was a defendant in an action
for money damages, or had a judgment for money damages docketed against it (if,
in either case, after final judgment the judgment is unsatisfied), then such
court could avoid or subordinate the amounts owing under such Guaranty to
presently existing and future indebtedness of such Guarantor and take other
actions detrimental to the holders of the Exchange Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied in any
such proceeding. Generally, however, a Guarantor would be considered insolvent
if, at the time it incurred the indebtedness, either (i) the sum of its debts
(including contingent liabilities) is greater than its assets, at a fair
valuation, or (ii) the present fair saleable value of its assets is less than
the amount required to pay the probable liability on its total existing debts
and liabilities (including contingent liabilities) as they become absolute and
matured. There can be no assurance as to what standards a court would use to
determine whether a Guarantor was solvent at the relevant time, or whether,
whatever standard was used, a Guaranty would not be avoided or further
subordinated on the grounds set forth above. Counsel for the Company and counsel
for the Initial Purchasers will not express any opinion as to the applicability
of federal or state fraudulent transfer and conveyance laws.
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<PAGE> 22
The Company believes that at the time the indebtedness constituting the
Guaranties will be incurred, each Guarantor (i) will be (a) neither insolvent
nor rendered insolvent thereby, (b) in possession of sufficient capital to run
its businesses effectively and (c) incurring debts within its ability to pay as
the same mature or become due and (ii) will have sufficient assets to satisfy
any probable money judgment against it in any pending action. There can be no
assurance, however, that a court passing on such questions would reach the same
conclusions.
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange Offer,
there has not been any public market for the Old Notes. The Old Notes have not
been registered under the Securities Act and will be subject to restrictions on
transferability to the extent that they are not exchanged for Exchange Notes by
holders who are entitled to participate in this Exchange Offer. The market for
Old Notes not tendered for exchange in the Exchange Offer is likely to be more
limited than the existing market for such notes. The holders of Old Notes (other
than any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) who are not eligible to participate in the
Exchange Offer are entitled to certain registration rights, and the Company is
required to file a Shelf Registration Statement with respect to such Old Notes.
The Exchange Notes will constitute a new issue of securities with no established
trading market. The Company does not intend to list the Exchange Notes on any
national securities exchange or seek the admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System. The
Initial Purchaser has advised the Company that it currently intends to make a
market in the Exchange Notes, but it is not obligated to do so and may
discontinue such market making at any time. In addition, such market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer and the pendency of
the Shelf Registration Statement. Accordingly, no assurance can be given that an
active public or other market will develop for the Exchange Notes or as to the
liquidity of the trading market for the Exchange Notes. If a trading market does
not develop or is not maintained, holders of the Exchange Notes may experience
difficulty in reselling the Exchange Notes or may be unable to sell them at all.
If a market for the Exchange Notes develops, any such market may be discontinued
at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at a discount from their
principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal (or
Agent's Message) and all other required documents. Therefore, holders of the Old
Notes desiring to tender such Old Notes in exchange for Exchange Notes should
allow sufficient time to ensure timely delivery. The Company is under no duty to
give notification of defects or irregularities with respect to the tenders of
Old Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof and, upon
consummation of the Exchange Offer, certain registration rights under the
Registration Rights Agreement will terminate. In addition, any holder of Old
Notes who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may be deemed to have received restricted
securities, and if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Old Notes,
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<PAGE> 23
where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan Distribution." To the extent that Old Notes are tendered and accepted
in the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Notes could be adversely affected. See "The Exchange Offer."
LIMITED OPERATING HISTORY
The Company began operations in March, 1996 with the acquisition of SIA
Adhesives. In August, 1996, the Company acquired Pierce & Stevens. On August 5,
1997, the Company acquired the Division from Laporte. The Company's success will
depend on its ability to successfully integrate the acquired businesses and to
manage and maintain adequate controls over a significantly larger business.
Furthermore, period-to-period comparisons of financial results may not be
meaningful and the results of operations for historical periods may not be
indicative of future results. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
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<PAGE> 24
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights Agreement.
The Company will not receive any cash proceeds from the issuance of the Exchange
Notes offered hereby. In consideration for issuing the Exchange Notes
contemplated in this Prospectus, the Company will receive Old Notes in like
principal amount, the form and terms of which are the same as the forms and
terms of the Exchange Notes (which replace the Old Notes), except as otherwise
described herein. The Old Notes surrendered in exchange for Exchange Notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase or decrease in the indebtedness
of the Company. As such, no effect has been given to the Exchange Offer in the
pro forma statements or capitalization tables.
The gross proceeds of $125.0 million from the sale of the Old Notes in the
Initial Offering were used, together with the $33.8 million proceeds from the
Equity Contribution and the borrowing of $30.0 million under the Senior Credit
Facility, to pay the cash purchase price of the Acquisition, to consummate the
Refinancing and to pay related fees and expenses. See "Summary -- The
Transactions" and "Description of Senior Credit Facility."
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<PAGE> 25
SELECTED HISTORICAL FINANCIAL DATA
THE COMPANY
The selected information below presents the financial information of the
Company and its predecessor for the periods indicated. The data for the years
ended December 31, 1994 and 1995 and the three months ended March 31, 1996 are
derived from the audited financial statements of SIA Adhesives (the
"Predecessor"). The data for the period ended December 31, 1996 and the year
ended December 31, 1997 are derived from the audited financial statements of the
Company. The data for the year ended December 31, 1993 are derived from the
unaudited financial statements of the Predecessor. The following information
should only be read in conjunction with the audited consolidated financial
statements of the Company, and the notes thereto, and "Management's Discussion
and Analysis of Results of Operations and Financial Condition," all included
elsewhere herein.
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
-------------------------------------------- ----------------------------
PERIOD PERIOD YEAR
ENDED ENDED ENDED
YEAR ENDED DECEMBER 31, MARCH 31, DECEMBER 31, DECEMBER 31,
-------------------------------- --------- ------------ -------------
1993 1994 1995 1996 1996 1997
------- --------- ---------- --------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................... $18,823 $20,100 $21,129 $ 5,410 $37,792 $134,771
Cost of goods sold...................... 12,817 13,498 13,734 3,580 26,637 92,889
------- --------- ---------- --------- ------- --------
Gross profit............................ 6,006 6,602 7,395 1,830 11,155 41,882
Selling, general and administrative
expense............................... 6,702 6,362 5,633 1,603 9,613 30,131
------- --------- ---------- --------- ------- --------
Operating income (loss)................. (696) 240 1,762 227 1,542 11,751
Interest expense........................ -- -- -- -- 1,666 9,080
Other................................... -- -- -- -- -- 163
------- --------- ---------- --------- ------- --------
Income (loss) before income taxes and
extraordinary item.................... (696) 240 1,762 227 (124) 2,508
Income taxes(1)......................... (278) 96 705 91 (99) 1,315
------- --------- ---------- --------- ------- --------
Income (loss) before extraordinary
item.................................. (418) 144 1,057 136 (25) 1,193
Extraordinary item(2)................... -- -- -- -- 281 1,409
------- --------- ---------- --------- ------- --------
Net income (loss)....................... $ (418) $ 144 $ 1,057 $ 136 $ (306) $ 216
======= ========= ========== ========= ======= ========
BALANCE SHEET DATA
(END OF PERIOD):
Working capital (deficit)............... $(7,214) $(5,988) $ 1,786 $(5,019) $11,936 $ 30,211
Total assets............................ 10,024 10,281 9,394 9,612 69,960 242,759
Total indebtedness...................... -- -- -- -- 41,652 159,277
Stockholder's equity.................... 5,812 5,956 7,013 7,149 17,444 52,053
OTHER FINANCIAL DATA:
Capital expenditures.................... $ 770 $ 655 $ 106 $ 131 $ 688 $ 1,834
Ratio of earnings (loss) to fixed
charges(3)............................ (4) 21.0 to 1 113.5 to 1 41.1 to 1 (4) 1.3 to 1
</TABLE>
See Notes to Selected Historical Financial Data
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<PAGE> 26
NOTES TO SELECTED HISTORICAL FINANCIAL DATA
(1) Income of SIA Adhesives, a limited liability company, and the Parent
Partnership is taxed at the member or partner, as the case may be, level
and, as such, no income taxes are reflected prior to the Company's
reorganization on July 31, 1997. After the Transactions, the Company and SIA
Adhesives are subchapter C corporations and, as such, are subject to income
taxes. Accordingly, income taxes have been reflected for the year ended
December 31, 1997 for taxable earnings subsequent to the Transactions.
(2) Extraordinary item relates to the write-off of deferred financing costs
associated with the early extinguishment of debt.
(3) Ratio of earnings to fixed charges represents income before income taxes,
interest and other fixed charges divided by interest expense and other fixed
charges. Fixed charges consist of (i) interest, (ii) amortization of debt
issuance costs and (iii) the interest portion of rental expense.
(4) Earnings are inadequate to cover fixed charges for the year ended December
31, 1993 and for the period ended December 31, 1996 by $696 and $124,
respectively.
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<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company was formed by Robert B. Covalt and other investors to acquire
and consolidate specialty chemical businesses in the highly fragmented
adhesives, sealants and coatings industry business segment. The Company began
operations in March 1996 with the acquisition of SIA, a manufacturer of
specialty adhesives used primarily in the automotive, aerospace and general
industrial markets. In August 1996, the Company acquired Pierce & Stevens, a
developer and manufacturer of specialty coatings and adhesives for
performance-oriented niche applications. In August 1997, the Company acquired in
a single transaction the net assets of Laporte Construction Chemicals North
America, Inc., Evode-Tanner Industries, Inc., and Mercer Products Company, Inc.
(Division). These businesses manufacture, market and distribute adhesives and
sealants primarily utilized in housing repair, remodeling and construction and
industrial markets.
The Operating results of the Company for 1996 include the results of the
Company for the period from March 31, 1996 (date of inception) to December 31,
1996 and the results of the Company's predecessor (the Adhesives Systems
Division of The BFGoodrich Company) for the period from January 1, 1996 to March
31, 1996. The results of acquired businesses have been included for all periods
subsequent to their respective dates of acquisition.
HISTORICAL RESULTS OF OPERATIONS
HISTORICAL 1997 COMPARED TO HISTORICAL 1996
Net Sales. Net sales for 1997 were $134.8 million, an increase of $91.6
million, or 212.0%, over 1996. The increase is attributable primarily to the
full year impact of the acquisitions of SIA Adhesives and Pierce & Stevens in
1996 and the acquisition of the Division in 1997. Excluding the acquisitions,
net sales increased as a result of increased sales of aerospace adhesives
resulting from strong levels of commercial aircraft production. The increase in
net sales was partially offset by reduced sales of automotive pressure sensitive
adhesives.
Cost of Goods Sold. Cost of goods sold for 1997 was $92.9 million, an
increase of $62.7 million, or 207.4%, over 1996. As a percentage of net sales,
cost of goods sold decreased from 69.9% in 1996 to 68.9% in 1997, thus resulting
in an improvement in gross profit margin from 30.1% in 1996 to 31.1% in 1997.
The improved margin in 1997 was a result of an improvement in product mix with
increased sales of construction adhesives (as a result of the acquisition of the
Division) and aerospace adhesives.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $30.1 million in 1997, an increase of $19.0
million, or 172.0%, over 1996. Selling, general and administrative expenses
decreased to 22.3% of net sales for 1997 as compared to 25.6% for 1996. This was
a result of several factors, including (i) the acquisition of the Division in
August 1997 which has lower selling expenses than SIA Adhesives and Pierce &
Stevens due to increased average customer size, and the use of large
distributors rather than a direct sales force in construction adhesives and
sealants, (ii) lower corporate overhead charges as a percentage of rapidly
expanding net sales, (iii) elimination of certain non-recurring expenses in
connection with the formation of the Company and the development of compensation
and benefit programs and policies, and (iv) reduced insurance premiums related
to combining policies of the acquired businesses.
Interest Expense. Interest expense was $9.1 million in 1997, an increase of
$7.4 million, or 445.0%, over 1996. This related directly to the increased debt
incurred as a result of the acquisitions of the Pierce & Stevens in August, 1996
and the Division in August, 1997.
Minority Interest Expense. Minority interest expense was $.1 million in
1997, a decrease of $.1 million, or 50.0%, from 1996. This was due to the
purchase in July 1997 of the outstanding
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<PAGE> 28
minority interests in SEA Adhesives and Pierce & Stevens through the issuance of
additional equity in the Company.
Income Taxes. Prior to its restructuring on July 31, 1997, the consolidated
entity was composed of various types of entities including a limited partnership
and a limited liability company. Income tax liabilities for such entities are
generally "passed through" to their owners. Subsequent to the restructuring, the
Company and its subsidiaries will file a consolidated federal tax return. The
financial statements of operations for the period ended December 31, 1996 and
for the year ended December 31, 1997, include pro forma income taxes as if the
companies had been subject to income taxes for all periods presented.
Extraordinary Loss. The extraordinary loss, net of income tax benefit, on
the extinguishment of debt was $1.4 million in 1997, an increase of $1.1
million, or 401.4%, over 1996. These charges relate to the writeoff of deferred
financing costs and other fees related to the Transactions in August, 1997.
Net Income. As a result of the foregoing, the Company had a net loss of $.2
million in 1997 as compared to a net loss of $.2 million in 1996.
HISTORICAL 1996 COMPARED TO HISTORICAL 1995
Net Sales. Net sales for 1996 were $43.2 million, representing a $22.1
million, or 104.5%, increase over 1995. This increase was due to the acquisition
of Pierce & Stevens in August, 1996 which contributed $22.0 million in sales for
the period.
Cost of Goods Sold. Cost of goods sold for 1996 was $30.2 million,
representing a $16.5 million, or 120.0%, increase over 1995. This increase was
primarily due to the acquisition of Pierce & Stevens in August, 1996. As a
percentage of net sales, cost of goods sold increased to 69.9% in 1996 from
65.0% in 1995, primarily due to the addition of the generally lower gross margin
Pierce & Stevens products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 1996 were $11.2 million, representing a $5.6 million,
or 99.1%, increase over 1995. This increase was primarily attributable to the
acquisition of Pierce & Stevens in August, 1996. As a percentage of net sales,
selling, general and administrative expenses decreased to 26.0% in 1996 from
26.7% in 1995 as a result of the lower level of selling, general and
administrative expenses as a percentage of net sales at Pierce & Stevens.
Net Income. Net loss for 1996 was $.2 million, compared to net income of
$.7 million in 1995, representing a $.9 million decrease from 1995. As a
percentage of net sales, net loss decreased to (.3)% in 1996 from 5.0% in 1995.
This decrease was the result of the factors discussed above as well as increased
interest expense of $1.7 million and an extraordinary loss of $.3 million due to
the refinancing resulting from the acquisition of Pierce & Stevens in August,
1996.
INFLATION
The Company does not believe that inflation has had a material impact on
net sales or income during any of the periods presented above. There can be no
assurance, however, that the Company's business will not be affected by
inflation in the future.
YEAR 2000 COMPLIANCE BY THE COMPANY AND OTHERS
Year 2000 compliance concerns the ability of certain computerized
information systems to properly recognize date-sensitive information, such as
invoices for the Company's services, as the year 2000 approaches. Systems that
do not recognize such information could generate erroneous data or cause systems
to fail; this problem may occur as early as calendar year 1999. The Company is
at risk both for its own Year 2000 compliance and for the Year 2000 compliance
of those with
23
<PAGE> 29
whom it does business, primarily third party payors. The Company plans to
replace or upgrade its non-compliant systems with Year 2000 compliant software,
and does not believe the cost of such will have a material impact on the results
of operations. Moreover, there can be no assurance that the third party payors
upon whom the Company relies will not experience system difficulties as a result
of the Year 2000 problem, which difficulties could delay payment to the Company.
Any such difficulties or delays could have a material adverse effect on the
Company.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by financing activities totaled $135.2 million in 1997.
In 1997, the Parent Partnership contributed $33.8 million of capital, the
Company issued $125 million in Senior Subordinated notes, borrowed $30 million
under its Senior Credit Facility, and refinanced existing senior and
subordinated credit facilities totaling $41.4 million, all in connection with
the acquisition of the Division.
Net cash provided by operating activities was $6.4 million for the year
ended December 31, 1997.
Investing activities required $135.2 million for 1997. The primary use of
funds from investing activities for the Company has been investments in
businesses acquired. Cash invested in businesses acquired used $133.3 million in
1997, relating to the acquisition of the Division (See Note 4 to the Financial
Statements -- Business Combinations). Capital spending for 1997 totaled $1.8
million and related to general facility maintenance.
Interest payments on the Notes and under the Senior Credit Facility and
amortization of the Term Loan represent significant obligations of the Company.
The Notes require semiannual interest payments, interest on loans under the
Senior Credit Facility will be due quarterly and the Term Loan will require
quarterly amortization payments of $1.2 million commencing on September 30,
1998. The Company's remaining liquidity demands relate to capital expenditures
and working capital needs. For the year ended December 31, 1997, the Company
spent $1.8 million on capital projects. The Company anticipates capital
expenditures totaling $7.0 million in 1998, $3.0 million of which relates to
environmental expenditures for which the Company is indemnified pursuant to
acquisition agreements. Exclusive of the impact of any future acquisitions, the
Company does not expect its capital expenditure requirements to increase
materially in the foreseeable future.
The Company's primary sources of liquidity are cash flows from operations
and borrowings under the Senior Credit Facility. The Revolving Credit Facility
provides the Company with $30.0 million of borrowings, subject to availability
under the borrowing base. At December 31, 1997, the Company had availability of
$29.1 million under the Revolving Credit Facility with $0.9 million of letters
of credit outstanding. The Company believes that, based on current and
anticipated financial performance, cash flow from operations and borrowings
under the Revolving Credit Facility will be adequate to meet anticipated
requirements for capital expenditures, working capital and scheduled principal
and interest payments (including interest payments on the Notes and amounts
outstanding under the Senior Credit Facility). However, the Company's capital
requirements may change, particularly if the Company should complete any
additional material acquisitions.
On March 5, 1997, the Company signed a definitive agreement to sell its
Mercer subsidiary. The Company intends to use the net proceeds from the sale of
Mercer to repay the $30 million Term Loan. The repayment of the Term Loan will
trigger an additional $20 million revolving commitment (Supplemental Revolver)
which is subject to the terms set forth in the Credit Agreement (See Note 18 to
the Financial Statements -- Subsequent Event).
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<PAGE> 30
BUSINESS
COMPANY OVERVIEW
The Company is a leading developer, producer and distributor of a wide
variety of adhesives, sealants and coatings utilized in numerous industrial and
commercial applications. The Company's broad line of over 1,300 products is sold
to more than 6,000 customers. The Company's products are frequently designed in
cooperation with its customers to meet unique specifications, resulting in a
significant number of primary supplier relationships. Many of the Company's
products provide critical performance attributes to its customers' products but
represent only a small portion of total costs. The Company focuses on select
value-added niche markets in which it has strong market positions and advantages
in product development, manufacturing and distribution. The Company markets its
products for use by customers for the following applications: Housing Repair,
Remodeling and Construction; Industrial; Overprint Coatings; and Flexible
Packaging. On a pro forma basis for the year ended December 31, 1997, the
Company had net sales of $208.3 million.
COMPETITIVE STRENGTHS
The Company believes it benefits from the following competitive strengths,
which have enabled it to expand its penetration of existing customers and
markets, establish new customer relationships, enter new markets and develop
additional products and applications.
Leadership Positions in Selected Markets. The Company's customer-driven
product development, reputation for quality and high levels of customer service
have allowed it to achieve strong market positions and brand name recognition.
Management believes that over 50% of the Company's pro forma net sales in 1997
were for niche applications in which the Company has either the number one or
two position. The Company's brand and trade names are particularly well
recognized in its target markets, and include Pierce & Stevens, OSI, Pro-Series,
Polyseamseal, Miracure, Plastilock, Latiseal, Hybond, Proxseal, Magic Seal and
Glaze'N Seal.
Strong Customer Relationships. The Company's leadership position within
the markets it serves, reputation for high levels of quality and customer
service, and proven product development skills have allowed it to secure strong
relationships across its customer base. The Company's products are sold to and
utilized by some of the world's largest companies, including The Boeing Company,
Airbus Industrie, General Motors Corporation, Chrysler Corporation and Baxter
International, Inc. Many of the Company's Industrial, Overprint Coatings and
Flexible Packaging products have been certified through intensive,
customer-specific technical approval processes which greatly enhance the
Company's position with such customers. The Company's relationships with
retailers and professional distributors of its Housing Repair, Remodeling and
Construction products are strengthened by the Company's broad product line,
strong brands and reputation for quality.
Technological Expertise. The Company is a technological leader in the
manufacture and development of specialty adhesives, sealants and coatings within
the markets it serves. The Company's technological expertise has allowed it to
introduce a broad variety of new products over the past three years. The Company
possesses numerous customized and proprietary formulations with unique
performance characteristics designed to address specific customer needs.
Examples of the Company's proprietary formulations include ultraviolet cured
coatings for graphic arts and adhesives used in aerospace, construction and
medical packaging. The Company continually leverages its technological expertise
to develop new products and additional applications for existing product
formulations. In addition, the Company has enhanced its technological expertise
both through cooperative research and development efforts and joint
technological alliances with suppliers and customers such as E. I. du Pont de
Nemours and Company, The Boeing Company, The Dow Chemical Company, Hoechst AG,
General Motors Corporation, Baxter International, Inc., Phillip Morris
Corporation and BASF Corporation.
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<PAGE> 31
Broad Product Offerings and Diverse Customer Base. The Company
manufactures over 1,300 products sold through multiple distribution channels to
over 6,000 customers for a wide variety of applications. In 1997, no single
customer of the Company accounted for over 3% of the Company's pro forma net
sales, and the top ten customers accounted for less than 16% of the Company's
pro forma net sales. This diversity of customers, products and distribution
channels provides the Company with a broad base from which to grow sales and
expand customer relationships, and minimizes exposure to any particular
customer, economic cycle or geographic region.
Strong Management Team. The Company has assembled a strong and experienced
management team at both the corporate and operating levels. The Company's senior
and operating managers, led by Robert B. Covalt, have extensive experience in
the specialty chemicals industry. As of April 1, 1998, the top managers will
own, or have incentive awards to acquire approximately 20.0% of the Parent
Partnership's equity. In addition, the Parent Partnership has reserved 3.0% of
its equity on a fully diluted basis for future incentive awards.
BUSINESS STRATEGY
Continued Focus on Niche Products in Attractive Markets. The Company will
continue to develop product offerings for value-added end-use applications in
higher growth markets, including those for: (i) structural adhesives; (ii)
fire-retardant adhesives and coatings; (iii) food and medical packaging
adhesives and coatings; and (iv) coatings which facilitate recycling and other
environmentally-friendly adhesives, sealants and coatings. Management believes
the Company's market leadership positions, technological expertise, and strong
customer relationships provide it with advantages in the development of new
products and the penetration of new markets.
Pursue Strategic Acquisitions. The Company has successfully grown through
acquisitions and intends to pursue additional strategic acquisitions that will
allow it to further improve its market positions in targeted markets. Management
believes that the high degree of fragmentation in the adhesives, sealants and
coatings business segment will continue to provide suitable acquisition
candidates. Potential acquisition candidates will be evaluated based upon the
ability of the Company to: (i) expand its product line; (ii) enhance its product
development capabilities; (iii) market products through new or expanded
distribution channels; and (iv) increase its international presence.
Increase International Presence. The Company believes it has significant
opportunities in international markets to increase sales to existing
multinational customers, enter developing markets and establish new customer
relationships. In October 1996, the Company appointed a Vice
President -- International with over 30 years of international sales and
marketing experience in the adhesives, sealants and coatings industry. The
Company intends to expand its global sales, particularly in Southeast Asia and
Latin America, by: (i) increasing sales and marketing activities in targeted
regions; (ii) entering into strategic alliances; and (iii) pursuing targeted
acquisitions. The Company has recently established a sales office in Singapore
focused on flexible packaging adhesives and has increased its sales and
marketing activities in Latin America through its existing operations in Mexico.
Achieve Significant Operating Efficiencies. The Company believes that it
can achieve operating efficiencies resulting in enhanced revenue opportunities,
cost savings and improved cash flow through: (i) cross-selling its expanded
product line across the broader distribution and customer network which it will
develop from the Acquisition; (ii) consolidating raw material purchases to
increase purchasing economies of scale; (iii) reducing duplicative selling,
general and administrative expenses; (iv) consolidating various compensation,
benefit and insurance programs; (v) consolidating certain manufacturing and
distribution operations; and (vi) lowering working capital levels by optimizing
SKU counts and consolidating inventory management. The Company believes that
over approximately a twelve-month period, it may realize potential cost savings
from
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<PAGE> 32
these activities of approximately $4.0 million, although no assurance can be
given that such savings can be achieved.
INDUSTRY
The Company operates in one business segment; the production, manufacture
and distribution of adhesives, sealants and coatings. Total sales of this
business segment in the United States were approximately $26.4 billion in 1996.
Adhesives, sealants and coatings are used in a wide range of products with
applications in numerous industries, including: industrial, consumer,
construction, automotive, aerospace and packaging. Typical industrial
applications include corrosion resistant industrial coatings, general assembly
adhesives, fire-retardant textile coatings, coatings for electronic components
and numerous other diverse applications. Consumer applications include various
consumer-applied adhesives such as white glues, caulks and sealants,
architectural coatings and miscellaneous do-it-yourself sealing applications for
bathtub and kitchen fixtures. Automotive market applications include the use of
primers and top coats, body sealants, structural adhesives and interior and
exterior trim adhesives. Typical construction applications include
contractor-applied architectural coatings, joint sealants and flooring and
roofing adhesives. Packaging industry applications include carton, corrugated
box and flexible consumer packaging adhesives, seam sealers and container
coatings. Aerospace applications include commercial, military and general
aviation coatings, composite bonding adhesives and structural epoxies.
The U.S. adhesives, sealants and coatings industry is highly fragmented
with over 500 competitors, the significant majority of which the Company
believes are small, regional competitors. While smaller companies have
successfully competed in niche markets, the industry is expected to consolidate
as competitors seek to enhance operating efficiencies in new product
development, sales and marketing, distribution, production and administrative
overhead. Larger specialty competitors also benefit through a greater
diversification of end-use markets, customers, technologies and geography,
reducing the impact of industry or regional cyclicality.
The U.S. adhesives, sealants and coatings industry grew from approximately
$13.8 billion in 1986 to approximately $26.4 billion in 1996, representing a
compound annual growth rate of 6.7%. Continued future growth is expected to
result from the following factors:
New Markets and More Stringent Demands of End Users. Adhesives and
sealants are increasingly being used in new applications, particularly in the
transportation and construction sectors, as end users desire simpler design and
manufacture, lower costs, improved bonding, lower weight, and reduced vibration
and corrosion. For example, in the bonding of automotive window glass to steel
body panels, high-performance adhesives provide structural reinforcement to the
adjacent steel panels, thus providing additional integrity to the car body. In
highway construction, new, long-lasting sealants are replacing traditional
bitumen, a traditional sealant used between adjacent slabs of concrete, and
other materials that exhibit poor longevity.
New Materials. The growing use of nonferrous parts (e.g., aluminum and
plastics) in car bodies, appliances, buildings and other fabricated goods
requires the use of adhesives that are specially formulated to bond dissimilar
materials. On these substrates, traditional mechanical fasteners are frequently
not suitable.
Additional industry growth is expected to occur as a result of the
increased use of adhesives, sealants and coatings in international markets.
Total worldwide sales for adhesives, sealants and coatings were approximately
$75.2 billion in 1996. In 1996, the United States accounted for approximately
35% of worldwide sales, while Europe accounted for approximately 40% of
worldwide sales and Japan accounted for approximately 12% of worldwide sales.
Sales to the remainder of the world accounted for approximately 13% of total
industry sales. Developing markets are currently under-penetrated with respect
to the use of adhesives, sealants and coatings. Strong growth is expected in
these markets, particularly in the Far East, Eastern Europe and Latin America.
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<PAGE> 33
PRODUCTS AND MARKETS
The table below sets forth the Company's selected product applications to
customers in the following industries:
<TABLE>
<CAPTION>
INDUSTRY SELECTED PRODUCT APPLICATIONS
-------- -----------------------------
<S> <C>
Housing Repair, Remodeling and
Construction............................ Aluminum and vinyl siding sealants
Window and door sealants
Tub and tile sealants
Drywall and subflooring adhesives
Industrial................................ Power staple and nail gun cartridge adhesives
Fire-retardant textile adhesives and coatings
Automotive structural and trim adhesives
Aerospace structural adhesives
Commercial insulation adhesives
Overprint Coatings........................ High gloss scratch and abrasion resistant coatings used
on paperback book covers, decorative packaging, annual
reports, catalog covers and playing and trading cards
Flexible Packaging........................ Blister packaging adhesives and coatings
Food and product packaging adhesives and coatings
Food packaging laminating adhesives
</TABLE>
Housing Repair, Remodeling and Construction. The Company's Housing Repair,
Remodeling and Construction product offerings are primarily sealants and
adhesives used in exterior and interior applications. The Company's products in
this segment are marketed to defined niches in the do-it-yourself retail and
professional markets. Distribution channels include professional distributors,
traditional hardware stores and retail home center customers such as Loews
Corp., Builder's Square, Inc. and Home Depot, Inc. The Company offers a broad
range of well-established branded products including OSI and Polyseamseal for
retail do-it-yourself markets and Pro-Series for professional markets.
Industrial. The Company's Industrial product offerings consist primarily
of specialty adhesives and coatings for the automotive, aerospace, manufactured
housing and textile markets. Such products include: adhesives for power staple
and nail gun cartridges, adhesives for carpet backing manufacturers,
fire-retardant coatings for carpet and other textiles, automotive trim
adhesives, commercial structural adhesives and insulation adhesives. In
addition, the Company manufactures and markets Dualite, a lightweight inert
filler that can both reduce the weight and enhance the strength of products to
which it is added. The Company's Industrial customers include The Boeing
Company, Airbus Industrie, General Motors Corporation, Chrysler Corporation,
Senco Corporation, Stanley Works and Zenith Corporation.
Overprint Coatings. The Company produces a variety of high quality, high
gloss scratch and abrasion resistant coatings used on paperback book covers,
decorative packaging, annual reports, catalog covers, playing and trading cards
and other miscellaneous items. The Company is the leading manufacturer of
coatings for paperback book covers. Overprint Coatings customers include
printers, custom coaters and magazine manufacturers.
Flexible Packaging. The Company produces Flexible Packaging adhesives
including: (i) heat-activated lidding adhesives used to apply flexible paper or
foil lids to plastic tubs in the food industry, such as individually packaged
condiments, creamers and cream cheese tubs; (ii) foil or paper blister packaging
for products such as pharmaceuticals, batteries, toys, and tool accessories;
(iii) film-to-film adhesives used to bond different types of plastic film, such
as metalized and moisture barrier films used in snack food bags; and (iv)
medical packaging adhesives.
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<PAGE> 34
SALES AND MARKETING
Industrial, Flexible Packaging and Overprint Coatings. The Company
operates an extensive sales and marketing network for its Industrial, Flexible
Packaging and Overprint Coatings customers. This network consists of a direct
sales force of over 50 professionals, each of whom has over 15 years of industry
experience, as well as independent agents and distributors. The sales force
works closely with customers to satisfy existing product needs and to identify
new applications and product improvement opportunities. The Company's sales
efforts are complemented by its product development and technical support staff,
who work together with the sales force to develop new products based on customer
needs. The Company augments its direct sales and marketing coverage through a
network of over 30 distributors and independent agents who specialize in
particular markets. This market specialization allows the Company's products to
gain access to a broader range of distribution channels and end users and
further strengthens the Company's brand names.
The Company's sales and marketing efforts and customer relationships are
enhanced by the numerous customer-specific technical approvals the Company has
secured. These approvals typically involve significant customer time and effort
and result in a strong competitive position for qualified products. Once
qualified, products are often referenced in customer specifications or qualified
product lists. These qualification processes also reinforce the partnership
between the Company and its customers and can lead to additional sales and
marketing opportunities.
Housing Repair, Remodeling and Construction. The Company sells products to
customers in this industry through a network of distributors, as well as
directly to large national chains. This sales and marketing network allows the
Company to reach a variety of end users ranging from professional contractors to
do-it-yourself customers. The Company's brands are developed for specific end
users: Pro-Series, Magic Seal and Polyseamseal PRO for the professional
contractor and Polyseamseal, OSI, Bullet Bond, Nail Power and FI:X for retail
distribution to do-it-yourself end users. The Company differentiates itself
through strong technical service, specific product performance and color
availability in the professional market and consumer brand recognition, product
performance, store service and point of purchase packaging in the do-it-yourself
market. The Company services its customers in this segment through a network of
six sales managers, ten regional brand sales managers and 150 independent field
sales representatives.
RAW MATERIALS
The Company uses a variety of specialty and commodity chemicals in its
manufacturing processes. These raw materials are generally available from
numerous independent suppliers. The Company typically purchases raw materials on
a spot basis. Certain of the Company's raw materials are derived from ethylene
and its derivatives. There have been historical periods of rapid and significant
movements in the price of ethylene both upward and downward. The Company has
historically been successful in passing on price increases to its customers
within 90 to 120 days, but there can be no assurance that it will continue to be
able to do so in the future. See "Risk Factors -- Raw Materials."
TECHNOLOGY
The Company maintains a strong commitment to technology, focusing on
expanding applications for its existing products and developing new products and
processes, and employs over 100 chemists and chemical engineers. The Company's
research and development staff works together with the Company's sales force and
customers to identify specific customer needs and develop innovative, high
performance solutions which satisfy those needs. This method of product
development results in close ongoing working relationships between the Company
and its customers and allows the Company to better anticipate and service its
customers needs. The Company's research
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<PAGE> 35
and development staff also seeks to apply new products and applications
resulting from this process to other end use markets.
The Company's technological expertise has allowed it to develop proprietary
techniques and manufacturing expertise across a range of product applications,
including: (i) its patented proprietary process for manufacturing Dualite, a
filler which enables the customer to produce lighter and stronger products; (ii)
pre-formulated dispersions used as medical packaging adhesives, fiber setting
adhesives and food packaging coatings; (iii) advanced toughened epoxy technology
systems used as adhesives for metal-to-metal aircraft bonding; and (iv)
fire-resistant chemistry used in a number of industrial coatings and adhesives
for the textile, automotive and manufactured housing markets. The Company is
also engaged in technical alliances with both customers and suppliers to develop
new products, including alliances with E. I. du Pont de Nemours and Company, The
Boeing Company, The Dow Chemical Company, Hoechst AG, Phillip Morris
Corporation, Baxter International, Inc. and BASF Corporation, among others. The
Company's patents and custom formulations and qualifications, combined with its
strong technical service and partnership arrangements with many of its
customers, create substantial competitive advantages in many of its markets.
MANUFACTURING AND FACILITIES
The production of adhesives, sealants and coatings is a multi-stage process
which involves extensive formulation, mixing and in some cases, chemical
synthesis. Following one or more of these processes, the product is packaged in
totes, drums, pails, cartridges or other delivery forms for sale based upon the
customer's requirements. The Company's principal manufacturing processes are
blending, polymerization, extrusion and film coating. Blending consists of
dissolving or dispersing various compounds in organic solvents or water. In
polymerization, vinyl, acrylic and urethane polymers are synthesized in closed
reactor systems. Extrusion consists of feeding formulated materials through an
extruder to compound pressure sensitive and hot melt products. Film coating
consists of transferring blended formulations onto release paper or polyethylene
liners to produce thin films of pressure sensitive, hot melt and epoxy products.
Many of the Company's manufacturing processes can be performed at more than one
facility.
The Company operates the manufacturing plants and facilities described in
the table below. Management believes that the Company's plants and facilities
are maintained in good condition and are adequate for its present and estimated
future needs.
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<PAGE> 36
Listed below are the principal manufacturing facilities operated by the
Company:
<TABLE>
<CAPTION>
OWNED/ SQUARE
LOCATION LEASED(1) FOOTAGE APPLICATION SERVED
-------- --------- ------- ------------------
<S> <C> <C> <C>
Akron, Ohio....................... Owned 214,300 Industrial
Buffalo, New York................. Owned 165,000 Industrial, Overprint Coatings,
Flexible Packaging
Mentor, Ohio...................... Owned 160,000 Home Repair, Remodeling and
Construction
Greenville, South Carolina........ Leased(2) 104,500 Industrial
Eustis, Florida................... Owned 96,500 Other
Carol Stream, Illinois............ Owned 81,800 Industrial, Overprint Coatings,
Flexible Packaging
LaGrange, Georgia................. Owned 64,000 Home Repair, Remodeling and
Construction
Kimberton, Pennsylvania........... Owned 55,900 Industrial, Overprint Coatings,
Flexible Packaging
Mexico City, Mexico............... Leased(3) 24,400 Industrial, Overprint Coatings,
Flexible Packaging
</TABLE>
- ---------------
(1) All of the Company's owned facilities are subject to mortgages pursuant to
the Senior Credit Facility.
(2) Lease expires December 31, 2008.
(3) Lease expires December 31, 1999.
The Company's executive offices are located in Chicago, Illinois. The
Company also has sales offices in Fremont, California and Singapore.
COMPETITION
The adhesives, sealants and coatings business segment is highly
competitive. The segment is highly fragmented, with over 500 manufacturers
ranging from small regional companies to large multinational producers. No one
company holds a dominant position on a national basis and very few compete
across all levels of the Company's product line. The Company's competitors
include CIBA-GEIGY Corporation, National Starch and Chemical Company, Cytec
Industries Inc., Morton and DAP, Inc. Competition is generally regional and is
based on product quality, technical service for specialized customer
requirements, breadth of product line, brand name recognition and price.
EMPLOYEES
As of December 31, 1997, the Company had 675 employees, of whom 79 were
members of unions under contracts which expire between April 30, 1998 and
February 28, 1999. The Company believes that its relations with its employees
are good.
ENVIRONMENTAL MATTERS
The Company is subject to extensive laws and regulations pertaining to the
discharge of materials into the environment, the handling and disposal of solid
and hazardous wastes, the remediation of contamination, and otherwise relating
to health, safety and protection of the environment ("Environmental Laws"). As
such, the Company's operations and the environmental condition of its real
property could give rise to liabilities under Environmental Laws, and there can
be no assurance that material costs will not be incurred in connection with such
liabilities. Environmental Laws are constantly evolving and it is impossible to
predict accurately the effect they may have upon the capital expenditures, cash
flow or competitive position of the Company in the future. Should Environmental
Laws become more stringent, the cost of compliance would increase. If the
Company cannot pass on future costs to its customers, such increases may have an
adverse effect on the Company's financial condition or results of operations.
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<PAGE> 37
In connection with its acquisitions, the Company has performed substantial
due diligence to assess the environmental liabilities associated with the
acquired businesses and the Division, and has negotiated contractual
indemnifications, which, supplemented by commercial "pollution cleanup cap" and
"pollution legal liability" insurance coverage designed for each acquisition, is
currently expected to adequately address a substantial portion of known and
foreseeable environmental liabilities. The Company does not currently believe
that environmental liabilities will have a material adverse effect on the
financial condition or results of operations of the Company. No assurance can be
given, however, that indemnitors or insurers will in all cases meet their
obligations or that the discovery of presently unidentified environmental
conditions, or other unanticipated events, will not give rise to expenditures or
liabilities that may have such an effect.
Following the Acquisition of the Division, the Company became responsible
to the State of South Carolina for completing the investigation and remediation
of certain subsurface contamination resulting from historic operations under
prior ownership at the Greenville, South Carolina facility, which activities are
currently projected to cost approximately $3.0 to $6.0 million over the next
several years. The Company is indemnified by Laporte with respect to this matter
(as well as certain other known and unknown pre-closing environmental
liabilities), subject to an overall cap well in excess of the currently
estimated cost of cleanup. Laporte has agreed to conduct and finance the
investigation and remediation of this matter. Further, as part of the
Acquisition purchase price, the Parent Partnership has issued a $3.0 million
junior subordinated note payable in five years to Laporte, and such note may be
reduced as a result of payments by the Company to cover certain environmental
liabilities associated with the Division. In addition, the Company expects to
receive the benefit of rent reductions negotiated by Laporte with the owner and
lessor of the facility worth approximately $1.5 million.
In connection with the 1996 acquisition of Pierce & Stevens, the Company's
environmental due diligence detected conditions of subsurface contamination
primarily associated with storage tank farms and at certain other areas of the
Pierce & Stevens facilities. The Company plans to address most areas of
contamination in connection with its plan to replace the tank farms in 1998. The
Company currently estimates the total cost of remediation to be $1.3 million,
but this amount could be higher, depending upon the extent of contamination. In
connection with the acquisition, Sherwin-Williams Company agreed to indemnify
the Company with respect to this and other pre-closing liabilities, subject to a
$7.0 million overall cap, and, in addition to the overall cap, has placed $2.0
million in escrow to secure payment for this and certain other environmental
matters.
As is the case with manufacturers in general, if a release of hazardous
materials occurs at real property owned or operated by the Company or its
predecessors or at any off-site disposal location utilized by the Company or its
predecessors, the Company may be held strictly, jointly and severally liable for
cleanup costs and natural resource damages under the federal Comprehensive
Environmental Response, Compensation, and Liability Act ("Superfund") and
similar Environmental Laws. Pierce & Stevens and the Division have been named
potentially responsible parties under Superfund and/or similar Environmental
Laws for cleanup of approximately fifteen multi-party waste disposal sites, the
liability for several of which have been resolved, subject to standard reopeners
found in Superfund settlements. Due to what the Company currently believes is
the relatively minor contribution of Pierce & Stevens' and the Division's waste
to such sites, the Company does not currently believe that its liability with
respect to such sites will have a material adverse effect on the financial
condition or results of operations of the Company.
The Company expects to incur capital expenditures for environmental
controls in the years ahead and currently estimates that such expenditures will
amount to $3.0 million in 1998. The majority of these expenditures will pertain
to removing and replacing aboveground and underground storage tank systems at
several facilities to comply with upcoming deadlines contained in Environmental
Laws. The Company expects that it will be entitled to indemnification for
approximately 90% of these expenditures. See "Risk Factors -- Environmental
Matters."
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LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any of
the matters in which it is currently involved will have a material adverse
effect on its financial condition or results of operations.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to: (i)
each member of the Company's Board of Directors (the "Board"); (ii) each
executive officer of the Company; and (iii) certain key employees of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert B. Covalt............... 66 Chairman, President, Chief Executive Officer and Director
Lowell D. Johnson.............. 47 Vice President, Chief Financial Officer, Treasurer,
Secretary and Director
Martyn Howell-Jones............ 60 Vice President -- International
Richard W. Johnston............ 50 Vice President -- Technology
Stephen Zavodny................ 40 Director of Engineering
Paul Gavlinski................. 50 Vice President, Manufacturing
Karen K. Seeberg............... 45 Vice President, Human Resources
Louis M. Pace.................. 26 Director of Mergers & Acquisitions
Charles A. Aldag, Jr. ......... 65 Director
Carol E. Bramson............... 34 Director
Lawrence E. Fox................ 55 Director
Eric C. Larson................. 43 Director
Karl D. Loos................... 47 Director
Neal G. Reddeman............... 75 Director
Reeve B. Waud.................. 34 Director
</TABLE>
The following table sets forth certain information concerning the
Guarantors' directors and officers. Officers of the Guarantors serve at the
discretion of the respective board of directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert B. Covalt............... 66 Chairman and Director of Pierce & Stevens, SIA Adhesives,
OSI Sealants, Mercer and Tanner
Lowell D. Johnson.............. 47 Vice President, Finance, Chief Financial Officer,
Treasurer and Secretary of Pierce & Stevens, OSI
Sealants, Tanner, Mercer and SIA Adhesives
Michael Prude.................. 46 President and Chief Executive Officer of Pierce & Stevens
Richard W. Johnston............ 50 Executive Vice President of Pierce & Stevens
Paul Gavlinski................. 50 Vice President -- Operations of Pierce & Stevens
Gerard A. Loftus............... 43 President and Chief Executive Officer of SIA Adhesives
and Tanner
Peter Longo.................... 38 President and Chief Executive Officer of OSI Sealants
</TABLE>
Robert B. Covalt has served as Chairman, President and Chief Executive
Officer and as a director of the Company since its inception in 1995. Mr. Covalt
is a director of each of the Guarantors. From 1979 to 1990, Mr. Covalt served as
President of the Specialty Chemicals Group of Morton. During this period, Mr.
Covalt grew Morton's specialty chemicals group from $175.0 million to $1.3
billion in sales and he completed thirteen acquisitions ranging in size from
$3.0 million to $170.0 million. From 1990 to 1993, Mr. Covalt was Morton's
Corporate Executive Vice President. Prior to that time, Mr. Covalt served in
various capacities in Morton's Chemical Division which he
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<PAGE> 39
joined in 1957. Mr. Covalt serves on the board of directors of CFC
International, Inc., a specialty chemical coating manufacturer. Mr. Covalt has a
B.S. in Chemical Engineering and an honorary doctorate from Purdue University,
and an M.B.A. from the University of Chicago.
Lowell D. Johnson has served as Vice President and Chief Financial Officer,
Treasurer, Secretary and director of the Company since January 1998. Mr. Johnson
also serves as Vice President, Finance, Chief Financial Officer, Treasurer and
Secretary of Pierce & Stevens, OSI Sealants, Tanner, Mercer and SIA Adhesives.
Mr. Johnson served as Vice President, Finance and Chief Financial Officer of the
Isaac Group from March 1994 to January 1998. From October 1988 to March 1994,
Mr. Johnson served as Vice President, Finance and Chief Financial Officer for
Kerr Manufacturing Company. From March 1983 to October 1988, Mr. Johnson was
Senior Vice President and Chief Financial Officer of KMS Industries, Inc. From
March 1972 to March 1983, Mr. Johnson served in various financial and audit
management capacities with Touche Ross & Company, Northwest Industries, Inc. and
the BOC Group. A C.P.A., Mr. Johnson holds B.B.A. and M.B.A. degrees from
Eastern Michigan University.
Paul Gavlinski has served as Vice President, Manufacturing of the Company
since February, 1998 and Vice President, Operations of Pierce & Stevens since
September 1996. From 1995 to July 1996, Mr. Gavlinski served as President of
Catalyst Development, a management consulting firm. Prior to that time, Mr.
Gavlinski was Vice President -- Manufacturing of Emulsion Systems Inc., a
polymer manufacturing company. From 1969 to 1992, Mr. Gavlinski was employed by
Morton in various chemical manufacturing capacities. Mr. Gavlinski holds a B.S.
in Chemical Engineering from the University of Illinois.
Martyn Howell-Jones has served as Vice President -- International of the
Company since October 1996. Mr. Howell-Jones is responsible for the Company's
international sales and marketing efforts. Prior to joining the Company, Mr.
Howell-Jones was engaged as a consultant to National Starch and Chemical Company
from June 1994 to September 1996 where he assisted in the development of
National Starch and Chemical Company's international adhesives business. From
1966 to 1992, Mr. Howell-Jones was employed by Morton in its European specialty
chemicals business. Mr. Howell-Jones holds a B.S. degree from London University.
Richard W. Johnston has served as Vice President -- Technology of the
Company since March 1997 and as Executive Vice President of Pierce & Stevens
since 1995. From 1992 to 1995, Mr. Johnston served as Vice President --
Technology of Pierce & Stevens. Prior to that time, Mr. Johnston served as Vice
President of Pierce & Stevens' Canadian operations from 1988 to 1992. Mr.
Johnston joined Pierce & Stevens in 1966 and has served in several technical
capacities with expertise in coatings and adhesives technology. Mr. Johnston
holds a B.S., M.S. and M.E.S. in Chemistry from the University of Waterloo,
Canada.
Gerard A. Loftus has served as President of Tanner and SIA Adhesives since
February 1998 and President of SIA Adhesives since April 1996. From January 1995
to March 1996, Mr. Loftus served as General Manager of the Adhesive Systems
Division of The BFGoodrich Company ("ASD"), the predecessor of SIA Adhesives. In
1994, Mr. Loftus served as the division business manager of ASD with
responsibility for all sales, marketing and technical activities. From 1990 to
1994, Mr. Loftus was business manager of the aerospace products group of ASD.
Upon joining ASD in 1986, Mr. Loftus served in a variety of capacities including
materials manager and controller. Mr. Loftus, who is a C.P.A., holds a B.B.A. in
Accounting from Ohio University and a Masters of Accountancy from Cleveland
State University.
Peter Longo has been President and Chief Executive Officer of OSI Sealants
since 1991. From 1989 to 1991, Mr. Longo was Vice President of Operations of OSI
Sealants. Mr. Longo has been employed by OSI Sealants for more than 20 years and
has served in a variety of capacities including sales and marketing. Mr. Longo
attended Lakeland Community College.
Louis M. Pace has served as the Company's Director of Mergers &
Acquisitions since January, 1998. From August 1996 to March 1997 he served as
the Company's Director of Corporate
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<PAGE> 40
Development and Assistant Secretary. From 1995 to August 1996, Mr. Pace was an
associate with FCEC. Prior to that time, Mr. Pace was a member of First Chicago
Corporation's First Scholar management training program where he was engaged in
various financial capacities including emerging markets, interest rate
derivatives and analysis of equity capital investments. Mr. Pace holds a B.A. in
Economics from Harvard University and an M.B.A. from J.L. Kellogg Graduate
School of Management at Northwestern University.
Michael Prude has been President of Pierce & Stevens since February 1998.
From 1993 to 1997, Mr. Prude was President and Chief Operating Officer of
Evode-Tanner Industries Division of Laporte plc, the predecessor of Tanner. From
1991 to 1993, Mr. Prude was President of Tamms Industries -- Division of Laporte
plc. Mr. Prude holds a B.S. degree in Chemical Engineering from the University
of Wales, United Kingdom. From 1990 to 1991, Mr. Prude served as Vice President
of Tamms Industries -- Division of Laporte plc. From 1987 to 1990, Mr. Prude
served as Works Manager of Interox. From 1987 to 1987, Mr. Prude served as
Operations Director of Chemical Specialties, Inc., a division of Laporte plc.
From 1977 to 1984, Mr. Prude was employed by Interox Chemicals, a company owned
jointly by Laport plc. and Solvay.
Karen K. Seeberg has been Vice President, Human Resources of the Company
since February, 1998. From January 1997 to February 1998, Ms. Seeberg was
Director, Human Resources for Pierce & Stevens. From September 1992 to January
1997, Ms. Seeberg was Human Resources Manager for the Information System
Division of Avery Dennison. From August 1982 to August 1992, Ms. Seeberg held
human resource management positions with Federated Department Stores, Iroquois
Industries, Inc. and British Petroleum. Ms. Seeberg holds a B.A. degree from
State University of New York.
Stephen Zavodny has served as Director of Engineering for the Company since
February 1997. Mr. Zavodny is in charge of all capital projects and improvements
for the Company's manufacturing operations. From 1996 to January 1997, Mr.
Zavodny served as a project manager and product line manager for Raytheon. Prior
to that time, Mr. Zavodny served as Director of Engineering at Morton from 1991
to 1996. From 1981 to 1991, Mr. Zavodny served in various engineering capacities
with Morton. Mr. Zavodny holds a B.S. degree in Chemical Engineering from the
University of Illinois.
Charles A. Aldag, Jr. has been a director of the Company since August 1996.
Mr. Aldag is retired but serves as a special advisor to the Chemical
Manufacturer's Association where he has been active in developing environmental,
health and safety management practices and systems. Prior to his retirement, Mr.
Aldag served from 1987 to 1991 as Vice Chairman of Sherex Chemical Co., a
subsidiary of Schering AG of Germany, which was a producer of oleochemical
products and specialty surfactants. Mr. Aldag joined Ashland Chemical, Sherex
Chemical's predecessor, in 1968 and served in various capacities including
President and Chief Executive Officer of Sherex Chemical from 1979 to 1987. Mr.
Aldag holds a B.S. in Chemistry from Purdue University and an M.B.A. from the
University of Indiana.
Carol E. Bramson has been a director of the Company since March 1996 and is
Chairman of its Compensation Committee. Ms. Bramson is a director of each of the
Guarantors. Ms. Bramson has been a partner of FCEC since 1995. From 1992 to
1995, Ms. Bramson was an associate with FCEC. From 1989 to 1992, Ms. Bramson was
employed by Household International Inc. in its leveraged finance group. Prior
to that time, Ms. Bramson was engaged as an associate with Essex Venture
Partners, a Chicago-based venture capital firm. Ms. Bramson also serves on the
board of directors of Seco Products Corporation. Ms. Bramson holds a B.S. in
Finance from DePaul University and an M.B.A. from the University of Chicago.
Lawrence E. Fox has been a director of the Company since June 1997. Mr. Fox
has been a senior vice-president of FCEC since 1979 and currently heads the
equity unit of the Capital Investments Department. Mr. Fox has previously been
responsible for FCEC's leveraged debt funding and mezzanine investments. Mr. Fox
is a director of Lafayette Pharmaceuticals Inc. and
35
<PAGE> 41
Alpha Technologies Group, Inc. Mr. Fox received his undergraduate degree from
the University of Wisconsin and an M.B.A. from the University of Chicago.
Eric C. Larson has been a director of the Company since March 1996 and
serves as Chairman of its Audit Committee. Mr. Larson is a director of each of
the Guarantors. Mr. Larson has been a partner of FCEC since 1991. Since joining
FCEC in 1984, Mr. Larson has held a variety of principal investment and advisory
responsibilities in structuring middle market leveraged buyouts and
recapitalization transactions in a broad array of industries. Mr. Larson serves
on the board of directors of M-Wave, Inc., a manufacturer of specialty
components for the wireless communications industry as well as several private
companies. Mr. Larson holds a B.A. degree from Harvard University, a Masters in
Architecture from the University of Michigan and an M.B.A. from the University
of Chicago.
Karl D. Loos has been a director of the Company since August 1996. Mr. Loos
founded Garnett Consulting in 1996. From 1977 to 1996, Mr. Loos was employed at
Arthur D. Little & Co. in Boston, Massachusetts, most recently as Vice President
and Managing Director of Process Industries Consulting and Director of the
Strategic Planning practice. Mr. Loos received his undergraduate degree from
Dartmouth College and an M.B.A. from Harvard Business School.
Neal G. Reddeman has been a director of the Company since August 1996 and
has been engaged as a consultant to the Company. Mr. Reddeman who is retired,
has more than 40 years experience in the specialty packaging, coatings and
adhesives industry. From 1965 to 1991, Mr. Reddeman was employed in the
specialty chemicals group of Morton, most recently as Executive Vice President
of Adhesives and Coatings. Prior to joining Morton, Mr. Reddeman was Vice
President of Manufacturing at General Packaging Inc. in Rochester, New York and
was manager of product development at Milprint Inc. in Milwaukee, Wisconsin. Mr.
Reddeman holds a B.S. in Chemical Engineering from the University of Wisconsin.
Reeve B. Waud has been a director of the Company since March 1996. Mr. Waud
is a director of each of the Guarantors. Mr. Waud has served as a principal of
Waud Capital Partners, L.L.C., Waud Capital Partners -- I, L.P. and Waud Capital
Partners -- II, L.P., a Chicago-based group of equity investment firms, since
November 1993. From 1987 to 1993, Mr. Waud was an Associate with Golder, Thoma &
Cressey, a middle market venture capital group. Prior to that time, Mr. Waud was
an analyst with Salomon Brothers Inc in the corporate finance group. Mr. Waud
serves as Chairman of the board of directors of Christiana Industries, L.L.C.
and Whitehall Products, L.L.C. and serves on the board of directors of
Northwestern Memorial Management Corporation, Mr. Waud holds a B.A. from
Middlebury College and an M.B.A. from the J.L. Kellogg Graduate School of
Management at Northwestern University.
EXECUTIVE COMPENSATION
Executive compensation is determined by the compensation committee of the
Company's Board of Directors (the "Compensation Committee"). The Compensation
Committee is composed of Mr. Aldag, Ms. Bramson, Mr. Loos and Mr. Waud. Mr.
Aldag, Mr. Loos and Mr. Reddeman each receive $1,000 per meeting as compensation
for their services as directors. None of the other directors receive
compensation for their services as directors. The following Summary Compensation
Table includes individual compensation information for the Chief Executive
Officer and each of the four other most highly compensated executive officers of
the Company in the years ended
36
<PAGE> 42
December 31, 1997 and 1996 for services rendered in all capacities to the
Company and its subsidiaries during the year ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------ ALL OTHER
FISCAL COMPENSATION
YEAR SALARY($) BONUS($) ($)(1)
------ --------- -------- ------------
<S> <C> <C> <C> <C>
Robert B. Covalt.............................. 1997 $250,000 $140,158 $17,512
Chairman, President and Chief Executive 1996(2) 146,033 139,315 2,417
Officer
William T. Schram............................. 1997 140,000 26,994 6,081
Vice President, Chief Financial Officer and 1996(2) 88,533 44,887 2,750
Secretary
John H. Edholm................................ 1997 153,333 -- 7,292
President of Pierce & Stevens 1996(3) 63,422 7,875 1,618
Gerard A. Loftus.............................. 1997 128,023 41,863 3,763
President of SIA Adhesives 1996(2) 81,450 5,000 1,438
Richard W. Johnston........................... 1997 146,667 24,961 7,156
Vice President -- Technology 1996(3) 63,904 7,875 1,632
</TABLE>
- -------------------------
(1) Represents matching contributions under 401(k) plans. Robert B. Covalt's
1997 compensation includes $14,312 tax gross-up for shares of the General
Partner purchased in 1997.
(2) Represents compensation from April 1, 1996 to December 31, 1996
(3) Represents compensation from August 19, 1996 to December 31, 1996
MANAGEMENT INCENTIVE PLANS AND EMPLOYMENT AGREEMENTS
The Company's Board of Directors believes that equity- and
performance-based plans and programs should constitute a major portion of
management's compensation so as to provide significant incentives to achieve
corporate goals. The Company, in conjunction with the Parent Partnership, has
instituted four plans and programs for this purpose.
Stock Incentive Pool. The Parent Partnership adopted its Stock Incentive
Pool in April 1996 in order to provide incentives to employees and directors
(including nonemployee directors), the Company and its subsidiaries, by granting
them ownership awards in the form of Parent Partnership units and common stock
of its general partner. The Stock Incentive Pool awards are allocated by the
Compensation Committee of the Board of Directors of the Company. An award
granted from the Stock Incentive Pool is subject to five year time and
performance vesting. Accelerated vesting may be granted in accordance with
defined qualifying events. To date, Stock Incentive Pool units and shares
representing approximately 13.2% of the indirect ownership of the Company's
equity have been awarded by the Compensation Committee of the Board to nine
select officers, directors and employees of the Company.
1997 Long-Term Incentive Plan. The Parent Partnership adopted its 1997
Long-Term Incentive Plan in May 1997 in order to provide long-term incentive
awards to all salaried employees (excluding executives who participate directly
in the Stock Incentive Pool). Participants are granted a "participation share"
in the incentive award pool which consists of a portion of equity reserved for
the program. At the time of a qualified transaction, determined and defined by
the Board of Directors, the value of the pool is allocated to participants based
upon their "participation share". Payment may be in the form of stock options,
stock, cash, or a combination of these elements, as determined by the Board of
Directors. "Participation shares" are not vested until earned and paid out. If a
participant leaves the Company before a qualified transaction has occurred,
their "participation share" is forfeited. If an individual joins the Company
during the plan cycle, they may be permitted to participate in the program, at
the discretion of the Chief Executive Officer and Board
37
<PAGE> 43
of Directors. The Compensation Committee of the Board of Directors will
administer the plan and have the authority and responsibility to approve award
levels and make any changes in plan concept and design. As of May 31, 1997, the
Long-Term Incentive Plan was funded with an allocation of units and shares
representing indirect ownership of approximately 1.0% in the Company's equity.
1997 Management Incentive Plan. The Company adopted its 1997 Management
Incentive Plan in May 1997 in order to provide incentives to eleven selected
members of management and corporate staff judged to have the greatest impact on
the year's results. Each participant will be eligible for cash bonus awards
based on the Company's financial performance and on individual role-specific
goals. Participants in this program have been assigned a percentage of their
base salary as their bonus target for the 1997 fiscal year. Awards may be higher
or lower than the target bonus as the Company and/or individual performance is
above or below the level expected to achieve the target bonus. Total potential
bonus as a percent of salary will be in the range of 30%-120% of base salary
dependent upon position. However, no bonuses will be earned by the senior
executives named in the Summary Compensation Table unless a target cashflow
threshold is attained and no bonus will be awarded to any participating employee
unless the Company's financial performance goals reach a 90% attainment level.
1997 Incentive Bonus Program. The Company adopted its 1997 Incentive Bonus
Program in May 1997 in order to provide incentives to all salaried employees
(excluding any participant in the 1997 Management Bonus Program, sales incentive
eligible employees and union employees). Each participant will be eligible for
bonus awards based on the Company's financial performance, measured in terms of
financial performance goals, and on individual role-specific goals. Participants
in this program have been assigned a percentage of their base salary as their
bonus target for 1997. Awards may be higher or lower than the target bonus as
the Company and/or individual performance is above or below the level expected
to achieve the target bonus. Total potential bonus will be in the range of 7.5%
to 34% of base salary dependent upon position and salary band. Participants'
eligibility for the financial performance aspects of target bonus is contingent
upon the Company's realization of 90% of its target budget for the period. Upon
achievement of 90% of both target financial performance goals, participants earn
50% of the target bonus opportunity. For performance achievement between 90% and
100% of target for financial performance goals, the bonus awarded will increase
from 50% to 100% of the target award level. For performance achievement above
100% of target financial performance goals, the bonus award will increase
subject to a formula dependent upon position and salary band.
In addition to the cash bonus program described above, the Company has
established a multi-tiered recognition program which provides cash and non-cash
recognition awards to employees. Service awards are in place to recognize
employees for loyalty and sustained contribution as demonstrated by length of
service. Contribution awards are provided to recognize a broad range of
employees for individual and team contributions of clear value to the
organization.
The Company also has employment agreements with Mr. Covalt, Mr. Johnson,
Mr. Prude, Mr. Loftus and Mr. Johnston, which provide for such executives to
serve in their current capacities. The agreement with Mr. Covalt currently
provides for a salary of at least $250,000. The remainder of these agreements
provide for salaries of at least the following amounts: Mr. Johnson, $170,000;
Mr. Prude, $150,000; Mr. Loftus, $130,000; and Mr. Johnston, $145,000. The
agreements with Mr. Covalt and Mr. Loftus expire on March 31, 1999 and the
agreement with Mr. Johnston expires on August 19, 1999. The agreement with Mr.
Johnson expires January 5, 2001. The agreement with Mr. Prude expires February
16, 2001. All of these agreements also contain noncompetition provisions which
extend up to two years after the end of such executives' employment with the
Company.
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<PAGE> 44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a wholly-owned subsidiary of the Parent Partnership. The
following table sets forth certain information regarding the beneficial
ownership of the common stock of the general partner of the Parent Partnership,
by each person who beneficially owns more than five percent of such common stock
and by the directors and certain executive officers of the Company,
individually, and as a group.
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
OF SHARES OF SHARES
--------- ----------
<S> <C> <C>
FIVE PERCENT SECURITY HOLDERS
First Chicago Equity Corporation(1)......................... 598.6 34.5%
Three First National Plaza, Mail Suite 1210, Chicago,
Illinois 60670
Waud Capital Partners - I, L.P.(2).......................... 148.6 8.6%
560 Oakwood Avenue, Suite 203, Lake Forest, Illinois 60045
Waud Capital Partners - II, L.P.(2)......................... 137.2 7.9%
560 Oakwood Avenue, Suite 203, Lake Forest, Illinois 60645
Chase Venture Capital Associates, L.P. ..................... 161.5 9.3%
380 Madison Avenue, 12th Floor, New York, New York 10017
Bank of America Investments................................. 121.9 7.0%
231 South LaSalle Street, Chicago, Illinois 60697
Cross Creek Partners(3)..................................... 106.4 6.1%
Three First National Plaza, Mail Suite 1210, Chicago,
Illinois 60670
OFFICERS AND DIRECTORS
Robert B. Covalt............................................ 242.9 14.0%
Lowell D. Johnson........................................... 20.4 1.2%
Martyn Howell-Jones......................................... 8.8 *
Gerard A. Loftus............................................ 6.5 *
Richard W. Johnston......................................... 8.5 *
Charles A. Aldag............................................ 3.4 *
Carol E. Bramson(1)(3)...................................... 705.0 40.6%
Lawrence F. Fox(1)(3)....................................... 705.0 40.6%
Eric C. Larson(1)(3)........................................ 705.0 40.6%
Karl D. Loos................................................ 3.4 *
Neal G. Reddeman............................................ 3.4 *
Reeve B. Waud(2)............................................ 312.0 18.0%
*All executive officers and directors as a group............ 1,314.3 75.8%
</TABLE>
- -------------------------
* Represents less than 1%.
(1) Carol E. Bramson, Lawrence E. Fox and Eric C. Larson are partners of First
Chicago Equity Corporation. Accordingly Ms. Bramson, Mr. Fox and Mr. Larson
may be deemed to be the beneficial owner of these securities to Ms. Bramson,
Mr. Fox and Mr. Larson disclaim beneficial ownership of these securities.
(2) Reeve B. Waud is affiliated with Waud Capital Partners -- I, L.P., Waud
Capital Partners -- II, L.P., Waud Capital Partners, L.L.C. and Waud Family
Partners, L.P. Accordingly Mr. Waud may be deemed to be the beneficial owner
of these securities. Mr. Waud disclaims beneficial ownership of these
securities.
(3) Carol E. Bramson, Lawrence E. Fox and Eric C. Larson are partners of Cross
Creek Partners. Accordingly, Ms. Bramson, Mr. Fox and Mr. Larson may be
deemed to be the beneficial owner of these securities. Ms. Bramson, Mr. Fox
and Mr. Larson disclaim beneficial ownership of these securities.
39
<PAGE> 45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the acquisition of SIA Adhesives in March 1996, Mr.
Loftus invested $110,000 to purchase membership interests of SIA Adhesives, and
in connection with the acquisition of Pierce & Stevens in August 1996, Mr.
Johnston invested $125,000, to purchase common stock of Pierce & Stevens.
In connection with the formation of Sovereign Specialty Chemicals, Inc. on
July 31, 1997 and the reorganization of the Company, the Parent Partnership
exchanged partnership units, with a fair value of approximately $1.5 million,
for ownership interests in SIA Adhesives and Pierce & Stevens held by Mssrs.
Loftus, Edholm, Johnston, Zavodny, Gavlinski and Bashford.
The Chase Manhattan Bank is the administrative agent under the Senior
Credit Facility. Chase Securities Inc. acted as arranger for the Senior Credit
Facility. The Chase Manhattan Bank and Chase Securities Inc. are affiliates of
Chase Venture Capital Associates, L.P.
40
<PAGE> 46
DESCRIPTION OF SENIOR CREDIT FACILITY
On the closing date of the Transactions, the Company entered into the
Senior Credit Facility with the several lenders from time to time parties
thereto (collectively, the "Lenders"), and The Chase Manhattan Bank, as
administrative agent (the "Agent"). Chase Securities Inc. is acting as advisor
and arranger for the Senior Credit Facility. The following is a summary
description of the principal terms of the Senior Credit Facility. The
description set forth below does not purport to be complete and is qualified in
its entirety by reference to the agreements setting forth the principal terms
and conditions of the Senior Credit Facility, which are available upon request
from the Company.
Structure. The Senior Credit Facility consists of (a) a Term Loan in an
aggregate principal amount of $30.0 million and (b) a Revolving Credit Facility
providing for revolving loans to the Company and up to $10.0 million for letters
of credit in an aggregate principal amount at any time not to exceed the lesser
of (i) $30.0 million and (ii) the Company's borrowing base described below.
The entire amount of the Term Loan was borrowed under the Senior Credit
Facility on the closing date of the Transactions. No amounts under the Revolving
Credit Facility were borrowed at the closing date of the Transactions.
Thereafter, the Revolving Credit Facility may be utilized to fund the Company's
working capital requirements, including issuance of stand-by and trade letters
of credit, to fund acquisitions (subject to compliance with certain covenants)
and for other general corporate purposes.
The borrowing base under the Revolving Credit Facility is the sum of up to
85% of the Company's eligible domestic accounts receivable, up to 75% of
eligible foreign accounts receivable and up to 50% of the Company's eligible
inventory. Eligible accounts receivable include substantially all the Company's
accounts receivable after deducting accounts outstanding for more than 120 days
after the invoice date, certain foreign accounts, and accounts of certain other
obligors. Eligible inventory does not include obsolete inventory and certain
other items. At March 31, 1997, on a pro forma basis after giving effect to the
Transactions, the Company's borrowing base would have been approximately $30.0
million.
Availability. The availability of the Revolving Credit Facility is subject
to certain conditions. The Revolving Credit Facility and letters of credit will
be available at any time during the seven-year term of the Senior Credit
Facility subject to the fulfillment of customary conditions precedent including
the absence of a default under the Senior Credit Facility and compliance with
the borrowing base limitation described above.
Security; Guaranty. The Company's obligations under the Senior Credit
Facility are guaranteed by each existing and subsequently acquired or organized
subsidiary of the Company, subject to certain exceptions. The Senior Credit
Facility and the guarantees thereof are secured by a perfected first priority
security interest in all substantial tangible and intangible assets and proceeds
of the foregoing of the Company and the guarantors subject to certain permitted
liens.
Interest; Maturity. Borrowings under the Senior Credit Facility bear
interest, payable quarterly, at a rate per annum equal (at the Company's option)
to: (i) the Agent's Eurodollar rate plus an applicable margin or (ii) an
alternate base rate (equal to the highest of the Agent's prime rate, a
certificate of deposit rate plus 1%, or the Federal Funds effective rate plus
1/2 of 1%) plus an applicable margin. The initial applicable margin is 2.5% per
annum for Eurodollar rate loans and 1.25% per annum for alternate base rate
loans. The applicable margins may reduce depending upon the Company's leverage
ratio. The Term Loan amortizes quarterly commencing in September 1998 and will
mature on the seventh anniversary of the closing of the Transactions.
Fees. The Company is required to pay the Lenders, on a quarterly basis, a
commitment fee equal to 1/2 of 1% per annum (which may be reduced based on the
Company's leverage ratio) on the undrawn portion of the Revolving Credit
Facility. The Company is also obligated to pay: (i) a per annum letter of credit
fee equal to the applicable margin for Eurodollar rate loans on the aggregate
41
<PAGE> 47
amount of outstanding letters of credit; (ii) a fronting bank fee for the letter
of credit issuing bank equal to 1/4 of 1% per annum; and (iii) agent,
arrangement and other similar fees.
Covenants. The Senior Credit Facility contains a number of covenants that,
among other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, prepay other indebtedness
(including the Notes) or amend certain debt instruments (including the
Indenture), pay dividends, create liens on assets, enter into sale and leaseback
transactions, make investments, loans or advances, make acquisitions, engage in
mergers or consolidations, change the business conducted by the Company or its
subsidiaries, make capital expenditures or engage in certain transactions with
affiliates and otherwise restrict certain corporate activities. In addition, the
Senior Credit Facility requires that the Company comply with specified ratios
and tests, including a minimum interest coverage ratio, a maximum leverage ratio
and a minimum net worth test.
Events of Default. The Senior Credit Facility contains customary events of
default, including non-payment of principal, interest or fees, material
inaccuracy of representations and warranties, violation of covenants,
cross-default and cross-acceleration to certain other indebtedness, certain
events of bankruptcy and insolvency, certain events under the Employee
Retirement Income Security Act of 1974, as amended, material judgments, actual
or asserted invalidity of any guarantee or security interest and a change of
control in certain circumstances as set forth therein.
42
<PAGE> 48
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes offered hereby will be issued as a separate series under
the Indenture (the "Indenture") dated as of August 1, 1997 among the Company,
the Guarantors and The Bank of New York, as trustee (the "Trustee"). The form
and terms of the Exchange Notes are the same as the form and terms of the Old
Notes (which they replace) except that (i) the Exchange Notes bear a Series B
designation, (ii) the Exchange Notes have been registered under the Securities
Act and, therefore, will not bear legends restricting the transfer thereof, and
(iii) the holders of Exchange Notes will not be entitled to certain rights under
the Registration Rights Agreement, including the provisions providing for an
increase in the interest rate on the Old Notes in certain circumstances relating
to the timing of the Exchange Offer, which rights will terminate when the
Exchange Offer is consummated. The Old Notes issued in the Initial Offering and
the Exchange Notes offered hereby are referred to collectively as the "Notes."
The following summary of certain provisions of the Indenture and the
Registration Rights Agreement does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), and to all of the provisions of
the Indenture and the Registration Rights Agreement, including the definitions
of certain terms therein and those terms made a part of the Indenture by
reference to the Trust Indenture Act, as in effect on the date of the Indenture.
The definitions of certain capitalized terms used in the following summary are
set forth below under "Certain Definitions." References in this "Description of
the Exchange Notes" section to "the Company" mean only Sovereign Specialty
Chemicals, Inc. and not any of its Subsidiaries.
GENERAL
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The Company will
appoint the Trustee to serve as registrar and paying agent under the Indenture
at its offices at 101 Barclay Street, New York, NY 10286. No service charge will
be made for any registration of transfer or exchange of the Notes, except for
any tax or other governmental charge that may be imposed in connection
therewith. Any Old Notes that remain outstanding after completion of the
Exchange Offer, together with the Exchange Notes issued in connection with the
Exchange Offer, will be treated as a single class of securities under the
Indenture.
RANKING
The Notes will rank junior to, and be subordinated in right of payment to,
all existing and future Senior Indebtedness of the Company, pari passu in right
of payment with all senior subordinated Indebtedness of the Company and senior
in right of payment to all Subordinated Indebtedness of the Company. At December
31, 1997, the Company had $33.8 million of Senior Indebtedness and/or Guarantor
Senior Indebtedness outstanding. All debt incurred under the Senior Credit
Facility constitutes Senior Indebtedness of the Company, is guarantied by each
of the Guarantors on a senior basis and is secured by substantially all of the
assets of the Company and the Guarantors.
MATURITY, INTEREST AND PRINCIPAL OF THE NOTES
The Notes will be limited to $125.0 million aggregate principal amount and
will mature on August 1, 2007. Cash interest on the Notes accrues at a rate of
9 1/2% per annum and will be payable semi-annually in arrears on each February 1
and August 1, commencing February 1, 1998, to the holders of record of Notes at
the close of business on January 15 and July 15, respectively, immediately
preceding such interest payment date. Cash interest accrues from the most recent
interest payment date to which interest has been paid or, if no interest has
been paid, from August 5, 1997. Interest is computed on the basis of a 360-day
year of twelve 30-day months.
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<PAGE> 49
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after August 1, 2002, at the redemption prices
(expressed as a percentage of principal amount) set forth below, plus accrued
and unpaid interest thereon, if any, to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date), if redeemed during the twelve-month
period beginning on August 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002.................................................... 104.750%
2003.................................................... 103.167%
2004.................................................... 101.584%
2005 and thereafter..................................... 100.000%
</TABLE>
In addition, at any time and from time to time on or prior to August 1,
2000, the Company may redeem in the aggregate up to $40.0 million aggregate
principal amount of the Notes with the net cash proceeds of one or more Public
Equity Offerings by the Company after which there is a Public Market, at a
redemption price in cash equal to 109.50% of the principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the date of redemption (subject
to the right of Holders of record on the relevant record date to receive
interest due on the relevant interest payment date); provided, however, that at
least $85.0 million aggregate principal amount of the Notes must remain
outstanding immediately after giving effect to each such redemption (excluding
any Notes held by the Company or any of its Affiliates). Notice of any such
redemption must be given within 60 days after the date of the closing of the
relevant Public Equity Offering of the Company.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of such Notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided, however, that no Notes of a principal amount of $1,000 or less shall
be redeemed in part; provided, further, however, that if a partial redemption is
made with the net cash proceeds of a Public Equity Offering by the Company,
selection of the Notes or portions thereof for redemption shall be made by the
Trustee only on a pro rata basis or on as nearly a pro rata basis as is
practicable (subject to the procedures of The Depository Trust Company), unless
such method is otherwise prohibited. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as the Company
has deposited with the paying agent for the Notes funds in satisfaction of the
applicable redemption price pursuant to the Indenture.
SUBORDINATION OF THE NOTES
The payment of the principal of, premium, if any, and interest on the Notes
is subordinated in right of payment, to the extent and in the manner provided in
the Indenture, to the prior payment in full in cash of all Senior Indebtedness.
Upon any payment or distribution of assets or securities of the Company of
any kind or character, whether in cash, property or securities (excluding any
payment or distribution of
44
<PAGE> 50
Permitted Junior Securities and excluding any payment from the trust described
under "Satisfaction and Discharge of Indenture; Defeasance" (a "Defeasance Trust
Payment")), upon any dissolution or winding-up or total liquidation or
reorganization of the Company, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all Senior
Indebtedness shall first be paid in full in cash before the Holders of the Notes
or the Trustee on behalf of such Holders shall be entitled to receive any
payment by the Company of the principal of, premium, if any, or interest on the
Notes, or any payment by the Company to acquire any of the Notes for cash,
property or securities, or any distribution by the Company with respect to the
Notes of any cash, property or securities (excluding any payment or distribution
of Permitted Junior Securities and excluding any Defeasance Trust Payment).
Before any payment may be made by, or on behalf of, the Company of the principal
of, premium, if any, or interest on the Notes upon any such dissolution or
winding-up or total liquidation or reorganization, any payment or distribution
of assets or securities of the Company of any kind or character, whether in
cash, property or securities (excluding any payment or distribution of Permitted
Junior Securities and excluding any Defeasance Trust Payment), to which the
Holders of the Notes or the Trustee on their behalf would be entitled, but for
the subordination provisions of the Indenture, shall be made by the Company or
by any receiver, trustee in bankruptcy, liquidation trustee, agent or other
Person making such payment or distribution, directly to the holders of the
Senior Indebtedness (pro rata to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders) or their representatives or
to the trustee or trustees or agent or agents under any agreement or indenture
pursuant to which any of such Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all such Senior
Indebtedness in full in cash after giving effect to any prior or concurrent
payment, distribution or provision therefor to or for the holders of such Senior
Indebtedness.
No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities and excluding any Defeasance Trust Payment) by or on
behalf of the Company of principal of, premium, if any, or interest on the
Notes, whether pursuant to the terms of the Notes, upon acceleration, pursuant
to an Offer to Purchase or otherwise, will be made if, at the time of such
payment, there exists a default in the payment of all or any portion of the
obligations on any Designated Senior Indebtedness, whether at maturity, on
account of mandatory redemption or prepayment, acceleration or otherwise, and
such default shall not have been cured or waived or the benefits of this
sentence waived by or on behalf of the holders of such Designated Senior
Indebtedness. In addition, during the continuance of any non-payment event of
default with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may be immediately accelerated, and upon receipt by the Trustee
of written notice (a "Payment Blockage Notice") from the holder or holders of
such Designated Senior Indebtedness or the trustee or agent acting on behalf of
the holders of such Designated Senior Indebtedness, then, unless and until such
event of default has been cured or waived or has ceased to exist or such
Designated Senior Indebtedness has been discharged or repaid in full in cash or
the benefits of these provisions have been waived by the holders of such
Designated Senior Indebtedness, no direct or indirect payment (excluding any
payment or distribution of Permitted Junior Securities and excluding any
Defeasance Trust Payment) will be made by or on behalf of the Company of
principal of, premium, if any, or interest on the Notes, to such Holders, during
a period (a "Payment Blockage Period") commencing on the date of receipt of such
notice by the Trustee and ending 179 days thereafter. Notwithstanding anything
in the subordination provisions of the Indenture or the Notes to the contrary,
(x) in no event will a Payment Blockage Period extend beyond 179 days from the
date the Payment Blockage Notice in respect thereof was given, (y) there shall
be a period of at least 181 consecutive days in each 360-day period when no
Payment Blockage Period is in effect and (z) not more than one Payment Blockage
Period may be commenced with respect to the Notes during any period of 360
consecutive days. No event of default that existed or was continuing on the date
of commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period (to the extent the
holder of Designated Senior Indebtedness, or trustee
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or agent, giving notice commencing such Payment blockage Period had knowledge of
such existing or continuing event of default) may be, or be made, the basis for
the commencement of any other Payment Blockage Period by the holder or holders
of such Designated Senior Indebtedness or the trustee or agent acting on behalf
of such Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such event of default has been cured or waived for a
period of not less than 90 consecutive days.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indenture described under this
"Subordination of the Notes" heading will not be construed as preventing the
occurrence of any Event of Default in respect of the Notes. See "Events of
Default" below.
By reason of the subordination provisions described above, in the event of
insolvency of the Company, funds which would otherwise be payable to Holders of
the Notes will be paid to the holders of Senior Indebtedness to the extent
necessary to pay the Senior Indebtedness in full in cash, and the Company may be
unable to meet fully its obligations with respect to the Notes.
At the time of the issuance of the Notes, the Senior Credit Facility and
approximately $3.6 million of capital lease obligations are expected to be the
only outstanding Senior Indebtedness or Guarantor Senior Indebtedness. Subject
to the restrictions set forth in the Indenture, in the future the Company may
issue additional Senior Indebtedness to refinance existing Indebtedness or for
other corporate purposes.
GUARANTIES OF THE NOTES
The Indenture provides that each of the Guarantors will fully and
unconditionally guaranty in compliance with the requirements necessary to obtain
relief from the reporting requirements of Sections 13 and 15(d) of the Exchange
Act of 1934, as amended (except to the extent that any Guarantor's obligations
under the Guaranties constitutes a fraudulent conveyance or fraudulent transfer
under state law) on a joint and several basis (the "Guaranties") all of the
Company's obligations under the Notes, including its obligations to pay
principal, premium, if any, and interest with respect to the Notes. The
Guarantors have guaranteed all obligations of the Company under the Senior
Credit Facility, and each Guarantor has granted a security interest in all or
substantially all of its assets to secure the obligations under the Senior
Credit Facility. The obligations of each Guarantor are limited to the maximum
amount which, after giving effect to all other contingent and fixed liabilities
of such Guarantor and after giving effect to any collections from or payments
made by or on behalf of any other Guarantor in respect of the obligations of
such other Guarantor under its Guaranty or pursuant to its contribution
obligations under the Indenture, will result in the obligations of such
Guarantor under its Guaranty not constituting a fraudulent conveyance or
fraudulent transfer under Federal or state law. Each Guarantor that makes a
payment or distribution under a Guaranty is entitled to a contribution from each
other Guarantor in a pro rata amount based on the net assets of each Guarantor
determined in accordance with GAAP. Except as provided in "Certain Covenants"
below, the Company is not restricted from selling or otherwise disposing of any
of the Equity Interests of the Guarantors.
The Indenture provides that each of the Company's Subsidiaries (other than
Foreign Subsidiaries) on the Issue Date and each of the Company's Subsidiaries
(excluding Unrestricted Subsidiaries and Foreign Subsidiaries) formed or
acquired thereafter are required to be Guarantors. The Company shall cause each
Restricted Subsidiary issuing a Guaranty after the Issue Date to (i) execute and
deliver to the Trustee a supplemental indenture in form reasonably satisfactory
to the Trustee pursuant to which such Restricted Subsidiary shall become a party
to the Indenture and thereby unconditionally guaranty all of the Company's
Obligations under the Notes and the Indenture on the terms set forth therein and
(ii) deliver to the Trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such Restricted
Subsidiary and constitutes a legal, valid, binding and enforceable obligation of
such Restricted
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Subsidiary (which opinion may be subject to customary assumptions and
qualifications). Thereafter, such Restricted Subsidiary shall (unless released
in accordance with the terms of this Indenture) be a Guarantor for all purposes
of the Indenture. Separate financial statements of the Guarantors and other
disclosures are not included herein because management has determined that they
are not material to investors.
The Indenture provides that if the Notes thereunder are defeased in
accordance with the terms of the Indenture, or if, subject to the requirements
of the first paragraph under "Certain Covenants -- Merger, Sale of Assets,
Etc.," all or substantially all of the assets of any Guarantor or all of the
Equity Interests of any Guarantor are sold (including by issuance or otherwise)
by the Company in a transaction constituting an Asset Sale, and if (x) the Net
Cash Proceeds from such Asset Sale are used in accordance with the covenant
described under "Certain Covenants -- Disposition of Proceeds of Asset Sales" or
(y) the Company delivers to the Trustee an Officers' Certificate representing
that the Net Cash Proceeds from such Asset Sale shall be used in accordance with
the covenant described under "Certain Covenants -- Disposition of Proceeds of
Asset Sales" and within the time limits specified by such covenant, then such
Guarantor (in the event of a sale or other disposition of all of the Equity
Interests of such Guarantor) or the corporation acquiring such assets (in the
event of a sale or other disposition of all or substantially all of the assets
of such Guarantor) shall be released and discharged of its Guaranty obligations
in respect of the Indenture and the Notes.
The Guaranties are general unsecured obligations of the Guarantors. The
obligations of each Guarantor under its Guaranty are subordinated and junior in
right of payment to the prior payment in full of all existing and future
Guarantor Senior Indebtedness of such Guarantor to substantially the same extent
as the Notes are subordinated to all existing and future Senior Indebtedness of
the Company.
Any Guarantor that is designated an Unrestricted Subsidiary pursuant to and
in accordance with "Certain Covenants -- Designation of Unrestricted
Subsidiaries" below shall upon such Designation be released and discharged of
its Guaranty obligations in respect of the Indenture and the Notes and any
Unrestricted Subsidiary (other than a Foreign Subsidiary) whose Designation is
revoked pursuant to "Certain Covenants -- Designation of Unrestricted
Subsidiaries" below will be required to become a Guarantor in accordance with
the procedure described in the third preceding paragraph.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall notify the
Holders of the Notes of such occurrence in the manner prescribed by the
Indenture and shall, within 20 days after the Change of Control Date, make an
Offer to Purchase all Notes then outstanding, and shall purchase all Notes
validly tendered, at a purchase price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the Purchase Date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
If a Change of Control occurs which also constitutes an event of default
under the Senior Credit Facility, the lenders under the Senior Credit Facility
would be entitled to exercise the remedies available to a secured lender under
applicable law and pursuant to the terms of the Senior Credit Facility.
Accordingly, any claims of such lenders with respect to the assets of the
Company will be prior to any claim of the Holders of the Notes with respect to
such assets.
If an Offer to Purchase is made, there can be no assurance that the Company
will have available funds sufficient to pay for all of the Notes that might be
tendered by Holders of Notes seeking to accept the Offer to Purchase. If the
Company fails to repurchase all of the Notes tendered for purchase, such failure
will constitute an Event of Default under the Indenture. See "Events of Default"
below.
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If the Company makes an Offer to Purchase, the Company will comply with all
applicable tender offer laws and regulations, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable Federal or state securities laws and regulations and any applicable
requirements of any securities exchange on which the Notes are listed, and any
violation of the provisions of the Indenture relating to such Offer to Purchase
occurring as a result of such compliance shall not be deemed an Event of Default
or an event that, with the passing of time or giving of notice, or both, would
constitute an Event of Default.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
CERTAIN COVENANTS
Limitation on Restricted Payments. The Company shall not, and shall not
cause or permit any Restricted Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or any other distribution on any
Equity Interests of the Company or any Restricted Subsidiary or make any
payment or distribution to the direct or indirect holders (in their
capacities as such) of Equity Interests of the Company or any Restricted
Subsidiary (other than any dividends, distributions and payments made to
the Company or any Restricted Subsidiary and dividends or distributions
payable to any Person solely in Qualified Equity Interests of the Company
or in options, warrants or other rights to purchase Qualified Equity
Interests of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any Restricted Subsidiary (other than
any such Equity Interests owned by the Company or any Restricted
Subsidiary);
(iii) purchase, redeem, defease or retire for value, or make any
principal payment on, prior to any scheduled maturity, scheduled repayment
or scheduled sinking fund payment, any Subordinated Indebtedness (other
than any Subordinated Indebtedness held by the Company or any Restricted
Subsidiary); or
(iv) make any Investment (other than Permitted Investments) in any
Person (other than in the Company), any Restricted Subsidiary or a Person
that becomes a Restricted Subsidiary, or is merged with or into or
consolidated with the Company or a Restricted Subsidiary (provided the
Company or a Restricted Subsidiary is the survivor), as a result of or in
connection with such Investment)
(any such payment or any other action (other than any exception
thereto) described in (i), (ii), (iii) or (iv) each, a "Restricted
Payment"), unless
(a) no Default shall have occurred and be continuing at the time or
immediately after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the
Company would be able to Incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the Consolidated Coverage Ratio of the first
paragraph of "Limitation on Indebtedness" below; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the Issue Date does not exceed an amount equal to the sum of (1) 50% of
cumulative Consolidated Net Income determined for the period (taken as one
period) from the beginning of the first fiscal quarter commencing after the
Issue Date and ending on the last day of the most recent fiscal quarter
immediately preceding the date of such Restricted Payment for which
consolidated financial information of the Company is available (or if such
cumulative Consolidated Net Income shall be a loss, minus 100% of such
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loss), plus (2) the aggregate net cash proceeds received by the Company
either (x) as capital contributions to the Company after the Issue Date or
(y) from the issue and sale (other than to a Restricted Subsidiary) of its
Qualified Equity Interests after the Issue Date (excluding the net proceeds
from any issuance and sale of Qualified Equity Interests financed, directly
or indirectly, using funds borrowed from the Company or any Restricted
Subsidiary until and to the extent such borrowing is repaid), plus (3) the
principal amount (or accreted amount (determined in accordance with GAAP),
if less) of any Indebtedness of the Company or any Restricted Subsidiary
Incurred after the Issue Date which has been converted into or exchanged
for Qualified Equity Interests of the Company, plus (4) in the case of the
disposition or repayment of any Investment constituting a Restricted
Payment made after the Issue Date, an amount (to the extent not included in
the computation of Consolidated Net Income) equal to the lesser of: (x) the
return of capital with respect to such Investment and (y) the amount of
such Investment which was treated as a Restricted Payment, in either case,
less the cost of the disposition of such Investment and net of taxes, plus
(5) so long as the Designation thereof was treated as a Restricted Payment
made after the Issue Date, with respect to any Unrestricted Subsidiary that
has been redesignated as a Restricted Subsidiary after the Issue Date in
accordance with "Designation of Unrestricted Subsidiaries" below, the
Company's proportionate interest in an amount equal to the excess of (x)
the total assets of such Subsidiary, valued on an aggregate basis at Fair
Market Value, over (y) the total liabilities of such Subsidiary, determined
in accordance with GAAP (and provided that such amount shall not in any
case exceed the Designation Amount with respect to such Restricted
Subsidiary upon its Designation), plus (6) (to the extent not included in
the computation of Consolidated Net Income) the amount of cash dividends or
cash distributions (other than to pay taxes) received from any Unrestricted
Subsidiary since the Issue Date, minus (7) the greater of (x) $0 and (y)
the Designation Amount (measured as of the date of Designation) with
respect to any Subsidiary of the Company which has been designated as an
Unrestricted Subsidiary after the Issue Date in accordance with
"Designation of Unrestricted Subsidiaries" below.
The foregoing provisions will not prevent (i) (x) the payment of any
dividend or distribution on, or redemption of, Equity Interests within 60 days
after the date of declaration of such dividend or distribution or the giving of
formal notice of such redemption, if at the date of such declaration or giving
of such formal notice such payment or redemption would comply with the
provisions of the Indenture or (y) the payment of any dividend or distribution
on a pro rata basis to holders of minority Equity Interests in a Restricted
Subsidiary out of the net income from the Issue Date of such Restricted
Subsidiary; (ii) the purchase, redemption, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the net cash
proceeds of (or the payment of a dividend or distribution to Holdings out of the
net cash proceeds of) the substantially concurrent issue and sale (other than to
a Restricted Subsidiary) of, Qualified Equity Interests of the Company;
provided, however, that any such net cash proceeds and the value of any
Qualified Equity Interests issued in exchange for such retired Equity Interests
are excluded from clause (c)(2) of the preceding paragraph (and were not
included therein at any time); (iii) the purchase, redemption, retirement,
defeasance or other acquisition of Subordinated Indebtedness, or any other
payment thereon, made in exchange for, or out of the net cash proceeds of, a
substantially concurrent issue and sale (other than to a Restricted Subsidiary)
of (x) Qualified Equity Interests of the Company; provided, however, that any
such net cash proceeds and the value of any Qualified Equity Interests issued in
exchange for Subordinated Indebtedness are excluded from clauses (c)(2) and
(c)(3) of the preceding paragraph (and were not included therein at any time) or
(y) other Subordinated Indebtedness having no stated maturity for the payment of
principal thereof prior to the final stated maturity of the Notes; (iv) any
Investment to the extent that it is funded with the net cash proceeds of the
substantially concurrent issue and sale (other than to a Restricted Subsidiary)
of Qualified Equity Interests of the Company; provided, however, that any such
net cash proceeds are excluded from clause (c)(2) of the preceding paragraph
(and were not included therein at any time); (v) the purchase, redemption or
other acquisition, cancellation or retirement for value of
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Equity Interests, or options, warrants, equity appreciation rights or other
rights to purchase or acquire Equity Interests, of the Company or any Restricted
Subsidiary, or similar securities, held by officers or employees or former
officers or employees of the Company or any Restricted Subsidiary (or their
estates or beneficiaries under their estates), upon death, disability,
retirement or termination of employment, or dividends by the Company to Holdings
to effect the same in respect of its Equity Interests held by officers or
employees or former officers or employees of the Company or any Restricted
Subsidiary (or their estates or beneficiaries under their estates), upon death,
disability, retirement or termination of employment, not to exceed $1.0 million
per fiscal year; provided that if the full $1.0 million is not utilized in any
fiscal year, such unutilized portion may be so utilized in any subsequent fiscal
year; and provided, further, that in no fiscal year shall such payments exceed
$4.0 million; (vi) distributions to Holdings to fund the payment of principal
and interest on the Junior Subordinated Seller Note in accordance with the terms
thereof; (vii) Restricted Payments not to exceed $2.0 million in the aggregate
since the Issue Date; or (viii) payments to Holdings to pay general and
administrative expenses of Holdings not to exceed $250,000 in any fiscal year;
or (ix) the payment of any dividend or distribution to Holdings to fund the
federal and state income tax liability of the partners of Holdings for periods
ending on or before the Issue Date in an aggregate amount not to exceed
$200,000; provided, however, that in the case of each of clauses (ii), (iii),
(iv), (v), (vii) and (viii) no Default shall have occurred and be continuing or
would arise therefrom.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i), (v), (vii) and (viii) of the
immediately preceding paragraph shall be included as Restricted Payments and
amounts expended pursuant to clauses (ii), (iii), (iv), (vi) and (ix) shall be
excluded. The amount of any non-cash Restricted Payment shall be deemed to be
equal to the Fair Market Value thereof at the date of the making of such
Restricted Payment.
Limitation on Indebtedness. The Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, Incur any
Indebtedness (including Acquired Indebtedness) or issue any Disqualified Equity
Interests, except for Permitted Indebtedness; provided, however, that (i) the
Company and any Guarantor may Incur Indebtedness (other than Disqualified Equity
Interests), (ii) any Restricted Subsidiary may incur Acquired Indebtedness and
(iii) the Company may issue Disqualified Equity Interests if, in any such case,
at the time of and immediately after giving pro forma effect to such Incurrence
of Indebtedness or issuance of Disqualified Equity Interests and the application
of the proceeds therefrom, the Consolidated Coverage Ratio would be greater than
(a) 1.85 to 1.0, if such Incurrence occurs on or prior to December 31, 1999, or
(b) 2.0 to 1.0, if such Incurrence occurs after December 31, 1999.
The foregoing limitations will not apply to the Incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which shall be given
independent effect:
(a) Indebtedness under the Notes, the Guarantees and the Indenture;
(b) Existing Indebtedness;
(c) Indebtedness of the Company, the Guarantors and Foreign
Subsidiaries pursuant to the Senior Credit Facility in an aggregate
principal amount at any one time outstanding not to exceed the sum of (x)
the greater of (I) $30.0 million and (II) the sum of (A) 85% of the net
book value of the accounts receivable of the Company and the Restricted
Subsidiaries on a consolidated basis in accordance with GAAP and (B) 50% of
the net book value of the inventory of the Company and the Restricted
Subsidiaries on a consolidated basis in accordance with GAAP with respect
to revolving loans thereunder and (y) $30.0 million with respect to term
loans, additional revolving loans or other loans thereunder.
(d) Indebtedness of any Restricted Subsidiary owed to and held by the
Company or any Restricted Subsidiary and Indebtedness of the Company owed
to and held by any Restricted Subsidiary, which Indebtedness is unsecured
and subordinated in right of payment to the
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payment and performance of the Company's obligations under any Senior
Indebtedness, the Indenture and the Notes; provided, however, that an
Incurrence of Indebtedness that is not permitted by this clause (d) shall
be deemed to have occurred upon (i) any sale or other disposition of any
Indebtedness of the Company or any Restricted Subsidiary referred to in
this clause (d) to a Person (other than the Company or any Restricted
Subsidiary), and (ii) the designation of a Restricted Subsidiary which
holds Indebtedness of the Company or any other Restricted Subsidiary as an
Unrestricted Subsidiary;
(e) the Guaranties and guaranties by any Guarantor of Indebtedness of
the Company; provided, however, that if such guaranty is of Subordinated
Indebtedness, then the Guaranty of such Guarantor shall be senior to such
Guarantor's guaranty of Subordinated Indebtedness;
(f) Hedging Obligations of the Company and the Restricted
Subsidiaries;
(g) Purchase Money Indebtedness and Capitalized Lease Obligations (and
refinancings thereof) of the Company and the Restricted Subsidiaries which
do not exceed $10.0 million in the aggregate at any one time outstanding;
(h) Indebtedness of the Company or a Restricted Subsidiary to the
extent representing a replacement, renewal, refinancing or extension
(collectively, a "refinancing") of outstanding Indebtedness Incurred in
compliance with the Consolidated Coverage Ratio of the first paragraph of
this covenant or clause (a) or (b) of this paragraph of this covenant;
provided, however, that (i) any such refinancing shall not exceed the sum
of the principal amount (or accreted amount (determined in accordance with
GAAP), if less) of the Indebtedness or Disqualified Equity Interests being
refinanced, plus the amount of accrued interest or dividends thereon, plus
the amount of any reasonably determined prepayment premium necessary to
accomplish such refinancing and such reasonable fees and expenses incurred
in connection therewith, (ii) Indebtedness representing a refinancing of
Indebtedness other than Senior Indebtedness shall have a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of the Indebtedness being refinanced; (iii) Indebtedness that is
pari passu with the Notes may only be refinanced with Indebtedness that is
made pari passu with or subordinate in right of payment to the Notes and
Subordinated Indebtedness may only be refinanced with Subordinated
Indebtedness or Disqualified Equity Interests and Disqualified Equity
Interests may only be refinanced with other Disqualified Equity Interests;
and (iv) refinancing Indebtedness incurred by a Restricted Subsidiary which
is not a Guarantor may only be used to refinance Indebtedness of a
Restricted Subsidiary which is not a Guarantor
(i) in addition to the items referred to in clauses (a) through (h)
above and clause (j) below, Indebtedness of the Company (including any
Indebtedness under the Senior Credit Facility that utilizes this
subparagraph (i)) having an aggregate principal amount not to exceed $10.0
million at any time outstanding; and
(j) Indebtedness of a Foreign Subsidiary, (i) for working capital
purposes in an aggregate principal amount at any one time outstanding not
to exceed the sum of (x) 85% of the net book value of the accounts
receivable of such Foreign Subsidiary in accordance with GAAP and (y) 50%
of the net book value of the inventory of such Foreign Subsidiary in
accordance with GAAP, (ii) representing guaranties of Indebtedness of
another Foreign Subsidiary incurred pursuant to subclause (i) of this
clause (j).
Limitation on Layering. The Company shall not, directly or indirectly,
Incur any Indebtedness that by its terms would expressly rank senior in right of
payment to the Notes and expressly rank subordinate in right of payment to any
other Indebtedness of the Company.
The Company shall not permit any Guarantor to, and no Guarantor shall,
directly or indirectly, Incur any Indebtedness that by its terms would expressly
rank senior in right of payment to the Guaranty of such Guarantor and expressly
rank subordinate in right of payment to any Guarantor Senior Indebtedness of
such Guarantor.
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Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions to the Company or any other Restricted Subsidiary on its Equity
Interests or with respect to any other interest or participation in, or measured
by, its profits, or pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (b) make loans or advances to, or guaranty any
Indebtedness or other obligations of, the Company or any other Restricted
Subsidiary or (c) transfer any of its properties or assets to the Company or any
other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of (i) the Senior Credit Facility, or any other
agreement of the Company or the Restricted Subsidiaries outstanding on the Issue
Date, in each case as in effect on the Issue Date, and any amendments,
restatements, renewals, replacements or refinancings thereof; provided, however,
that any such amendment, restatement, renewal, replacement or refinancing is no
more restrictive in the aggregate with respect to such encumbrances or
restrictions than those contained in the agreement being amended, restated,
renewed, replaced or refinanced; (ii) applicable law; (iii) any instrument
governing Indebtedness or Equity Interests of (x) a Foreign Subsidiary or (y) an
Acquired Person acquired by the Company or any Restricted Subsidiary as in
effect at the time of such acquisition (except to the extent any such
Indebtedness or Equity Interests were Incurred by such Acquired Person in
connection with, as a result of or in contemplation of such acquisition);
provided, however, that such encumbrances and restrictions are not applicable to
any Restricted Subsidiary, or the properties or assets of any Restricted
Subsidiary, other than a Foreign Subsidiary or the Acquired Person, as the case
may be; (iv) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices; (v) Purchase
Money Indebtedness for property acquired in the ordinary course of business that
only imposes encumbrances and restrictions on the property so acquired; (vi) any
agreement for the sale or disposition of the Equity Interests or assets of any
Restricted Subsidiary; provided, however, that such encumbrances and
restrictions described in this clause (vi) are only applicable to such
Restricted Subsidiary or assets, as applicable, and any such sale or disposition
is made in compliance with "Disposition of Proceeds of Asset Sales" below to the
extent applicable thereto; (vii) refinancing Indebtedness permitted under clause
(h) of the second paragraph of "Limitation on Indebtedness" above; provided,
however, that such encumbrances and restrictions contained in the agreements
governing such Indebtedness are no more restrictive in the aggregate than those
contained in the agreements governing the Indebtedness being refinanced
immediately prior to such refinancing; (viii) the Indenture; or (ix) contained
in any other indenture governing debt securities that are no more restrictive
than those contained in the Indenture.
Designation of Unrestricted Subsidiaries. The Company may designate after
the Issue Date any Subsidiary of the Company as an "Unrestricted Subsidiary"
under the Indenture (a "Designation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation;
(ii) at the time of and after giving effect to such Designation, the
Company could Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the Consolidated Coverage Ratio of the first paragraph
of "Limitation on Indebtedness" above; and
(iii) the Company would be permitted to make an Investment (other than
a Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
"Limitation on Restricted Payments" above in an amount (the "Designation
Amount") equal to the Fair Market Value of the Company's aggregate
Investment in such Subsidiary on such date.
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Neither the Company nor any Restricted Subsidiary shall at any time (x)
provide credit support for, subject any of its property or assets (other than
the Equity Interests of any Unrestricted Subsidiary) to the satisfaction of, or
guaranty, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness), (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary or (z) be directly or indirectly liable for any Indebtedness which
provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a default
with respect to any Indebtedness of any Unrestricted Subsidiary, except for any
non-recourse guaranty given solely to support the pledge by the Company or any
Restricted Subsidiary of the capital stock of any Unrestricted Subsidiary. All
Subsidiaries of Unrestricted Subsidiaries shall be automatically deemed to be
Unrestricted Subsidiaries.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation;
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, have been permitted to be Incurred for all purposes of the
Indenture; and
(iii) any transaction (or series of related transactions) between such
Subsidiary and any of its Affiliates that occurred while such Subsidiary
was an Unrestricted Subsidiary would be permitted by "Transactions with
Affiliates" below as if such transaction (or series of related
transactions) had occurred at the time of such Revocation.
All Designations and Revocations must be evidenced by resolutions of the
Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.
Limitation on Liens. The Company shall not, and shall not cause or permit
any Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist
any Liens of any kind against or upon any of their respective properties or
assets now owned or hereafter acquired, or any proceeds therefrom or any income
or profits therefrom, to secure any Indebtedness unless contemporaneously
therewith effective provision is made, in the case of the Company, to secure the
Notes and all other amounts due under the Indenture, and in the case of a
Restricted Subsidiary which is a Guarantor, to secure such Restricted
Subsidiary's Guaranty of the Notes and all other amounts due under the
Indenture, equally and ratably with such Indebtedness (or, in the event that
such Indebtedness is subordinated in right of payment to the Notes or such
Guarantor's Guaranty, prior to such Indebtedness) with a Lien on the same
properties and assets securing such Indebtedness for so long as such
Indebtedness is secured by such Lien, except for (i) Liens securing any Senior
Indebtedness or any Guarantor Senior Indebtedness and (ii) Permitted Liens.
Disposition of Proceeds of Asset Sales. The Company shall not, and shall
not cause or permit any Restricted Subsidiary to, directly or indirectly, make
any Asset Sale, unless (i) the Company or such Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the assets sold or otherwise disposed of and
(ii) at least 80% of such consideration consists of (A) cash or Cash
Equivalents, (B) properties and capital assets to be used in a Related Business,
(C) Equity Interests in any Person which thereby becomes a Wholly Owned
Restricted Subsidiary whose assets consist primarily of properties and capital
assets used in a Related Business or (D) "earn out" or similar rights providing
for a cash payment contingent upon operating results or the financial condition
of the business and/or Person subject to such Asset Sale. The amount of any (i)
Indebtedness (other than any Subordinated Indebtedness) of the Company or any
Restricted Subsidiary that is actually assumed by the transferee in such Asset
Sale and from which the Company and the Restricted Subsidiaries are fully
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released shall be deemed to be cash for purposes of determining the percentage
of cash consideration received by the Company or the Restricted Subsidiaries and
(ii) notes or other similar obligations received by the Company or the
Restricted Subsidiaries from such transferee that are immediately converted,
sold or exchanged (or are converted, sold or exchanged within thirty days of the
related Asset Sale) by the Company or the Restricted Subsidiaries into cash
shall be deemed to be cash, in an amount equal to the net cash proceeds realized
upon such conversion, sale or exchange for purposes of determining the
percentage of cash consideration received by the Company or the Restricted
Subsidiaries.
The Company or such Restricted Subsidiary, as the case may be, may (i)
apply the Net Cash Proceeds of any Asset Sale within 270 days of receipt thereof
to repay Senior Indebtedness, (ii) commit in writing to acquire, construct or
improve properties and capital assets to be used in a Related Business and so
apply such Net Cash Proceeds within 270 days after the receipt thereof or (iii)
apply the Net Cash Proceeds of any Asset Sale within 270 days of receipt thereof
or repay Pari Passu Debt not exceeding the Pari Passu Debt Pro Rata Share;
provided that the Company or such Restricted Subsidiary may use up to $10.0
million of aggregate Net Cash Proceeds from Asset Sales for any purpose not
prohibited by the Indenture.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are
not applied within 270 days of such Asset Sale as described in clause (i), (ii)
or (iii) or the proviso of the immediately preceding paragraph (such Net Cash
Proceeds, the "Unutilized Net Cash Proceeds"), the Company shall, within 20 days
after such 270th day, make an Offer to Purchase all outstanding Notes up to a
maximum principal amount (expressed as a multiple of $1,000) of Notes equal to
such Unutilized Net Cash Proceeds, at a purchase price in cash equal to 100% of
the principal amount thereof, plus accrued and unpaid interest thereon, if any,
to the Purchase Date; provided, however, that the Offer to Purchase may be
deferred until there are aggregate Unutilized Net Cash Proceeds equal to or in
excess of $10.0 million, at which time the entire amount of such Unutilized Net
Cash Proceeds, and not just the amount in excess of $10.0 million, shall be
applied as required pursuant to this paragraph.
With respect to any Offer to Purchase effected pursuant to this covenant,
among the Notes, to the extent the aggregate principal amount of Notes tendered
pursuant to such Offer to Purchase exceeds the Unutilized Net Cash Proceeds to
be applied to the repurchase thereof, such Notes shall be purchased pro rata
based on the aggregate principal amount of such Notes tendered by each Holder.
To the extent the Unutilized Net Cash Proceeds exceed the aggregate amount of
Notes tendered by the Holders of the Notes pursuant to such Offer to Purchase,
the Company may retain and utilize any portion of the Unutilized Net Cash
Proceeds not applied to repurchase the Notes for any purpose consistent with the
other terms of the Indenture.
In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act, and any violation of the provisions of the Indenture relating
to such Offer to Purchase occurring as a result of such compliance shall not be
deemed an Event of Default or an event that with the passing of time or giving
of notice, or both, would constitute an Event of Default.
Each Holder shall be entitled to tender all or any portion of the Notes
owned by such Holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount and subject to any proration among tendering
Holders as described above.
Merger, Sale of Assets, etc. The Company shall not consolidate with or
merge with or into (whether or not the Company is the Surviving Person) any
other entity and the Company shall not and shall not cause or permit any
Restricted Subsidiary to, sell, convey, assign, transfer, lease or otherwise
dispose of all or substantially all of the Company's and the Restricted
Subsidiaries' properties and assets (determined on a consolidated basis for the
Company and the Restricted
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Subsidiaries) to any entity in a single transaction or series of related
transactions, unless: (i) either (x) the Company shall be the Surviving Person
or (y) the Surviving Person (if other than the Company) shall be a corporation
organized and validly existing under the laws of the United States of America or
any State thereof or the District of Columbia, and shall, in any such case,
expressly assume by a supplemental indenture, the due and punctual payment of
the principal of, premium, if any, and interest on all the Notes and the
performance and observance of every covenant of the Indenture and the
Registration Rights Agreement to be performed or observed on the part of the
Company; (ii) immediately thereafter, no Default or Event of Default shall have
occurred and be continuing; (iii) immediately after giving effect to any such
transaction including the Incurrence by the Company or any Restricted
Subsidiary, directly or indirectly, of additional Indebtedness (and treating any
Indebtedness not previously an obligation of the Company or any Restricted
Subsidiary in connection with or as a result of such transaction as having been
Incurred at the time of such transaction), the Surviving Person could Incur, on
a pro forma basis after giving effect to such transaction as if it had occurred
at the beginning of the four quarter period immediately preceding such
transaction for which consolidated financial statements of the Company are
available, at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the Consolidated Coverage Ratio of the first paragraph of
"Limitation on Indebtedness" above; (iv) immediately after giving effect to such
transaction, the Surviving Person will have a Consolidated Net Worth in an
amount which is not less than the Consolidated Net Worth of the Company
immediately prior to such transaction; and (v) the Company will have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger or transfer and such supplemental indenture (if
any) comply with the Indenture.
Notwithstanding the foregoing clause (iii) of the immediately preceding
paragraph, any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interests of which constitute all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.
No Guarantor (other than a Guarantor whose Guaranty is to be released in
accordance with the terms of its Guaranty and the Indenture as provided in the
third paragraph under "Guaranties of the Notes" above) shall consolidate with or
merge with or into another Person, whether or not such Person is affiliated with
such Guarantor and whether or not such Guarantor is the Surviving Person, unless
(i) the Surviving Person (if other than such Guarantor) is a corporation
organized and validly existing under the laws of the United States, any State
thereof or the District of Columbia; (ii) the Surviving Person (if other than
such Guarantor) expressly assumes by a supplemental indenture all the
obligations of such Guarantor under its Guaranty of the Notes and the
performance and observance of every covenant of the Indenture and the
Registration Rights Agreement to be performed or observed by such Guarantor;
(iii) at the time of and immediately after such Disposition, no Default or Event
of Default shall have occurred and be continuing; (iv) immediately after giving
effect to such transaction, the Company will have Consolidated Net Worth in an
amount which is not less than the Consolidated Net Worth of the Company
immediately prior to such transaction; and (v) the Company will have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger or transfer and such supplemental indenture (if
any) comply with the Indenture; provided, however, that clauses (iv) of this
paragraph shall not be a condition to a merger or consolidation of a Guarantor
if such merger or consolidation only involves the Company and/or one or more
other Guarantors.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs in
which the Company or a Guarantor, as the case may be, is not the Surviving
Person and the Surviving Person is to assume all the
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Obligations of the Company under the Notes, the Indenture and the Registration
Rights Agreement or of such Guarantor under its Guaranty, the Indenture and the
Registration Rights Agreement, as the case may be, pursuant to a supplemental
indenture, such Surviving Person shall succeed to, and be substituted for, and
may exercise every right and power of, the Company or such Guarantor, as the
case may be, and the Company shall be discharged from its Obligations under the
Indenture and the Notes or such Guarantor shall be discharged from its
Obligations under the Indenture and its Guaranty.
Transactions with Affiliates. The Company shall not, and shall not cause
or permit any Restricted Subsidiary to, directly or indirectly, conduct any
business or enter into any transaction (or series of related transactions) with
or for the benefit of any of their respective Affiliates or any officer,
director or employee of the Company or any Restricted Subsidiary (each an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
which are no less favorable to the Company or such Restricted Subsidiary, as the
case may be, than would be available in a comparable transaction with an
unaffiliated third party and (ii) if such Affiliate Transaction or series of
related Affiliate Transactions (other than any such Affiliate Transactions
between the Company or a Restricted Subsidiary and an Unrestricted Subsidiary or
an Accounts Receivable Subsidiary in the ordinary course of business) involves
aggregate payments or other consideration having a Fair Market Value in excess
of $1.0 million, such Affiliate Transaction is in writing and a majority of the
disinterested members of the Board of Directors of the Company shall have
approved such Affiliate Transaction and determined that such Affiliate
Transaction complies with the foregoing provisions. In addition, any Affiliate
Transaction (other than an Affiliate Transaction between the Company or a
Restricted Subsidiary and an Unrestricted Subsidiary or an Accounts Receivable
Subsidiary in the ordinary course of business) involving aggregate payments or
other consideration having a Fair Market Value in excess of $5.0 million will
also require a written opinion from an Independent Financial Advisor (filed with
the Trustee) stating that the terms of such Affiliate Transaction are fair, from
a financial point of view, to the Company or the Restricted Subsidiary involved
in such Affiliate Transaction, as the case may be.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and any Restricted
Subsidiary or between or among Restricted Subsidiaries; (ii) customary
directors' fees, indemnification and similar arrangements, consulting fees,
employee salaries, bonuses or employment agreements, compensation or employee
benefit arrangements and incentive arrangements with any officer, director or
employee of the Company or any Restricted Subsidiary entered into in the
ordinary course of business (including customary benefits thereunder) and
payments under any indemnification arrangements permitted by applicable law;
(iii) any transactions undertaken pursuant to any contractual obligations in
existence on the Issue Date (as in effect on the Issue Date); (iv) the issue and
sale by the Company to its stockholders of Qualified Equity Interests; (v) any
Restricted Payments made in compliance with "Limitation on Restricted Payments"
above; (vi) loans and advances to officers, directors and employees of the
Company or any Restricted Subsidiary for travel, entertainment, moving and other
relocation expenses, in each case made in the ordinary course of business; (vii)
the Incurrence of intercompany Indebtedness permitted pursuant to clause (d) of
the second paragraph of "Limitation on Indebtedness" above; and (viii) the
pledge of Equity Interests of Unrestricted Subsidiaries to support the
Indebtedness thereof.
Limitation on the Sale or Issuance of Preferred Equity Interests of
Restricted Subsidiaries. The Company shall not sell any Preferred Equity
Interest of a Restricted Subsidiary, and shall not cause or permit any
Restricted Subsidiary to issue any of its Preferred Equity Interests or sell any
Preferred Equity Interests of another Restricted Subsidiary (other than to the
Company or a Wholly Owned Restricted Subsidiary).
Limitation on Lines of Business. The Company shall not, and shall not
cause or permit any Restricted Subsidiary, directly or indirectly to, engage in
any business outside the specialty chemical business other than a Related
Business.
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Provision of Financial Information. Whether or not the Company is subject
to Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, the Company shall file with the SEC (if permitted by SEC practice and
applicable law and regulations) the annual reports, quarterly reports and other
documents which the Company would have been required to file with the SEC
pursuant to such Section 13(a) or 15(d) (each, an "Exchange Act Report") or any
successor provision thereto if the Company were so subject, such documents to be
filed with the SEC on or prior to the respective dates (the "Required Filing
Dates") by which the Company would have been required so to file such documents
if the Company were so subject; provided that the Required Filing Date for the
quarterly report with respect to the fiscal quarter ended June 30, 1997 shall be
the 45th day after the Issue Date and such report shall contain pro forma
financial statements as of and for the six-month period ended June 30, 1997
prepared on a basis substantially similar to the pro forma financial statements
included in this Offering Memorandum. If, at any time prior to the consummation
of the Exchange Offer when the Company is not subject to such Section 13(a) or
15(d), the information which would be required in an Exchange Act Document is
included in a public filing of the Company under the Securities Act at the
applicable Required Filing Date, such public filing shall fulfill the filing
requirement with the SEC with respect to the applicable Exchange Act Document.
The Company shall also in any event (a) within 15 days of each Required Filing
Date (whether or not permitted or required to be filed with the SEC) (i)
transmit (or cause to be transmitted) by mail to all Holders, as their names and
addresses appear in the Note register, without cost to such Holders, and (ii)
file with the Trustee, copies of the annual reports, quarterly reports and other
documents which the Company is required to file with the SEC pursuant to the
preceding sentence, or, if such filing is not so permitted (or, prior to the
consummation of the Exchange Offer, when the Company is not subject to Section
13(d) or 15(d) of the Exchange Act), information and data of a similar nature,
and (b) if, notwithstanding the preceding sentence, filing such documents by the
Company with the SEC is not permitted by SEC practice or applicable law or
regulations, promptly upon written request supply copies of such documents to
any Holder. In addition, for so long as any Notes remain outstanding, the
Company will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act, and, to any beneficial holder of
Notes, if not obtainable from the SEC, information of the type that would be
filed with the SEC pursuant to the foregoing provisions, upon the request of any
such holder.
Payments for Consent. Neither the Company nor any of its Subsidiaries may,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of a Note for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Notes, the Indenture or the Registration Rights Agreement unless such
consideration is offered to be paid or agreed to be paid to all Holders of the
Notes that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
EVENTS OF DEFAULT
The occurrence of any of the following is defined as an "Event of Default"
under the Indenture: (a) failure to pay principal of (or premium, if any, on)
any Note when due (whether or not prohibited by the provisions of the Indenture
described under "Subordination of the Notes" above); (b) failure to pay any
interest on any Note when due, continued for 30 days or more (whether or not
prohibited by the provisions of the Indenture described under "Subordination of
the Notes" above); (c) default in the payment of principal of or interest on any
Note required to be purchased pursuant to any Offer to Purchase required by the
Indenture when due and payable or failure to pay on the Purchase Date the
Purchase Price for any Note validly tendered pursuant to any Offer to Purchase
(whether or not prohibited by the provisions of the Indenture described under
"Subordination of the Notes" above); (d) failure to perform or comply with any
of the provisions described under "Certain Covenants -- Merger, Sale of Assets,
etc." above; (e) failure to perform any other covenant, warranty or agreement of
the Company under the Indenture or in the Notes or of the
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Guarantors under the Indenture or in the Guaranties continued for 30 days or
more after written notice to the Company by the Trustee or Holders of at least
25% in aggregate principal amount of the outstanding Notes; (f) default or
defaults under the terms of one or more instruments evidencing or securing
Indebtedness of the Company or any of its Significant Restricted Subsidiaries
having an outstanding principal amount of $5.0 million or more individually or
in the aggregate that have resulted in the acceleration of the payment of such
Indebtedness or failure by the Company or any of its Significant Restricted
Subsidiaries to pay principal when due at the stated maturity of any such
Indebtedness; (g) the rendering of a final judgment or judgments (not subject to
appeal) against the Company or any of its Significant Restricted Subsidiaries in
an amount of $5.0 million or more (net of any amounts covered by reputable and
creditworthy insurance companies) which remain undischarged or unstayed for a
period of 60 days after the date on which the right to appeal has expired; (h)
certain events of bankruptcy, insolvency or reorganization affecting the Company
or any of its Significant Restricted Subsidiaries; or (i) other than as provided
in or pursuant to any Guaranty or the Indenture, any Guaranty ceases to be in
full force and effect or is declared null and void and unenforceable or found to
be invalid or any Guarantor denies its liability under its Guaranty (other than
by reason of a release of such Guarantor from its Guaranty in accordance with
the terms of the Indenture and such Guaranty). Subject to the provisions of the
Indenture relating to the duties of the Trustee, in case an Event of Default
shall occur and be continuing, the Trustee is under no obligation to exercise
any of its rights or powers under the Indenture at the request or direction of
any of the Holders of Notes, unless such Holders shall have offered to the
Trustee reasonable indemnity. Subject to such provisions for the indemnification
of the Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on such Trustee.
If an Event of Default with respect to the Notes (other than an Event of
Default with respect to the Company described in clause (h) of the preceding
paragraph) occurs and is continuing, the Trustee or the Holders of at least 25%
in aggregate principal amount of the outstanding Notes, by notice in writing to
the Company, may declare the unpaid principal of (and premium, if any) and
accrued interest to the date of acceleration on all the outstanding Notes to be
due and payable immediately and, upon any such declaration, such principal
amount (and premium, if any) and accrued interest, notwithstanding anything
contained in the Indenture or the Notes to the contrary will become immediately
due and payable; provided, however, that so long as the Senior Credit Facility
shall be in full force and effect, if an Event of Default shall have occurred
and be continuing (other than an Event of Default with respect to the Company
described in clause (h) of the preceding paragraph), the Notes shall not become
due and payable until the earlier to occur of (x) five Business Days following
delivery of written notice of such acceleration of the Notes to the agent under
the Senior Credit Facility and (y) the acceleration (ipso facto or otherwise) of
any Indebtedness under the Senior Credit Facility. If an Event or Default
specified in clause (h) of the preceding paragraph with respect to the Company
occurs under the Indenture, the Notes will ipso facto become immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder of the Notes.
Any such declaration with respect to the Notes may be annulled by the
Holders of a majority in aggregate principal amount of the outstanding Notes
upon the conditions provided in the Indenture. For information as to waiver of
defaults, see "Modification and Waiver" below.
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the Notes
outstanding, give the Holders of the Notes thereof notice of all uncured
Defaults or Events of Default thereunder known to it; provided, however, that,
except in the case of a Default or an Event of Default in payment with respect
to the Notes or a Default or Event of Default in complying with "Certain
Covenants -- Merger, Sale of Assets, etc." above, the Trustee shall be protected
in withholding such notice if and so long as a committee of its trust officers
in good faith determines that the withholding of such notice is in the interest
of the Holders of the Notes.
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No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default thereunder and unless the Holders of at least 25% of the aggregate
principal amount of the outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as the
Trustee, and the Trustee shall have not have received from the Holders of a
majority in aggregate principal amount of such outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a Holder of such a Note for enforcement of payment of the
principal of and premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note.
The Company is required to furnish to the Trustee annually a statement as
to the performance by it of certain of its obligations under the Indenture and
as to any default in such performance.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any of its Affiliates, as such, shall have any liability for any obligations
of the Company or any of its Affiliates under the Notes or the Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may terminate its and the Guarantors' substantive obligations
in respect of the Notes by delivering all outstanding Notes to the Trustee for
cancellation and paying all sums payable by it on account of principal of,
premium, if any, and interest on all Notes or otherwise. In addition to the
foregoing, the Company may, provided that no Default or Event of Default has
occurred and is continuing or would arise therefrom (or, with respect to a
Default or Event of Default specified in clause (h) of "Events of Default"
above, occurs at any time on or prior to the 91st calendar day after the date of
such deposit (it being understood that this condition shall not be deemed
satisfied until after such 91st day)) under the Indenture and provided that no
default under any Senior Indebtedness would result therefrom, terminate its and
the Guarantors' substantive obligations in respect of the Notes (except for its
obligations to pay the principal of (and premium, if any, on) and the interest
on the Notes and the Guarantors' Guaranty thereof) by (i) depositing with the
Trustee, under the terms of an irrevocable trust agreement, money or United
States Government Obligations sufficient (without reinvestment) to pay all
remaining Indebtedness on such Notes; (ii) delivering to the Trustee either an
Opinion of Counsel or a ruling directed to the Trustee from the Internal Revenue
Service to the effect that the Holders of the Notes will not recognize income,
gain or loss for Federal income tax purposes as a result of such deposit and
termination of obligations; (iii) delivering to the Trustee an Opinion of
Counsel to the effect that the Company's exercise of its option under this
paragraph will not result in any of the Company, the Trustee or the trust
created by the Company's deposit of funds pursuant to this provision becoming or
being deemed to be an "investment company" under the Investment Company Act of
1940, as amended (the "Investment Act"); and (iv) complying with certain other
requirements set forth in the Indenture. In addition, the Company may, provided
that no Default or Event of Default has occurred and is continuing or would
arise therefrom (or, with respect to a Default or Event of Default specified in
clause (h) of "Events of Default" above, occurs at any time on or prior to the
91st calendar day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until after such 91st day)) under the
Indenture and provided that no default under any Senior Indebtedness would
result therefrom, terminate all of its and the Guarantors' substantive
obligations in respect of the Notes (including its obligations to pay the
principal of (and premium, if any, on) and interest on the Notes and the
Guarantors' Guaranty thereof) by (i) depositing with the Trustee, under the
terms of an irrevocable trust agreement, money or United States Government
Obligations sufficient (without
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reinvestment) to pay all remaining Indebtedness on the Notes; (ii) delivering to
the Trustee either a ruling directed to the Trustee from the Internal Revenue
Service to the effect that the Holders of the Notes will not recognize income,
gain or loss for Federal income tax purposes as a result of such deposit and
termination of obligations or an Opinion of Counsel addressed to the Trustee
based upon such a ruling or based on a change in the applicable Federal tax law
since the date of the Indenture, to such effect; (iii) delivering to the Trustee
an Opinion of Counsel to the effect that the Company's exercise of its option
under this paragraph will not result in any of the Company, the Trustee or the
trust created by the Company's deposit of funds pursuant to this provision
becoming or being deemed to be an "investment company" under the Investment Act;
and (iv) complying with certain other requirements set forth in the Indenture.
The Company may make an irrevocable deposit pursuant to this provision only
if at such time it is not prohibited from doing so under the subordination
provisions of the Indenture or certain covenants in the Senior Indebtedness and
the Company has delivered to the Trustee and any Paying Agent an Officers'
Certificate to that effect.
GOVERNING LAW
The Indenture, the Notes and the Guaranties are governed by the laws of the
State of New York without regard to principles of conflicts of laws.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company,
the Guarantors, and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the outstanding Notes (including consents obtained
in connection with a tender offer or exchange offer for the Notes); provided,
however, that no such modification or amendment to the Indenture may, without
the consent of the Holder of each Note affected thereby, (a) change the maturity
of the principal of or any installment of interest on any such Note or alter the
optional redemption or repurchase provisions of any such Note or the Indenture
in a manner adverse to the Holders of the Notes; (b) reduce the principal amount
of (or the premium) of any such Note; (c) reduce the rate of or extend the time
for payment of interest on any such Note; (d) change the place or currency of
payment of principal of (or premium) or interest on any such Note; (e) modify
any provisions of the Indenture relating to the waiver of past defaults (other
than to add sections of the Indenture or the Notes subject thereto) or the right
of the Holders of Notes to institute suit for the enforcement of any payment on
or with respect to any such Note or any Guaranty in respect thereof or the
modification and amendment provisions of the Indenture and the Notes (other than
to add sections of the Indenture or the Notes which may not be amended,
supplemented or waived without the consent of each Holder therein affected); (f)
reduce the percentage of the principal amount of outstanding Notes necessary for
amendment to or waiver of compliance with any provision of the Indenture or the
Notes or for waiver of any Default in respect thereof; (g) waive a default in
the payment of principal of, interest on, or redemption payment with respect to,
the Notes (except a rescission of acceleration of the Notes by the Holders
thereof as provided in the Indenture and a waiver of the payment default that
resulted from such acceleration); (h) modify the ranking or priority of any Note
or the Guaranty in respect thereof of any Guarantor or modify the definition of
Senior Indebtedness or Guarantor Senior Indebtedness or amend or modify the
subordination provisions of the Indenture, in any case in any manner adverse to
the Holders of the Notes; (i) modify the provisions of any covenant (or the
related definitions) in the Indenture requiring the Company to make an Offer to
Purchase following an event or circumstance which may give rise to the
requirement to make an Offer to Purchase in a manner materially adverse to the
Holders of Notes affected thereby otherwise than in accordance with the
Indenture; or (j) release any Guarantor from any of its obligations under its
Guaranty or the Indenture otherwise than in accordance with the Indenture.
The Holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all Holders of Notes, may waive compliance by the Company
and the Guarantors with certain
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restrictive provisions of the Indenture. Subject to certain rights of the
Trustee, as provided in the Indenture, the Holders of a majority in aggregate
principal amount of the Notes, on behalf of all Holders, may waive any past
default under the Indenture (including any such waiver obtained in connection
with a tender offer or exchange offer for the Notes), except a default in the
payment of principal, premium or interest or a default arising from failure to
purchase any Notes tendered pursuant to an Offer to Purchase, or a default in
respect of a provision that under the Indenture cannot be modified or amended
without the consent of the Holder of each Note that is affected.
THE TRUSTEE
Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture. During the existence
of a Default, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, any Guarantor or any other obligor upon the
Notes, to obtain payment of claims in certain cases or to realize on certain
property received by it in respect of any such claim as security or otherwise.
The Trustee is permitted to engage in other transactions with the Company or an
Affiliate of the Company; provided, however, that if it acquires any conflicting
interest (as defined in the Indenture or in the Trust Indenture Act), it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Accounts Receivable Subsidiary" means any Subsidiary of the Company that
is, directly or indirectly, wholly-owned by the Company (other than director
qualifying shares) and organized solely for the purpose of and engaged in (i)
purchasing, financing and collecting accounts receivable obligations of
customers of the Company or its Subsidiaries, (ii) the sale or financing of such
accounts receivable or interest therein and (iii) other activities incident
thereto.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time such
Person becomes a Restricted Subsidiary or is merged or consolidated with or into
the Company or any Restricted Subsidiary.
"Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Equity
Interests of any other Person by the Company or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted Subsidiary
or shall be consolidated with or merged into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business.
"Additional Interest" has the meaning provided in Section 4(a) of the
Registration Rights Agreement.
"Affiliate" of any specified person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
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by" and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that (i) beneficial ownership of 15.0% or more of the then outstanding Equity
Interests of a Person shall be deemed to be control for purposes of compliance
with the covenant described under "Certain Covenants -- Transactions with
Affiliates"; and (ii) no individual, other than a director of the Company or an
officer of the Company with a policy making function, shall be deemed an
Affiliate of the Company or any of its Subsidiaries, solely by reason of such
individual's employment, position or responsibilities by or with respect to the
Company or any of its Subsidiaries.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than the Company or a Wholly Owned Restricted Subsidiary, in one
transaction or a series of related transactions, of (i) any Equity Interest of
any Restricted Subsidiary; (ii) any material license, franchise or other
authorization of the Company or any Restricted Subsidiary; (iii) any assets of
the Company or any Restricted Subsidiary which constitute substantially all of
an operating unit or line of business of the Company or any Restricted
Subsidiary; or (iv) any other property or asset of the Company or any Restricted
Subsidiary outside of the ordinary course of business (including the receipt of
proceeds paid on account of the loss of or damage to any property or asset and
awards of compensation for any asset taken by condemnation, eminent domain or
similar proceedings). For the purposes of this definition, the term "Asset Sale"
shall not include (a) any transaction consummated in compliance with "Certain
Covenants -- Merger, Sale of Assets, etc." above and the creation of any Lien
not prohibited by "Certain Covenants -- Limitation on Liens" above; provided,
however, that any transaction consummated in compliance with "Certain
Covenants -- Merger, Sale of Assets, etc." above involving a sale, conveyance,
assignment, transfer, lease or other disposal of less than all of the properties
or assets of the Company shall be deemed to be an Asset Sale with respect to the
properties or assets of the Company and the Restricted Subsidiaries that are not
so sold, conveyed, assigned, transferred, leased or otherwise disposed of in
such transaction; (b) sales of property or equipment that has become worn out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or any Restricted Subsidiary; (c) any transaction
consummated in compliance with "Certain Covenants -- Limitation on Restricted
Payments" above; (d) sales of accounts receivable for cash at fair market value;
and (e) any sale, conveyance or transfer of accounts receivable in the ordinary
course of business to an Accounts Receivable Subsidiary or to third parties that
are not Affiliates of the Company or any Subsidiary of the Company.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Cash Equivalents" means: (a) U.S. dollars and any other currency that is
convertible into U.S. dollars without legal restrictions and which is utilized
by the Company or any of the Restricted Subsidiaries in the ordinary course of
its business; (b) securities issued or directly and fully guarantied or insured
by the U.S. government or any agency or instrumentality thereof having
maturities of not more than six months from the date of acquisition; (c)
certificates of deposit and time deposits with maturities of six months or less
from the date of acquisition, bankers' acceptances with maturities not exceeding
six months and overnight bank deposits, in each case with any commercial bank
having capital and surplus in excess of $500.0 million (or the foreign currency
equivalent thereof); (d) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (b) and
(c) above entered into with any financial institution meeting the qualifications
specified in clause (c) above; and (e) commercial
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paper rated P-1, A-1 or the equivalent thereof by Moody's Investors Service,
Inc. or Standard & Poor's Corporation, respectively, and in each case maturing
within six months after the date of acquisition.
"Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company): (i) any
Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other
than one or more Permitted Holders, is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, 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, upon the happening of an event or otherwise),
directly or indirectly, of more than 35% of the total voting power of the then
outstanding Voting Equity Interests of the Company or, so long as Holdings owns
a majority of the Voting Equity Interests of the Company, Holdings (or, for so
long as Holdings is a partnership, its general partner); provided, however, that
the Permitted Holders beneficially own (as defined above), directly or
indirectly, in the aggregate a lesser percentage of the total voting power of
the then outstanding Voting Equity Interests of the Company, Holdings or such
general partner, as the case may be, than such other Person and do not have the
right or ability by voting power, contract or otherwise to elect or designate
for election a majority of the Board of Directors of the Company; (ii) the
Company consolidates with, or merges with or into, another Person (other than a
Guarantor which is a Wholly Owned Restricted Subsidiary) or the Company or the
Restricted Subsidiaries sell, assign, convey, transfer, lease or otherwise
dispose of all or substantially all of the assets of the Company and the
Restricted Subsidiaries (determined on a consolidated basis) to any Person
(other than the Company or a Guarantor which is a Wholly Owned Restricted
Subsidiary), other than any such transaction where immediately after such
transaction the Person or Persons that "beneficially owned" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to
have "beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time) immediately prior to such transaction, directly or indirectly, the then
outstanding Voting Equity Interests of the Company "beneficially own" (as so
determined), directly or indirectly, a majority of the total voting power of the
then outstanding Voting Equity Interests of the surviving or transferee Person;
or (iii) following the first public offering of Voting Equity Interests of the
Company, during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved by
a vote of a majority of the directors of the Company 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 the Company then in office.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
"Change of Control Date" has the meaning set forth under "Offer to Purchase
upon Change of Control" above.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated EBITDA for the four quarter
period of the most recent four consecutive fiscal quarters ending prior to the
date of such determination (the "Four Quarter
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Period") to (ii) Consolidated Interest Expense for such Four Quarter Period;
provided, however, that (1) if the Company or any Restricted Subsidiary has
incurred any Indebtedness since the beginning of such Four Quarter Period that
remains outstanding on such date of determination or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence
of Indebtedness, Consolidated EBITDA and Consolidated Interest Expense for such
Four Quarter Period shall be calculated after giving effect on a pro forma basis
to such Indebtedness as if such Indebtedness had been Incurred on the first day
of such Four Quarter Period and the discharge of any other Indebtedness repaid,
repurchased or otherwise discharged with the proceeds of such new Indebtedness
as if such discharge had occurred on the first day of such Four Quarter Period,
(2) if since the beginning of such Four Quarter Period the Company or any
Restricted Subsidiary shall have made any Asset Sale, the Consolidated EBITDA
for such Four Quarter Period shall be reduced by an amount equal to the
Consolidated EBITDA (if positive) directly attributable to the assets that are
the subject of such Asset Sale for such Four Quarter Period or increased by an
amount equal to the Consolidated EBITDA (if negative) directly attributable
thereto for such Four Quarter Period and Consolidated Interest Expense for such
Four Quarter Period shall be reduced by an amount equal to the Consolidated
Interest Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased or otherwise discharged with respect
to the Company and its continuing Restricted Subsidiaries in connection with
such Asset Sale for such Four Quarter Period (or, if the Equity Interests of any
Restricted Subsidiary are sold, the Consolidated Interest Expense for such Four
Quarter Period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent the Company and its continuing Restricted Subsidiaries
are no longer liable for such Indebtedness after such sale), (3) if since the
beginning of such Four Quarter Period the Company or any Restricted Subsidiary
(by merger or otherwise) shall have made an Investment in any Restricted
Subsidiary (or any Person that becomes a Restricted Subsidiary) or an
acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business,
Consolidated EBITDA and Consolidated Interest Expense for such Four Quarter
Period shall be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness) as if such Investment or acquisition occurred on
the first day of such Four Quarter Period and (4) if since the beginning of such
Four Quarter Period any Person (that subsequently became a Restricted Subsidiary
or was merged with or into the Company or any Restricted Subsidiary since the
beginning of such Four Quarter Period) shall have made any Asset Sale or any
Investment or acquisition of assets that would have required an adjustment
pursuant to clause (2) or (3) above if made by the Company or a Restricted
Subsidiary during such Four Quarter Period, Consolidated EBITDA and Consolidated
Interest Expense for such Four Quarter Period shall be calculated after giving
pro forma effect thereto as if such Asset Sale, Investment or acquisition of
assets occurred on, with respect to any Investment or acquisition, the first day
of such Four Quarter Period and, with respect to any Asset Sale, the day prior
to the first day of such Four Quarter Period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings and any cost savings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any agreement under which Hedging Obligations
relating to interest are outstanding applicable to such Indebtedness if such
agreement under which such Hedging Obligations are outstanding has a remaining
term as at the date of determination in excess of 12 months).
"Consolidated EBITDA" means, for any period, the Consolidated Net Income
for such period, minus any non-cash item increasing Consolidated Net Income
during such period, plus the following to the extent deducted in calculating
such Consolidated Net Income: (i) Consolidated Income Tax Expense for such
period; (ii) Consolidated Interest Expense for such period; (iii) depreciation
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expense for such period; (iv) amortization expense for such period; and (v) all
other non-cash items reducing Consolidated Net Income for such period (other
than any non-cash item requiring an accrual or a reserve for cash disbursements
in any future period).
"Consolidated Income Tax Expense" means, with respect to the Company for
any period, the provision for Federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company for any
period, without duplication, the sum of (i) the interest expense of the Company
and the Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt discount, (b) the net cost under Hedging Obligations
relating to interest (including any amortization of discounts), (c) the interest
portion of any deferred payment obligation, (d) all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and (e) all capitalized interest and all accrued interest,
(ii) the interest component of Capital Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by the Company and the Restricted Subsidiaries
during such period as determined on a consolidated basis in accordance with GAAP
and (iii) dividends and distributions in respect of Disqualified Equity
Interests of the Company during such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Company and the Restricted Subsidiaries; provided, however,
that there shall not be included in such Consolidated Net Income: (i) any net
income (loss) of any Person if such person is not a Restricted Subsidiary,
except that (A) subject to the limitations contained in clause (iv) below, the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's equity in a
net loss of any such Person (other than an Unrestricted Subsidiary) for such
period shall be included in determining such Consolidated Net Income; (ii) any
net income (loss) of any person acquired by the Company or a Restricted
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition; (iii) any net income (loss) of any Restricted
Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company except that (A)
subject to the limitations contained in (iv) below, the Company's equity in the
net income of any such Restricted Subsidiary for such period shall be included
in such Consolidated Net Income up to the aggregate amount of cash that could
have been distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend (subject, in the case of
a dividend that could have been made to another Restricted Subsidiary, to the
limitation contained in this clause) and (B) the Company's equity in a net loss
of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income; (iv) any gain or loss realized upon
the sale or other disposition of any asset of the Company or the Restricted
Subsidiaries (including pursuant to any sale/leaseback transaction) that is not
sold or otherwise disposed of in the ordinary course of business and any gain or
loss realized upon the sale or other disposition of any Equity Interests of any
Person; (v) any extraordinary gain or loss; and (vi) the cumulative effect of a
change in accounting principles.
"Consolidated Net Worth" of the Company means the stockholders' equity of
the Company and the Restricted Subsidiaries determined on a consolidated basis
in accordance with GAAP, less amounts attributed to Disqualified Equity
Interests.
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"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Indebtedness" means (a) any Indebtedness outstanding
under the Senior Credit Facility and (b) any other Senior Indebtedness which, at
the time of determination, has an aggregate principal amount outstanding,
together with any commitments to lend additional amounts, of at least $15.0
million, if the instrument governing such Senior Indebtedness expressly states
that such Indebtedness is "Designated Senior Indebtedness" for purposes of the
Indenture and a Board Resolution setting forth such designation by the Company
has been filed with the Trustee.
"Designation" has the meaning set forth under "Certain
Covenants -- Designation of Unrestricted Subsidiaries" above.
"Designation Amount" has the meaning set forth under "Certain
Covenants -- Designation of Unrestricted Subsidiaries" above.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"Disqualified Equity Interest" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder thereof), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof, in
whole or in part, or exchangeable into Indebtedness on or prior to the maturity
date of the Notes.
"Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Existing Indebtedness" means any Indebtedness of the Company and its
Restricted Subsidiaries in existence on the Issue Date until such amounts are
repaid.
"Expiration Date" has the meaning set forth in the definition of "Offer to
Purchase" below.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Directors of the Company acting in good faith, and shall be evidenced by
resolutions of the Board of Directors of the Company delivered to the Trustee.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company that is
not organized under the laws of the United States of America or any state
thereof or the District of Columbia.
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Coverage Ratio" above.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for all applicable periods.
"Guarantor" means (i) each of the Subsidiaries of the Company (other than
Foreign Subsidiaries) as of the Issue Date and their respective successors, and
(ii) each other Restricted Subsidiary,
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formed, created or acquired before or after the Issue Date, required to become a
Guarantor after the Issue Date pursuant to "Guaranties of the Notes" above.
"Guarantor Senior Indebtedness" means, with respect to any Guarantor, at
any date, (a) all Obligations of such Guarantor under the Senior Credit
Facility; (b) all Hedging Obligations of such Guarantor; (c) all Obligations of
such Guarantor under stand-by letters of credit; and (d) all other Indebtedness
of such Guarantor for borrowed money, including principal, premium, if any, and
interest (including Post-Petition Interest) on such Indebtedness unless the
instrument under which such Indebtedness of such Guarantor for money borrowed is
Incurred expressly provides that such Indebtedness for money borrowed is not
senior or superior in right of payment to such Guarantor's Guaranty of the
Notes, and all renewals, extensions, modifications, amendments or refinancings
thereof. Notwithstanding the foregoing, Guarantor Senior Indebtedness shall not
include (a) to the extent that it may constitute Indebtedness, any Obligation
for Federal, state, local or other taxes; (b) any Indebtedness among or between
such Guarantor and any Subsidiary of such Guarantor; (c) to the extent that it
may constitute Indebtedness, any Obligation in respect of any trade payable
Incurred for the purchase of goods or materials, or for services obtained, in
the ordinary course of business; (d) Indebtedness evidenced by such Guarantor's
Guaranty of the Notes; (e) Indebtedness of such Guarantor that is expressly
subordinate or junior in right of payment to any other Indebtedness of such
Guarantor; (f) to the extent that it may constitute Indebtedness, any obligation
owing under leases (other than Capitalized Lease Obligations) or management
agreements; and (g) any obligation that by operation of law is subordinate to
any general unsecured obligations of such Guarantor.
"guaranty" means, as applied to any obligation, (i) a guaranty (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit. A guaranty shall include, without
limitation, any agreement to maintain or preserve any other Person's financial
condition or to cause any other Person to achieve certain levels of operating
results.
"Guaranty" means the guaranty of the Notes by each Guarantor under the
Indenture.
"Hedging Obligations" means, with respect to any Person, the Obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates and (iii) foreign currency or chemical commodity hedge, exchange or
similar protection agreements (agreements referred to in this definition being
referred to herein as "Hedging Agreements").
"Holder" means the registered holder of any Note.
"Holdings" means Sovereign Specialty Chemicals, L.P., a Delaware limited
partnership, and its successors.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guaranty or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of any Acquired Person or any of its
Subsidiaries existing at the time such Acquired Person becomes a Restricted
Subsidiary (or is merged into or consolidated with the Company or any Restricted
Subsidiary), whether or not such Indebtedness was Incurred in connection with,
as a result of, or in contemplation of, such Acquired Person becoming a
Restricted Subsidiary (or being merged into or consolidated with the Company or
any Restricted Subsidiary), shall be deemed Incurred at the time any such
Acquired Person becomes a Restricted Subsidiary or merges into or consolidates
with the Company or any Restricted Subsidiary.
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"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such Person for money borrowed; (b)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding (x) earnout or other similar obligations
until such time as the amount of such obligation is capable of being determined,
(y) trade accounts payable incurred in the ordinary course of business and
payable in accordance with industry practices, or (z) other accrued liabilities
arising in the ordinary course of business which are not overdue or which are
being contested in good faith); (e) every Capital Lease Obligation of such
Person; (f) every net obligation under Hedging Agreements of such Person; (g)
every obligation of the type referred to in clauses (a) through (f) of another
Person and all dividends of another Person the payment of which, in either case,
such Person has guarantied or is responsible or liable for, directly or
indirectly, as obligor, guarantor or otherwise; and (h) any and all deferrals,
renewals, extensions and refundings of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (a) through (g) above. Indebtedness (a) shall never be calculated taking
into account any cash and cash equivalents held by such Person; (b) shall not
include obligations of any Person (x) arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary course of
business, provided that such obligations are extinguished within two Business
Days of their incurrence, (y) resulting from the endorsement of negotiable
instruments for collection in the ordinary course of business and consistent
with past business practices and (z) under stand-by letters of credit to the
extent collateralized by cash or Cash Equivalents; (c) which provides that an
amount less than the principal amount thereof shall be due upon any declaration
of acceleration thereof shall be deemed to be incurred or outstanding in an
amount equal to the accreted value thereof at the date of determination; (d)
shall include the liquidation preference and any mandatory redemption payment
obligations in respect of any Disqualified Equity Interests of the Company or
any Restricted Subsidiary; and (e) shall not include obligations under
performance bonds, performance guaranties, surety bonds and appeal bonds,
letters of credit or similar obligations, incurred in the ordinary course of
business. For purposes of determining compliance with any U.S. dollar-
denominated restriction on the Incurrence of Indebtedness denominated in a
foreign currency, the U.S. dollar-equivalent principal amount of such
Indebtedness Incurred pursuant thereto shall be calculated based on the relevant
currency exchange rate in effect on the date that such Indebtedness was Incurred
if such Indebtedness is Incurred to refinance other Indebtedness denominated in
a foreign currency, and such refinancing would cause the applicable U.S.
dollar-denominated restriction to be exceeded if calculated at the relevant
currency exchange rate in effect on the date of such refinancing, such U.S.
dollar-denominated restriction shall be deemed not to have been exceeded so long
as the principal amount of such refinancing Indebtedness does not exceed the
principal amount of such Indebtedness being refinanced. The principal amount of
any Indebtedness Incurred to refinance other Indebtedness, if Incurred in a
different currency from the Indebtedness being refinanced, shall be calculated
based on the currency exchange rate applicable to the currencies in which such
respective Indebtedness is denominated that is in effect on the date of such
refinancing.
"Independent Financial Advisor" means a nationally recognized accounting,
appraisal, investment banking firm or consultant that is, in the judgment of the
Company's Board of Directors, qualified to perform the task for which it has
been engaged (i) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in the Company
and (ii) which, in the judgment of the Board of Directors of the Company, is
otherwise independent and qualified to perform the task for which it is to be
engaged.
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"Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"interest" means, with respect to the Notes, the sum of any cash interest
and any Additional Interest on the Notes.
"Investment" means, with respect to any Person, any direct or indirect
loan, advance, guaranty or other extension of credit or capital contribution to
(by means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. The amount
of any Investment shall be the original cost of such Investment, plus the cost
of all additions thereto, and minus the amount of any portion of such Investment
repaid to such Person in cash as a repayment of principal or a return of
capital, as the case may be, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment. In determining the amount of any Investment involving a transfer of
any property or asset other than cash, such property shall be valued at its fair
market value at the time of such transfer, as determined in good faith by the
Board of Directors (or comparable body) of the Person making such transfer.
"Issue Date" means the original issue date of the Notes.
"Junior Subordinated Seller Note" means the $3.0 million aggregate
principal amount 8% Note due 2002 issued by Holdings to Laporte plc on the Issue
Date.
"Lien" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"Maturity Date" means August 1, 2007.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash or
Cash Equivalents received by the Company or any Restricted Subsidiary in respect
of any Asset Sale, including all cash or Cash Equivalents received upon any
sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (a) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof; (b) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company to be provided as a reserve, in accordance with GAAP,
against any liabilities associated with such assets which are the subject of
such Asset Sale (provided that the amount of any such reserves shall be deemed
to constitute Net Cash Proceeds at the time such reserves shall have been
released or are not otherwise required to be retained as a reserve); and (e)
with respect to Asset Sales by Restricted Subsidiaries, the portion of such cash
payments attributable to Persons holding a minority interest in such Restricted
Subsidiary.
"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Offer" has the meaning set forth in the definition of "Offer to Purchase"
below.
"Offer to Purchase" means a written offer (the "Offer") sent by or on
behalf of the Company by first-class mail, postage prepaid, to each holder at
his address appearing in the register for the
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Notes on the date of the Offer offering to purchase up to the principal amount
of Notes specified in such Offer at the purchase price specified in such Offer
(as determined pursuant to the Indenture). Unless otherwise required by
applicable law, the Offer shall specify an expiration date (the "Expiration
Date") of the Offer to Purchase, which shall be not less than 20 Business Days
nor more than 60 days after the date of such Offer, and a settlement date (the
"Purchase Date") for purchase of Notes to occur no later than five Business Days
after the Expiration Date. The Company shall notify the Trustee at least 15
Business Days (or such shorter period as is acceptable to the Trustee) prior to
the mailing of the Offer of the Company's obligation to make an Offer to
Purchase, and the Offer shall be mailed by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company. The Offer
shall contain all the information required by applicable law to be included
therein. The Offer shall also contain information concerning the business of the
Company and its Subsidiaries which the Company in good faith believes will
enable such Holders to make an informed decision with respect to the Offer to
Purchase (which at a minimum will include (i) the most recent annual and
quarterly financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the documents
required to be filed with the Trustee pursuant to the Indenture (which
requirements may be satisfied by delivery of such documents together with the
Offer), (ii) a description of material developments in the Company's business
subsequent to the date of the latest of such financial statements referred to in
clause (i) (including a description of the events requiring the Company to make
the Offer to Purchase), (iii) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring the
Company to make the Offer to Purchase and (iv) any other information required by
applicable law to be included therein). The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Notes pursuant to the
Offer to Purchase. The Offer shall also state: (1) the Section of the Indenture
pursuant to which the Offer to Purchase is being made; (2) the Expiration Date
and the Purchase Date; (3) the aggregate principal amount of the outstanding
Notes offered to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such amount has been
determined pursuant to the Section of the Indenture requiring the Offer to
Purchase) (the "Purchase Amount"); (4) the purchase price to be paid by the
Company for each $1,000 aggregate principal amount of Notes accepted for payment
(as specified pursuant to the Indenture) (the "Purchase Price"); (5) that the
Holder may tender all or any portion of the Notes registered in the name of such
Holder and that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount; (6) the place or places where Notes are to
be surrendered for tender pursuant to the Offer to Purchase; (7) that interest
on any Note not tendered or tendered but not purchased by the Company pursuant
to the Offer to Purchase will continue to accrue; (8) that on the Purchase Date
the Purchase Price will become due and payable upon each Note being accepted for
payment pursuant to the Offer to Purchase and that interest thereon shall cease
to accrue on and after the Purchase Date; (9) that each Holder electing to
tender all or any portion of a Note pursuant to the Offer to Purchase will be
required to surrender such Note at the place or places specified in the Offer
prior to the close of business on the Expiration Date (such Note being, if the
Company or the Trustee so requires, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing); (10) that Holders will be entitled to withdraw all or any portion of
Notes tendered if the Company (or its Paying Agent) receives, not later than the
close of business on the fifth Business Day next preceding the Expiration Date,
a telegram, telex, facsimile transmission or letter setting forth the name of
the Holder, the principal amount of the Note the Holder tendered, the
certificate number of the Note the Holder tendered and a statement that such
Holder is withdrawing all or a portion of his tender; (11) that (a) if Notes in
an aggregate principal amount less than or equal to the Purchase Amount are duly
tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall
purchase all such Notes and (b) if Notes in an aggregate principal amount in
excess of the Purchase Amount are tendered and not withdrawn pursuant to the
Offer to Purchase, the Company shall purchase Notes having an aggregate
principal amount equal to the Purchase Amount on a pro rata basis (with such
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adjustments as may be deemed appropriate so that only Notes in denominations of
$1,000 principal amount or integral multiples thereof shall be purchased); and
(12) that in the case of any Holder whose Note is purchased only in part, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder, in an aggregate principal
amount equal to and in exchange for the unpurchased portion of the Note so
tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Pari Passu Debt" means Indebtedness of the Company or any Guarantor that
neither constitutes Senior Indebtedness or Guarantor Senior Indebtedness, as
applicable, or Subordinated Indebtedness.
"Pari Passu Debt Pro Rata Share" means the amount of the applicable Net
Cash Proceeds obtained by multiplying the amount of such Net Cash Proceeds by a
fraction, (i) the numerator of which is the aggregate accreted value and/or
principal amount, as the case may be, of all Pari Passu Debt outstanding at the
time of the applicable Asset Sale with respect to which the Company is required
to use Net Cash Proceeds to repay or make an offer to purchase or repay and (ii)
the denominator of which is the sum of (a) the aggregate principal amount of all
Notes outstanding at the time of the applicable Asset Sale and (b) the aggregate
principal amount or the aggregate accreted value, as the case may be, of all
Pari Passu Debt outstanding at the time of the applicable Offer to Purchase with
respect to which the Company is required to use the applicable Net Cash Proceeds
to offer to repay or make an offer to purchase or repay.
"Permitted Holder" means (a) First Chicago NBD Corp. and any Person
controlled by either First Chicago NBD Corp. or any of its or its Subsidiaries'
officers, (b) Robert B. Covalt, Carol E. Bramson and Lawrence E. Fox and (c) any
Person controlled by any Person identified in clause (b) of this definition.
"Permitted Indebtedness" has the meaning set forth in the second paragraph
of "Certain Covenants -- Limitation on Indebtedness" above.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) loans and
advances to employees made in the ordinary course of business not to exceed $1.0
million in the aggregate at any one time outstanding; (d) Hedging Obligations;
(e) bonds, notes, debentures or other securities received as a result of Asset
Sales permitted under "Certain Covenants -- Disposition of Proceeds of Asset
Sales" above not to exceed 20% of the total consideration for such Asset Sales
and any "earn out" or similar right permitted under "Certain
Covenants -- Disposition of Proceeds of Asset Sales"; (f) transactions with
officers, directors and employees of the Company or any Restricted Subsidiary
entered into in the ordinary course of business (including compensation or
employee benefit arrangements with any such director or employee) and consistent
with past business practices; (g) Investments existing as of the Issue Date and
any amendment, extension, renewal or modification thereof to the extent that any
such amendment, extension, renewal or modification does not require the Company
or any Restricted Subsidiary to make any additional cash or non-cash payments or
provide additional services in connection therewith; (h) any Investment to the
extent that the consideration therefor consists of Qualified Equity Interests of
the Company; (i) any Investment consisting of a guaranty by a Guarantor of
Senior Indebtedness or any guaranty permitted under clause (e) of the second
paragraph of "Limitation on Indebtedness" above; (j) Investments in Persons
primarily engaged in a Related Business in an aggregate amount not to exceed
$10.0 million; provided that the Company and/or the Restricted Subsidiaries own
at least one-third of the outstanding Voting
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Equity Interests of each such Person; and (k) Investments in the form of the
sale (on a "true sale" non-recourse basis) or the servicing of receivables
transferred from the Company or any Restricted Subsidiary, or transfers of cash,
to an Accounts Receivable Subsidiary as a capital contribution or in exchange
for Indebtedness of such Accounts Receivable Subsidiary or cash, in each case in
the ordinary course of business.
"Permitted Junior Securities" means any securities of the Company or any
other Person that are (i) equity securities without special covenants or (ii)
subordinated in right of payment to all Senior Indebtedness that may at the time
be outstanding, to substantially the same extent as, or to a greater extent
than, the Notes are subordinated as provided in the Indenture, in any event
pursuant to a court order so providing and as to which (a) the rate of interest
on such securities shall not exceed the effective rate of interest on the Notes
on the date of the Indenture, (b) such securities shall not be entitled to the
benefits of covenants or defaults materially more beneficial to the holders of
such securities than those in effect with respect to the Notes on the date of
the Indenture and (c) such securities shall not provide for amortization
(including sinking fund and mandatory prepayment provisions) commencing prior to
the date six months following the final scheduled maturity date of the Senior
Indebtedness (as modified by the plan of reorganization of readjustment pursuant
to which such securities are issued).
"Permitted Liens" means (a) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided, however, that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not secure any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets subject to the Liens prior to such merger or consolidation;
(b) Liens imposed by law such as carriers', warehousemen's and mechanics' Liens
and other similar Liens arising in the ordinary course of business which secure
payment of obligations not more than 60 days past due or which are being
contested in good faith and by appropriate proceedings; (c) Liens existing on
the Issue Date; (d) Liens securing only the Notes; (e) Liens in favor of the
Company or any Restricted Subsidiary; (f) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded; provided, however, that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have been made
therefor; (g) easements, reservation of rights of way, restrictions and other
similar easements, licenses, restrictions on the use of properties, or minor
imperfections of title that in the aggregate are not material in amount and do
not in any case materially detract from the properties subject thereto or
interfere with the ordinary conduct of the business of the Company and the
Restricted Subsidiaries; (h) Liens resulting from the deposit of cash or notes
in connection with contracts, tenders or expropriation proceedings, or to secure
workers' compensation, surety or appeal bonds, costs of litigation when required
by law and public and statutory obligations or obligations under franchise
arrangements entered into in the ordinary course of business; (i) Liens securing
Indebtedness consisting of Capitalized Lease Obligations, Purchase Money
Indebtedness, mortgage financings, industrial revenue bonds or other monetary
obligations, in each case incurred solely for the purpose of financing all or
any part of the purchase price or cost of construction or installation of assets
used in the business of the Company or the Restricted Subsidiaries, or repairs,
additions or improvements to such assets, provided, however, that (I) such Liens
secure Indebtedness in an amount not in excess of the original purchase price or
the original cost of any such assets or repair, addition or improvement thereto
(plus an amount equal to the reasonable fees and expenses in connection with the
incurrence of such Indebtedness), (II) such Liens do not extend to any other
assets of the Company or the Restricted Subsidiaries (and, in the case of
repair, addition or improvements to any such assets, such Lien extends only to
the assets (and improvements thereto or thereon) repaired, added to or
improved), (III) the Incurrence of such Indebtedness is permitted by "Certain
Covenants -- Limitation on Indebtedness" above and (IV) such Liens attach within
90 days of such purchase, construction, installation, repair, addition or
improvement; (j) Liens to secure any refinancings, renewals, extensions,
modifications or replacements (collectively, "refinancing") (or successive
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refinancings), in whole or in part, of any Indebtedness secured by Liens
referred to in the clauses above so long as such Lien does not extend to any
other property (other than improvements thereto); (k) Liens securing letters of
credit entered into in the ordinary course of business and consistent with past
business practice; and (l) Liens on and pledges of the Equity Interests of any
Unrestricted Subsidiary securing any Indebtedness of such Unrestricted
Subsidiary.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.
"Preferred Equity Interest," in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"Public Equity Offering" means, with respect to the Company, an
underwritten primary public offering of Qualified Equity Interests of the
Company pursuant to an effective registration statement filed under the
Securities Act (excluding registration statements filed on Form S-8).
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding Qualified
Equity Interests of the Company has been distributed by means of an effective
registration statement under the Securities Act.
"Purchase Amount" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property,
provided that the aggregate principal amount of such Indebtedness does not
exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refinancing of such Indebtedness that does not
increase the aggregate principal amount (or accreted amount, if less) thereof as
of the date of refinancing.
"Purchase Price" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Qualified Equity Interest" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
"Redemption Date" has the meaning set forth in the third paragraph of
"Optional Redemption" above.
"Related Business" means (a) those businesses in which the Company or any
of the Restricted Subsidiaries is engaged on the date of the Indenture, or that
are reasonably related or incidental thereto and (b) any business (the "Other
Business") which forms a part of a business (the "Acquired Business") which is
acquired by the Company or any of the Restricted Subsidiaries if (i) the primary
intent of the Company or such Restricted Subsidiary was to acquire that portion
of the Acquired Business which meets the requirements of clause (a) of this
definition and (ii) the Company believed that it would not have been able to
acquire such portion of the Acquired Business if the Other Business was not also
acquired.
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"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a resolution of the
Board of Directors of the Company delivered to the Trustee, as an Unrestricted
Subsidiary pursuant to "Certain Covenants -- Designation of Unrestricted
Subsidiaries" above. Any such designation may be revoked by a resolution of the
Board of Directors of the Company delivered to the Trustee, subject to the
provisions of such covenant.
"SEC" means the Securities and Exchange Commission.
"Senior Credit Facility" means the Amended and Restated Credit Agreement,
dated as of the Issue Date, between the Company, Holdings, the Subsidiaries of
the Company named therein from time to time, the lenders named therein, and The
Chase Manhattan Bank, as Administrative Agent, including any deferrals,
renewals, extensions, replacements, refinancings or refundings thereof, or
amendments, modifications or supplements thereto and any agreement providing
therefor (including any restatements thereof and any increases in the amount of
commitments thereunder), whether by or with the same or any other lender,
creditor, group of lenders or group of creditors, and including related notes,
guaranty and note agreements and other instruments and agreements executed in
connection therewith.
"Senior Indebtedness" means, at any date, (a) all Obligations of the
Company under the Senior Credit Facility; (b) all Hedging Obligations of the
Company; (c) all Obligations of the Company under stand-by letters of credit;
and (d) all other Indebtedness of the Company for borrowed money, including
principal, premium, if any, and interest (including Post-Petition Interest) on
such Indebtedness, unless the instrument under which such Indebtedness of the
Company for money borrowed is Incurred expressly provides that such Indebtedness
for money borrowed is not senior or superior in right of payment to the Notes,
and all renewals, extensions, modifications, amendments or refinancings thereof.
Notwithstanding the foregoing, Senior Indebtedness shall not include (a) to the
extent that it may constitute Indebtedness, any Obligation for Federal, state,
local or other taxes; (b) any Indebtedness among or between the Company and any
Subsidiary of the Company, unless and for so long as such Indebtedness has been
pledged to secure Obligations under the Senior Credit Facility; (c) to the
extent that it may constitute Indebtedness, any Obligation in respect of any
trade payable Incurred for the purchase of goods or materials, or for services
obtained, in the ordinary course of business; (d) Indebtedness evidenced by the
Notes; (e) Indebtedness of the Company that is expressly subordinate or junior
in right of payment to any other Indebtedness of the Company; (f) to the extent
that it may constitute Indebtedness, any obligation owing under leases (other
than Capital Lease Obligations) or management agreements; and (g) any obligation
that by operation of law is subordinate to any general unsecured obligations of
the Company.
"Significant Restricted Subsidiary" means, at any date of determination,
(a) any Restricted Subsidiary that, together with its Subsidiaries that
constitute Restricted Subsidiaries (i) for the most recent fiscal year of the
Company accounted for more than 5.0% of the consolidated revenues of the Company
and the Restricted Subsidiaries or (ii) as of the end of such fiscal year, owned
more than 5.0% of the consolidated assets of the Company and the Restricted
Subsidiaries, all as set forth on the consolidated financial statements of the
Company and the Restricted Subsidiaries for such year prepared in conformity
with GAAP, and (b) any Restricted Subsidiary which, when aggregated with all
other Restricted Subsidiaries that are not otherwise Significant Restricted
Subsidiaries and as to which any event described in clause (f), (g) or (h) of
"Events of Default" above has occurred, would constitute a Significant
Restricted Subsidiary under clause (a) of this definition.
"Stated Maturity," when used with respect to any Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"Subordinated Indebtedness" means, with respect to the Company or any
Guarantor, any Indebtedness of the Company or such Guarantor, as the case may
be, which is expressly subordinated in right of payment to the Notes or such
Guarantor's Guaranty, as the case may be.
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"Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"United States Government Obligations" means direct non-callable
obligations of the United States of America for the payment of which the full
faith and credit of the United States is pledged.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to "Certain Covenants -- Designation of Unrestricted Subsidiaries"
above. Any such designation may be revoked by a resolution of the Board of
Directors of the Company delivered to the Trustee, subject to the provisions of
such covenant.
"Unutilized Net Cash Proceeds" has the meaning set forth in the third
paragraph under "Certain Covenants -- Disposition of Proceeds of Asset Sales"
above.
"Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all of
the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company.
BOOK-ENTRY, DELIVERY AND FORM
Except as described in the next paragraph, the Notes initially will be
represented by one or more permanent global certificates in definitive, fully
registered form (the "Global Notes"). The Global Notes will be deposited on the
date of issuance with, or on behalf of, The Depository Trust Company ("DTC") and
registered in the name of a nominee of DTC.
Notes originally purchased by or transferred to Holders who elect to take
physical delivery of their certificates instead of holding their interest
through a Global Note (collectively referred to herein as the "Non-Global
Purchasers") will be issued Notes in the form of certificated notes in
definitive, fully registered form (the "Certificated Notes"). Upon the transfer
of any Certificated Note initially issued to a Non-Global Purchaser, such
Certificated Note will, unless the transferee requests Certificated Notes or the
Global Notes have previously been exchanged in whole for Certificated Notes, be
exchanged for an interest in a Global Note. Upon the transfer of an interest in
a Global Note, such interest will, unless the transferee requests Certificated
Notes, be represented by an interest in the Global Note. For a description of
the restrictions on the transfer of Certificated Notes and any interest in a
Global Note, see "Transfer Restrictions" below.
The Global Notes. The Company expects that pursuant to procedures
established by DTC (a) upon the issuance of the Global Notes, DTC or its
custodian will credit, on its internal system, the principal amount of Notes of
the individual beneficial interests represented by the Global Notes to the
respective accounts of persons who have accounts with DTC and (b) ownership of
beneficial
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interests in the Global Notes will be shown on, and the transfer of such
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of Participants (as defined herein)) and the
records of Participants (with respect to interests of persons other than
Participants). Such accounts initially will be designated by or on behalf of the
Initial Purchasers and ownership of beneficial interests in the Global Notes
will be limited to persons who have accounts with DTC ("Participants") or
persons who hold interests through Participants. Interests in a Global Note may
be held directly through DTC, by Participants, or indirectly through
organizations which are Participants.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Notes for all
purposes under the Indenture. No beneficial owner of an interest in a Global
Note will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture.
Payments of the principal of, premium, if any, and interest on the Global
Notes will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Trustee or any paying agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Note, will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of DTC or its nominee. The Company also expects that
payments by Participants to owners of beneficial interests in the Global Note
held through such Participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such Participants.
Transfers between Participants will be effected in the ordinary way in
accordance with DTC rules and will be settled in clearinghouse funds. If a
Holder requires physical delivery of a Certificated Note for any reason,
including to sell Notes to persons in states which require physical delivery of
the Notes, or to pledge such securities, such Holder must transfer its interest
in the Global Note in accordance with the normal procedures of DTC and with the
procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Notes (including the presentation of Notes for exchange)
only at the direction of one or more Participants to whose account the DTC
interests in a Global Note are credited and only in respect of such portion of
the aggregate principal amount of Notes as to which such Participant or
Participants has or have given such direction. However, if there is an Event of
Default under the Indenture, DTC will exchange the Global Notes in whole for
Certificated Notes, which it will distribute to the Participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
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Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in Global Notes among Participants, it is under no
obligation to perform such procedures, and such procedures may be discontinued
at any time. Neither the Company nor the Trustee will have any responsibility
for the performance by DTC or the Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
Certificated Notes. If DTC is at any time unwilling or unable to continue
as a depositary for the Global Note and a successor depositary is not appointed
by the Company within 90 days, Certificated Notes will be issued in exchange for
Global Notes.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on August 5, 1997 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes to qualified institutional buyers in reliance
on Rule 144A under the Securities Act. As a condition to the Purchase Agreement,
the company, the Guarantors and the Initial Purchasers entered into the
Registration Rights Agreement on the date of the Initial Offering (the "Issue
Date"). Certain terms of the Registration Rights Agreement are summarized as
follows:
The Company and the Guarantors have agreed to (i) file with the Commission
on or prior to 90 days after the Issue Date a registration statement on Form S-1
or Form S-4, if the use of such forms is then available (the "Exchange Offer
Registration Statement"), relating to a registered exchange offer (the "Exchange
Offer") for the Old Notes under the Securities Act and (ii) use their reasonable
best efforts to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act within 270 days after the Issue Date. As soon
as practicable after the effectiveness of the Exchange Offer Registration
Statement, the Company will offer to the holders of the Transfer Restricted
Securities (as defined below) who are not prohibited by any law or policy of the
Commission from participating in the Exchange Offer the opportunity to exchange
their Transfer Restricted Securities for an issue of a second series of notes
(the "Exchange Notes"), identical in all material respects to the Notes (except
that the Exchange Notes will not contain terms with respect to transfer
restrictions) and that would be registered under the Securities Act. The Company
will keep the Exchange Offer open for not less than 20 business days (or longer,
if required by applicable law) after the date on which notice of the Exchange
Offer is mailed to the holders of the Notes. If (i) because of any change in law
or applicable interpretations thereof by the staff of the Commission, the
Company is not permitted to effect the Exchange Offer as contemplated hereby,
(ii) any Securities validly tendered pursuant to the Exchange Offer are not
exchanged for Exchange Securities within 300 days after the Issue Date, (iii)
any Initial Purchaser so requests with respect to Old Notes not eligible to be
exchanged for Exchange Notes in the Exchange Offer, (iv) any applicable law or
interpretations do not permit any holder of Notes to participate in the Exchange
Offer, (v) any holder of the Old Notes that participates in the Exchange Offer
does not receive freely transferable Exchange Notes in exchange for tendered Old
Notes (other than due solely to the status of a holder (other than an Initial
Purchaser) as an affiliate of any of the Issuers within the meaning of the
Securities Act, and other than any state securities law restrictions which,
individually or, in the aggregate, do not materially adversely affect the
ability of any such holder to resell the securities held by such holder), or
(vi) the Company so elects, the Company and the Guarantors will file with the
Commission a shelf registration statement (the "Shelf Registration Statement")
to cover resales of Transfer Restricted Securities by such holders who satisfy
certain conditions relating to, among other things, the provision of information
in connection with the Shelf Registration Statement provided that, upon a
receipt of a notice from the Company to the effect that, in the reasonable
judgment of the Company, the use of the Shelf Registration Statement would
materially interfere with a valid business purpose of the Company or the
Guarantors, the holders of the Notes shall cease distribution of the Notes under
such Shelf Registration Statement for a period
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of time not to exceed 60 days in any one year. For purposes of the foregoing,
"Transfer Restricted Securities" means each Old Note until (i) the date on which
such Old Note has been exchanged for a freely transferable Exchange Note in the
Exchange Offer, (ii) the date on which such Old Note has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iii) the date on which such Old Note is distributed
to the public pursuant to Rule 144 under the Securities Act or is saleable
pursuant to Rule 144(k) under the Securities Act.
The Company and the Guarantors will use their reasonable best efforts to
have the Exchange Offer Registration Statement or, if applicable, a Shelf
Registration Statement (each a "Registration Statement") declared effective by
the Commission as promptly as practicable after the filing thereof. Unless the
Exchange Offer would not be permitted by a policy of the Commission, the Company
will commence the Exchange Offer and will use its best efforts to consummate the
Exchange Offer as promptly as practicable, but in any event prior to 300 days
after the Issue Date. If applicable, the Company and the Guarantors will use
their best efforts to keep the Shelf Registration Statement effective for a
period of two years after the Issue Date, subject to certain exceptions. If (i)
the applicable Registration Statement is not filed with the Commission on or
prior to 90 days after the Issue Date, (ii) the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, is not
declared effective within 270 days after the Issue Date, (iii) the Exchange
Offer is not consummated on or prior to 300 days after the Issue Date, or (iv)
the Shelf Registration Statement is filed and declared effective within 270 days
after the Issue Date but shall thereafter cease to be effective (at any time
that the Company is obligated to maintain the effectiveness thereof) without
being succeeded within 60 days by an additional Registration Statement filed and
declared effective (each such event referred to in clauses (i) through (iv), a
"Registration Default"), the Company will be obligated to pay liquidated damages
to each holder of Transfer Restricted Securities, during the period of one or
more such Registration Defaults, in an amount equal to $0.192 per week per
$1,000 principal amount of the Old Notes constituting Transfer Restricted
Securities held by such holder until the applicable Registration Statement is
filed or declared effective, the Exchange Offer is consummated or the Shelf
Registration Statement is declared effective or again becomes effective, as the
case may be. All accrued liquidated damages shall be paid to holders in the same
manner as interest payments on the Notes on semiannual payment dates which
correspond to interest payment dates for the Notes. Following the cure of all
Registration Defaults, the accrual of liquidated damages will cease.
The Registration Rights Agreement also provides that the Company (i) shall
make available for a period of 180 days after the consummation of the Exchange
Offer a prospectus meeting the requirements of the Securities Act to any
broker-dealer for use in connection with any resale of any such Exchange Notes
and (ii) shall pay all expenses incident to the Exchange Offer (including the
expenses of one counsel to the holders of the Notes) and will indemnify certain
holders of the Notes (including any broker-dealer) against certain liabilities,
including liabilities under the Securities Act. A broker-dealer that delivers
such a prospectus to purchasers in connection with such resales will be subject
to certain of the civil liability provisions under the Securities Act, and will
be bound by the provisions of the Registration Rights Agreement (including
certain indemnification rights and obligations).
Each holder of Notes who wishes to exchange such Old Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any Exchange Notes to be received by it will
be acquired in the ordinary course of its business, (ii) it has no arrangement
or understanding with any person to participate in the distribution of the
Exchange Notes and (iii) it is not an "affiliate," as defined in Rule 405 under
the Securities Act, of the Company or if it is an affiliate, that it will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable.
If a holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If a holder is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Notes that were acquired as a
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result of market making activities or other trading activities (an "Exchange
Dealer"), it will be required to acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes.
Holders of the Old Notes will be required to make certain representations
to the Company (as described above) in order to participate in the Exchange
Offer and will be required to deliver information to be used in connection with
the Shelf Registration Statement in order to have their Old Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
liquidated damages set forth in the preceding paragraphs. A holder who sells Old
Notes pursuant to the Shelf Registration Statement generally will be required to
be named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
For so long as the Old Notes are outstanding, the Company and the
Guarantors will continue to provide to holders of the Old Notes and to
prospective purchasers of the Old Notes the information required by paragraph
(d)(4) of Rule 144A under the Securities Act. The Company will provide a copy of
the Registration Rights Agreement to prospective purchasers of Old Notes
identified to the Company by an Initial Purchaser upon request.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such Old Notes could be adversely affected.
The foregoing description of the Registration Rights Agreement is a summary
only, does not purport to be complete and is qualified in its entirety by
reference to all provisions of the Registration Rights Agreement.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a Series B designation
and a different CUSIP Number from the Old Notes, (ii) the Exchange Notes have
been registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (iii) the holders of the Exchange Notes
will not be entitled to certain rights under the Registration Rights Agreement,
including the provisions providing for an increase in the interest rate on the
Old Notes in certain circumstances relating to the timing of the Exchange Offer,
all of which rights will terminate when the Exchange Offer is terminated. The
Exchange Notes will evidence the same debt as the Old Notes and will be entitled
to the benefit of the Indenture.
As of the date of this Prospectus, $125,000,000 aggregate principal amount
of Old Notes were outstanding. The Company has fixed the close of business on
, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company
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intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any sum unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer and any of the conditions set forth below under "-- Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed is promptly as practicable by oral or
written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on August 1, 1998. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semiannually on each February 1
and August 1, commencing on August 1, 1998.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
for a holder to validly tender Old Notes pursuant to the Exchange Offer, a
property completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantee, or (in the case of a book-entry
transfer) an Agent's Message in lieu of the Letter of Transmittal, and any other
required documents must be received by the Exchange Agent at the address set
forth under "Exchange Agent" prior to 5:00 p.m., New York City time, on the
Expiration Date. In addition, prior to 5:00 p.m., New York City time, on the
Expiration Date, either (a) certificates for tendered Old
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Notes must be received by the Exchange Agent at such address or (b) such Old
Notes must be transferred pursuant to the procedures for book-entry transfer
described below (and a confirmation of such tender received by the Exchange
Agent, including an Agent's Message if the tendering holder has not delivered a
Letter of Transmittal). The term "Agent's Message" means a message, transmitted
by the book-entry transfer facility, The Depository Trust Company (the
"Book-Entry Transfer Facility"), to and received by the Exchange Agent and
forming a part of a book-entry confirmation, which states that the Book-Entry
Transfer Facility has received an express acknowledgment from the tendering
participant that such participant has received and agrees to be bound by the
Letter of Transmittal and that the Company may enforce such Letter of
Transmittal against such participant.
By executing the Letter of Transmittal (or transmitting an Agent's Message
in lieu thereof) each holder will make to the Company the representations set
forth above in the third paragraph under the heading "-- Purpose and Effect of
the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTION FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must guaranteed by a recognized participant in the Securities
Transfer Agent Medallion Program, the York Stock Exchange Medallion Signature
Program or the Stock Exchange Medallion Program (each a "Medallion Signature
Guarantor"), unless the Old Notes tendered pursuant thereto are tendered (i) by
a registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of a member firm of a registered national securities
exchange, a member of the NASD or a commercial bank or trust company having an
office or correspondent in the United States (each of the foregoing being an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a property completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by a Medallion Signature Guarantor.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the Book-Entry Transfer
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Facility for the purpose of facilitating the Exchange Offer, and subject to the
establishment thereof, any financial institution that is a participant in the
Book-Entry Transfer Facility's system may make book-entry delivery of Old Notes
by causing such Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account with respect to the Old Notes in accordance with the
Book-Entry Transfer Facility's procedures for such transfer. Although delivery
of the Old Notes may be effected through book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee (or, in the case of book-entry transfer, an Agent's Message in lieu
thereof) and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right in its sole discretion to waive
any defects, irregularities or conditions of tender as to particular Old Notes.
he Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURE
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal (or, in the case of book-entry transfer, an Agent's Message) or any
other required documents to the Exchange Agent or (iii) who cannot complete the
procedures for book-entry transfer (including delivery of an Agents Message),
prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution (i) an Agent's Message with respect to guaranteed
delivery that is accepted by the Company, or (ii) a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the holder,
the certificate number(s) of such Old Notes and the principal amount of Old
Notes tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange Agents
account at the Book-Entry Transfer Facility), and any other documents
requited by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
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(c) such properly completed and executed Letter of Transmittal or
facsimile thereof (or, in the case of book-entry transfer, an Agents
Message), as well as the certificate(s) representing all tendered Old Notes
in proper form for transfer (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within three New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
Old Notes transferred by book-entry transfer, the name and number of the account
at the Book-Entry Transfer Facility to be credited), (iii) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Old Notes register the transfer of such Old Notes
into the name of the person withdrawing the tender and (iv) specify the name in
which any such Old Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so Withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries;
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the sole
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange offer to the Company; or
83
<PAGE> 89
(c) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are riot satisfied, the Company may (i) refuse to accept any Old Notes and
return all tendered Old Notes to the tendering holders, (ii) extend the Exchange
Offer and retain all Old Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of holders to withdraw such Old Notes
(see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange offer and accept all properly tendered Old Notes which
have not been withdrawn.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
THE BANK OF NEW YORK
<TABLE>
<S> <C>
BY MAIL: OVERNIGHT COURIER:
BY HAND: FACSIMILE TRANSMISSION:
</TABLE>
FOR INFORMATION TELEPHONE (CALL COLLECT):
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, less the original issue discount (net of
amortization) as reflected in the Company's accounting records on the date of
exchange. Accordingly, no gain or loss for accounting purposes will be by the
Company. The expenses of the Exchange Offer will be expensed over the term of
the Exchange Notes.
84
<PAGE> 90
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so Long as the Old Notes are eligible for resale pursuant to Rule 144A, to
a person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iii) outside
the United States to a foreign person in a transaction meeting the requirements
of Rule 904 under the Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in exchange for Old Notes in the ordinary
course of business and who is not participating, does not intend to participate,
and has no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, will be allowed to resell the Exchange Notes
to the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Participating Broker-Dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activates, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the Exchange Notes are to be
acquired by the holder or the person receiving such Exchange Notes, whether or
not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, and (v) the holder or any such other person acknowledges that if
such holder or other person participates in the Exchange Offer for the purpose
of distributing the Exchange Notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes and cannot rely on those no-action letters. As
indicated above, each Participating Broker-Dealer that receives an Exchange Note
for its own account in exchange for Old Notes must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. For a
description of the procedures for such resales by Participating Broker-Dealers,
see "Plan of Distribution."
85
<PAGE> 91
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based on the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "Service") will not take a
contrary view, and no ruling from the Service has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conditions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders. Certain holders (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. The Company recommends that each holder consult such holders own tax
advisor as to the particular tax consequences of exchanging such holder's Old
Notes for Exchange Notes, including applicability and effect of any state, local
or foreign tax laws.
The Company believes that the exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer will not be treated as an "exchange" for federal
income tax purposes because the Exchange Notes will not be considered to differ
materially in kind or extent from the Old Notes. Rather, the Exchange Notes
received by a holder will be treated as a continuation of the Old Notes in the
hands of such holder. As a result, there will be no federal income tax
consequences to holders exchanging Old Notes for Exchange Notes pursuant to the
Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
receive in exchange for Old Notes where such Old Notes were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that for a period of 180 days after the Expiration Date, they will make this
Prospectus, as amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale. In addition, until
, 1998 (90 days after the commencement of the Exchange Offer), all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such Exchange Notes. Any Participating Broker-Dealer that resells the
Exchange Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
86
<PAGE> 92
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
LEGAL MATTERS
Certain legal matters in connection with the offering and sale of the
Exchange Notes will be passed upon for the Company by Kirkland & Ellis, Chicago,
Illinois (a partnership which includes professional corporations).
EXPERTS
The consolidated financial statements and schedule of (i) the Company as of
December 31, 1996 and for the period from March 31, 1996 through December 31,
1996, (ii) SIA Adhesives as of December 31, 1995 and for the years ended
December 31, 1994 and 1995, and the three months ended March 31, 1996, and (iii)
Pierce & Stevens for the year ended December 31, 1995 and for the period from
January 1, 1996 through August 19, 1996 included in this Prospectus have been
audited by Ernst & Young LLP, independent auditors, as stated in their reports
appearing herein and incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing. The combined financial statements of the Division as of December 31,
1995 and 1996, and for the three years in the period ended December 31, 1996,
have been audited by KPMG Audit Plc, chartered accountants and registered
auditor, London, England. Such combined financial statements have been included
and incorporated herein by reference in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
87
<PAGE> 93
INDEX TO FINANCIAL STATEMENTS
SOVEREIGN SPECIALTY CHEMICALS, INC.
<TABLE>
<S> <C>
Unaudited Pro Forma Statement of Operations................. P-1
Unaudited Pro Forma Statement of Operations for the year
ended December 31, 1997................................... P-2
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997...................................................... F-3
Consolidated Statements of Operations for the period from
March 31, 1996 (Date of Inception) to December 31, 1996
and for the year ended December 31, 1997.................. F-4
Consolidated Statements of Stockholder's Equity for the
periods ended December 31, 1996 and 1997.................. F-5
Consolidated Statements of Cash Flows for the period from
March 31, 1996 (Date of Inception) to December 31, 1996
and for the year ended December 31, 1997.................. F-6
Notes to Consolidated Financial Statements.................. F-7
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.; EVODE-TANNER
INDUSTRIES, INC.; AND MERCER PRODUCTS COMPANY, INC.
Report of Independent Auditors.............................. F-23
Combined Balance Sheet as of August 4, 1997................. F-24
Combined Statement of Operations and Retained Earnings for
the period from January 1, 1997 to August 4, 1997......... F-25
Combined Statement of Cash Flows for the period from January
1, 1997 to August 4, 1997................................. F-26
</TABLE>
ADHESIVES SYSTEMS DIVISION OF THE BFGOODRICH COMPANY
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-35
Statements of Divisional Operations and Division Equity for
the year ended December 31, 1995 and the three months
ended March 31, 1996...................................... F-36
Statements of Cash Flows for the year ended December 31,
1995 and the three months ended March 31, 1996............ F-37
Notes to Financial Statements............................... F-38
</TABLE>
PIERCE & STEVENS CORP.
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-41
Combined Statements of Income for the year ended December
31, 1995 and for the period January 1, 1996 through August
19, 1996.................................................. F-42
Combined Statements of Cash Flows for the year ended
December 31, 1995 and for the period January 1, 1996
through August 19, 1996................................... F-43
Notes to Combined Financial Statements...................... F-44
</TABLE>
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.; EVODE-TANNER INDUSTRIES,
INC.; AND MERCER PRODUCTS COMPANY, INC. (COLLECTIVELY, THE "DIVISION")
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-48
Combined Balance Sheets as of December 31, 1995 and 1996 and
March 31, 1996 and 1997................................... F-49
Combined Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 and the three months
ended March 31, 1996 and 1997............................. F-50
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the three months
ended March 31, 1996 and 1997............................. F-51
Notes to Combined Financial Statements...................... F-52
</TABLE>
F-1
<PAGE> 94
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
The following unaudited pro forma statement of operations is based upon the
historical statement of operations of the Company for the year ended December
31, 1997 and the Acquired Companies for the period from January 1, 1997 to
August 4, 1997 (date of acquisition by the Company) included elsewhere in this
Registration Statement.
The unaudited pro forma statement of operations for the year ended December
31, 1997 gives effect to the acquisition of the Acquired Companies as though it
was consummated on January 1, 1997.
The unaudited pro forma statement of operations does not purport to be
indicative of the results that would have been obtained had such acquisition
been consummated on January 1, 1997. In addition, the pro forma statement of
operations does not purport to project the Company's results of operations for
any future period.
The unaudited pro forma statement of operations should be read in
conjunction with the financial statements of the Company and the Acquired
Companies and the notes thereto, included elsewhere herein.
P-1
<PAGE> 95
SOVEREIGN SPECIALTY CHEMICALS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE ACQUIRED PRO FORMA
THE COMPANY COMPANIES ADJUSTMENTS TOTAL
----------- ------------ ----------- -----
<S> <C> <C> <C> <C>
Net sales................................ $134,771 $73,574 $ -- $208,345
Cost of goods sold....................... 92,889 49,726 -- 142,615
-------- ------- ------- --------
Gross profit............................. 41,882 23,848 -- 65,730
Selling, general and administrative
expense................................ 30,131 15,618 962(1) 46,711
-------- ------- ------- --------
Operating income......................... 11,751 8,230 (962) 19,019
Interest expense......................... 9,080 2,296 5,102(2) 16,478
Foreign exchange loss.................... 163 -- -- 163
-------- ------- ------- --------
Income before income taxes............... 2,508 5,934 (6,064) 2,378
Income taxes............................. 1,315 2,380 (1,948)(3) 1,747
-------- ------- ------- --------
Income before discontinued operations and
extraordinary losses................... $ 1,193 $ 3,554 $(4,116) $ 631
======== ======= ======= ========
</TABLE>
- -------------------------
(1) Adjustment gives effect to the increased amortization of goodwill of $2,514
offset by the elimination of goodwill amortization of the Acquired Companies
prior to acquisition of $1,552.
(2) Adjustment gives effect to the increased interest expense of $9,110
(including $739 in amortization of capitalized deferred finance costs) as
reduced by elimination of historical interest expense of $2,212 (including
$75 in historical amortization of capitalized deferred finance costs)
refinanced in the Transactions and $1,796 of pre-acquisition interest
expense of the Acquired Companies (long-term payable to parent) not acquired
by the Company.
(3) Adjustment gives effect to the income tax benefit resulting from the
increase in interest expense and goodwill amortization (net of nondeductible
goodwill amortization) at an effective rate of 40.0%.
P-2
<PAGE> 96
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Sovereign Specialty Chemicals, Inc.
We have audited the accompanying consolidated balance sheets of Sovereign
Specialty Chemicals, Inc. and Subsidiaries (the Company) as of December 31, 1996
and 1997, and the related consolidated statements of operations, stockholder's
equity, and cash flows for the period from March 31, 1996 (date of inception) to
December 31, 1996 and for the year ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sovereign
Specialty Chemicals, Inc. and Subsidiaries at December 31, 1996 and 1997, and
the consolidated results of their operations and their consolidated cash flows
for the period from March 31, 1996 (date of inception) to December 31, 1996, and
for the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 27, 1998
F-2
<PAGE> 97
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER
-------------------
1996 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 104 $ 6,413
Accounts receivable, less allowance of $325 and $655...... 10,997 26,824
Inventories............................................... 9,895 21,042
Deferred income taxes..................................... 688 944
Other current assets...................................... 1,972 4,539
------- --------
Total current assets........................................ 23,656 59,762
Property, plant, and equipment, net......................... 27,022 48,308
Goodwill, net............................................... 17,876 123,177
Deferred financing costs, net............................... 1,169 11,137
Other assets................................................ 237 375
------- --------
Total assets................................................ $69,960 $242,759
======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,959 $ 13,008
Accrued expenses.......................................... 4,629 14,023
Current portion of long-term debt......................... 2,000 2,400
Current portion of capital lease obligations.............. 132 120
------- --------
Total current liabilities................................... 11,720 29,551
Long-term debt, less current portion........................ 39,360 153,193
Capital lease obligations, less current portion............. 160 3,564
Deferred income taxes....................................... 72 209
Other long-term liabilities................................. 713 4,189
Minority interests.......................................... 491 --
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares authorized,
issued and outstanding.................................... -- --
Additional paid-in capital.................................. 17,689 52,479
Accumulated deficit......................................... (306) (522)
Cumulative translation adjustment........................... 61 96
------- --------
Total stockholder's equity.................................. 17,444 52,053
------- --------
Total liabilities and stockholder's equity.................. $69,960 $242,759
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 98
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 31, 1996
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1996 1997
------------------- ------------
<S> <C> <C>
Net sales................................................... $37,792 $134,771
Cost of goods sold.......................................... 26,637 92,889
------- --------
Gross profit................................................ 11,155 41,882
Selling, general, and administrative expenses............... 9,458 30,081
Minority interest........................................... 155 50
------- --------
Operating income............................................ 1,542 11,751
Foreign exchange loss....................................... -- 163
Interest expense............................................ 1,666 9,080
------- --------
Income (loss) before income taxes and extraordinary
losses.................................................... (124) 2,508
Income taxes................................................ (99) 1,315
------- --------
Income (loss) before extraordinary losses................... (25) 1,193
Extraordinary losses (net of tax benefits).................. 281 1,409
------- --------
Net loss.................................................... $ (306) $ (216)
======= ========
Pro forma:
Net income (loss) before income taxes and extraordinary
losses, as stated......................................... $ (124) $ 2,508
Income taxes:
As stated................................................. (99) 1,315
Additional pro forma income taxes......................... 154 657
------- --------
55 1,972
------- --------
Net income (loss) before extraordinary losses............... (179) 536
Extraordinary losses........................................ 169 1,409
------- --------
Net loss.................................................... $ (348) $ (873)
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 99
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE PERIODS ENDED DECEMBER 31, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON PAID-IN ACCUMULATED TRANSLATION
STOCK CAPITAL DEFICIT ADJUSTMENT TOTAL
------ ---------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1996 (date of
inception).......................... $-- $ 5,585 $ -- $-- $ 5,585
Capital contributions.................... -- 12,258 -- -- 12,258
Distributions............................ -- (154) -- -- (154)
Net loss................................. -- -- (306) -- (306)
Translation adjustment................... -- -- -- 61 61
--- ------- ----- --- -------
Balance at December 31, 1996............. -- 17,689 (306) 61 17,444
Capital contributions.................... -- 33,800 -- -- 33,800
Issuance of equity to purchase minority
interests.............................. -- 990 -- -- 990
Net loss................................. -- -- (216) -- (216)
Translation adjustment................... -- -- -- 35 35
--- ------- ----- --- -------
Balance at December 31, 1997............. $-- $52,479 $(522) $96 $52,053
=== ======= ===== === =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 100
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 31, 1996
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1996 1997
------------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $ (306) $ (216)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 1,600 6,049
Deferred income taxes.................................. (133) 238
Minority interests..................................... 155 50
Amortization of deferred financing costs............... 47 651
Extraordinary losses................................... 281 1,409
Changes in operating assets and liabilities (net of
effect of acquired companies):
Accounts receivable.................................. 1,197 642
Inventories.......................................... 88 (114)
Prepaid expenses and other current assets............ (462) (1,889)
Accounts payable and accrued expenses................ 3,495 (434)
-------- ---------
Net cash provided by operating activities................... 5,962 6,386
INVESTING ACTIVITIES
Acquisition of businesses (net of acquired cash)............ (62,718) (133,338)
Purchase of property, plant, and equipment.................. (688) (1,834)
-------- ---------
Net cash used in investing activities....................... (63,406) (135,172)
FINANCING ACTIVITIES
Capital contributions....................................... 17,835 33,800
Proceeds from revolving credit facility..................... 3,228 593
Payments on revolving credit facility....................... (7,596) --
Proceeds from issuance of long-term debt.................... 54,226 155,000
Deferred financing costs.................................... (1,216) (12,672)
Payments on long-term debt.................................. (8,699) (41,360)
Payments on capital lease obligations....................... (53) (270)
Distributions............................................... (158) --
-------- ---------
Net cash provided by financing activities................... 57,567 135,091
Effect of exchange rate changes on cash..................... (19) 4
-------- ---------
Net increase in cash and cash equivalents................... 104 6,309
Cash and cash equivalents at beginning of period............ -- 104
-------- ---------
Cash and cash equivalents at end of period.................. $ 104 $ 6,413
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 101
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(DOLLARS IN THOUSANDS)
1. REORGANIZATION AND BASIS OF PRESENTATION
Effective July 31, 1997, Sovereign Specialty Chemicals, L.P. (the Parent
Partnership) reorganized its corporate structure. The Parent Partnership
purchased the outstanding minority interests in Sovereign Engineered Adhesives,
L.L.C. (SEA) and P&S Holdings, Inc. through the issuance of additional units in
the Parent Partnership in exchange for the membership interests in SEA and the
common stock in P&S not previously owned. The acquisition of minority interests
was accounted for as a purchase in accordance with Accounting Principles Board
Opinion No. 16, "Business Combinations," and goodwill in the amount of $990 was
recognized. Concurrently, SEA was merged with and into SIA Adhesives, Inc.
(SIA), a newly-formed C corporation, and SEA was dissolved. Also, P&S Holdings,
Inc. was merged into its wholly-owned subsidiary, Pierce & Stevens Corp. (P&S).
At the same time, Sovereign Specialty Chemicals, Inc. (Sovereign) was formed as
a wholly-owned subsidiary of the Parent Partnership. The initial capitalization
of Sovereign was comprised of a $33.8 million contribution from investors
through the Parent Partnership. In addition, the Parent Partnership contributed
its wholly-owned subsidiaries, SIA and P&S, to Sovereign. The contribution of
the subsidiaries was accounted for at historical book value (after accounting
for the purchase of the minority interests) in a manner similar to a
pooling-of-interests. Upon the consummation of the transactions, SIA, P&S, and
Acquired Companies (Note 4) became wholly-owned subsidiaries of Sovereign.
Unless otherwise noted, all references to the Company hereinafter refer to
Sovereign and its wholly-owned subsidiaries.
The financial statements as of December 31, 1996 and for the period from
March 31, 1996 (date of inception) through December 31, 1996 and as of and for
the year ended December 31, 1997 are presented on a basis "as if" the Company
existed prior to July 31, 1997 and included the operations of the subsidiaries
from their respective dates of acquisition.
2. NATURE OF BUSINESS
The Company operates in one business segment, as a developer, producer and
distributor of adhesives, sealants and coatings utilized in numerous industrial
and commercial applications. Commercial applications of the Company's products
include housing repair, remodeling and construction, industrial, overprint
coatings, and flexible packaging. Products are sold and distributed primarily
throughout the United States.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, SIA, P&S, newly-acquired companies (Note 4)
and Sovereign Specialty Chemicals, Pte. Ltd., a Singapore-based sales office.
All significant intercompany accounts and transactions have been eliminated.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
using the first-in first-out (FIFO) method.
F-7
<PAGE> 102
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided using the straight-line method over the
respective estimated useful lives of the assets for financial reporting
purposes, as follows: three to ten years for machinery and equipment; seven
years for furniture and fixtures, and 39 years for buildings and improvements.
Accelerated depreciation methods are used for income tax purposes.
GOODWILL
Goodwill represents the excess of acquisition cost over the fair value of
net assets acquired and is being amortized using the straight-line method over
periods ranging from 15 to 25 years. Accumulated amortization of goodwill was
$590 and $3,660 as of December 31, 1996 and 1997, respectively. Management of
the Company assesses the recoverability of this intangible asset, through
undiscounted cash flows of the underlying acquired entity, to make a judgment
whether the amortization of goodwill over its remaining useful life can be
recovered. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. There will be an impact on the
assessment of the recoverability of goodwill if estimated future operating cash
flows are not achieved.
DEFERRED FINANCING COSTS
The costs of obtaining financing are capitalized and are being amortized
using the straight-line method over the term of the related debt ranging from
seven to ten years. Accumulated amortization was $47 and $710 as of December 31,
1996 and 1997, respectively.
INCOME TAXES
Prior to its restructuring on July 31, 1997, the consolidated entity was
composed of various types of entities including a limited partnership and a
limited liability company. Income tax liabilities for such entities are
generally "passed through" to their owners. Subsequent to the restructuring, the
Company and its subsidiaries will file a consolidated federal tax return. The
financial statements of operations for the period ended December 31, 1996 and
for the year ended December 31, 1997, include pro forma income taxes as if the
companies had been subject to income taxes for all periods presented.
Deferred taxes have been recognized for the tax consequences of temporary
differences by applying the enacted statutory income tax rates applicable to
future years of differences between the financial statement carrying amounts and
the tax bases of the existing assets and liabilities. Deferred taxes have been
recognized due to differences in timing for financial reporting and tax
reporting of depreciation, net operating loss carryforwards, goodwill, inventory
reserves and capitalization, the allowance for doubtful accounts, and various
accruals.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
F-8
<PAGE> 103
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue is recognized when products are shipped to the customer.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred. Research
and development expenses were $0.7 million and $3.0 million as of December 31,
1996 and 1997, respectively.
TRANSLATION OF FOREIGN CURRENCIES
Except as noted below, the Company's foreign subsidiaries use the local
currency as their functional currency; accordingly, their financial statements
are translated using the current exchange rates as of the reporting dates for
the balance sheet and using a weighted-average exchange rate during the period
for statement of operations accounts. Adjustments resulting from such
translation are included in cumulative translation adjustment, a separate
component of stockholder's equity. Because Mexico is classified as a
hyperinflationary economy, P&S's Mexican subsidiary is required to use the U.S.
dollar as its functional currency. Accordingly, the financial statements of the
Mexican subsidiary have been remeasured from the peso to the U.S. dollar. Gains
and losses on such remeasurement have been included in the statement of
operations.
LONG-LIVED ASSETS
The Company evaluates its long-lived assets (including related goodwill) on
an ongoing basis. Such assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the related asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of the asset to future undiscounted cash
flows expected to be generated by the asset. If the asset is determined to be
impaired, the impairment recognized is measured by the amount by which the
carrying value of the asset exceeds its fair value.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, trade accounts receivable,
loans receivable, related party, accounts payable and accrued expenses, and
other current liabilities approximate to their fair value due to the short-term
nature of these instruments.
The carrying amounts reported in the Company's balance sheets for
variable-rate long-term debt, including current portion, approximate fair value,
as the underlying long-term debt instruments are comprised of notes that are
repriced on a short-term basis.
The Company estimates the fair value of fixed rate long-term debt
obligations including current portion, using the discounted cash flow method
with interest rates currently available for similar obligations. The carrying
amounts reported in the Company's balance sheets for these obligations
approximate fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
To minimize this risk, ongoing credit evaluations of customers' financial
condition are performed, although collateral is not required. In addition, the
Company maintains an allowance for potential credit losses.
F-9
<PAGE> 104
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130). In addition to net income, comprehensive income includes items recorded
directly to stockholder's equity such as the cumulative translation adjustment.
The provisions of SFAS 130 establish new standards for reporting and displaying
comprehensive income and its components in a full set of financial statements.
Application of the provisions of SFAS 130 are required for fiscal years
beginning after December 15, 1997. The Company is in the process of evaluating
the specific reporting requirements of SFAS 130; however, the adoption of SFAS
130 will have no impact on the Company's consolidated results of operations,
financial position, or cash flows.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" (SFAS 131). The provisions of SFAS 131
establish standards for the way companies report information about operating
segments in annual financial statements and require that such companies report
selected information about operating segments in interim financial reports
issued to shareholders. The provisions of SFAS 131 require the disclosure of
segment information be based on a "management approach" whereby disclosures are
made of information that is available and evaluated regularly by the chief
decision makers of the Company in deciding how to allocate resources and assess
performance. Application of the provisions of SFAS 131 is required for fiscal
years beginning after December 15, 1997. Management believes that the operating
subsidiaries of the Company form a single business segment (the manufacture,
sale, and distribution of adhesives and sealant products) and manage the
companies as such. The Company has evaluated the disclosure requirements of SFAS
131 and believes that its adoption will not have a material impact on its future
disclosure requirements.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 (SFAS 132), "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS 132 revises the previous
disclosure requirements of pension and postretirement plans. The Statement does
not change the recognition or measurement of pension or postretirement benefit
plans. The Company has evaluated the disclosure requirements of SFAS 131 and
believes that its adoption will not have a material impact on its future
disclosure requirements.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
4. BUSINESS COMBINATIONS
Effective March 31, 1996, the Company purchased, through SEA, the Adhesives
Systems Division of The BFGoodrich Company (BFG). The purchase was made in
accordance with the Asset Purchase Agreement between the Company, SEA and BFG.
The Company acquired certain assets and assumed certain commitments for $15,819,
including transaction related costs of $607
F-10
<PAGE> 105
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. BUSINESS COMBINATIONS (CONTINUED)
and net of acquired cash of $404. The acquisition was accounted for as a
purchase and, as such, the results of operations subsequent to March 31, 1996,
have been included in the consolidated statement of operations of the Company.
In connection with the acquisition, the Company recognized goodwill in the
amount of approximately $4.2 million which is being amortized over a period of
15 years.
Effective August 19, 1996, the company purchased, through P&S Holdings,
Inc., 100% of the outstanding common stock of P&S. The cost of the acquisition
was $46,899 including transaction costs of approximately $1.2 million. The
acquisition was accounted for as a purchase and, as such, the results of
operations subsequent to August 19, 1996, have been included in the consolidated
statement of operations of the Company. In connection with the acquisition, the
Company recognized goodwill in the amount of approximately $14.0 million which
is being amortized over a period of 15 years.
Effective August 5, 1997, the Company purchased from Laporte plc (Laporte),
the net assets of Laporte Construction Chemicals North America, Inc.;
Evode-Tanner Industries, Inc.; and Mercer Products Company, Inc. (the Acquired
Companies). The Acquired Companies were affiliated by common control as
wholly-owned subsidiaries of Laporte. The purchase price of the Acquired
Companies was approximately $133.3 million including expenses relating to the
purchase of approximately $1.5 million and net of acquired cash of $707. The
purchase was funded through the issuance of $125 million of subordinated notes
payable, a $30 million term note, and a capital contribution of $33.8 million.
Excess of funding over the purchase price was used to retire long-term debt
(Note 9). Allocation of the purchase price to the fair values of significant
assets and liabilities as of the date of purchase was as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $133,338
Assets acquired/liabilities assumed:
Accounts receivable....................................... 16,469
Inventories............................................... 11,033
Property, plant, and equipment............................ 22,431
Accounts payable.......................................... (11,717)
Accrued liabilities....................................... (9,954)
Capital lease obligations................................. (3,662)
Other, net................................................ 981
--------
25,581
--------
Goodwill.................................................... $107,757
========
</TABLE>
The acquisitions were accounted for as purchases and, as such, the results
of the operations of the Acquired Companies subsequent to August 5, 1997 (date
of acquisition), have been included in the consolidated statement of operations
of the Company. Goodwill recognized in the acquisitions is being amortized over
a period of 25 years. The Acquired Companies are wholly-owned subsidiaries of
Sovereign and operate as OSI Sealants, Inc. (OSI), Tanner Chemicals, Inc.
(Tanner), and Mercer Products Company, Inc. (Mercer).
The unaudited pro forma consolidated statement of operations, as if all of
the above acquisitions had occurred as of the beginning of the respective
periods, would have been as follows for the
F-11
<PAGE> 106
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. BUSINESS COMBINATIONS (CONTINUED)
period from March 31, 1996 (date of inception) to December 31, 1996, and year
ended December 31, 1997:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Net sales............................................... $157,010 $208,345
Cost of goods sold...................................... 109,144 142,615
-------- --------
Gross profit............................................ 47,866 65,730
Selling general and administrative expenses............. 37,068 46,711
-------- --------
Operating income........................................ 10,798 19,019
Interest expense........................................ 16,070 16,478
Foreign exchange loss................................... -- 163
Income taxes............................................ (1,166) 1,747
-------- --------
Income (loss) before extraordinary losses............... $ (4,106) $ 631
======== ========
</TABLE>
5. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1997
---- ----
<S> <C> <C>
Raw materials............................................ $4,631 $10,908
Work in process.......................................... 135 141
Finished goods........................................... 5,129 9,993
------ -------
$9,895 $21,042
====== =======
</TABLE>
6. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1997
---- ----
<S> <C> <C>
Land.................................................... $ 2,930 $ 4,099
Building and improvements............................... 8,020 18,915
Machinery and equipment................................. 16,820 27,271
Furniture and fixtures.................................. 193 962
Construction-in-progress................................ -- 982
------- -------
27,963 52,229
Less: Accumulated depreciation.......................... 941 3,921
------- -------
$27,022 $48,308
======= =======
</TABLE>
F-12
<PAGE> 107
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. OTHER CURRENT ASSETS
Other current assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1996 1997
---- ----
<S> <C> <C>
Prepaid insurance......................................... $ 803 $1,337
Acquisition purchase price adjustment receivable.......... -- 1,300
Other..................................................... 1,169 1,902
------ ------
$1,972 $4,539
====== ======
</TABLE>
8. ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1996 1997
---- ----
<S> <C> <C>
Interest................................................... $ 393 $ 5,344
Compensations and benefits................................. 3,309 4,435
Rebates and warranty....................................... 125 1,307
Insurance.................................................. -- 526
Royalties.................................................. 237 445
Professional fees.......................................... 166 315
Property taxes............................................. 138 268
Environmental liability.................................... -- 130
Other...................................................... 261 1,253
------ -------
$4,629 $14,023
====== =======
</TABLE>
9. LONG-TERM DEBT
Long-term debt are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1996 1997
---- ----
<S> <C> <C>
Senior subordinated notes................................ $10,000 $125,000
Term loans............................................... 24,501 30,000
Revolving credit facilities.............................. 6,859 593
------- --------
41,360 155,593
Less: Current maturities................................. 2,000 1,250
------- --------
$39,360 $154,343
======= ========
</TABLE>
In connection with its acquisition of SEA on March 31, 1996, the Company
entered into a credit agreement (the Initial Credit Agreement) which provided a
revolving credit facility and a long-term note expiring in 2002. Interest on the
revolving credit facility and the long-term note was variable and payable at
periods ranging up to three months. The rate approximated 8.0% on the debt
outstanding. On August 19, 1996, the Company repaid its outstanding debt
obligations under the Initial Credit Agreement and recognized an extraordinary
loss on the early extinguishment of debt in the amount of $281.
F-13
<PAGE> 108
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
On August 19, 1996, concurrent with the acquisition of P&S, the Company
entered into new credit agreements (the Credit Agreements) which provided for a
revolving credit facility expiring in 2003, a long-term note due in quarterly
installments through 2003, and a senior subordinated note due in a single
payment on the earlier of March 31, 2004 or 90 days after the final payment on
the revolving credit facility and the long-term note. Interest on the Credit
Agreements were due quarterly and had a weighted-average interest rate of 9.3%
on obligations outstanding at December 31, 1996. On July 31, 1997, the Company
repaid its outstanding debt obligations under the Credit Agreements and
recognized an extraordinary loss on the early extinguishment of debt of $1,409,
net of tax benefit of $948.
Senior Subordinated Notes
On July 31, 1997, the Company completed a private placement issuance of
$125.0 million in principal amount of 9.5% Senior Subordinated Notes due 2007
(the Offering). The Offering was made to qualified institutional buyers pursuant
to Rule 144A of the Securities and Exchange Commission (SEC). Proceeds from the
Offering were used, along with the $30.0 million term note and a $33.8 million
capital contribution from the Parent Partnership to fund acquisitions (Note 4),
refinance existing debt of $41,360, and pay fees and expenses related to the
Offering and the purchase of Acquired Companies. In connection with the
refinancing of debt, the Company recognized an extraordinary loss of $1,409, net
of tax benefit of $948.
The Senior Subordinated Notes (the Notes) mature on August 1, 2007.
Interest is payable semi-annually in arrears each February 1 and August 1,
commencing February 1, 1998. On or after August 1, 2002, the Notes may be
redeemed at the option of the Company, in whole or in part, at specified
redemption prices plus accrued and unpaid interest:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2002........................................................ 105.0%
2003........................................................ 103.0%
2004........................................................ 102.0%
2005 and thereafter......................................... 100.0%
</TABLE>
In addition, at any time on or prior to August 1, 2000, the Company may,
subject to certain requirements, redeem up to $40.0 million aggregate principal
amount of the Notes with the net cash proceeds of one or more public equity
offerings, at a price equal to 110.0% of the principal amount to be redeemed
plus accrued interest and unpaid interest. In the event of a change in control,
the Company would be required to offer to repurchase the Notes at a price equal
to 101.0% of the principal amount plus accrued and unpaid interest.
The Notes are general obligations of the Company, subordinated in right of
payment to all existing and future senior debt and are guaranteed by the
Company's wholly-owned subsidiaries -- SIA, P&S, OSI, Tanner, and Mercer (the
Guarantor Subsidiaries). The Company's wholly-owned foreign subsidiaries are not
guarantors of the Notes (the Non-Guarantor Subsidiaries). Each of the Guarantor
Subsidiaries' guarantees of the Notes are full, unconditional, and joint and
several. The Company may incur additional indebtedness, including borrowings
under its Facility (see below), subject to certain limitations. See Note 19 for
financial information as of December 31, 1997, of the Guarantor and the
Non-Guarantor Subsidiaries.
The indenture under which the Notes were issued contains certain covenants
that, among other things, limit the Company from incurring other indebtedness,
engaging in transactions with affiliates,
F-14
<PAGE> 109
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
incurring liens, making certain restricted payments (including dividends), and
making certain asset sales. All such covenants were met at December 31, 1997.
Term Loan
On August 5, 1997, the Company entered into an agreement providing for a
$30.0 million term loan (Term Loan) to fund the acquisition of businesses (Note
4). The Term Loan matures on August 5, 2004, and bears the same rate of interest
as the Facility described below. The interest rate was approximately 8.25% at
December 31, 1997. Twenty-five quarterly installments under the note are due
commencing September 30, 1998. The covenants on the Term Loan are the same as
the Facility described below. All covenants were met at December 31, 1997.
Revolving Credit Facilities
On August 5, 1997, the Company entered into an agreement providing for a
$30.0 million revolving credit facility (the Facility) available to the Company
for working capital purposes. Advances under the Facility may be made up to an
aggregate of $30.0 million including letters of credit of up to $10.0 million.
The Facility matures on August 5, 2004. The funds available to be advanced may
not exceed 85.0% and 75.0% of the Company's eligible domestic accounts
receivable and eligible foreign accounts receivable, respectively and 50.0% of
the Company's eligible inventories, as defined in the Credit Agreement. Amounts
advanced are secured by the Company's existing and future subsidiaries other
than any subsidiary designated as an unrestricted subsidiary. At December 31,
1997, the Company had outstanding letters of credit of $900, and an unused
portion of the Facility of $29.1 million.
At the Company's election, amounts outstanding under the Facility and the
Term Loan will bear interest at either the London Interbank Offered Rate
(LIBOR), plus 1.5% to 2.5% or the Alternate Base Rate (ABR), plus a 0.25% to
1.25%. The variable spread to LIBOR or ABR is determined by the Company's
leverage ratio as detailed in the Amended and Restated Credit Agreement. The ABR
rate is defined in the Amended and Restated Credit Agreement as the highest of:
(i) the federal funds rate plus 0.5%, (ii) the prime rate for such day, or (iii)
the certificate of deposit rate plus 1.0%. Interest is due quarterly and the
interest rate was approximately 8.25% at December 31, 1997.
The Company is required to pay, on a quarterly basis, a commitment fee
equal to 0.5% per annum. The Company is also obligated to pay: (i) a per annum
letter of credit fee equal to the applicable margin for LIBOR loans on the
aggregate amount of outstanding letters of credit; (ii) bank fees for letters of
credit issued of 0.25% per annum; and (iii) agent, arrangement, and other
similar fees.
The Facility and the Term Loan contains several covenants that, among other
things, restrict the ability of the Company and its subsidiaries to dispose of
assets, incur additional indebtedness, prepay or amend other indebtedness, pay
dividends, or make other changes in the business conducted by the Company or its
subsidiaries. In addition, the Facility requires that the Company comply with
specified ratios and tests, including a minimum interest coverage ratio, a
maximum leverage ratio, and a minimum net worth test. All such covenants were
met at December 31, 1997.
The Company's Singapore-based sales office has a facility providing for
borrowings up to SG $1.0 million and secured by a SG $1.0 million letter of
credit. Interest is payable at prime plus 1.0%. As of December 31, 1997, $593
was outstanding on the facility.
F-15
<PAGE> 110
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
Annual Maturities
Annual maturities of the Company's long-term debt are as follows at
December 31, 1997:
<TABLE>
<S> <C>
1998........................................................ $ 2,400
1999........................................................ 4,800
2000........................................................ 4,800
2001........................................................ 4,800
2002........................................................ 4,800
2003 and thereafter......................................... 133,993
--------
$155,593
========
</TABLE>
10. INCOME TAXES
The components of the provision for income taxes (inclusive of tax benefits
on extraordinary losses) are as follows for the period from March 31, 1996 (date
of inception) to December 31, 1996, and year ended December 31, 1997:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Current income taxes:
State..................................................... $ 11 $ 98
Foreign................................................... 23 31
----- ----
34 129
Deferred income taxes....................................... (133) 238
----- ----
$ (99) $367
===== ====
</TABLE>
The reconciliation of income tax expense computed at the U.S. federal
statutory tax rates to income tax expense is as follows for the period from
March 31, 1996 (date of inception) to December 31, 1996, and the year ended
December 31, 1997:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Income taxes at federal statutory rate...................... $(43) $ 47
Income not subject to income taxes.......................... (61) (558)
State taxes, net of federal benefit......................... 2 181
Foreign income taxes........................................ 23 31
Increase in valuation allowance............................. -- 400
Goodwill.................................................... -- 281
Other....................................................... (20) (15)
---- -----
Income taxes at the effective rate.......................... $(99) $ 367
==== =====
</TABLE>
Income not subject to income taxes represents income from the Parent
Partnership and SEA which, prior to the reorganization (Note 1), was taxed at
the partner/member level. Pro forma income taxes, as if the Company and its
subsidiaries were subject to income taxes for all periods presented, are
presented in the statement of operations.
F-16
<PAGE> 111
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1996 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 67 $ 130
Inventory obsolescence reserve............................ 88 343
Inventory capitalization.................................. -- 123
Accrued liabilities....................................... 336 421
Write-off of deferred financing costs..................... -- 400
Net operating loss carryforwards.......................... 413 1,779
----- -------
904 3,196
Less: Valuation allowance................................... -- 400
----- -------
Deferred tax assets......................................... 904 2,796
Deferred tax liabilities:
Accelerated depreciation.................................. (165) (1,827)
Amortization of goodwill.................................. -- (234)
Refundable investment tax credits......................... (123) --
----- -------
Deferred tax liabilities.................................... (288) (2,061)
----- -------
Net deferred tax asset...................................... $ 616 $ 735
===== =======
</TABLE>
The Company has net operating loss carryforwards of approximately $4.5
million available to reduce future federal and state income taxes and expire
through 2112.
11. RETIREMENT PLANS
The Company sponsors a defined benefit pension plan covering certain
salaried employees of a subsidiary of the Company. Employees vest in the plan
over a five-year period, and the plan is frozen to new participants.
Participants in the plan were given credit for prior years of service. Net
periodic pension cost is as follows for the period ended December 31:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Service costs............................................... $37 $81
Interest cost............................................... -- 3
Actual return on plan assets................................ -- (3)
--- ---
Net periodic pension cost................................... $37 $81
=== ===
</TABLE>
The funded status of the plan, based on actuarial computations at September
30, 1996 and 1997, is presented below. An assumed discount rate of 7.5% and a
4.5% rate of increase in future
F-17
<PAGE> 112
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RETIREMENT PLANS (CONTINUED)
compensation levels was used in determining the actuarial present value of the
projected benefit obligation.
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1996 1997
---- ----
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested benefits........................................... $13 $ 75
Nonvested benefits........................................ 15 10
--- ----
Accumulated benefit obligation.............................. $28 $ 85
=== ====
Projected benefit obligation for services rendered to
date...................................................... $37 $135
Plan assets at fair value................................... -- 47
--- ----
Projected benefit obligation in excess of plan assets....... 37 88
Unrecognized net loss from past experience different from
that assumed.............................................. -- 13
--- ----
Accrued pension liability................................... $37 $ 75
=== ====
</TABLE>
The Company has a pension plan covering all union employees of a
subsidiary. The Company's funding policy has been to contribute annually at
least the minimum required by ERISA. The Plan provides monthly benefits under a
benefit formula.
Net periodic pension cost is as follows for the period ended December 31:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Service cost................................................ $ 5 $ 23
Interest cost............................................... 29 114
Actual return on plan assets................................ (19) (313)
---- -----
Net periodic pension cost (income).......................... $ 15 $(176)
==== =====
</TABLE>
The funded status of the plan, based on actuarial computations at September
30, 1996 and 1997 is presented below. Plan assets are stated at fair value and
composed of fixed rate securities
F-18
<PAGE> 113
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RETIREMENT PLANS (CONTINUED)
and equity investments. The average assumed discount rate is 7.5%, and the
average expected long-term rate of return on plan assets is 10.0%.
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1996 1997
---- ----
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested benefits........................................... $1,567 $1,593
Nonvested benefits........................................ 8 24
------ ------
Accumulated benefit obligation.............................. $1,575 $1,617
====== ======
Projected benefit obligation for services rendered to
date...................................................... $1,575 $1,617
Plan assets at fair value................................... 1,493 1,695
------ ------
Plan assets in excess of (less than) projected benefit
obligations............................................... 82 (78)
Unrecognized gain from past experience different from that
assumed................................................... -- 153
------ ------
Accrued pension liability................................... $ 82 $ 75
====== ======
</TABLE>
The Company sponsored several defined contribution plans (IRS qualified
401(k) plans). Participation in the plans is available to all salaried and
hourly employees of the company. Participating employees contribute to the
401(k) plans based on a percentage of their compensation which are matched,
based on a percentage of employee contributions by the Company. The Company
recorded expense of $139 and $600 for the periods ended December 31, 1996 and
1997, respectively.
12. MANAGEMENT INCENTIVE PLANS
The Company has implemented, through the Parent Partnership, certain
management incentive plans.
Stock Incentive Pool
The Parent Partnership adopted its Stock Incentive Pool in April 1996 in
order to provide incentives to employees and directors (including nonemployee
directors), the Company and its subsidiaries, by granting them ownership awards
in the form of Parent Partnership units and common stock of its general partner.
The Stock Incentive Pool awards are allocated by the Compensation Committee of
the Board of Directors of the Company. An award granted from the Stock Incentive
Pool is subject to five year time and performance vesting. The awards allow the
participant to purchase units in the Parent Partnership and common stock in its
general partner. For the year ended December 31, 1997, 734 units of the Parent
Partnership and 74 shares of common stock in the general partner were purchased
by participants in the Plan. The Company recognized compensation expense for the
excess of the fair market value of the units and common stock over the purchase
price in the amount of approximately $22 for the year ended December 31, 1997.
1997 Long-Term Incentive Plan
The Parent Partnership adopted its 1997 Long-Term Incentive Plan in May
1997 in order to provide long-term incentive awards to salaried employees
(excluding executives who participate directly in the Stock Incentive Pool).
Participants are granted a "participation share" in the incentive
F-19
<PAGE> 114
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. MANAGEMENT INCENTIVE PLANS (CONTINUED)
award pool which consists of a portion of equity reserved for the program. At
the time of a qualified transaction as determined and defined by the Board of
Directors, the value of the pool is allocated to participants based upon their
"participation share". Payment may be in the form of stock options, stock, cash,
or a combination of these elements, as determined by the Board of Directors.
"Participation shares" are not vested until earned and paid out. If a
participant leaves the Company before a qualified transaction has occurred,
their "participation share" is forfeited. Individuals joining the Company during
the plan cycle, may be permitted to participate in the program at the discretion
of the Chief Executive Officer and Board of Directors. The Compensation
Committee of the Board of Directors will administer the plan and have the
authority and responsibility to approve award levels and make any changes in
plan concept and design. At December 31, 1996 and 1997, no grants were awarded
under the plan.
13. CAPITAL LEASES
Property under capital leases included within property, plant, and
equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1996 1997
---- ----
<S> <C> <C>
Buildings................................................. $3,681 $1,912
Machinery and equipment................................... 343 208
------ ------
4,024 2,120
Less: Accumulated depreciation............................ 1,719 215
------ ------
$2,305 $1,905
====== ======
</TABLE>
Future minimum lease payments under capital leases at December 31, 1997,
together with the present value of the minimum lease payments are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 611
1999........................................................ 634
2000........................................................ 621
2001........................................................ 621
2002........................................................ 676
Thereafter.................................................. 3,964
------
Total minimum payments...................................... 7,127
Less: Amounts representing interest......................... 3,443
------
Present value of minimum payments........................... 3,684
Less: Current portion....................................... 120
------
Total long-term portion..................................... $3,564
======
</TABLE>
14. OPERATING LEASES
The Company has entered into operating leases for buildings and machinery
and equipment, which expire on various dates through 2004. Rent expense for all
operating leases approximated $39 and $351 for the periods ended December 31,
1996 and 1997, respectively. Future minimum
F-20
<PAGE> 115
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. OPERATING LEASES (CONTINUED)
lease payments under noncancelable operating leases with terms in excess of one
year are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 816
1999........................................................ 751
2000........................................................ 476
2001........................................................ 317
2002........................................................ 82
2003 and thereafter......................................... 74
------
$2,516
======
</TABLE>
15. ENVIRONMENTAL MATTERS
The Company is subject to various federal, state, local, and foreign
environmental laws and regulations pertaining to the discharge of materials into
the environment, the handling and disposal of solid and hazardous wastes, the
remediation of contamination, and otherwise relation to health, safety, and
protection of the environment. These laws and regulations provide for
substantial fines and criminal sanctions for violations and impose liability for
the costs of cleaning up, and for certain damages resulting from past spills,
disposals, or other releases of hazardous substances. In connection with the
acquisition of businesses, the Company has conducted substantial investigations
to assess potential environmental liabilities. The investigations, performed by
independent consultants of all facilities, found that certain facilities have
had or may have had releases of hazardous materials that may require
remediation. In addition, the facilities may be subject to potential liabilities
for contamination from off-site disposal of substances or wastes.
Certain subsidiaries have been named as potentially responsible parties
under the Comprehensive Environment Response, Compensation, and Liability Act
(CERCLA) and/or similar environmental laws for cleanup of multiparty waste
disposal sites. The Company is entitled to indemnification by previous owners of
certain acquired businesses, and the Company has negotiated contractual
indemnifications, which, supplemented by commercial insurance coverage designed
for each acquisition, is currently expected to adequately address a substantial
portion of known and foreseeable environmental liabilities. At December 31,
1997, the Company had established accrued liabilities relating to environmental
matters of approximately $3.0 million. The liabilities are included in the
balance sheet as "other long-term liabilities" and "other current liabilities".
The Company does not currently believe that potential additional expenses for
environmental liabilities will have a material adverse effect on the financial
condition or results of operations of the Company.
16. CONCENTRATIONS OF CREDIT RISK
No customer accounted for more than 10.0% of the Company's accounts
receivables nor sales for the years ended December 31, 1996 and 1997. The
Company estimates an allowance for doubtful accounts based on the
creditworthiness of its customers as well as general economic conditions.
Consequently, an adverse change in those factors could affect the Company's
estimate of its bad debt.
F-21
<PAGE> 116
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides supplemental cash flow data in addition to the
information provided in the consolidated statements of cash flows for the period
from March 31, 1996 (date of inception) to December 31, 1996, and for the year
ended December 31, 1997:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Cash paid for:
Interest................................................ $1,291 $3,536
Income taxes............................................ 20 302
</TABLE>
18. SUBSEQUENT EVENT
On March 5, 1998, the Company entered into a stock purchase agreement for
the sale of Mercer to Burke Industries, Inc. The agreement states that the sale
price will be approximately $36.0 million subject to potential adjustments based
on working capital measurements. Management does not anticipate that the
transaction will have a significant impact on its 1998 operating results.
Closing of the sale is anticipated to be prior to April 30, 1998.
19. OTHER FINANCIAL INFORMATION
The Company is a holding company with no independent assets or operations.
Full separate financial statements of the Guarantor Subsidiaries have not been
presented as the guarantors are wholly-owned subsidiaries of the Company.
Balance sheet data as of December 31, 1997, and the statement of operations data
for the year ended December 31, 1997, of the Guarantor Subsidiaries and the
Non-Guarantor Subsidiaries are as follows:
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES TOTAL
------------ ------------- -----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales............................................... $129,896 $4,875 $134,771
Cost of goods sold...................................... 89,529 3,360 92,889
-------- ------ --------
Gross profit............................................ 40,367 1,515 41,882
Selling, general, and administrative expenses........... 28,591 1,540 30,131
-------- ------ --------
Operating income (loss)................................. 11,776 (25) 11,751
Foreign exchange loss................................... -- 163 163
Interest expense........................................ 8,975 105 9,080
-------- ------ --------
Income (loss) before income taxes and extraordinary
losses................................................ $ 2,801 $ (293) $ 2,508
======== ====== ========
BALANCE SHEET DATA
Assets:
Current assets.......................................... $ 56,996 $2,766 $ 59,762
Property, plant, and equipment, net..................... 47,724 584 48,308
Goodwill, net........................................... 123,177 -- 123,177
Deferred financing costs, net........................... 11,137 -- 11,137
Other assets............................................ 261 114 375
-------- ------ --------
Total assets............................................ $239,295 $3,464 $242,759
======== ====== ========
Liabilities and stockholder's equity:
Current liabilities..................................... $ 27,078 $2,473 $ 29,551
Long-term liabilities................................... 159,213 1,942 161,155
Total stockholder's equity.............................. 53,004 (951) 52,053
-------- ------ --------
Total liabilities and stockholder's equity.............. $239,295 $3,464 $242,759
======== ====== ========
</TABLE>
F-22
<PAGE> 117
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Laporte plc
We have audited the accompanying combined balance sheets of Laporte
Construction Chemicals North America, Inc.; Evode-Tanner Industries, Inc.; and
Mercer Products Company, Inc. (wholly-owned subsidiaries of Laporte plc)
(collectively, the Companies) as of August 4, 1997, and the related combined
statements of operations and retained earnings and cash flows for the period
from January 1, 1997 to August 4, 1997. These combined financial statements are
the responsibility of the Companies' management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Laporte
Construction Chemicals North America, Inc.; Evode-Tanner Industries, Inc.; and
Mercer Products Company, Inc. at August 4, 1997, and the combined results of
their operations and their combined cash flows for the period from January 1,
1997 to August 4, 1997, in conformity with generally accepted accounting
principles.
Chicago, Illinois ERNST & YOUNG LLP
November 21, 1997
F-23
<PAGE> 118
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.;
EVODE-TANNER INDUSTRIES, INC.; AND
MERCER PRODUCTS COMPANY, INC.
COMBINED BALANCE SHEET
AUGUST 4, 1997
(Dollars in Thousands)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 2,252
Accounts receivable, less allowance for doubtful accounts
of $699................................................ 16,797
Due from affiliated companies............................. 2,798
Inventories............................................... 11,505
Other current assets...................................... 1,226
Deferred income taxes..................................... 558
-------
Total current assets........................................ 35,136
Property, plant, and equipment, net......................... 18,837
Goodwill, net............................................... 20,543
Other assets................................................ 122
-------
Total assets................................................ $74,638
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $11,949
Accrued expenses.......................................... 7,676
Current installments of obligations under capital
leases................................................. 77
Due to affiliated companies............................... 99
-------
Total current liabilities................................... 19,801
Long-term payable -- Parent and affiliated companies........ 37,468
Obligation under capital lease, excluding current
installments.............................................. 3,585
Deferred income taxes....................................... 310
Other liabilities........................................... 3,603
Stockholder's equity:
Common stock.............................................. --
Retained earnings......................................... 9,871
-------
Total stockholder's equity.................................. 9,871
-------
Total liabilities and stockholder's equity.................. $74,638
=======
</TABLE>
See accompanying notes to combined financial statements.
F-24
<PAGE> 119
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.;
EVODE-TANNER INDUSTRIES, INC.; AND
MERCER PRODUCTS COMPANY, INC.
COMBINED STATEMENT OF OPERATIONS
PERIOD FROM JANUARY 1, 1997 TO AUGUST 4, 1997
(Dollars in Thousands)
<TABLE>
<S> <C>
Net sales................................................... $73,574
Cost of goods sold.......................................... 49,726
-------
Gross profit................................................ 23,848
Selling, general, and administrative expenses............... 14,066
Amortization of goodwill.................................... 1,552
-------
Operating income............................................ 8,230
Interest expense............................................ 2,296
-------
Income before income taxes.................................. 5,934
Income taxes................................................ 2,380
-------
Net income before discontinued operations................... 3,554
Discontinued operations:
Loss on disposal of Tamms division........................ 243
-------
Net income.................................................. 3,311
Retained earnings at beginning of period.................... 8,901
Dividends paid.............................................. 2,341
-------
Retained earnings at end of period.......................... $ 9,871
=======
</TABLE>
See accompanying notes to combined financial statements.
F-25
<PAGE> 120
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.;
EVODE-TANNER INDUSTRIES, INC.; AND
MERCER PRODUCTS COMPANY, INC.
COMBINED STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1997 TO AUGUST 4, 1997
(Dollars in Thousands)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 3,311
Adjustments to reconcile net income to net cash provided by
continuing operations:
Depreciation and amortization............................. 2,804
Deferred taxes............................................ 1,682
Gain on disposal of fixed assets.......................... (250)
Loss on disposal of Tamms business........................ 243
Changes in operating assets and liabilities:
Accounts receivable.................................... (3,050)
Inventories............................................ (942)
Other assets........................................... (104)
Accounts payable and accrued expenses.................. (1,948)
-------
Net cash provided by operating activities................... 1,746
INVESTING ACTIVITIES
Purchase of property, plant, and equipment.................. (370)
Proceeds from disposal of Tamms division, net of expenses of
sale...................................................... 4,716
-------
Net cash provided by investing activities................... 4,346
FINANCING ACTIVITIES
Payments on long-term liabilities due to Parent and
affiliated companies...................................... (3,973)
Payments on capital lease obligation........................ (40)
Dividends paid.............................................. (2,341)
-------
Net cash used in financing activities....................... (6,354)
-------
Net decrease in cash........................................ (262)
Cash at beginning of period................................. 2,514
-------
Cash at end of period....................................... $ 2,252
=======
Supplemental cash flow information:
Cash paid for interest.................................... $ 976
Cash paid for income taxes................................ 454
</TABLE>
See accompanying notes to combined financial statements.
F-26
<PAGE> 121
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.;
EVODE-TANNER INDUSTRIES, INC.; AND
MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1, 1997 TO AUGUST 4, 1997
(Dollars in Thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Adhesive and Sealants business of Laporte plc (Laporte) is conducted by
Laporte Construction Chemicals North America, Inc. (LCCNA); Evode-Tanner
Industries, Inc. (Evode-Tanner); and Mercer Products Company, Inc. (Mercer)
(collectively, the Companies). LCCNA is engaged in the manufacture, sale, and
distribution of solvent and water-based caulk, sealants, and adhesives.
EvodeTanner is engaged in the manufacture of adhesives and chemicals for the
textiles industry. Mercer is engaged in the extrusion of rubber and vinyl
products for sale to wholesale distributors, mainly in the flooring industry.
PRINCIPLES OF COMBINATION
At August 4, 1997, the Companies were under common control as they were
wholly-owned subsidiaries of Laporte plc. The balance sheets have been combined
to present the entities as a single business. All significant intercompany
balances and transactions have been eliminated in combination.
INVENTORIES
Inventories are stated at the lower of cost, using the first in, first out
method, or market.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Plant held under capital
lease is stated at the present value of minimum lease payments.
Depreciation on plant and equipment is calculated using the straight-line
method over the estimated useful lives of the assets. Plant held under capital
leases and leasehold improvements is amortized using the straight line method
over the shorter of the lease term or estimated useful life of the asset. The
following table summarizes the estimated useful lives of the Companies'
property, plant, and equipment:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Building..................................... 40
Machinery and equipment...................... 15
Leasehold improvements....................... Term of lease or useful life,
whichever is shorter
</TABLE>
GOODWILL
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, which is 15 years. Accumulated amortization of goodwill
at August 4, 1997, was $22,458. The Companies assess the recoverability of this
intangible asset by determining whether the amortization of the goodwill balance
over its remaining life can be recovered through undiscounted future operating
cash flows of the acquired operation. The amount of goodwill impairment, if any,
is measured based on projected discounted future operating cash flows using a
discount rate reflecting the Companies'
F-27
<PAGE> 122
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.;
EVODE-TANNER INDUSTRIES, INC.; AND
MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 1, 1997 TO AUGUST 4, 1997
(Dollars in Thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
average cost of funds. The assessment of the recoverability of goodwill will be
impacted if estimated future operating cash flows are not achieved.
INCOME TAXES
The Companies are included within the consolidated federal income tax
return of Laporte Inc. in the United States. For the purposes of these combined
financial statements, income tax expense is calculated using the enacted rates
in the United States as if the Companies had been independent entities.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Such costs
amounted to $813 for the period from January 1, 1997 to August 4, 1997.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs for the
period from January 1, 1997 to August 4, 1997 were $635.
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these combined financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, trade accounts receivable, due from affiliated
companies, accounts payable, accrued expenses, due to affiliated companies, and
other liabilities approximate their fair value because of the short-term
maturity of these instruments.
It is not practical to determine the fair value of long-term receivable and
payable -- parent and affiliated companies because such amounts, bearing
interest during the period from January 1, 1997 to August 4, 1997 of 9%, do not
have a stated maturity date.
F-28
<PAGE> 123
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.;
EVODE-TANNER INDUSTRIES, INC.; AND
MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 1, 1997 TO AUGUST 4, 1997
(Dollars in Thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable
which are from its domestic and international customers. To minimize this risk,
ongoing credit evaluations of customers' financial condition are performed,
although collateral is not required. In addition, the Company maintains an
allowance for potential credit losses.
2. INVENTORIES
The components of inventories at August 4, 1997, were as follows:
<TABLE>
<S> <C>
Finished goods.............................................. $ 7,277
Raw materials............................................... 4,228
-------
Total inventories........................................... $11,505
=======
</TABLE>
3. PROPERTY, PLANT, AND EQUIPMENT
At August 4, 1997, property, plant, and equipment are summarized as
follows:
<TABLE>
<S> <C>
Land........................................................ $ 1,166
Buildings................................................... 12,246
Machinery and equipment..................................... 17,820
Leasehold improvements...................................... 309
-------
31,541
Less: Accumulated depreciation and amortization............. (12,704)
-------
Property, plant, and equipment, net......................... $18,837
=======
</TABLE>
F-29
<PAGE> 124
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.;
EVODE-TANNER INDUSTRIES, INC.; AND
MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 1, 1997 TO AUGUST 4, 1997
(Dollars in Thousands)
4. DISCONTINUED OPERATIONS
In December 1995, the Board of Directors of Laporte adopted a restructuring
program. As part of the program, the Tamms division of LCCNA was disposed of.
The Tamms division, which constituted a separate segment of the LCCNA business,
was engaged in the manufacture and sale of specialty concrete repair products,
grouts, and color pigments. This division was accounted for as a discontinued
operation. As a result, a loss on disposal of $243 was recorded in the combined
statement of operations, consisting of the actual loss on disposal of the
business in excess of the loss provided (at the time the decision was made to
dispose of the division) of approximately $2.1 million.
5. OTHER CURRENT ASSETS
At August 4, 1997, other current assets were comprised of the following
items:
<TABLE>
<S> <C>
Prepaid insurance........................................... $ 564
Prepaid marketing........................................... 199
Other....................................................... 463
------
$1,226
======
</TABLE>
6. ACCRUED EXPENSES
At August 4, 1997, accrued expenses are summarized as follows:
<TABLE>
<S> <C>
Compensation and related benefits........................... $ 3,234
Deferred purchase consideration............................. 1,458
Income taxes payable........................................ 657
Warranty costs.............................................. 448
Other....................................................... 1,879
-------
$ 7,676
=======
</TABLE>
7. OTHER LIABILITIES
At August 4, 1997, other liabilities was comprised of the following items:
<TABLE>
<S> <C>
Lease obligation............................................ $1,545
Environmental liability..................................... 1,360
Deferred purchase consideration............................. 698
------
$3,603
======
</TABLE>
F-30
<PAGE> 125
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.;
EVODE-TANNER INDUSTRIES, INC.; AND
MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 1, 1997 TO AUGUST 4, 1997
(Dollars in Thousands)
8. LEASES
Evode-Tanner Industries, Inc. is obligated under a capital lease that
expires in December 2008. The gross amount of buildings and related accumulated
amortization held under capital leases were $3,681 and $1,771, respectively, at
August 4, 1997.
The Companies have several noncancelable operating leases, primarily for
buildings, automobiles, and lift trucks, that expire at various dates through
2005. These leases generally contain renewal options for periods ranging from
three to five years and require the Companies to pay all executory costs such as
maintenance, taxes, and insurance. Rental expense for operating leases excluding
the Wilkes-Barre lease (discussed below) for the period from January 1, 1997 to
August 4, 1997, amounted to $498.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of August 4, 1997, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31 LEASES LEASES
----------------------- ------- ---------
<S> <C> <C>
Remainder of 1997.................................... $ 237 $ 764
1998................................................. 569 1,711
1999................................................. 620 1,603
2000................................................. 620 1,367
2001................................................. 620 1,034
Later years.......................................... 4,639 1,953
------ ------
Total minimum lease payments......................... 7,305 $8,432
======
Less: Amount representing interest (at rates ranging
from 12.36% to 15.96%)............................. 3,643
------
Present value of net minimum capital lease
payments........................................... 3,662
Less: Current installments of obligations under
capital leases..................................... 77
------
Obligations under capital leases, excluding current
installments....................................... $3,585
======
</TABLE>
Operating lease payments include payments in respect of a leased facility
at Wilkes-Barre Township, Pennsylvania. The facility was established as a
manufacturing base for the Tamms division whose operations have been
discontinued. The future minimum lease payments included for the remainder of
1997, 1998, 1999, 2000, 2001, and later years through 2005 are $198, $562, $575,
$591, $604, and $1,954, respectively. As a result of discontinuing the
operations, the difference between the discounted future minimum lease rental
payments and the discounted receipts from a warehousing sublet has been
recognized as a liability. At August 4, 1997, the liability which is included
under the balance sheet caption, "Other liabilities," was approximately $1.5
million.
F-31
<PAGE> 126
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.;
EVODE-TANNER INDUSTRIES, INC.; AND
MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 1, 1997 TO AUGUST 4, 1997
(Dollars in Thousands)
9. INCOME TAXES
Income tax expense, attributable to income from continuing operations, for
the period from January 1, 1997 to August 4, 1997, consists of:
<TABLE>
<S> <C>
Federal..................................................... $ 642
State and local............................................. 56
Deferred income taxes....................................... 1,682
------
$2,380
======
</TABLE>
Income tax expense attributable to income from continuing operations
differed from the amounts computed by applying the federal income tax rate of
34% to pretax income from continuing operations as a result of the following:
<TABLE>
<S> <C>
Income tax expense at statutory rate........................ $1,981
Goodwill and other expenses related to acquisitions......... 412
State and local income taxes, net of federal income tax
benefit................................................... 129
Other....................................................... (142)
------
$2,380
======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at August 4,
1997, are presented below.
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 250
Inventory capitalization.................................. 205
Amortization of intangibles............................... 560
Deferred compensation, vacation, and bonus accrual........ 545
Environmental accrual..................................... 380
Capital lease............................................. 639
State tax net operating loss carryforwards................ 153
Wilkes-Barre lease obligation............................. 631
-------
Total deferred tax assets................................... 3,363
Deferred tax liabilities:
Accelerated depreciation.................................. (3,094)
Other accruals............................................ (21)
-------
Total deferred tax liabilities.............................. (3,115)
-------
Net deferred tax asset...................................... $ 248
=======
</TABLE>
F-32
<PAGE> 127
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.;
EVODE-TANNER INDUSTRIES, INC.; AND
MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 1, 1997 TO AUGUST 4, 1997
(Dollars in Thousands)
10. COMMON STOCK
The common stock of the Companies at August 4, 1997, is summarized as
follows (dollars shown as actual):
<TABLE>
<S> <C>
Laporte Construction Chemicals North America, Inc. -- no par
value, 5,000,000 shares authorized, 505,980 shares issued
and outstanding........................................... $ --
Evode-Tanner Industries, Inc., $1 par value, 300 shares
authorized; 270 shares issued and outstanding............. 270
Mercer Products Company, Inc. -- $0.1 par value, 1,000
shares authorized, 10 shares issued and outstanding....... 1
-------
Total common stock.......................................... $ 271
=======
</TABLE>
11. RELATED PARTY TRANSACTIONS
The Companies enter into transactions in the ordinary course of business
with the parent company and affiliates. The following table summarizes the
Companies' most significant related party transactions for the period from
January 1, 1997 to August 4, 1997:
<TABLE>
<S> <C>
Purchases of raw materials (a).............................. $2,925
Management fees (b)......................................... 379
Interest (c)................................................ 545
</TABLE>
(a) Mercer Products Company, Inc. purchases raw materials from an
affiliated company of Laporte, for use in production. The terms of the
purchase are terms similar to the terms Mercer Products Company, Inc. would
have obtained from a third party.
(b) Laporte and Laporte Inc. provide services to the Companies,
including general management, treasury, tax, financial audit, financial
reporting, insurance, and legal services. The Companies have been charged
for such services through corporate allocations. The amount of the charge
is dependent upon the total of anticipated allocable costs incurred, less
amounts charged as direct costs or expense rather than by allocation.
(c) These combined financial statements include an allocation of the
debt incurred by Laporte when it originally acquired the Companies.
Accordingly, interest expense at rates of 9% for the period from January 1,
1997 to August 4, 1997, associated with such debt has been reflected in
these combined financial statements in addition to interest on funding
balances as shown in Note 1(j).
12. EMPLOYEE BENEFIT PLANS
The Companies sponsor two defined-contribution plans (an IRS qualified
401(k) plan and a money purchase pension plan). Participation in these plans is
available to all salaried and hourly employees of the Companies. Participating
employees contribute to the 401(k) plan based on a percentage of their
compensations which are matched, based on a percentage of employee
F-33
<PAGE> 128
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.;
EVODE-TANNER INDUSTRIES, INC.; AND
MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 1, 1997 TO AUGUST 4, 1997
(Dollars in Thousands)
12. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
contributions by the Companies. The Companies further contribute an amount based
on a percentage of employees' pay to the money purchase pension plan. Amounts
expensed under these plans were $723 for the period from January 1, 1997 to
August 4, 1997.
13. ENVIRONMENTAL REMEDIATION COSTS
In November 1994, Evode-Tanner entered into a Consent Agreement with the
state of South Carolina Bureau of Solid Waste and Hazardous Waste Management
(the Bureau) requiring the completion of a Remedial Investigation and
Feasibility Study (RI/FS) at its manufacturing site. The existence of an old
waste-burial site was discovered and Evode-Tanner reported this situation to the
Bureau. Evode-Tanner has engaged an environmental consultant to develop the site
environmental study (RI/FS Workplan), a remediation plan, and remediation cost
estimates based upon that plan. The total estimated remediation costs are
approximately $2,900, which principally relate to removal of soil and
groundwater contamination. To date, approximately $1.1 million has been expended
on this project. In an agreement with the prior owners of the business and the
current landlord, rent rebates are in place to cover 50% of the remediation cost
up to a maximum of $1,500. At August 4, 1997, the amount outstanding was $409.
Evode-Tanner has accrued an additional $1,360 for the remaining estimated
liability. The estimate of costs could change as a result of 1) changes to the
remediation plan required by the state agency, 2) changes in technology
available to treat the site, 3) unforeseen circumstances existing at the site,
and 4) differences due to inflation. It is not possible to estimate the amounts
which losses may exceed accrued amounts at this time due to the above-listed
factors.
LCCNA has received a notice that Tamms has been identified as a potentially
responsible party under the Comprehensive Environmental Response, Compensation,
and Liability Act (CERCLA) for a landfill site formerly utilized. Under the sale
agreement for the disposal of Tamms, LCCNA has agreed to share 50% of the costs
of the remediation up to a maximum cost of $250.
14. BUSINESS AND CREDIT CONCENTRATIONS
No single customer accounted for more than 10% of the Companies' accounts
receivable or sales during the period from January 1, 1997 to August 4, 1997.
The Companies estimate an allowance for doubtful accounts based on the
creditworthiness of its customers as well as general economic conditions.
Consequently, an adverse change in those factors could affect the Companies'
estimate of their bad debt.
F-34
<PAGE> 129
REPORT OF INDEPENDENT AUDITORS
The Holder of Equity Interest
Adhesives Systems Division of The BFGoodrich Company
We have audited the accompanying statements of divisional operations and
division equity and cash flows of Adhesives Systems Division (a division of The
BFGoodrich Company) for the year ended December 31, 1995 and the three months
ended March 31, 1996. These financial statements are the responsibility of the
Division's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of divisional operations and cash flows of
Adhesives Systems Division (a division of The BFGoodrich Company) for the year
ended December 31, 1995 and the three months ended March 31, 1996, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
June 19, 1997
F-35
<PAGE> 130
ADHESIVES SYSTEMS DIVISION
(A Division of The BFGoodrich Company)
STATEMENTS OF DIVISIONAL OPERATIONS AND DIVISION EQUITY
YEAR ENDED DECEMBER 31, 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
THREE
YEAR MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
Net sales................................................... $21,129 $5,410
Cost of goods sold.......................................... 13,734 3,580
------- ------
Gross profit.............................................. 7,395 1,830
Selling, general, and administrative expenses............... 5,633 1,603
------- ------
Income before income taxes................................ 1,762 227
Income tax expense.......................................... 705 91
------- ------
Net income................................................ 1,057 136
Division equity -- Beginning of year........................ 5,956 7,013
------- ------
Division equity -- End of year.............................. $ 7,013 $7,149
======= ======
</TABLE>
See accompanying notes.
F-36
<PAGE> 131
ADHESIVES SYSTEMS DIVISION
(A Division of The BFGoodrich Company)
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
THREE
YEAR MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
Operating activities:
Net income................................................ $ 1,057 $ 136
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation........................................... 790 163
Amortization........................................... 111 28
Loss on sale/disposal of equipment..................... 117 --
Changes in operating assets and liabilities:
Accounts receivable.................................. (480) (265)
Inventories.......................................... 428 1
Prepaid expenses and other current assets............ 24 (26)
Other assets......................................... 3 12
Accounts payable and accrued expenses................ (27) (115)
Accrued liabilities.................................. (584) 13
------- -----
Net cash provided by (used in) operating activities......... 1,449 (53)
Investing activities:
Purchases of property, plant, and equipment............... (106) (131)
Proceeds from the sale of equipment....................... -- --
------- -----
Net cash used in investing activities....................... (106) (131)
Financing activities:
Net transfer (to) from The BFGoodrich Company............. (1,333) 184
------- -----
Net cash provided by (used in) investing activities......... (1,333) 184
------- -----
Change in cash.............................................. -- --
Cash at beginning of year................................... 1 1
------- -----
Cash at end of year......................................... $ 1 $ 1
======= =====
</TABLE>
See accompanying notes.
F-37
<PAGE> 132
ADHESIVES SYSTEMS DIVISION
(A Division of The BFGoodrich Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND MARCH 31, 1996
(dollars in thousands)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Adhesives Systems Division (the Division) was a division of The BFGoodrich
Company (Parent Company or BFG) and was engaged primarily in the development and
production of liquid and film adhesives used in the automotive, aerospace, and
industrial markets sold primarily in the United States.
These financial statements present the results of operations of the
Division. Costs related to functions performed by BFG and certain other costs
which are attributable to the Division are allocated to the Division by BFG.
Refer to Note 4 for costs related to these functions performed by BFG.
The Division was part of a consolidated group and as such has significant
transactions with related entities. The terms of these transactions were
determined between related parties and may, therefore, differ from terms which
would have occurred between wholly unrelated parties and may also differ from
the costs which would have been incurred had the Division operated as a
completely autonomous entity.
The income and expenses shown on the Division's financial statements are
only part of those of a larger entity and are not subject to the constraints of
law and custom applicable entities.
2. ACCOUNTING POLICIES
Income Taxes
The Division is not a legal entity and, therefore, does not file income tax
returns. However, the Division's income was included in the federal and state
income tax returns of BFG. Federal and state income taxes for the year ended
December 31, 1995 and for the three months ended March 31, 1996 are recorded
based upon an estimated effective rate of 40% of financial reporting. Deferred
income taxes, based upon the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes, are not reflected in the financial
statements due to, in the opinion of management, the amounts not being
significant. Management believes that the effective tax rate of 40%
appropriately approximates the current and deferred tax position of the Division
on a stand-alone basis.
Revenue Recognition
Sales are recorded when products are shipped.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Division to make
estimates and assumptions that affect the reported amounts. Actual results could
differ from those estimates.
Research and Development
Research and development costs are charged to expense as incurred. Research
and development expense for the year ended December 31, 1995 and for the three
months ended March 31, 1996 was approximately $64 and $18, respectively.
F-38
<PAGE> 133
ADHESIVES SYSTEMS DIVISION
(A Division of The BFGoodrich Company)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. CORPORATE ALLOCATION OF EXPENSES
Certain expenses related to employee benefits and administrative costs, tax
and legal services, among others, for the year ended December 31, 1995 and for
the three months ended March 31, 1996, were paid by BFG on behalf of the
Division. These expenses were allocated to the Division by BFG based on
estimates of the Division's proportionate share of total common expenses. The
allocations were $958 and $461 for the year ended December 31, 1995 and for the
three months ended March 31, 1996, respectively. Management believes that the
allocation methods used on common expenses were reasonable, produce materially
accurate results, and are indicative of the expenses that would have been
incurred had the Division been operated as a stand-alone business.
4. RELATED PARTY TRANSACTIONS
The Division has entered into various intercompany transactions with BFG
and related affiliates. Net sales to these affiliates were approximately $381
and $53 for the year ended December 31, 1995 and for the three months ended
March 31, 1996, respectively.
5. EMPLOYEE BENEFITS
Medical Expenses
Medical coverage is provided by BFG to the Division's employees. Medical
expenses and claims experience of the Division and related affiliates are pooled
together and allocated to the Division based on estimates of the Division's
proportionate share of total medical expenses. For the year ended December 31,
1995 and for the three months ended March 31, 1996, medical expenses included in
selling, general, and administrative expenses, were approximately $608 and $104,
respectively.
Pension Plan
Substantially all salaried and hourly employees of the Division were
participants in BFG's defined benefit pension plan. BFG allocates pension costs
to the Division based on actuarial valuations. For the year ended December 31,
1995 and for the three months ended March 31, 1996, pension plan expenses
included in cost of goods sold and selling, general, and administrative expenses
were approximately $422 and $110, respectively.
Savings Plan
The Division participates in a BFG defined contribution savings plan which
covers most salaried and hourly employees of the Division. For the year ended
December 31, 1995 and for the three months ended March 31, 1996, Division
contributions under the plan included in cost of goods sold and selling general
and administrative expenses were approximately $183 and $45, respectively.
Other Postretirement Benefit Plans
The Division's employees participated in a BFG defined benefit
postretirement plan that provides certain health care and life insurance
benefits to eligible employees. The health care plan is contributory, with
retiree contributions adjusted periodically, and contains other cost sharing
features, such as deductibles and coinsurance. The life insurance plan is
generally noncontributory. For the year ended December 31, 1995 and for the
three months ended March 31, 1996, allocated net periodic postretirement benefit
expenses, included in corporate allocations in the statement of operation were
approximately $543 and $184, respectively.
F-39
<PAGE> 134
ADHESIVES SYSTEMS DIVISION
(A Division of The BFGoodrich Company)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. OPERATING LEASES
The Division leases certain equipment and automobiles under noncancelable
equipment and automobile lease agreements. Rent expense was $38 and $11 for the
year ended December 31, 1995 and for the three months ended March 31, 1996.
Future minimum annual lease payments under operating leases with initial
noncancelable terms extending beyond one year are as follows:
<TABLE>
<S> <C>
1996........................................................ $ 39
1997........................................................ 30
1998........................................................ 27
1999........................................................ 14
2001........................................................ 1
----
$111
====
</TABLE>
F-40
<PAGE> 135
REPORT OF INDEPENDENT AUDITORS
The Shareholders
Pierce & Stevens Corp.
We have audited the accompanying combined statements of income and cash
flows for the year ended December 31, 1995 and the period January 1, 1996
through August 19, 1996 of the corporations listed in Note 1. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined statements of income
and cash flows 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 combined statements of income and
cash flows presentation. We believe that our audits of the combined statements
of income and cash flows provide a reasonable basis for our opinion.
In our opinion, the statements of income and cash flows referred to above
present fairly, in all material respects, the combined results of operations and
cash flows of the corporations listed in Note 1 for the year ended December 31,
1995 and the period January 1, 1996 through August 19, 1996 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Buffalo, New York
June 19, 1997
F-41
<PAGE> 136
PIERCE & STEVENS CORP.
COMBINED STATEMENTS OF INCOME
(dollars in thousands)
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH AUGUST 19, 1996
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1996
YEAR ENDED THROUGH
DECEMBER 31, 1995 AUGUST 19, 1996
----------------- ----------------
<S> <C> <C>
Net sales........................................... $56,716 $36,823
Cost of goods sold.................................. 46,799 29,979
------- -------
Gross profit........................................ 9,917 6,844
Selling, general and administrative expenses........ 7,281 5,335
------- -------
Operating income.................................... 2,636 1,509
Interest expense.................................... (337) (9)
------- -------
Income before income taxes.......................... 2,299 1,500
Income tax expense.................................. 949 537
------- -------
Net income.......................................... $ 1,350 $ 963
======= =======
</TABLE>
See accompanying notes.
F-42
<PAGE> 137
PIERCE & STEVENS CORP.
COMBINED STATEMENTS OF CASH FLOWS
(dollars in thousands)
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH AUGUST 19, 1996
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1996
YEAR ENDED THROUGH
DECEMBER 31, 1995 AUGUST 19, 1996
----------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 1,350 $ 963
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 1,461 1,165
Deferred income taxes..................................... 60 (112)
Changes in operating assets and liabilities:
Accounts receivable.................................... (2,060) (497)
Inventories............................................ 1,275 839
Prepaid expenses and other current assets.............. 236 334
Accounts payable and accrued expenses.................. (490) 291
------- -------
Net cash provided by operating activities................... 1,832 2,983
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................. (4,634) (822)
Proceeds from asset disposals............................... -- 82
------- -------
Net cash used in investing activities....................... (4,634) (740)
FINANCING ACTIVITIES
Net borrowings (repayments) under intercompany credit
facilities................................................ 995 (2,354)
------- -------
Net cash provided by (used in) financing activities......... 995 (2,354)
Effect of exchange rate changes on cash..................... 712 70
------- -------
Net decrease in cash........................................ (1,095) (41)
Cash (overdraft) at beginning of year....................... 754 (341)
------- -------
Overdraft at end of year.................................... $ (341) $ (382)
======= =======
</TABLE>
See accompanying notes.
F-43
<PAGE> 138
PIERCE & STEVENS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
AUGUST 19, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The combined financial statements include the accounts of Pierce & Stevens
Corp. and Pratt & Lambert de Mexico S.A. de C.V. These entities were affiliated
through their common parent corporation. Both of these entities were acquired by
Sovereign Specialty Chemicals, L.P. on August 19, 1996. All significant
intercompany accounts and transactions have been eliminated.
Description of Business
Pierce & Stevens Corp. and Pratt and Lambert de Mexico S.A. de C.V.
(together the "Company") were wholly-owned subsidiaries of Pratt & Lambert
United, Inc. ("Pratt & Lambert"). The Company develops, manufactures, and sells
specialty adhesives and coatings for a wide variety of customer applications
worldwide. The Company grants credit to customers under normal business terms
and generally does not require collateral. The Company has operating divisions
in Buffalo, New York; Carol Stream, Illinois; Kimberton, Pennsylvania; and
Mexico City, Mexico.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined in accordance with the last-in, first-out (LIFO) method of inventory
valuation.
Property, Plant and Equipment
Depreciation is provided principally on the straight-line method over the
respective estimated useful lives of the assets ranging from 5 to 30 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.
Revenue Recognition
Revenue is recognized when products are shipped to the customer.
Translation of Foreign Currencies
The functional currency for the Company's foreign operations is the
applicable local currency. The translation from the applicable foreign currency
to U.S. dollars is performed for revenue and expense accounts using a weighted
average exchange rate during the period. Gains or losses resulting from foreign
currency transactions are included in income.
Income Taxes
The Company was included in the consolidated federal income tax return of
Pratt & Lambert. The income tax provision is in accordance with an informal tax
sharing agreement with Pratt & Lambert wherein income tax expense is calculated
as if the Company filed on a stand alone basis.
Deferred income taxes are recognized for tax consequences of temporary
differences by applying enacted statutory rates applicable to future years to
differences between the financial
F-44
<PAGE> 139
PIERCE & STEVENS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 expense for the year ended December 31, 1995 and the period
January 1, 1996 through August 19, 1996 was $2,163 and $1,236, respectively.
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.
Allocation of Expenses
The Company shares certain services with other related divisions of Pratt &
Lambert. These services are allocated to the Company primarily on the basis of
estimated usage of services. A summary of these service and amounts allocated to
the Company are described in Note 2.
2. RELATED PARTY TRANSACTIONS
Pratt & Lambert has provided the Company with various administrative and
financial services. These services included safety and environmental compliance
programs, employee benefits administration, computer systems and networking
services, accounting services, purchasing functions, personnel services, quality
management, and various other services. It is Pratt & Lambert's policy to
allocate the centrally incurred costs primarily on the basis of usage.
Management believes these allocations and charges have been made on a reasonable
basis; however, they are not necessarily indicative of the level of expenses
which might have been incurred had the Company been operating on a stand-alone
basis.
Charges allocated to the Company for the above-mentioned services amounted
to approximately $847 and $258 for the year ended December 31, 1995 and the
period January 1, 1996 to August 19, 1996, respectively.
Also, the Company was part of a centralized cash management system with
Pratt & Lambert, whereby all cash disbursements of the Company were funded by,
and all cash receipts were transferred to, Pratt & Lambert. During 1995, the
Company was charged interest on the net liability to Pratt & Lambert. There was
no interest charge in 1996.
3. RETIREMENT PLANS
The Company has a pension plan covering all union employees. The Company's
funding policy has been to contribute annually at least the minimum required by
ERISA. The Plan provides monthly benefits under a flat benefit formula.
F-45
<PAGE> 140
PIERCE & STEVENS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension cost is as follows:
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1996
YEAR ENDED THROUGH
DECEMBER 31, 1995 AUGUST 19, 1996
----------------- -----------------
<S> <C> <C>
Service cost...................................... $ 23 $ 19
Interest cost..................................... 89 77
Actual return on plan assets...................... (220) (129)
Amortization and deferral......................... 113 41
----- -----
Net periodic pension cost......................... $ 5 $ 8
===== =====
</TABLE>
The average assumed discount rate is 7.5% and the average expected
long-term rate of return on plan assets is 8.5%.
In addition, the Company had a deferred profit sharing plan covering all
employees. The contribution is subject to the discretion of the Board of
Directors and is limited to 5% of compensation of all eligible employees as
defined by the plan. Total Company contributions to the plan amounted to $300
for the year ended December 31, 1995 and $154 for the period January 1, 1996
through August 19, 1996, respectively.
All Company employees were covered by a defined contribution pension plan
sponsored by Pratt & Lambert. Pratt & Lambert contributed one half of one
percent of each individual participants' earnings in Company stock to the
employees 401(k) account. Total Company contributions to the plan amounted to
$39 for the year ended December 31, 1995. This plan was discontinued as of
December 31, 1995.
All Company employees were also covered by a capital accumulation plan
sponsored by Pratt & Lambert. Under terms of the plan, participants could have
elected to contribute up to 7% of their defined compensation. In addition, the
Company contributed 100% of each participant's contribution up to a maximum of
2% of defined compensation. Total Company contributions to the plan amounted to
$150 for the year ended December 31, 1995 and $89 for the period January 1, 1996
through August 19, 1996.
4. INCOME TAXES
The components of income before income taxes consist of:
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1996
YEAR ENDED THROUGH
DECEMBER 31, 1995 AUGUST 19, 1996
----------------- ---------------
<S> <C> <C>
Domestic................................... $2,773 $1,545
Foreign.................................... (474) (45)
------ ------
$2,299 $1,500
====== ======
</TABLE>
F-46
<PAGE> 141
PIERCE & STEVENS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes consists of:
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1996
YEAR ENDED THROUGH
DECEMBER 31, 1995 AUGUST 19, 1996
----------------- ---------------
<S> <C> <C>
Current
Federal.................................. $ 770 $ 562
State.................................... 119 87
------ ------
889 649
Deferred
Domestic................................. 158 (52)
Foreign.................................. (98) (60)
------ ------
60 (112)
------ ------
$ 949 $ 537
====== ======
</TABLE>
Income tax expense differs from the amount computed by applying the
statutory income tax rate as follows:
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1996
YEAR ENDED THROUGH
DECEMBER 31, 1995 AUGUST 19, 1996
----------------- ---------------
<S> <C> <C>
Income tax expense at 34% rate............. $ 782 $ 510
Foreign jurisdiction rate differential..... 56 (37)
State taxes, net........................... 79 57
Other permanent differences................ 32 7
------ ------
$ 949 $ 537
====== ======
</TABLE>
5. OTHER POSTRETIREMENT BENEFITS
The Company, through Pratt & Lambert, provided certain health care and life
insurance benefits for all retired employees who met eligibility requirements.
The cost of these benefits was allocated to the Company by Pratt & Lambert. The
net obligation for these benefits was maintained by Pratt & Lambert. Charges for
postretirement healthcare and life insurance plans allocated to the Company by
Pratt & Lambert were $97 and $61 for the year ended December 31, 1995 and the
period January 1, 1996 to August 19, 1996, respectively.
6. SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides supplemental cash flow data in addition to the
information provided in the Combined Statements of Cash Flows:
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1996
YEAR ENDED THROUGH
DECEMBER 31, 1995 AUGUST 19, 1996
----------------- ---------------
<S> <C> <C>
Cash paid for:
Income taxes............................. $ 746 $ 335
</TABLE>
F-47
<PAGE> 142
INDEPENDENT AUDITORS' REPORT
Board of Directors
Laporte plc:
We have audited the accompanying combined balance sheets of Laporte
Construction Chemicals North America, Inc., Evode-Tanner Industries, Inc. and
Mercer Products Company, Inc. (indirect wholly-owned subsidiaries of Laporte
plc) as of December 31, 1996 and 1995, and the related combined statements of
operations and cash flows for each of the years in the three-year period ended
December 31, 1996. These combined financial statements are the responsibility of
Laporte plc's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Laporte Construction
Chemicals North America, Inc., Evode-Tanner Industries, Inc. and Mercer Products
Company, Inc. (indirect wholly-owned subsidiaries of Laporte plc) at December
31, 1996 and 1995, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1996 in conformity
with generally accepted accounting principles in the United States of America.
KPMG AUDIT PLC
London, England
16 June 1997
F-48
<PAGE> 143
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.,
EVODE-TANNER INDUSTRIES, INC. AND MERCER PRODUCTS COMPANY, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1996 1995
------ ------
$000 $000
<S> <C> <C>
Assets
Current Assets:
Cash...................................................... 2,514 896
Trade accounts receivable, less allowance for doubtful
accounts of $458 in 1996 and $422 in 1995.............. 13,747 13,961
Due from affiliated companies............................. 448 669
Inventories (notes 3 and 11).............................. 10,563 10,270
Net assets of discontinued operations (note 5)............ 4,589 4,212
Prepaid expenses and other current assets (note 6)........ 1,232 2,489
Deferred tax asset (note 9)............................... 2,240 2,275
------ ------
Total current assets........................................ 35,333 34,772
Long-term receivable -- affiliated companies................ -- 1,829
Property, plant and equipment, net (notes 4 and 8).......... 19,815 20,862
Goodwill less accumulated amortization of $20,906 in 1996
and $18,247 in 1995....................................... 22,107 24,766
Deferred tax asset (note 9)............................... -- 619
------ ------
Total assets................................................ 77,255 82,848
====== ======
Liabilities and Stockholder's Equity
Current liabilities:
Current instalments of obligations under capital leases
(note 8)............................................... 71 62
Accounts payable and accrued expenses..................... 15,545 12,132
Deferred purchase consideration (note 2).................. 1,995 1,477
Income taxes payable...................................... 2,413 --
Due to affiliated companies............................... 919 1,425
------ ------
Total current liabilities................................... 20,943 15,096
Long-term payable -- parent and affiliated companies........ 38,271 49,646
Obligation under capital lease, excluding current
instalments (note 8)...................................... 3,631 3,702
Other liabilities (note 7).................................. 5,509 7,687
------ ------
Total liabilities........................................... 68,354 76,131
Commitments and contingencies (notes 8, 12 and 13)
Stockholder's equity:
Common stock (note 10).................................... -- --
Retained earnings......................................... 8,901 6,717
------ ------
Total stockholder's equity.................................. 8,901 6,717
------ ------
Total liabilities and stockholder's equity.................. 77,255 82,848
====== ======
</TABLE>
See accompanying notes to combined financial statements
F-49
<PAGE> 144
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.,
EVODE-TANNER INDUSTRIES, INC. AND MERCER PRODUCTS COMPANY, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
$000 $000 $000
<S> <C> <C> <C>
Net sales................................................... 119,218 93,519 86,130
Cost of goods sold (note 11)................................ (82,507) (67,264) (59,853)
------- ------- -------
Gross profit................................................ 36,711 26,255 26,277
Selling, general and administrative expenses................ (21,776) (16,885) (14,001)
Management fees (note 11)................................... (1,369) (1,320) (1,216)
Amortization of goodwill.................................... (2,659) (2,664) (2,711)
------- ------- -------
Operating income............................................ 10,907 5,386 8,349
Interest expense (note 11).................................. (4,462) (4,242) (3,537)
------- ------- -------
Income from continuing operations before income taxes....... 6,445 1,144 4,812
------- ------- -------
Income taxes (note 9)..................................... (3,502) (1,385) (2,845)
------- ------- -------
Income/(loss) before discontinued operations................ 2,943 (241) 1,967
Discontinued operations (notes 5
and 9)
Loss from operations of Tamms division.................... -- (910) (228)
Loss on disposal of Tamms division........................ -- (2,115) --
------- ------- -------
Net income/(loss)........................................... 2,943 (3,266) 1,739
Retained earnings at beginning of year...................... 6,717 9,983 8,244
Dividends................................................... (759) -- --
------- ------- -------
Retained earnings at end of year............................ 8,901 6,717 9,983
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements
F-50
<PAGE> 145
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.,
EVODE-TANNER INDUSTRIES, INC. AND MERCER PRODUCTS COMPANY, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------- ------- ------
$000 $000 $000
<S> <C> <C> <C>
Cash flows from operating activities:
Net income/(loss)......................................... 2,943 (3,266) 1,739
Adjustments to reconcile net income/(loss) to net cash
provided by continuing operations:
Depreciation and amortization............................. 4,304 4,078 3,806
Deferred taxes............................................ 964 (64) 813
Loss from operations of Tamms business.................... -- 910 228
Loss on disposal on Tamms business........................ -- 2,115 --
Changes in operating assets and liabilities:
Receivables............................................. 435 240 (2,319)
Inventories............................................. (293) 975 (752)
Prepaid expenses and other current assets............... 1,029 (250) 169
Payables and accrued expenses........................... 2,907 (799) 207
Other liabilities....................................... (748) 189 (861)
Income taxes payable.................................... 2,641 (507) 974
------- ------- ------
Net cash provided by continuing operations.................. 14,182 3,621 4,004
Net cash used in discontinued operations.................... (377) (1,310) (194)
------- ------- ------
Net cash provided by operating activities................... 13,805 2,311 3,810
------- ------- ------
Cash flows from investing activities:
Purchase consideration -- acquisitions.................... (1,222) (15,714) (716)
Purchase of property, plant and equipment................. (1,195) (1,577) (2,097)
Disposal of fixed assets.................................. 597 -- --
Disposal of Tamms division, net of expenses............... -- -- --
------- ------- ------
Net cash used in investing activities....................... (1,820) (17,291) (2,813)
------- ------- ------
Cash flows from financing activities:
Advances/(Payments) on long-term liabilities due to
related companies....................................... (9,546) 13,214 (521)
Payments on capital lease obligation...................... (62) (11) (10)
Dividends paid............................................ (759) -- --
------- ------- ------
Net cash provided by/(used in) financing activities......... (10,367) 13,203 (531)
------- ------- ------
Net increase/(decrease) in cash............................. 1,618 (1,777) 466
Cash at beginning of year................................... 896 2,673 2,207
------- ------- ------
Cash at end of year......................................... 2,514 896 2,673
======= ======= ======
</TABLE>
The companies paid $4,462, $4,242 and $3,537 for interest and Nil, $1,956
and $1,058 for income taxes during the years ended December 31, 1996, 1995 and
1994 respectively.
See accompanying notes to combined financial statements
F-51
<PAGE> 146
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.,
EVODE-TANNER INDUSTRIES, INC. AND MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On May 22, 1997 Laporte plc entered into an agreement with Sovereign
Specialty Chemicals L.P. for the sale of its Adhesive and Sealants business in
North America. This business is conducted by Laporte Construction Chemicals
North America, Inc., Evode-Tanner Industries, Inc. and Mercer Products Company,
Inc. (collectively, the "Companies"). Laporte Construction Chemicals North
America, Inc. is engaged in the manufacture, sale and distribution of solvent
and water-based caulk, sealants and adhesives. This company is based in Mentor,
Ohio where its principal manufacturing facilities are located. Evode-Tanner
Industries, Inc., with a plant in Greenville, South Carolina, is engaged in the
manufacture of adhesives and chemicals for the textiles industry. Mercer
Products Company, Inc. is engaged in the extrusion of rubber and vinyl products
for sale to wholesale distributors, mainly in the flooring industry from its
plant in Eustis, Florida.
(a) Principles of Combination
The financial statements of the Companies, which are under common
control as they are indirect wholly-owned subsidiaries of Laporte plc, have
been combined to present the entities as a single business. All significant
intercompany balances and transactions have been eliminated in combination.
The accounting basis of Laporte plc in the Companies has been
reflected in the accompanying combined financial statements. As such, the
goodwill resulting from the acquisition of the Companies, together with
related debt (shown as long-term payable -- parent and affiliated
companies) incurred by Laporte plc has been "pushed-down" and is shown in
the accompanying combined financial statements. Interest expense associated
with the debt "pushed-down" has also been reflected in the accompanying
combined financial statements. Refer to note 11(c).
(b) Inventories
Inventories are stated at the lower of cost, using the first-in,
first-out method, or market.
(c) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Plant held under
capital lease is stated at the present value of minimum lease payments.
Depreciation on plant and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. Plant held under
capital leases and leasehold improvements is amortized straight line over
the shorter of the lease term or estimated useful life of the asset. The
following table summarizes the estimated useful lives of the Companies'
property, plant and equipment:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Building..................................... 40
Machinery and equipment...................... 15
Leasehold improvements....................... Term of lease
</TABLE>
F-52
<PAGE> 147
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.,
EVODE-TANNER INDUSTRIES, INC. AND MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Goodwill
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line basis over
the expected periods to be benefited, which is 15 years. The Companies
assess the recoverability of this intangible asset by determining whether
the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Companies' average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating
cash flows are not achieved.
(e) Income Taxes
The Companies do not file individual income tax returns, but rather
they are included within the consolidated Federal income tax return of
Laporte Inc. in the United States. For the purposes of these combined
financial statements income tax expense is calculated using the enacted
rates in the United States as if the Companies had been independent
entities.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance reduces
deferred tax assets when it is "more likely than not" that some portion or
all of the deferred tax assets will not be realized.
(f) Research and development
Research and development costs are expensed as incurred. Such costs
amounted to $1,468, $1,233 and $1,136 for the years ended December 31,
1996, 1995 and 1994, respectively.
(g) Advertising costs
Advertising costs are expensed as incurred. Advertising costs for the
years ended December 31, 1996, 1995 and 1994 amounted to $1,841, $1,131 and
$491, respectively.
(h) Commitments and Contingencies
Liabilities for loss contingencies, including environmental
remediation costs, arising from claims, assessments, litigation, fines and
penalties, and other sources are recorded when it is probable that a
liability has been incurred and the amount of the assessment and/or
remediation can be reasonably estimated. Recoveries from third parties
which are probable of realization are separately recorded, and are not
offset against the related environmental liability, in accordance with
Financial Accounting Standards Board Interpretation No. 39, Offsetting of
Amounts Related to Certain Contracts.
In October 1996, the American Institute of Certified Public
Accountants issued SOP 96-1, Environmental Remediation Liabilities. SOP
96-1 was adopted by the Companies on January 1,
F-53
<PAGE> 148
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.,
EVODE-TANNER INDUSTRIES, INC. AND MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
1997 and requires, among other things, environmental remediation
liabilities to be accrued when the criteria of SFAS No. 5, Accounting for
Contingencies, have been met. The SOP also provides guidance with respect
to the measurement of the remediation liabilities. Such accounting is
consistent with the Companies' current method of accounting for
environmental remediation costs and, therefore, adoption of this new
Statement will not have a material impact on the Companies' financial
position, results of operations, or liquidity.
(i) Use of Estimates
Management has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these combined financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(j) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Companies adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, on January 1, 1996. This Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceed
the fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. Adoption of
this Statement did not have a material impact on the Companies' financial
position, results of operations, or liquidity.
(k) Fair Value of Financial Instruments
The carrying value of cash, trade accounts receivable, due from
affiliated companies, accounts payable and accrued expenses, due to
affiliated companies and other liabilities approximate to their fair value
because of the short-term maturity of these instruments.
It is not practical to determine the fair value of long-term
receivable and payable -- parent and affiliated companies because such
amounts have no maturity which makes it difficult to estimate fair value
with precision. Refer to note 11(c)
(2) ACQUISITION OF BUSINESS
On December 29, 1995, Laporte Construction Chemicals North America, Inc.
acquired the Darworth Company division of Ensign-Bickford Industries, Inc. for
$17,300 in cash. The Darworth division primarily manufactures, sells and
distributes latex (water) based caulk, sealants and adhesives. The acquisition
was recorded under the purchase method; and accordingly, the results of
operations of Darworth have been included in the accompanying combined
statements of operations since the date of acquisition. The purchase price was
allocated to the assets acquired and the liabilities assumed based on their
respective fair values. This resulted in goodwill of $7,779 which is being
amortized on straight-line basis over a period of 15 years.
The purchase agreement required that a deferred consideration be paid to
the former owners of the Darworth Company over a period of two years. At
December 31, 1996 and 1995 such deferred
F-54
<PAGE> 149
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.,
EVODE-TANNER INDUSTRIES, INC. AND MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
consideration amounted to $1,375 and $2,384 respectively. Other deferred
consideration relates to the acquisition of Magic Seal and Ohio Sealants, Inc.
(3) INVENTORIES
The components of inventories at December 31, 1996 and 1995, were as
follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
$000 $000
<S> <C> <C>
Finished goods........................................... 6,396 6,597
Raw materials............................................ 4,167 3,673
------ ------
Total inventories........................................ 10,563 10,270
====== ======
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
At December 31, 1996 and 1995, property, plant and equipment was comprised
of the following items:
<TABLE>
<CAPTION>
1996 1995
------- -------
$000 $000
<S> <C> <C>
Land................................................... 756 648
Buildings.............................................. 12,181 12,462
Machinery and equipment................................ 18,932 19,161
Leasehold improvements................................. 309 309
------- -------
32,178 32,580
Less accumulated depreciation and amortization......... (12,363) (11,718)
------- -------
Property, plant and equipment, net..................... 19,815 20,862
======= =======
</TABLE>
(5) DISCONTINUED OPERATIONS
In December 1995, the Board of Directors of Laporte plc adopted a
restructuring program to rationalize divisions, reduce costs and refocus the
group. Among those businesses disposed of was the Tamms division of Laporte
Construction Chemicals North America, Inc. (LCCNA). The Tamms division, which
constituted a separate segment of the LCCNA business, was engaged in the
manufacture and sale of specialty concrete repair products, grouts and color
pigments. This division has been accounted for as a discontinued operation in
accordance with APB No. 30. As a result, a loss on disposal of $2,115 (net of
tax benefit of $1,320) has been recorded in the accompanying 1995 combined
statement of operations, consisting of a loss on disposal of the business of
$1,468 and a provision of $647 for anticipated operating losses until disposal.
No allocation has been made of interest expense and general corporate overhead
to discontinued operations.
The operating results of the Tamms business are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
$000 $000 $000
<S> <C> <C> <C>
Sales.......................................... 16,994 17,165 19,849
====== ====== ======
Loss before income taxes....................... 269 1,467 370
Income taxes................................... (103) (557) (142)
------ ------ ------
Net loss....................................... 166 910 228
</TABLE>
F-55
<PAGE> 150
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.,
EVODE-TANNER INDUSTRIES, INC. AND MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The 1996 net loss of $166 was included in the provision for anticipated
operating losses at December 31, 1995.
The net assets of the Tamms business are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
$000 $000
<S> <C> <C>
Current assets........................................... 5,307 5,307
Plant and equipment, net................................. 3,152 2,939
Current liabilities...................................... (599) (599)
------ ------
Net assets of the Tamms business......................... 7,860 7,647
Net realizable value provision........................... (3,271) (3,435)
------ ------
Net assets of discontinued operations.................... 4,589 4,212
====== ======
</TABLE>
In March 1997, Laporte Construction Chemicals North America, Inc. sold its
Tamms division to Tamms Acquisition Corporation for $5,072 in cash before
expenses.
(6) PREPAID EXPENSES AND OTHER CURRENT ASSETS
At December 31, 1996 and 1995 prepaid expenses and other current assets
were comprised of the following items:
<TABLE>
<CAPTION>
1996 1995
----- -----
$000 $000
<S> <C> <C>
Tax recoverable............................................. -- 228
Environmental remediation cost recovery (note 13)........... 584 883
Other....................................................... 648 1,378
----- -----
1,232 2,489
===== =====
</TABLE>
(7) OTHER LIABILITIES
At December 31, 1996 and 1995 other liabilities was comprised of the
following items:
<TABLE>
<CAPTION>
1996 1995
----- -----
$000 $000
<S> <C> <C>
Deferred taxes (note 9)..................................... 310 --
Wilkes-Barre lease obligation (note 8)...................... 1,650 1,830
Environmental remediation costs (note 13)................... 1,870 2,180
Deferred purchase consideration (note 2).................... 1,146 2,886
Other....................................................... 533 791
----- -----
5,509 7,687
===== =====
</TABLE>
(8) LEASES
Evode-Tanner Industries, Inc. is obligated under a capital lease that
expires in December 2008. The gross amount of buildings and related accumulated
amortization held under capital leases were $3,681 and $1,673, respectively, at
December 31, 1996 and $3,681 and $1,506, respectively, at December 31, 1995.
F-56
<PAGE> 151
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.,
EVODE-TANNER INDUSTRIES, INC. AND MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Companies have several non-cancellable operating leases, primarily for
buildings, automobiles and lift trucks, that expire at various dates through
2005. These leases generally contain renewal options for periods ranging from
three to five years and require the Companies to pay all executory costs such as
maintenance, taxes and insurance. Rental expense for operating leases excluding
the Wilkes-Barre lease for the years ended December 31, 1996, 1995 and 1994
amounted to $1,350, $976 and $1,241, respectively.
Future minimum lease payments under non-cancellable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of December 31, 1996 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31 LEASES LEASES
----------------------- ------- ---------
$000 $000
<S> <C> <C>
1997.................................................... 569 1,833
1998.................................................... 569 1,711
1999.................................................... 620 1,603
2000.................................................... 620 1,367
2001.................................................... 620 1,034
Later years............................................. 4,643 1,953
------ -----
Total minimum lease payments............................ 7,641 9,501
=====
Less amount representing interest (at rates ranging from
12.36% to 15.96%)..................................... (3,939)
------
Present value of net minimum capital lease payments..... 3,702
Less current instalments of obligations under capital
leases................................................ (71)
------
Obligations under capital leases, excluding current
instalments........................................... 3,631
======
</TABLE>
Operating lease payments include payments in respect of a leased facility
at Wilkes-Barre Township, Pennsylvania. This facility was established as a
manufacturing base for the Tamms division of Laporte Construction Chemicals
North America, Inc ("Tamms") in the early 1990's, but has subsequently been
decommissioned and is now only partly used for warehousing Tamms products. The
future minimum lease payments included for 1997, 1998, 1999, 2000, 2001 and
later years through 2005 are $550, $562 $575, $591, $604 and $1,954
respectively. As a result of the decommissioning, the difference between the
discounted future minimum lease rental payments and the discounted receipts from
a warehousing sub-let, has been recognized as a liability. At December 31, 1995
and 1996 the liability, which is included under the balance sheet caption "Other
liabilities", was $1,830 and $1,650, respectively. Prior to the completion of
the sale of the Companies to Sovereign Specialty Chemicals L.P., the
Wilkes-Barre lease liability will be assumed by an affiliated company.
F-57
<PAGE> 152
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.,
EVODE-TANNER INDUSTRIES, INC. AND MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(9) INCOME TAXES
Total income taxes for the years ended December 31, 1996, 1995 and 1994
were allocated as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- -----
$000 $000 $000
<S> <C> <C> <C>
Income from continuing operations............... 3,502 1,385 2,845
Discontinued operations......................... -- (1,877) (142)
----- ------ -----
Total........................................... 3,502 (492) 2,703
===== ====== =====
</TABLE>
Income tax expense attributable to income from continuing operations
consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
$000 $000 $000
<S> <C> <C> <C>
Year ended December 31, 1996:
U.S. Federal.................................... 2,582 548 3,130
State and local................................. 223 149 372
----- --- -----
Total........................................... 2,805 697 3,502
===== === =====
Year ended December 31, 1995:
U.S. Federal.................................... 529 596 1,125
State and local................................. 237 23 260
----- --- -----
Total........................................... 766 619 1,385
===== === =====
Year ended December 31, 1994:
U.S. Federal.................................... 1,908 548 2,456
State and local................................. 286 103 389
----- --- -----
Total........................................... 2,194 651 2,845
===== === =====
</TABLE>
Income tax expense attributable to income from continuing operations
differed from the amounts computed by applying the U.S. federal income tax rate
of 35 percent to pretax income from continuing operations as a result of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
$000 $000 $000
<S> <C> <C> <C>
Computed "expected" tax expense................... 2,256 401 1,684
Increase in income taxes resulting from:
Goodwill and other expenses related to
acquisitions.................................... 752 805 848
State and local income taxes, net of federal
income tax benefit.............................. 241 168 253
Other............................................. 253 11 60
----- ----- -----
3,502 1,385 2,845
===== ===== =====
</TABLE>
F-58
<PAGE> 153
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.,
EVODE-TANNER INDUSTRIES, INC. AND MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995 are presented below.
<TABLE>
<CAPTION>
1996 1995
------ ------
$000 $000
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts...................................... 250 261
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the Tax Reform
Act of 1986............................................ 205 406
Intangibles, principally due to differences in
amortization........................................... 560 629
Deferred compensation,vacation and bonus accrual......... 545 570
Environmental accrual.................................... 380 328
Capital lease............................................ 639 600
State tax net operating loss carryforwards............... 153 217
Other accruals........................................... 450 198
Accrual for loss on discontinued operations.............. 1,211 1,320
Wilkes-Barre lease obligation............................ 631 700
------ ------
Total deferred tax assets................................ 5,024 5,229
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation........................................... (3,094) (2,335)
------ ------
Net deferred tax asset................................... 1,930 2,894
====== ======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not that the Companies will realize the benefits of these
deductible differences.
At December 31, 1996, the net deferred tax asset of $1,930 is included in
the balance sheet as a current asset of $2,240 and as a non-current liability
(within other liabilities) of $310. At December 31, 1995, the net deferred tax
asset of $2,894 is included in the balance sheet as a current asset of $2,275
and a non-current asset of $619.
F-59
<PAGE> 154
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.,
EVODE-TANNER INDUSTRIES, INC. AND MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(10) COMMON STOCK
The common stock of the Companies at December 31, 1996 and 1995 is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
$ $
<S> <C> <C>
Laporte Construction Chemicals North America, Inc........... -- --
No par value, 5,000,000 shares authorized, 505,980 shares
issued and outstanding
Evode-Tanner Industries, Inc. $1 par value, 300 shares
authorized,............................................... 270 270
270 shares issued and outstanding
Mercer Products Company, Inc................................ 1 1
$0.1 par value, 1000 shares authorized, 10 shares issued and
outstanding
--- ---
Total common stock.......................................... 271 271
=== ===
</TABLE>
No changes in the common stock of the Companies occurred during 1996, 1995
and 1994.
(11) RELATED PARTY TRANSACTIONS
The Companies enter into transactions in the ordinary course of business
with the parent company and affiliates. The following table summarized the
Companies' most significant related party transactions:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
$000 $000 $000
<S> <C> <C> <C>
Purchases of raw materials(a)..................... 6,285 9,014 9,075
Management fees (b)............................... 1,369 1,320 1,216
Interest (c)...................................... 3,874 3,740 2,372
</TABLE>
(a) Mercer Products Company, Inc., purchases raw materials from
AlphaGary Corporation, an affiliated company, for use in production. The
terms of the purchase are terms similar to the terms Mercer Products
Company, Inc. would have obtained from a third party.
(b) Laporte plc and Laporte Inc. provide services to the Companies,
including general management, treasury, tax, financial audit, financial
reporting, insurance and legal services. The Companies have been charged
for such services through corporate allocations. The amount of the charge
is dependent upon the total of anticipated allocable costs incurred, less
amounts charged as direct costs or expense rather than by allocation.
These combined financial statements include interest on certain debts with
parent and affiliated companies. Long-term payable-parent company mainly
represents funding loans from parent and affiliated companies of $33,472 and
$43,740 at December 31, 1996 and 1995, respectively. Certain funding loans
($37,000 and $32,000 at December 31, 1996 and 1995, respectively) bear interest
ranging from 7.28% to 10.08% and are evidenced by promissory notes with
short-term maturities. These loans have been classified as long-term because
their intent is to provide sufficient long term funding to sustain on-going
operations of the Companies. The promissory notes have primarily been structured
as short-term (maturities of 1-3 months) to provide flexibility and to be
consistent with the normal funding arrangements for most of the loans to the US
subsidiaries, but have been rolled-over for several years without requiring
repayment. The parent and affiliated companies have not
F-60
<PAGE> 155
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.,
EVODE-TANNER INDUSTRIES, INC. AND MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
required and have indicated they will not require repayment of the funding loans
during the next year. Interest on such funding loans averaged 9.4%, 8.3% and
7.3% during 1996, 1995 and 1994, respectively. Long-term payable-parent and
affiliated companies also include acquisition debt allocated to the Companies.
The acquisition debt was originally allocated based on (i) actual debt incurred
in the acquisition of LCCNA, and (ii) a prorata of the total debt incurred in
the acquisition of Evode-Tanner Industries, Inc. and Mercer Products, Inc. At
December 31, 1996 and 1995, the amount of the acquisition debt allocated to the
Companies was $4,799 and $5,906, respectively. The acquisition debt has been
classified as long-term because, even though the amounts have no stated
maturity, the parent company has not required and has indicated it will not
require repayment in the next year. Interest cost has been allocated to the
Companies at average rates of 5.7%, 6.2% and 5.1% (average 3-month LIBOR plus 25
basis points) during 1996, 1995 and 1994, respectively, on the average allocated
acquisition debt during the year. Management believes these allocations to be
reasonable.
(12) EMPLOYEE BENEFIT PLANS
The Companies sponsor two defined contribution plans (an IRS qualified
401(k) plan and a money purchase pension plan). Participation in these plans is
available to all salaried and hourly employees of the Companies. Participating
employees contribute to the 401(k) plan based on a percentage of their
compensation and matched, based on a percentage of employee contributions, by
the Companies. The Companies further contribute an amount based on a percentage
of employee's pay to the money purchase pension plan. The costs of these plans
amounted to $655 in 1996, $928 in 1995 and $578 in 1994.
The Companies have established a non-qualified deferred compensation plan
which permits key employees to defer a portion of their compensation, on a
pre-tax basis, until their retirement. The retirement benefit to be provided is
based on the amount of compensation deferred. Deferred compensation liability at
December 31, 1996 and 1995 amounted to $162 and $108, respectively. Deferred
compensation expense for the years ended December 31, 1996, 1995 and 1994
amounted to $43, $56 and $43, respectively.
(13) COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL REMEDIATION COSTS
In November of 1994, Evode-Tanner Industries, Inc. (ETI) entered into a
Consent Agreement with the state of South Carolina Bureau of Solid Waste and
Hazardous Waste Management requiring the completion of a Remedial Investigation
and Feasibility Study (RI/FS) at its manufacturing site. The existence of an old
waste burial site was discovered during an excavation project in 1991. ETI self
reported this situation and in its subsequent investigation learned that prior
owners had buried waste solvents in a pit on the property in the late 1970's and
early 1980's. ETI has engaged an environmental consultant to develop the site
environmental study (RI/FS Workplan), a remediation plan and remediation cost
estimates based upon that plan.
The total estimated remediation costs are approximately $2,900 (over 30
years), which principally relate to removal of soil and groundwater
contamination through vapour extraction and groundwater recovery and long term
monitoring following the remediation. The RI/FS Workplan is proceeding and is
scheduled for submittal to the state agency in September 1997. At the same time
ETI has installed and is presently operating an interim remediation system. To
date approximately $1,100 has been expended on this project.
F-61
<PAGE> 156
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.,
EVODE-TANNER INDUSTRIES, INC. AND MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In an agreement with the prior owners of the business and current landlord,
rent rebates are in place to cover 50% of the remediation cost up to a maximum
of $1,500. At December 31, 1996 and 1995 the amounts outstanding were $584 and
$883 respectively. ETI has accrued an additional $1,870 for the remaining
estimated liability, however, the payments are not considered to be fixed in
that they represent management's best estimates against current knowledge. The
cost estimate is based on utilizing technology that is presently in place and is
successfully removing the contaminants. Once the RI/FS is submitted, the state
agency will review the remediation plan for approval. The estimate of costs
could change as a result of 1) changes to the remediation plan required by the
state agency, 2) changes in technology available to treat the site, 3)
unforeseen circumstances existing at the site, and 4) differences due to
inflation. It is not possible to estimate the amounts which losses may exceed
accrued amounts at this time due to the above listed factors.
The US Environmental Protection Agency has identified the MIG/DeWane
Landfill site as a superfund site and issued a notice to Tamms identifying the
business as a "Potentially Responsible Party". Under the sale agreement for
Tamms, the Tamms Acquisition Corporation has agreed to a 50/50 share in the cost
of the Remedial Investigation and Feasibility Study and clean up to a maximum
cost of $250,000. On the sale of Laporte Chemicals Construction North America,
Inc. this contingency will revert to Laporte Inc., a United States subsidiary of
Laporte plc and direct parent of the Companies. No amount has been accrued in
the combined financial statements for this contingency.
LEGAL PROCEEDINGS
The Companies are involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Companies' combined financial position, results of operations or liquidity.
(14) BUSINESS AND CREDIT CONCENTRATIONS
The Companies are primarily producers of adhesives and sealants, which are
sold to a number of markets, including the construction, automotive and
industrial markets. The Companies sell domestically to customers in the
midwestern and eastern United States. A significant portion of the Companies'
sales are to customers in the construction industry, and as such the Companies
are affected by the well-being of that industry. The Companies do not require
collateral and all their accounts receivable are unsecured; and while they
believe their trade receivables will be collected, the Companies anticipate that
in the event of default they will follow normal collection procedures. Overall,
credit risk related to the Companies is limited due to a large number of
customers in differing industries and geographic areas.
No single customer accounted for more than five percent of the Companies'
sales in 1996, 1995 or 1994, and no accounts receivable from any customer
exceeded $1,058. The Companies estimate an allowance for doubtful accounts based
on the credit worthiness of its customers as well as general economic
conditions. Consequently, an adverse change in those factors could affect the
Companies' estimate of its bad debt.
The Companies rely on several vendors to supply raw materials needed for
its products. Although there are a limited number of manufacturers capable of
supplying these needs, the Companies believe that other suppliers could provide
for the companies needs in comparable terms. Abrupt changes in the supply flow
could, however cause a delay in manufacturing and possible
F-62
<PAGE> 157
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.,
EVODE-TANNER INDUSTRIES, INC. AND MERCER PRODUCTS COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
inability to meet sales commitments on schedule and a possible loss of sales,
which would affect operating results adversely.
(15) POST BALANCE STATEMENT
In March 1997 the Tamms division was sold to the Tamms Acquisition
Corporation as disclosed in note 5 to the combined financial statements.
On May 22, 1997 Laporte plc entered into an agreement with Sovereign
Specialty Chemicals L.P. for the sale of its Adhesives and Sealants business in
North America as disclosed in note 1 of the combined financial statements.
Dividends declared in 1997 amount to $2,340 being $1,225 in respect of
Mercer Products Company, Inc. and $1,115 in respect of Evode Tanner Industries,
Inc.
F-63
<PAGE> 158
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Summary.................................... 1
Risk Factors............................... 12
Use of Proceeds............................ 19
Selected Historical Financial Data......... 20
Management's Discussion and Analysis of
Results of Operations and Financial
Condition................................ 22
Business................................... 25
Directors and Executive Officers of the
Registrant............................... 33
Executive Compensation..................... 36
Management Incentive Plans and Employment
Agreements............................... 37
Security Ownership of Certain Beneficial
Owners and Management.................... 39
Certain Relationships and Related
Transactions............................. 40
Description of Senior Credit Facility...... 41
Description of the Exchange Notes.......... 43
The Exchange Offer......................... 77
Certain Federal Income Tax Consequences.... 86
Plan of Distribution....................... 86
Legal Matters.............................. 87
Experts.................................... 87
Index to Financial Statements.............. F-1
</TABLE>
PRELIMINARY PROSPECTUS
$125,000,000
SOVEREIGN SPECIALTY
CHEMICALS, INC.
OFFER TO EXCHANGE ITS 9 1/2% SENIOR
SUBORDINATED NOTES DUE 2007, SERIES B
FOR ANY AND ALL OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES
DUE 2007
SOVEREIGN SPECIALTY CHEMICALS, INC. LOGO
,1998
<PAGE> 159
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company and SIA Adhesives are incorporated under the laws of the State
of Delaware. Section 145 of the General Corporation Law of the State of
Delaware, (the "Delaware Law") provides that a Delaware corporation may
indemnify any persons who were, are or are threatened to be made, parties to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his conduct was illegal. A Delaware corporation may indemnify
any persons who are, were or are threatened to be made, a party to any
threatened, pending or completed action or suit by or in the right of the
corporation by reason of the fact that such person was a director, officer,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, provided such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests, provided that no indemnification is
permitted without judicial approval if the officer, director, employee or agent
is adjudged to be liable to the corporation. Where an officer, director,
employee or agent is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which such officer or director has actually and reasonably incurred.
The Delaware Law further authorizes a Delaware corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against him and incurred by him in
any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
The respective by-laws of the Company and SIA Adhesives provide that the
corporation shall indemnify, to the fullest extent permitted by the General
Corporation Law of the State of Delaware, any person who was or is a party or is
threatened to be made a party to or is involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he or she is or was a director or
officer of such corporation or other entity, or is or was serving at the request
of such corporation as a director, officer or member of another corporation,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding and that such indemnification shall continue as to an
indemnitee who has ceased to be a director or officer and shall inure to the
benefit of the indemnitee's heirs, executors and administrators. The by-laws of
the Company and SIA Adhesives further provide that any employee or agent of such
corporation, or any person serving at the request of such corporation an
employee or agent of another corporation, partnership, joint venture or other
enterprise shall be indemnified in the same manner as a director or officer of
such entity.
II-1
<PAGE> 160
The respective by-laws of the Company and SIA Adhesives provide that each
such corporation may purchase and maintain insurance on its own behalf and on
behalf of any person who is or was a director, officer, employee, fiduciary, or
agent of such corporation or was serving at the request of that corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, whether or not the
corporation would have the power to indemnify such person against such liability
under its by-laws.
Pierce & Stevens is incorporated under the laws of the State of New York.
Sections 722 and 723 of the Business Corporation Law of the State of New York
(the "New York Law") contain provisions permitting a New York corporation to
indemnify any person made a party to an action by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he,
his testator or intestate, is or was a director or officer of the corporation,
against the reasonable expenses, including attorneys' fees, actually and
necessarily incurred by him in connection with the defense of such action, or in
connection with an appeal therein, except in relation to matters as to which
such director or officer is adjudged to have breached his duty to the
corporation under the New York Law.
A New York corporation may indemnify any person, made, or threatened to be
made, a party to an action or proceeding other than one by or in the right of
the corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
The New York Law also authorizes a corporation to purchase and maintain
insurance to indemnify the corporation for any obligation which it incurs as a
result of the indemnification of directors and officers, to indemnify directors
and officers in instances in which they may be indemnified by the corporation,
and to indemnify directors and officers in instances in which they may not
otherwise be indemnified by the corporation under the provisions of the New York
Law provided the contract of insurance covering such directors and officers
provides for a retention amount and for co-insurance.
The by-laws of Pierce & Stevens do not contain provisions regarding the
indemnification of directors and officers.
OSI Sealants is incorporated under the laws of the State of Illinois.
Section 8.75 of the Business Corporation Act of 1983 of the State of Illinois
(the "Illinois Law") contains provisions permitting an Illinois corporation to
indemnify any person who was or is a party, or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation, or who is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, if such person acted in good
faith and in a manner he or she reasonably believed to be in, or not opposed to
the best interests of the
II-2
<PAGE> 161
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause believe his or her conduct was unlawful.
An Illinois corporation may indemnify any person who was or is a party, or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that such person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, if such person
acted in good faith and in a manner he or she reasonably believed to be in, or
not opposed to the best interests of the corporation, provided that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his or her duty to the corporation, unless, and
only to the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, but in
view of the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper.
The Illinois Law further authorizes an Illinois corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or who is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify such person against such liability
under the provisions of Section 8.75.
Mercer Products Company, Inc. is incorporated under the laws of the State
of New Jersey. Section 14A:3-5 of the New Jersey Business Corporation Act (the
"New Jersey Law") contains provisions permitting a New Jersey corporation to
indemnify a corporate agent against his expenses and layabouts in connection
with any proceeding involving the corporate agent by reason of his being or
having been such a corporate agent, other than a proceeding by or in the right
of the corporation, if (a) such corporate agent acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation; and (b) with respect to any criminal proceeding, such corporate
agent had not reasonable cause to believe his conduct was unlawful.
A New Jersey corporation may indemnify a corporate agent against his
expenses in connection with any proceeding by or in the right of the corporation
to procure a judgment in its favor which involves the corporate agent by reason
of his being or having been such corporate agent, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation.
The New Jersey Law further authorizes a New Jersey corporation to purchase
and maintain insurance on behalf of any corporate agent against any expenses
incurred in any proceeding and any liabilities asserted against him in his
capacity as corporate agent, whether or not the corporation would have the power
to indemnify him against such liability under the provisions of the New Jersey
Law.
Tanner Chemicals, Inc. is incorporated under the laws of the State of New
Hampshire. Section 293-A:5 of the Business Corporation Act of the State of New
Hampshire (the "New Hampshire Law") contains provisions permitting a New
Hampshire corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
other than an action by or in the right of the corporation, by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or
II-3
<PAGE> 162
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
A New Hampshire corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of the action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be made in
respect of any claim, issue or matter as to which the person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation unless and only to the extent that the court in which
the action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all circumstances of the case, the
person is fairly and reasonably entitled to indemnity for expenses which the
court shall deem proper.
The New Hampshire Law further authorizes a New Hampshire corporation to
purchase and maintain insurance on behalf of any person who is or a was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against this liability under the
provisions of the New Hampshire Law.
The respective by-laws of each of OSI Sealants, Mercer and Tanner provide
that the corporation shall indemnify any person who was or is a party or is
threatened to be made a party to or is involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he or she is or was a director or
officer of such corporation or other entity, or is or was serving at the request
of such corporation as a director, officer or member of another corporation so
long as such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of such corporation,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding and that such indemnification shall continue as to an
indemnitee who has ceased to be a director or officer and shall inure to the
benefit of the indemnitee's heirs, executors and administrators. The by-laws of
each of OSI Sealants, Mercer and Tanner further provide that any employee or
agent of such corporation, or any person serving at the request of such
corporation an employee or agent of another corporation, partnership, joint
venture or other enterprise shall be indemnified in the same manner as a
director or officer of such entity.
The respective by-laws of each of OSI Sealants, Mercer and Tanner provide
that each such corporation may purchase and maintain insurance on its own behalf
and on behalf of any person who is or was a director, officer, employee,
fiduciary, or agent of such corporation or was serving at the request of that
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity,
whether or not the corporation would have the power to indemnify such person
against such liability under its by-laws.
II-4
<PAGE> 163
ITEM 21. EXHIBITS.
<TABLE>
<S> <C>
3.1 Certificate of Incorporation of Sovereign Specialty
Chemicals, Inc.
3.2 By-Laws of Sovereign Specialty Chemicals, Inc.
3.3 Certificate of Incorporation of Pierce & Stevens Corp.
3.4 Bylaws of Pierce & Stevens Corp.
3.5 Certificate of Incorporation of SIA Adhesives, Inc.
3.6 By-laws of SIA Adhesives, Inc.
3.7 Amended and Restated Articles of Incorporation of OSI
Sealants, Inc.
3.8 By-Laws of OSI Sealants, Inc., as amended.
3.9 Certificate of Incorporation of Mercer Products Company,
Inc.
3.10 By-Laws of Mercer Products Company, Inc., as amended.
3.11 Articles of Incorporation of Tanner Chemicals, Inc., as
amended
3.12 By-Laws of Tanner Chemicals, Inc., as amended.
4.1 Indenture dated August 1, 1997 among the Company, the
Guarantors and The Bank of New York as trustee.
4.2 Forms of 9 1/2% Senior Subordinated Notes due 2007, Series A
and Series B Notes (contained in Exhibit 4.1 as Exhibit A
and B thereto, respectively).
4.3 Form of Guarantee (contained in Exhibit 4.1 as Exhibit B
thereto),
4.4 Registration Rights Agreement dated August 5, 1997 among the
Company, the Guarantors, Chase Securities Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation.
4.5 Amended and Restated Credit Agreement, dated August 5, 1997
between the Company, the Guarantors and The Chase Manhattan
Bank, as administrative agent.
5.1 Opinion and consent of Kirkland & Ellis.
10.1 Employment Agreement, dated March 31, 1996 among the Parent
Partnership, Sovereign Specialty Chemicals, Inc. and Robert
B. Covalt.
10.2 Promissory Note, dated July 31, 1997, issued by Robert B.
Covalt to the Parent Partnership.
10.3 Employment Agreement, dated March 31, 1996 among the Parent
Partnership, Sovereign Specialty Chemicals, Inc. and William
T. Schram.
10.4 Promissory Note, dated July 31, 1997, issued by William T.
Schram to the Parent Partnership.
10.5 Promissory Note, dated July 31, 1997, issued by William T.
Schram to the Parent Partnership.
10.6 Employment Agreement, dated August 19, 1996 between John H.
Edholm and Pierce & Stevens.
10.7 Employment Agreement, dated March 31, 1996 between SIA
Adhesives and Gerard A. Loftus.
10.8 Employment Agreement, dated August 19, 1996 between Richard
W. Johnston and Pierce & Stevens.
10.9 Consulting Agreement, dated October 1, 1996 between the
Parent Partnership and Neal G. Reddeman.
10.10 Letter Agreements, dated September 8, 1997, February 17,
1997 and October 25, 1996 between the Parent Partnership and
Garnett Consulting.
10.11 Assignment and Assumption Agreement dated July 31, 1997
among the Parent Partnership, Sovereign Chemicals
Corporation and the Company.
10.12 1997 Management Incentive Plan.
10.13 1997 Incentive Bonus Program.
10.14 Asset Purchase Agreement dated March 31, 1996 among The B.F.
Goodrich Company, Sovereign Engineered Adhesives, L.L.C. and
the Parent Partnership.**
10.15 Purchase Agreement, dated August 19, 1996 among The
Sherwin-Williams Company, Pierce & Stevens Canada, Inc., the
Parent Partnership and P&S Holdings, Inc.**
</TABLE>
II-5
<PAGE> 164
<TABLE>
<S> <C>
10.16 Stock Purchase Agreement dated May 22, 1997 between Laporte Inc. and the Parent Partnership.**
10.17 Closing Agreement, dated August 5, 1997, between Laporte Inc., the Parent Partnership and the Company.
10.18 Employment Agreement, dated January 5, 1998, among the Parent Partnership, the Company and Lowell D.
Johnson.
10.19 Employment Agreement, dated February 6, 1998, by and between Pierce & Stevens and Michael J. Prude.
10.20 Stock Purchase Agreement, dated March 5, 1998, by and among Burke Industries, Inc., Mercer and the
Company.
12.1 Computation of Earnings to Fixed Charges.
21.1 Subsidiaries of the Company and the Guarantors.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of KPMG Audit PLC.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 Powers of Attorney (included on signature page).
25.1 Statement of Eligibility of Trustee on Form T-1.+
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Tender Instructions.
</TABLE>
- ---------------
** The Company agrees to finish supplementally to the Commission a copy of any
omitted schedule to such agreement upon the request of the Commission in
accordance with Item 601(b)(2) of Regulation S-K.
+ Exhibit previously filed.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
II-6
<PAGE> 165
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE> 166
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Sovereign
Speciality Chemicals, Inc. has duly caused this amended Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, State of Illinois, on February , 1998.
SOVEREIGN SPECIALTY CHEMICALS, INC.
By: /s/ ROBERT B. COVALT
------------------------------------
Robert B. Covalt
Chairman, Chief Executive Officer
and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Robert B. Covalt his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, and 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 attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
<TABLE>
<C> <S>
/s/ LOWELL D. JOHNSON Vice President, Chief Financial Officer,
- ----------------------------------------------------- Treasurer, Secretary and Director (Principal
Lowell D. Johnson Financial Officer and Principal Accounting
Officer)
</TABLE>
* The undersigned by signing his name hereto, does sign and executed this
Amended Registration Statement pursuant to the Power of Attorney executed by
the above-named officers and directors of the Registrant and previously filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
<TABLE>
<C> <S>
/s/ ROBERT B. COVALT Attorney-in-Fact
- -----------------------------------------------------
Robert B. Covalt
</TABLE>
II-8
<PAGE> 167
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pierce &
Stevens Corp. has duly caused this amended Registration Statement on Form S-4 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Buffalo, State of New York, on February , 1998.
PIERCE & STEVENS CORP.
By: *
------------------------------------
John H. Edholm
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Robert B. Covalt his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, and 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 attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
<TABLE>
<C> <S>
/s/ LOWELL D. JOHNSON Vice President, Chief Financial Officer, Trea-
- ----------------------------------------------------- surer, Secretary and Director (Principal
Lowell D. Johnson Financial Officer and Principal Accounting
Officer)
</TABLE>
* The undersigned by signing his name hereto, does sign and executed this
Amended Registration Statement pursuant to the Power of Attorney executed by
the above-named officers and directors of the Registrant and previously filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
<TABLE>
<C> <S>
/s/ ROBERT B. COVALT Attorney-in-Fact
- -----------------------------------------------------
Robert B. Covalt
</TABLE>
II-9
<PAGE> 168
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, SIA Adhesives,
Inc. has duly caused this amended Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Akron, State of Ohio, on February , 1998.
SIA ADHESIVES, INC.
By: *
------------------------------------
Gerard A. Loftus
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Robert B. Covalt his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, and 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 attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
<TABLE>
<C> <S>
/s/ LOWELL D. JOHNSON Vice President, Chief Financial Officer, Trea-
- ----------------------------------------------------- surer, Secretary and Director (Principal
Lowell D. Johnson Financial Officer and Principal Accounting
Officer)
</TABLE>
* The undersigned by signing his name hereto, does sign and executed this
Amended Registration Statement pursuant to the Power of Attorney executed by
the above-named officers and directors of the Registrant and previously filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
<TABLE>
<C> <S>
/s/ ROBERT B. COVALT Attorney-in-Fact
- -----------------------------------------------------
Robert B. Covalt
</TABLE>
II-10
<PAGE> 169
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, OSI Sealants,
Inc. North America, Inc. has duly caused this amended Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Mentor, State of Ohio, on February , 1998.
OSI SEALANTS, INC.
By: *
------------------------------------
Peter Longo
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Robert B. Covalt his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, and 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 attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
<TABLE>
<C> <S>
/s/ LOWELL D. JOHNSON Vice President, Chief Financial Officer, Trea-
- ----------------------------------------------------- surer, Secretary and Director (Principal
Lowell D. Johnson Financial Officer and Principal Accounting
Officer)
</TABLE>
* The undersigned by signing his name hereto, does sign and executed this
Amended Registration Statement pursuant to the Power of Attorney executed by
the above-named officers and directors of the Registrant and previously filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
<TABLE>
<C> <S>
/s/ ROBERT B. COVALT Attorney-in-Fact
- -----------------------------------------------------
Robert B. Covalt
</TABLE>
II-11
<PAGE> 170
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Mercer Products
Company, Inc. has duly caused this amended Registration Statement on Form S-4 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Umatilla, State of Florida, on February , 1998.
MERCER PRODUCTS COMPANY, INC.
By: *
------------------------------------
Michael Prude
Vice President and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Robert B. Covalt his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, and 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 attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
<TABLE>
<C> <S>
/s/ LOWELL D. JOHNSON Vice President, Chief Financial Officer, Trea-
- ----------------------------------------------------- surer, Secretary and Director (Principal
Lowell D. Johnson Financial Officer and Principal Accounting
Officer)
</TABLE>
* The undersigned by signing his name hereto, does sign and executed this
Amended Registration Statement pursuant to the Power of Attorney executed by
the above-named officers and directors of the Registrant and previously filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
<TABLE>
<C> <S>
/s/ ROBERT B. COVALT Attorney-in-Fact
- -----------------------------------------------------
Robert B. Covalt
</TABLE>
II-12
<PAGE> 171
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Tanner
Chemicals, Inc. has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Greenville, State of South Carolina, on February , 1998.
TANNER CHEMICALS, INC.
By: *
------------------------------------
Michael Prude
President and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Robert B. Covalt his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, and 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 attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
<TABLE>
<C> <S>
/s/ LOWELL D. JOHNSON Vice President, Chief Financial Officer, Trea-
- ----------------------------------------------------- surer, Secretary and Director (Principal
Lowell D. Johnson Financial Officer and Principal Accounting
Officer)
</TABLE>
* The undersigned by signing his name hereto, does sign and executed this
Amended Registration Statement pursuant to the Power of Attorney executed by
the above-named officers and directors of the Registrant and previously filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
<TABLE>
<C> <S>
/s/ ROBERT B. COVALT Attorney-in-Fact
- -----------------------------------------------------
Robert B. Covalt
</TABLE>
II-13
<PAGE> 172
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Certificate of Incorporation of Sovereign Specialty
Chemicals, Inc.
3.2 By-Laws of Sovereign Specialty Chemicals, Inc.
3.3 Certificate of Incorporation of Pierce & Stevens Corp.
3.4 Bylaws of Pierce & Stevens Corp.
3.5 Certificate of Incorporation of SIA Adhesives, Inc.
3.6 By-laws of SIA Adhesives, Inc.
3.7 Amended and Restated Articles of Incorporation of OSI
Sealants, Inc.
3.8 By-Laws of OSI Sealants, Inc., as amended.
3.9 Certificate of Incorporation of Mercer Products Company,
Inc.
3.10 By-Laws of Mercer Products Company, Inc., as amended.
3.11 Articles of Incorporation of Tanner Chemicals, Inc., as
amended
3.12 By-Laws of Tanner Chemicals, Inc., as amended.
4.1 Indenture dated August 1, 1997 among the Company, the
Guarantors and The Bank of New York as trustee.
4.2 Forms of 9 1/2% Senior Subordinated Notes due 2007, Series A
and Series B Notes (contained in Exhibit 4.1 as Exhibit A
and B thereto, respectively).
4.3 Form of Guarantee (contained in Exhibit 4.1 as Exhibit B
thereto),
4.4 Registration Rights Agreement dated August 5, 1997 among the
Company, the Guarantors, Chase Securities Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation.
4.5 Amended and Restated Credit Agreement, dated August 5, 1997
between the Company, the Guarantors and The Chase Manhattan
Bank, as administrative agent.
5.1 Opinion and consent of Kirkland & Ellis.
10.1 Employment Agreement, dated March 31, 1996 among the Parent
Partnership, Sovereign Specialty Chemicals, Inc. and Robert
B. Covalt.
10.2 Promissory Note, dated July 31, 1997, issued by Robert B.
Covalt to the Parent Partnership.
10.3 Employment Agreement, dated March 31, 1996 among the Parent
Partnership, Sovereign Specialty Chemicals, Inc. and William
T. Schram.
10.4 Promissory Note, dated July 31, 1997, issued by William T.
Schram to the Parent Partnership.
10.5 Promissory Note, dated July 31, 1997, issued by William T.
Schram to the Parent Partnership.
10.6 Employment Agreement, dated August 19, 1996 between John H.
Edholm and Pierce & Stevens.
10.7 Employment Agreement, dated March 31, 1996 between SIA
Adhesives and Gerard A. Loftus.
10.8 Employment Agreement, dated August 19, 1996 between Richard
W. Johnston and Pierce & Stevens.
10.9 Consulting Agreement, dated October 1, 1996 between the
Parent Partnership and Neal G. Reddeman.
10.10 Letter Agreements, dated September 8, 1997, February 17,
1997 and October 25, 1996 between the Parent Partnership and
Garnett Consulting.
</TABLE>
<PAGE> 173
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.11 Assignment and Assumption Agreement dated July 31, 1997
among the Parent Partnership, Sovereign Chemicals
Corporation and the Company.
10.12 1997 Management Incentive Plan.
10.13 1997 Incentive Bonus Program.
10.14 Asset Purchase Agreement dated March 31, 1996 among The B.F.
Goodrich Company, Sovereign Engineered Adhesives, L.L.C. and
the Parent Partnership.**
10.15 Purchase Agreement, dated August 19, 1996 among The
Sherwin-Williams Company, Pierce & Stevens Canada, Inc., the
Parent Partnership and P&S Holdings, Inc.**
10.16 Stock Purchase Agreement dated May 22, 1997 between Laporte
Inc. and the Parent Partnership.**
10.17 Closing Agreement, dated August 5, 1997, between Laporte
Inc., the Parent Partnership and the Company.
10.18 Employment Agreement, dated January 5, 1998, among the
Parent Partnership, the Company and Lowell D. Johnson.
10.19 Employment Agreement, dated February 6, 1998, by and between
Pierce & Stevens and Michael J. Prude.
10.20 Stock Purchase Agreement, dated March 5, 1998, by and among
Burke Industries, Inc., Mercer and the Company.
12.1 Computation of Earnings to Fixed Charges.
21.1 Subsidiaries of the Company and the Guarantors.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of KPMG Audit PLC.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 Powers of Attorney (included on signature page).
25.1 Statement of Eligibility of Trustee on Form T-1.+
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Tender Instructions.
</TABLE>
- ---------------
** The Company agrees to finish supplementally to the Commission a copy of any
omitted schedule to such agreement upon the request of the Commission in
accordance with Item 601(b)(2) of Regulation S-K.
+ Exhibit previously filed.
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
SOVEREIGN SPECIALTY CHEMICALS, INC.
ARTICLE ONE
The name of the corporation is Sovereign Specialty Chemicals, Inc.
ARTICLE TWO
The address of the corporation's registered office in the State of
Delaware is the Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE FOUR
PART A. AUTHORIZED SHARES
The total number of shares of capital stock which the Corporation has
authority to issue is 1,000 shares, consisting of:
(1) 100 shares of Class A Common Stock, par value $.01 per share ("Class
A Common"); and
(2) 900 shares of Class B Common Stock, par value $.01 per share ("Class
B Common").
The Class A Common and Class B Common are referred to collectively as the
"Common Stock." The shares of Common Stock shall have the rights, preferences
and limitations set forth below. Capitalized terms used but not otherwise
defined in Part A or Part B of this Article IV are defined in Part C.
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PART B. COMMON STOCK
Except as otherwise provided in this Part B or as otherwise required by
applicable law, all shares of Class A Common and Class B Common shall be
identical in all respects and shall entitle the holders thereof to the same
rights, preferences and privileges, subject to the same qualifications,
limitations and restrictions, as set forth herein.
Section 1. Voting Rights. Except as otherwise provided in this Part B or
as otherwise required by applicable law, all holders of Class A Common and Class
B Common shall be entitled to one vote per share on all matters to be voted on
by the Corporation's stockholders, and the holders of Class A Common and Class B
Common shall vote together as a single class.
Section 2. Distributions. At the time of each Distribution, such
Distribution shall be made to the holders of Class A Common and Class B Common
in the following amounts and priority:
(i) The holders of Class A Common, as a separate class, shall be
entitled to receive all or a portion of such Distribution (ratably among such
holders based upon the number of shares of Class A Common held by each such
holder as of the time of such Distribution) equal to the aggregate Unpaid Yield
on the outstanding shares of Class A Common as of the time of such Distribution,
and no Distribution or any portion thereof shall be made under paragraphs 2(ii)
or 2(iii) below until the entire amount of the Unpaid Yield on the outstanding
shares of Class A Common as of the time of such Distribution has been paid in
full. The Distributions made pursuant to this paragraph 2(i) to holders of Class
A Common shall constitute a payment of Yield on Class A Common.
(ii) After the required amount of a Distribution has been made in full
pursuant to paragraph 2(i) above, the holders of Class A Common, as a separate
class, shall be entitled to receive all or a portion of such Distribution
(ratably among such holders based upon the number of shares of Class A Common
held by each such holder as of the time of such Distribution) equal to the
aggregate Unpaid Liquidation Value of the outstanding shares of Class A Common
as of the time of such Distribution, and no Distribution or any portion thereof
shall be made under paragraph 2(iii) below until the entire amount of the Unpaid
Liquidation Value of the outstanding shares of Class A Common as of the time of
such Distribution has been paid in full. The Distributions made pursuant to this
paragraph 2(ii) to holders of Class A Common shall constitute a payment of the
Liquidation Value of Class A Common.
(iii) After the required amount of a Distribution has been made pursuant
to paragraphs 2(i) and 2(ii) above, the holders of Class A Common and Class B
Common, as a group, shall be entitled to receive the remaining portion of such
Distribution (ratably among such holders based upon the number of shares of
Common Stock held by each such holder as of the time of such Distribution).
Section 3. Stock Splits and Stock Dividends. The Corporation shall not in
any manner subdivide (by stock split, stock dividend or otherwise) or combine
(by stock split, stock
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dividend or otherwise) the outstanding Common Stock of one class unless the
outstanding Common Stock of all the other classes shall be proportionately
subdivided or combined. All such subdivisions and combinations shall be payable
only in Class A Common to the holders of Class A Common and in Class B Common to
the holders of Class B Common. In no event shall a stock split or stock dividend
constitute a payment of Yield or Liquidation Value.
Section 4. Registration of Transfer. The Corporation shall keep at its
principal office (or such other place as the Corporation reasonably designates)
a register for the registration of shares of Common Stock. Upon the surrender of
any certificate representing shares of any class of Common Stock at such place,
the Corporation shall, at the request of the registered holder of such
certificate, execute and deliver a new certificate or certificates in exchange
therefor representing in the aggregate the number of shares of such class
represented by the surrendered certificate, and the Corporation forthwith shall
cancel such surrendered certificate. Each such new certificate shall be
registered in such name and shall represent such number of shares of such class
as is requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate. The issuance of
new certificates shall be made without charge to the holders of the surrendered
certificates for any issuance tax in respect thereof or other cost incurred by
the Corporation in connection with such issuance.
Section 5. Replacement. Upon receipt of evidence reasonably satisfactory
to the Corporation (an affidavit of the registered holder shall be satisfactory)
of the ownership and the loss, theft, destruction or mutilation of any
certificate evidencing one or more shares of any class of Common Stock, and in
the case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Corporation (provided that if the holder is a
financial institution or other institutional investor its own agreement shall be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
Section 6. Notices. All notices referred to herein shall be in writing,
shall be delivered personally or by first class mail, postage prepaid, and shall
be deemed to have been given when so delivered or mailed to the Corporation at
its principal executive offices and to any stockholder at such holder's address
as it appears in the stock records of the Corporation (unless otherwise
specified in a written notice to the Corporation by such holder).
Section 7. Amendment and Waiver. No amendment or waiver of any provision
of this Article IV shall be effective without the prior written consent of the
holders of a majority of the then outstanding shares of Common Stock voting as a
single class; provided that no amendment directly to any terms or provisions of
any class of Common Stock that adversely affects such class of Common Stock
shall be effective without the prior consent of the holders of a majority of the
then outstanding shares of such class of Common Stock.
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PART C. DEFINITIONS
"Distribution" means each distribution made by the Corporation to holders
of Common Stock, whether in cash, property, or securities of the Corporation and
whether by dividend, liquidating distributions or otherwise; provided that
neither of the following shall be a Distribution: (a) any redemption or
repurchase by the Corporation of any shares of Common Stock for any reason or
(b) any recapitalization or exchange of any shares of Common Stock, or any
subdivision (by stock split, stock dividend or otherwise) or any combination (by
stock split, stock dividend or otherwise) of any outstanding shares of Common
Stock.
"Liquidation Value" of each share of Class A Common shall be equal to
$360,000 (as proportionally adjusted for all stock splits, stock dividends and
other recapitalizations affecting the Common Stock).
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Subsidiary" means with respect to any Person, any corporation of which
the shares of stock having a majority of the general voting power in electing
the board of directors are, at the time as of which any determination is being
made, owned by such Person either directly or indirectly through Subsidiaries.
"Unpaid Liquidation Value" of any share of Common Stock means an amount
equal to the excess, if any, of (a) the Liquidation Value of such share, over
(b) the aggregate amount of Distributions made by the Corporation that
constitute a payment of Liquidation Value of such share.
"Unpaid Yield" of any share of Common Stock means an amount equal to the
excess, if any, of (a) the aggregate Yield accrued on such share, over (b) the
aggregate amount of Distributions made by the Corporation that constitute
payment of Yield on such share.
"Yield" means, with respect to each share of Class A Common, the amount
accruing on such share on a daily basis at the rate of 8% per annum, compounded
annually on the sum of (a) such share's Unpaid Liquidation Value plus (b) Unpaid
Yield thereon. In calculating the amount of any Distribution to be made during a
period, the portion of a Class A Common share's Yield for such portion of such
period elapsing before such Distribution is made shall be taken into account.
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ARTICLE FIVE
The name and mailing address of the sole incorporator are as follows:
NAME MAILING ADDRESS
Maureen L. Maher 200 East Randolph Drive
Suite 5700
Chicago, Illinois 60601
ARTICLE SIX
The corporation is to have perpetual existence.
ARTICLE SEVEN
In furtherance and not in limitation of the powers conferred by statute,
the board of directors of the corporation is expressly authorized to make, alter
or repeal the by-laws of the corporation.
ARTICLE EIGHT
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws of the corporation may provide. The books of the
corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the board of directors or in the by-laws
of the corporation. Election of directors need not be by written ballot unless
the by-laws of the corporation so provide.
ARTICLE NINE
To the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended, a director of
this corporation shall not be liable to the corporation or its stockholders for
monetary damages for a breach of fiduciary duty as a director. Any repeal or
modification of this ARTICLE NINE shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
ARTICLE TEN
The corporation expressly elects not to be governed by Section 203 of the
General Corporation Law of the State of Delaware.
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ARTICLE ELEVEN
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this certificate of incorporation in the manner now or
hereafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts stated herein are true, and
accordingly have hereunto set my hand on the 29th day of July, 1997.
Maureen L. Maher
Sole Incorporator
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Exhibit 3.2
BY-LAWS
OF
SOVEREIGN SPECIALTY CHEMICALS, INC.
A Delaware Corporation
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation in
the State of Delaware shall be located at 1013 Centre Road, in the City of
Wilmington, Delaware, County of New Castle. The name of the Corporation's
registered agent at such address shall be Corporation Service Company. The
registered office and/or registered agent of the Corporation may be changed from
time to time by action of the board of directors.
Section 2. Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place and Time of Meetings. An annual meeting of the
stockholders shall be held each year within one hundred eighty (180) days after
the close of the immediately preceding fiscal year of the Corporation for the
purpose of electing directors and conducting such other proper business as may
come before the meeting. The date, time and place of the annual meeting shall be
determined by the Chairman of the Board of the Corporation; provided, that if
the Chairman of the Board does not act, the board of directors shall determine
the date, time and place of such meeting.
Section 2. Special Meetings. Special meetings of stockholders may be
called for any purpose and may be held at such time and place, within or without
the State of Delaware, as shall be stated in a notice of meeting or in a duly
executed waiver of notice thereof. Such meetings may be called at any time by
the board of directors or the Chairman of the Board and shall be called by the
Chairman of the Board upon the written request of holders of shares entitled to
cast not less than fifty percent of the votes at the meeting. Such written
request shall state the purpose or purposes of the meeting and shall be
delivered to the Chairman of the Board. On such written request, the Chairman of
the Board shall fix a date and time for such meeting within two days of the date
requested for such meeting in such written request.
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Section 3. Place of Meetings. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive office of the
Corporation.
Section 4. Notice. Whenever stockholders are required or permitted to take
action at a meeting, written or printed notice stating the place, date, time,
and, in the case of special meetings, the purpose or purposes, of such meeting,
shall be given to each stockholder entitled to vote at such meeting not less
than ten (1 0) nor more than sixty (60) days before the date of the meeting. All
such notices shall be delivered, either personally or by mail, by or at the
direction of the board of directors, the Chairman of the Board, the President or
the Secretary, and if mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
stockholder at his, her or its address as the same appears on the records of the
Corporation. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends for the express purpose
of objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the stock
ledger of the Corporation shall make, at least ten (10) days before every
meeting of the stockholders, a complete list of the stockholders entitled to
vote at such meeting arranged in alphabetical order, showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 6. Quorum. The holders of a majority of the outstanding shares of
capital stock, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders, except as otherwise provided by
statute or by the certificate of incorporation. If a quorum is not present, the
holders of a majority of the shares present in person or represented by proxy at
the meeting, and entitled to vote at the meeting, may adjourn the meeting to
another time and/or place. When a quorum is once present to commence a meeting
of stockholders, it is not broken by the subsequent withdrawal of any
stockholders or their proxies. When a quorum is once present to commence a
meeting of stockholders, it is not broken by the subsequent withdrawal of any
stockholder or their proxies.
Section 7. Adjourned Meetings. When a meeting is adjourned to another time
and place, notice need not be given of the adjourned meeting if the time and
place thereof
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are announced at the meeting at which the adjournment is taken. At the adjourned
meeting the Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative vote
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of an
applicable law or of the certificate of incorporation a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware or by the certificate of incorporation
of the Corporation or any amendments thereto and subject to Section 3 of Article
VI hereof, every stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of common stock held
by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three (3) years
from its date, unless the proxy provides for a longer period. At each meeting of
the stockholders, and before any voting commences, all proxies filed at or
before the meeting shall be submitted to and examined by the Secretary or a
person designated by the Secretary, and no shares may be represented or voted
under a proxy that has been found to be invalid or irregular. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and if, and only
as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have all voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy.
Section 11. Action by Written Consent. Unless otherwise provided in the
certificate of incorporation, any action required to be taken at any annual or
special meeting of stockholders of the Corporation or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken and bearing the dates of
signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to
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the Corporation by delivery to its registered office in the state of Delaware,
or the Corporation's principal place of business, or an officer or agent of the
Corporation having custody of the book or books in which proceedings of meetings
of the stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. All consents properly delivered in accordance with this section shall
be deemed to be recorded when so delivered. No written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the Corporation as required
by this section, written consents signed by the holders of a sufficient number
of shares to take such corporate action are so recorded. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Any action taken pursuant to such written consent or consents of the
stockholders shall have the same force and effect as if taken by the
stockholders at a meeting thereof.
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the board of directors.
Section 2. Number, Election and Term of Office. The number of directors
which shall constitute the first board shall be three (3). Thereafter, the
number of directors shall be established from time to time by resolution of the
board. The directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote in
the election of directors. The directors shall be elected in this manner at the
annual meeting of the stockholders, except as provided in, Section 4 of this
Article 111. Each director elected shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal and Resignation. Any director or the entire board of
directors may be removed at any time, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors.
Whenever the holders of any class or series are entitled to elect one or more
directors by the provisions of the Corporation's certificate of incorporation,
the provisions of this section shall apply, in respect to the removal without
cause of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole.
Section 4. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the shares then entitled to vote at an election of directors. Each
director so chosen shall hold office
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until a successor is duly elected and qualified or until his or her earlier
death, resignation or removal as herein provided.
Section 5. Annual Meetings. The annual meeting of each newly elected board
of directors shall be held without other notice than this by-law immediately
after, and at the same place as, the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by or at the
request of the Chairman of the Board on at least twenty-four (24) hours notice
to each director, either personally, by telephone, by mail, or by telegraph; in
like manner and on like notice the Chairman of the Board must call a special
meeting on the written request of at least one of the directors.
Section 7. Quorum, Required Vote and Adjournment. A majority of the total
number of directors shall constitute a quorum for the transaction of business.
The vote of a majority of directors present at a meeting at which a quorum is
present shall be the act of the board of directors. If a quorum shall not be
present at any meeting of the board of directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 8. Committees. The board of directors may, by resolution passed by
a majority of the whole board, designate one or more committees, each committee
to consist of one or more of the directors of the Corporation, which to the
extent provided in such resolution or these By-laws shall have and may exercise
the powers of the board of directors in the management and affairs of the
Corporation except as otherwise limited by law. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and report the same to the board of
directors when required.
Section 9. Committee Rules. Each committee of the board of directors may
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. In the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 8 of this Article III, of such committee is or are absent or
disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in place of any such absent or disqualified member.
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Section 10. Communications Equipment. Members of the board of directors or
any committee thereof may participate in and act at any meeting of such board or
committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this section shall
constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member of the
board of directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 12. Action by Written Consent. Unless otherwise restricted by the
certificate of incorporation, any action required or permitted to be taken at
any meeting of the board of directors, or of any committee thereof, may be taken
without a meeting if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the Corporation shall be elected by the
board of directors and shall consist of a Chairman of the Board, a President and
Chief Executive Officer, a President, a Chief Financial Officer, one or more
Vice-Presidents, a Treasurer, a Secretary, and such other officers and assistant
officers as may be deemed necessary or desirable by the board of directors. Any
number of offices may be held by the same person. In its discretion, the board
of directors may choose not to fill any office for any period as it may deem
advisable, except that the offices of Chairman of the Board and President and
Chief Executive Officer shall be filled as expeditiously as possible.
Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. Vacancies may be filled or new offices created and filled at any meeting
of the board of directors. Each officer shall hold office until a successor is
duly elected and qualified or until his or her earlier death, resignation or
removal as hereinafter provided.
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Section 3. Removal. Any officer or agent elected by the board of directors
may be removed by the board of directors whenever in its judgment the best
interests of the Corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term by the board of
directors then in office.
Section 5. Compensation. Compensation of all officers shall be fixed by
the board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
Section 6. Chairman of the Board. The Chairman of the Board shall be the
chief executive officer of the corporation, and shall have the powers and
perform the duties incident to that position. Subject to the powers of the board
of directors, he or she shall be in the general and active charge of the entire
business and affairs of the corporation, and shall be its chief policy making
officer. He or she shall preside at all meetings of the board of directors and
stockholders and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or provided in these By-laws.
Whenever the President and Chief Executive Officer is unable to serve, by reason
of sickness, absence or otherwise, the Chairman of the Board shall perform all
the duties and responsibilities and exercise all the powers of the President and
Chief Executive Officer.
Section 7. President and Chief Executive Officer. The President and Chief
Executive Officer shall, subject to the powers of the board of directors and the
Chairman of the Board, have general charge of the business, affairs and property
of the corporation, and control over its officers, agents and employees; and
shall see that all orders and resolutions of the board of directors are carried
into effect. The President and Chief Executive Officer shall execute bonds,
mortgages and other contracts requiring a sea[, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer or agent of
the corporation. The President and Chief Executive Officer shall have such other
powers and perform such other duties as may be prescribed by the Chairman of the
Board or the board of directors or as may be provided in these By-laws.
Section 8. Chief Financial Officer. The Chief Financial Officer of the
Corporation shall, under the direction of the Chairman of the Board, be
responsible for all financial and accounting matters of the Corporation. The
Chief Financial Officer shall have such other powers and perform such other
duties as may be prescribed by the Chairman of the Board or the board of
directors or as may be provided in these By-laws.
Section 9. Vice-Presidents. The Vice-President, or if there shall be more
than one, the Vice-Presidents in the order determined by the board of directors,
shall, in the
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absence or disability of the President, act with all of the powers and be
subject to all the restrictions of the President. The Vice-Presidents shall also
perform such other duties and have such other powers as the board of directors,
the Chairman of the Board or these Bylaws may, from time to time, prescribe.
Section 10. The Secretary and Assistant Secretaries. The Secretary shall
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose. Under the Chairman
of the Board's supervision, the Secretary shall give, or cause to be given, all
notices required to be given by these Bylaws or by law; shall have such powers
and perform such duties as the board of directors, the Chairman of the Board or
these By-laws may, from time to time, prescribe; and shall have custody of the
corporate seal of the Corporation. The Secretary, or an Assistant Secretary,
shall have authority to affix the corporate seal to any instrument requiring it
and when so affixed, it may be attested by his or her signature or by the
signature of such Assistant Secretary. The board of directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing by his or her signature. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by the
board of directors, shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the board of directors, the
Chairman of the Board or the Secretary may, from time to time, prescribe.
Section 11. The Treasurer and Assistant Treasurer. The Treasurer shall
have the custody of the corporate funds and securities; shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation; shall deposit all monies and other valuable effects in the name and
to the credit of the Corporation as may be ordered by the board of directors;
shall cause the funds of the Corporation to be disbursed when such disbursements
have been duly authorized, taking proper vouchers for such disbursements; and
shall render to the Chairman of the Board and the board of directors, at its
regular meeting or when the board of directors so requires, an account of the
Corporation; shall have such powers and perform such duties as the board of
directors, the Chairman of the Board or these By-laws may, from time to time,
prescribe. If required by the board of directors, the Treasurer shall give the
Corporation a bond (which shall be rendered every six (6) years) in such sums
and with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of the office of Treasurer
and for the restoration to the Corporation, in case of death, resignation,
retirement, or removal from office, of all books, papers, vouchers, money, and
other property of whatever kind in the possession or under the control of the
Treasurer belonging to the Corporation. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
board of directors, shall in the absence or disability of the Treasurer, perform
the duties and exercise the powers of the Treasurer. The Assistant Treasurers
shall perform such other duties and have such other powers as the board of
directors, the and Chairman of the Board or Treasurer may, from time to time,
prescribe.
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<PAGE> 9
Section 12. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these Bylaws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
Section 13. Absence or Disability of Officers. In the case of the absence
or disability of any officer of the Corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
Section 1. Nature of Indemnity. Each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, fiduciary, or agent of another Corporation or of a
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the Corporation to the fullest extent which it is empowered to
do so unless prohibited from doing so by the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment) against all expense,
liability and loss (including attorneys' fees actually and reasonably incurred
by such person in connection with such proceeding) and such indemnification
shall inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in Section 2 hereof, the Corporation
shall indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the board of directors of the Corporation. The right to indemnification
conferred in this Article V shall be a contract right and, subject to Sections 2
and 5 hereof, shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition.
The Corporation may, by action of its board of directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
Section 2. Procedure for Indemnification of Directors and Officers. Any
indemnification of a director or officer of the Corporation under Section 1 of
this Article V or advance of expenses under Section 5 of this Article V shall be
made promptly, and in any event within thirty (30) days, upon the written
request of the director or officer. If a
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<PAGE> 10
determination by the Corporation that the director or officer is entitled to
indemnification pursuant to this Article V is required, and the Corporation
fails to respond within sixty (60) days to a written request for indemnity, the
Corporation shall be deemed to have approved the request. If the Corporation
denies a written request for indemnification or advancing of expenses, in whole
or in part, or if payment in full pursuant to such request is not made within
thirty (30) days, the right to indemnification or advances as granted by this
Article V shall be enforceable by the director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of the State of Delaware for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of such defense shall be on the Corporation. Neither the failure of the
Corporation (including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination by
the Corporation (including its board of directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 3. Article Not Exclusive. The rights to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article V shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 4. Insurance. The Corporation may purchase and maintain insurance
on its own behalf and on behalf of any person who is or was a director, officer,
employee, fiduciary, or agent of the Corporation or was serving at the request
of the Corporation as a director, officer, employee or agent of another
Corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her in any such
capacity, whether or not the Corporation would have the power to indemnify such
person against such liability under this Article V.
Section 5. Expenses. Expenses incurred by any person described in Section
1 of this Article V in defending a proceeding shall be paid by the Corporation
in advance of such proceeding's final disposition unless otherwise determined by
the board of directors in the specific case upon receipt of an undertaking by or
on behalf of the director or officer to repay such amount if it shall ultimately
be determined that he or she is not entitled to be indemnified by the
Corporation. Such expenses incurred by other employees and agents
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<PAGE> 11
may be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 6. Employees and Agents. Persons who are not covered by the
foregoing provisions of this Article V and who are or were employees or agents
of the Corporation, or who are or were serving at the request of the Corporation
as employees or agents of another Corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors.
Section 7. Contract Rights. The provisions of this Article V shall be
deemed to be a contract right between the Corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the General Corporation Law of the State of Delaware or
other applicable law are in effect, and any repeal or modification of this
Article V or any such law shall not affect any rights or obligations then
existing with respect to any state of facts or proceeding then existing.
Section 8. Merger or Consolidation. For purposes of this Article V,
references to "the Corporation" shall include, in addition to the resulting
Corporation, any constituent Corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent Corporation, or is or
was serving at the request of such constituent Corporation as a director,
officer, employee or agent of another Corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect to the resulting or surviving Corporation as he or she would have
with respect to such constituent Corporation if its separate existence had
continued.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Form. Every holder of stock in the Corporation shall be
entitled to have a certificate, signed by, or in the name of the Corporation by
the Chairman of the Board, the President and Chief Executive Officer, the Chief
Financial Officer or a Vice-President and the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by such
holder in the Corporation. If such a certificate is countersigned (1) by a
transfer agent or an assistant transfer agent other than the Corporation or its
employee or (2) by a registrar, other than the Corporation or its employee, the
signature of any such Chairman of the Board, President and Chief Executive
Officer, Chief Financial Officer, Vice-President, Secretary, or Assistant
Secretary may be facsimiles. In case any officer or officers who have signed, or
whose facsimile signature or signatures have been used on, any such certificate
or certificates shall cease to be such officer or officers of the
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<PAGE> 12
Corporation whether because of death, resignation or otherwise before such
certificate or certificates have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates or whose
facsimile signature or signatures have been used thereon had not ceased to be
such officer or officers of the Corporation. All certificates for shares shall
be consecutively numbered or otherwise identified. The name of the person to
whom the shares represented thereby are issued, with the number of shares and
date of issue, shall be entered on the books of the Corporation. Shares of stock
of the Corporation shall only be transferred on the books of the Corporation by
the holder of record thereof or by such holders attorney duly authorized in
writing, upon surrender to the Corporation of the certificate or certificates
for such shares endorsed by the appropriate person or persons, with such
evidence of the authenticity of such endorsement, transfer, authorization, and
other matters as the Corporation may reasonably require, and accompanied by all
necessary stock transfer stamps. In that event, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate or certificates, and record the transaction on its books.
The board of directors may appoint a bank or trust company organized under the
laws of the United States or any state thereof to act as its transfer agent or
registrar, or both in connection with the transfer of any class or series of
securities of the Corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the Corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the Corporation a bond
sufficient to indemnify the Corporation against any claim that may be made
against the Corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
the Corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting. If no record date is fixed by the
board of directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be the close of business
on the next day preceding the day on which notice is given, or if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
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<PAGE> 13
Section 4. Fixing a Record Date for Action by Written Consent. In order
that the Corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten (1 0) days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the board of directors and prior action by the board of directors is required by
statute, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the board of directors adopts the resolution taking such
prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that the
Corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is fixed,
the record date for determining stockholders for any such purpose shall be at
the close of business on the day on which the board of directors adopts the
resolution relating thereto.
Section 6. Registered Stockholders. Prior to the surrender to the
Corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the Corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 7. Subscriptions for Stock. Unless otherwise provided for in the
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the
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<PAGE> 14
payment of any installment or call when such payment is due, the Corporation may
proceed to collect the amount due in the same manner as any debt due the
Corporation.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation. Before
payment of any dividend, there may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or any other purpose and the directors may
modify or abolish any such reserve in the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders
for the payment of money by or to the Corporation and all notes and other
evidences of indebtedness issued in the name of the Corporation shall be signed
by such officer or officers, agent or agents of the Corporation, and in such
manner, as shall be determined by resolution of the board of directors or a duly
authorized committee thereof.
Section 3. Contracts. The board of directors may authorize any officer or
officers, or any agent or agents, of the Corporation to enter into any contract
or to execute and deliver any instrument in the name of and on behalf of the
Corporation, and such authority may be general or confined to specific
instances.
Section 4. Loans. The Corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiary, including any officer or employee who is a
director of the Corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the Corporation at
common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the board of directors.
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<PAGE> 15
Section 6. Corporate Seal. The board of directors shall provide a
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the Corporation and the words "Corporate Seal, Delaware".
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in
any other corporation held by the Corporation shall be voted by the President
and Chief Executive Officer, unless the board of directors specifically confers
authority to vote with respect thereto, which authority may be general or
confined to specific instances, upon some other person or officer. Any person
authorized to vote securities shall have the power to appoint proxies, with
general power of substitution.
Section 8. Inspection of Books and Records. Any stockholder of record, in
person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the Corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the Corporation at its registered
office in the State of Delaware or at its principal place of business.
Section 9. Section Headings. Section headings in these By-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
these By laws is or becomes inconsistent with any provision of the certificate
of incorporation, the General Corporation Law of the State of Delaware or any
other applicable law, the provision of these By-laws shall not be given any
effect to the extent of such inconsistency but shall otherwise be given full
force and effect.
ARTICLE VIII
AMENDMENTS
These By-laws may be amended, altered, or repealed and new By-laws adopted
at any meeting of the stockholders by a majority vote.
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<PAGE> 1
Exhibit 3.3
CERTIFICATE OF INCORPORATION
of
THE P&L SUBSIDIARY, INC.
Under Section 402 of the
Business Corporation Law
The undersigned, desiring to form a corporation under Section 402 of
the Business Corporation Law of the State of New York, does hereby make,
subscribe and acknowledge this certificate for that purpose as follows:
FIRST: The name of the corporation is THE P&L SUBSIDIARY, INC.
SECOND: The purposes for which it is formed are as follows:
(a) To manufacture, buy, sell and in every way deal in chemicals and
chemical material and products; and in paints, varnishes, lacquers and related
products.
(b) To purchase or otherwise acquire by issuance of its own shares or
obligations or otherwise, to sell, pledge or otherwise dispose of, and generally
to trade and deal in and with, investments, securities and obligations of every
class and description, including, but not limited to all manner of shares,
stocks, mortgages, bonds and notes of any person, firm, government or
corporation, domestic or foreign, and to exercise any and all rights, powers and
privileges of individual ownership of all such investments, securities and
obligations, including the right, if any, to vote thereon, and to do any acts
and things designed to protect or enhance the value thereof.
(c) To own, operate, buy, sell and lease, and to engage in any and all
kinds of manufacturing, mining, lumbering and /or mercantile businesses, and to
manufacture, buy, lease, or otherwise acquire, and to hold, own and use, and to
sell, lease, license, loan, pledge, or otherwise dispose of, and to deal in and
with goods, wares, merchandise and personal property of every class and
description.
(d) To take, lease, purchase, acquire, and to own, use, hold, sell,
convey, lease, exchange, encumber, improve, develop, mine, cultivate, and
otherwise to utilize, trade in, deal with, turn to account and dispose of lands,
buildings and/or other real property, and any and all interests and rights
therein or connected therewith, and any and all furnishings, fixtures,
equipment, appurtenances thereto and products thereof.
<PAGE> 2
(e) To engage, as principals, and through duly licensed agents where such
agents are required by law, in construction and electrical work of every kind
and description; to make estimates for itself and others; to bid upon, enter
into and carry out contracts and arrangements for the building and construction
of works of any and every nature; and to do a general contracting business.
(f) To erect, demolish, rebuild, enlarge, improve and alter houses, works,
buildings, storerooms, factories, tenements, edifices and structures of every
description and to furnish and fully equip the same; and, to the extent
permitted to it by law, to install and maintain heating, plumbing and lighting
apparatus and fixtures, and all other apparatus and fixtures which it may deem
advisable.
(g) To apply for, purchase or otherwise acquire, and to hold, own, use,
operate, sell assign, license or otherwise dispose of copyrights, trademarks,
patents, trade names, inventions and processes of any and every kind, and
licenses of any and every character in respect thereto in the United States of
America and elsewhere.
(h) To purchase, or otherwise acquire, all or any part of the business,
good will, rights, property and assets, and assume all or any part of the
liabilities of any corporation, association, partnership or person engaged in
any business included in any of the purposes and objects herein stated, and to
issue in exchange therefor its stock, bonds or other evidences of indebtedness.
(i) To act as agent, broker, representative, consignee and/or factor of
others; to act as principal, commission merchant, broker, factor or agent with
respect to any of the foregoing businesses.
(j) To do everything necessary, suitable or proper for the accomplishment
of any of the purposes or the furtherance of any of the powers hereinabove set
forth, either alone or in association with other corporations, firms or
individuals, and do every other act or thing incidental or appurtenant to or
growing out of or connected with the aforesaid businesses or powers, or any part
thereof.
The foregoing clauses shall be construed both as purposes and powers, in
furtherance and not in limitation of the general powers conferred by the laws of
the State of New York upon corporations organized under the provisions of the
Business Corporation Law, and it is hereby expressly provided that the
enumeration herein of specific purposes and powers shall not be held to limit or
restrict in any way the general powers of the corporation, and that the
corporation may do all and everything reasonably necessary for the
accomplishment of any of the purposes or powers hereinbefore enumerated, either
alone or in association with other corporations, firms or individuals, to the
same extent and as fully as individuals might or could do as principals, agents,
contractors, or otherwise. Nothing herein contained shall be deemed to authorize
or permit this corporation to carry on any business or exercise any power or do
any act which a corporation organized under the provisions of the Business
Corporation Law may not lawfully carry on or do.
2
<PAGE> 3
THIRD: The office of the corporation is to be located in the City of
Buffalo County of Eire, State of New York.
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is two hundred (200) shares, all of which are to be without
par value.
FIFTH: The Secretary of State of the State of New York is designated as
the agent of the corporation upon whom process against it may be served. The
address to which the Secretary of State shall mail a copy of process in any
action or proceeding against the corporation which may be served upon him is 75
Tonawanda Street, Buffalo, New York.
SIXTH: The incorporator of this corporation is a natural person over the
age of twenty-one years.
IN WITNESS WHEREOF, the undersigned has made, subscribed and acknowledged
this certificate this 27th day of November, 1967.
--------------------------------
ROBERT O. SWADOS
70 Niagara Street
Buffalo, New York 14202
3
<PAGE> 4
CERTIFICATE OF MERGER
OF
PIERCE & STEVENS SUBSIDIARY, INC.
INTO
PIERCE & STEVENS CORP.
UNDER SECTION 905 OF THE
NEW YORK BUSINESS CORPORATION LAW
Louis E. Stellato, being the Vice President and Secretary, and Richard A.
Logenza, being the Assistant Secretary, of each of Pierce & Stevens Corp. and
Pierce & Stevens Susidiary, Inc. hereby certify as follows:
1. Pierce & Stevens Corp., a corporation incorporated in the State of
New York on November 29, 1967 under the original name of The P&L
Subsidiary, Inc. (the "Surviving Corporation"), owns all of the
outstanding shares of capital stock of Pierce & Stevens Subsidiary,
Inc., a corporation incorporated in the State of new York on
December 28, 1955 under the original name of Pierce & Stevens, Inc.
("Subsidiary").
2. As to Subsidiary, the designation and number of outstanding shares
and the number of such shares owned by the Surviving Corporation is
as follows:
Designation and Number Number of Shares Owned
Name of Subsidiary of Outstanding Shares by Surviving Corporation
- ------------------- --------------------------- ------------------------
Pierce & Stevens 100 shares of Common stock, 100
Subsidiary, Inc. par value of $100.00 each
3. The Surviving Corporation owns all of the outstanding shares of
Subsidiary.
4. The merger is permitted by the laws of the State of New York and is
in compliance therewith.
<PAGE> 5
5. The merger shall be effective upon filing of this Certificate of
Merger with the Department of State of the State of New York.
6. The merger was approved by the Board of Directors of Surviving
Corporation in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, this Certificate has been signed as of the 29th day of
July, 1996 and the statements contained herein are affirmed as true under
penalties of perjury.
PIERCE & STEVENS CORP.
By:
-----------------------------------
(Name:)
(Title:)
By:
-----------------------------------
(Name:)
(Title:)
PIERCE & STEVENS SUBSIDIARY, INC.
By:
-----------------------------------
(Name:)
(Title:)
By:
-----------------------------------
(Name:)
(Title:)
2
<PAGE> 6
CERTIFICATE OF MERGER
OF
PIERCE & STEVENS MEDICAL CORP.
AND
THE P&L SUBSIDIARY, INC.
INTO
THE P&L SUBSIDIARY, INC.
UNDER SECTION 904 OF THE BUSINESS CORPORATION LAW
We, the undersigned, being respectively the President and Secretary of
PIERCE & STEVENS CHEMICAL CORP. and the President and Secretary of THE P&L
SUBSIDIARY, INC., certify:
1. The name of each constituent corporation is as follows: PIERCE &
STEVENS CHEMICAL CORP. (incorporated under the name of Pierce & Stevens, Inc.)
and THE P&L SUBSIDIARY, INC. The name of the surviving corporation is THE P&L
SUBSIDIARY, INC.
2. The number of outstanding shares of PIERCE & STEVENS CHEMICAL CORP. is
696,180 common shares of the par value of $2 per share. Each share of such $2
par value common stock entitles the holder thereof to one vote. The number of
such shares outstanding is subject to change to the extent that outstanding
employee stock options to purchase shares of PIERCE & STEVENS CHEMICAL CORP. may
be exercised pursuant to their terms prior to the effective date of the merger.
3. The number of outstanding shares of THE P&L SUBSIDIARY, INC. consists
of 200 no par value shares. Each share of such no par value stock entitles the
holder thereof to one vote. All of such shares are held by Pratt & Lambert,
Inc., a New York corporation.
4. Article FIRST of the Certificate of Incorporation of THE P&L
SUBSIDIARY, INC. is hereby amended as of the effective date of the merger so as
to change the name of said corporation, the surviving corporation, to PIERCE &
STEVENS CHEMICAL CORP.
<PAGE> 7
5. The Certificate of Incorporation of Pierce & Stevens, Inc. (by change
of name PIERCE & STEVENS CHEMICAL CORP.) was filed, in the office of the
Secretary of State on June 13, 1917 and the Certificate of Incorporation of THE
P&L SUBSIDIARY, INC. was filed by the Department of State on November 29, 1967.
6. The merger shall be effective on December 31, 1967.
7. The plan of merger was adopted by the Boards of Directors of each
constituent corporation and adopted and authorized at a special meeting of
shareholders of PIERCE & STEVENS CHEMICAL CORP. by vote of the holders of
two-thirds of all outstanding shares entitled to vote thereon and without a
meeting of shareholders of THE P&L SUBSIDIARY, INC. by the written consent of
Pratt & Lambert, Inc., the holder of all outstanding shares entitled to vote
thereon.
IN WITNESS WHEREOF the undersigned have subscribed this certificate on
behalf of each constituent corporation, in duplicate, this 14th day of December,
1967.
-----------------------------------------
B.F. Wilkinson, President
The P&L Subsidiary, Inc.
-----------------------------------------
Robert O. Swados, Secretary
The P&L Subsidiary, Inc.
-----------------------------------------
R.D. Stevens, Jr., President
Pierce & Stevens Chemical Corp.
-----------------------------------------
Richard R. Miller, Secretary
Pierce & Stevens Chemical Corp.
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<PAGE> 8
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<PAGE> 9
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
PIERCE & STEVENS CHEMICAL CORP.
Under Section 805 of the Business Corporation Law
The undersigned, being respectively the President and Secretary of Pierce
& Stevens Chemical Corp., hereby certify:
1. The name of the corporation is Pierce & Stevens Chemical Corp. and
the name under which it was formed is The P&L Subsidiary, Inc.
2. Its Certificate of Incorporation was filed by the Department of
State on November 29, 1967.
3. Its Certificate of Incorporation is hereby amended to change the
name of the corporation to Pierce & Stevens Corp. Paragraph 1 of the
Certificate of Incorporation is hereby amended to read as follows:
"1. The name of the corporation is Pierce & Stevens Corp."
4. The foregoing amendment to the Certificate of Incorporation was
authorized by unanimous written consent of the board of directors
followed by written consent of the holder of all outstanding shares
of the corporation entitled to vote thereon.
IN WITNESS WHEREOF, we have signed this certificate this 9th day of July,
1986, and we affirm the statements herein as true under penalties of perjury.
By:
-----------------------------------------
(Name, Title)
By:
-----------------------------------------
(Name, Title)
<PAGE> 1
Exhibit 3.4
BY-LAWS
OF
THE P&L SUBSIDIARY, INC.
As adopted December 14, 1967
ARTICLE I
Offices
SECTION 1. The principal office of the Corporation shall be in the City of
Buffalo, County of Erie and State of New York.
SECTION 2. The Corporation may also, from time to time have offices at
such other places as, in the opinion of the Board of Directors or the Executive
Committee, the business of the Corporation may require.
ARTICLE II
Meetings of Shareholders
SECTION 1. Annual Meetings. The annual meeting of the shareholders of the
Corporation, for the election of directors and for the transaction of such other
business as may properly come before the meeting, shall be held at the principal
business office of the Corporation or at such other place as the Board of
Directors shall determine on the last Wednesday in April of each year. If in any
year that day is a legal holiday, the meeting shall be held on the next day
following that is not a legal holiday.
SECTION 2. Notice of Annual Meeting. Notice of the annual meeting of
shareholders shall be given in the manner required by law and by mailing,
postage prepaid, not less than ten (10) nor more than fifty (50) days before the
meeting, a copy of the notice of the meeting stating the time and place of the
meeting and the purpose or purposes for which it is called, to each shareholder
of record entitled to vote at the meeting, and to any shareholder of record
entitled to vote at the meeting, and to any shareholder, who, by reason of any
action proposed at the meeting, would be entitled to have his shares appraised
if such action were taken, at his address as it appears on the share book of the
Corporation, unless he shall have filed with the Secretary of the Corporation a
written request that notices intended for him be mailed to some other address,
in which case it shall be mailed to the address designated in such request.
Any notice of such annual meeting or of any other meeting contemplated
under these by-laws or by statute may be waived in the manner provided for in
Section 606 of the New York Business Corporation Law as now in effect or
hereafter amended.
<PAGE> 2
SECTION 3. Special Meetings. Specials meetings of the shareholders, except
where otherwise provided by law, may be called to be held at the principal
office of the Corporation or elsewhere at any time by a majority of the entire
Board of Directors or the Chairman of the Board or by the President, and shall
be called by the Chairman of the Board, the President, Secretary or Assistant
Secretary at the request in writing of the holders of record of a majority of
the outstanding shares of the Corporation entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting. Business transacted at a
special meeting shall be confined to the objects stated in the call and matters
germane thereto.
SECTION 4. Notice of Special Meeting. Notice of each special meeting of
the shareholders shall be given in the manner required by law and by mailing,
postage prepaid, not less than ten (10) nor more than fifty (50) days before
such meeting, a copy of the notice of such meetings, stating the time and place
of the meeting and the purpose or purposes for which it is called, to each
shareholder of record entitled to vote at the meeting, and to any shareholder,
who, by reason of any action proposed at such meeting, would be entitled to have
his shares appraised if such action were taken, at his address as it appears on
the share book of the corporation, unless he shall have filed with the Secretary
of the Corporation a written request that notices intended for him be mailed to
some other address, in which case it shall be mailed to the address designated
in such request.
SECTION 5. Procedure. The order of business and all other matters of
procedure at every meeting of shareholders may be determined by the presiding
officer.
SECTION 6. Quorum. At all meetings of the shareholders of the Corporation,
except where otherwise provided by law or these by-laws, a quorum shall consist
of the holders of record of not less than a majority of the outstanding shares
of the Corporation entitled to vote, present either in person or by proxy, and a
majority of such quorum shall decide any question that may come before the
meeting. Where a quorum is once present to organize a meeting, it is not broken
by the subsequent withdrawal of shareholders. If, however, such majority of the
outstanding voting shares shall not be present or represented at any meeting of
the shareholders, the shareholders entitled to vote who are present in person or
by proxy shall have power to adjourn the meeting from time to time, without
further notice other than announcement at the meeting, until the requisite
amount of voting shares shall be present. At any such adjourned meeting at which
the requisite amount of voting shares shall be present in person or by proxy any
business may be transacted which might have been transacted at the meeting as
originally called.
SECTION 7. Record Date. The Board of Directors may fix a day and hour not
less than ten (10) nor more than fifty (50) days prior to the day of holding any
meeting of shareholders, as the time as of which shareholders entitled to notice
of and to vote at such meeting shall be determined; and all persons who were
holders of record of voting shares at such time and no others shall be entitled
to notice of and to vote at such meeting. If a record date shall not be fixed by
the Board of Directors, shareholders of record at the close of business on the
fourteenth day preceding each meeting of shareholders, and no others, shall be
entitled to notice of and to vote at such meeting.
SECTION 8. Voting - Proxies. Each shareholder of record entitled to vote
shall be entitled at every annual or special meeting of shareholders of the
Corporation to one vote for each share of stock having voting power standing in
the name of such shareholder on the books of the Corporation on the record date.
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<PAGE> 3
A shareholder may vote either in person or by proxy appointed by an
instrument executed in writing by such shareholder or his attorney-in-fact and
delivered to the Secretary of the meeting. No proxy shall be valid after the
expiration of eleven (11) months from the date of its execution unless it shall
have specified therein its duration. Every proxy shall be revocable at the
pleasure of the person executing it or his personal representatives, unless it
is entitled "irrevocable proxy," in which event its revocability shall be
determined by the law of the State of New York in effect at the time.
SECTION 9. Inspectors of Election. If requested by any shareholder present
in person or by proxy and entitled to vote at the meeting, two (2) inspectors of
election, neither of whom shall be a candidate for the office of director of the
Corporation, shall, except as otherwise provided by law, be appointed by
presiding officer at each meeting of shareholders, at which an election of
directors is held, such inspectors to serve at such meeting and any adjournments
thereof. The inspectors appointed to act at any meeting of the shareholders
before entering upon the discharge of their duties, shall be sworn faithfully to
execute the duties of inspectors at such meeting with strict impartiality, and
according to the best of their ability, and the oath so taken shall be
subscribed by them.
SECTION 10. Shareholders' List. A list of shareholders as of the record
ate, certified by the corporate officer responsible for its preparation or by
the transfer agent, shall be produced at any meeting of shareholders upon the
request thereat or prior thereto of any shareholder. If the right to vote at any
meeting is challenged, the inspectors of election, or person presiding thereat,
shall require such list of shareholders to be produced as evidence of the right
of the persons challenged to vote at such meeting, and all persons who appear
from such list to be shareholders entitled to vote thereat may vote at such
meeting.
SECTION 11. Written Consent. Whenever under these by-laws or any provision
of law shareholders are required or permitted to take any action by vote, such
action may be taken without a meeting or written consent, setting forth the
action so taken, signed by the holder or the holders of all outstanding shares
entitled to vote thereon. Written consent thus given by the holder or the
holders of all outstanding shares entitled to vote shall have the same effect as
a unanimous vote of shareholders.
ARTICLE III
Directors
SECTION 1. Numbers and Qualifications. The Board of Directors of the
Corporation shall be composed of three (3) directors. Each director shall be at
least 21 years of age. A director need not be a shareholder.
SECTION 2. Election and Tenure of Office. The directors of the
Corporation, except as otherwise provided by these by-laws, shall be elected at
the annual meeting of the shareholders or at any meeting of the shareholders
held in lieu of such annual meeting, and shall hold office until the next annual
meeting of shareholders, and until their successors are elected and have
qualified. When requested as provided in Article II, Section 9, the election of
directors shall be conducted by two inspectors of election appointed as
hereinbefore provided. The election shall be by ballot and
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<PAGE> 4
shall be decided by a plurality vote, except where such action is taken by
written consent of all shareholder pursuant to Section 11 of Article II.
SECTION 3. Resignation. Any director of the Corporation may resign at any
time by giving his resignation in writing to any elected officer of the
Corporation. Such resignation shall take effect at the time specified therein;
and unless otherwise specified therein, the acceptance of a resignation shall
not be necessary to make it effective.
SECTION 4. Removal. Any or all of the directors may be removed, either
with or without cause, at any meeting of shareholders, notice of which shall
have referred to the proposed action by a vote of the holders of record of a
majority of the outstanding shares of the Corporation entitled to vote.
SECTION 5. Newly Created Directorships and Vacancies. New created
directorships resulting from an increase in the number of directors, and
vacancies occurring in the Board for any reason including the removal of
directors without cause, may be filled by vote of a majority of the directors
then in office, although less than a quorum exists, or by action of the
shareholders pursuant to Article II, Section 11. Any newly created directorship
no so filled prior to the next annual meeting of the shareholders shall be
filled by vote of the shareholders at that meeting or by action pursuant to
Article II, Section 11. Any vacancy may also be filled by the shareholders at a
special meeting called for the purpose, provided due notice of the proposed
election has been given. A director elected to file a vacancy shall be elected
to hold office for the unexpired term of his predecessor.
SECTION 6. Compensation. The directors as such shall not receive any
stated salaries for their services, but, by resolution of the Board, a fixed sum
and expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of the Board or of the Executive Committee. Nothing
herein contained shall preclude any director from serving the Corporation in any
other capacity and receiving compensation for such services.
SECTION 7. Meetings. Meetings of the Board of Directors shall be held
annually, and whenever called by the Chairman of the Board, the President or by
a majority of the entire Board. The annual meeting shall be held immediately
following the annual meeting of the shareholders.
SECTION 8. Notice of Meetings of Directors. Notice of annual meetings of
the Board of Directors shall not be required. Notice of each other meeting of
the Board of Directors, stating the time and place thereof, shall be given by
the President, the Secretary or an Assistant Secretary or by any member of the
Board to each member of the Board not less than three (3) days by mail or two
(2) days by telegraph or telephone or delivering the same personally, before any
such meeting. The notice of any meeting of the Board of Directors need not
specify the purpose or purposes for which the meeting is called.
Notice of a meeting need not be given to any director who submits a signed
waiver of notice whether before or after the meeting, or who attends the meeting
without protesting, prior thereto or at its commencement, the lack of notice to
him.
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<PAGE> 5
SECTION 9. Quorum. At any meeting of the Board of Directors a majority of
the whole Board shall constitute a quorum, and, except as otherwise provided by
law or these by-laws, a majority of such quorum shall decide any question that
may come fore the meeting. A majority of the directors present at any regular or
special meeting of the Board, although less than a quorum, may adjourn the same
from time to time, without notice other than announcement at the meeting, until
a quorum is present.
SECTION 10. Procedure. The order of business and all other matters of
procedure at every meeting of directors may be determined by the presiding
officer.
ARTICLE IV
Committees of the Board
SECTION 1. Members of the Executive Committee and their Term of Office.
the Board of Directors by vote of a majority of the entire Board may appoint
from the directors as an Executive Committee three (3) persons who shall include
the Chairman of the Board, or, if no chairman of the Board shall have been
elected, the President. The chairman of the Board or, if no chairman of the
Board shall have been elected, the President shall be Chairman of the Executive
committee unless the Board designates some other member of the Executive
Committee to be its chairman.
SECTION 2. Removal of Members and Filling Vacancies. either one or all of
the three members of the Executive Committee so appointed may be removed at any
time by the Board of Directors by a like vote, and, by a like vote, the Board
may fill vacancies in the Executive Committee.
SECTION 3. Powers of the Executive Committee. During the interval between
meetings of the Board, the Executive committee shall possess and may exercise
all of the authority of the Board of Directors except where said possession and
exercise is prohibited by law or precluded by prior action of the Board.
SECTION 4. Report of Action to Board of Directors. Any action of the
Executive Committee shall, when required by the Board of Directors, be reported
to the Board. All action of such Committee shall be subject to revision or
alteration by the Board, provided that no rights of third parties shall be
affected by such revision of alteration.
SECTION 5. Additional Committees of the Board. The Board of Directors, by
resolution or resolution adopted by a majority of the entire Board, may
designate from among its members one or more committees, each consisting of
three or more directors, and each of which, to the extent provided in the
applicable resolution, shall have all the authority of the Board, except insofar
as its exercise of such authority may be inconsistent with any provision of law,
the certificate of incorporation or these by-laws. The Board may designate one
or more directors as alternative members of a committee, who may replace any
absent member or members at any meeting of such committee. The committees shall
keep regular minutes of their proceedings and make the same available to the
Board upon request.
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<PAGE> 6
SECTION 6. Rules of Procedure. Subject to any regulations prescribed by
the Board, the Executive Committee and other committees shall fix their own
rules of procedure. The presence of a majority of the Executive Committee or
other committees shall be necessary to constitute a quorum thereof.
ARTICLE V
Officers
SECTION 1. Officers. The Board of Directors, at their first meeting after
the annual meeting of shareholders, (or if there is vacancy in any such office,
at any time) may elect a Chairman of the Board and shall elect a President, an
Executive Vice President, a Secretary, and a Treasurer. The Chairman of the
Board, the President and Executive Vice President shall be members of the Board.
The Board of Directors may also appoint such additional officers and agents as
they may from time to time deem advisable to hold office during their pleasure,
who shall have such authority and perform such duties as from time to time may
be prescribed by the Board.
SECTION 2. Term of Office. The officers of the Corporation referred to in
Section 1 shall, unless otherwise determined by the directors, be elected or
appointed for the term of one year but shall hold office until their successors
are elected and have qualified. Any officer, however, may be removed at any time
with or without cause by action of the Board of Directors.
SECTION 3. The Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the shareholders and of the Board of Directors. He
shall preside at all meetings of the Executive Committee unless the Board shall
have designated another member of such committee to chair its meetings, and
shall be an ex officio member of every other committee of which he is not a
designated member. He shall procure and at all times be possessed of full
information concerning the affairs of the Corporation. He shall be the chief
executive officer of the Corporation unless the Board shall have specifically
designated the President as chief executive officer.
In case of the absence or incapacity of the Chairman of the Board, or if
no Chairman of the Board shall have been elected, the President shall perform
the duties and exercise the powers of the Chairman.
SECTION 4. The President. The President shall have the general care,
supervision and direction of the affairs of the Corporation, subject to the
control of the Board of Directors and the Executive committee; and, unless the
President shall have been designated chief executive officer, he shall also be
subject to the supervision and direction of the Chairman of the Board. The
President shall at all times keep the Chairman of the Board. The President shall
at all times keep the Chairman of the Board fully informed concerning the
affairs of the Corporation.
SECTION 5. The Vice Presidents. The Vice Presidents may be designated by
title or titles as the Board of Directors may determine, and the Executive Vice
President, and after him other Vice Presidents, if any, in such order of
seniority as may be determined by the Board, shall, in the absence or disability
of the President, perform the duties and exercise the powers of the President.
The Vice Presidents shall also have such powers and perform such duties as
usually pertain to their office or
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<PAGE> 7
as are properly required of them by the Board of Directors, the Chairman of the
Board and the President.
SECTION 6. The Secretary and Assistant Secretaries. It shall be the duty
of the Secretary to give proper notice of all meetings of the shareholders and
directors; to attend such meetings upon request of the chief executive officer
or any two members of the Board; to keep true records of the votes of elections
and all other proceedings; to attest such records after every meeting by his
signature; to keep safely the seal of the Corporation and all documents and
papers which shall come into his possession and control; and to keep the books
and accounts of the Corporation pertaining to his office. He shall perform such
other duties as the directors may from time to time direct.
The Assistant Secretaries shall in the absence or disability of the
Secretary, or at his request perform the duties and exercise the powers of the
Secretary, and shall perform such other duties as the Chairman of the Board, the
President or the Board of Directors may assign them.
SECTION 7. The Treasurer and Assistant Treasurers. It Shall be the duty of
the Treasurer to keep an account of all moneys, funds and property of the
Corporation that shall come into his hands, truly keep the books and accounts of
the Corporation so as at all times to show the real condition of its affairs,
and to render at all times such accounts and present such statements to the
directors as may be required of him. He shall give such bonds for the faithful
discharge of his duties as may be required by the Board of Directors. He shall
perform such other duties as usually pertain to his office or as are required
of him by the Board of Directors.
The Assistant Treasurers may, in the absence or disability of the
Treasurer, or at his request, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties as the Chairman of the Board, the
President or the Board of Directors may assign them.
SECTION 8. Officers Holding Two Offices. One person may at the same time
hold nay two offices in the Corporation, except that no person shall at the same
time be President and Vice President, or President and Secretary. No officer,
however, shall execute or verify any instrument in more than one capacity, if
such instrument be required by law or otherwise to be executed or verified by
any two or more officers.
SECTION 9. Duties of Officers May be Delegated. In case of the absence of
any officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board of Directors may delegate for the time being the powers
and duties of such officer, or any of them, to any other officer or to any
director.
SECTION 10. Compensation. The compensation of all officers, except
Assistant Secretaries and Assistant Treasurers, shall be fixed by the Executive
Committee. The compensation of other employees shall be fixed by the chief
executive officer or other officers or employees, subject to any limitations
prescribed by the Board of Directors or a committee thereof.
SECTION 11. Resignation. Any officer of the Corporation may resign at any
time by giving his resignation in writing to any director or to any elected
officer of the Corporation. Such resignation shall take effect at the time
specified therein; and unless otherwise specified therein, the acceptance of a
resignation shall not be necessary to make it effective.
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<PAGE> 8
ARTICLE VI
Shares
SECTION 1. Share Certificates. The share certificates of the Corporation
shall be numbered and shall be entered in the books of the Corporation as they
are issued. The certificates shall contain the holder's name and number of
shares and all other statements required by law, and shall be signed by the
Chairman of the Board, the President or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall bear
the corporate seal. Such seal may be a facsimile, engraved or printed. Where any
such certificate is signed by a transfer agent or a transfer clerk and by a
registrar, the signatures of any such Chairman of the Board, President, Vice
President, Secretary, Assistant Secretary, Treasurer or Assistant Treasurer upon
such certificate may be facsimile, engraved or printed. In case any such officer
who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such before such certificate is issued, it
may be issued by the Corporation with the same effect as if such officer had not
ceased to be such at the date of its issue.
SECTION 2. Transfers of Shares. Transfers of shares, except where
otherwise provided by law or these by-laws, shall be made on the books of the
Corporation by the person named in the certificate or by his attorney lawfully
constituted, upon surrender of the certificate or certificates for such shares.
The Corporation shall be entitled to treat the holder of record of any share or
shares as the holder in fact thereof and accordingly shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person whether or not it shall have express or other
notice thereof, save as expressly provided by the laws of the State of New York.
SECTION 3. Transfer Agent and Registrar. The Board of Directors may at any
time appoint one or more transfer agents and/or registrars for the transfer
and/or registration of shares, and may from time to time by resolution fix and
determine the manner in which shares of stock of the Corporation shall be
transferred and/or registered by such transfer agent and registrar,
respectively.
SECTION 4. Record Date. For the purpose of determining shareholders
entitled to receive payment of any dividend or the allotment of any rights, or
for the purpose of any other action, the Board of Directors may fix, in advance,
a date as the record date for any such determination of shareholders. Such date
shall not be less than ten (10) days nor more than fifty (50) days before the
date of such meeting, nor more than fifty (50) days prior to any such action.
ARTICLE VII
Dividends and Finances
SECTION 1. Dividends. Dividends may be declared and paid out of the
surplus of the Corporation as often, in such amounts and at such times as the
Board of Directors may determine. Before payment of any dividend or making any
distribution of profits, there may be set aside out of the net profits of the
Corporation such sum or sums as the directors from time to time, in their
absolute discretion, think proper as a reserve fund to meet contingencies or for
equalizing dividends
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<PAGE> 9
or for repairing or maintaining any property of the Corporation, or for such
other purpose as the directors shall think conducive to the interests of the
Corporation.
SECTION 2. Finances. The directors shall from time to time, by resolution,
determine in what bank or banks the funds of the Corporation shall be kept and
in what manner and by what officers or agents, checks, notes, bills, drafts or
other like instruments shall be signed or endorsed, but no such check, note,
bill, draft or other instrument of like character, or endorsement thereof, shall
be valid unless signed by at least two of the officers or agents of the
Corporation.
ARTICLE VIII
Corporate Seal
SECTION 1. The seal of the Corporation shall be circular in form and shall
include the words and figures "The P&L Subsidiary, Inc., 1967 New York". The
seal may be attached or attested on any document or paper by any officer of the
Corporation elected or appointed by the Board of Directors. The Board of
Directors may authorize counterparts of the Corporate seal to be kept by such
officer or officers, in addition to the Secretary, or in such place or places as
the Board may by resolution determine.
ARTICLE IX
Fiscal Year
SECTION 1. The fiscal year of the Corporation shall be the calendar year.
ARTICLE X
Amendments
SECTION 1. These by-laws may be added to, amended or repealed either by
the vote of the holders of record of a majority of the outstanding shares of the
Corporation entitled to vote by written consent pursuant to Section 11 of
Article II hereof or pursuant to any applicable provision of law, or at any
meeting of the Board of Directors by the vote of the majority of the entire
board. Any provision of these by-laws adopted by the Board may be amended or
repealed by the shareholders. If any by-law or provision of these by-laws
regulating an impending election of directors is adopted, amended or repealed by
the Board, three shall be set forth in the notice of the next meeting of
shareholders for the election of directors the by-law or provision so adopted,
amended or repealed, together with a concise statement of the changes made.
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<PAGE> 1
Exhibit 3.5
CERTIFICATE OF INCORPORATION
OF
SIA ADHESIVES, INC.
ARTICLE ONE
The name of the corporation is SIA Adhesives, Inc.
ARTICLE TWO
The address of the corporation's registered office in the State of
Delaware is 1013 Centra Road, in the City of Wilmington, County of New Castle,
19805. The name of its registered agent at such address is Corporation Service
Company.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE FOUR
The total number of shares of stock which the corporation has authority to
issue is 1,000 shares of Common Stock, with a par value of $.01 per share.
ARTICLE FIVE
The name and mailing address of the sole incorporator are as follows:
NAME MAILING ADDRESS
Joan D. Donovan 200 East Randolph Drive
Suite 5700
Chicago, Illinois 60601
<PAGE> 2
ARTICLE SIX
The corporation is to have perpetual existence.
ARTICLE SEVEN
In furtherance and not in limitation of the powers conferred by statute,
the board of directors of the corporation is expressly authorized to make, alter
or repeal the by-laws of the corporation.
ARTICLE EIGHT
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws of the corporation may provide. The books of the
corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the board of directors or in the by-laws
of the corporation. Election of directors need not be by written ballot unless
the by-laws of the corporation so provide.
ARTICLE NINE
To the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended, a director of
this corporation shall not be liable to the corporation or its stockholders for
monetary damages for a breach of fiduciary duty as a director. Any repeal or
modification of this ARTICLE NINE shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
ARTICLE TEN
The corporation expressly elects not to be governed by Section 203 of the
General Corporation Law of the State of Delaware.
ARTICLE ELEVEN
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this certificate of incorporation in the manner now or
hereafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
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I, THE UNDERSIGNED, being the sole incorporator hereinbefore name, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts stated herein are true, and
accordingly have hereunto set my hand on the 30th day of July, 1997.
--------------------------------------
Joan D. Donovan, Sole Incorporator
3
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Exhibit 3.6
BY-LAWS
OF
SIA ADHESIVES, INC.
A Delaware Corporation
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation in
the State of Delaware shall be located at 1013 Centre Road, in the City of
Wilmington, Delaware, County of New Castle. The name of the Corporation's
registered agent at such address shall be Corporation Service Company. The
registered office and/or registered agent of the Corporation may be changed from
time to time by action of the board of directors.
Section 2. Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place and Time of Meetings. An annual meeting of the
stockholders shall be held each year within one hundred eighty (180) days after
the close of the immediately preceding fiscal year of the Corporation for the
purpose of electing directors and conducting such other proper business as may
come before the meeting. The date, time and place of the annual meeting shall be
determined by the Chairman of the Board of the Corporation; provided, that if
the Chairman of the Board does not act, the board of directors shall determine
the date, time and place of such meeting.
Section 2. Special Meetings. Special meetings of stockholders may be
called for any purpose and may be held at such time and place, within or without
the State of Delaware, as shall be stated in a notice of meeting or in a duly
executed waiver of notice thereof. Such meetings may be called at any time by
the board of directors or the Chairman of the Board and shall be called by the
Chairman of the Board upon the written request of holders of shares entitled to
cast not less than fifty percent of the votes at the meeting. Such written
request shall state the purpose or purposes of the meeting and shall be
delivered to the Chairman of the Board. On such written request, the Chairman of
the Board shall fix a date and time for such meeting within two days of the date
requested for such meeting in such written request.
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Section 3. Place of Meetings. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive office of the
Corporation.
Section 4. Notice. Whenever stockholders are required or permitted to take
action at a meeting, written or printed notice stating the place, date, time,
and, in the case of special meetings, the purpose or purposes, of such meeting,
shall be given to each stockholder entitled to vote at such meeting not less
than ten (10) nor more than sixty (60) days before the date of the meeting. All
such notices shall be delivered, either personally or by mail, by or at the
direction of the board of directors, the Chairman of the Board, the President or
the Secretary, and if mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
stockholder at his, her or its address as the same appears on the records of the
Corporation. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends for the express purpose
of objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the stock
ledger of the Corporation shall make, at least ten (10) days before every
meeting of the stockholders, a complete list of the stockholders entitled to
vote at such meeting arranged in alphabetical order, showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 6. Quorum. The holders of a majority of the outstanding shares of
capital stock, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders, except as otherwise provided by
statute or by the certificate of incorporation. If a quorum is not present, the
holders of a majority of the shares present in person or represented by proxy at
the meeting, and entitled to vote at the meeting, may adjourn the meeting to
another time and/or place. When a quorum is once present to commence a meeting
of stockholders, it is not broken by the subsequent withdrawal of any
stockholders or their proxies. When a quorum is once present to commence a
meeting of stockholders, it is not broken by the subsequent withdrawal of any
stockholder or their proxies.
Section 7. Adjourned Meetings. When a meeting is adjourned to another
time and place, notice need not be given of the adjourned meeting if the time
and place thereof
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are announced at the meeting at which the adjournment is taken. At the adjourned
meeting the Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative vote
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of an
applicable law or of the certificate of incorporation a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware or by the certificate of incorporation
of the Corporation or any amendments thereto and subject to Section 3 of Article
VI hereof, every stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of common stock held
by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three (3) years
from its date, unless the proxy provides for a longer period. At each meeting of
the stockholders, and before any voting commences, all proxies filed at or
before the meeting shall be submitted to and examined by the Secretary or a
person designated by the Secretary, and no shares may be represented or voted
under a proxy that has been found to be invalid or irregular. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and if, and only
as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have all voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy.
Section 11. Action by Written Consent. Unless otherwise provided in the
certificate of incorporation, any action required to be taken at any annual or
special meeting of stockholders of the Corporation or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken and bearing the dates of
signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to
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the Corporation by delivery to its registered office in the state of Delaware,
or the Corporation's principal place of business, or an officer or agent of the
Corporation having custody of the book or books in which proceedings of meetings
of the stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. All consents properly delivered in accordance with this section shall
be deemed to be recorded when so delivered. No written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the Corporation as required
by this section, written consents signed by the holders of a sufficient number
of shares to take such corporate action are so recorded. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Any action taken pursuant to such written consent or consents of the
stockholders shall have the same force and effect as if taken by the
stockholders at a meeting thereof.
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the board of directors.
Section 2. Number, Election and Term of Office. The number of directors
which shall constitute the first board shall be three (3). Thereafter, the
number of directors shall be established from time to time by resolution of the
board. The directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote in
the election of directors. The directors shall be elected in this manner at the
annual meeting of the stockholders, except as provided in, Section 4 of this
Article 111. Each director elected shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal and Resignation. Any director or the entire board of
directors may be removed at any time, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors.
Whenever the holders of any class or series are entitled to elect one or more
directors by the provisions of the Corporation's certificate of incorporation,
the provisions of this section shall apply, in respect to the removal without
cause of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole.
Section 4. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the shares then entitled to vote at an election of directors. Each
director so chosen shall hold office
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until a successor is duly elected and qualified or until his or her earlier
death, resignation or removal as herein provided.
Section 5. Annual Meetings. The annual meeting of each newly elected board
of directors shall be held without other notice than this by-law immediately
after, and at the same place as, the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by or at the
request of the Chairman of the Board on at least twenty-four (24) hours notice
to each director, either personally, by telephone, by mail, or by telegraph; in
like manner and on like notice the Chairman of the Board must call a special
meeting on the written request of at least one of the directors.
Section 7. Quorum, Required Vote and Adjournment. A majority of the total
number of directors shall constitute a quorum for the transaction of business.
The vote of a majority of directors present at a meeting at which a quorum is
present shall be the act of the board of directors. If a quorum shall not be
present at any meeting of the board of directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 8. Committees. The board of directors may, by resolution passed by
a majority of the whole board, designate one or more committees, each committee
to consist of one or more of the directors of the Corporation, which to the
extent provided in such resolution or these By-laws shall have and may exercise
the powers of the board of directors in the management and affairs of the
Corporation except as otherwise limited by law. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and report the same to the board of
directors when required.
Section 9. Committee Rules. Each committee of the board of directors may
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. In the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 8 of this Article III, of such committee is or are absent or
disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in place of any such absent or disqualified member.
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Section 10. Communications Equipment. Members of the board of directors or
any committee thereof may participate in and act at any meeting of such board or
committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this section shall
constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member of the
board of directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 12. Action by Written Consent. Unless otherwise restricted by the
certificate of incorporation, any action required or permitted to be taken at
any meeting of the board of directors, or of any committee thereof, may be taken
without a meeting if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the Corporation shall be elected by the
board of directors and shall consist of a Chairman of the Board, a President and
Chief Executive Officer, a President, a Chief Financial Officer, one or more
Vice-Presidents, a Treasurer, a Secretary, and such other officers and assistant
officers as may be deemed necessary or desirable by the board of directors. Any
number of offices may be held by the same person. In its discretion, the board
of directors may choose not to fill any office for any period as it may deem
advisable, except that the offices of Chairman of the Board and President and
Chief Executive Officer shall be filled as expeditiously as possible.
Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. Vacancies may be filled or new offices created and filled at any meeting
of the board of directors. Each officer shall hold office until a successor is
duly elected and qualified or until his or her earlier death, resignation or
removal as hereinafter provided.
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Section 3. Removal. Any officer or agent elected by the board of directors
may be removed by the board of directors whenever in its judgment the best
interests of the Corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term by the board of
directors then in office.
Section 5. Compensation. Compensation of all officers shall be fixed by
the board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
Section 6. Chairman of the Board. The Chairman of the Board shall be the
chief executive officer of the corporation, and shall have the powers and
perform the duties incident to that position. Subject to the powers of the board
of directors, he or she shall be in the general and active charge of the entire
business and affairs of the corporation, and shall be its chief policy making
officer. He or she shall preside at all meetings of the board of directors and
stockholders and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or provided in these By-laws.
Whenever the President and Chief Executive Officer is unable to serve, by reason
of sickness, absence or otherwise, the Chairman of the Board shall perform all
the duties and responsibilities and exercise all the powers of the President and
Chief Executive Officer.
Section 7. President and Chief Executive Officer. The President and Chief
Executive Officer shall, subject to the powers of the board of directors and the
Chairman of the Board, have general charge of the business, affairs and property
of the corporation, and control over its officers, agents and employees; and
shall see that all orders and resolutions of the board of directors are carried
into effect. The President and Chief Executive Officer shall execute bonds,
mortgages and other contracts requiring a sea[, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer or agent of
the corporation. The President and Chief Executive Officer shall have such other
powers and perform such other duties as may be prescribed by the Chairman of the
Board or the board of directors or as may be provided in these By-laws.
Section 8. Chief Financial Officer. The Chief Financial Officer of the
Corporation shall, under the direction of the Chairman of the Board, be
responsible for all financial and accounting matters of the Corporation. The
Chief Financial Officer shall have such other powers and perform such other
duties as may be prescribed by the Chairman of the Board or the board of
directors or as may be provided in these By-laws.
Section 9. Vice-Presidents. The Vice-President, or if there shall be more
than one, the Vice-Presidents in the order determined by the board of directors,
shall, in the
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absence or disability of the President, act with all of the powers and be
subject to all the restrictions of the President. The Vice-Presidents shall also
perform such other duties and have such other powers as the board of directors,
the Chairman of the Board or these By-laws may, from time to time, prescribe.
Section 10. The Secretary and Assistant Secretaries. The Secretary shall
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose. Under the Chairman
of the Board's supervision, the Secretary shall give, or cause to be given, all
notices required to be given by these Bylaws or by law; shall have such powers
and perform such duties as the board of directors, the Chairman of the Board or
these By-laws may, from time to time, prescribe; and shall have custody of the
corporate seal of the Corporation. The Secretary, or an Assistant Secretary,
shall have authority to affix the corporate seal to any instrument requiring it
and when so affixed, it may be attested by his or her signature or by the
signature of such Assistant Secretary. The board of directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing by his or her signature. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by the
board of directors, shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the board of directors, the
Chairman of the Board or the Secretary may, from time to time, prescribe.
Section 11. The Treasurer and Assistant Treasurer. The Treasurer shall
have the custody of the corporate funds and securities; shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation; shall deposit all monies and other valuable effects in the name and
to the credit of the Corporation as may be ordered by the board of directors;
shall cause the funds of the Corporation to be disbursed when such disbursements
have been duly authorized, taking proper vouchers for such disbursements; and
shall render to the Chairman of the Board and the board of directors, at its
regular meeting or when the board of directors so requires, an account of the
Corporation; shall have such powers and perform such duties as the board of
directors, the Chairman of the Board or these By-laws may, from time to time,
prescribe. If required by the board of directors, the Treasurer shall give the
Corporation a bond (which shall be rendered every six (6) years) in such sums
and with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of the office of Treasurer
and for the restoration to the Corporation, in case of death, resignation,
retirement, or removal from office, of all books, papers, vouchers, money, and
other property of whatever kind in the possession or under the control of the
Treasurer belonging to the Corporation. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
board of directors, shall in the absence or disability of the Treasurer, perform
the duties and exercise the powers of the Treasurer. The Assistant Treasurers
shall perform such other duties and have such other powers as the board of
directors, the and Chairman of the Board or Treasurer may, from time to time,
prescribe.
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Section 12. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these Bylaws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
Section 13. Absence or Disability of Officers. In the case of the absence
or disability of any officer of the Corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
Section 1. Nature of Indemnity. Each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, fiduciary, or agent of another Corporation or of a
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the Corporation to the fullest extent which it is empowered to
do so unless prohibited from doing so by the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment) against all expense,
liability and loss (including attorneys' fees actually and reasonably incurred
by such person in connection with such proceeding) and such indemnification
shall inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in Section 2 hereof, the Corporation
shall indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the board of directors of the Corporation. The right to indemnification
conferred in this Article V shall be a contract right and, subject to Sections 2
and 5 hereof, shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition.
The Corporation may, by action of its board of directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
Section 2. Procedure for Indemnification of Directors and Officers. Any
indemnification of a director or officer of the Corporation under Section 1 of
this Article V or advance of expenses under Section 5 of this Article V shall be
made promptly, and in any event within thirty (30) days, upon the written
request of the director or officer. If a
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determination by the Corporation that the director or officer is entitled to
indemnification pursuant to this Article V is required, and the Corporation
fails to respond within sixty (60) days to a written request for indemnity, the
Corporation shall be deemed to have approved the request. If the Corporation
denies a written request for indemnification or advancing of expenses, in whole
or in part, or if payment in full pursuant to such request is not made within
thirty (30) days, the right to indemnification or advances as granted by this
Article V shall be enforceable by the director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of the State of Delaware for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of such defense shall be on the Corporation. Neither the failure of the
Corporation (including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination by
the Corporation (including its board of directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 3. Article Not Exclusive. The rights to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article V shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 4. Insurance. The Corporation may purchase and maintain insurance
on its own behalf and on behalf of any person who is or was a director, officer,
employee, fiduciary, or agent of the Corporation or was serving at the request
of the Corporation as a director, officer, employee or agent of another
Corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her in any such
capacity, whether or not the Corporation would have the power to indemnify such
person against such liability under this Article V.
Section 5. Expenses. Expenses incurred by any person described in Section
1 of this Article V in defending a proceeding shall be paid by the Corporation
in advance of such proceeding's final disposition unless otherwise determined by
the board of directors in the specific case upon receipt of an undertaking by or
on behalf of the director or officer to repay such amount if it shall ultimately
be determined that he or she is not entitled to be indemnified by the
Corporation. Such expenses incurred by other employees and agents
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may be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 6. Employees and Agents. Persons who are not covered by the
foregoing provisions of this Article V and who are or were employees or agents
of the Corporation, or who are or were serving at the request of the Corporation
as employees or agents of another Corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors.
Section 7. Contract Rights. The provisions of this Article V shall be
deemed to be a contract right between the Corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the General Corporation Law of the State of Delaware or
other applicable law are in effect, and any repeal or modification of this
Article V or any such law shall not affect any rights or obligations then
existing with respect to any state of facts or proceeding then existing.
Section 8. Merger or Consolidation. For purposes of this Article V,
references to "the Corporation" shall include, in addition to the resulting
Corporation, any constituent Corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent Corporation, or is or
was serving at the request of such constituent Corporation as a director,
officer, employee or agent of another Corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect to the resulting or surviving Corporation as he or she would have
with respect to such constituent Corporation if its separate existence had
continued.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Form. Every holder of stock in the Corporation shall be
entitled to have a certificate, signed by, or in the name of the Corporation by
the Chairman of the Board, the President and Chief Executive Officer, the Chief
Financial Officer or a Vice-President and the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by such
holder in the Corporation. If such a certificate is countersigned (1) by a
transfer agent or an assistant transfer agent other than the Corporation or its
employee or (2) by a registrar, other than the Corporation or its employee, the
signature of any such Chairman of the Board, President and Chief Executive
Officer, Chief Financial Officer, Vice-President, Secretary, or Assistant
Secretary may be facsimiles. In case any officer or officers who have signed, or
whose facsimile signature or signatures have been used on, any such certificate
or certificates shall cease to be such officer or officers of the
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<PAGE> 12
Corporation whether because of death, resignation or otherwise before such
certificate or certificates have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates or whose
facsimile signature or signatures have been used thereon had not ceased to be
such officer or officers of the Corporation. All certificates for shares shall
be consecutively numbered or otherwise identified. The name of the person to
whom the shares represented thereby are issued, with the number of shares and
date of issue, shall be entered on the books of the Corporation. Shares of stock
of the Corporation shall only be transferred on the books of the Corporation by
the holder of record thereof or by such holders attorney duly authorized in
writing, upon surrender to the Corporation of the certificate or certificates
for such shares endorsed by the appropriate person or persons, with such
evidence of the authenticity of such endorsement, transfer, authorization, and
other matters as the Corporation may reasonably require, and accompanied by all
necessary stock transfer stamps. In that event, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate or certificates, and record the transaction on its books.
The board of directors may appoint a bank or trust company organized under the
laws of the United States or any state thereof to act as its transfer agent or
registrar, or both in connection with the transfer of any class or series of
securities of the Corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the Corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the Corporation a bond
sufficient to indemnify the Corporation against any claim that may be made
against the Corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
the Corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting. If no record date is fixed by the
board of directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be the close of business
on the next day preceding the day on which notice is given, or if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
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<PAGE> 13
Section 4. Fixing a Record Date for Action by Written Consent. In order
that the Corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten (1 0) days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the board of directors and prior action by the board of directors is required by
statute, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the board of directors adopts the resolution taking such
prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that the
Corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is fixed,
the record date for determining stockholders for any such purpose shall be at
the close of business on the day on which the board of directors adopts the
resolution relating thereto.
Section 6. Registered Stockholders. Prior to the surrender to the
Corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the Corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 7. Subscriptions for Stock. Unless otherwise provided for in the
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the
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<PAGE> 14
payment of any installment or call when such payment is due, the Corporation may
proceed to collect the amount due in the same manner as any debt due the
Corporation.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation. Before
payment of any dividend, there may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or any other purpose and the directors may
modify or abolish any such reserve in the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders
for the payment of money by or to the Corporation and all notes and other
evidences of indebtedness issued in the name of the Corporation shall be signed
by such officer or officers, agent or agents of the Corporation, and in such
manner, as shall be determined by resolution of the board of directors or a duly
authorized committee thereof.
Section 3. Contracts. The board of directors may authorize any officer or
officers, or any agent or agents, of the Corporation to enter into any contract
or to execute and deliver any instrument in the name of and on behalf of the
Corporation, and such authority may be general or confined to specific
instances.
Section 4. Loans. The Corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiary, including any officer or employee who is a
director of the Corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the Corporation at
common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the board of directors.
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<PAGE> 15
Section 6. Corporate Seal. The board of directors shall provide a
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the Corporation and the words "Corporate Seal, Delaware".
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in
any other corporation held by the Corporation shall be voted by the President
and Chief Executive Officer, unless the board of directors specifically confers
authority to vote with respect thereto, which authority may be general or
confined to specific instances, upon some other person or officer. Any person
authorized to vote securities shall have the power to appoint proxies, with
general power of substitution.
Section 8. Inspection of Books and Records. Any stockholder of record, in
person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the Corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the Corporation at its registered
office in the State of Delaware or at its principal place of business.
Section 9. Section Headings. Section headings in these By-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
these By-laws is or becomes inconsistent with any provision of the certificate
of incorporation, the General Corporation Law of the State of Delaware or any
other applicable law, the provision of these By-laws shall not be given any
effect to the extent of such inconsistency but shall otherwise be given full
force and effect.
ARTICLE VIII
AMENDMENTS
These By-laws may be amended, altered, or repealed and new By-laws adopted
at any meeting of the stockholders by a majority vote.
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<PAGE> 1
Exhibit 3.7
ARTICLES OF AMENDMENT
The Articles of Incorporation are hereby restated in their entirety to read as
set forth below:
1. The name of the Corporation is OSI Sealants, Inc.
2. Initial registered agent: CT Corporation Systems
Initial registered office: 208 S. LaSalle Street
Chicago, IL 60604
3. Purpose or purposes for which the Corporation is organized: Any
lawful act or activity for which corporations may be organized under
the Illinois Business Corporation Act.
4. Paragraph 1: Authorized Shares, Issued Shares and Consideration
Received:
<TABLE>
<CAPTION>
Par Value Number of Shares Number of Consideration
Class Per Share Authorized Shares Issued Received
------------ --------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Common no par 5,000,000 505,980
</TABLE>
Paragraph 2: Preferences, qualifications, limitations, restrictions
and special or relative rights in respect of the shares of each
class are: None.
5. To the fullest extent permitted by the Illinois Business Corporation
Act, as the same exists or may hereafter be amended, a director of
this corporation shall not be liable to the corporation or its
stockholders for monetary damages for a breach of fiduciary duty as
a director. Any repeal or modification of this Article 5 shall not
adversely affect Any right or protection of a director of the
corporation existing at the time of such repeal or modification.
<PAGE> 1
Exhibit 3.8
BY-LAWS
OF
TAMMS INDUSTRIES INC. CO.
ARTICLE I
Meetings of Shareholders
SECTION 1. Location. All meetings of the shareholders for the election of
directors shall be held at such place either within or without the State of
Illinois as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of shareholders for any other
purpose may be held at such time and place, within or without the State of
Illinois, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
SECTION 2. Annual Meetings. The annual meeting of shareholders shall be
held on November 1 of each year, or such other date or such other time as may be
designated by the Board of Directors. If this day falls on a legal holiday,
however, the meeting shall be held on the next succeeding full business day. At
such meeting, directors shall be elected, and any other proper business may be
transacted.
SECTION 3. Notice. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each shareholder entitled to vote
at such meeting not less than 10 nor more than 60 days before the date of the
meeting, or in the case of a merger, consolidation, share exchange, dissolution
or sale, lease or exchange of assets not less than 20 nor more than 60 days
before the date of the meeting. Notice need not be given to any shareholder who
signs a waiver of notice, in person or by proxy, either before or after the
meeting.
SECTION 4. Special Meeting. Special Meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the Articles
of Incorporation, may be called by the Chairman, President or any Vice President
and shall be called by the President or Secretary at the request in writing of
the sole shareholder of the Corporation. Such request shall state the purpose or
purposes of the proposed meeting.
SECTION 5. Notice for Special Meetings: Written notice of a spacial
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be delivered not less than 10
nor more than 60 days before the date of the meeting, or in the case of a
merger, consolidation, share exchange, dissolution or sale, lease or exchange of
assets not less than 20 nor more than 60 days before the date of the meeting, to
the sole
<PAGE> 2
shareholder of the Corporation. Notice need not be given to any shareholder who
signs a waiver of notice, in person or by proxy, either before or after the
meeting.
SECTION 6. Quorum. Unless otherwise provided by statute or by the Articles
of Incorporation, the holders of a majority of the stock issued and outstanding
and entitled to vote, present in person or represented by proxy, shall
constitute a quorum at all meetings of the shareholders but in no event shall a
quorum consist of less than one-third of the shares entitled to vote. If,
however, such quorum shall not be present or represented at any meeting of the
shareholders, a majority of the shareholders entitled to vote, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for thirty days or more, or if after the
adjournment a new record date is fixed for the adjourned meeting, notice of the
adjourned meeting shall be given as in the case of an original meeting.
SECTION 7. Voting. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the Articles of Incorporation, a different vote is required in which case such
express provision shall govern and control the decision of such question. Each
shareholder shall at every meeting of the shareholders be entitled to one vote
in person or by proxy for each share of the capital stock having voting power
held by such shareholder, but no proxy shall be valid after eleven months from
its date of execution, unless otherwise provided in the proxy.
SECTION 8. Action by Written Consent. Any action required to be taken at
any annual or special meeting of shareholders of the Corporation, or any action
which may be taken at any annual or special meeting of such shareholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by all of the
persons who would be entitled to vote upon such action at a meeting.
ARTICLE II
Board of Directors
SECTION 1. General Powers. The business and affairs of the Corporation
shall be managed by the Board of Directors.
SECTION 2. Number and Term of Office. Except as otherwise required by
statute, the number of directors shall be not less than one, nor more than six,
as specified in resolutions of the shareholders or Board of Directors adopted
from time to time. As used herein, the term "whole Board" shall mean at any time
the number of directors at such time specified in such resolutions. At each
annual meeting, the shareholders shall elect directors to hold office until the
2
<PAGE> 3
next succeeding annual meeting. Directors need not be shareholders or residents
of the State of Illinois. Each director shall hold office for the term for which
he is elected and until his successor is elected and qualified or until his
earlier death, resignation or removal from office.
SECTION 3. Quorum and Manner of Acting. Unless otherwise provided by
statute, the presence of a majority of the whole Board of Directors shall be
necessary to constitute a quorum for the transaction of business. In the absence
of a quorum, a majority of the directors present may adjourn the meeting from
time to time until a quorum shall be present. Notice of any adjourned meeting
need not be given if the time and place are fixed t the meeting adjourning and
if the period of adjournment does not exceed 10 days in any one adjournment. At
all meetings of directors, a quorum being present, all matters, except those the
manner of deciding upon which is otherwise required by law, shall be decided by
the affirmative votes of a majority of the directors then in office.
SECTION 4. Place of Meetings, etc. The Board of Directors may hold its
meetings, have one or more offices, and keep the books and records of the
Corporation at such place or places within or without the State of Illinois, as
the Board may from time to time determine.
SECTION 5. Annual Meeting. After the annual meeting of shareholders in
each year, the Board of Directors shall meet at the same place for the purpose
of the election of officers and the transaction of other business. Notice of
such meeting need not be given. Such meeting may be held at any other time or
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors or in a consent and waiver of notice
thereof signed by all the directors.
SECTION 6. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such places and at such times as the Board shall determine.
Notice of regular meetings need not be given.
SECTION 7. Special Meetings; Notice. Special meetings of the Board of
Directors shall be held whenever called by the Chairman, the President, any Vice
President or by any director. Notice of each such meeting shall be mailed to
each director, addressed to him at his residence or usual place of business,
delivered at least one day before the day on which the meeting is to be held, or
shall be sent to him at such place by telegraph, cable, radio or wireless, or be
delivered personally or by telephone, not later than the day before the day on
which such meeting is to be held. Each such notice shall state the time and
place of the meeting but need not state the purposes thereof. Notice of any
meeting of the Board need not be given to any director, however, if waived by
him in writing whether before or after such meeting be held, or if he shall be
present at such meeting, and any meeting of the Board shall be a legal meeting,
and any meeting of the Board shall be a legal meeting without any notice thereof
having been given, if all the directors then in office shall be present thereat.
SECTION 8. Action by Written Consent. Any action required or permitted to
be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if all
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<PAGE> 4
members of the Board or the committee consent thereto in writing, and such
writing or writings are filed with the minutes of proceedings of the Board or
committee.
SECTION 9. Action by Communications Equipment. Members of the Board of
Directors or any committee thereof may participate in a meeting of such Board or
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation shall constitute presence in person at such meeting.
SECTION 10. Resignation. Any director of the Corporation may resign at any
time by giving written notice to the Board of Directors, its Chairman, or to the
President or the Secretary of the Corporation. The resignation of any director
shall take effect upon receipt of notice thereof or at such later time as shall
be specified in such notice; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 11. Removal. Any director or the entire Board of Directors may be
removed at any time, either with or without cause, by the holders of a majority
of shares entitled to vote at an election of directors. No director shall be
removed unless the notice of the meeting states that a purpose of the meeting is
to vote upon the removal of the director or directors named in the notice.
SECTION 12. Vacancies. (1) Except as otherwise provided in paragraph (2)
below, any vacancy that shall occur in the Board of Directors by reason of
death, resignation, or removal or any other cause whatever, may be filled by the
affirmative votes of a majority of the whole Board or by the holders of a
majority of shares entitled to vote at an election of directors. (2) Any vacancy
to be filled by reason of the removal of a director or director(s) by the
shareholders shall be filled by the shareholders, or if they so authorized, by
the remaining director or directors, as provided in paragraph (1) above. (3) Any
vacancy that shall occur in the Board of Directors as a result of an increase in
the authorized number of directors may be filled by the affirmative votes of a
majority of the whole Board as constituted immediately prior to such increase or
by the holders of a majority of shares entitled to vote at an election of
directors.
ARTICLE III
Officers
SECTION 1. Number. The officers of the Corporation shall be a Chairman,
President, a Secretary and a Treasurer or Financial Controller, each to have
such functions or duties as are provided for in these By-laws or as the Board of
Directors may from time to time determine, and each to hold office until his
successor shall have been chosen and shall qualify, or until his death or
resignation, or until his removal in the manner hereinafter provided. The Board
may from time to time appoint such other officers or agents, including one or
more Vice Presidents, Assistant Secretaries or Assistant Treasurers as the Board
may determine necessary or desirable, each of whom shall hold office for such
period, have such authority and perform such duties as are provided for in these
By-laws, or as the Board may from time to time determine. The Board
4
<PAGE> 5
may delegate to any officer or committee the power to appoint and to remove any
such other officer or agent. One person may hold the office of, and perform the
duties of, any two or more of the above-mentioned positions.
SECTION 2. Chairman of the Board. The Chairman of the Board shall preside
at all meetings of the shareholders and the Board of Directors and, subject to
all times to the direction and control of the Board of Directors and to the
provisions of the Articles of Incorporation and these Bylaws, shall have such
powers and perform such duties as are incident to the office of chairman of the
board of a business corporation and shall, in addition, have such further powers
and perform such further duties as are specified in these By-laws or as the
Board of Directors may, from time to time, assign or delegate to him.
SECTION 3. President. The President shall be the chief executive officer
of the Corporation and shall have general supervision and direction of the
business and affairs of the Corporation, subject to the control of the Board of
Directors, and shall perform such other duties as the Board may from time to
time determine.
SECTION 4. Vice Presidents. At the request of the President, or in his
absence or disability, any Vice President shall perform all the duties of the
President and, when so acting, shall have all the powers of and be subject to
all the restrictions placed upon the President.
SECTION 5. Treasurer or Financial Controller. The Treasurer or Financial
Controller shall have charge and custody of, and be responsible for, all funds
and securities of the Corporation and shall deposit all such funds in the name
of the Corporation in such banks or other depositaries as shall be selected by
the Board of Directors; render a statement of the condition of the finances of
the Corporation at all regular meetings of the Board; receive, and give receipt
for, moneys due and payable to the Corporation from any source whatsoever; and,
in general, perform all the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by the President or the
Board of Directors.
SECTION 6. Secretary. It shall be the duty of the Secretary to act as
Secretary at all meetings of the Board of Directors and to keep the minutes
thereof in the proper book or books to be provided for that purpose; he or she
shall see that all notices required to be given by the Corporation are duly
given and served. He or she shall have charge of the stock records and also of
the other books, records and papers of the Corporation and shall see that the
reports, statements and other documents required by law are properly kept and
filed; and shall in general perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him or
her by the Chairman, President or the Board of Directors.
SECTION 7. Assistant Treasurers and Secretaries. The Assistant Treasurers
and Assistant Secretaries shall perform such duties as shall be assigned to them
by the Treasurer or Secretary, respectively, or by the Chairman, President or
the Board of Directors.
SECTION 8. Removal. Any officer elected by the Board of Directors may be
removed by the Board of Directors at any time whenever in its judgment the best
interests of the
5
<PAGE> 6
corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. An officer elected by
the shareholders may be removed only by vote of the shareholders unless the
shareholders shall have authorized the Board of Directors to remove such
officer.
SECTION 9. Vacancies. Any vacancy, however occurring, in any office may be
filled by the Board of Directors.
SECTION 10. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation.
ARTICLE IV
Dividends
Dividends upon the capital stock of the Corporation may be declared by the
Board of Directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property or in shares of the capital stock, subject to
the provisions of the Articles of Incorporation and the Illinois Business
Corporation law.
ARTICLE V
Contracts, Checks, Drafts, Bank Accounts, etc.
SECTION 1. Execution of Instruments. The Board of directors may authorize
any officer or officers or agent or agents, in the name and on behalf of the
Corporation, to enter into any contract or execute and deliver any instrument
and such authority may be general or confined to specific instances; and, unless
so authorized by the Board or expressly authorized by these By-laws, no officer
or agent or employee shall have any power or authority to bind the Corporation
by any contract or engagement or to pledge its credit or to render it liable
pecuniarily for any purpose or to any amount.
SECTION 2. Checks, etc. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation, and all notes or other
evidences of indebtedness of the Corporation, shall be signed on behalf of the
Corporation in such manner as shall from time to time be determined by
resolution of the Board of Directors.
ARTICLE VI
Miscellaneous Provisions
SECTION 1. Fiscal Year. The fiscal year of the Corporation shall end at
the close of business on the 31st day of December in each year or as otherwise
designated by the Board of Directors.
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<PAGE> 7
ARTICLE VII
Amendments
These By-laws may be altered, amended or repealed or new By-laws may be
adopted by the shareholders or by the Board of Directors at any regular meeting
of the shareholders or of the Board of Directors or at any special meeting of
the shareholders or of the Board of Directors, all as subject to the laws of the
State of Illinois. The power to adopt, amend or repeal By-laws that is conferred
upon the Board of Directors by the Articles of Incorporation shall not divest or
limit the power of the shareholders to adopt, amend or repeal By-laws.
7
<PAGE> 8
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.
By-Law Amendment adopted December 5, 1994
- --------------------------------------------------------------------------------
ARTICLE V
INDEMNIFICATION
SECTION 1. Actions, Suits or Proceedings Other Than by or in the Right of
the Corporation. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was or has agreed to serve at the request of
the Corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action alleged to have been taken or omitted in such capacity, against
costs, charges, expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not meet the standards of conduct set forth in this Section 1.
SECTION 2. Actions or Suits by or in the Rights of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was or has agreed to become a Director, officer, employee or
agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action alleged to have been taken or omitted in such capacity, against
costs, charges and expenses (including attorneys' fees) actually and reasonably
incurred by him or on his behalf in connection with he defense or settlement of
such action or suit and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for gross negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that any Illinois Court or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of such liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
costs, charges and expenses which the Illinois Court or such other court shall
deem proper.
SECTION 3. Indemnification for Costs, Charges and Expenses of Successful
Party. Notwithstanding the other provisions of this Article V, to the extent
that a Director, officer,
<PAGE> 9
employee or agent of the Corporation has been successful on the merits or
otherwise, including, without limitation, the dismissal of an action without
prejudice, in defense of any action, suit or proceeding referred to in Sections
1 and 2 of this Article V, or in the defense of any claim, issue or matter
therein, he shall be indemnified against all costs, charges and expenses
(including attorneys' fees) actually and reasonably incurred by him or on his
behalf in connection therewith.
SECTION 4. Determination of Right to Indemnification. Any indemnification
under Section 1 and 2 of this Article V (unless ordered by a court) shall be
promptly paid by the Corporation unless a determination is made (1) by the Board
of Directors by a majority vote of a quorum consisting of Directors who were not
parties of such action, suite or proceeding, or (2) if such a quorum is not
obtainable, or even if obtainable, the Board of Directors so directs, by
independent legal counsel in a written opinion, or (e) by the stockholders, that
indemnification of the Director, officer, employee or agent is not proper in the
circumstances because he has not met the applicable standards of conduct set
forth in Sections 1 and 2 of this Article V.
SECTION 5. Advance of Costs, Charges and Expenses. Costs, charges and
expenses (including attorneys' fees) incurred by a person referred to in
Sections 1 and 2 of this Article V in defending a civil or criminal action, suit
or proceeding (including investigations by any government agency and all costs,
charges and expenses incurred in preparing for any threatened action, suit or
proceeding) shall be paid by the Corporation in advance of the final disposition
of such action, suite or proceeding; provided, however, that the payment of such
costs, charges and expenses incurred by a Director or officer in his capacity as
a Director or officer (and not in any other capacity in which service was or is
rendered by such person while a Director or officer) in advance of the final
disposition of such action, suit or proceeding shall be made only upon receipt
of an undertaking by or on behalf of the Director or officer to repay all
amounts so advanced in the event that it shall ultimately be determined that
such Director or officer is not entitled to be indemnified by the Corporation as
authorized in this Article V. No security shall be required for such undertaking
and such undertaking shall be accepted without reference to the recipients
financial ability to make repayment. The repayment of such charges and expenses
incurred by other employees and agents of the Corporation which are paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as permitted by this Section 5 may be required upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
SECTION 6. Procedure for Indemnification. Any indemnification under
Section 1, 2 or 3 or advance of costs, charges and expenses under Section 5 of
this Article V shall be made promptly, and in any event within 30 days, upon the
written request of the Director, officer, employee or agent directed to the
Secretary of the Corporation. The right to indemnification or advances as
granted by this Article V shall be enforceable by the Director, officer,
employee or agent in any court of competent jurisdiction if the Corporation
denies such request, in whole or in part, or if no disposition thereof is made
within 30 days. Such person's costs and expenses incurred in connection with
successfully establishing his right to indemnification or advances, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for the advance of costs, charges and expenses under Section 5 of this
Article V where the required undertaking, if any, has been received by the
Corporation) that the claimant has not met the standard of conduct set forth in
Sections 1 or 2 of this
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<PAGE> 10
Article V, but the burden of proving that such standard of conduct has not been
met shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, its independent legal counsel, and its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in Sections 1
and 2 of this Article V, or the fact that there has been an actual determination
by the Corporation (including its Board of Directors, its independent legal
counsel, and its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
SECTION 7. Other Rights; Continuation of Right to Indemnification. The
Indemnification provided by this Article V shall not be deemed exclusive of any
other rights to which a person seeking indemnification may be entitled under any
law (common or statutory), agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office or while employed by or acting
as agent for the Corporation, and shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
the estate, heirs, executors and administrators of such person. All rights to
indemnification under this Article V shall be deemed to be a contract between
the Corporation and each Director, officer, employee or agent of the Corporation
who serves or served in such capacity at any time while this Article V is in
effect. No amendment or repeal of this Article V or of any relevant provisions
of the Illinois Business Corporation Act or any other applicable laws shall
adversely affect or deny to any Director, officer, employee or agent any rights
to indemnification which such person may have, or change or release any
obligations of the Corporation, under this Article V with respect to any costs,
charges, expenses (including attorneys' fees), judgments, fines, and amounts
paid in a settlement which arise out of an action, suit or proceeding based in
whole or substantial part on any act or failure to act, actual or alleged, which
takes place before or while this Article V is in effect. The provisions of this
Section 7 shall apply to any such action, suit or proceeding whenever commenced,
including any such action, suit or proceeding commenced after any amendment or
repeat of this Article V.
SECTION 8. FOR Purposes of this Article:
(1) "the Corporation" shall include any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation
or merger which, if its separate existence had continued, would have had
power and authority to indemnify its directors, officers, and employees or
agents, so that any person who is or was a Director, officer, employee or
agent of such constituent corporation, or is or was serving at the request
of such constituent corporation as a Director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provision of this
Article V with respect to the resulting or surviving corporation as he
would have with respect to such consultant if its separate existence had
continued;
(2) "other enterprises" shall include employee benefit plans,
including but not limited to any employee benefit plan of the Corporation;
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<PAGE> 11
(3) "serving at the request of the Corporation" shall include any
service which imposes duties on, or involves services by, a Director,
officer, employee, or agent of the Corporation with respect to an employee
benefit plan, its participants, or beneficiaries, including acting as a
fiduciary thereof;
(4) "fines" shall include any penalties and any excise or similar
taxes assessed on a person with respect to an employee benefit plan;
(5) A person who acted in good faith and in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the "Corporation" as referred to in
Sections 1 and 2 of this Article V;
(6) Service as a partner, trustee or member of a management or
similar committee of a partnership or joint venture, or as a Director,
officer, employee or agent of a corporation which is a partners, trustee
or joint venturer, shall be considered service as a Director, officer,
employee or agent of the partnership, joint venture, trust or other
enterprise.
SECTION 9. Savings Clause. If this Article V or any portion hereof shall
be invalidated on any ground by a court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee and
agent of the Corporation as a costs, charges and expenses (including attorneys'
fees) judgments, fines and amounts paid in settlement with respect to any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Corporation, to the
full extent permitted by any applicable portion of this Article V that shall not
have been invalidated and to the full extent permitted by applicable law.
SECTION 10. Insurance. The Corporation shall purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a Director, officer, employee or agent of
another corporation, partnership, joint venture, trust or their enterprise,
against any liability asserted against him and incurred by him or on his behalf
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of Article V, provided that such insurance is available on
acceptable terms as determined by a vote of a majority of the entire Board of
Directors.
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<PAGE> 1
Exhibit 3.9
CERTIFICATE OF INCORPORATION
OF
E-M ACQUISITION CORP.
The undersigned, of the age of eighteen years or over, for the
purpose of forming a corporation pursuant to the provisions of the New Jersey
Business Corporation Act, does hereby execute the following Certificate of
Incorporation:
FIRST: The name of the Corporation is: E-M Acquisition Corp.
SECOND: The purpose for which the Corporation is formed is to engage
in any activity within the purposes for which corporations may be organized
under the New Jersey Business Corporation Act.
THIRD: The aggregate number of shares which the Corporation shall
have authority to issue is one thousand (1,000) of the par value of ten cents
(10(cent)) per share.
FOURTH: The address of the Corporation's initial registered office
is c/o The Prentice-Hall Corporation System, New Jersey, Inc., 150 West State
Street, Trenton, New Jersey 08608; and the name of the Corporation's initial
registered agent at such address is The Prentice-Hall Corporation System, New
Jersey, Inc.
FIFTH: The number of directors constituting the initial board of
directors shall be two; and the names and addresses of the directors are as
follows:
Names Addresses
David S. Winterbottom Common Road
Stafford ST16 3EH, England
Anthony J. Wain Common Road
Stafford ST16 3EH, England
SIXTH: The name and address of the incorporator is as follows:
Name Address
John Cleary 30 Rockefeller Plaza
New York, NY 10112
SEVENTH: The Board of Directors is authorized to make, alter and
repeal the By-Laws of the Corporation, provided that any By-Laws made by the
Board of Directors may be altered or repealed, and new By-Laws made, by the
shareholders.
<PAGE> 2
EIGHTH: Except to the extent prohibited by law, no director or
officer of the Corporation shall be personally liable to the Corporation or its
shareholders for damages for breach of any duty owed to the Corporation or its
shareholders, provided that a director or officer shall not be relieved from
liability for any breach of duty based upon an act or omission (a) in breach of
such person's duty of loyalty to the Corporation or its shareholders, (b) not in
good faith or involving a knowing violation of law or (c) resulting in receipt
by such person of an improper personal benefit. Neither the amendment or repeal
of this Article Eighth, nor the adoption of any provision of this Certificate of
Incorporation inconsistent with this Article Eighth, shall eliminate or reduce
the effect of this Article Eighth in respect of any matter which occurred, or
any cause of action, suit or claim which but for this Article Eighth would have
accrued or arisen, prior to such amendment, repeal or adoption.
IN WITNESS WHEREOF, I, the incorporator of the above named
corporation, have hereunto signed this Certificate of Incorporation on the
day of , .
------------------------------------
John Cleary
Sole Incorporator
<PAGE> 3
CERTIFICATE OF MERGER
OF
MERCER PRODUCTS COMPANY, INC.
WITH AND INTO
E-M ACQUISITION CORP.
Pursuant to Section 14A:10-5.1 of the
New Jersey Business Corporation Act
E-M Acquisition Corp., a corporation organized and existing under
the laws of the State of New Jersey (the "Corporation"), DOES HEREBY CERTIFY
THAT:
FIRST: The Corporation is a corporation organized and existing under
the laws of the State of New Jersey.
SECOND: Mercer Products Company, Inc. (the "Subsidiary") is a
corporation organized and existing under the laws of the State of New Jersey.
THIRD: Annexed hereto and made a part hereof is the Plan of Merger
for merging the Subsidiary with and into the Corporation as approved by the
directors and the shareholders entitled to vote of the Corporation.
FOURTH: The number of share of the Corporation that were entitled to
vote at the time of the approval of the Plan of Merger by its shareholder is ten
(10), all of which are of one class. The holder of all outstanding shares
entitled to vote thereon of the Corporation approved the Plan of Merger by
Written Consent In Lieu of Meeting, dated November 30, 1990, and the number of
shares represented by such Consent is ten (10).
FIFTH: The Corporation owns 9,906 shares of Common Stock, without
par value, of the Subsidiary which constitute all of the issued and outstanding
shares of the Subsidiary, and there is no other class of stock of the
Subsidiary.
SIXTH: The Corporation will continue its existence as the surviving
corporation under the name Mercer Products Company, Inc. pursuant to the
provisions of the New Jersey Business Corporation Act.
SEVENTH: The effective date of the merger herein provided for shall
be the close of business on December 31, 1990.
<PAGE> 4
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
merger to be executed by its duly authorized officer on the 21st day of
December, 1990.
E-M ACQUISITION CORP.
By:
----------------------------------
David S. Winterbottom
President
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<PAGE> 5
PLAN OF MERGER
OF
MERCER PRODUCTS COMPANY, INC.
WITH AND INTO
E-M ACQUISITION CORP.
PLAN OF MERGER approved on November 30, 1990 by E-M Acquisition
Corp. (the "Corporation"), a New Jersey corporation, and by its Board of
Directors on said date.
1. Mercer Products Company, Inc., a New Jersey corporation and
wholly-owned subsidiary of the Corporation (the "Subsidiary"), shall, pursuant
to the provisions of the New Jersey Business Corporation Act, be merged with and
into the Corporation (the "Surviving Corporation"), which shall be the surviving
corporation upon the effective date of the merger, and which shall continue to
exist as the surviving corporation under the name Mercer Products Company, Inc.
pursuant to the provisions of the New Jersey Business Corporation Act. The
separate existence of the Subsidiary shall cease upon said effective date in
accordance with the provisions of said New Jersey Business Corporation Act.
2. The Certificate of Incorporation of the Surviving Corporation
upon the effective date of the merger shall be the Certificate of Incorporation
of said Surviving Corporation except that Article FIRST thereof, relating to the
name of the corporation, is hereby amended so as to read as follows upon the
effective date of the merger:
"FIRST: The name of the Corporation is: Mercer Products Company,
Inc.";
and said Certificate of Incorporation as herein amended shall continue in full
force and effect until further amended in the manner prescribed by the
provisions of the New Jersey Business Corporation Act.
3. The By-Laws of the Surviving Corporation upon the effective date
of the merger shall be the By-Laws of said Surviving Corporation and shall
continue in full force and effect until changed, altered, or amended as therein
provided and in the manner prescribed by the provisions of the New Jersey
Business Corporation Act.
4. The directors and officers in office of the Subsidiary upon the
effective date of the merger shall be the members of the Board of Directors and
the officers of the Surviving Corporation, all of whom shall hold their
directorships and offices until the election and qualification of their
respective successors or until their tenure is otherwise terminated in
accordance with the By-Laws of the Surviving Corporation.
5. Each issued share of the Subsidiary shall, upon the effective
date of the merger, be cancelled.
<PAGE> 6
6. All of the issued and outstanding shares of the Surviving
Corporation shall remain unchanged in the hands of the holders thereof.
7. The Plan of Merger herein made and approved shall be submitted to
the sole shareholder of the Corporation for its approval or rejection in the
manner prescribed by the provisions of the New Jersey Business Corporation Act.
8. The effective date of the merger herein provided for shall be the
close of business on December 31, 1990.
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<PAGE> 1
Exhibit 3.10
BY-LAWS
OF
E-M ACQUISITION CORP.
(a New Jersey Corporation)
--------------------------
ARTICLE I
SHAREHOLDERS
Section 1.1. Shareholder Meetings.
(a) Time. The annual meeting shall be held on the date and at
the time fixed, from time to time, by the Board of Directors. A special meeting
shall be held on the date and at the time fixed by the Board of Directors.
(b) Place. Annual meetings and special meetings shall be held
at such place, within or without the State of New Jersey, as the Board of
Directors may, from time to time, fix. Whenever the Board of Directors shall
fail to fix such place, the meeting shall be held at the registered office of
the Corporation in the State of New Jersey.
(c) Call. Annual meetings and special meetings may be called
by (i) the Board of Directors, (ii) the Chairman of the Board, if any, (iii) the
President, (iv) any officer instructed by the Board of Directors to call the
meeting or (v) shareholders representing not less than 51% of the capital stock
issued and outstanding.
(d) Notice of Waiver of Notice. Written notice of all meetings
shall stating the place, date, and hour of the meeting. The notice of an annual
meeting shall state that the meeting is called for the election of directors and
for the transaction of other business which may properly come before the
meeting, and shall (if any other action which could be taken at a special
meeting is to be taken at such annual meeting) state the purpose or purposes.
The notice of a special meeting shall in all instances state the purpose or
purposes for which the meeting is to be called. The notice of any meeting shall
also include, or be accompanied by, any additional statements, information, or
documents prescribed by the Business Corporation Act. Except as otherwise
provided by the Business Corporation Act, a copy of the notice of any meeting
shall be given, personally or by mail, not less than 10 days nor more than 60
days before the date of the meeting, unless the lapse of the prescribed period
of time shall have been waived. Such notice shall be directed to each
shareholder entitled to vote at the meeting at his record address or at such
other address which he may have furnished by request in writing to the Secretary
of the Corporation. Notice by mail shall be deemed to be given when deposited,
with postage thereon prepaid, in the United States Mail. If a meeting is
adjourned to another time and/or to another place, and if an announcement of the
adjourned time and/or place is made at the meeting, it shall not be necessary to
give notice of the adjourned meeting unless the Board of Directors, after
adjournment, fix a new record date for the adjourned meeting or business is
transacted at
<PAGE> 2
the adjourned meeting which could not have been transacted at the original
meeting. Notice need not be given to any shareholder who submits a written
waiver of notice signed by him, in person or by proxy, before or after the time
stated therein. Attendance of a shareholder at a meeting of shareholders, in
person or by proxy, shall constitute a waiver of notice of such meeting, except
when the shareholder attends the meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
shareholders' need be specified in any written waiver of notice.
(e) Shareholder List. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, before every meeting of
shareholders or any adjournment thereof, a complete list Of the shareholders,
arranged in alphabetical order, and showing the address of each shareholder and
the number of shares registered in the name of each shareholder. The list shall
be produced and kept at the time and place of the meeting during the whole time
thereof', and may be inspected for reasonable periods during the meeting by any
shareholder who is present. The stock ledger shall be prima facie evidence as to
which shareholders are entitled to examine the stock ledger, the list required
by this section or the books of the Corporation, or to vote at any meeting.
(f) Conduct of Meeting. Meetings of the shareholders shall be
presided over by one of the following officers in the order of seniority if
present and acting - the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, the President, a Vice-President, if any, or, if none of the
foregoing is in office and present and acting, by a chairman to be chosen by the
shareholders. The Secretary of the Corporation, or in his absence, an Assistant
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present the chairman of the meeting shall appoint
a secretary of the meeting.
(g) Proxy Representation. Every shareholder may authorize
another person or persons to act for him by proxy in all matters in which a
shareholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the shareholder or his agent.
No proxy shall be valid for more than 11 months unless a longer time is
expressly provided therein, but in no event shall a proxy be valid after three
years from the date of execution. A proxy shall be revocable at will, unless it
states that it is irrevocable and, if, and only as long as, it is coupled with
an interest sufficient in law to support an irrevocable power. A proxy may be
made irrevocable regardless of whether the interest with which it is coupled is
an interest in the stock itself or an interest in the Corporation generally.
(h) Inspectors. The Board of Directors, in advance of any
meeting of shareholders, or of the tabulation of written consents of
shareholders without a meeting, may, but need not, appoint one or more
inspectors of election to act at the meeting or any adjournment thereof or to
tabulate such consents and make a written report thereof. If an inspector or
inspectors are not appointed, the person presiding at the meeting may, and on
the request of any shareholder entitled to vote there at, shall, appoint one or
more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by
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<PAGE> 3
appointment made by the Board of Directors in advance of the meeting or at the
meeting by the person presiding thereat. Each inspector, if any, before entering
upon the discharge of his duties, shall take and sign an oath to faithfully
execute the duties of inspector at such meeting with strict impartiality and
according to the best of his ability. The inspectors, if any, shall determine
the number of shares of stock outstanding and the voting power of each, the
shares of stock represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all shareholders. On request of the person presiding at the meeting,
the inspector or inspectors, if any, shall make a report in writing of any
challenge, question or matter determined by him or them. No person shall be
elected a director in an election for which he has served as an inspector.
(i) Quorum. The holders of a majority of the outstanding
shares of stock shall constitute a quorum at a meeting of shareholders for the
transaction of any business. The shareholders present may adjourn the meeting
despite the absence of a quorum.
(j) Voting. Each share of stock shall entitle the holder
thereof to one vote. In the election of directors, a plurality of the votes cast
shall elect. Any other action shall be authorized by a majority of the votes
cast except where the Business Corporation Act prescribes a different percentage
of votes and/or a different exercise of voting power, and except as may be
otherwise prescribed by the provisions of the Certificate of Incorporation or
these By-Laws. In the election of directors, and for any other action, voting
need not be by ballot.
Section 1.2. Shareholder Action Without Meetings. Except as
otherwise provided in the Business Corporation Act, any action required or
permitted to be taken at a meeting of shareholders by the provisions of said Act
or by the Certificate of Incorporation or these By-Laws may be taken without a
meeting if all of the shareholders entitled to vote thereon consent thereto in
writing, and (except for the annual election of directors) may also be taken by
less than all of the shareholders who would have been entitled to cast the
minimum number of votes which would be necessary to authorize any such action at
a meeting at which all shareholders entitled to vote thereon were present and
voting. Whenever any action is taken pursuant to the foregoing provisions, the
written consents of the shareholders consenting thereto or the written report of
inspectors appointed to tabulate such consents shall be filed with the minutes
of proceedings of shareholders.
ARTICLE II
DIRECTORS
Section 2.1. Functions and Definition. The business and
affairs Of the Corporation shall be managed by or under the direction of the
Board of Directors of the corporation. The Board of Directors shall have the
authority to fix the compensation of the
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<PAGE> 4
members thereof. The use of the phrase "whole Board" herein refers to the total
number of directors which the Corporation would have if there were no vacancies.
Section 2.2. Qualifications and Number. Directors shall be at
least 18 years of age and need not be a shareholder, or a citizen or resident of
the United States or the State of New Jersey. The number of the directors of the
Corporation shall not be less than one nor more than five. The first Board and
subsequent Boards shall consist of two directors until changed as hereinafter
provided. The directors shall have power from time to time, in the interim
between annual and special meetings of the shareholders, to increase or decrease
their number within the minimum or maximum hereinabove prescribed.
Section 2.3. Election and Term. The first Board of Directors
named in the certificate of incorporation shall hold office until the first
annual meeting of shareholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the Corporation. Directors who are elected at
an annual meeting of shareholders, and directors who are elected in the interim
to fill vacancies, shall hold office until the next annual meeting of
shareholders or until their successors are elected and qualified or until their
earlier resignation or removal. In the interim between annual meetings of
shareholders or of special meetings of shareholders called for the election of
directors and/or for the removal of one or more directors and for the filling of
any vacancies in that connection, any vacancies in the Board of Directors,
including unfilled vacancies resulting from the removal of directors, may be
filled by the vote of a majority of the remaining directors then in office even
though the remaining director or directors may constitute less than a quorum.
Section 2.4. Meetings.
(a) Time. Meetings shall be held at such time as the Board
shall fix, except that the first meeting of a newly elected Board shall be held
as soon after its election as the directors may conveniently assemble.
(b) Place. Meetings shall be held at such place within or
without the State of New Jersey as shall be fixed by the Board.
(c) Call. No call shall be required for regular meetings for
which the time and place have been fixed. Special meetings may be called by or
at the direction of the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, or the President, or of a majority of the directors in office.
(d) Notice or Actual or Constructive Waiver. No notice shall
be required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special meetings not less than 24 hours in advance of such meetings. Notice
need not be given to any director or to any member of a committee of directors
who submits a written waiver of notice signed by him before or after the time
for the meeting stated therein. Attendance of any such person at a meeting shall
constitute a waiver of notice of such meeting, except when he attends a meeting
for the express purpose of
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<PAGE> 5
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at nor the purpose of, any regular or special meeting of the
directors need be specified in any written waiver of notice. Notice of an
adjourned meeting need not be given if the time and place are fixed at the
meeting adjourning, and if the period of adjournment does not exceed ten days in
any one adjournment.
(e) Quorum and Action. Each director shall have one vote at
meetings. A majority of the whole Board shall constitute a quorum except when a
vacancy or vacancies prevents such majority, whereupon a majority of the
directors in office shall constitute a quorum, provided, that such majority
shall constitute at least the greater of two persons or one-third of the whole
Board. A majority of the directors present, whether or not a quorum is present,
may adjourn a meeting to another time and place. Except as herein otherwise
provided, and except as otherwise provided by the Business Corporation Act, the
vote of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board. The quorum and voting provisions herein
stated shall not be construed as conflicting with any provisions of the Business
Corporation Act and these By-Laws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
(f) Chairman of the Meeting. The Chairman of the Board, if
any, and if present an acting, shall preside at all meetings. Otherwise, the
Vice-Chairman of the Board, if any and if present and acting, or the President,
if present and acting, or any other director chosen by the Board, shall preside.
Section 2.5. Removal of Directors. Except as may otherwise be
provided by ness Corporation Act, any director may be removed for cause or
without cause by the holders of a majority of the shares then entitled to vote
at an election of directors.
Section 2.6. Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. By a majority of the entire Board, the Board may appoint one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of any member of any such committee or committees, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in the
resolution of the Board, shall have and may exercise the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation with the exception of any authority the delegation of which is
prohibited by Section 14A:6-9 of the Business Corporation Act, and may authorize
the seal of the Corporation to be affixed to all papers which may require it.
Action taken at any such committee meeting shall be reported to the Board at its
next meeting following such committee meeting.
Section 2.7. Written Action. Any action required or permitted
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting
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<PAGE> 6
if all members of the Board or committee, as the case may be, consent thereto in
writing, either prior to or subsequent to the action, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 2.8. Electronic Communication. Any member or members
of the Board of Directors or of any committee designated by the Board, may
participate in a meeting of the Board, or any such committee, as the case may
be, by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other.
ARTICLE III
OFFICERS
Section 3.1. Election; Qualification. The officers of the
Corporation shall be a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary and a Treasurer, each of whom shall be elected by the
Board of Directors. Two or more offices may be held by the same person.
Section 3.2. Term of Office. Each officer shall hold office
from the time of his election and qualification until the expiration of the term
for which he is elected and until the time his successor is elected and
qualified, unless sooner he shall die or resign or shall be removed pursuant to
Section 3.4.
Section 3.3. Resignation. Any officer of the Corporation may
resign at any time by giving written notice of such resignation to the Board of
Directors, the Chairman of the Board, the President or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein or, if no time be specified, upon receipt thereof by the Board of
Directors or one of the above-named officers. unless specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 3.4. Removal. Any officer of the Corporation may be
removed at any time, with or without cause, by the vote of a majority of the
whole Board of Directors.
Section 3.5. Vacancies. Any vacancy, however caused, in any
office of the Corporation may be filled by the Board of Directors.
Section 3.6. Compensation. The compensation of each officer
shall be such as the Board of Directors may from time to time determine.
Section 3.7. Chairman of the Board. The Chairman of the Board
shall be the chief executive officer of the Corporation and shall have general
charge of the business and affairs of the Corporation, subject, however, to the
right of the Board of Directors to confer specified powers on officers and
subject generally to the direction of the Board of Directors and the Executive
Committee, if any.
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<PAGE> 7
Section 3.8. President. The President shall have charge of the
general business and affairs of the Corporation under the supervision of the
Chairman of the Board, subject to the right of the Board of Directors to confer
specified powers on officers and subject generally to the direction of the Board
of Directors and the Executive Committee, if any. During the absence of the
Chairman of the Board or his inability to act, the President shall exercise the
powers and perform the duties of the Chairman of the Board, subject to the
direction of the Board of Directors and the Executive Committee, if any.
Section 3.9. Vice President. Each Vice President shall have
such powers and duties as generally pertain to the office of Vice President and
as the Board of Directors or the President may from time to time prescribe.
During the absence of the President or his inability to act, the Vice President,
or if there shall be more than one Vice President then that one designated by
the Board of Directors, shall exercise the powers and shall perform the duties
of the President, subject to the direction of the Board of Directors and the
Executive Committee, if any.
Section 3.10. Secretary. The Secretary shall keep the minutes
of all meetings of stockholders and of the Board of Directors. He shall be
custodian of the corporate seal and shall affix it or cause it to be affixed to
such instruments as require such seal and attest the same and shall exercise the
powers and shall perform the duties incident to the office of Secretary, subject
to the direction of the Board of Directors and the Executive Committee, if any.
Section 3.11. Treasurer. The Treasurer shall have care of all
funds and securities of the Corporation and shall exercise the powers and shall
perform the duties incident to the office of Treasurer, subject to the direction
of the Board of Directors and the Executive Committee, if any.
Section 3.12. Other Officers. The Board of Directors may
designate any other officers of the Corporation, including one or more Assistant
Secretaries and one or more Assistant Treasurers, who shall exercise the powers
and shall perform the duties incident to their offices, subject to the direction
of the Board of Directors and the Executive Committee, if any.
ARTICLE IV
INDEMNIFICATION
AMENDED 1/3/95 see attached amendment.
ARTICLE V
CAPITAL STOCK
Section 5.1. Certificates Representing Stock. Every holder of
stock in the Corporation shall be entitled to have a certificate signed by, or
in the name of, the Corporation
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<PAGE> 8
by the Chairman or Vice-Chairman of the Board of Directors, if any, or by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary of the Corporation certifying the number
of shares owned by him in the Corporation. If the certificate is countersigned
by a transfer--agent or registrar who is not an officer or employee of the
Corporation, any and all signatures on any such certificate may be facsimiles.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent, or registrar at the date of issue.
Whenever the Corporation shall be authorized to issue more
than one class of stock or more than one series of any class of stock and
whenever the Corporation shall issue any shares of its stock as partly paid
stock, the certificate representing shares of any such class or series or of any
such partly paid stock shall set forth thereon the statements prescribed by the
New Jersey Business Corporation Act (the "Business Corporation Act"). Any
restrictions on the transfer or registration of transfer of any shares of stock
of any class or series shall be noted conspicuously on the certificate
representing such shares.
The Corporation may issue a new certificate of stock in place
of any certificate theretofore issued by it, alleged to have been lost, stolen,
or destroyed, and the Board of Directors may require the owner of any lost,
stolen, or destroyed certificate, or his legal representative, to give the
Corporation a bond sufficient to indemnify the Corporation against any claim
that may be made against it on account of the alleged loss, theft, or
destruction of any such certificate or the issuance of any such new certificate.
Section 5.2. Fractional Share Interests. The Corporation may,
but shall not be obliged to, issue fractions of a share. If the Corporation does
not issue fractions of a share, it shall (1) arrange for the disposition of
fractional interests by those entitled thereto, (2) pay in cash the fair value
of fractions of a share as of the time when those entitled to receive such
fractions are determined, or (3) issue scrip in registered or bearer form which
shall entitle the holder to receive a certificate for a full share upon the
surrender of such scrip aggregating a full share. A certificate for a fractional
share shall, but scrip shall not unless otherwise provided therein, entitle the
holder to exercise voting rights, to receive dividends thereon, and to
participate in any of the assets of the Corporation in the event of liquidation,
in each case to the extent of such fraction. All scrip shall be issued subject
to the condition that it shall become void if not exchanged for certificates
representing full shares before a specified date. If such scrip is not so
exchanged, the Corporation shall either sell the shares for which such scrip was
exchangeable and distribute the proceeds thereof pro rata to the holders of such
scrip, or pay, pro rata, to such scrip holders the market value of the shares
for which such scrip was exchangeable as of the day when such scrip became void.
Such scrip shall also be issued subject to any other conditions permitted by the
Business Corporation Act which the Board of Directors may impose.
Section 5.3. Stock Transfers. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if any,
transfers or registration of transfers of shares of stock of the Corporation
shall be made only on the stock ledger of the Corporation
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<PAGE> 9
by the registered holder thereof, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the Corporation
or with a transfer agent or a registrar, if any, and on surrender of the
certificate or certificates for such shares of stock properly endorsed and the
payment of all taxes due thereon.
Section 5.4. Record Date for Shareholders. For the purpose of
determining the Corporation's shareholders with regard to any corporate action
or event and, in particular, for determining the shareholders entitled to notice
of or to vote at any meeting of shareholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or the allotment of any rights, the directors
may fix, in advance, a record date, which shall not be more than 60 days nor
less than 10 days before the date of such meeting, nor more than 60 days prior
to any other action. If no record date is fixed, the record date for determining
shareholders shall be the close of business on the day next preceding the day on
which notice is given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held; unless otherwise fixed
by the directors, the record date for determining shareholders entitled to
express consent to corporate action in writing without a meeting shall be the
day on which the first written consent is expressed; and the record date for
determining shareholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of shareholders of record entitled to notice of or to
vote at any meeting of shareholders shall apply to any adjournment thereof;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
Section 5.5. Meaning of Certain Terms. As used herein in
respect of the right to notice of a meeting of shareholders or a waiver thereof
or to participate or vote thereat or to consent or dissent in writing in lieu of
a meeting, as the case may be, the term "share" or "shares" or "share of stock"
or "shares of stock" or "shareholder" or "shareholders" refers to an outstanding
share or shares of stock and to a holder or holders of record of outstanding
shares of stock when the Corporation has only one class of shares of stock
outstanding; and said reference is also intended to include any outstanding
share or shares of stock and any holder or holders of record of outstanding
shares of stock of any class upon which or upon whom the certificate of
incorporation confers such rights where there are two or more classes or series
of shares of, stock or upon which or upon whom the Business Corporation Act
confers such rights notwithstanding that the Certificate of Incorporation may
provide for more than one class or series of shares of stock, one or more of
which are limited or denied such rights thereunder.
Section 5.6. Dividends. The Board of Directors shall have the
right to declare and pay dividends as and to the extent permitted by the
Business Corporation Act.
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ARTICLE VI
MISCELLANEOUS
Section 6.1. Corporate Seal. The corporate seal shall be in
such form as the Board of Directors shall prescribe from time to time, and the
same may be used by causing it or a facsimile thereof to be impressed or affixed
or in any other manner reproduced.
Section 6.2. Fiscal Year. The fiscal year of the Corporation
shall be fixed, and shall be subject to change, by the Board of Directors from
time to time.
Section 6.3. Amendment of By-Laws. Subject to the provisions
of the Certificate of in on and the provisions of the Business Corporation Act,
the power to amend, alter or repeal these By-Laws and to adopt new By-Laws may
be exercised by a majority vote of the whole Board of Directors or by the
shareholders of the Corporation.
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MERCER PRODUCTS COMPANY, INC.
By-Law Amendment adopted January 3, 1995
ARTICLE IV
INDEMNIFICATION
SECTION 4.1. Actions, Suits or Proceedings Other Than by or in the
Right of the Corporation. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was or has agreed to serve at the request of
the Corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action alleged to have been taken or omitted in such capacity, against
costs, charges, expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not meet the standards of conduct set forth in this Section 4.1.
SECTION 4.2. Actions or Suits by or in the Rights of the Corporation.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was or has agreed to become a Director,
officer, employee or agent of the Corporation, or is or was serving or has
agreed to serve at the request of the Corporation as a Director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, against costs, charges and expenses (including
attorneys' fees) actually and reasonably incurred by him or on his behalf in
connection with he defense or settlement of such action or suit and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for gross negligence or
misconduct in the performance of his duty to the Corporation unless and only to
the extent that any Illinois Court or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such costs, charges and expenses
which the Illinois Court or such other court shall deem proper.
SECTION 4.3. Indemnification for Costs, Charges and Expenses of
Successful Party. Notwithstanding the other provisions of this Article IV, to
the extent that a Director, officer,
<PAGE> 12
employee or agent of the Corporation has been successful on the merits or
otherwise, including, without limitation, the dismissal of an action without
prejudice, in defense of any action, suit or proceeding referred to in Sections
4.1 and 4.2 of this Article IV, or in the defense of any claim, issue or matter
therein, he shall be indemnified against all costs, charges and expenses
(including attorneys' fees) actually and reasonably incurred by him or on his
behalf in connection therewith.
SECTION 4.4. Determination of Right to Indemnification. Any
indemnification under Section 4.1 and 4.2 of this Article IV (unless ordered by
a court) shall be promptly paid by the Corporation unless a determination is
made (1) by the Board of Directors by a majority vote of a quorum consisting of
Directors who were not parties of such action, suite or proceeding, or (2) if
such a quorum is not obtainable, or even if obtainable, the Board of Directors
so directs, by independent legal counsel in a written opinion, or (e) by the
stockholders, that indemnification of the Director, officer, employee or agent
is not proper in the circumstances because he has not met the applicable
standards of conduct set forth in Sections 4.1 and 4.2 of this Article IV.
SECTION 4.5. Advance of Costs, Charges and Expenses. Costs, charges and
expenses (including attorneys' fees) incurred by a person referred to in
Sections 4.1 and 4.2 of this Article IV in defending a civil or criminal action,
suit or proceeding (including investigations by any government agency and all
costs, charges and expenses incurred in preparing for any threatened action,
suit or proceeding) shall be paid by the Corporation in advance of the final
disposition of such action, suite or proceeding; provided, however, that the
payment of such costs, charges and expenses incurred by a Director or officer in
his capacity as a Director or officer (and not in any other capacity in which
service was or is rendered by such person while a Director or officer) in
advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by or on behalf of the Director or
officer to repay all amounts so advanced in the event that it shall ultimately
be determined that such Director or officer is not entitled to be indemnified by
the Corporation as authorized in this Article IV. No security shall be required
for such undertaking and such undertaking shall be accepted without reference
tot he recipients financial ability to make repayment. The repayment of such
charges and expenses incurred by other employees and agents of the Corporation
which are paid by the Corporation in advance of the final disposition of such
action, suit or proceeding as permitted by this Section 4.5 may be required upon
such terms and conditions, if any, as the Board of Directors deems appropriate.
SECTION 4.6. Procedure for Indemnification. Any indemnification under
Section 4.1, 4.2 or 4.3 or advance of costs, charges and expenses under Section
4.5 of this Article IV shall be made promptly, and in any event within 30 days,
upon the written request of the Director, officer, employee or agent directed to
the Secretary of the Corporation. The right to indemnification or advances as
granted by this Article IV shall be enforceable by the Director, officer,
employee or agent in any court of competent jurisdiction if the Corporation
denies such request, in whole or in part, or if no disposition thereof is made
within 30 days. Such person's costs and expenses incurred in connection with
successfully establishing his right to indemnification or advances, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for the advance of costs, charges and expenses under Section 4.5 of this
Article IV where the required undertaking, if any, has been received by the
Corporation) that the claimant has not met the standard of conduct set forth in
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<PAGE> 13
Sections 4.1 or 4.2 of this Article IV, but the burden of proving that such
standard of conduct has not been met shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, its independent
legal counsel, and its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in Sections 4.1 and 4.2 of this Article IV, or the fact that there has
been an actual determination by the Corporation (including its Board of
Directors, its independent legal counsel, and its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
SECTION 4.7. Other Rights; Continuation of Right to Indemnification.
The Indemnification provided by this Article IV shall not be deemed exclusive of
any other rights to which a person seeking indemnification may be entitled under
any law (common or statutory), agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office or while employed by or acting
as agent for the Corporation, and shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
the estate, heirs, executors and administrators of such person. All rights to
indemnification under this Article IV shall be deemed to be a contract between
the Corporation and each Director, officer, employee or agent of the Corporation
who serves or served in such capacity at any time while this Article IV is in
effect. No amendment or repeal of this Article IV or of any relevant provisions
of the Illinois Business Corporation Act or any other applicable laws shall
adversely affect or deny to any Director, officer, employee or agent any rights
to indemnification which such person may have, or change or release any
obligations of the Corporation, under this Article IV with respect to any costs,
charges, expenses (including attorneys' fees), judgments, fines, and amounts
paid in a settlement which arise out of an action, suit or proceeding based in
whole or substantial part on any act or failure to act, actual or alleged, which
takes place before or while this Article IV is in effect. The provisions of this
Section 4.7 shall apply to any such action, suit or proceeding whenever
commenced, including any such action, suit or proceeding commenced after any
amendment or repeat of this Article IV.
SECTION 4.8. FOR Purposes of this Article:
(1) "the Corporation" shall include any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors,
officers, and employees or agents, so that any person who is or was a
Director, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such constituent corporation as
a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in
the same position under the provision of this Article IV with respect
to the resulting or surviving corporation as he would have with respect
to such consultant if its separate existence had continued;
(2) "other enterprises" shall include employee benefit plans,
including but not limited to any employee benefit plan of the
Corporation;
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<PAGE> 14
(3) "serving at the request of the Corporation" shall include
any service which imposes duties on, or involves services by, a
Director, officer, employee, or agent of the Corporation with respect
to an employee benefit plan, its participants, or beneficiaries,
including acting as a fiduciary thereof;
(4) "fines" shall include any penalties and any excise or
similar taxes assessed on a person with respect to an employee benefit
plan;
(5) A person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted
in a manner "not opposed to the best interests of the "Corporation" as
referred to in Sections 4.1 and 4.2 of this Article IV;
(6) Service as a partner, trustee or member of a management or
similar committee of a partnership or joint venture, or as a Director,
officer, employee or agent of a corporation which is a partners,
trustee or joint venturer, shall be considered service as a Director,
officer, employee or agent of the partnership, joint venture, trust or
other enterprise.
SECTION 4.9. Savings Clause. If this Article IV or any portion hereof
shall be invalidated on any ground by a court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director, officer, employee
and agent of the Corporation as a costs, charges and expenses (including
attorneys' fees) judgments, fines and amounts paid in settlement with respect to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Corporation, to the
full extent permitted by any applicable portion of this Article IV that shall
not have been invalidated and to the full extent permitted by applicable law.
SECTION 4.10. Insurance. The Corporation shall purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a Director, officer, employee or agent of
another corporation, partnership, joint venture, trust or their enterprise,
against any liability asserted against him and incurred by him or on his behalf
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of Article IV, provided that such insurance is available on
acceptable terms as determined by a vote of a majority of the entire Board of
Directors.
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Exhibit 3.11
STATE OF NEW HAMPSHIRE
ARTICLES OF AGREEMENT
OF
VINAFLEX AMERICA, INC.
We, whose names are hereto subscribed, being persons of lawful age, do
by these Articles of Agreement associate ourselves with the intention of forming
a corporation according to the provisions of Revised Statutes Annotated of New
Hampshire, Chapter 294, as
amended.
ARTICLE I
The name by which the corporation shall be known is Vinaflex America,
Inc.
ARTICLE II
The principal place of business of the corporation is located at
206-214 Fair Street, Laconia, New Hampshire.
ARTICLE III
The purposes, objects, and powers of the corporation are any lawful
activity for which a corporation may be organized under the laws and statutes of
the State of New Hampshire, including but not limited to the following:
To engage in the business of plastic injection moulding and
manufacturing of unit soles for shoes, skate boot shells and
children's boots;
To conduct the businesses and activities authorized to it in
such place or places as it may by its Board of Directors
choose and determine, whether within or without the United
States of America, and in that regard to apply for, procure
and execute such authorizations, forms,
<PAGE> 2
documents and writings, and to pay such fees or charges,
as may be necessary under the applicable law of any
jurisdiction to the conduct of the corporation's business
therein;
To improve, manage, develop, sell, assign, transfer, lease,
mortgage, pledge or otherwise dispose of or turn to account or
deal with all or any part of the property of the corporation
and from time to time to vary any investment or employment of
capital of the corporation;
To borrow money, and to make and issue notes, bonds,
debentures, obligations and evidences of indebtedness of all
kinds, whether secured by mortgage, pledge or otherwise,
without limit as to amount, and to secure the same by
mortgage, pledge or otherwise; and generally to make and
perform agreements and contracts of every kind and
description, including contracts of guaranty and suretyship;
To lend money for its corporate purposes, invest and reinvest
its funds, and take, hold and deal with real and personal
property as security for the payment of funds so loaned or
invested; but not to engage in a small loan business;
To the same extent as natural persons might or could do, to
purchase or otherwise acquire, and to hold, own, maintain,
work, develop, sell, lease, exchange, hire, convey, mortgage
or otherwise dispose of and deal in lands and leaseholds, and
any interest, estate and rights in real property, and any
personal or mixed property, and any franchises, rights,
licenses or privileges necessary convenient or appropriate for
any of the purposes herein expressed;
To apply for, obtain, register, purchase, lease or otherwise
to acquire and to hold, own, use, develop, operate and
introduce and to sell, assign, grant licenses or territorial
rights in respect to, or otherwise to turn to account or
dispose of any copyrights, trademarks, trade names, brands,
labels, patent rights, letter patent of the United States or
of any other country or government, inventions, improvements
and processes, whether used in connection with or secured
under letters patent or otherwise;
To Participate with others in any corporation,
partnership, limited partnership, joint venture or other
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<PAGE> 3
association of any kind, or in any transaction, undertaking or
arrangement which the participating corporation would have
power to conduct by itself, whether or not such participation
involves sharing or delegation of control with or to others;
and to be an incorporator, promoter or manager of other
corporations of any type or kind;
To pay pensions and establish and carry out pension,
profit-sharing, stock option, stock purchase, stock bonus,
retirement, benefit, incentive and commission plans, trusts
and provisions for any or all of its directors, officers and
employees, and for any or all of the directors, officers and
employees of the corporation's subsidiaries; and to provide
insurance for its benefit on the life of any of its directors,
officers or employees, or on the life of any stockholder for
the purpose of acquiring at his death shares of its stock
owned by such stockholder;
To acquire by purchase, subscription or otherwise and to hold
for investment or otherwise and to use, sell, assign,
transfer, mortgage, pledge or otherwise deal with or dispose
of stocks, bonds or any other obligations or securities of any
corporation or corporations; to merge or consolidate with any
corporation in such manner as may be permitted by law;
To aid in any manner any corporation whose stocks, bonds or
other obligations are held or in any manner guaranteed by this
corporation, or in which this corporation is in any way
interested; and to do any and all other acts and things for
the preservation, protection, improvement or enhancement of
the value of any such stock, bonds or other obligations, and
while the owner of any such stock, bonds or other obligations,
to exercise all the rights, powers and privileges of ownership
therefor, and to exercise any and all voting powers thereon;
and to guarantee the payment of dividends upon any stock, the
principal or interest or both, of any bonds or other
obligations, and the performance of any contracts;
To indemnify and reimburse officers, directors, employees and
agents of the corporation for such costs, expenses and
liabilities as may be sustained by such indemnified parties as
a consequence of their relationship with the corporation;
provided, however, that the person to be indemnified shall not
have been finally adjudged by a court or agency of competent
jurisdiction not to have
- 3 -
<PAGE> 4
acted in good faith and the reasonable belief that his
action or failure to act was in the best interests of the
corporation;
To enter into, execute and deliver such contracts, agreements,
trust indentures and other documents or instruments reasonably
restricting the transfer, sale or distribution of the capital
stock of the corporation, providing for a lien or a right of
first refusal in favor of the corporation or of any of the
stockholders with respect to such capital stock and imposing
such other limitations, terms and conditions upon the sale or
transfer thereof as may be necessary to the orderly conduct of
the corporation's affairs;
To carry on any other business which may, in the discretion of
the directors, seem capable of being carried on conveniently
in connection with the above, or calculated directly or
indirectly to enhance the value of the company's property or
rights and to do any or all of the different things or any
part thereof as principals, agents, contractors, or otherwise,
and by or through agents or otherwise, and either alone or in
conjunction with others, and generally to attain further any
of the purposes herein set forth or as incidental to the
business of the company or to any of the powers herein
specified; to make, guarantee (as far as may be permitted by
corporations organized under the business corporation laws)
and prepare any contract of any kind and description and to do
any or all other acts and things and exercise any and all
powers which the corporation or natural person could do and
exercise, and which now or hereafter may be authorized by law.
In furtherance and not in limitation of the foregoing objects
or powers, this corporation shall have all the general cowers
conferred-by Chapter 294 of the Revised Statutes Annotated of
New Hampshire, as amended, and all other powers necessary,
desirable or incidental fully to effectual its corporate
objects.
Notwithstanding any of the foregoing powers, nothing herein
shall empower the corporation to give guarantees of contracts
or obligations or to write contracts of suretyship or
guaranty, the making of any of which would constitute the
doing of an insurance business under any provisions of New
Hampshire law.
- 4 -
<PAGE> 5
ARTICLE IV
Any meetings of the stockholders of the corporation may be held either
within or without the State of New Hampshire. All actions authorized by RSA
294:81-a to be taken by unanimous consent of the holders of all outstanding
shares of the corporation entitled to vote on such actions may be so undertaken
to the fullest extent now or hereafter permitted by law.
ARTICLE V
The total authorized capital stock of the corporation shall be 300
shares of common capital stock having no par value, all of said stock being
non-assessable.
The designations and the powers, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions thereof, of the various classes of stock of the corporation are
as follows:
The holders of the common stock shall be entitled to cast one vote for
each share of such stock held by and registered to them, at annual or special
meetings of the stockholders of the corporation, for the election of the
directors and/or officers of the corporation, and for such other purposes or
such other matters as may be prescribed for consideration of the stockholders by
these Articles of Agreement, the By-Laws of the corporation, amendments thereto,
and the laws and statutes of the State of New Hampshire, as from time to time
constituted. Stockholders shall not have the right to cumulate their votes.
- 5 -
<PAGE> 6
The holders of the capital stock of the corporation shall enjoy no
pre-emptive or prescriptive rights in stock, securities, rights, warrants,
options, debentures or bonds of the corporation, whether issued pursuant to the
original authorization herein, or whether subsequently authorized for creation
and issue by the corporation by amendment to these Articles.
The capital stock of the corporation shall be issued to such persons,
in such amounts, at such times and for such good and lawful consideration (in
the case of par value stock, for money or property equal in value to the par
value Of the stock to be issued) as the incorporators of the corporation may
determine at their first meeting hereinafter prescribed, or as the directors of
the corporation may from time to time thereafter deem appropriate, by majority
vote thereof.
ARTICLE VI
The duties, terms of office, and manner of electing the officers and
directors of this corporation shall be established in the By-Laws to be adopted
by this corporation; provided, however, that all actions authorized by RSA
294:81-b to be taken by unanimous consent of the directors may be so undertaken
to the fullest extent now or hereafter permitted by law.
ARTICLE VII
The corporation may be dissolved by decree of the superior court or
legislative action and the assets thereof applied to the payment of obligations
and for distribution to the stockholders,
- 6 -
<PAGE> 7
upon adoption and in conformity with the terms of a plan of dissolution approved
and adopted by a majority of the Board of Directors of the corporation, and
confirmed by vote taken at any regular or special meeting duly called for that
purpose, of the holders of a majority of the outstanding stock present or
represented by proxy, entitled to vote and voting at the meeting, or if two or
more kinds or classes of stock have been issued, by vote of the holders of a
majority of each kind or class of outstanding stock present or represented by
proxy, entitled to vote and voting at the meeting or upon petition of
stockholders holding one-fourth of its stock whenever actual or impending
insolvency or other cause renders its liquidation reasonably necessary for the
protection of the rights of the stockholders or its creditors. The corporation
may also be dissolved by conformance with the provisions of RSA 294:97-a.
Except to the extent otherwise provided for by law, the corporation's
business existence shall terminate in the fashion and at the time stipulated by
the plan of dissolution or decree of the Superior Court, and not upon ultimate
forfeiture of the corporation's franchise by action of New Hampshire law.
ARTICLE VIII
In lieu of a meeting, all corporate action to be undertaken at the
first meeting of incorporators has been undertaken by the consent attached
hereto as permitted by RSA 294:8-a.
- 7 -
<PAGE> 8
DATED: June 16, 1980
______________ 1000 Elm St., Manchester, NH 03101
_______________ 1000 Elm St., Manchester, NH 03101
_______________ 1000 Elm St., Manchester, NH 03101
- 8 -
<PAGE> 9
ARTICLES OF MERGER
OF DOMESTIC AND FOREIGN CORPORATIONS \INTO
VINAFLEX AMERICA, INC.
PURSUANT TO THE PROVISIONS OF SECTION 78 OF THE NEW HAMPSHIRE BUSINESS
CORPORATION ACT, THE UNDERSIGNED DOMESTIC ND FOREIGN CORPORATION ADOPT THE
FOLLOWING ARTICLES OF MERGER FOR THE PURPOSE OF MERGING THEM INTO ONE OF SUCH
CORPORATIONS:
FIRST: The names of the undersigned corporations and the States under
the laws of which they are respectively organized are:
Name of Corporation State
Evode-Tanner Industries, Inc. South Carolina
Vinaflex America, Inc. New Hampshire
SECOND: The laws of the State under which such foreign corporation is
organized permit such a merger.
THIRD: The name of the surviving corporation is Vinaflex America, Inc.1
and it is to be governed by the laws of the State of New Hampshire.
FOURTH: The following Plan of Merger was approved by the shareholders
of the undersigned domestic corporation in the manner prescribed by the New
Hampshire Business Corporation Act, and was approved by the undersigned foreign
corporation in the manner prescribed by the laws of the State under which it is
organized:
(Insert, Plan of Merger)
[If more space needed, attached additional sheet(s)]
Plan of Merger attached hereto as Exhibit A.
FIFTH: As to each of the undersigned corporations, the number of shares
outstanding, and the designation and number of outstanding shares of each class
entitled to vote as a class on such Plan, are as follows:
- --------
1 Pursuant to the Plan of Merger, the Certificate of Incorporation of
Vinaflex America, Inc. is amended to change the name of the Surviving
Corporation to Evode-Tanner Industries, Inc.
<PAGE> 10
<TABLE>
<CAPTION>
Number of Entitled to Vote as a Class
---------------------------
Shares Designation Number of
Name of Corporation Outstanding of Class Shares
- ------------------- ----------- ----------- ---------
<S> <C> <C> <C>
Evode-Tanner Industries, Inc. 474,331 Common 474,331
Vinaflex America, Inc. 270 Common 270
</TABLE>
SIXTH: As to each of the undersigned corporation, the total number of
shares voted for and against such Plan, respectively, and, as to each class
entitled to vote thereon as a class, the number of shares of such class voted
for and against such Plan, respectively, are as follows:
<TABLE>
<CAPTION>
Entitled to Vote as a Class
Total Total ---------------------------
Voted Voted Designation Number of
Name of Corporation For Against of Class Shares
- ------------------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Evode=Tanner Industries, Inc. 474,311 0 Common 474,331 0
Vinaflex America, Inc. 270 0 Common 270
</TABLE>
SEVENTH: The aggregate number of share, which the surviving corporation
has authority to issue as a result of the merger, itemized by classes, par value
of shares, shares without par value, and series, if any, within a class, is:
(Note 1)
<TABLE>
<CAPTION>
Par Value per Share
or Statement that
Number of Shares are without
Shares Class Series Par Value
--------- ------------ ------ -------------------
<S> <C> <C> <C>
300 Common Stock - - - Shares are without
</TABLE>
Par Value
Dated ______________________, 19__
EVODE-TANNER INDUSTRIES, INC. (Note 2)
By /s/
-------------------------------
Signature of its Vice President
-------------------------------
Print or type name
2
<PAGE> 11
and (Note 3)
-----------------------------------------------
Signature of its Assistant Secretary
Print or type name
************************************************
VINAFLEX AMERICA, INC. (Note 2)
---------------------------------------------------
By /s/
------------------------------------------------
Signature of its Vice President
---------------------------------------------------
Print or type name
and (Note 3)
-----------------------------------------------
Signature of its Assistant Secretary
---------------------------------------------------
Print or type name
3
<PAGE> 12
EXHIBIT A
PLAN OF MERGER
of
Evode-Tanner Industries, Inc.
(a South Carolina corporation)
into
Vinaflex America, Inc.
(a New Hampshire corporation)
Pursuant to Section 33-11-101 of the South Carolina
Business Corporation Act of 1988 and Section 293-A:71
of the New Hampshire Business Corporation Act.
1. Names of Merging Corporations. The names of the
corporations planning to merge are Vinaflex America, Inc., a corporation for
profit organized under the laws of the State of New Hampshire ("Vinaflex"), and
Evode-Tanner Industries, Inc. ("Tanner"), a corporation for profit organized
under the laws of the State of South Carolina. The name of the surviving
corporation into which Tanner will merge is Vinaflex America, Inc.
2. Effective Date of Merger. The merger provided for herein
shall become effective as of 11:59 p.m. New Hampshire time on September 29, 1990
(the "Effective Date of the Merger").
3. Terms and Conditions of Merger. Tanner (the "Merged
Corporation") and Vinaflex shall, pursuant to and in accordance with the New
Hampshire Business Corporation Act ("NHBCA") and the South Carolina Business
Corporation Act of 1988 ("SCBCA"), be merged with and into a single corporation,
Vinaflex (the "Surviving Corporation"), on the Effective Date of the Merger,
which Surviving Corporation shall continue to exist under the laws of the State
of New Hampshire. The separate existence of Tanner shall cease on the Effective
Date of the Merger in accordance with the provisions of the NHBCA and the SCBCA.
4. Articles of Incorporation of the Surviving Corporation. The
Articles of Incorporation of Vinaflex in effect upon the Effective Date of the
Merger shall be the Articles of Incorporation of the Surviving Corporation,
except that promptly after the Effective Date of the Merger Article I of the
Articles of Incorporation of the Surviving Corporation shall be deleted in its
entirety and replaced with the following:
<PAGE> 13
"ARTICLE I
The name of the Corporation is
Evode-Tanner Industries, Inc."
Such Articles of Incorporation, as amended, shall continue to be the Articles of
Incorporation of the Surviving Corporation until altered, amended or repealed
thereafter in accordance with the manner prescribed by the provisions of the
NHBCA.
5. By-Laws of the Surviving Corporation. The By-Laws of
Vinaflex in effect upon the Effective Date of the Merger shall be the By-Laws of
the Surviving Corporation and shall continue to be the By-Laws of the Surviving
Corporation until changed, altered or amended as therein provided and in the
manner prescribed by the provisions of the NHBCA.
6. Directors and Officers of the Surviving Corporation. The
directors and officers of Tanner in office upon the Effective Date of the Merger
shall be the members of the first Board of Directors and the first officers of
the Surviving Corporation, all of whom shall hold their directorships and
offices until the election and qualification of their respective successors.
7. Treatment of Shares.
a. Each share of Tanner Common Stock, $.10 par value,
issued and outstanding immediately prior to the
Effective Date of the Merger shall, by virtue of the
Merger and without any action on the part of the holder
thereof, be canceled and extinguished and cease to exist
and shall not be or become shares of the Surviving
Corporation.
b. Each share of Vinaflex Common Stock, without par value,
issued and outstanding immediately prior to the
Effective Date of the Merger shall, by virtue of the
Merger and without any action on the part of the holder
thereof, continue to represent one issued share of
Common Stock of the Surviving Corporation.
8. Board of Directors and Shareholder Approval. The Plan of
Merger shall be submitted to the board of directors and the shareholders of the
Merged Corporation for their approval or rejection in the manner prescribed by
the provisions of the SCBCA and the merger of the Merged Corporation with and
into the Surviving Corporation shall be authorized in the manner prescribed by
the NHBCA.
9. Additional Documentation. In the event that the Plan of
Merger shall have been approved by the board of directors and the shareholders
of the Merged Corporation in the manner prescribed by the provisions of the
SCBCA, and in the event that the merger of the Merged Corporation with and into
the Surviving Corporation shall have been duly authorized in
2
<PAGE> 14
compliance with the NHBCA, the Merged Corporation and the Surviving Corporation
hereby stipulate that they will cause to be executed and filed and/or recorded
any document or documents prescribed by the laws of the State of South Carolina
and of the State of New Hampshire, and that they will cause to be performed all
necessary acts therein and elsewhere to effectuate the merger.
10. Authorization of Further Action. The Board of Directors
and the proper officers of the Merged Corporation and of the Surviving
Corporation, respectively, are hereby authorized, empowered, and directed to do
any and all acts and things, and to make, execute, deliver, file, and/or record
any and all instruments, papers and documents which shall be or become
necessary, proper, or convenient to carry out or put into effect any of the
provisions of this Plan of Merger or of the merger herein provided for.
3
<PAGE> 15
STATE OF NEW HAMPSHIRE
Filing Fee: $35.00 Form No. 14
RSA _293 A:10.06
ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
PURSUANT TO THE PROVISIONS OF THE NEW HAMPSHIRE BUSINESS CORPORATION
ACT, THE UNDERSIGNED CORPORATION ADOPTS THE FOLLOWING ARTICLES OF
AMENDMENT TO ITS ARTICLES OF INCORPORATION
First: The name of the corporation is Evode-Tanner Industries, Inc.
Second: The test of each amendment adopted is:
The Articles of Incorporation of Evode-Tanner Industries,
Inc. be amended by changing Article I thereof so that, as
amended, said Article shall be and read as follows:
"ARTICLE I
The name of the Corporation is Tanner Chemicals, Inc."
Third: If the amendment provides for an exchange, reclassification
or cancellation of issued shares the provisions for
implementing the amendment(s) if not contained in the above
amendment are:
Not applicable.
Fourth: The amendment(s) were adopted on August 5, 1997
Fifth: (Check one)
A. The amendment(s) were adopted by the incorporators
-- or board of directors without shareholder action and
shareholder action was not required.
x B. The amendment(S) were approved by the shareholders.
--
Number of votes
Designation Number of Number of indisputably
(Class or series) shares votes entitled represented at
of voting group outstanding to be cast the meeting
<PAGE> 16
<TABLE>
<S> <C> <C> <C>
Common 270 270 270
Designation Total number of
(Class or series) Total number of votes cast undisputed
of voting group FOR AGAINST votes cast FOR
Common 270 ***** 270
</TABLE>
Sixth: The number cast for the amendment(s) by each voting group
was sufficient for approval by each voting group.
Dated August 5, 1997
Evode-Tanner Industries, Inc.
By: /s/ Mary E. Willard
------------------------------------
Signature of its Assistant Secretary
<PAGE> 1
Exhibit 3.12
BY-LAWS
of
VINAFLEX AMERICA, INC.
ARTICLE I
Articles of Agreement
The name of the corporation, the objects for which it is established,
the nature of the business to be transacted by it, and the location of its
principal place and other places of business shall be set forth in the Articles
of Agreement, as from time to time amended, and these By-Laws, the powers of the
corporation and of its Directors and stockholders, and all matters concerning
the conduct and regulation of the business of the corporation shall be subject
to such provisions in regard thereto, if any, as are set forth in such Articles
of Agreement, and such Articles of Agreement are hereby made a part of these
By-Laws.
ARTICLE II
Corporate Seal
The seal of the corporation, subject to alteration thereof by the
Board of Directors, shall consist of a flat-faced circular die with the words
and figures -- "Vinaflex America, Inc. New Hampshire, 1980" -- cut or engraved
thereon.
ARTICLE III
Meetings of Stockholders
Section 1. All meetings of shall be held at the office of the Clerk
of the corporation unless some other place within or without the State of New
Hampshire is definitely stated in the call therefor.
<PAGE> 2
Section 2. The annual meeting of stockholders shall be held on such
date as from time to time determined by the Board of Directors in each year, if
not a legal holiday, and if a legal holiday, and if a legal holiday, then at the
same hour on the next succeeding day not a legal holiday. In the event that such
annual meeting be omitted by oversight or otherwise on the date provided, a
subsequent meeting may be held in place thereof, and any business transacted,
votes had, or election held at such meeting shall be of the same force and
effect as if transacted, had, or held at such annual meeting. The order of
business to be transacted at annual meetings of the stockholders shall be the
following:
1. Determination of quorum.
2. Determination of due notice of meeting
3. Reading of mi
4. Reports of Treasurer, or any other officers, since
the last annual meeting.
5. Election of Treasurer, clerk, Directors and be
elected by the stockholders.
6. Completion of previous unfinished business.
7. Transaction of new business
8. Adjournment.
Section 3. special meetings of the stockholders shall be held whenever
the Board of Directors or the stockholders holding at least on-third part in the
interest of the capital stock issued and outstanding and entitled to vote
thereat shall make written application therefor to the Clerk stating the time,
places, and purposes of the meeting applied for, and the clerk shall also call a
special meeting of the stockholders whenever he is so directed by the President.
Section 4. Except as otherwise provided by law, written or printed
notice of all meetings of stockholders, whether annual or special, stating the
place, day and hour thereof, together with the purposes for which such meeting
is called, shall be given by the Clerk, by mailing the same, postage prepaid,
and addressed to each stockholder of record entitled to vote thereat his or her
registered address at least seven (7) days prior to the date for the meeting. In
the absence or
-2-
<PAGE> 3
disability of the Clerk, such notice may be given by a person designated either
by the Clerk or by the person or persons calling the meeting.
If, however, all stockholders entitled to vote in respect to the
elections to be had or to the matters to be considered at any such meeting are
present thereat, either in person or by proxy, or sign a written consent upon
the record thereof, such meeting shall be legal notwithstanding the notice shall
not have been given as hereinbefore provided.
Whenever the vote of stockholders at a meeting thereof is required or
permitted to be taken in connection with any corporate action by any provision
of law or the record of organization or these By-Laws, all the stockholders who
have been entitled to vote upon the action may consent in writing on the record
of the meeting to such action, and in that event, such action shall be as
effective as though all the stockholders were present and voted in favor of such
action.
Section 5. Notice of any meeting of stockholders, whether annual or
special, may be waived by any stockholders, provided written waiver of notice of
such meeting is filed with the record thereof.
ARTICLE IV
Officers
Section 1. The officers of the corporation shall be a President,
Treasurer, Clerk, and a board of not less than three nor more than seven
Directors as the Incorporators or the stockholders, from time to time, may fix
determine; provided, however, that where all of the stock of the corporation is
owned by fewer than three record stockholders the number of directors may be
fewer than three, but not less than the number of stockholders. The officers of
the corporation may all include a Vice President, Assistant Treasurer, and/or
Assistant Clerk.
-3-
<PAGE> 4
Section 2. The Board of Directors, Treasurer and Clerk of the
corporation shall be elected by the stockholders at the annual meeting thereof,
or at any meeting held in lieu thereof and until their respective successors are
duly elected and qualified. The Clerk shall be a resident of the State of New
Hampshire. The President and any other officers shall be elected by said Board
at the annual meeting thereof and until their respective successors are duly
elected and qualified. No officer or director need be a stockholder. So far as
is permitted by law, any two or more officers may be filled by the same person.
The Incorporators at the first meeting thereof may elect any or all of
such officers and directors to serve until the first annual meeting thereafter
of stockholders and directors, respectively, and until their respective
successors shall be duly elected and qualified.
ARTICLE V
Meeting of Directors
Section 1. The annual meeting of the Board of Directors shall be held
without notice immediately after the annual meeting of stockholders and at the
same place.
Section 2. Stated meetings of the Board of Directors may be held in
such places and at such times as the full Board may by vote from time to time
determine, and if so, no notice thereof need be given.
Section 3. Special meetings of the Board of Directors shall be held at
any time or place whenever called by the President, two or more Directors (or if
less than two Directors are serving, then by such Director), or the Clerk, upon
written notice thereof being given by mail, postage prepaid, and addressed to
each Director at his address on file with the corporation at least five (5) days
prior to the day of such meeting, by the President, the Clerk, or the Director
or Directors calling the meeting; or may be held at any time without notice,
provided all the
-4-
<PAGE> 5
Directors are present or those not present have waived notice thereof. Such
special meetings shall be held at such times and in such places as the notice
thereof or waiver may specify and business transacted thereat shall be confined
to the specified purposes thereof and matters germane thereto.
ARTICLE VI
Quorum
Section 1. At any meeting of stockholders, a majority of the
outstanding shares entitled to vote thereat, as represented by stockholders of
record appearing in person or by proxy, shall be necessary to constitute a
quorum for the transaction of business, but a lesser number may adjourn any
meeting from time to time, and such meeting, as so adjourned, may be held
without further notice.
Section 2. At any meeting of the Board of Directors a majority of the
members thereof, present in person, shall be necessary to constitute a quorum
for the transaction of business, but a lesser number may adjourn any meeting
from time to time, and such meeting, as so adjourned, may be held without
further notice.
Section 3. When a quorum is present at any meeting of stockholder or of
the Board of Directors, a majority of such quorum present thereat as aforesaid
shall be necessary to decide, and except as otherwise provided by law, may
decide any action or matter brought before any such meeting.
ARTICLE VII
Proxy and Voting
Stockholders of record, when entitled to vote, may vote at any meeting,
either in person or by written proxy field before voting with the Clerk of the
Meeting. Proxies to be valid must
-5-
<PAGE> 6
be dated not more than six (6) months before the meeting named therein, and no
such proxy shall be valid after the final adjournment of such meeting. Each such
stockholder shall be entitled to one vote for each share of stock held by him
and entitled to be voted in respect to the elections or to the matters brought
before such meeting.
ARTICLE VIII
Powers of Directors
The Board of directors shall have the entire management of the business
and affairs of the corporation and shall have and exercise all the powers
possessed by the corporation itself, so far as such delegation of authority is
not inconsistent with the laws of the State of New Hampshire, with the Articles
of Agreement, or with these By-Law. The Board of Directors shall have power to
determine what constitutes net earnings, profit, and surplus, respectively, and
what amount shall be reserved for working capital and for any other purposes,
and what amount shall be declared as a final and conclusive.
ARTICLE IX
President
The President shall be the chief executive officers of the corporation
shall, when, preside at all meetings of the stockholders and the Board of
Directors. The President, the Treasurer, or some other person specifically
authorized by vote of the Board of Directors, may signed all deeds, leases,
contracts, notes and/or other instruments to be executed on behalf of the
corporation. The President shall perform all the duties and have such other
powers as the Board of Directors may from time to time designate.
ARTICLE X
Vice President
-6-
<PAGE> 7
be dated not more than six (6) months before the meeting named therein, and no
such proxy shall be valid after the final adjournment of such meeting. Each such
stockholder shall be entitled to one vote for each share of stock held by him
and entitled to be voted in respect to the elections or to the matters brought
before such meeting.
ARTICLE VIII
Powers of Directors
The Board of directors shall have the entire management of the business
and affairs of the corporation and shall have and exercise all the powers
possessed by the corporation itself, so far as such delegation of authority is
not inconsistent with the laws of the State of New Hampshire, with the Articles
of Agreement, or with these By-Law. The Board of Directors shall have power to
determine what constitutes net earnings, profit, and surplus, respectively, and
what amount shall be reserved for working capital and for any other purposes,
and what amount shall be declared as a final and conclusive.
ARTICLE IX
President
The President shall be the chief executive officers of the corporation
shall, when, preside at all meetings of the stockholders and the Board of
Directors. The President, the Treasurer, or some other person specifically
authorized by vote of the Board of Directors, may signed all deeds, leases,
contracts, notes and/or other instruments to be executed on behalf of the
corporation. The President shall perform all the duties and have such other
powers as the Board of Directors may from time to time designate.
ARTICLE X
Vice President
-6-
<PAGE> 8
The Vice Present, if one be elected, shall have such powers and perform
such duties as may be delegated to him by the Board of Directors. In the absence
or disability of the President, the Vice President may perform the duties and
exercise the powers of the Present.
ARTICLE XI
Treasurer
The Treasurer shall have the care and custody of the funds of the
corporation and shall have and exercise under the supervision of the Board of
Directors all the powers and duties commonly incident to his office. He shall,
with the President, have the power to sign all deeds, leases, contracts, notes
and/or other instruments to be executed on behalf of the corporation. He shall
have the custody of the corporate seal and of all the money, funds, valuable
papers and documents of the corporation. He shall deposit all the funds of the
corporation in such bank or banks, trust company or trust companies, or with
such firm or firms doing a banking business as the Board of Directors may from
time to time designate. He may, on behalf of the corporation, endorse for
deposit or collection, all checks, notes and other obligations payable to the
corporation or its order and may accept drafts on behalf thereof. he shall keep
accurate books of account of all corporate transactions, which books shall be
the property of the corporation, and together with all other of its property in
his possession, shall be subject at all times to the inspection and control of
the Board of Directors. All receipts and vouchers for payment made to the
corporation, and checks, drafts, notes and other corporate obligations for the
payment of money by the corporation shall be signed by the Treasurer except as
the Board of Directors may otherwise specifically order. Checks and drafts need
not be countersigned, unless otherwise ordered by the Board of Directors.
-7-
<PAGE> 9
ARTICLE XII
Assistant Treasurer
An Assistant Treasurer, if one be elected, shall perform such duties and
have such powers only as the Board of Directors or the Treasurer may from time
to time designate. He may be required by the Board of Directors to give bond in
such sums and with such sureties as may be satisfactory to it, which bond shall
remain in the custody of the President.
ARTICLE XIII
Clerk
The Clerk of the corporation shall be present at all meetings of
stockholders and Board of Directors, and he shall keep accurate records, in
books provided for that purpose, of the proceedings had at such meetings, which
book shall respectively be open at all reasonable times to the inspection of any
stockholder or director.
He shall perform all the duties commonly incident to his office and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time designate. In the absence of the Clerk from any meeting of
stockholders or of the Board of Directors, as the case may be, a Clerk pro
tempore may be chosen who shall record the proceedings thereof.
ARTICLE XIV
Assistant Clerk
An Assistant Clerk, if one be elected, shall perform the duties and
exercise the powers of the Clerk in his absence and shall perform such other
duties as the Board of Directors shall prescribe.
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<PAGE> 10
ARTICLE XV
Chairman of the Board
The Chairman of the Board, if one be elected, shall be chosen from among
the Directors and shall preside at all meetings of the Directors. he shall, in
general, perform all the duties incident to the office of the chairman of the
Board, subject, however, to the direction and control of the Board of Directors,
and such other duties as from time to time may be assigned to him by the Board
of Directors.
ARTICLE XVI
Additional Officers and Agents
The Board of Directors, in its discretion and at any time, may appoint
such other officers or agents as it may deem advisable and prescribe the duties
therefor.
ARTICLE XVII
Removals
Section 1. The stockholders may, at any meeting thereof called for the
purpose, by vote of a majority of the outstanding shares entitled to vote, as
represented by stockholders appearing in person or by proxy, remove from office
any officer or director elected by them.
Section 2. The Board of Directors may, by vote of a majority thereof
present in person at any meeting thereof called for the purpose, remove from
office any officer or agent elected or appointed by it.
ARTICLE XVIII
Vacancies
If the office of any director of officer or agent, one or more, becomes
vacant by reason of death, resignation, removal, disqualification, or otherwise
(and the vacancy, if in the office of a
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<PAGE> 11
Director, Treasurer or Clerk, shall have been filled by the stockholders), the
remaining Directors, though less than a quorum, may, by majority vote, elect a
successor or successors, who shall hold office for the unexpired term. Vacancies
in the Board of Directors, or in the office of Treasurer or Clerk, may be filled
for the unexpired term by the stockholders at a meeting called for the purposes.
ARTICLE XIX
Capital Stock
The amount of capital stock and the par value, if any, of the shares shall
be as fixed in the Articles of Agreement, as from time to time amended.
ARTICLE XX
Certificate of Stock
Every stockholder shall be entitled to a certificate or certificates of
the capital stock of the corporation, which shall be numbered and registered as
issued. Such certificate or certificates shall exhibit the holder's name and
number of shares, and shall be signed by the President, and be attested by the
Treasurer or Clerk, and bear the corporate seal. In the case of the absence or
disability of either of said officers, the signature of the majority of the
Directors in his stead shall be sufficient.
For the purpose of registering such certificate or certificates, every
stockholder will be required to file with the corporation, in writing, his legal
residence and that address to which all notices and dividends are to be sent,
and thereafter, until written notification of change in address shall have been
received by the corporation, any notice or dividend mailed postage prepaid and
addressed to any stockholder at such registered address shall, for all purposes,
be deemed to have been duly received.
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<PAGE> 12
ARTICLE XXI
Transfer of Stock
Shares of stock may be transferred in the manner provided by law, and the
corporation, by its officers or agents appointed for that purpose, shall record
upon the books of the corporation a transfer of such shares upon surrender of
the certificate therefor accompanied either by a written assignment thereof or
by a written power of attorney to sell, assign, and transfer the same, or the
shares represented thereby, signed by the record holder of such certificate, or
by his legal representative. No transfer shall affect the right of the
corporation to pay any dividend due upon such shares to the record holder
thereof or to treat such holder as the owner thereof until such transfer shall
have been recorded upon the books of the corporation or until a new certificate
shall have been issued to the person to whom such shares have been so
transferred. the corporation may, but shall not be bound to, take notice of or
recognize any trust, expressed, implied, or constructive, or any charge or
equity affecting any of the shares of its capital stock, or to ascertain or
inquire whether any sale or transfer of such shares by any stockholder or his
personal representative is authorized by such trust, charge, or equity, or to
recognize any person as having an interest therein except the person or persons
in whom the legal title to such shares is vested for the time being.
ARTICLE XXII
Transfer Books
The transfer books of the corporation may, in anticipation of meetings of
stockholders or of the declaration of dividends, be closed from time to time for
such period as the Board of Directors shall determine, but no such period shall
be for more than thirty (30) days
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<PAGE> 13
ARTICLE XXIII
Loss of Certificates
In case of the loss, mutilation, or destruction of a certificate of stock,
a duplicate certificate may be issued upon such terms as the Board of Directors
may prescribe.
ARTICLE XXIV
Fiscal Year
The fiscal year of the corporation shall be as determined, from time to
time, by the Board of Directors.
ARTICLE XXV
Inspection of Books and Papers
All books, papers, and documents of every kind belonging to the
corporation, whether located in the office of the President, Treasurer, Clerk or
elsewhere, shall be open to the inspection of the members of the Board of
Directors at all times during business hours but, except as otherwise provided
by law, shall only be open to the inspection of the stockholders at such
reasonable time or times and to such reasonable extent as the Board of Directors
may determine.
ARTICLE XXVI
Powers of Officers to Contract with the Corporation
Any officer or Director of the corporation, notwithstanding his official
relation to it, may enter into negotiation with and consummate and perform any
contract or agreement of any nature between the corporation and himself or any
other Directors, officer or officers, of the corporation or any firm or
corporation in which any such Director or officer may be interested, whether
such individual or individuals, firm or corporation thus contracting with this
corporation shall thereby
-12-
<PAGE> 14
derive personal or corporate profits or benefits or otherwise; the intent hereof
being to relieve each and every person who may be an officer or a Director of
the corporation from any disability that might otherwise exist from contracting
with the corporation for the benefit of himself or any c-partnership or
corporation in which he may be interested.
ARTICLE XXVII
Amendments
Except as otherwise provided by law, a vote of two thirds of the holders
of the outstanding capital stock of the corporation shall be necessary to alter,
amend, add to or repeal the Articles of Agreement or the By-Laws of this
corporation. Notice of any proposed amendment, additional, alteration, or repeal
shall be given in the notice of any meeting at which it is to be considered.
ARTICLE XXVIII
Action by Consent
Notwithstanding any other provision of these By-Laws requiring action to
be taken at a meeting of the Stockholders or Directors, any action that New
Hampshire RSA 294:81-a and 294:81-b permits to be taken by consent of the
Stockholders or Directors may be so undertaken.
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<PAGE> 15
EVODE-TANNER INDUSTRIES, INC.
By-Law Amendment adopted January 3, 1995
- --------------------------------------------------------------------------------
ARTICLE XXVII
Indemnification of Officers and Directors
SECTION 1. Actions, Suits or Proceedings Other Than by or in the Right of
the Corporation. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was or has agreed to serve at the request of
the Corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action alleged to have been taken or omitted in such capacity, against
costs, charges, expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption t hat the person did
not meet the standards of conduct set forth in this Section 1.
SECTION 2. Actions or Suits by or in the Rights of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was or has agreed to become a Director, officer, employee or
agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action alleged to have been taken or omitted in such capacity, against
costs, charges and expenses (including attorneys' fees) actually and reasonably
incurred by him or on his behalf in connection with he defense or settlement of
such action or suit and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for gross negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that any Illinois Court or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of such liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
costs, charges and expenses which the Illinois Court or such other court shall
deem proper.
SECTION 3. Indemnification for Costs, Charges and Expenses of Successful
Party. Notwithstanding the other provisions of this Article XXVII, tot he extent
that a Director, officer,
<PAGE> 16
employee or agent of the Corporation has been successful on the merits or
otherwise, including, without limitation, the dismissal of an action without
prejudice, in defense of any action, suit or proceeding referred to in Sections
1 and 2 of this Article XXVII, or in the defense of any claim, issue or matter
therein, he shall be indemnified against all costs, charges and expenses
(including attorneys' fees) actually and reasonably incurred by him or on his
behalf in connection therewith.
SECTION 4. Determination of Right to Indemnification. Any indemnification
under Sections 1 and 2 of this Article XXVII (unless ordered by a court) shall
be promptly paid by the Corporation unless a determination is made (1) by the
Board of Directors by a majority vote of a quorum consisting of Directors who
were not parties of such action, suite or proceeding, or (2) if such a quorum is
not obtainable, or even if obtainable, the Board of Directors so directs, by
independent legal counsel in a written opinion, or (e) by the stockholders, that
indemnification of the Director, officer, employee or agent is not proper in the
circumstances because he has not met the applicable standards of conduct set
forth in Sections 1 and 2 of this Article XXVII.
SECTION 5. Advance of Costs, Charges and Expenses. Costs, charges and
expenses (including attorneys' fees) incurred by a person referred to in
Sections 1 and 2 of this Article XXVII in defending a civil or criminal action,
suit or proceeding (including investigations by any government agency and all
costs, charges and expenses incurred in preparing for any threatened action,
suit or proceeding) shall be paid by the Corporation in advance of the final
disposition of such action, suite or proceeding; provided, however, that the
payment of such costs, charges and expenses incurred by a Director or officer in
his capacity as a Director or officer (and not in any other capacity in which
service was or is rendered by such person while a Director or officer) in
advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by or on behalf of the Director or
officer to repay all amounts so advanced in the event that it shall ultimately
be determined that such Director or officer is not entitled to be indemnified by
the Corporation as authorized in this Article XXVII. No security shall be
required for such undertaking and such undertaking shall be accepted without
reference tot he recipients financial ability to make repayment. The repayment
of such charges and expenses incurred by other employees and agents of the
Corporation which are paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as permitted by this Section 5
may be required upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
SECTION 6. Procedure for Indemnification. Any indemnification under
Section 1, 2 or 3 or advance of costs, charges and expenses under Section 5 of
this Article XXVII shall be made promptly, and in any event within 30 days, upon
the written request of the Director, officer, employee or agent directed to the
Secretary of the Corporation. The right to indemnification or advances as
granted by this Article XXVII shall be enforceable by the Director, officer,
employee or agent in any court of competent jurisdiction if the Corporation
denies such request, in whole or in part, or if no disposition thereof is made
within 30 days. Such person's costs and expenses incurred in connection with
successfully establishing his right to indemnification or advances, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for the advance of costs, charges and expenses under Section 5 of this
Article XXVII V where the required undertaking, if any, has been received by
the Corporation) that the claimant has not met the standard of conduct set
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<PAGE> 17
forth in Sections 1 or 2 of this Article XXVII, but the burden of proving that
such standard of conduct has not been met shall be on the Corporation. Neither
the failure of the Corporation (including its Board of Directors, its
independent legal counsel, and its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Sections 1 and 2 of this Article XXVII, or the fact that
there has been an actual determination by the Corporation (including its Board
of Directors, its independent legal counsel, and its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense tot
he action or create a presumption that the claimant has not met the applicable
standard of conduct.
SECTION 7. Other Rights; Continuation of Right to Indemnification. The
Indemnification provided by this Article XXVII shall not be deemed exclusive of
any other rights to which a person seeking indemnification may be entitled under
any law (common or statutory), agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office or while employed by or acting
as agent for the Corporation, and shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
the estate, heirs, executors and administrators of such person. All rights to
indemnification under this Article XXVII shall be deemed to be a contract
between the Corporation and each Director, officer, employee or agent of the
Corporation who serves or served in such capacity at any time while this Article
XXVII is in effect. No amendment or repeal of this Article XXVII or of any
relevant provisions of the Illinois Business Corporation Act or any other
applicable laws shall adversely affect or deny to any Director, officer,
employee or agent any rights to indemnification which such person may have, or
change or release any obligations of the Corporation, under this Article XXVI
with respect to any costs, charges, expenses (including attorneys' fees),
judgments, fines, and amounts paid in a settlement which arise out of an action,
suit or proceeding based in whole or substantial part on any act or failure to
act, actual or alleged, which takes place before or while this Article XXVII is
in effect. The provisions of this Section 7 shall apply to any such action, suit
or proceeding whenever commenced, including any such action, suit or proceeding
commenced after any amendment or repeat of this Article XXVII.
SECTION 8. For Purposes of this Article:
(1) "the Corporation" shall include any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation
or merger which, if its separate existence had continued, would have had
power and authority to indemnify its directors, officers, and employees or
agents, so that any person who is or was a Director, officer, employee or
agent of such constituent corporation, or is or was serving at the request
of such constituent corporation as a Director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provision of this
Article XXVII with respect to the resulting or surviving corporation as he
would have with respect to such consultant if its separate existence had
continued;
(2) "other enterprises" shall include employee benefit plans,
including but not limited to any employee benefit plan of the Corporation;
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<PAGE> 18
(3) "serving at the request of t he Corporation" shall include any
service which imposes duties on, or involves services by, a Director,
officer, employee, or agent of the Corporation with respect to an employee
benefit plan, its participants, or beneficiaries, including acting as a
fiduciary thereof;
(4) "fines" shall include any penalties and any excise or similar
taxes assessed on a person with respect to an employee benefit plan;
(5) A person who acted in good faith and in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the "Corporation" as referred to in
Sections 1 and 2 of this Article XXVI;
(6) Service as a partner, trustee or member of a management or
similar committee of a partnership or joint venture, or as a Director,
officer, employee or agent of a corporation which is a partners, trustee
or joint venturer, shall be considered service as a Director, officer,
employee or agent of the partnership, joint venture, trust or other
enterprise.
SECTION 9. Savings Clause. If this Article XXVII or any portion hereof
shall be invalidated on any ground by a court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director, officer, employee
and agent of the Corporation as a costs, charges and expenses (including
attorneys' fees) judgments, fines and amounts paid in settlement with respect to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Corporation, to the
full extent permitted by any applicable portion of this Article XXVII that shall
not have been invalidated and to the full extent permitted by applicable law.
SECTION 10. Insurance. The Corporation shall purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a Director, officer, employee or agent of
another corporation, partnership, joint venture, trust or their enterprise,
against any liability asserted against him and incurred by him or on his behalf
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of Article XXVII, provided that such insurance is available on
acceptable terms as determined by a vote of a majority of the entire Board of
Directors.
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<PAGE> 1
TABLE OF CONTENTS Exhibit 4.1
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions............................................6
ARTICLE TWO
THE SECURITIES
SECTION 2.01 Form and Dating.......................................29
SECTION 2.02 Execution and Authentication..........................30
SECTION 2.03 Registrar and Paying Agent............................31
SECTION 2.04 Paying Agent To Hold Assets in Trust..................31
SECTION 2.05 Securityholder Lists..................................32
SECTION 2.06 Transfer and Exchange.................................32
SECTION 2.07 Replacement Securities................................33
SECTION 2.08 Outstanding Securities................................33
SECTION 2.09 Treasury Securities...................................33
SECTION 2.10 Temporary Securities..................................34
SECTION 2.11 Cancellation..........................................34
SECTION 2.12 Defaulted Interest....................................34
SECTION 2.13 CUSIP Number..........................................35
SECTION 2.14 Deposit of Moneys.....................................35
SECTION 2.15 Book-Entry Provisions for Global Securities...........35
SECTION 2.16 Registration of Transfers and Exchanges...............36
ARTICLE THREE
REDEMPTION
SECTION 3.01 Notices to Trustee....................................40
SECTION 3.02 Selection of Securities To Be Redeemed................40
SECTION 3.03 Notice of Redemption..................................41
SECTION 3.04 Effect of Notice of Redemption........................42
SECTION 3.05 Deposit of Redemption Price...........................42
SECTION 3.06 Securities Redeemed in Part...........................42
<PAGE> 2
ARTICLE FOUR
COVENANTS
SECTION 4.01 Payment of Securities.................................43
SECTION 4.02 Maintenance of Office or Agency.......................43
SECTION 4.03 Transactions with Affiliates..........................43
SECTION 4.04 Limitation on Indebtedness............................44
SECTION 4.05 Disposition of Proceeds of Asset Sales................46
SECTION 4.06 Limitation on Restricted Payments.....................48
SECTION 4.07 Corporate Existence...................................51
SECTION 4.08 Payment of Taxes and Other Claims.....................51
SECTION 4.09 Notice of Defaults....................................52
SECTION 4.10 Maintenance of Properties and Insurance...............52
SECTION 4.11 Compliance Certificate................................52
SECTION 4.12 Provision of Financial Information....................53
SECTION 4.13 Waiver of Stay, Extension or Usury Laws...............54
SECTION 4.14 Change of Control.....................................54
SECTION 4.15 Limitation on Layering................................55
SECTION 4.16 Limitations on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries........55
SECTION 4.17 Designation of Unrestricted Subsidiaries..............56
SECTION 4.18 Limitation on Liens...................................57
SECTION 4.19 Guaranty of Notes by Restricted Subsidiaries..........57
SECTION 4.20 Limitation on the Sale or Issuance of Preferred
Equity Interests of Restricted Subsidiaries...........58
SECTION 4.21 Limitation on Lines of Business.......................58
SECTION 4.22 Payments for Consent..................................58
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01 Mergers, Sale of Assets, etc..........................59
SECTION 5.02 Successor Corporation Substituted.....................60
ARTICLE SIX
DEFAULT AND REMEDIES
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<PAGE> 3
SECTION 6.01 Events of Default.....................................60
SECTION 6.02 Acceleration..........................................62
SECTION 6.03 Other Remedies........................................63
SECTION 6.04 Waiver of Past Default................................63
SECTION 6.05 Control by Majority...................................64
SECTION 6.06 Limitation on Suits...................................64
SECTION 6.07 Rights of Holders To Receive Payment..................64
SECTION 6.08 Collection Suit by Trustee............................65
SECTION 6.09 Trustee May File Proofs of Claim......................65
SECTION 6.10 Priorities............................................65
SECTION 6.11 Undertaking for Costs.................................66
ARTICLE SEVEN
TRUSTEE
SECTION 7.01 Duties of Trustee.....................................66
SECTION 7.02 Rights of Trustee.....................................67
SECTION 7.03 Individual Rights of Trustee..........................68
SECTION 7.04 Trustee's Disclaimer..................................68
SECTION 7.05 Notice of Defaults....................................69
SECTION 7.06 Reports by Trustee to Holders.........................69
SECTION 7.07 Compensation and Indemnity............................69
SECTION 7.08 Replacement of Trustee................................70
SECTION 7.09 Successor Trustee by Merger, etc......................71
SECTION 7.10 Eligibility; Disqualification.........................71
SECTION 7.11 Preferential Collection of Claims Against Company.....72
ARTICLE EIGHT
SUBORDINATION OF SECURITIES
SECTION 8.01 Securities Subordinated to Senior Indebtedness........72
SECTION 8.02 No Payment on Securities in Certain Circumstances.....72
SECTION 8.03 Payment Over of Proceeds upon Dissolution, etc........73
SECTION 8.04 Subrogation...........................................75
SECTION 8.05 Obligations of Company Unconditional..................75
SECTION 8.06 Notice to Trustee.....................................76
SECTION 8.07 Reliance on Judicial Order or Certificate of
Liquidating Agent.....................................76
SECTION 8.08 Trustee's Relation to Senior Indebtedness.............77
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<PAGE> 4
SECTION 8.09 Subordination Rights Not Impaired by Acts or
Omissions of the Company or Holders of Senior
Indebtedness..........................................77
SECTION 8.10 Securityholders Authorize Trustee To Effectuate
Subordination of Securities...........................77
SECTION 8.11 This Article Not To Prevent Events of Default.........78
SECTION 8.12 Trustee's Compensation Not Prejudiced.................78
SECTION 8.13 No Waiver of Subordination Provisions.................78
SECTION 8.14 Subordination Provisions Not Applicable to Money
Held in Trust for Securityholders; Payments May
Be Paid Prior to Dissolution..........................78
SECTION 8.15 Acceleration of Securities............................79
ARTICLE NINE
DISCHARGE OF INDENTURE
SECTION 9.01 Termination of Company's Obligations..................79
SECTION 9.02 Application of Trust Money............................80
SECTION 9.03 Repayment to Company..................................80
SECTION 9.04 Reinstatement.........................................81
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01 Without Consent of Holders............................81
SECTION 10.02 With Consent of Holders...............................82
SECTION 10.03 Compliance with Trust Indenture Act...................84
SECTION 10.04 Revocation and Effect of Consents.....................84
SECTION 10.05 Notation on or Exchange of Securities.................84
SECTION 10.06 Trustee To Sign Amendments, etc.......................85
ARTICLE ELEVEN
GUARANTY
SECTION 11.01 Unconditional Guaranty................................85
SECTION 11.02 Severability..........................................86
SECTION 11.03 Release of a Guarantor................................86
SECTION 11.04 Limitation of Guarantor's Liability...................86
SECTION 11.05 Contribution..........................................87
SECTION 11.06 Execution of Security Guaranty........................87
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<PAGE> 5
SECTION 11.07 Subordination of Subrogation and Other Rights.........87
ARTICLE TWELVE
SUBORDINATION OF GUARANTY
SECTION 12.01 Guaranty Obligations Subordinated to Guarantor
Senior Indebtedness...................................88
SECTION 12.02 Payment Over of Proceeds upon Dissolution, etc........88
SECTION 12.03 Subrogation...........................................89
SECTION 12.04 Obligations of Guarantors Unconditional...............90
SECTION 12.05 Notice to Trustee.....................................90
SECTION 12.06 Reliance on Judicial Order or Certificate of
Liquidating Agent.....................................91
SECTION 12.07 Trustee's Relation to Guarantor Senior Indebtedness...91
SECTION 12.08 Subordination Rights Not Impaired by Acts or
Omissions of the Guarantors or Holders of Guarantor
Senior Indebtedness...................................92
SECTION 12.09 Securityholders Authorize Trustee To Effectuate
Subordination of Guaranty.............................92
SECTION 12.10 This Article Not To Prevent Events of Default.........92
SECTION 12.11 Trustee's Compensation Not Prejudiced.................92
SECTION 12.12 No Waiver of Guaranty Subordination Provisions........93
SECTION 12.13 Payments May Be Paid Prior to Dissolution.............93
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01 Trust Indenture Act Controls..........................93
SECTION 13.02 Notices...............................................94
SECTION 13.03 Communications by Holders with Other Holders..........95
SECTION 13.04 Certificate and Opinion as to Conditions Precedent....95
SECTION 13.06 Rules by Trustee, Paying Agent, Registrar.............96
SECTION 13.07 Governing Law.........................................96
SECTION 13.08 No Recourse Against Others............................96
SECTION 13.09 Successors............................................96
SECTION 13.10 Counterpart Originals.................................96
SECTION 13.11 Severability..........................................96
SECTION 13.12 No Adverse Interpretation of Other Agreements.........96
SECTION 13.13 Legal Holidays........................................97
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<PAGE> 6
INDENTURE dated as of August 1, 1997, among SOVEREIGN SPECIALTY
CHEMICALS, INC., a Delaware corporation (the "Company"), the GUARANTORS named
herein and THE BANK OF NEW YORK, a New York banking corporation, as trustee (the
"Trustee").
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Securities:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions.
"Accounts Receivable Subsidiary" means any Subsidiary of the
Company that is, directly or indirectly, wholly owned by the Company (other than
director qualifying shares) and organized solely for the purpose of and engaged
in (i) purchasing, financing and collecting accounts receivable obligations of
customers of the Company or its Subsidiaries, (ii) the sale or financing of such
accounts receivable or interest therein and (iii) other activities incident
thereto.
"Acquired Indebtedness" means Indebtedness of a Person (a)
assumed in connection with an Acquisition from such Person or (b) existing at
the time such Person becomes a Restricted Subsidiary or is merged or
consolidated with or into the Company or any Restricted Subsidiary.
"Acquired Person" means, with respect to any specified Person,
any other Person which merges with or into or becomes a Subsidiary of such
specified Person.
"Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Company or any
Restricted Subsidiary to any other Person, or any acquisition or purchase of
Equity Interests of any other Person by the Company or any Restricted
Subsidiary, in either case pursuant to which such Person shall become a
Restricted Subsidiary or shall be consolidated with or merged into the Company
or any Restricted Subsidiary or (ii) any acquisition by the Company or any
Restricted Subsidiary of the assets of any Person which constitute substantially
all of an operating unit or line of business of such Person or which is
otherwise outside of the ordinary course of business.
"Additional Interest" has the meaning provided in Section 4(a) of
the Registration Rights Agreement.
"Affiliate" of any specified person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction
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<PAGE> 7
of the management or policies of such Person, whether through the ownership of
voting securities, by agreement or otherwise; provided, however, that (i)
beneficial ownership of 15.0% or more of the then outstanding Equity Interests
of a Person shall be deemed to be control for purposes of Section 4.03; and (ii)
no individual, other than a director of the Company or an officer of the Company
with a policy making function, shall be deemed an Affiliate of the Company or
any of its Subsidiaries, solely by reason of such individual's employment,
position or responsibilities by or with respect to the Company or any of its
Subsidiaries.
"Affiliate Transaction" see Section 4.03.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Asset Sale" means any direct or indirect sale, conveyance,
transfer, lease (that has the effect of a disposition) or other disposition
(including, without limitation, any merger, consolidation or sale-leaseback
transaction) to any Person other than the Company or a Wholly Owned Restricted
Subsidiary, in one transaction or a series of related transactions, of (i) any
Equity Interest of any Restricted Subsidiary; (ii) any material license,
franchise or other authorization of the Company or any Restricted Subsidiary;
(iii) any assets of the Company or any Restricted Subsidiary which constitute
substantially all of an operating unit or line of business of the Company or any
Restricted Subsidiary; or (iv) any other property or asset of the Company or any
Restricted Subsidiary outside of the ordinary course of business (including the
receipt of proceeds paid on account of the loss of or damage to any property or
asset and awards of compensation for any asset taken by condemnation, eminent
domain or similar proceedings). For the purposes of this definition, the term
"Asset Sale" shall not include (a) any transaction consummated in compliance
with Section 5.01 and the creation of any Lien not prohibited by Section 4.18;
provided, however, that any transaction consummated in compliance with Section
5.01 involving a sale, conveyance, assignment, transfer, lease or other disposal
of less than all of the properties or assets of the Company shall be deemed to
be an Asset Sale with respect to the properties or assets of the Company and the
Restricted Subsidiaries that are not so sold, conveyed, assigned, transferred,
leased or otherwise disposed of in such transaction; (b) sales of property or
equipment that has become worn out, obsolete or damaged or otherwise unsuitable
for use in connection with the business of the Company or any Restricted
Subsidiary; (c) any transaction consummated in compliance with Section 4.06; (d)
sales of accounts receivable for cash at Fair Market Value; and (e) any sale,
conveyance or transfer of accounts receivable in the ordinary course of business
to an Accounts Receivable Subsidiary or to third parties that are not Affiliates
of the Company or any Subsidiary of the Company.
"Bankruptcy Law" see Section 6.01.
"Board of Directors" means the Board of Directors of the Company
or any Guarantor, as the case may be, or any authorized committee of such Board
of Directors.
"Board Resolution" means, with respect to any Person, a duly
adopted resolution of the Board of Directors of such Person.
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<PAGE> 8
"Business Day" means a day that is not a Saturday, a Sunday or a
day on which banking institutions in New York, New York are not required to be
open.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Cash Equivalents" means: (a) U.S. dollars and any other currency
that is convertible into U.S. dollars without legal restrictions and which is
utilized by the Company or any of the Restricted Subsidiaries in the ordinary
course of its business; (b) securities issued or directly and fully guarantied
or insured by the U.S. government or any agency or instrumentality thereof
having maturities of not more than six months from the date of acquisition; (c)
certificates of deposit and time deposits with maturities of six months or less
from the date of acquisition, bankers' acceptances with maturities not exceeding
six months and overnight bank deposits, in each case with any commercial bank
having capital and surplus in excess of $500.0 million (or the foreign currency
equivalent thereof); (d) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (b) and
(c) above entered into with any financial institution meeting the qualifications
specified in clause (c) above; and (e) commercial paper rated P-1, A-1 or the
equivalent thereof by Moody's Investors Service, Inc. or Standard & Poor's
Corporation, respectively, and in each case maturing within six months after the
date of acquisition.
"Change of Control" means the occurrence of any of the following
events (whether or not approved by the Board of Directors of the Company): (i)
any Person (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), other than one or more Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
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, upon the happening of
an event or otherwise), directly or indirectly, of more than 35% of the total
voting power of the then outstanding Voting Equity Interests of the Company or,
so long as Holdings owns a majority of the Voting Equity Interests of the
Company, Holdings (or, for so long as Holdings is a partnership, its general
partner); provided, however, that the Permitted Holders beneficially own (as
defined above), directly or indirectly, in the aggregate a lesser percentage of
the total voting power of the then outstanding Voting Equity Interests of the
Company, Holdings or such general partner, as the case may be, than such other
Person and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors of the Company; (ii) the Company consolidates with, or merges with or
into, another Person (other than a Guarantor which is a Wholly Owned Restricted
Subsidiary) or the Company or the Restricted Subsidiaries sell, assign, convey,
transfer, lease or otherwise dispose of all or substantially all of the assets
of the Company and the Restricted Subsidiaries (determined on a consolidated
basis) to any Person (other than the Company or a Guarantor which is a Wholly
Owned Restricted Subsidiary), other than any such transaction where immediately
after such transaction the Person or Persons that "beneficially
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<PAGE> 9
owned" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a Person shall be deemed to have "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time) immediately prior to such
transaction, directly or indirectly, the then outstanding Voting Equity
Interests of the Company "beneficially own" (as so determined), directly or
indirectly, a majority of the total voting power of the then outstanding Voting
Equity Interests of the surviving or transferee Person; or (iii) following the
first public offering of Voting Equity Interests of the Company, during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company was approved by a vote of a majority
of the directors of the Company 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 the Company then in office.
"Change of Control Date" see Section 4.14.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President, a Vice President or its Treasurer, and by
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Consolidated Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of Consolidated EBITDA for the four
quarter period of the most recent four consecutive fiscal quarters ending prior
to the date of such determination (the "Four Quarter Period") to (ii)
Consolidated Interest Expense for such Four Quarter Period; provided, however,
that (1) if the Company or any Restricted Subsidiary has incurred any
Indebtedness since the beginning of such Four Quarter Period that remains
outstanding on such date of determination or if the transaction giving rise to
the need to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, Consolidated EBITDA and Consolidated Interest Expense for such
Four Quarter Period shall be calculated after giving effect on a pro forma basis
to such Indebtedness as if such Indebtedness had been Incurred on the first day
of such Four Quarter Period and the discharge of any other Indebtedness repaid,
repurchased or otherwise discharged with the proceeds of such new Indebtedness
as if such discharge had occurred on the first day of such Four Quarter Period,
(2) if since the beginning of such Four Quarter Period the Company or any
Restricted Subsidiary shall have made any Asset Sale, the Consolidated EBITDA
for such Four Quarter Period shall be reduced by an amount equal to the
Consolidated EBITDA (if positive) directly attributable to the assets that are
the subject of such Asset Sale for such Four Quarter Period or increased by an
amount equal to the Consolidated EBITDA (if negative) directly attributable
thereto for such Four Quarter Period and Consolidated Interest Expense for such
Four Quarter Period shall be reduced by an amount equal to
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<PAGE> 10
the Consolidated Interest Expense directly attributable to any Indebtedness of
the Company or any Restricted Subsidiary repaid, repurchased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Sale for such Four Quarter Period
(or, if the Equity Interests of any Restricted Subsidiary are sold, the
Consolidated Interest Expense for such Four Quarter Period directly attributable
to the Indebtedness of such Restricted Subsidiary to the extent the Company and
its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale), (3) if since the beginning of such Four Quarter
Period the Company or any Restricted Subsidiary (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary (or any Person that becomes
a Restricted Subsidiary) or an acquisition of assets, including any acquisition
of assets occurring in connection with a transaction causing a calculation to be
made hereunder, which constitutes all or substantially all of an operating unit
of a business, Consolidated EBITDA and Consolidated Interest Expense for such
Four Quarter Period shall be calculated after giving pro forma effect thereto
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such Four Quarter Period and (4) if
since the beginning of such Four Quarter Period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such Four Quarter Period) shall
have made any Asset Sale or any Investment or acquisition of assets that would
have required an adjustment pursuant to clause (2) or (3) above if made by the
Company or a Restricted Subsidiary during such Four Quarter Period, Consolidated
EBITDA and Consolidated Interest Expense for such Four Quarter Period shall be
calculated after giving pro forma effect thereto as if such Asset Sale,
Investment or acquisition of assets occurred on, with respect to any Investment
or acquisition, the first day of such Four Quarter Period and, with respect to
any Asset Sale, the day prior to the first day of such Four Quarter Period. For
purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings and any cost savings
relating thereto and the amount of Consolidated Interest Expense associated with
any Indebtedness Incurred in connection therewith, the pro forma calculations
shall be determined in good faith by a responsible financial or accounting
officer of the Company. If any Indebtedness bears a floating rate of interest
and is being given pro forma effect, the interest expense on such Indebtedness
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any
agreement under which Hedging Obligations relating to interest are outstanding
applicable to such Indebtedness if such agreement under which such Hedging
Obligations are outstanding has a remaining term as at the date of determination
in excess of 12 months).
"Consolidated EBITDA" means, for any period, the Consolidated Net
Income for such period, minus any non-cash item increasing Consolidated Net
Income during such period, plus the following to the extent deducted in
calculating such Consolidated Net Income: (i) Consolidated Income Tax Expense
for such period; (ii) Consolidated Interest Expense for such period; (iii)
depreciation expense for such period; (iv) amortization expense for such period;
and (v) all other non-cash items reducing Consolidated Net Income for such
period (other than any non-cash item requiring an accrual or a reserve for cash
disbursements in any future period).
"Consolidated Income Tax Expense" means, with respect to the
Company for any period, the provision for Federal, state, local and foreign
income taxes payable by the Company and
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<PAGE> 11
the Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the
Company for any period, without duplication, the sum of (i) the interest expense
of the Company and the Restricted Subsidiaries for such period as determined on
a consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt discount, (b) the net cost under Hedging Obligations
relating to interest (including any amortization of discounts), (c) the interest
portion of any deferred payment obligation, (d) all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and (e) all capitalized interest and all accrued interest,
(ii) the interest component of Capital Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by the Company and the Restricted Subsidiaries
during such period as determined on a consolidated basis in accordance with GAAP
and (iii) dividends and distributions in respect of Disqualified Equity
Interests of the Company during such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated
net income (loss) of the Company and the Restricted Subsidiaries; provided,
however, that there shall not be included in such Consolidated Net Income: (i)
any net income (loss) of any Person if such person is not a Restricted
Subsidiary, except that (A) subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's equity in a
net loss of any such Person (other than an Unrestricted Subsidiary) for such
period shall be included in determining such Consolidated Net Income; (ii) any
net income (loss) of any person acquired by the Company or a Restricted
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition; (iii) any net income (loss) of any Restricted
Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company except that (A)
subject to the limitations contained in (iv) below, the Company's equity in the
net income of any such Restricted Subsidiary for such period shall be included
in such Consolidated Net Income up to the aggregate amount of cash that could
have been distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend (subject, in the case of
a dividend that could have been made to another Restricted Subsidiary, to the
limitation contained in this clause) and (B) the Company's equity in a net loss
of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income; (iv) any gain or loss realized upon
the sale or other disposition of any asset of the Company or the Restricted
Subsidiaries (including pursuant to any sale/leaseback transaction) that is not
sold or otherwise disposed of in the ordinary course of business and any gain or
loss realized upon the sale or other disposition of any Equity Interests of any
Person; (v) any extraordinary gain or loss; and (vi) the cumulative effect of a
change in accounting principles.
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<PAGE> 12
"Consolidated Net Worth" of the Company means the stockholders'
equity of the Company and the Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP, less amounts attributed to
Disqualified Equity Interests.
"Corporate Trust Office of the Trustee" shall be at the address
of the Trustee specified in Section 13.02 or such other address as the Trustee
may give notice to the Company.
"Custodian" see Section 6.01.
"Default" means any event that is or with the passage of time or
the giving of notice or both would be an Event of Default.
"Defeasance Trust Payment" see Section 8.01.
"Depository" means, with respect to the Securities issued in the
form of one or more Global Securities, The Depository Trust Company or another
Person designated as Depository by the Company, which must be a clearing agency
registered under the Exchange Act.
"Designated Senior Indebtedness" means (a) any Indebtedness
outstanding under the Senior Credit Facility and (b) any other Senior
Indebtedness which, at the time of determination, has an aggregate principal
amount outstanding, together with any commitments to lend additional amounts, of
at least $15.0 million, if the instrument governing such Senior Indebtedness
expressly states that such Indebtedness is "Designated Senior Indebtedness" for
purposes of this Indenture and a Board Resolution setting forth such designation
by the Company has been filed with the Trustee.
"Designation" see Section 4.17.
"Designation Amount" see Section 4.17.
"Disposition" means, with respect to any Person, any merger,
consolidation or other business combination involving such Person (whether or
not such Person is the Surviving Person) or the sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of such
Person's assets.
"Disqualified Equity Interest" means any Equity Interest which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable, at the option of the holder
thereof, in whole or in part, or exchangeable into Indebtedness on or prior to
the Final Maturity Date.
"Equity Interest" in any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) corporate stock or other
equity participations, including partnership interests, whether general or
limited, in such Person, including any Preferred Equity Interests.
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<PAGE> 13
"Event of Default" see Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
"Exchange Securities" means the 9 1/2% Senior Subordinated Notes
due 2007, Series B, to be issued in exchange for the Initial Securities pursuant
to the Registration Rights Agreement.
"Existing Indebtedness" means any Indebtedness of the Company and
the Restricted Subsidiaries in existence on the Issue Date until such amounts
are repaid.
"Expiration Date" has the meaning set forth in the definition of
"Offer to Purchase" below.
"Fair Market Value" means, with respect to any asset, the price
(after taking into account any liabilities relating to such assets) which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Directors of the Company acting in good faith, and shall be evidenced by
resolutions of the Board of Directors of the Company delivered to the Trustee.
"Final Maturity Date" means August 1, 2007.
"Foreign Subsidiary" means any Restricted Subsidiary of the
Company that is not organized under the laws of the United States of America or
any state thereof or the District of Columbia.
"Four Quarter Period" has the meaning set forth in the definition
of "Consolidated Coverage Ratio" above.
"Funding Guarantor" see Section 11.05.
"GAAP" means, at any date of determination, generally accepted
accounting principles in effect in the United States which are applicable at the
date of determination and which are consistently applied for all applicable
periods.
"Global Securities" means one or more IAI Global Securities and
144A Global Securities.
"guarantee" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
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<PAGE> 14
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any other Person's
financial condition or to cause any other Person to achieve certain levels of
operating results.
"Guarantor" means (i) each of the Subsidiaries of the Company
(other than Foreign Subsidiaries) as of the Issue Date and their respective
successors, and (ii) each other Restricted Subsidiary, formed, created or
acquired before or after the Issue Date, required to become a Guarantor after
the Issue Date pursuant to Section 4.19.
"Guarantor Senior Indebtedness" means, with respect to any
Guarantor, at any date, (a) all Obligations of such Guarantor under the Senior
Credit Facility; (b) all Hedging Obligations of such Guarantor; (c) all
Obligations of such Guarantor under stand-by letters of credit; and (d) all
other Indebtedness of such Guarantor for borrowed money, including principal,
premium, if any, and interest (including Post-Petition Interest) on such
Indebtedness unless the instrument under which such Indebtedness of such
Guarantor for money borrowed is Incurred expressly provides that such
Indebtedness for money borrowed is not senior or superior in right of payment to
such Guarantor's Guaranty of the Securities, and all renewals, extensions,
modifications, amendments or refinancings thereof. Notwithstanding the
foregoing, Guarantor Senior Indebtedness shall not include (a) to the extent
that it may constitute Indebtedness, any Obligation for Federal, state, local or
other taxes; (b) any Indebtedness among or between such Guarantor and any
Subsidiary of such Guarantor; (c) to the extent that it may constitute
Indebtedness, any Obligation in respect of any trade payable Incurred for the
purchase of goods or materials, or for services obtained, in the ordinary course
of business; (d) Indebtedness evidenced by such Guarantor's Guaranty; (e)
Indebtedness of such Guarantor that is expressly subordinate or junior in right
of payment to any other Indebtedness of such Guarantor; (f) to the extent that
it may constitute Indebtedness, any obligation owing under leases (other than
Capitalized Lease Obligations) or management agreements; and (g) any obligation
that by operation of law is subordinate to any general unsecured obligations of
such Guarantor.
"guaranty" means, as applied to any obligation, (i) a guaranty
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guaranty shall include,
without limitation, any agreement to maintain or preserve any other Person's
financial condition or to cause any other Person to achieve certain levels of
operating results.
"Guaranty" or "Security Guarantee" see Section 11.01.
"Hedging Obligations" means, with respect to any Person, the
Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar
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<PAGE> 15
agreements, (ii) other agreements or arrangements designed to protect such
Person against fluctuations in interest rates and (iii) foreign currency or
chemical commodity hedge, exchange or similar protection agreements (agreements
referred to in this definition being referred to herein as "Hedging
Agreements").
"Holders" means the registered holder of any Security.
"Holdings" means Sovereign Specialty Chemicals, L.P., a Delaware
limited partnership, and its successors.
"IAI Global Security" means a permanent global security in
registered form representing the aggregate principal amount of Securities sold
to Institutional Accredited Investors.
"Incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (including by conversion,
exchange or otherwise), assume, guaranty or otherwise become liable in respect
of such Indebtedness or other obligation or the recording, as required pursuant
to GAAP or otherwise, of any such Indebtedness or other obligation on the
balance sheet of such Person (and "Incurrence," "Incurred" and "Incurring" shall
have meanings correlative to the foregoing). Indebtedness of any Acquired Person
or any of its Subsidiaries existing at the time such Acquired Person becomes a
Restricted Subsidiary (or is merged into or consolidated with the Company or any
Restricted Subsidiary), whether or not such Indebtedness was Incurred in
connection with, as a result of, or in contemplation of, such Acquired Person
becoming a Restricted Subsidiary (or being merged into or consolidated with the
Company or any Restricted Subsidiary), shall be deemed Incurred at the time any
such Acquired Person becomes a Restricted Subsidiary or merges into or
consolidates with the Company or any Restricted Subsidiary.
"Indebtedness" means (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (a) every obligation of such Person for money
borrowed; (b) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding (x) earnout or other similar obligations
until such time as the amount of such obligation is capable of being determined,
(y) trade accounts payable incurred in the ordinary course of business and
payable in accordance with industry practices, or (z) other accrued liabilities
arising in the ordinary course of business which are not overdue or which are
being contested in good faith); (e) every Capital Lease Obligation of such
Person; (f) every net obligation under Hedging Agreements of such Person; (g)
every obligation of the type referred to in clauses (a) through (f) of another
Person and all dividends of another Person the payment of which, in either case,
such Person has guarantied or is responsible or liable for, directly or
indirectly, as obligor, guarantor or otherwise; and (h) any and all deferrals,
renewals, extensions and refundings of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (a) through (g) above. Indebtedness (a) shall never
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<PAGE> 16
be calculated taking into account any cash and Cash Equivalents held by such
Person; (b) shall not include obligations of any Person (x) arising from the
honoring by a bank or other financial institution of a check, draft or similar
instrument inadvertently drawn against insufficient funds in the ordinary course
of business, provided that such obligations are extinguished within two Business
Days of their incurrence, (y) resulting from the endorsement of negotiable
instruments for collection in the ordinary course of business and consistent
with past business practices and (z) under stand-by letters of credit to the
extent collateralized by cash or Cash Equivalents; (c) which provides that an
amount less than the principal amount thereof shall be due upon any declaration
of acceleration thereof shall be deemed to be incurred or outstanding in an
amount equal to the accreted value thereof at the date of determination; (d)
shall include the liquidation preference and any mandatory redemption payment
obligations in respect of any Disqualified Equity Interests of the Company or
any Restricted Subsidiary; and (e) shall not include obligations under
performance bonds, performance guaranties, surety bonds and appeal bonds,
letters of credit or similar obligations, incurred in the ordinary course of
business. For purposes of determining compliance with any U.S. dollar-
denominated restriction on the Incurrence of Indebtedness denominated in a
foreign currency, the U.S. dollar-equivalent principal amount of such
Indebtedness Incurred pursuant thereto shall be calculated based on the relevant
currency exchange rate in effect on the date that such Indebtedness was Incurred
if such Indebtedness is Incurred to refinance other Indebtedness denominated in
a foreign currency, and such refinancing would cause the applicable U.S.
dollar-denominated restriction to be exceeded if calculated at the relevant
currency exchange rate in effect on the date of such refinancing, such U.S.
dollar-denominated restriction shall be deemed not to have been exceeded so long
as the principal amount of such refinancing Indebtedness does not exceed the
principal amount of such Indebtedness being refinanced. The principal amount of
any Indebtedness Incurred to refinance other Indebtedness, if Incurred in a
different currency from the Indebtedness being refinanced, shall be calculated
based on the currency exchange rate applicable to the currencies in which such
respective Indebtedness is denominated that is in effect on the date of such
refinancing.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Independent Financial Advisor" means a nationally recognized,
accounting, appraisal, investment banking firm or consultant that is, in the
judgment of the Company's Board of Directors, qualified to perform the task for
which it has been engaged (i) which does not, and whose directors, officers and
employees or Affiliates do not, have a direct or indirect financial interest in
the Company and (ii) which, in the judgment of the Board of Directors of the
Company, is otherwise independent and qualified to perform the task for which it
is to be engaged.
"Initial Securities" means the 9 1/2% Senior Subordinated Notes
due 2007, Series A, of the Company.
"Initial Purchasers" means Chase Securities Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation.
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<PAGE> 17
"Insolvency or Liquidation Proceeding" means, with respect to any
Person, any liquidation, dissolution or winding up of such Person, or any
bankruptcy, reorganization, insolvency, receivership or similar proceeding with
respect to such Person, whether voluntary or involuntary.
"Institutional Accredited Investor" means an institution that is
an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
"interest" means, with respect to the Securities, the sum of any
cash interest and any Additional Interest on the Securities.
"Interest Payment Date" means each semiannual interest payment
date on February 1 and August 1 of each year, commencing February 1, 1998.
"Interest Record Date" for the interest payable on any Interest
Payment Date (except a date for payment of defaulted interest) means the January
15 or July 15 (whether or not a Business Day), as the case may be, immediately
preceding such Interest Payment Date.
"Investment" means, with respect to any Person, any direct or
indirect loan, advance, guaranty or other extension of credit or capital
contribution to (by means of transfers of cash or other property or assets to
others or payments for property or services for the account or use of others, or
otherwise), or purchase or acquisition of capital stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued by, any other
Person. The amount of any Investment shall be the original cost of such
Investment, plus the cost of all additions thereto, and minus the amount of any
portion of such Investment repaid to such Person in cash as a repayment of
principal or a return of capital, as the case may be, but without any other
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment. In determining the amount of any
Investment involving a transfer of any property or asset other than cash, such
property shall be valued at its fair market value at the time of such transfer,
as determined in good faith by the Board of Directors (or comparable body) of
the Person making such transfer.
"Issue Date" means the original issue date of the Securities,
August 5, 1997.
"Junior Subordinated Seller Note" means the $3.0 million
aggregate principal amount 8% Note due 2002 issued by Holdings to Laporte plc on
the Issue Date.
"Lien" means any lien, mortgage, charge, security interest,
hypothecation, assignment for security or encumbrance of any kind (including any
conditional sale or capital lease or other title retention agreement, any lease
in the nature thereof and any agreement to give any security interest).
"Net Cash Proceeds" means the aggregate proceeds in the form of
cash or Cash Equivalents received by the Company or any Restricted Subsidiary in
respect of any Asset Sale, including all cash or Cash Equivalents received upon
any sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (a) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment
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<PAGE> 18
banking fees, and sales commissions) and any relocation expenses incurred as a
result thereof; (b) taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company to be provided as a reserve, in accordance with GAAP,
against any liabilities associated with such assets which are the subject of
such Asset Sale (provided that the amount of any such reserves shall be deemed
to constitute Net Cash Proceeds at the time such reserves shall have been
released or are not otherwise required to be retained as a reserve); and (e)
with respect to Asset Sales by Restricted Subsidiaries, the portion of such cash
payments attributable to Persons holding a minority interest in such Restricted
Subsidiary.
"Obligations" means any principal, interest (including, without
limitation, Post-Petition Interest), penalties, fees, indemnifications,
reimbursement obligations, damages and other liabilities payable under the
documentation governing any Indebtedness.
"Offer" has the meaning set forth in the definition of "Offer to
Purchase" below.
"Offer to Purchase" means a written offer (the "Offer") sent by
or on behalf of the Company by first-class mail, postage prepaid, to each holder
at his address appearing in the register for the Securities on the date of the
Offer offering to purchase up to the principal amount of Securities specified in
such Offer at the purchase price specified in such Offer (as determined pursuant
to this Indenture). Unless otherwise required by applicable law, the Offer shall
specify an expiration date (the "Expiration Date") of the Offer to Purchase,
which shall be not less than 20 Business Days nor more than 60 days after the
date of such Offer, and a settlement date (the "Purchase Date") for purchase of
Securities to occur no later than five Business Days after the Expiration Date.
The Company shall notify the Trustee at least 15 Business Days (or such shorter
period as is acceptable to the Trustee) prior to the mailing of the Offer of the
Company's obligation to make an Offer to Purchase, and the Offer shall be mailed
by the Company or, at the Company's request, by the Trustee in the name and at
the expense of the Company. The Offer shall contain all the information required
by applicable law to be included therein. The Offer shall also contain
information concerning the business of the Company and its Subsidiaries which
the Company in good faith believes will enable such Holders to make an informed
decision with respect to the Offer to Purchase (which at a minimum will include
(i) the most recent annual and quarterly financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in the documents required to be filed with the Trustee pursuant to
this Indenture (which requirements may be satisfied by delivery of such
documents together with the Offer), (ii) a description of material developments
in the Company's business subsequent to the date of the latest of such financial
statements referred to in clause (i) (including a description of the events
requiring the Company to make the Offer to Purchase), (iii) if applicable,
appropriate pro forma financial information concerning the Offer to Purchase and
the events requiring the Company to make the Offer to Purchase and (iv) any
other information required by applicable law to be included therein). The Offer
shall contain all instructions and materials necessary to enable such Holders to
tender Securities pursuant to the Offer to Purchase. The Offer shall also state:
(1) the Section of this
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<PAGE> 19
Indenture pursuant to which the Offer to Purchase is being made; (2) the
Expiration Date and the Purchase Date; (3) the aggregate principal amount of the
outstanding Securities offered to be purchased by the Company pursuant to the
Offer to Purchase (including, if less than 100%, the manner by which such amount
has been determined pursuant to the Section of this Indenture requiring the
Offer to Purchase) (the "Purchase Amount"); (4) the purchase price to be paid by
the Company for each $1,000 aggregate principal amount of Securities accepted
for payment (as specified pursuant to this Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the Securities registered
in the name of such Holder and that any portion of a Security tendered must be
tendered in an integral multiple of $1,000 principal amount; (6) the place or
places where Securities are to be surrendered for tender pursuant to the Offer
to Purchase; (7) that interest on any Security not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will continue to
accrue; (8) that on the Purchase Date the Purchase Price will become due and
payable upon each Security being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date; (9) that each Holder electing to tender all or any portion of a
Security pursuant to the Offer to Purchase will be required to surrender such
Security at the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Security being, if the Company or the
Trustee so requires, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Trustee duly executed by,
the Holder thereof or his attorney duly authorized in writing); (10) that
Holders will be entitled to withdraw all or any portion of Securities tendered
if the Company (or its Paying Agent) receives, not later than the close of
business on the fifth Business Day next preceding the Expiration Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Security the Holder tendered, the
certificate number of the Security the Holder tendered and a statement that such
Holder is withdrawing all or a portion of his tender; (11) that (a) if
Securities in an aggregate principal amount less than or equal to the Purchase
Amount are duly tendered and not withdrawn pursuant to the Offer to Purchase,
the Company shall purchase all such Securities and (b) if Securities in an
aggregate principal amount in excess of the Purchase Amount are tendered and not
withdrawn pursuant to the Offer to Purchase, the Company shall purchase
Securities having an aggregate principal amount equal to the Purchase Amount on
a pro rata basis (with such adjustments as may be deemed appropriate so that
only Securities in denominations of $1,000 principal amount or integral
multiples thereof shall be purchased); and (12) that in the case of any Holder
whose Security is purchased only in part, the Company shall execute and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities, of any authorized denomination as
requested by such Holder, in an aggregate principal amount equal to and in
exchange for the unpurchased portion of the Security so tendered.
An Offer to Purchase shall be governed by and effected in
accordance with the provisions above pertaining to any Offer.
"Officer" means the Chairman, any Vice Chairman, the President,
any Vice President, the Chief Financial Officer, the Treasurer, or the Secretary
of the Company.
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<PAGE> 20
"Officers' Certificate" means a certificate signed by two
Officers or by an Officer and an Assistant Treasurer or Assistant Secretary of
the Company complying with Sections 13.04 and 13.05.
"144A Global Security" means a permanent global security in
registered form representing the aggregate principal amount of Securities sold
in reliance on Rule 144A.
"Opinion of Counsel" means a written opinion from legal counsel
who is reasonably acceptable to the Trustee. The counsel may be an employee of
or counsel to the Company or the Trustee.
"Pari Passu Debt" means Indebtedness of the Company or any
Guarantor that neither constitutes Senior Indebtedness or Guarantor Senior
Indebtedness, as applicable, or Subordinated Indebtedness.
"Pari Passu Debt Pro Rata Share" means the amount of the
applicable Net Cash Proceeds obtained by multiplying the amount of such Net Cash
Proceeds by a fraction, (i) the numerator of which is the aggregate accreted
value and/or principal amount, as the case may be, of all Pari Passu Debt
outstanding at the time of the applicable Asset Sale with respect to which the
Company is required to use Net Cash Proceeds to repay or make an offer to
purchase or repay and (ii) the denominator of which is the sum of (a) the
aggregate principal amount of all Securities outstanding at the time of the
applicable Asset Sale and (b) the aggregate principal amount or the aggregate
accreted value, as the case may be, of all Pari Passu Debt outstanding at the
time of the applicable Offer to Purchase with respect to which the Company is
required to use the applicable Net Cash Proceeds to offer to repay or make an
offer to purchase or repay.
"Participant" has the meaning set forth in Section 2.15.
"Paying Agent" has the meaning provided in Section 2.03.
"Payment Blockage Notice" see Section 8.02(a).
"Payment Blockage Period" see Section 8.02(a).
"Permitted Holder" means (i) First Chicago NBD Corp. and any
Person controlled by either First Chicago NBD Corp. or any of its or its
Subsidiaries' officers; (ii) Robert B. Covalt, Carol E. Bramson and Lawrence E.
Fox; and (iii) any Person controlled by any Person referred to in clause (ii) of
this definition.
"Permitted Indebtedness" see Section 4.04.
"Permitted Investments" means (a) Cash Equivalents; (b)
Investments in prepaid expenses, negotiable instruments held for collection and
lease, utility and workers' compensation, performance and other similar
deposits; (c) loans and advances to employees made in the ordinary
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<PAGE> 21
course of business not to exceed $1.0 million in the aggregate at any one time
outstanding; (d) Hedging Obligations; (e) bonds, notes, debentures or other
securities received as a result of Asset Sales permitted under Section 4.05 not
to exceed 20% of the total consideration for such Asset Sales and any "earn out"
or similar right permitted under Section 4.05; (f) transactions with officers,
directors and employees of the Company or any Restricted Subsidiary entered into
in the ordinary course of business (including compensation or employee benefit
arrangements with any such director or employee) and consistent with past
business practices; (g) Investments existing as of the Issue Date and any
amendment, extension, renewal or modification thereof to the extent that any
such amendment, extension, renewal or modification does not require the Company
or any Restricted Subsidiary to make any additional cash or non-cash payments or
provide additional services in connection therewith; (h) any Investment to the
extent that the consideration therefor consists of Qualified Equity Interests of
the Company; (i) any Investment consisting of a guaranty by a Guarantor of
Senior Indebtedness or any guaranty permitted under clause (e) of the second
paragraph of Section 4.04; (j) Investments in Persons primarily engaged in a
Related Business in an aggregate amount not to exceed $10.0 million; provided
that the Company and/or the Restricted Subsidiaries own at least one-third of
the outstanding Voting Equity Interests of each such Person; and (k) Investments
in the form of the sale (on a "true sale" non-recourse basis) or the servicing
of receivables transferred from the Company or any Restricted Subsidiary, or
transfers of cash, to an Accounts Receivable Subsidiary as a capital
contribution or in exchange for Indebtedness of such Accounts Receivable
Subsidiary or cash, in each case in the ordinary course of business.
"Permitted Junior Securities" means any securities of the Company
or any other Person that are (i) equity securities without special covenants or
(ii) subordinated in right of payment to all Senior Indebtedness that may at the
time be outstanding, to substantially the same extent as, or to a greater extent
than, the Securities are subordinated as provided in the Indenture, in any event
pursuant to a court order so providing and as to which (a) the rate of interest
on such securities shall not exceed the effective rate of interest on the
Securities on the date of the Indenture, (b) such securities shall not be
entitled to the benefits of covenants or defaults materially more beneficial to
the holders of such securities than those in effect with respect to the
Securities on the Issue Date and (c) such securities shall not provide for
amortization (including sinking fund and mandatory prepayment provisions)
commencing prior to the date six months following the final scheduled maturity
date of the Senior Indebtedness (as modified by the plan of reorganization of
readjustment pursuant to which such securities are issued).
"Permitted Liens" means (a) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the Company
or any Restricted Subsidiary; provided, however, that such Liens were in
existence prior to the contemplation of such merger or consolidation and do not
secure any property or assets of the Company or any Restricted Subsidiary other
than the property or assets subject to the Liens prior to such merger or
consolidation; (b) Liens imposed by law such as carriers', warehousemen's and
mechanics' Liens and other similar Liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith and by appropriate proceedings; (c)
Liens existing on the Issue Date; (d) Liens securing only the Securities; (e)
Liens in favor of the Company or any Restricted Subsidiary; (f) Liens for taxes,
assessments or governmental charges or claims that
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<PAGE> 22
are not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded; provided, however,
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (g) easements, reservation
of rights of way, restrictions and other similar easements, licenses,
restrictions on the use of properties, or minor imperfections of title that in
the aggregate are not material in amount and do not in any case materially
detract from the properties subject thereto or interfere with the ordinary
conduct of the business of the Company and the Restricted Subsidiaries; (h)
Liens resulting from the deposit of cash or notes in connection with contracts,
tenders or expropriation proceedings, or to secure workers' compensation, surety
or appeal bonds, costs of litigation when required by law and public and
statutory obligations or obligations under franchise arrangements entered into
in the ordinary course of business; (i) Liens securing Indebtedness consisting
of Capitalized Lease Obligations, Purchase Money Indebtedness, mortgage
financings, industrial revenue bonds or other monetary obligations, in each case
incurred solely for the purpose of financing all or any part of the purchase
price or cost of construction or installation of assets used in the business of
the Company or the Restricted Subsidiaries, or repairs, additions or
improvements to such assets, provided, however, that (I) such Liens secure
Indebtedness in an amount not in excess of the original purchase price or the
original cost of any such assets or repair, addition or improvement thereto
(plus an amount equal to the reasonable fees and expenses in connection with the
incurrence of such Indebtedness), (II) such Liens do not extend to any other
assets of the Company or the Restricted Subsidiaries (and, in the case of
repair, addition or improvements to any such assets, such Lien extends only to
the assets (and improvements thereto or thereon) repaired, added to or
improved), (III) the Incurrence of such Indebtedness is permitted by Section
4.04 and (IV) such Liens attach within 90 days of such purchase, construction,
installation, repair, addition or improvement; (j) Liens to secure any
refinancings, renewals, extensions, modifications or replacements (collectively,
"refinancing") (or successive refinancings), in whole or in part, of any
Indebtedness secured by Liens referred to in the clauses above so long as such
Lien does not extend to any other property (other than improvements thereto);
(k) Liens securing letters of credit entered into in the ordinary course of
business and consistent with past business practice; and (l) Liens on and
pledges of the Equity Interests of any Unrestricted Subsidiary securing any
Indebtedness of such Unrestricted Subsidiary.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, limited
liability limited partnership, trust, unincorporated organization or government
or any agency or political subdivision thereof.
"Physical Securities" means one or more certificated Securities
in registered form.
"Post-Petition Interest" means, with respect to any Indebtedness
of any Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.
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<PAGE> 23
"Preferred Equity Interest," in any Person, means an Equity
Interest of any class or classes (however designated) which is preferred as to
the payment of dividends or distributions, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such Person,
over Equity Interests of any other class in such Person.
"principal" of a debt security means the principal of the
security, plus, when appropriate, the premium, if any, on the security.
"Private Exchange Securities" have the meaning provided in
Sections 2(b) of the Registration Rights Agreement.
"Private Placement Legend" means the legend initially set forth
on the Initial Securities in the form set forth on Exhibit A hereto.
"Public Equity Offering" means, with respect to the Company, an
underwritten primary public offering of Qualified Equity Interests of the
Company pursuant to an effective registration statement filed under the
Securities Act (excluding registration statements filed on Form S-8).
"Public Market" means any time after (x) a Public Equity Offering
has been consummated and (y) at least 15% of the total issued and outstanding
Qualified Equity Interests of the Company has been distributed by means of an
effective registration statement under the Securities Act.
"Purchase Amount" has the meaning set forth in the definition of
"Offer to Purchase" above.
"Purchase Agreement" means the Purchase Agreement dated as of
July 31, 1997 by and among the Company, the Guarantors and the Initial
Purchasers.
"Purchase Date" has the meaning set forth in the definition of
"Offer to Purchase" above.
"Purchase Money Indebtedness" means Indebtedness of the Company
or any Restricted Subsidiary Incurred for the purpose of financing all or any
part of the purchase price or the cost of construction or improvement of any
property; provided that the aggregate principal amount of such Indebtedness does
not exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refinancing of such Indebtedness that does not
increase the aggregate principal amount (or accreted amount, if less) thereof as
of the date of refinancing.
"Purchase Price" has the meaning set forth in the definition of
"Offer to Purchase" above.
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<PAGE> 24
"Qualified Equity Interest" in any Person means any Equity
Interest in such Person other than any Disqualified Equity Interest.
"Qualified Institutional Buyer" or "QIB" means a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture.
"redemption price," when used with respect to any Security to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
as set forth in the form of Security annexed hereto as Exhibit A.
"Registrar" see Section 2.03.
"Registration" means a registered exchange offer for the
Securities by the Company or other registration of the Securities under the
Securities Act pursuant to and in accordance with the terms of the Registration
Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of August 5, 1997 by and among the Company, the Guarantors
and the Initial Purchasers.
"Related Business" means (a) those businesses in which the
Company or any of the Restricted Subsidiaries is engaged on the Issue Date, or
that are reasonably related or incidental thereto and (b) any business (the
"Other Business") which forms a part of a business (the "Acquired Business")
which is acquired by the Company or any of the Restricted Subsidiaries if (i)
the primary intent of the Company or such Restricted Subsidiary was to acquire
that portion of the Acquired Business which meets the requirements of clause (a)
of this definition and (ii) the Company believed that it would not have been
able to acquire such portion of the Acquired Business if the Other Business was
not also acquired.
"Required Filing Dates" see Section 4.12.
"Restricted Investment" means any Investment other than a
Permitted Investment.
"Restricted Payments" see Section 4.06.
"Restricted Security" has the meaning set forth in Rule 144(a)(3)
under the Securities Act; provided, however, that the Trustee shall be entitled
to request and conclusively rely upon an Opinion of Counsel with respect to
whether any Security is a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company that
has not been designated by the Board of Directors of the Company, by a Board
Resolution of the Company delivered to the Trustee, as an Unrestricted
Subsidiary pursuant to Section 4.17. Any such
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<PAGE> 25
designation may be revoked by a Board Resolution of the Company delivered to the
Trustee, subject to the provisions of Section 4.17.
"Revocation" see Section 4.17.
"Rule 144A" means Rule 144A under the Securities Act.
"SEC" or "Commission" means the Securities and Exchange
Commission.
"Securities" means, collectively, the Initial Securities, the
Private Exchange Securities and the Unrestricted Securities treated as a single
class of securities, as amended or supplemented from time to time in accordance
with the terms of this Indenture.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Senior Credit Facility" means the Amended and Restated Credit
Agreement, dated as of the Issue Date, between the Company, the Subsidiaries of
the Company named therein from time to time, the lenders named therein, and The
Chase Manhattan Bank, as Administrative Agent, including any deferrals,
renewals, extensions, replacements, refinancings or refundings thereof, or
amendments, modifications or supplements thereto and any agreement providing
therefor (including any restatements thereof and any increases in the amount of
commitments thereunder), whether by or with the same or any other lender,
creditor, group of lenders or group of creditors, and including related notes,
guaranty and note agreements and other instruments and agreements executed in
connection therewith.
"Senior Indebtedness" means, at any date, (a) all Obligations of
the Company under the Senior Credit Facility; (b) all Hedging Obligations of the
Company; (c) all Obligations of the Company under stand-by letters of credit;
and (d) all other Indebtedness of the Company for borrowed money, including
principal, premium, if any, and interest (including Post-Petition Interest) on
such Indebtedness, unless the instrument under which such Indebtedness of the
Company for money borrowed is Incurred expressly provides that such Indebtedness
for money borrowed is not senior or superior in right of payment to the
Securities, and all renewals, extensions, modifications, amendments or
refinancings thereof. Notwithstanding the foregoing, Senior Indebtedness shall
not include (a) to the extent that it may constitute Indebtedness, any
Obligation for Federal, state, local or other taxes; (b) any Indebtedness among
or between the Company and any Subsidiary of the Company, unless and for so long
as such Indebtedness has been pledged to secure Obligations under the Senior
Credit Facility; (c) to the extent that it may constitute Indebtedness, any
Obligation in respect of any trade payable Incurred for the purchase of goods or
materials, or for services obtained, in the ordinary course of business; (d)
Indebtedness evidenced by the Securities; (e) Indebtedness of the Company that
is expressly subordinate or junior in right of payment to any other Indebtedness
of the Company; (f) to the extent that it may constitute Indebtedness, any
obligation owing under leases (other than Capital Lease Obligations) or
management agreements; and (g) any obligation that by operation of law is
subordinate to any general unsecured obligations of the Company.
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<PAGE> 26
"Significant Restricted Subsidiary" means, at any date of
determination, (a) any Restricted Subsidiary that, together with its
Subsidiaries that constitute Restricted Subsidiaries (i) for the most recent
fiscal year of the Company accounted for more than 5.0% of the consolidated
revenues of the Company and the Restricted Subsidiaries or (ii) as of the end of
such fiscal year, owned more than 5.0% of the consolidated assets of the Company
and the Restricted Subsidiaries, all as set forth on the consolidated financial
statements of the Company and the Restricted Subsidiaries for such year prepared
in conformity with GAAP, and (b) any Restricted Subsidiary which, when
aggregated with all other Restricted Subsidiaries that are not otherwise
Significant Restricted Subsidiaries and as to which any event described in
clause (f), (g), (h) or (i) of Section 6.01 has occurred, would constitute a
Significant Restricted Subsidiary under clause (a) of this definition.
"Stated Maturity," when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subordinated Indebtedness" means, with respect to the Company or
any Guarantor, any Indebtedness of the Company or such Guarantor, as the case
may be, which is expressly subordinated in right of payment to the Securities or
such Guarantor's Guaranty, as the case may be.
"Subsidiary" means, with respect to any Person, (a) any
corporation of which the outstanding Voting Equity Interests having at least a
majority of the votes entitled to be cast in the election of directors shall at
the time be owned, directly or indirectly, by such Person, or (b) any other
Person of which at least a majority of Voting Equity Interests are at the time,
directly or indirectly, owned by such first named Person.
"Surviving Person" means, with respect to any Person involved in
or that makes any Disposition, the Person formed by or surviving such
Disposition or the Person to which such Disposition is made.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ??
77aaa-77bbbb), as amended, as in effect on the date of this Indenture (except as
provided in Section 10.03) until such time as the Indenture is qualified under
the TIA, and thereafter as in effect on the date on which the Indenture is
qualified under the TIA.
"Trustee" means the party named as such in the first paragraph of
this Indenture until a successor replaces it in accordance with the provisions
of this Indenture and thereafter means such successor.
"Trust Officer" means any officer within the corporate trust
department (or any successor group of the Trustee) including any vice president,
assistant vice president, assistant secretary or any other officer or assistant
officer of the Trustee customarily performing functions similar to those
performed by the persons who at that time shall be such officers, and also
means,
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<PAGE> 27
with respect to a particular corporate trust matter, any other officer to whom
such trust matter is referred because of his knowledge of and familiarity with
the particular subject.
"United States Government Obligations" means direct non-callable
obligations of the United States for the payment of which the full faith and
credit of the United States is pledged.
"Unrestricted Securities" means one or more Securities that do
not and are not required to bear the Private Placement Legend in the form set
forth in Exhibit A hereto, including, without limitation, the Exchange
Securities and any Securities registered under the Securities Act pursuant to
and in accordance with the Registration Rights Agreement.
"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to Section 4.17. Any such designation may be revoked
by a Board Resolution of the Company delivered to a Trustee, subject to the
provisions of Section 4.17.
"Unutilized Net Cash Proceeds" see Section 4.05(a).
"Voting Equity Interests" means Equity Interests in a corporation
or other Person with voting power under ordinary circumstances entitling the
holders thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted
Subsidiary all of the outstanding Voting Equity Interests (other than directors'
qualifying shares) of which are owned, directly or indirectly, by the Company.
SECTION 1.02 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities and the Guaranties.
"indenture security holder" means a Securityholder.
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"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, a
Guarantor or any other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule and
not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles in
effect from time to time, and any other reference in this Indenture to
"generally accepted accounting principles" refers to GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions;
and
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
subdivision.
ARTICLE TWO
THE SECURITIES
SECTION 2.01 Form and Dating.
The Initial Securities and the Trustee's certificate of
authentication thereof shall be substantially in the form of Exhibit A hereto,
which is hereby incorporated in and expressly made a part of this Indenture. The
Exchange Securities and the Trustee's certificate of authentication thereof
shall be substantially in the form of Exhibit B hereto, which is hereby
incorporated in and expressly made a part of this Indenture. The Securities may
have notations, legends or endorsements (including the Security Guarantee)
required by law, stock exchange rule or usage. The Company and
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the Trustee shall approve the form of the Securities and any notation, legend or
endorsement (including the Security Guarantee) on them. Each Security shall be
dated the date of its issuance and shall show the date of its authentication.
Securities offered and sold in reliance on Rule 144A and
Securities offered and sold to Institutional Accredited Investors shall be
issued initially in the form of one or more Global Securities, substantially in
the form set forth in Exhibit A hereto, deposited with the Trustee, as custodian
for the Depository, duly executed by the Company and authenticated by the
Trustee as hereinafter provided with the Guaranties of the Guarantors endorsed
thereon and shall bear the legend set forth in Exhibit C hereto. The aggregate
principal amount of the Global Securities may from time to time be increased or
decreased by adjustments made on the records of the Trustee, as custodian for
the Depository, as hereinafter provided.
SECTION 2.02 Execution and Authentication.
Two Officers, or an Officer and an Assistant Secretary, shall
sign, or one Officer shall sign and one Officer or an Assistant Secretary (each
of whom shall, in each case, have been duly authorized by all requisite
corporate actions) shall attest to such Officer's signature, the Securities for
the Company by manual or facsimile signature.
If an Officer or an Assistant Secretary whose signature is on a
Security was an Officer or an Assistant Secretary, as the case may be, at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Security.
The signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
The Trustee shall authenticate (i) Initial Securities for
original issue in an aggregate principal amount not to exceed $125,000,000, (ii)
Private Exchange Securities from time to time only in exchange for a like
principal amount of Initial Securities and (iii) Unrestricted Securities from
time to time only in exchange for (A) a like principal amount of Initial
Securities or (B) a like principal amount of Private Exchange Securities, in
each case upon a written order of the Company in the form of an Officers'
Certificate. Each such written order shall specify the amount of Securities to
be authenticated and the date on which the Securities are to be authenticated,
whether the Securities are to be Initial Securities, Private Exchange Securities
or Unrestricted Securities and whether the Securities are to be issued as
Physical Securities or Global Securities and such other information as the
Trustee may reasonably request. The aggregate principal amount of Securities
outstanding at any time may not exceed $125,000,000, except as provided in
Sections 2.07 and 2.08.
Notwithstanding the foregoing, all Securities issued under this
Indenture shall vote and consent together on all matters (as to which any of
such Securities may vote or consent) as one class and no series of Securities
will have the right to vote or consent as a separate class on any matter.
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The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. Unless otherwise provided
in the appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent shall
have the same rights as an Agent to deal with the Company and Affiliates of the
Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03 Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange (the "Registrar"), (b)
Securities may be presented or surrendered for payment (the "Paying Agent") and
(c) notices and demands in respect of the Securities and this Indenture may be
served. The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company, upon notice to the Trustee, may appoint one
or more co-Registrars and one or more additional Paying Agents. The term "Paying
Agent" includes any additional Paying Agent. Except as provided herein, the
Company or any Guarantor may act as Paying Agent, Registrar or co-Registrar.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which shall incorporate the provisions
of the TIA. The agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee of the name and
address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 7.07.
The Company initially appoints the Trustee as Registrar and
Paying Agent until such time as the Trustee has resigned or a successor has been
appointed.
SECTION 2.04 Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that each Paying Agent shall hold in trust for the
benefit of Holders or the Trustee all assets held by the Paying Agent for the
payment of principal of, or interest on, the Securities, and shall notify the
Trustee of any Default by the Company in making any such payment. The Company at
any time may require a Paying Agent to distribute all assets held by it to the
Trustee and account for any assets disbursed and the Trustee may at any time
during the continuance of any payment Default, upon written request to a Paying
Agent, require such Paying Agent to distribute all assets held by it to the
Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent (if other than the Company), the Paying Agent shall have no further
liability for such assets. If the Company, any Guarantor or any
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of their respective Affiliates acts as Paying Agent, it shall, on or before each
due date of the principal of or interest on the Securities, segregate and hold
in trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.
SECTION 2.05 Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee before each Interest Record Date and at such other times as the Trustee
may request in writing a list as of such date and in such form as the Trustee
may reasonably require of the names and addresses of Holders, which list may be
conclusively relied upon by the Trustee.
SECTION 2.06 Transfer and Exchange.
Subject to the provisions of Sections 2.15 and 2.16, when
Securities are presented to the Registrar or a co-Registrar with a request to
register the transfer of such Securities or to exchange such Securities for an
equal principal amount of Securities of other authorized denominations of the
same series, the Registrar or co-Registrar shall register the transfer or make
the exchange as requested if its requirements for such transaction are met;
provided, however, that the Securities surrendered for transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Registrar or co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing. To
permit registrations of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Securities at the Registrar's or co-Registrar's
written request. No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or other governmental charge
payable upon exchanges or transfers pursuant to Section 2.02, 2.10, 3.06, 4.05,
4.14, or 10.05). The Registrar or co-Registrar shall not be required to register
the transfer or exchange of any Security (i) during a period beginning at the
opening of business 15 days before the mailing of a notice of redemption of
Securities and ending at the close of business on the day of such mailing and
(ii) selected for redemption in whole or in part pursuant to Article Three
hereof, except the unredeemed portion of any Security being redeemed in part.
Prior to the registration of any transfer by a Holder as provided
herein, the Company, the Trustee and any Agent of the Company shall treat the
person in whose name the Security is registered as the owner thereof for all
purposes whether or not the Security shall be overdue, and neither the Company,
the Trustee nor any such Agent shall be affected by notice to the contrary. Any
Holder of a beneficial interest in a Global Security shall, by acceptance of
such beneficial interest in a Global Security, agree that transfers of
beneficial interests in such Global Security may be effected only through a
book-entry system maintained by the Depository (or its agent), and that
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ownership of a beneficial interest in a Global Security shall be required to be
reflected in a book entry.
SECTION 2.07 Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the
Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the Trustee's requirements for replacement of Securities
are met. If required by the Company or the Trustee, such Holder must provide an
indemnity bond or other indemnity, sufficient in the judgment of both the
Company and the Trustee, to protect the Company, the Trustee and any Agent from
any loss which any of them may suffer if a Security is replaced The Company may
charge such Holder for its reasonable out-of-pocket expenses in replacing a
Security, including reasonable fees and expenses of counsel.
Every replacement Security is an additional obligation of the
Company.
SECTION 2.08 Outstanding Securities.
Securities outstanding at any time are all the Securities that have been
authenticated by the Trustee except those cancelled by it, those delivered to it
for cancellation and those described in this Section 2.08 as not outstanding.
Subject to Section 2.09, a Security does not cease to be outstanding because the
Company or any of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date, Purchase Date or the Final Maturity Date the
Paying Agent holds money sufficient to pay all of the principal and interest due
on the Securities payable on that date, and is not prohibited from paying such
money to the Holders pursuant to the terms of this Indenture, then on and after
that date such Securities cease to be outstanding and interest on them ceases to
accrue.
SECTION 2.09 Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company, the Guarantors or any of their respective Affiliates shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities that a Trust Officer of the Trustee actually knows are so owned shall
be disregarded.
The Company shall notify the Trustee, in writing, when it, any
Guarantor or any of its Affiliates repurchases or otherwise acquires Securities,
of the aggregate principal amount of such Securities so repurchased or otherwise
acquired.
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SECTION 2.10 Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities upon receipt of
a written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Securities to be
authenticated and the date on which the temporary Securities are to be
authenticated.
Temporary Securities shall be substantially in the form of definitive
Securities but may have variations that the Company considers appropriate for
temporary Securities. Without unreasonable delay, the Company shall prepare and
the Trustee shall authenticate upon receipt of a written order of the Company
pursuant to Section 2.02 definitive Securities in exchange for temporary
Securities.
SECTION 2.11 Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent,
and no one else, shall cancel, and at the written direction of the Company,
dispose of and deliver evidence of such disposal of all Securities surrendered
for transfer, exchange, payment or cancellation. Subject to Section 2.07, the
Company may not issue new Securities to replace Securities that it has paid or
delivered to the Trustee for cancellation. If the Company or any Guarantor shall
acquire any of the Securities, such acquisition shall not operate as a
redemption or satisfaction of the Indebtedness represented by such Securities
unless and until the same are surrendered to the Trustee for cancellation
pursuant to this Section 2.11.
SECTION 2.12 Defaulted Interest.
The Company shall pay interest on overdue principal from time to time on
demand at the rate of interest then borne by the Securities. The Company shall,
to the extent lawful, pay interest on overdue installments of interest (without
regard to any applicable grace periods) from time to time on demand at the rate
of interest then borne by the Securities.
If the Company defaults in a payment of interest on the Securities, it
shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest to the Persons who are Holders on a subsequent
special record date, which date shall be the fifteenth day preceding the date
fixed by the Company for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day. At least 15 days
before the subsequent special record date, the Company shall mail to each
Holder, with a copy to the Trustee, a notice that states the subsequent special
record date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid.
Notwithstanding the foregoing, any interest which is paid prior to the
expiration of the 30-day period set forth in Section 6.01(b) shall be paid to
Holders as of the Interest Record Date for the Interest Payment Date for which
interest has not been paid.
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SECTION 2.13 CUSIP Number.
The Company in issuing the Securities will use a "CUSIP" number and the
Trustee shall use the CUSIP number in notices of redemption or exchange as a
convenience to Holders; provided , however, that any such notice may state that
no representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Securities, and that reliance may be placed only
on the other identification numbers printed on the Securities. The Company shall
promptly notify the Trustee of any changes in CUSIP numbers.
SECTION 2.14 Deposit of Moneys.
Prior to 10:00 a.m. New York City time on each Interest Payment Date,
Redemption Date, Purchase Date and the Final Maturity Date, the Company shall
deposit with the Paying Agent in immediately available funds money sufficient to
make cash payments, if any, due on such Interest Payment Date, Redemption Date,
Purchase Date or Final Maturity Date, as the case may be, in a timely manner
which permits the Paying Agent to remit payment to the Holders on such Interest
Payment Date, Redemption Date, Purchase Date or Final Maturity Date, as the case
may be.
SECTION 2.15 Book-Entry Provisions for Global Securities.
(a) The Global Securities initially shall (i) be registered in the name
of the Depository or the nominee of such Depository, (ii) be delivered to the
Trustee as custodian for such Depository and (iii) bear legends as set forth in
Exhibit C.
Members of, or participants in, the Depository ("Participants") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Security, and the Depository may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of the Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and Participants, the operation of customary practices governing the exercise of
the rights of a Holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Securities may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depository and the provisions of Section 2.16; provided,
however, that Physical Securities shall be transferred to all beneficial owners
in exchange for their beneficial interests in Global Securities if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for any Global Security and a successor Depository is not appointed
by the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Registrar has received a request from the
Depository to issue Physical Securities.
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(c) In connection with the transfer of Global Securities as an entirety
to beneficial owners pursuant to paragraph (b) of this Section 2.15, the Global
Securities shall be deemed to be surrendered to the Trustee for cancellation,
and the Company shall execute, and the Trustee shall upon written instructions
from the Company authenticate and deliver, to each beneficial owner identified
by the Depository in exchange for its beneficial interest in the Global
Securities, an equal aggregate principal amount of Physical Securities of
authorized denominations.
(d) Any Physical Security constituting a Restricted Security delivered
in exchange for an interest in a Global Security pursuant to paragraph (c) of
this Section 2.15 shall, except as otherwise provided by Section 2.16, bear the
Private Placement Legend.
(e) The Holder of any Global Security may grant proxies and otherwise
authorize any Person, including Participants and Persons that may hold interests
through Participants, to take any action which a Holder is entitled to take
under this Indenture or the Securities.
SECTION 2.16 Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Physical Securities. When Physical
Securities are presented to the Registrar or co-Registrar with a request:
(i) to register the transfer of the Physical Securities; or
(ii) to exchange such Physical Securities for an equal principal
amount of Physical Securities of other authorized denominations, the
Registrar or co-Registrar shall register the transfer or make the
exchange as requested if the requirements under this Indenture as set
forth in this Section 2.16 for such transactions are met; provided,
however, that the Physical Securities presented or surrendered for
Registration of transfer or exchange:
(I) shall be duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to the Registrar or
co-Registrar, duly executed by the Holder thereof or his attorney
duly authorized in writing; and
(II) in the case of Physical Securities the offer and sale
of which have not been registered under the Securities Act, such
Physical Securities shall be accompanied, in the sole discretion
of the Company, by the following additional information and
documents, as applicable:
(A) if such Physical Security is being delivered to
the Registrar or co-Registrar by a Holder for Registration
in the name of such Holder, without transfer, a
certification from such Holder to that effect
(substantially in the form of Exhibit D hereto); or
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(B) if such Physical Security is being transferred
to a QIB in accordance with Rule 144A, a certification to
that effect (substantially in the form of Exhibit D
hereto); or
(C) if such Physical Security is being transferred
to an Institutional Accredited Investor, delivery of a
certification to that effect (substantially in the form of
Exhibit D hereto) and a transferee letter of
representation substantially in the form of Exhibit E
hereto and, at the option of the Company, an Opinion of
Counsel reasonably satisfactory to the Company to the
effect that such transfer is in compliance with the
Securities Act; or
(D) if such Physical Security is being transferred
in reliance on Rule 144 under the Securities Act, delivery
of a certification to that effect (substantially in the
form of Exhibit D hereto) and, at the option of the
Company, an Opinion of Counsel reasonably satisfactory to
the Company to the effect that such transfer is in
compliance with the Securities Act; or
(E) if such Physical Security is being transferred
in reliance on another exemption from the registration
requirements of the Securities Act, a certification to
that effect (substantially in the form of Exhibit D
hereto) and, at the option of the Company, an Opinion of
Counsel reasonably acceptable to the Company to the effect
that such transfer is in compliance with the Securities
Act.
(b) Restrictions on Transfer of a Physical Security for a Beneficial
Interest in a Global Security. A Physical Security the offer and sale of which
has not been registered under the Securities Act may not be exchanged for a
beneficial interest in a Global Security except upon satisfaction of the
requirements set forth below. Upon receipt by the Registrar or co-Registrar of a
Physical Security, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Registrar or co-Registrar, together with:
(A) certification, substantially in the form of Exhibit D
hereto, that such Physical Security is being transferred (I) to a
QIB or (II) to an Accredited Investor and, with respect to (II),
at the option of the Company, an Opinion of Counsel reasonably
acceptable to the Company to the effect that such transfer is in
compliance with the Securities Act; and
(B) written instructions directing the Registrar or
co-Registrar to make, or to direct the Depository to make, an
endorsement on the applicable Global Security to reflect an
increase in the aggregate amount of the Securities represented by
the Global Security, then the Registrar or co-Registrar shall
cancel such Physical Security and cause, or direct the Depository
to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Registrar or
co-Registrar, the principal amount of Securities represented by
the applicable Global
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Security to be increased accordingly. If no 144A Global Security
or IAI Global Security, as the case may be, is then outstanding,
the Company shall, unless either of the events in the proviso to
Section 2.15(b) have occurred and are continuing, issue and the
Trustee shall, upon written instructions from the Company in
accordance with Section 2.02, authenticate such a Global Security
in the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
through the Depository in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depository
therefor. Upon receipt by the Registrar or Co-Registrar of written instructions,
or such other instruction as is customary for the Depository, from the
Depository or its nominee, requesting the Registration of transfer of an
interest in a 144A Global Security or an IAI Global Security, as the case may
be, to another type of Global Security, together with the applicable Global
Securities (or, if the applicable type of Global Security required to represent
the interest as requested to be transferred is not then outstanding, only the
Global Security representing the interest being transferred), the Registrar or
Co-Registrar shall cancel such Global Securities (or Global Security) and the
Company shall issue and the Trustee shall, upon written instructions from the
Company in accordance with Section 2.02, authenticate new Global Securities of
the types so cancelled (or the type so cancelled and applicable type required to
represent the interest as requested to be transferred) reflecting the applicable
increase and decrease of the principal amount of Securities represented by such
types of Global Securities, giving effect to such transfer. If the applicable
type of Global Security required to represent the interest as requested to be
transferred is not outstanding at the time of such request, the Company shall
issue and the Trustee shall, upon written instructions from the Company in
accordance with Section 2.02, authenticate a new Global Security of such type in
principal amount equal to the principal amount of the interest requested to be
transferred.
(d) Transfer of a Beneficial Interest in a Global Security for a
Physical Security.
(i) Any Person having a beneficial interest in a Global Security may
upon request exchange such beneficial interest for a Physical Security;
provided, however, that prior to the Registration, a transferee that is
a QIB or Institutional Accredited Investor may not exchange a beneficial
interest in Global Security for a Physical Security. Upon receipt by the
Registrar or co-Registrar of written instructions, or such other form of
instructions as is customary for the Depository, from the Depository or
its nominee on behalf of any Person (subject to the previous sentence)
having a beneficial interest in a Global Security and upon receipt by
the Trustee of a written order or such other form of instructions as is
customary for the Depository or the Person designated by the Depository
as having such a beneficial interest containing registration
instructions and, in the case of any such transfer or exchange of a
beneficial interest in Securities the offer and sale of which have not
been registered under the Securities Act, the following additional
information and documents:
(A) if such beneficial interest is being transferred in
reliance on Rule 144 under the Securities Act, delivery of a
certification to that effect (substantially in the
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form of Exhibit D hereto) and, at the option of the Company, an
Opinion of Counsel reasonably satisfactory to the Company to the
effect that such transfer is in compliance with the Securities
Act; or
(B) if such beneficial interest is being transferred in
reliance on another exemption from the registration requirements
of the Securities Act, a certification to that effect
(substantially in the form of Exhibit D hereto) and, at the
option of the Company, an Opinion of Counsel reasonably
satisfactory to the Company to the effect that such transfer is
in compliance with the Securities Act,
then the Registrar or co-Registrar will cause, in accordance with the
standing instructions and procedures existing between the Depository and
the Registrar or co-Registrar, the aggregate principal amount of the
applicable Global Security to be reduced and, following such reduction,
the Company will execute and, upon receipt of an authentication order in
the form of an Officers' Certificate in accordance with Section 2.02,
the Trustee will authenticate and deliver to the transferee a Physical
Security in the appropriate principal amount.
(ii) Securities issued in exchange for a beneficial interest in a
Global Security pursuant to this Section 2.16(d) shall be registered in
such names and in such authorized denominations as the Depository,
pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Registrar or co-Registrar in writing. The
Registrar or co-Registrar shall deliver such Physical Securities to the
Persons in whose names such Physical Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
Notwithstanding any other provisions of this Indenture, a Global Security may
not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Private Placement Legend. Upon the transfer, exchange or replacement
of Securities not bearing the Private Placement Legend, the Registrar or
co-Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing the
Private Placement Legend, the Registrar or co-Registrar shall deliver only
Securities that bear the Private Placement Legend unless, and the Trustee is
hereby authorized to deliver Securities without the Private Placement Legend if,
(i) there is delivered to the Trustee an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act;(ii) such Security
has been sold pursuant to an effective registration statement under the
Securities Act (including pursuant to a Registration); or (iii) the date of such
transfer, exchange or replacement is two years after the later of (x) the Issue
Date and (y) the last date that the Company or any affiliate (as defined in Rule
144 under the Securities Act) of the Company was the owner of such Securities
(or any predecessor thereto).
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(g) General. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture.
The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Security (including any transfers between or among Participants or
beneficial owners of interest in any Global Security) other than to require
delivery of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required by the terms
of, this Indenture, and to examine the same to determine substantial compliance
as to form with the express requirements hereof.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.15 or this Section 2.16.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
ARTICLE THREE
REDEMPTION
SECTION 3.01 Notices to Trustee.
If the Company wants to redeem Securities pursuant to paragraph 5 or 6
of the Securities at the applicable redemption price set forth thereon, it shall
notify the Trustee in writing of the Redemption Date and the principal amount of
Securities to be redeemed. The Company shall give such notice to the Trustee at
least 60 days before the Redemption Date (unless a shorter notice shall be
agreed to by the Trustee in writing), together with an Officers' Certificate
stating that such redemption will comply with the conditions contained herein.
SECTION 3.02 Selection of Securities To Be Redeemed.
If less than all of the Securities are to be redeemed pursuant to
paragraph 5 of the Securities, the Trustee shall select the Securities to be
redeemed in compliance with the requirements of the national securities
exchange, if any, on which the Securities are listed or, if the Securities are
not then listed on a national securities exchange, on a pro rata basis, by lot
or in such other manner as the Trustee shall deem fair and appropriate.
Selection of the Securities to be redeemed pursuant to paragraph 6 of the
Securities shall be made by the Trustee only on a pro rata basis or on as nearly
a pro rata basis as is practicable (subject to the procedures of the Depository)
based on the aggregate principal amount of Securities held by each Holder. The
Trustee shall make the selection from the Securities then outstanding, subject
to redemption and not previously called for redemption.
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The Trustee may select for redemption pursuant to paragraph 5 or 6 of
the Securities portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption.
SECTION 3.03 Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date, the
Company shall mail a notice of redemption by first-class mail to each Holder
whose Securities are to be redeemed at such Holder's registered address;
provided, however, that notice of a redemption pursuant to paragraph 6 of the
Securities shall be mailed to each Holder whose Securities are to be redeemed no
later than 60 days after the date of the Closing of the relevant Public Equity
Offering of Holdings or the Company.
Each notice of redemption shall identify the Securities to be redeemed
(including the CUSIP number thereon) and shall state:
(1) the Redemption Date;
(2) the redemption price;
(3) the name and address of the Paying Agent to which the
Securities are to be surrendered for redemption;
(4) that Securities called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(5) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue
on and after the Redemption Date and the only remaining right of the
Holders is to receive payment of the redemption price upon surrender to
the Paying Agent; and
(6) in the case of any redemption pursuant to paragraph 5 or 6 of
the Securities, if any Security is being redeemed in part, the portion
of the principal amount of such Security to be redeemed and that, after
the Redemption Date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion thereof
will be issued.
At the Company's request, the Trustee shall give the notice of
redemption on behalf of the Company, in the Company's name and at the Company's
expense.
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SECTION 3.04 Effect of Notice of Redemption.
Once a notice of redemption is mailed, Securities called for redemption
become due and payable on the Redemption Date and at the redemption price. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price, plus accrued interest thereon, if any, to the Redemption Date, but
interest installments whose maturity is on or prior to such Redemption Date
shall be payable to the Holders of record at the close of business on the
relevant Interest Record Date.
SECTION 3.05 Deposit of Redemption Price.
At least one Business Day before the Redemption Date, the Company shall
deposit with the Paying Agent (or if the Company is its own Paying Agent, shall,
on or before the Redemption Date, segregate and hold in trust) money sufficient
to pay the redemption price of and accrued interest, if any, on all Securities
to be redeemed on that date other than Securities or portions thereof called for
redemption on that date which have been delivered by the Company to the Trustee
for cancellation.
If any Security surrendered for redemption in the manner provided in the
Securities shall not be so paid on the Redemption Date due to the failure of the
Company to deposit with the Paying Agent money sufficient to pay the redemption
price thereof, the principal and accrued and unpaid interest, if any, thereon
shall, until paid or duly provided for, bear interest as provided in Sections
2.12 and 4.01 with respect to any payment default.
SECTION 3.06 Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Trustee shall
authenticate for the Holder a new Security equal in principal amount to the
unredeemed portion of the Security surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01 Payment of Securities.
The Company shall pay the principal of and interest on the Securities in
the manner provided in the Securities and the Registration Rights Agreement. An
installment of principal or interest shall be considered paid on the date due if
the Trustee or Paying Agent (other than the Company, a Guarantor or any of their
respective Affiliates) holds on that date money designated for and sufficient to
pay the installment in full and is not prohibited from paying such money to the
Holders of the Securities pursuant to the terms of this Indenture.
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The Company shall pay cash interest on overdue principal at the same
rate per annum borne by the Securities. The Company shall pay cash interest on
overdue installments of interest at the same rate per annum borne by the
Securities, to the extent lawful, as provided in Section 2.12.
SECTION 4.02 Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City of New
York, the office or agency required under Section 2.03. The Company shall give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 13. The
Company hereby initially designates the Trustee at its address set forth in
Section 13.02 as its office or agency in The Borough of Manhattan, The City of
New York, for such purposes.
SECTION 4.03 Transactions with Affiliates.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, conduct any business or enter into any
transaction (or series of related transactions) with or for the benefit of any
of their respective Affiliates or any officer, director or employee of the
Company or any Restricted Subsidiary (each an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms which are no less favorable to the
Company or such Restricted Subsidiary, as the case may be, than would be
available in a comparable transaction with an unaffiliated third party and (ii)
if such Affiliate Transaction or series of related Affiliate Transactions (other
than any such Affiliate Transactions between the Company or a Restricted
Subsidiary and an Unrestricted Subsidiary or an Accounts Receivable Subsidiary
in the ordinary course of business) involves aggregate payments or other
consideration having a Fair Market Value in excess of $1.0 million, such
Affiliate Transaction is in writing and a majority of the disinterested members
of the Board of Directors of the Company shall have approved such Affiliate
Transaction and determined that such Affiliate Transaction complies with the
foregoing provisions. In addition, any Affiliate Transaction (other than an
Affiliate Transaction between the Company or a Restricted Subsidiary and an
Unrestricted Subsidiary or an Accounts Receivable Subsidiary in the ordinary
course of business) involving aggregate payments or other consideration having a
Fair Market Value in excess of $5.0 million will also require a written opinion
from an Independent Financial Advisor (filed with the Trustee) stating that the
terms of such Affiliate Transaction are fair, from a financial point of view, to
the Company or the Restricted Subsidiary involved in such Affiliate Transaction,
as the case may be.
Notwithstanding the foregoing, the restrictions set forth in this
Section 4.03 shall not apply to (i) transactions with or among the Company and
any Restricted Subsidiary or between or among Restricted Subsidiaries; (ii)
customary directors' fees, indemnification and similar arrangements, consulting
fees, employee salaries, bonuses or employment agreements, compensation or
employee benefit arrangements and incentive arrangements with any officer,
director or employee of the Company or any Restricted Subsidiary entered into in
the ordinary course of business (including
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customary benefits thereunder) and payments under any indemnification
arrangements permitted by applicable law; (iii) any transactions undertaken
pursuant to any contractual obligations in existence on the Issue Date (as in
effect on the Issue Date); (iv) the issue and sale by the Company to its
stockholders of Qualified Equity Interests; (v) any Restricted Payments made in
compliance with Section 4.06; (vi) loans and advances to officers, directors and
employees of the Company or any Restricted Subsidiary for travel, entertainment,
moving and other relocation expenses, in each case made in the ordinary course
of business; (vii) the Incurrence of intercompany Indebtedness permitted
pursuant to clause (d) of the second paragraph of Section 4.04; and (viii) the
pledge of Equity Interests of Unrestricted Subsidiaries to support the
Indebtedness thereof.
SECTION 4.04 Limitation on Indebtedness.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, Incur any Indebtedness (including
Acquired Indebtedness) or issue any Disqualified Equity Interests, except for
Permitted Indebtedness; provided, however, that (i) the Company and any
Guarantor may Incur Indebtedness (other than Disqualified Equity Interests),
(ii) any Restricted Subsidiary may incur Acquired Indebtedness and (iii) the
Company may issue Disqualified Equity Interests if, in any such case, at the
time of and immediately after giving pro forma effect to such Incurrence of
Indebtedness or issuance of Disqualified Equity Interests and the application of
the proceeds therefrom, the Consolidated Coverage Ratio would be greater than
(a) 1.85 to 1.0, if such Incurrence occurs on or prior to December 31, 1999, or
(b) 2.0 to 1.0, if such Incurrence occurs after December 31, 1999.
The foregoing limitations will not apply to the Incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which shall be given
independent effect:
(a) Indebtedness under the Securities, the Guaranties and this
Indenture;
(b) Existing Indebtedness;
(c) Indebtedness of the Company, the Guarantors and Foreign
Subsidiaries pursuant to the Senior Credit Facility in an aggregate principal
amount at any one time outstanding not to exceed the sum of (x) the greater of
(I) $30.0 million and (II) the sum of (A) 85% of the net book value of the
accounts receivable of the Company and the Restricted Subsidiaries on a
consolidated basis in accordance with GAAP and (B) 50% of the net book value of
the inventory of the Company and the Restricted Subsidiaries on a consolidated
basis in accordance with GAAP with respect to revolving loans thereunder and (y)
$30.0 million with respect to term loans, additional revolving loans or other
loans thereunder;
(d) Indebtedness of any Restricted Subsidiary owed to and held by
the Company or any Restricted Subsidiary and Indebtedness of the Company owed to
and held by any Restricted Subsidiary, which Indebtedness is unsecured and
subordinated in right of payment to the payment and performance of the Company's
obligations under any Senior Indebtedness, this Indenture and the Securities;
provided, however, that an Incurrence of Indebtedness that is not permitted by
this
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clause (d) shall be deemed to have occurred upon (i) any sale or other
disposition of any Indebtedness of the Company or any Restricted Subsidiary
referred to in this clause (d) to a Person (other than the Company or any
Restricted Subsidiary), and (ii) the designation of a Restricted Subsidiary
which holds Indebtedness of the Company or any other Restricted Subsidiary as an
Unrestricted Subsidiary;
(e) the Guaranties and guaranties by any Guarantor of
Indebtedness of the Company; provided, however, that if such guaranty is of
Subordinated Indebtedness, then the Guaranty of such Guarantor shall be senior
to such Guarantor's guaranty of Subordinated Indebtedness;
(f) Hedging Obligations of the Company and the Restricted
Subsidiaries;
(g) Purchase Money Indebtedness and Capitalized Lease Obligations
(and refinancings thereof) of the Company and the Restricted Subsidiaries which
do not exceed $10.0 million in the aggregate at any one time outstanding;
(h) Indebtedness of the Company or a Restricted Subsidiary to the
extent representing a replacement, renewal, refinancing or extension
(collectively, a "refinancing") of outstanding Indebtedness Incurred in
compliance with the Consolidated Coverage Ratio of the first paragraph of this
covenant or clause (a) or (b) of this paragraph of this Section 4.04; provided,
however, that (i) any such refinancing shall not exceed the sum of the principal
amount (or accreted amount (determined in accordance with GAAP), if less) of the
Indebtedness or Disqualified Equity Interests being refinanced, plus the amount
of accrued interest or dividends thereon, plus the amount of any reasonably
determined prepayment premium necessary to accomplish such refinancing and such
reasonable fees and expenses incurred in connection therewith, (ii) Indebtedness
representing a refinancing of Indebtedness other than Senior Indebtedness shall
have a Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of the Indebtedness being refinanced; (iii)
Indebtedness that is pari passu with the Securities may only be refinanced with
Indebtedness that is made pari passu with or subordinate in right of payment to
the Securities and Subordinated Indebtedness may only be refinanced with
Subordinated Indebtedness or Disqualified Equity Interests and Disqualified
Equity Interests may only be refinanced with other Disqualified Equity
Interests; and (iv) refinancing Indebtedness incurred by a Restricted Subsidiary
which is not a Guarantor may only be used to refinance Indebtedness of a
Restricted Subsidiary which is not a Guarantor;
(i) in addition to the items referred to in clauses (a) through
(h) above and clause (j) below, Indebtedness of the Company (including any
Indebtedness under the Senior Credit Facility that utilizes this subparagraph
(i)) having an aggregate principal amount not to exceed $10.0 million at any
time outstanding; and
(j) Indebtedness of a Foreign Subsidiary, (i) for working capital
purposes in an aggregate principal amount at any one time outstanding not to
exceed the sum of (x) 85% of the net book value of the accounts receivable of
such Foreign Subsidiary in accordance with GAAP and (y)
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50% of the net book value of the inventory of such Foreign Subsidiary in
accordance with GAAP, (ii) representing guaranties of Indebtedness of another
Foreign Subsidiary incurred pursuant to subclause (i) of this clause (j).
Notwithstanding any other provision of this Section 4.04, the maximum
amount of Indebtedness that the Company or any Restricted Subsidiary may Incur
pursuant to this Section 4.04 shall not be deemed to be exceeded due solely to
the result of fluctuations in the exchange rates of currencies. For purposes of
determining any particular amount of Indebtedness under this Section 4.04,
guarantees of, or obligations with respect to letters of credit supporting,
Indebtedness otherwise included in the determination of such particular amount
shall not be included. For purposes of determining compliance with this Section
4.04, in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described in the above clauses, the Company, in
its sole discretion, shall classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of such
clauses.
SECTION 4.05 Disposition of Proceeds of Asset Sales.
(a) The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, make any Asset Sale, unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the assets sold or otherwise disposed of and (ii) at least 80% of such
consideration consists of (A) cash or Cash Equivalents, (B) properties and
capital assets to be used in a Related Business, (C) Equity Interests in any
Person which thereby becomes a Wholly Owned Restricted Subsidiary whose assets
consist primarily of properties and capital assets used in a Related Business or
(D) "earn out" or similar rights providing for a cash payment contingent upon
operating results or the financial condition of the business and/or Person
subject to such Asset Sale. The amount of any (i) Indebtedness (other than any
Subordinated Indebtedness) of the Company or any Restricted Subsidiary that is
actually assumed by the transferee in such Asset Sale and from which the Company
and the Restricted Subsidiaries are fully released shall be deemed to be cash
for purposes of determining the percentage of cash consideration received by the
Company or the Restricted Subsidiaries and (ii) notes or other similar
obligations received by the Company or the Restricted Subsidiaries from such
transferee that are immediately converted, sold or exchanged (or are converted,
sold or exchanged within thirty days of the related Asset Sale) by the Company
or the Restricted Subsidiaries into cash shall be deemed to be cash, in an
amount equal to the net cash proceeds realized upon such conversion, sale or
exchange for purposes of determining the percentage of cash consideration
received by the Company or the Restricted Subsidiaries.
The Company or such Restricted Subsidiary, as the case may be, may (i)
apply the Net Cash Proceeds of any Asset Sale within 270 days of receipt thereof
to repay Senior Indebtedness, (ii) commit in writing to acquire, construct or
improve properties and capital assets to be used in a Related Business and so
apply such Net Cash Proceeds within 270 days after the receipt thereof or (iii)
apply the Net Cash Proceeds of any Asset Sale within 270 days of receipt thereof
to repay Pari Passu Debt not exceeding the Pari Passu Debt Pro Rata Share;
provided that the Company or such
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Restricted Subsidiary may use up to $10.0 million of aggregate Net Cash Proceeds
from Asset Sales for any purpose not prohibited by this Indenture.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are
not applied within 270 days of such Asset Sale as described in clause (i), (ii)
or (iii) or the proviso of the immediately preceding paragraph (such Net Cash
Proceeds, the "Unutilized Net Cash Proceeds"), the Company shall, within 20 days
after such 270th day, make an Offer to Purchase all outstanding Securities up to
a maximum principal amount (expressed as a multiple of $1,000) of Securities
equal to such Unutilized Net Cash Proceeds, at a purchase price in cash equal to
100% of the principal amount thereof, plus accrued and unpaid interest thereon,
if any, to the Purchase Date; provided, however, that the Offer to Purchase may
be deferred until there are aggregate Unutilized Net Cash Proceeds equal to or
in excess of $10.0 million, at which time the entire amount of such Unutilized
Net Cash Proceeds, and not just the amount in excess of $10.0 million, shall be
applied as required pursuant to this paragraph. Each Holder shall be entitled to
tender all or any portion of the Securities owned by such Holder pursuant to the
Offer to Purchase, subject to the requirement that any portion of a Security
tendered must be tendered in an integral multiple of $1,000 principal amount and
subject to any proration among tendering Holders as described in paragraph (b)
below.
(b) With respect to any Offer to Purchase effected pursuant to this
Section 4.05, among the Securities, to the extent the aggregate principal amount
of Securities tendered pursuant to such Offer to Purchase exceeds the Unutilized
Net Cash Proceeds to be applied to the repurchase thereof, such Securities shall
be purchased pro rata based on the aggregate principal amount of such Securities
tendered by each Holder. To the extent the Unutilized Net Cash Proceeds exceed
the aggregate amount of Securities tendered by the Holders of the Securities
pursuant to such Offer to Purchase, the Company may retain and utilize any
portion of the Unutilized Net Cash Proceeds not applied to repurchase the
Securities for any purpose consistent with the other terms of this Indenture.
(c) On or prior to the Purchase Date specified in the Offer to Purchase,
the Company shall (i) subject to paragraph (b) of this Section 4.05, accept for
payment all Securities validly tendered pursuant to the Offer, (ii) deposit with
the Paying Agent or, if the Company is acting as its own Paying Agent, segregate
and hold in trust as provided in Section 2.04, money sufficient to pay the
Purchase Price of all Securities or portions thereof so accepted and (iii)
deliver or cause to be delivered to the Trustee for cancellation all Securities
so accepted together with an Officers' Certificate stating the Securities or
portions thereof accepted for payment by the Company. The Paying Agent (or the
Company, if so acting) shall promptly mail or deliver to Holders of Securities
so accepted, payment in an amount equal to the Purchase Price for such
Securities, and the Trustee shall promptly authenticate and mail or deliver to
each Holder of Securities a new Security or Securities equal in principal amount
to any unpurchased portion of the Security surrendered as requested by the
Holder. Any Security not accepted for payment shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company shall publicly
announce the results of the Offer on or as soon as practicable after the
Purchase Date.
(d) In the event that the Company makes an Offer to Purchase the
Securities, the Company shall comply with any applicable securities laws and
regulations, including any applicable
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requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act, and
any violation of the provisions of this Indenture relating to such Offer to
Purchase occurring as a result of such compliance shall not be deemed a Default
or an Event of Default.
SECTION 4.06 Limitation on Restricted Payments.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or any other distribution on any
Equity Interests of the Company or any Restricted Subsidiary or make any
payment or distribution to the direct or indirect holders (in their
capacities as such) of Equity Interests of the Company or any Restricted
Subsidiary (other than any dividends, distributions and payments made to
the Company or any Restricted Subsidiary and dividends or distributions
payable to any Person solely in Qualified Equity Interests of the
Company or in options, warrants or other rights to purchase Qualified
Equity Interests of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company or any Restricted Subsidiary (other
than any such Equity Interests owned by the Company or any Restricted
Subsidiary);
(iii) purchase, redeem, defease or retire for value, or make any
principal payment on, prior to any scheduled maturity, scheduled
repayment or scheduled sinking fund payment, any Subordinated
Indebtedness (other than any Subordinated Indebtedness held by the
Company or any Restricted Subsidiary); or
(iv) make any Investment (other than Permitted Investments) in
any Person (other than in the Company), any Restricted Subsidiary or a
Person that becomes a Restricted Subsidiary, or is merged with or into
or consolidated with the Company or a Restricted Subsidiary (provided
the Company or a Restricted Subsidiary is the survivor), as a result of
or in connection with such Investment)
(any such payment or any other action (other than any exception thereto)
described in (i), (ii), (iii) or (iv) each, a "Restricted Payment"), unless
(a) no Default shall have occurred and be continuing at the time
or immediately after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment,
the Company would be able to Incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the Consolidated Coverage Ratio of the first
paragraph of Section 4.04; and
(c) immediately after giving effect to such Restricted Payment,
the aggregate amount of all Restricted Payments declared or made on or after the
Issue Date does not exceed an
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amount equal to the sum of (1) 50% of cumulative Consolidated Net Income
determined for the period (taken as one period) from the beginning of the first
fiscal quarter commencing after the Issue Date and ending on the last day of the
most recent fiscal quarter immediately preceding the date of such Restricted
Payment for which consolidated financial information of the Company is available
(or if such cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss), plus (2) the aggregate net cash proceeds received by the Company
either (x) as capital contributions to the Company after the Issue Date or (y)
from the issue and sale (other than to a Restricted Subsidiary) of its Qualified
Equity Interests after the Issue Date (excluding the net proceeds from any
issuance and sale of Qualified Equity Interests financed, directly or
indirectly, using funds borrowed from the Company or any Restricted Subsidiary
until and to the extent such borrowing is repaid), plus (3) the principal amount
(or accreted amount (determined in accordance with GAAP), if less) of any
Indebtedness of the Company or any Restricted Subsidiary Incurred after the
Issue Date which has been converted into or exchanged for Qualified Equity
Interests of the Company, plus (4) in the case of the disposition or repayment
of any Investment constituting a Restricted Payment made after the Issue Date,
an amount (to the extent not included in the computation of Consolidated Net
Income) equal to the lesser of: (x) the return of capital with respect to such
Investment and (y) the amount of such Investment which was treated as a
Restricted Payment, in either case, less the cost of the disposition of such
Investment and net of taxes, plus (5) so long as the Designation thereof was
treated as a Restricted Payment made after the Issue Date, with respect to any
Unrestricted Subsidiary that has been redesignated as a Restricted Subsidiary
after the Issue Date in accordance with Section 4.17, the Company's
proportionate interest in an amount equal to the excess of (x) the total assets
of such Subsidiary, valued on an aggregate basis at Fair Market Value, over (y)
the total liabilities of such Subsidiary, determined in accordance with GAAP
(and provided that such amount shall not in any case exceed the Designation
Amount with respect to such Restricted Subsidiary upon its Designation), plus
(6) (to the extent not included in the computation of Consolidated Net Income)
the amount of cash dividends or cash distributions (other than to pay taxes)
received from any Unrestricted Subsidiary since the Issue Date, minus (7) the
greater of (x) $0 and (y) the Designation Amount (measured as of the date of
Designation) with respect to any Subsidiary of the Company which has been
designated as an Unrestricted Subsidiary after the Issue Date in accordance with
Section 4.17.
The foregoing provisions will not prevent (i) (x) the payment of
any dividend or distribution on, or redemption of, Equity Interests within 60
days after the date of declaration of such dividend or distribution or the
giving of formal notice of such redemption, if at the date of such declaration
or giving of such formal notice such payment or redemption would comply with the
provisions of this Indenture or (y) the payment of any dividend or distribution
on a pro rata basis to holders of minority Equity Interests in a Restricted
Subsidiary out of the net income from the Issue Date of such Restricted
Subsidiary; (ii) the purchase, redemption, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the net cash
proceeds of (or the payment of a dividend or distribution to Holdings out of the
net cash proceeds of) the substantially concurrent issue and sale (other than to
a Restricted Subsidiary) of, Qualified Equity Interests of the Company;
provided, however, that any such net cash proceeds and the value of any
Qualified Equity Interests issued in exchange for such retired Equity Interests
are excluded from clause (c)(2) of the preceding paragraph (and were not
included therein at any time); (iii) the purchase, redemption,
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retirement, defeasance or other acquisition of Subordinated Indebtedness, or any
other payment thereon, made in exchange for, or out of the net cash proceeds of,
a substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of (x) Qualified Equity Interests of the Company; provided, however,
that any such net cash proceeds and the value of any Qualified Equity Interests
issued in exchange for Subordinated Indebtedness are excluded from clauses
(c)(2) and (c)(3) of the preceding paragraph (and were not included therein at
any time) or (y) other Subordinated Indebtedness having no stated maturity for
the payment of principal thereof prior to the final stated maturity of the
Securities; (iv) any Investment to the extent that it is funded with the net
cash proceeds of the substantially concurrent issue and sale (other than to a
Restricted Subsidiary) of Qualified Equity Interests of the Company; provided,
however, that any such net cash proceeds are excluded from clause (c)(2) of the
preceding paragraph (and were not included therein at any time); (v) the
purchase, redemption or other acquisition, cancellation or retirement for value
of Equity Interests, or options, warrants, equity appreciation rights or other
rights to purchase or acquire Equity Interests, of the Company or any Restricted
Subsidiary, or similar securities, held by officers or employees or former
officers or employees of the Company or any Restricted Subsidiary (or their
estates or beneficiaries under their estates), upon death, disability,
retirement or termination of employment, or dividends by the Company to Holdings
to effect the same in respect of its Equity Interests held by officers or
employees or former officers or employees of the Company or any Restricted
Subsidiary (or their estates or beneficiaries under their estates), upon death,
disability, retirement or termination of employment, not to exceed $1.0 million
per fiscal year; provided that if the full $1.0 million is not utilized in any
fiscal year, such unutilized portion may be so utilized in any subsequent fiscal
year; and provided, further, that in no fiscal year shall such payments exceed
$4.0 million; (vi) distributions to Holdings to fund the payment of principal
and interest on the Junior Subordinated Seller Note in accordance with the terms
thereof; (vii) Restricted Payments not to exceed $2.0 million in the aggregate
since the Issue Date; or (viii) payments to Holdings to pay general and
administrative expenses of Holdings not to exceed $250,000 in any fiscal year;
or (ix) the payment of any dividend or distribution to Holdings to fund the
federal and state income tax liability of the partners of Holdings for periods
ending on or before the Issue Date in an aggregate amount not to exceed
$200,000; provided, however, that in the case of each of clauses (ii), (iii),
(iv), (v), (vii) and (viii) no Default shall have occurred and be continuing or
would arise therefrom.
In determining the amount of Restricted Payments permissible
under this Section 4.06, amounts expended pursuant to clauses (i), (v), (vii)
and (viii) of the immediately preceding paragraph shall be included as
Restricted Payments and amounts expended pursuant to clauses (ii), (iii), (iv),
(vi) and (ix) shall be excluded. The amount of any non-cash Restricted Payment
shall be deemed to be equal to the Fair Market Value thereof at the date of the
making of such Restricted Payment.
SECTION 4.07 Corporate Existence.
Subject to Article Five, the Company shall do or shall cause to
be done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate, partnership or other existence of each
Restricted Subsidiary in accordance with the respective organizational documents
of each such Restricted Subsidiary and the rights (charter and statutory)
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and material franchises of the Company and the Restricted Subsidiaries;
provided, however, that the Company shall not be required to preserve any such
right or franchise, or the corporate existence of any Restricted Subsidiary, if
the Board of Directors of the Company shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
the Restricted Subsidiaries, taken as a whole, and that the loss thereof is not,
and will not be, adverse in any material respect to the Holders; provided,
further, however, that a determination of the Board of Directors of the Company
shall not be required in the event of a merger of one or more Wholly Owned
Restricted Subsidiaries of the Company with or into another Wholly Owned
Restricted Subsidiary of the Company or another Person, if the surviving Person
is a Wholly Owned Restricted Subsidiary of the Company organized under the laws
of the United States or a State thereof or of the District of Columbia.
SECTION 4.08 Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (1) all material taxes,
assessments and governmental charges levied or imposed upon the Company or any
Restricted Subsidiary or upon the income, profits or property of the Company or
any Restricted Subsidiary and (2) all lawful claims for labor, materials and
supplies which, in each case, if unpaid, might by law become a material
liability, or Lien upon the property, of the Company or any Restricted
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which appropriate provision has been made.
SECTION 4.09 Notice of Defaults.
(a) In the event that any Indebtedness of the Company or any of
its Subsidiaries is declared due and payable before its maturity because of the
occurrence of any default (or any event which, with notice or lapse of time, or
both, would constitute such a default) under such Indebtedness, the Company
shall promptly give written notice to the Trustee of such declaration, the
status of such default or event and what action the Company is taking or
proposes to take with respect thereto.
(b) Upon becoming aware of any Default or Event of Default, the
Company shall promptly deliver an Officers' Certificate to the Trustee
specifying the Default or Event of Default.
SECTION 4.10 Maintenance of Properties and Insurance.
(a) The Company shall cause all material properties owned by or
leased to it or any Restricted Subsidiary and used or useful in the conduct of
its business or the business of any Restricted Subsidiary to be maintained and
kept in normal condition, repair and working order and supplied with all
necessary equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary, so that the business carried on in connection
therewith may be properly and
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advantageously conducted at all times; provided, however, that nothing in this
Section 4.10 shall prevent the Company or any Restricted Subsidiary from
discontinuing the use, operation or maintenance of any of such properties, or
disposing of any of them, if such discontinuance or disposal is, in the judgment
of the Board of Directors or of the board of directors of the Restricted
Subsidiary concerned, or of an officer (or other agent employed by the Company
or of any Restricted Subsidiary) of the Company or such Restricted Subsidiary
having managerial responsibility for any such property, desirable in the conduct
of the business of the Company or any Restricted Subsidiary, and if such
discontinuance or disposal is not adverse in any material respect to the
Holders.
(b) The Company shall maintain, and shall cause the Restricted
Subsidiaries to maintain, insurance with responsible carriers against such risks
and in such amounts, and with such deductibles, retentions, self-insured amounts
and co-insurance provisions, as are customarily carried by similar businesses of
similar size, including property and casualty loss, and workers' compensation
insurance.
SECTION 4.11 Compliance Certificate.
The Company shall deliver to the Trustee within 45 days after the
end of each of the first three fiscal quarters of the Company and within 90 days
after the close of each fiscal year a certificate signed by the principal
executive officer, principal financial officer or principal accounting officer
stating that a review of the activities of the Company has been made under the
supervision of the signing officers with a view to determining whether a Default
or Event of Default has occurred and whether or not the signers know of any
Default or Event of Default by the Company that occurred during such fiscal
quarter or fiscal year. If they do know of such a Default or Event of Default,
the certificate shall describe all such Defaults or Events of Default, their
status and the action the Company is taking or proposes to take with respect
thereto. The first certificate to be delivered by the Company pursuant to this
Section 4.11 shall be for the fiscal quarter ending September 30, 1997.
SECTION 4.12 Provision of Financial Information.
Whether or not the Company is subject to Section 13(a) or 15(d)
of the Exchange Act, or any successor provision thereto, the Company shall file
with the SEC (if permitted by SEC practice and applicable law and regulations)
the annual reports, quarterly reports and other documents which the Company
would have been required to file with the SEC pursuant to such Section 13(a) or
15(d) (each, an "Exchange Act Report") or any successor provision thereto if the
Company were so subject, such documents to be filed with the SEC on or prior to
the respective dates (the "Required Filing Dates") by which the Company would
have been required so to file such documents if the Company were so subject;
provided that the Required Filing Date for the quarterly report with respect to
the fiscal quarter ended June 30, 1997 shall be the 45th day after the Issue
Date and such report shall include pro forma financial statements as of and for
the six months ended June 30, 1997 prepared on a basis substantially similar to
the pro forma financial statements included in the Offering Memorandum of the
Company dated July 31, 1997 relating to the Initial Securities. If, at any time
prior to the consummation of the Exchange Offer when the Company is not subject
to
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<PAGE> 52
such Section 13(a) or 15(d), the information which would be required in an
Exchange Act Document is included in a public filing of the Company under the
Securities Act at the applicable Required Filing Date, such public filing shall
fulfill the filing requirement with the SEC with respect to the applicable
Exchange Act Document. The Company shall also in any event (a) within 15 days of
each Required Filing Date (whether or not permitted or required to be filed with
the SEC) (i) transmit (or cause to be transmitted) by mail to all Holders, as
their names and addresses appear in the Security register, without cost to such
Holders, and (ii) file with the Trustee, copies of the annual reports, quarterly
reports and other documents which the Company is required to file with the SEC
pursuant to the preceding sentence, or, if such filing is not so permitted (or,
prior to the consummation of the Exchange Offer, when the Company is not subject
to Section 13(d) or 15(d) of the Exchange Act), information and data of a
similar nature, and (b) if, notwithstanding the preceding sentence, filing such
documents by the Company with the SEC is not permitted by SEC practice or
applicable law or regulations, promptly upon written request supply copies of
such documents to any Holder. In addition, for so long as any Securities remain
outstanding, the Company will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any
beneficial holder of Securities, if not obtainable from the SEC, information of
the type that would be filed with the SEC pursuant to the foregoing provisions,
upon the request of any such holder. The Company shall also comply with ? 314(a)
of the TIA.
SECTION 4.13 Waiver of Stay, Extension or Usury Laws.
Each of the Company and the Guarantors covenants (to the extent that it
may lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law, which would prohibit or forgive the
Company or such Guarantor from paying all or any portion of the principal of
and/or interest, if any, on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company and each Guarantor hereby expressly waives all
benefit or advantage of any such law, and covenants that it shall not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
shall suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 4.14 Change of Control.
(a) Following the occurrence of a Change of Control (the date of
such occurrence being the "Change of Control Date"), the Company shall notify
the Holders of the Securities of such occurrence in the manner prescribed by
this Indenture and shall, within 20 days after the Change of Control Date, make
an Offer to Purchase all Securities then outstanding at a purchase price in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Purchase Date (subject to the right of Holders
of record on the relevant Interest Record Date to receive interest due on the
relevant Interest Payment Date). The Company's obligations may be satisfied if a
third party makes the Offer to Purchase in the manner, at the times and
otherwise in compliance with the requirements of this Indenture applicable to an
Offer to Purchase made by the
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<PAGE> 53
Company and purchases all Securities validly tendered and not withdrawn under
such Offer to Purchase. Each Holder shall be entitled to tender all or any
portion of the Securities owned by such Holder pursuant to the Offer to
Purchase, subject to the requirement that any portion of a Security tendered
must be tendered in an integral multiple of $1,000 principal amount.
(b) On or prior to the Purchase Date specified in the Offer to
Purchase, the Company shall (i) accept for payment all Securities or portions
thereof validly tendered pursuant to the Offer, (ii) deposit with the Paying
Agent or, if the Company is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 2.04, money sufficient to pay the Purchase Price
of all Securities or portions thereof so accepted and (iii) deliver or cause to
be delivered to the Trustee for cancellation all Securities so accepted together
with an Officers' Certificate stating the Securities or portions thereof
accepted for payment by the Company. The Paying Agent (or the Company, if so
acting) shall promptly mail or deliver to Holders of Securities so accepted,
payment in an amount equal to the Purchase Price for such Securities, and the
Trustee shall promptly authenticate and mail or deliver to each Holder of
Securities a new Security or Securities equal in principal amount to any
unpurchased portion of the Security surrendered as requested by the Holder. Any
Security not accepted for payment shall be promptly mailed or delivered by the
Company to the Holder thereof. The Company shall publicly announce the results
of the Offer on or as soon as practicable after the Purchase Date.
(c) If the Company makes an Offer to Purchase, the Company will
comply with all applicable tender offer laws and regulations, including, to the
extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any
other applicable Federal or state securities laws and regulations and any
applicable requirements of any securities exchange on which the Securities are
listed, and any violation of the provisions of this Indenture relating to such
Offer to Purchase occurring as a result of such compliance shall not be deemed a
Default or an Event of Default.
SECTION 4.15 Limitation on Layering.
(a) The Company shall not, directly or indirectly, Incur any
Indebtedness that by its terms would expressly rank senior in right of payment
to the Securities and expressly rank subordinate in right of payment to any
other Indebtedness of the Company.
(b) The Company shall not permit any Guarantor to, and no
Guarantor shall, directly or indirectly, Incur any Indebtedness that by its
terms would expressly rank senior in right of payment to the Guaranty of such
Guarantor and expressly rank subordinate in right of payment to any Guarantor
Senior Indebtedness of such Guarantor.
SECTION 4.16 Limitations on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other
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<PAGE> 54
distributions to the Company or any other Restricted Subsidiary on its Equity
Interests or with respect to any other interest or participation in, or measured
by, its profits, or pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (b) make loans or advances to, or guaranty any
Indebtedness or other obligations of, the Company or any other Restricted
Subsidiary or (c) transfer any of its properties or assets to the Company or any
other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of (i) the Senior Credit Facility, or any other
agreement of the Company or the Restricted Subsidiaries outstanding on the Issue
Date, in each case as in effect on the Issue Date, and any amendments,
restatements, renewals, replacements or refinancings thereof; provided, however,
that any such amendment, restatement, renewal, replacement or refinancing is no
more restrictive in the aggregate with respect to such encumbrances or
restrictions than those contained in the agreement being amended, restated,
renewed, replaced or refinanced; (ii) applicable law; (iii) any instrument
governing Indebtedness or Equity Interests of (x) a Foreign Subsidiary or (y) an
Acquired Person acquired by the Company or any Restricted Subsidiary as in
effect at the time of such acquisition (except to the extent any such
Indebtedness or Equity Interests were Incurred by such Acquired Person in
connection with, as a result of or in contemplation of such acquisition);
provided, however, that such encumbrances and restrictions are not applicable to
any Restricted Subsidiary, or the properties or assets of any Restricted
Subsidiary, other than a Foreign Subsidiary or the Acquired Person, as the case
may be; (iv) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices; (v) Purchase
Money Indebtedness for property acquired in the ordinary course of business that
only imposes encumbrances and restrictions on the property so acquired; (vi) any
agreement for the sale or disposition of the Equity Interests or assets of any
Restricted Subsidiary; provided, however, that such encumbrances and
restrictions described in this clause (vi) are only applicable to such
Restricted Subsidiary or assets, as applicable, and any such sale or disposition
is made in compliance with Section 4.05 to the extent applicable thereto; (vii)
refinancing Indebtedness permitted under clause (h) of the second paragraph of
Section 4.04; provided, however, that such encumbrances and restrictions
contained in the agreements governing such Indebtedness are no more restrictive
in the aggregate than those contained in the agreements governing the
Indebtedness being refinanced immediately prior to such refinancing; (viii) this
Indenture; or (ix) contained in any other indenture governing debt securities
that are no more restrictive than those contained in this Indenture.
SECTION 4.17 Designation of Unrestricted Subsidiaries.
(a) The Company may designate after the Issue Date any Subsidiary
of the Company as an "Unrestricted Subsidiary" under this Indenture (a
"Designation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation;
(ii) at the time of and after giving effect to such Designation,
the Company could Incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the Consolidated Coverage Ratio of the
first paragraph of Section 4.04; and
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<PAGE> 55
(iii) the Company would be permitted to make an Investment (other
than a Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
Section 4.06 in an amount (the "Designation Amount") equal to the Fair
Market Value of the Company's aggregate Investment in such Subsidiary on
such date.
Neither the Company nor any Restricted Subsidiary shall at any
time (x) provide credit support for, subject any of its property or assets
(other than the Equity Interests of any Unrestricted Subsidiary) to the
satisfaction of, or guarantee, any Indebtedness of any Unrestricted Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness), (y) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary, or (z) be directly or indirectly liable for any
Indebtedness which provides that the holder thereof may (upon notice, lapse of
time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the occurrence
of a default with respect to any Indebtedness of any Unrestricted Subsidiary,
except for any non-recourse guarantee given solely to support the pledge by the
Company or any Restricted Subsidiary of the capital stock of any Unrestricted
Subsidiary. All Subsidiaries of Unrestricted Subsidiaries shall be automatically
deemed to be Unrestricted Subsidiaries.
(b) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation;
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at such
time, have been permitted to be Incurred for all purposes of this Indenture; and
(iii) any transaction (or series of related transactions) between
such Subsidiary and any of its Affiliates that occurred while such Subsidiary
was an Unrestricted Subsidiary would be permitted by Section 4.03 as if such
transaction (or series of related transactions) had occurred at the time of such
Revocation.
Upon the effectiveness of any such Revocation, the Company shall
cause such Subsidiary to become a Guarantor pursuant to and in accordance with
Section 4.19.
All Designations and Revocations must be evidenced by Board
Resolutions of the Company, delivered to the Trustee certifying compliance with
the foregoing provisions.
SECTION 4.18 Limitation on Liens.
The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist any
Liens of any kind against or upon any of their
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respective properties or assets now owned or hereafter acquired, or any proceeds
therefrom or any income or profits therefrom, to secure any Indebtedness unless
contemporaneously therewith effective provision is made, in the case of the
Company, to secure the Securities and all other amounts due under this
Indenture, and in the case of a Restricted Subsidiary which is a Guarantor, to
secure such Restricted Subsidiary's Guaranty of the Securities and all other
amounts due under this Indenture, equally and ratably with such Indebtedness
(or, in the event that such Indebtedness is subordinated in right of payment to
the Securities or such Guarantor's Guaranty, prior to such Indebtedness) with a
Lien on the same properties and assets securing such Indebtedness for so long as
such Indebtedness is secured by such Lien, except for (i) Liens securing any
Senior Indebtedness or Guarantor Senior Indebtedness and (ii) Permitted Liens.
SECTION 4.19 Guaranty of Notes by Restricted Subsidiaries.
The Company shall cause each Subsidiary (other than a Guarantor,
an Unrestricted Subsidiary or a Foreign Subsidiary) formed, created or acquired
after the Issue Date to guarantee all of the Company's Obligations under the
Securities and this Indenture on the terms set forth in Article Eleven;
provided, however, that the guarantee of such Restricted Subsidiary shall be
subordinated in right of payment to all Guarantor Senior Indebtedness of such
Restricted Subsidiary pursuant to the subordination provisions of Article
Twelve. The Company shall cause each such Restricted Subsidiary to (i) execute
and deliver to the Trustee a supplemental indenture in form reasonably
satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall
become a party to this Indenture as a Guarantor and thereby unconditionally
guarantee all of the Company's Obligations under the Securities and this
Indenture on the terms set forth in Article Eleven and Article Twelve hereof,
(ii) execute and deliver to the Trustee a Security Guarantee in accordance with
Section 11.06 and (iii) deliver to the Trustee an opinion of counsel that each
of such supplemental indenture and Security Guarantee has been duly authorized,
executed and delivered by such Restricted Subsidiary and constitutes a legal,
valid, binding and enforceable obligation of such Restricted Subsidiary (which
opinion may be subject to customary assumptions and qualifications). Thereafter,
such Restricted Subsidiary shall (unless released in accordance with the terms
of this Indenture) be a Guarantor for all purposes of this Indenture.
SECTION 4.20 Limitation on the Sale or Issuance of Preferred Equity
Interests of Restricted Subsidiaries.
The Company shall not sell any Preferred Equity Interest of a
Restricted Subsidiary, and shall not cause or permit any Restricted Subsidiary
to issue any of its Preferred Equity Interests or sell any Preferred Equity
Interests of another Restricted Subsidiary (other than to the Company or a
Wholly Owned Restricted Subsidiary).
SECTION 4.21 Limitation on Lines of Business.
The Company shall not, and shall not cause or permit any
Restricted Subsidiary, directly or indirectly to, engage in any business outside
the specialty chemical products business other than a Related Business.
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SECTION 4.22 Payments for Consent.
Neither the Company nor any of its Subsidiaries shall, directly
or indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of the
Securities, this Indenture or the Registration Rights Agreement unless such
consideration is offered to be paid or agreed to be paid to all Holders that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01 Mergers, Sale of Assets, etc.
(a) The Company shall not consolidate with or merge with or into
(whether or not the Company is the Surviving Person) any other entity and the
Company shall not and shall not cause or permit any Restricted Subsidiary to,
sell, convey, assign, transfer, lease or otherwise dispose of all or
substantially all of the Company's and the Restricted Subsidiaries' properties
and assets (determined on a consolidated basis for the Company and the
Restricted Subsidiaries) to any entity in a single transaction or series of
related transactions, unless: (i) either (x) the Company shall be the Surviving
Person or (y) the Surviving Person (if other than the Company) shall be a
corporation organized and validly existing under the laws of the United States
of America or any State thereof or the District of Columbia, and shall, in any
such case, expressly assume by a supplemental indenture, the due and punctual
payment of the principal of, premium, if any, and interest on all the Securities
and the performance and observance of every covenant of this Indenture and the
Registration Rights Agreement to be performed or observed on the part of the
Company; (ii) immediately thereafter, no Default or Event of Default shall have
occurred and be continuing; (iii) immediately after giving effect to any such
transaction including the Incurrence by the Company or any Restricted
Subsidiary, directly or indirectly, of additional Indebtedness (and treating any
Indebtedness not previously an obligation of the Company or any Restricted
Subsidiary in connection with or as a result of such transaction as having been
Incurred at the time of such transaction), the Surviving Person could Incur, on
a pro forma basis after giving effect to such transaction as if it had occurred
at the beginning of the four quarter period immediately preceding such
transaction for which consolidated financial statements of the Company are
available, at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the Consolidated Coverage Ratio of the first paragraph of
Section 4.04; (iv) immediately after giving effect to such transaction, the
Surviving Person will have a Consolidated Net Worth in an amount which is not
less than the Consolidated Net Worth of the Company immediately prior to such
transaction; and (v) the Company will have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with this
Indenture.
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Notwithstanding the foregoing clause (iii) of the immediately
preceding paragraph, any Restricted Subsidiary may consolidate with, merge into
or transfer all or part of its properties and assets to the Company.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all the properties and assets of one or
more Restricted Subsidiaries the Equity Interests of which constitute all or
substantially all the properties and assets of the Company shall be deemed to be
the transfer of all or substantially all the properties and assets of the
Company.
(b) No Guarantor (other than a Guarantor whose Guaranty is to be
released in accordance with the terms of its Guaranty and Section 11.03) shall
consolidate with or merge with or into another Person, whether or not such
Person is affiliated with such Guarantor and whether or not such Guarantor is
the Surviving Person, unless (i) the Surviving Person (if other than such
Guarantor) is a corporation organized and validly existing under the laws of the
United States, any State thereof or the District of Columbia; (ii) the Surviving
Person (if other than such Guarantor) expressly assumes by a supplemental
indenture all the obligations of such Guarantor under its Guaranty of the
Securities and the performance and observance of every covenant of this
Indenture and the Registration Rights Agreement to be performed or observed by
such Guarantor; (iii) at the time of and immediately after such Disposition, no
Default or Event of Default shall have occurred and be continuing; (iv)
immediately after giving effect to such transaction, the Company will have
Consolidated Net Worth in an amount which is not less than the Consolidated Net
Worth of the Company immediately prior to such transaction; and (v) the Company
will have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with this Indenture; provided, however,
that clauses (iv) of this paragraph shall not be a condition to a merger or
consolidation of a Guarantor if such merger or consolidation only involves the
Company and/or one or more other Guarantors.
SECTION 5.02 Successor Corporation Substituted.
In the event of any transaction (other than a lease) described in
and complying with the conditions listed in Section 5.01 in which the Company or
a Guarantor, as the case may be, is not the Surviving Person and the Surviving
Person is to assume all the Obligations of the Company under the Securities,
this Indenture and the Registration Rights Agreement or of such Guarantor under
its Guaranty, this Indenture and the Registration Rights Agreement, as the case
may be, pursuant to a supplemental indenture, such Surviving Person shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company or such Guarantor, as the case may be, and the Company shall be
discharged from its Obligations under this Indenture and the Securities or such
Guarantor shall be discharged from its Obligations under this Indenture and its
Guaranty.
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ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01 Events of Default.
Each of the following shall be an "Event of Default" for purposes
of this Indenture:
(a) failure to pay principal of (or premium, if any, on) any
Security when due (whether or not prohibited by the provisions of Article
Eight);
(b) failure to pay any interest on any Security when due,
continued for 30 days or more (whether or not prohibited by the provisions of
Article Eight);
(c) default in the payment of principal of or interest on any
Security required to be purchased pursuant to any Offer to Purchase required by
this Indenture when due and payable or failure to pay on the Purchase Date the
Purchase Price for any Security validly tendered pursuant to any Offer to
Purchase (whether or not prohibited by the provisions of Article Eight);
(d) failure to perform or comply with any of the provisions of
Section 5.01;
(e) failure to perform any other covenant, warranty or agreement
of the Company under this Indenture or in the Securities or of the Guarantors
under this Indenture or in the Guaranty;
(f) default or defaults under the terms of one or more
instruments evidencing or securing Indebtedness of the Company or any of its
Significant Restricted Subsidiaries having an outstanding principal amount of
$5.0 million or more individually or in the aggregate that have resulted in the
acceleration of the payment of such Indebtedness or failure by the Company or
any of its Significant Restricted Subsidiaries to pay principal when due at the
stated maturity of any such Indebtedness;
(g) the rendering of a final judgment or judgments (not subject
to appeal) against the Company or any of its Significant Restricted Subsidiaries
in an amount of $5.0 million or more (net of any amounts covered by reputable
and creditworthy insurance companies) which remains undischarged or unstayed for
a period of 60 days after the date on which the right to appeal has expired;
(h) the Company or any Significant Restricted Subsidiary pursuant
to or within the meaning of any Bankruptcy Law: (i) admits in writing its
inability to pay its debts generally as they become due; (ii) commences a
voluntary case or proceeding; (iii) consents to the entry of an order for relief
against it in an involuntary case or proceeding; (iv) consents or acquiesces in
the institution of a bankruptcy or insolvency proceeding against it; (v)
consents to the appointment of a Custodian of it or for all or substantially all
of its property; or (vi) makes a general assignment for the benefit of its
creditors, or any of them takes any action to authorize or effect any of the
foregoing;
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(i) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (i) is for relief against the Company or any
Significant Restricted Subsidiary in an involuntary case or proceeding; (ii)
appoints a Custodian of the Company or any Significant Restricted Subsidiary for
all or substantially all of its property; or (iii) orders the liquidation of the
Company or any Significant Restricted Subsidiary; and in each case the order or
decree remains unstayed and in effect for 60 days; provided, however, that if
the entry of such order or decree is appealed and dismissed on appeal, then the
Event of Default hereunder by reason of the entry of such order or decree shall
be deemed to have been cured; or
(j) other than as provided in or pursuant to any Guaranty or this
Indenture, any Guaranty ceases to be in full force and effect or is declared
null and void and unenforceable or found to be invalid or any Guarantor denies
its liability under its Guaranty (other than by reason of a release of such
Guarantor from its Guaranty in accordance with the terms of this Indenture and
such Guaranty).
The term "Bankruptcy Law" means Title 11, U.S. Code or any
similar Federal, state or foreign law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or
similar official under any Bankruptcy Law.
A Default under clause (e) of this Section 6.01 is not an Event
of Default until the Trustee notifies the Company, or the Holders of at least
25% in principal amount of the outstanding Securities notify the Company and the
Trustee, of the Default in writing and the Company does not cure the Default
within 30 days after receipt of the notice. The notice must specify the Default,
demand that it be remedied and state that the notice is a "Notice of Default."
Such notice shall be given by the Trustee if so requested by the Holders of at
least 25% in principal amount of the Securities then outstanding. When a Default
is cured, it ceases.
SECTION 6.02 Acceleration.
If an Event of Default with respect to the Securities (other than
an Event of Default specified in clause (h) or (i) of Section 6.01 with respect
to the Company) occurs and is continuing, the Trustee or the Holders of at least
25% in aggregate principal amount of the outstanding Securities by notice in
writing to the Company (and to the Trustee if given by the Holders) may declare
the unpaid principal of (and premium, if any) and accrued interest to the date
of acceleration on all outstanding Securities to be due and payable immediately
and, upon any such declaration, such principal amount (and premium, if any) and
accrued interest, notwithstanding anything contained in this Indenture or the
Securities to the contrary, shall become immediately due and payable; provided,
however, that so long as the Senior Credit Facility shall be in full force, if
an Event of Default shall have occurred and be continuing (other than an Event
of Default specified in clause (h) or (i) of Section 6.01 with respect to the
Company), the Securities shall not become due and payable until the earlier to
occur of (x) five Business Days following delivery of a written notice by the
Trustee of such acceleration of the Securities to the agent under the Senior
Credit Facility and (y) the acceleration (ipso facto or otherwise) of any
Indebtedness under the Senior Credit Facility.
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If an Event of Default specified in clause (h) or (i) of Section
6.01 with respect to the Company occurs, all unpaid principal of (and premium,
if any) and accrued interest on all outstanding Securities shall ipso facto
become immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder.
After a declaration of acceleration, but before a judgment or
decree of the money due in respect of the Securities has been obtained, the
Holders of not less than a majority in aggregate principal amount of the
Securities then outstanding by written notice to the Trustee may rescind an
acceleration and its consequences if all existing Events of Default (other than
the nonpayment of principal of and interest on the Securities which has become
due solely by virtue of such acceleration) have been cured or waived and if the
rescission would not conflict with any judgment or decree. No such rescission
shall affect any subsequent Default or impair any right consequent thereto.
SECTION 6.03 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Securityholder in exercising any right or
remedy maturing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04 Waiver of Past Default.
Subject to Sections 2.09, 6.07 and 10.02, prior to the
declaration of acceleration of the Securities, the Holders of not less than a
majority in aggregate principal amount of the outstanding Securities by written
notice to the Trustee may waive an existing Default or Event of Default and its
consequences, except a Default in the payment of principal of or interest on any
Security as specified in clauses (a), (b) and (c) of Section 6.01 or a Default
in respect of any term or provision of this Indenture that may not be amended or
modified without the consent of each Holder affected as provided in Section
10.02. The Company shall deliver to the Trustee an Officers' Certificate stating
that the requisite percentage of Holders have consented to such waiver and
attaching copies of such consents. In case of any such waiver, the Company, the
Trustee and the Holders shall be restored to their former positions and rights
hereunder and under the Securities, respectively. This paragraph of this Section
6.04 shall be in lieu of ? 316(a)(1)(B) of the TIA and such ? 316(a)(1)(B) of
the TIA is hereby expressly excluded from this Indenture and the Securities, as
permitted by the TIA.
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Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured and not to have occurred
for every purpose of this Indenture and the Securities, but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon.
SECTION 6.05 Control by Majority.
Subject to Section 2.09, the Holders of a majority in principal
amount of the outstanding Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on it. However, the Trustee may refuse to follow
any direction that conflicts with law or this Indenture that the Trustee
determines may be unduly prejudicial to the rights of another Securityholder, or
that may involve the Trustee in personal liability; provided, however, that the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction. In the event the Trustee takes any action or
follows any direction pursuant to this Indenture, the Trustee shall be entitled
to indemnification satisfactory to it in its sole discretion against any loss or
expense caused by taking such action or following such direction. This Section
6.05 shall be in lieu of ss. 316(a)(1)(A) of the TIA, and such ss. 316(a)(1)(A)
of the TIA is hereby expressly excluded from this Indenture and the Securities,
as permitted by the TIA.
SECTION 6.06 Limitation on Suits.
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(i) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of
the outstanding Securities make a written request to the Trustee to pursue a
remedy;
(iii) such Holder or Holders offer and, if requested, provide to
the Trustee indemnity satisfactory to the Trustee against any loss, liability or
expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision of
indemnity; and
(v) during such 60-day period the Holders of a majority in
principal amount of the outstanding Securities do not give the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with the
request.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over such
other Securityholder.
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SECTION 6.07 Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right
of any Holder to receive payment of principal of and premium, if any or interest
on a Security, on or after the respective due dates expressed in the Security,
or to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
Holder.
SECTION 6.08 Collection Suit by Trustee.
If an Event of Default in payment of principal or interest
specified in Section 6.01(a), (b) or (c) occurs and is continuing, the Trustee
may recover judgment in its own name and as trustee of an express trust against
the Company or any other obligor on the Securities for the whole amount of
principal and accrued interest remaining unpaid, together with interest overdue
on principal and to the extent that payment of such interest is lawful, interest
on overdue installments of interest, in each case at the rate per annum borne by
the Securities and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09 Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relative to the Company (or
any other obligor upon the Securities), its creditors or its property and shall
be entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same, and any
Custodian in any such judicial proceedings is hereby authorized by each
Securityholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, and any other amounts due the Trustee under Section 7.07. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10 Priorities.
If the Trustee collects any money or property pursuant to this
Article Six, it shall pay out the money or property in the following order:
First: to the Trustee for amounts due under Section 7.07;
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Second: to Holders for amounts due and unpaid on the Securities
for principal and interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Securities for principal and
interest, respectively; and
Third: to the Company.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Securityholders pursuant to this
Section 6.10.
SECTION 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 shall not apply to a suit by the Trustee, a suit by
a Holder or group of Holders of more than 10% in aggregate principal amount of
the outstanding Securities, or to any suit instituted by any Holder for the
enforcement or the payment of the principal or interest on any Securities on or
after the respective due dates expressed in the Security.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01 Duties of Trustee.
(a) If a Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in their exercise as a prudent person
would exercise or use under the circumstances in the conduct of such person's
own affairs.
(b) Except during the continuance of a Default:
(1) The Trustee shall not be liable except for the
performance of such duties as are specifically set forth herein; and
(2) In the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
conforming to the requirements of this Indenture; however, in the case of any
such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall examine such
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.
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(c) The Trustee shall not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of
paragraph (b) of this Section 7.01;
(2) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or take any action at the request or direction of Holders
if it shall have reasonable grounds for believing that repayment of such funds
is not assured to it or it does not receive from such Holders an indemnity
satisfactory to it in its sole discretion against such risk, liability, loss,
fee or expense which might be incurred by it in compliance with such request or
direction.
(e) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02 Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate and/or an Opinion of Counsel, which shall
conform to the provisions of Section 13.05. The Trustee shall not be liable for
any action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(c) The Trustee may act through attorneys and agents of its
selection and shall not be responsible for the misconduct or negligence of any
agent or attorney (other than an agent who is an employee of the Trustee)
appointed with due care.
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(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it reasonably believes to be authorized or
within its rights or powers.
(e) The Trustee may consult with counsel of its selection and the
advice or opinion of such counsel as to matters of law shall be full and
complete authorization and protection from liability in respect of any action
taken, omitted or suffered by it hereunder in good faith and in accordance with
the advice or opinion of such counsel.
(f) Any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution.
(g) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Securityholders pursuant to this Indenture, unless such
Securityholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be incurred by
it in compliance with such request or direction.
(h) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document, but
the Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Company, personally or by agent
or attorney.
(i) The Trustee shall not be deemed to have notice of any Event
of Default unless a Trust Officer of the Trustee has actual knowledge thereof or
unless the Trustee shall have received written notice thereof at the Corporate
Trust Office of the Trustee, and such notice references the Securities and this
Indenture.
SECTION 7.03 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Securities and may otherwise deal with the Company or
its Affiliates with the same rights it would have if it were not Trustee,
subject to Section 7.10 hereof. Any Agent may do the same with like rights.
However, the Trustee is subject to Sections 7.10 and 7.11.
SECTION 7.04 Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the
Securities, it shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any statement of the
Company
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in this Indenture or any document issued in connection with the sale of
Securities or any statement in the Securities other than the Trustee's
certificate of authentication.
SECTION 7.05 Notice of Defaults.
If a Default or an Event of Default occurs and is continuing and
the Trustee knows of such Defaults or Events of Default, the Trustee shall mail
to each Securityholder notice of the Default or Event of Default within 30 days
after the occurrence thereof. Except in the case of a Default or an Event of
Default in payment of principal of or interest on any Security or a Default or
Event of Default in complying with Section 5.01, the Trustee may withhold the
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interest of Securityholders.
This Section 7.05 shall be in lieu of the proviso to ? 315(b) of the TIA and
such proviso to ? 315(b) of the TIA is hereby expressly excluded from this
Indenture and the Securities, as permitted by the TIA.
SECTION 7.06 Reports by Trustee to Holders.
If required by TIA ? 313(a), within 60 days after each May 15
beginning with the May 15 following the date of this Indenture, the Trustee
shall mail to each Securityholder a report dated as of such May 15 that complies
with TIA ? 313(a). The Trustee also shall comply with TIA ? 313(b), (c) and (d).
A copy of each such report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange, if any, on
which the Securities are listed.
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or of any delisting thereof.
SECTION 7.07 Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation as the Company and the Trustee shall from time to time agree in
writing for its services. The Trustee's compensation shall not be limited by any
law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances (including fees, disbursements and expenses of its agents and
counsel) incurred or made by it in addition to the compensation for its services
except any such disbursements, expenses and advances as may be attributable to
the Trustee's negligence or bad faith. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents,
accountants, experts and counsel and any taxes or other expenses incurred by a
trust created pursuant to Section 9.01 hereof.
The Company shall indemnify the Trustee for, and hold it harmless
against any and all loss, damage, claims, liability or expense, including taxes
(other than franchise taxes imposed on the Trustee and taxes based upon,
measured by or determined by the income of the Trustee), arising
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out of or in connection with the acceptance or administration of the trust or
trusts hereunder, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder, except to the extent that such loss, damage,
claim, liability or expense is due to its own negligence or bad faith. The
Trustee shall notify the Company promptly of any claim asserted against the
Trustee for which it may seek indemnity. However, the failure by the Trustee to
so notify the Company shall not relieve the Company of its obligations
hereunder. The Company shall defend the claim and the Trustee shall cooperate in
the defense (and may employ its own counsel) at the Company's expense; provided,
however, that the Company's reimbursement obligation with respect to counsel
employed by the Trustee will be limited to the reasonable fees and expenses of
such counsel.
The Company need not pay for any settlement made without its
written consent, which consent shall not be unreasonably withheld. The Company
need not reimburse any expense or indemnify against any loss or liability
incurred by the Trustee as a result of the violation of this Indenture by the
Trustee.
To secure the Company's payment obligations in this Section 7.07,
the Trustee shall have a Lien prior to the Securities against all money or
property held or collected by the Trustee, in its capacity as Trustee, except
money or property held in trust to pay principal of or interest on particular
Securities or the Purchase Price or redemption price of any Securities to be
purchased pursuant to an Offer to Purchase or redeemed.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(h) or (i) occurs, the expenses
(including the reasonable fees and expenses of its agents and counsel) and the
compensation for the services shall be preferred over the status of the Holders
in a proceeding under any Bankruptcy Law and are intended to constitute expenses
of administration under any Bankruptcy Law. The Company's obligations under this
Section 7.07 and any claim arising hereunder shall survive the resignation or
removal of any Trustee, the discharge of the Company's obligations pursuant to
Article Nine and any rejection or termination under any Bankruptcy Law.
SECTION 7.08 Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company in
writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Trustee and the Company in
writing and may appoint a successor Trustee with the Company's consent. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent under
any Bankruptcy Law;
(c) a custodian or other public officer takes charge of the
Trustee or its property; or
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(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. As promptly as
practicable after that, the retiring Trustee shall transfer, after payment of
all sums then owing to the Trustee pursuant to Section 7.07, all property held
by it as Trustee to the successor Trustee, subject to the Lien provided in
Section 7.07, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have the rights, powers and duties of
the Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Securityholder.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in principal amount of the outstanding Securities
may petition, at the expense of the Company, any court of competent jurisdiction
for the appointment of a successor Trustee. If the Trustee fails to comply with
Section 7.10, any Securityholder may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Company's obligations under Section 7.07 shall continue for
the benefit of the retiring Trustee.
SECTION 7.09 Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or banking corporation, the resulting, surviving or transferee
corporation or banking corporation without any further act shall be the
successor Trustee.
SECTION 7.10 Eligibility; Disqualification.
This Indenture shall always have a Trustee which shall be
eligible to act as Trustee under TIA ?? 310(a)(1) and 310(a)(2). The Trustee
shall have a combined capital and surplus of at least $50,000,000 as set forth
in its most recent published annual report of condition. If the Trustee has or
shall acquire any "conflicting interest" within the meaning of TIA ? 310(b), the
Trustee and the Company shall comply with the provisions of TIA ? 310(b);
provided, however, that there shall be excluded from the operation of TIA ?
310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Company are
outstanding if the requirements for such exclusion set forth in TIA ? 310(b)(1)
are met. If at any time the Trustee
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shall cease to be eligible in accordance with the provisions of this Section
7.10, the Trustee shall resign immediately in the manner and with the effect
hereinbefore specified in this Article Seven.
SECTION 7.11 Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA ? 311(a), excluding any
creditor relationship listed in TIA ? 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ? 311(a) to the extent indicated therein.
ARTICLE EIGHT
SUBORDINATION OF SECURITIES
SECTION 8.01 Securities Subordinated to Senior Indebtedness.
The Company covenants and agrees, and the Trustee and each Holder
of the Securities by his acceptance thereof likewise covenant and agree, that
all Securities shall be issued subject to the provisions of this Article Eight;
and each person holding any Security, whether upon original issue or upon
transfer, assignment or exchange thereof, accepts and agrees that all payments
of the principal of and interest on the Securities by the Company shall, to the
extent and in the manner set forth in this Article Eight, be subordinated and
junior in right of payment to the prior payment in full in cash of all amounts
payable under Senior Indebtedness.
SECTION 8.02 No Payment on Securities in Certain Circumstances.
(a) No direct or indirect payment (excluding any payment or
distribution of Permitted Junior Securities and excluding any payment from funds
held in trust for the benefit of the Holders pursuant to Article Nine (a
"Defeasance Trust Payment")) by or on behalf of the Company or any Subsidiary of
the Company of principal of, premium, if any, or interest on the Securities,
whether pursuant to the terms of the Securities, upon acceleration, pursuant to
an Offer to Purchase or otherwise, will be made if, at the time of such payment,
there exists a default in the payment of all or any portion of the obligations
on any Designated Senior Indebtedness, whether at maturity, on account of
mandatory redemption or prepayment, acceleration or otherwise, and such default
shall not have been cured or waived or the benefits of this sentence waived by
or on behalf of the holders of such Designated Senior Indebtedness. In addition,
during the continuance of any non-payment event of default with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
immediately accelerated, and upon receipt by the Trustee of written notice (a
"Payment Blockage Notice") from the holder or holders of such Designated Senior
Indebtedness or the trustee or agent acting on behalf of the holders of such
Designated Senior Indebtedness, then, unless and until such event of default has
been cured or waived or has ceased to exist or such Designated Senior
Indebtedness has been discharged or repaid in full in cash or the benefits of
these provisions have been waived by the holders of such Designated Senior
Indebtedness, no direct or indirect payment (excluding any payment or
distribution of Permitted Junior Securities and excluding any Defeasance Trust
Payment) will be made by or on behalf of the Company or any
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Subsidiary of the Company of principal of, premium, if any, or interest on the
Securities, to such Holders, during a period (a "Payment Blockage Period")
commencing on the date of receipt of such notice by the Trustee and ending 179
days thereafter.
Notwithstanding anything in the subordination provisions of the
Indenture or the Securities to the contrary, (x) in no event will a Payment
Blockage Period extend beyond 179 days from the date the Payment Blockage Notice
in respect thereof was given, (y) there shall be a period of at least 181
consecutive days in each 360-day period when no Payment Blockage Period is in
effect and (z) not more than one Payment Blockage Period may be commenced with
respect to the Securities during any period of 360 consecutive days. No event of
default that existed or was continuing on the date of commencement of any
Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period (to the extent the holder of Designated
Senior Indebtedness, or trustee or agent, giving notice commencing such Payment
blockage Period had knowledge of such existing or continuing event of default)
may be, or be made, the basis for the commencement of any other Payment Blockage
Period by the holder or holders of such Designated Senior Indebtedness or the
trustee or agent acting on behalf of such Designated Senior Indebtedness,
whether or not within a period of 360 consecutive days, unless such event of
default has been cured or waived for a period of not less than 90 consecutive
days.
(b) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by Section 8.02(a), such payment shall be held in trust for the benefit of, and
shall be paid over or delivered to, the holders of Designated Senior
Indebtedness or their respective representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Designated Senior Indebtedness
may have been issued, as their respective interests may appear, but only to the
extent that, upon notice from the Trustee to the holders of Designated Senior
Indebtedness that such prohibited payment has been made, the holders of the
Designated Senior Indebtedness (or their representative or representatives or a
trustee or trustees) notify the Trustee in writing of the amounts then due and
owing on the Designated Senior Indebtedness, if any, and only the amounts
specified in such notice to the Trustee shall be paid to the holders of
Designated Senior Indebtedness.
SECTION 8.03 Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets or securities of
the Company of any kind or character, whether in cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities and
excluding Defeasance Trust Payment), upon any dissolution or winding-up or total
liquidation or reorganization of the Company, whether voluntary or involuntary
or in bankruptcy, insolvency, receivership or other proceedings, all Senior
Indebtedness shall first be paid in full in cash before the Holders of the
Securities or the Trustee on behalf of such Holders shall be entitled to receive
any payment by the Company of the principal of, premium, if any, or interest on
the Securities, or any payment by the Company to acquire any of the Securities
for cash, property or securities, or any distribution by the Company with
respect to the Securities of any cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities and excluding any
Defeasance Trust Payment). Before any payment may be made by, or on behalf of,
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the Company of the principal of, premium, if any, or interest on the Securities
upon any such dissolution or winding-up or total liquidation or reorganization,
any payment or distribution of assets or securities of the Company of any kind
or character, whether in cash, property or securities (excluding any payment or
distribution of Permitted Junior Securities and excluding any Defeasance Trust
Payment), to which the Holders of the Securities or the Trustee on their behalf
would be entitled, but for the subordination provisions of this Indenture, shall
be made by the Company or by any receiver, trustee in bankruptcy, liquidation
trustee, agent or other Person making such payment or distribution, directly to
the holders of the Senior Indebtedness (pro rata to such holders on the basis of
the respective amounts of Senior Indebtedness held by such holders) or their
representatives or to the trustee or trustees or agent or agents under any
agreement or indenture pursuant to which any of such Senior Indebtedness may
have been issued, as their respective interests may appear, to the extent
necessary to pay all such Senior Indebtedness in full in cash after giving
effect to any prior or concurrent payment, distribution or provision therefor to
or for the holders of such Senior Indebtedness.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash, property
or securities (excluding any payment or distribution of Permitted Junior
Securities and excluding any Defeasance Trust Payment), shall be received by the
Trustee or any Holder of Securities at a time when such payment or distribution
is prohibited by Section 8.03(a) and before all obligations in respect of Senior
Indebtedness are paid in full in cash, such payment or distribution shall be
received and held in trust for the benefit of, and shall be paid over or
delivered to, the holders of Senior Indebtedness (pro rata to such holders on
the basis of the respective amounts of Senior Indebtedness held by such holders)
or their respective representatives, or to the trustee or trustees or agent or
agents under any indenture pursuant to which any of such Senior Indebtedness may
have been issued, as their respective interests may appear, for application to
the payment of Senior Indebtedness remaining unpaid until all such Senior
Indebtedness has been paid in full in cash after giving effect to any prior or
concurrent payment, distribution or provision therefor to or for the holders of
such Senior Indebtedness.
The consolidation of the Company with, or the merger of the
Company with or into, another corporation or the liquidation or dissolution of
the Company following the conveyance or transfer of its property as an entirety,
or substantially as an entirety, to another corporation upon the terms and
conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 8.03
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article Five.
SECTION 8.04 Subrogation.
Upon the payment in full in cash of all Senior Indebtedness, or
provision for payment, the Holders of the Securities shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company made on such Senior
Indebtedness until the principal of and interest on the Securities shall be paid
in full in cash;
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and, for the purposes of such subrogation, no payments or distributions to the
holders of the Senior Indebtedness of any cash, property or securities to which
the Holders of the Securities or the Trustee on their behalf would be entitled
except for the provisions of this Article Eight, and no payment over pursuant to
the provisions of this Article Eight to the holders of Senior Indebtedness by
Holders of the Securities or the Trustee on their behalf shall, as between the
Company, its creditors other than holders of Senior Indebtedness, and the
Holders of the Securities, be deemed to be a payment by the Company to or on
account of the Senior Indebtedness. It is understood that the provisions of this
Article Eight are and are intended solely for the purpose of defining the
relative rights of the Holders of the Securities, on the one hand, and the
holders of the Senior Indebtedness, on the other hand.
If any payment or distribution to which the Holders of the
Securities would otherwise have been entitled but for the provisions of this
Article Eight shall have been applied, pursuant to the provisions of this
Article Eight, to the payment of all amounts payable under Senior Indebtedness,
then and in such case, the Holders of the Securities shall be entitled to
receive from the holders of such Senior Indebtedness any payments or
distributions received by such holders of Senior Indebtedness in excess of the
amount required to make payment in full in cash of such Senior Indebtedness.
SECTION 8.05 Obligations of Company Unconditional.
Nothing contained in this Article Eight or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as among the
Company and the Holders of the Securities, the obligation of the Company, which
is absolute and unconditional, to pay to the Holders of the Securities the
principal of and interest on the Securities as and when the same shall become
due and payable in accordance with their terms, or is intended to or shall
affect the relative rights of the Holders of the Securities and creditors of the
Company other than the holders of the Senior Indebtedness, nor shall anything
herein or therein prevent the Holder of any Security or the Trustee on their
behalf from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
Eight of the holders of the Senior Indebtedness in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing
contained in this Article Eight shall restrict the right of the Trustee or the
Holders of Securities to take any action to declare the Securities to be due and
payable prior to their stated maturity pursuant to Section 6.01 or to pursue any
rights or remedies hereunder; provided, however, that all Senior Indebtedness
then due and payable shall first be paid in full in cash before the Holders of
the Securities or the Trustee are entitled to receive any direct or indirect
payment from the Company of principal of or interest on the Securities.
SECTION 8.06 Notice to Trustee.
The Company shall give prompt written notice to the Trustee of
any fact known to the Company which would prohibit the making of any payment to
or by the Trustee in respect of the
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Securities pursuant to the provisions of this Article Eight. The Trustee shall
not be charged with knowledge of the existence of any event of default with
respect to any Senior Indebtedness or of any other facts which would prohibit
the making of any payment to or by the Trustee unless and until the Trustee
shall have received notice in writing at its Corporate Trust Office to that
effect signed by an Officer of the Company, or by a holder of Senior
Indebtedness or trustee or agent therefor; and prior to the receipt of any such
written notice, the Trustee shall, subject to Article Seven, be entitled to
assume that no such facts exist; provided, however, that if the Trustee shall
not have received the notice provided for in this Section 8.06 at least two
Business Days prior to the date upon which by the terms of this Indenture any
moneys shall become payable for any purpose (including, without limitation, the
payment of the principal of or interest on any Security), then, regardless of
anything herein to the contrary, the Trustee shall have full power and authority
to receive any moneys from the Company and to apply the same to the purpose for
which they were received, and shall not be affected by any notice to the
contrary which may be received by it on or after such prior date. Nothing
contained in this Section 8.06 shall limit the right of the holders of Senior
Indebtedness to recover payments as contemplated by Section 8.03. The Trustee
shall be entitled to rely on the delivery to it of a written notice by a Person
representing himself or itself to be a holder of any Senior Indebtedness (or a
trustee on behalf of, or other representative of, such holder) to establish that
such notice has been given by a holder of such Senior Indebtedness or a trustee
or representative on behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Eight, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article Eight, and if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
SECTION 8.07 Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets or securities referred
to in this Article Eight, the Trustee and the Holders of the Securities shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or
reorganization proceedings are pending, or upon a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, delivered to the Trustee or to the Holders of the
Securities for the purpose of ascertaining the persons entitled to participate
in such distribution, the holders of the Senior Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article Eight.
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SECTION 8.08 Trustee's Relation to Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all the
rights set forth in this Article Eight with respect to any Senior Indebtedness
which may at any time be held by it in its individual or any other capacity to
the same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall deprive the Trustee or any Paying Agent of any of its rights as
such holder.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Eight, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness (except as provided in
Section 8.03(b)). The Trustee shall not be liable to any such holders if the
Trustee shall in good faith mistakenly pay over or distribute to Holders of
Securities or to the Company or to any other person cash, property or securities
to which any holders of Senior Indebtedness shall be entitled by virtue of this
Article Eight or otherwise.
SECTION 8.09 Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior
Indebtedness to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms of this Indenture,
regardless of any knowledge thereof which any such holder may have or otherwise
be charged with. The provisions of this Article Eight are intended to be for the
benefit of, and shall be enforceable directly by, the holders of Senior
Indebtedness.
SECTION 8.10 Securityholders Authorize Trustee To Effectuate Subordination of
Securities.
Each Holder of Securities by his acceptance of such Securities
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article Eight, and appoints the Trustee his attorney-in-fact for such
purposes, including, in the event of any dissolution, winding-up, total
liquidation or reorganization of the Company (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
business and assets of the Company, the filing of a claim for the unpaid balance
of its or his Securities in the form required in those proceedings.
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SECTION 8.11 This Article Not To Prevent Events of Default.
The failure to make a payment on account of principal of or interest
on the Securities by reason of any provision of this Article Eight shall not be
construed as preventing the occurrence of an Event of Default specified in
clauses (a), (b) or (c) of Section 6.01.
SECTION 8.12 Trustee's Compensation Not Prejudiced.
Nothing in this Article Eight shall apply to amounts due to the
Trustee pursuant to other sections in this Indenture.
SECTION 8.13 No Waiver of Subordination Provisions.
Without in any way limiting the generality of Section 8.09, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Securities,
without incurring responsibility to the Holders of the Securities and without
impairing or releasing the subordination provided in this Article Eight or the
obligations hereunder of the Holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following: (a) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding or secured; (b) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (c) release any Person liable in any manner for the collection of
Senior Indebtedness; and (d) exercise or refrain from exercising any rights
against the Company and any other Person.
SECTION 8.14 Subordination Provisions Not Applicable to Money Held in Trust for
Securityholders; Payments May Be Paid Prior to Dissolution.
All money and United States Government Obligations deposited in
trust with the Trustee pursuant to and in accordance with Article Nine shall be
for the sole benefit of the Holders and shall not be subject to this Article
Eight.
Nothing contained in this Article Eight or elsewhere in this
Indenture shall prevent (i) the Company, except under the conditions described
in Section 8.02, from making payments of principal of and interest on the
Securities or from depositing with the Trustee any moneys for such payments or
from effecting a termination of the Company's and the Guarantors' obligations
under the Securities and this Indenture as provided in Article Nine, or (ii) the
application by the Trustee of any moneys deposited with it for the purpose of
making such payments of principal of and interest on the Securities, to the
holders entitled thereto unless at least two Business Days prior to the date
upon which such payment becomes due and payable, the Trustee shall have received
the written notice provided for in Section 8.02(b) or in Section 8.06. The
Company shall give prompt written notice to the Trustee of any dissolution,
winding-up, liquidation or reorganization of the Company.
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SECTION 8.15 Acceleration of Securities.
If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify holders of the Senior Indebtedness of
the acceleration.
ARTICLE NINE
DISCHARGE OF INDENTURE
SECTION 9.01 Termination of Company's Obligations.
Subject to the provisions of Article Eight, the Company may
terminate its and the Guarantors' substantive obligations in respect of the
Securities by delivering all outstanding Securities to the Trustee for
cancellation and paying all sums payable by it on account of principal of and
interest on all Securities or otherwise. In addition to the foregoing, subject
to the provisions of Article Eight with respect to the creation of the
defeasance trust provided for in the following clause (i), the Company may,
provided that no Default or Event of Default has occurred and is continuing or
would arise therefrom (or, with respect to a Default or Event of Default
specified in Section 6.01(h) or (i), occurs at any time on or prior to the 91st
calendar day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until after such 91st day)) and provided
that no default under any Senior Indebtedness would result therefrom, terminate
its and the Guarantors' substantive obligations in respect of Article Four
(other than Sections 4.01, 4.02, 4.07, 4.09, 4.11 and 4.12) and Article Five
hereof and any Event of Default specified in Section 6.01 (d) or (e) by (i)
depositing with the Trustee, under the terms of an irrevocable trust agreement,
money or United States Government Obligations sufficient (without reinvestment)
to pay all remaining Indebtedness on the Securities, (ii) delivering to the
Trustee either an Opinion of Counsel or a ruling directed to the Trustee from
the Internal Revenue Service to the effect that the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such deposit
and termination of obligations, (iii) delivering to the Trustee an Opinion of
Counsel to the effect that the Company's exercise of its option under this
Section 9.01 will not result in any of the Company, the Trustee or the trust
created by the Company's deposit of funds pursuant to this provision becoming or
being deemed to be an "investment company" under the Investment Company Act of
1940, as amended (the "Investment Company Act"), and (iv) delivering to the
Trustee an Officers' Certificate and an Opinion of Counsel each stating
compliance with all conditions precedent provided for herein. In addition,
subject to the provisions of Article Eight with respect to the creation of the
defeasance trust provided for in the following clause (i), the Company may,
provided that no Default or Event of Default has occurred and is continuing or
would arise therefrom (or, with respect to a Default or Event of Default
specified in Section 6.01(h) or (i), occurs at any time on or prior to the 91st
calendar day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until after such 91st day)) and provided
that no default under any Senior Indebtedness would arise therefrom, terminate
all of its and the Guarantors' substantive obligations in respect of the
Securities (including its obligations to pay the principal of and interest on
the Securities and the Guarantors' Guaranty thereof) by (i) depositing with the
Trustee, under the terms of an irrevocable trust agreement, money or United
States Government Obligations sufficient
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(without reinvestment) to pay all remaining Indebtedness on the Securities, (ii)
delivering to the Trustee either a ruling directed to the Trustee from the
Internal Revenue Service to the effect that the Holders of the Securities will
not recognize income, gain or loss for federal income tax purposes as a result
of such deposit and termination of obligations or an Opinion of Counsel
addressed to the Trustee based upon such a ruling or based on a change in the
applicable Federal tax law since the date of this Indenture to such effect,
(iii) delivering to the Trustee an Opinion of Counsel to the effect that the
Company's exercise of its option under this Section 9.01 will not result in any
of the Company, the Trustee or the trust created by the Company's deposit of
funds pursuant to this provision becoming or being deemed to be an "investment
company" under the Investment Company Act and (iv) delivering to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating compliance with all
conditions precedent provided for herein.
Notwithstanding the foregoing paragraph, the Company's obligations
in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 2.12, 2.13 and 4.01 (but
not with respect to termination of substantive obligations pursuant to the third
sentence of the foregoing paragraph), 4.02, 7.07, 7.08, 9.03 and 9.04 shall
survive until the Securities are no longer outstanding. Thereafter the Company's
obligations in Sections 7.07, 9.03 and 9.04 shall survive.
After such delivery or irrevocable deposit and delivery of an
Officers' Certificate and Opinion of Counsel, the Trustee upon request shall
acknowledge in writing the discharge of the Company's and the Guarantors'
obligations under the Securities and this Indenture except for those surviving
obligations specified above.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the United States Government
Obligations deposited pursuant to this Section 9.01 or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of outstanding Securities.
SECTION 9.02 Application of Trust Money.
The Trustee shall hold in trust money or United States Government
Obligations deposited with it pursuant to Section 9.01, and shall apply the
deposited money and the money from United States Government Obligations in
accordance with this Indenture solely to the payment of principal of and
interest on the Securities.
SECTION 9.03 Repayment to Company.
Subject to Sections 7.07 and 9.01, the Trustee shall promptly pay to
the Company upon written request any excess money held by it at any time. The
Trustee shall pay to the Company upon written request any money held by it for
the payment of principal or interest that remains unclaimed for two years;
provided, however, that the Trustee before being required to make any payment
may at the expense of the Company cause to be published once in a newspaper of
general circulation in The City of New York or mail to each Holder entitled to
such money notice that such money remains unclaimed and that, after a date
specified therein which shall be at least 30 days from
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the date of such publication or mailing, any unclaimed balance of such money
then remaining shall be repaid to the Company. After payment to the Company,
Securityholders entitled to money must look to the Company for payment as
general creditors unless an applicable abandoned property law designates another
person and all liability of the Trustee or Paying Agent with respect to such
money shall thereupon cease.
SECTION 9.04 Reinstatement.
If the Trustee is unable to apply any money or United States
Government Obligations in accordance with Section 9.01 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's and the Guarantors' obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 9.01 until such time as the Trustee is permitted to apply
all such money or United States Government Obligations in accordance with
Section 9.01; provided, however, that if the Company has made any payment of
interest on or principal of any Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or United States
Government Obligations held by the Trustee.
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01 Without Consent of Holders.
The Company and the Guarantors, when authorized by a resolution of
their respective Boards of Directors, and the Trustee may amend or supplement
this Indenture or the Securities without notice to or consent of any
Securityholder:
(a) to cure any ambiguity, defect or inconsistency; provided,
however, that such amendment or supplement does not adversely affect the rights
of any Holder;
(b) to effect the assumption by a successor Person of all
obligations of the Company under the Securities and his Indenture in connection
with any transaction complying with Article Five of this Indenture;
(c) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(d) to comply with any requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;
(e) to make any change that would provide any additional benefit or
rights to the Holders;
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(f) to make any other change that does not adversely affect the
rights of any Holder under this Indenture;
(g) to evidence the succession of another Person to any Guarantor
and the assumption by any such successor of the covenants of such Guarantor
herein and in the Guaranty in connection with any transaction complying with
Article Five of this Indenture;
(h) to add to the covenants of the Company or the Guarantors for the
benefit of the Holders, or to surrender any right or power herein conferred upon
the Company or any Guarantor;
(i) to secure the Securities pursuant to the requirements of Section
4.18 or otherwise; or
(j) to reflect the release of a Guarantor from its obligations with
respect to its Guaranty in accordance with the provisions of Section 11.03 and
to add a Guarantor pursuant to the requirements of Section 4.19; provided,
however, that the Company has delivered to the Trustee an Opinion of Counsel
stating that such amendment or supplement complies with the provisions of this
Section 10.01.
SECTION 10.02 With Consent of Holders.
Subject to Section 6.07, the Company and the Guarantors, when
authorized by a resolution of their respective Boards of Directors, and the
Trustee may amend or supplement this Indenture or the Securities with the
written consent of the Holders of at least a majority in principal amount of the
outstanding Securities. Subject to Section 6.07, the Holders of a majority in
principal amount of the outstanding Securities may waive compliance by the
Company or any Guarantor with any provision of this Indenture or the Securities.
However, without the consent of each Securityholder affected, an amendment,
supplement or waiver, including a waiver pursuant to Section 6.04, may not:
(a) change the Stated Maturity of the principal of or any
installment of interest on any Security or alter the optional redemption or
repurchase provisions of any Security or this Indenture in a manner adverse to
the Holders of the Securities;
(b) reduce the principal amount (or premium) of any Security;
(c) reduce the rate of or extend the time for payment of interest on
any Security;
(d) change the place or currency of payment of the principal of (or
premium) or interest on any Security;
(e) modify any provisions of Section 6.04 (other than to add
sections of this Indenture or the Securities subject thereto) or 6.07 or this
Section 10.02 (other than to add sections
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of this Indenture or the Securities which may not be amended, supplemented or
waived without the consent of each Securityholder affected);
(f) reduce the percentage of the principal amount of outstanding
Securities necessary for amendment to or waiver of compliance with any provision
of this Indenture or the Securities or for waiver of any Default;
(g) waive a Default in the payment of the principal of or interest
on or redemption or purchase payment with respect to any Security (except a
rescission of acceleration of the Securities by the Holders as provided in
Section 6.02 and a waiver of the payment default that resulted from such
acceleration);
(h) modify the ranking or priority of the Securities or the Guaranty
in respect of any Guarantor, or modify the definition of Senior Indebtedness or
Guarantor Senior Indebtedness, or amend or modify any of the provisions of
Article Eight or Article Twelve in any manner adverse to the Holders;
(i) release any Guarantor from any of its obligations under its
Guaranty or this Indenture otherwise than in accordance with this Indenture; or
(j) modify the provisions relating to any Offer to Purchase required
pursuant to Section 4.05 or 4.14 in a manner materially adverse to the Holders.
An amendment under this Section 10.02 may not make any change under
Article Eight or Article Twelve hereof that adversely affects in any material
respect the rights of any holder of Senior Indebtedness or Guarantor Senior
Indebtedness, as the case may be, then outstanding unless the holders of such
Senior Indebtedness or Guarantor Senior Indebtedness, as the case may be, (or
any representative thereof authorized to give a consent) shall have consented to
such change.
It shall not be necessary for the consent of the Holders under this
Section 10.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 10.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 10.03 Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the Securities
shall comply with the TIA as then in effect.
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SECTION 10.04 Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of that
Security or portion of that Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on any
Security. Subject to the following paragraph, any such Holder or subsequent
Holder may revoke the consent as to such Holder's Security or portion of such
Security by notice to the Trustee or the Company received before the date on
which the Trustee receives an Officers' Certificate certifying that the Holders
of the requisite principal amount of Securities have consented (and not
theretofore revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders of Securities entitled to consent to
any amendment, supplement or waiver. If a record date is fixed, then,
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders of Securities at such record date (or their duly
designated proxies), and only those persons, shall be entitled to consent to
such amendment, supplement or waiver or to revoke any consent previously given,
whether or not such persons continue to be Holders of such Securities after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(a) through (j) of Section 10.02. In that case the amendment, supplement or
waiver shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security.
SECTION 10.05 Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms. Failure to make the appropriate notation or issue a new Security shall
not affect the validity and effect of such amendment, supplement or waiver.
SECTION 10.06 Trustee To Sign Amendments, etc.
The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article Ten is
authorized or permitted by this Indenture and that such amendment, supplement or
waiver constitutes the legal, valid and binding obligation of the Company and
the Guarantors, enforceable in accordance with its terms (subject to customary
exceptions). The Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver
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which affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise. In signing any amendment, supplement or waiver, the
Trustee shall be entitled to receive an indemnity reasonably satisfactory to it.
ARTICLE ELEVEN
GUARANTY
SECTION 11.01 Unconditional Guaranty.
Each Guarantor hereby unconditionally, jointly and severally,
guarantees (each, a "Guaranty" or "Security Guarantee") to each Holder of a
Security authenticated by the Trustee and to the Trustee and its successors and
assigns that: the principal of and interest on the Securities will be promptly
paid in full when due, subject to any applicable grace period, whether at
maturity, by acceleration or otherwise, and interest on the overdue principal
and interest on any overdue interest on the Securities and all other obligations
of the Company to the Holders or the Trustee hereunder or under the Securities
will be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; subject, however, to the limitations set forth in Section
11.04. Each Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Securities or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Securities with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a Guarantor. Each Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that the Guaranty will not be discharged except by complete
performance of the obligations contained in the Securities, this Indenture, and
this Guaranty. If any Holder or the Trustee is required by any court or
otherwise to return to the Company, any Guarantor, or any custodian, trustee,
liquidator or other similar official acting in relation to the Company or any
Guarantor, any amount paid by the Company or any Guarantor to the Trustee or
such Holder, this Guaranty, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each Guarantor further agrees that, as
between each Guarantor, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article Six for the purpose of this Guaranty,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any acceleration of such obligations as provided in Article Six, such
obligations (whether or not due and payable) shall forth become due and payable
by each Guarantor for the purpose of this Guaranty.
SECTION 11.02 Severability.
In case any provision of this Guaranty shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
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SECTION 11.03 Release of a Guarantor.
If the Securities are defeased in accordance with the terms of this
Indenture, or if Section 5.01(b) is complied with, or if, subject to the
requirements of Section 5.01(a), all or substantially all of the assets of any
Guarantor or all of the Equity Interests of any Guarantor are sold (including by
issuance or otherwise) by the Company in a transaction constituting an Asset
Sale and (x) the Net Cash Proceeds from such Asset Sale are used in accordance
with Section 4.05 or (y) the Company delivers to the Trustee an Officers'
Certificate to the effect that the Net Cash Proceeds from such Asset Sale shall
be used in accordance with Section 4.05 and within the time limits specified by
Section 4.05, then each Guarantor (in the case of defeasance) or such Guarantor
(in the case of compliance with Section 5.01(b) or in the event of a sale or
other disposition of all of the Equity Interests of such Guarantor) or the
corporation acquiring such assets (in the event of a sale or other disposition
of all or substantially all of the assets of such Guarantor) shall be released
and discharged from all obligations under this Article Eleven without any
further action required on the part of the Trustee or any Holder. The Trustee
shall, at the sole cost and expense of the Company and upon receipt at the
reasonable request of the Trustee of an Opinion of Counsel that the provisions
of this Section 11.03 have been complied with, deliver an appropriate instrument
evidencing such release upon receipt of a request by the Company accompanied by
an Officers' Certificate certifying as to the compliance with this Section
11.03. Any Guarantor not so released remains liable for the full amount of
principal of and interest on the Securities and the other obligations of the
Company hereunder as provided in this Article Eleven.
SECTION 11.04 Limitation of Guarantor's Liability.
Each Guarantor, and by its acceptance hereof each Holder and the
Trustee, hereby confirms that it is the intention of all such parties that the
guarantee by such Guarantor pursuant to its Guaranty not constitute a fraudulent
transfer or conveyance for purposes of title 11 of the United States Code, as
amended, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer
Act or any similar U.S. Federal or state or other applicable law. To effectuate
the foregoing intention, the Holders and each Guarantor hereby irrevocably agree
that the obligations of each Guarantor under its Guaranty shall be limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Guarantor (including any Senior Indebtedness incurred
after the Issue Date) and after giving effect to any collections from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guaranty or pursuant to Section
11.05, result in the obligations of such Guarantor under its Guaranty not
constituting such a fraudulent transfer or conveyance.
SECTION 11.05 Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under the
Guaranty, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount, based on the net assets of each Guarantor
(including the Funding Guarantor), determined in accordance with GAAP, subject
to
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Section 11.04, for all payments, damages and expenses incurred by such Funding
Guarantor in discharging the Company's obligations with respect to the
Securities or any other Guarantor's obligations with respect to the Guaranty.
SECTION 11.06 Execution of Security Guaranty.
To further evidence their Guaranty to the Holders, each of the
Guarantors hereby agree to execute a Security Guarantee to be endorsed on each
Security ordered to be authenticated and delivered by the Trustee. Each
Guarantor hereby agrees that its Guaranty set forth in Section 11.01 shall
remain in full force and effect notwithstanding any failure to endorse on each
Security a Security Guarantee. Each such Security Guarantee shall be signed on
behalf of each Guarantor by its Chairman of the Board, its President or one of
its Vice Presidents prior to the authentication of the Security on which it is
endorsed, and the delivery of such Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of such Security
Guarantee on behalf of such Guarantor. Such signature upon the Security
Guarantee may be manual or facsimile signature of such officer and may be
imprinted or otherwise reproduced on the Security Guarantee, and in case such
officer who shall have signed the Security Guarantee shall cease to be such
officer before the Security on which such Security Guarantee is endorsed shall
have been authenticated and delivered by the Trustee or disposed of by the
Company, such Security nevertheless may be authenticated and delivered or
disposed of as though the Person who signed the Security Guarantee had not
ceased to be such officer of such Guarantor.
SECTION 11.07 Subordination of Subrogation and Other Rights.
Each Guarantor hereby agrees that any claim against the Company that
arises from the payment, performance or enforcement of such Guarantor's
obligations under its Guaranty or this Indenture, including, without limitation,
any right of subrogation, shall be subject and subordinate to, and no payment
with respect to any such claim of such Guarantor shall be made before, the
payment in full in cash of all outstanding Securities in accordance with the
provisions provided therefor in this Indenture.
ARTICLE TWELVE
SUBORDINATION OF GUARANTY
SECTION 12.01 Guaranty Obligations Subordinated to Guarantor Senior
Indebtedness.
Each Guarantor covenants and agrees, and the Trustee and each Holder
of the Securities by his acceptance thereof likewise covenant and agree, that
the Guaranty of such Guarantor shall be issued subject to the provisions of this
Article Twelve; and each person holding any Security, whether upon original
issue or upon transfer, assignment or exchange thereof, accepts and agrees that
all payments of the principal of and interest on the Securities pursuant to the
Guaranty made by or on behalf of any Guarantor shall, to the extent and in the
manner set forth in
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this Article Twelve, be subordinated and junior in right of payment to the prior
payment in full in cash of all amounts payable under Guarantor Senior
Indebtedness of such Guarantor.
SECTION 12.02 Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets or securities of any
Guarantor of any kind or character, whether in cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities), upon any
dissolution or winding-up or total liquidation or reorganization of such
Guarantor, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all Guarantor Senior Indebtedness of such
Guarantor shall first be paid in full in cash before the Holders of the
Securities or the Trustee on behalf of such Holders shall be entitled to receive
any payment by such Guarantor of the principal of, premium, if any, or interest
on the Securities pursuant to such Guarantor's Guaranty, or any payment to
acquire any of the Securities for cash, property or securities, or any
distribution with respect to the Securities of any cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities). Before
any payment may be made by, or on behalf of, any Guarantor of the principal of,
premium, if any, or interest on the Securities upon any such dissolution or
winding-up or total liquidation or reorganization, any payment or distribution
of assets or securities of such Guarantor of any kind or character, whether in
cash, property or securities (excluding any payment or distribution of Permitted
Junior Securities), to which the Holders of the Securities or the Trustee on
their behalf would be entitled, but for the subordination provisions of this
Indenture, shall be made by such Guarantor or by any receiver, trustee in
bankruptcy, liquidation trustee, agent or other Person making such payment or
distribution, directly to the holders of the Guarantor Senior Indebtedness of
such Guarantor (pro rata to such holders on the basis of the respective amounts
of such Guarantor Senior Indebtedness held by such holders) or their
representatives or to the trustee or trustees or agent or agents under any
agreement or indenture pursuant to which any of such Guarantor Senior
Indebtedness may have been issued, as their respective interests may appear, to
the extent necessary to pay all such Guarantor Senior Indebtedness in full in
cash after giving effect to any prior or concurrent payment, distribution or
provision therefor to or for the holders of such Guarantor Senior Indebtedness.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of any Guarantor of any kind or character, whether in cash,
property or securities (excluding any payment or distribution of Permitted
Junior Securities), shall be received by the Trustee or any Holder of Securities
at a time when such payment or distribution is prohibited by Section 12.02(a)
and before all obligations in respect of the Guarantor Senior Indebtedness of
such Guarantor are paid in full in cash, such payment or distribution shall be
received and held in trust for the benefit of, and shall be paid over or
delivered to, the holders of such Guarantor Senior Indebtedness (pro rata to
such holders on the basis of the respective amounts of such Guarantor Senior
Indebtedness held by such holders) or their respective representatives, or to
the trustee or trustees or agent or agents under any indenture pursuant to which
any of such Guarantor Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of such
Guarantor Senior Indebtedness remaining unpaid until all such Guarantor Senior
Indebtedness has been paid in full
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in cash after giving effect to any prior or concurrent payment, distribution or
provision therefor to or for the holders of such Guarantor Senior Indebtedness.
The consolidation of any Guarantor with, or the merger of any
Guarantor with or into, another corporation or the liquidation or dissolution of
any Guarantor following the conveyance or transfer of its property as an
entirety, or substantially as an entirety, to another corporation upon the terms
and conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 12.02
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article Five.
SECTION 12.03 Subrogation.
Upon the payment in full in cash of all Guarantor Senior
Indebtedness of a Guarantor, or provision for payment, the Holders of the
Securities shall be subrogated to the rights of the holders of such Guarantor
Senior Indebtedness to receive payments or distributions of cash, property or
securities of such Guarantor made on such Guarantor Senior Indebtedness until
the principal of and interest on the Securities shall be paid in full in cash;
and, for the purposes of such subrogation, no payments or distributions to the
holders of such Guarantor Senior Indebtedness of any cash, property or
securities to which the Holders of the Securities or the Trustee on their behalf
would be entitled except for the provisions of this Article Twelve, and no
payment over pursuant to the provisions of this Article Twelve to the holders of
such Guarantor Senior Indebtedness by Holders of the Securities or the Trustee
on their behalf shall, as between such Guarantor, its creditors other than
holders of such Guarantor Senior Indebtedness, and the Holders of the
Securities, be deemed to be a payment by such Guarantor to or on account of such
Guarantor Senior Indebtedness. It is understood that the provisions of this
Article Twelve are and are intended solely for the purpose of defining the
relative rights of the Holders of the Securities, on the one hand, and the
holders of Guarantor Senior Indebtedness of each Guarantor, on the other hand.
If any payment or distribution to which the Holders of the
Securities would otherwise have been entitled but for the provisions of this
Article Twelve shall have been applied, pursuant to the provisions of this
Article Twelve, to the payment of all amounts payable under Guarantor Senior
Indebtedness, then and in such case, the Holders of the Securities shall be
entitled to receive from the holders of such Guarantor Senior Indebtedness any
payments or distributions received by such holders of Guarantor Senior
Indebtedness in excess of the amount required to make payment in full in cash of
such Guarantor Senior Indebtedness.
SECTION 12.04 Obligations of Guarantors Unconditional.
Subject to Sections 11.04 and 8.02, nothing contained in this
Article Twelve or elsewhere in this Indenture or in the Securities or the
Guaranties is intended to or shall impair, as among each of the Guarantors and
the Holders of the Securities, the obligation of each Guarantor, which is
absolute and unconditional, to pay to the Holders of the Securities the
principal of and interest on the Securities as and when the same shall become
due and payable in accordance with
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the terms of the Guaranty of such Guarantor, or is intended to or shall affect
the relative rights of the Holders of the Securities and creditors of any
Guarantor other than the holders of Guarantor Senior Indebtedness of such
Guarantor, nor shall anything herein or therein prevent the Holder of any
Security or the Trustee on their behalf from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article Twelve of the holders of Guarantor Senior
Indebtedness in respect of cash, property or securities of any Guarantor
received upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained
in this Article Twelve shall restrict the right of the Trustee or the Holders of
Securities to take any action to declare the Securities to be due and payable
prior to their stated maturity pursuant to Section 6.01 or to pursue any rights
or remedies hereunder; provided, however, that all Guarantor Senior Indebtedness
of any Guarantor then due and payable shall first be paid in full before the
Holders of the Securities or the Trustee are entitled to receive any direct or
indirect payment from such Guarantor of principal of or interest on the
Securities pursuant to such Guarantor's Guaranty.
SECTION 12.05 Notice to Trustee.
The Company and each Guarantor shall give prompt written notice to
the Trustee of any fact known to the Company or such Guarantor which would
prohibit the making of any payment to or by the Trustee in respect of the
Securities pursuant to the provisions of this Article Twelve. The Trustee shall
not be charged with knowledge of the existence of any event of default with
respect to any Guarantor Senior Indebtedness or of any other facts which would
prohibit the making of any payment to or by the Trustee unless and until the
Trustee shall have received notice in writing at its Corporate Trust Office to
that effect signed by an Officer of the Company or such Guarantor, or by a
holder of Guarantor Senior Indebtedness or trustee or agent therefor; and prior
to the receipt of any such written notice, the Trustee shall, subject to Article
Seven, be entitled to assume that no such facts exist; provided, however, that
if the Trustee shall not have received the notice provided for in this Section
12.06 at least two Business Days prior to the date upon which by the terms of
this Indenture any moneys shall become payable for any purpose (including,
without limitation, the payment of the principal of or interest on any
Security), then, regardless of anything herein to the contrary, the Trustee
shall have full power and authority to receive any moneys from any Guarantor and
to apply the same to the purpose for which they were received, and shall not be
affected by any notice to the contrary which may be received by it on or after
such prior date. Nothing contained in this Section 12.06 shall limit the right
of the holders of Guarantor Senior Indebtedness to recover payments as
contemplated by Section 12.03. The Trustee shall be entitled to rely on the
delivery to it of a written notice by a Person representing himself or itself to
be a holder of any Guarantor Senior Indebtedness (or a trustee on behalf of, or
other representative of, such holder) to establish that such notice has been
given by a holder of such Guarantor Senior Indebtedness or a trustee or
representative on behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Indebtedness to participate in any payment or distribution
pursuant to this Article Twelve, the Trustee may request such Person
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to furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Guarantor Senior Indebtedness held by such Person, the extent to which
such Person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such Person under this Article Twelve,
and if such evidence is not furnished, the Trustee may defer any payment to such
Person pending judicial determination as to the right of such Person to receive
such payment.
SECTION 12.06 Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets or securities of a
Guarantor referred to in this Article Twelve, the Trustee and the Holders of the
Securities shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction in which bankruptcy, dissolution, winding-up,
liquidation or reorganization proceedings are pending, or upon a certificate of
the receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, delivered to the Trustee or to the Holders
of the Securities for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of Guarantor Senior Indebtedness
of such Guarantor and other indebtedness of such Guarantor, the amount thereof
or payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article Twelve.
SECTION 12.07 Trustee's Relation to Guarantor Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article Twelve with respect to any Guarantor Senior
Indebtedness which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Guarantor Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee or any
Paying Agent of any of its rights as such holder.
With respect to the holders of Guarantor Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Twelve, and no implied
covenants or obligations with respect to the holders of Guarantor Senior
Indebtedness shall be read into this Indenture against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior
Indebtedness (except as provided in Section 12.02(b)). The Trustee shall not be
liable to any such holders if the Trustee shall in good faith mistakenly pay
over or distribute to Holders of Securities or to the Company or to any other
person cash, property or securities to which any holders of Guarantor Senior
Indebtedness shall be entitled by virtue of this Article Twelve or otherwise.
SECTION 12.08 Subordination Rights Not Impaired by Acts or Omissions of the
Guarantors or Holders of Guarantor Senior Indebtedness.
No right of any present or future holders of any Guarantor Senior
Indebtedness to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
any Guarantor or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by any Guarantor with the terms of this
Indenture,
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regardless of any knowledge thereof which any such holder may have or
otherwise be charged with. The provisions of this Article Twelve are intended to
be for the benefit of, and shall be enforceable directly by, the holders of
Guarantor Senior Indebtedness.
SECTION 12.09 Securityholders Authorize Trustee To Effectuate Subordination of
Guaranty.
Each Holder of Securities by his acceptance of such Securities
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article Twelve, and appoints the Trustee his attorney-in-fact for such
purposes, including, in the event of any dissolution, winding-up, total
liquidation or reorganization of any Guarantor (whether in bankruptcy,
insolvency, receivership, reorganization or similar proceedings or upon an
assignment for the benefit of creditors or otherwise) tending towards
liquidation of the business and assets of such Guarantor, the filing of a claim
for the unpaid balance of its or his Securities in the form required in those
proceedings.
SECTION 12.10 This Article Not To Prevent Events of Default.
The failure to make a payment on account of principal of or interest
on the Securities by reason of any provision of this Article Twelve shall not be
construed as preventing the occurrence of an Event of Default specified in
clauses (a), (b) or (c) of Section 6.01.
SECTION 12.11 Trustee's Compensation Not Prejudiced.
Nothing in this Article Twelve shall apply to amounts due to the
Trustee pursuant to other sections in this Indenture.
SECTION 12.12 No Waiver of Guaranty Subordination Provisions.
Without in any way limiting the generality of Section 12.08, the
holders of Guarantor Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article
Twelve or the obligations hereunder of the Holders of the Securities to the
holders of Guarantor Senior Indebtedness, do any one or more of the following:
(a) change the manner, place or terms of payment or extend the time of payment
of, or renew or alter, Guarantor Senior Indebtedness or any instrument
evidencing the same or any agreement under which Guarantor Senior Indebtedness
is outstanding or secured; (b) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Guarantor Senior
Indebtedness; (c) release any Person liable in any manner for the collection of
Guarantor Senior Indebtedness; and (d) exercise or refrain from exercising any
rights against any Guarantor and any other Person.
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SECTION 12.13 Payments May Be Paid Prior to Dissolution.
Nothing contained in this Article Twelve or elsewhere in this
Indenture shall prevent (i) a Guarantor, except under the conditions described
in Section 12.02, from making payments of principal of and interest on the
Securities, or from depositing with the Trustee any moneys for such payments, or
(ii) the application by the Trustee of any moneys deposited with it for the
purpose of making such payments of principal of and interest on the Securities,
to the holders entitled thereto unless at least two Business Days prior to the
date upon which such payment becomes due and payable, the Trustee shall have
received the written notice provided for in Section 12.06. The Guarantors shall
give prompt written notice to the Trustee of any dissolution, winding-up,
liquidation or reorganization of such Guarantor.
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01 Trust Indenture Act Controls.
This Indenture is subject to the provisions of the TIA that are
required to be a part of this Indenture, and shall, to the extent applicable, be
governed by such provisions. If any provision of this Indenture modifies any TIA
provision that may be so modified, such TIA provision shall be deemed to apply
to this Indenture as so modified. If any provision of this Indenture excludes
any TIA provision that may be so excluded, such TIA provision shall be excluded
from this Indenture.
The provisions of TIA ?? 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included unless expressly
excluded by this Indenture) are a part of and govern this Indenture, whether or
not physically contained herein.
SECTION 13.02 Notices.
Any notice or communication shall be sufficiently given if in
writing and delivered in person, by facsimile and confirmed by overnight
courier, or mailed by first-class mail addressed as follows:
if to the Company or to the Guarantors:
Sovereign Specialty Chemicals, Inc.
225 West Washington Street
Suite 2200
Chicago, Illinois 60606
Attention: Chief Financial Officer
Facsimile: (312) 419-7151
Telephone: (312) 419-7100
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with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Carter W. Emerson, Esq.
Facsimile: (312) 861-2200
Telephone: (312) 861-2000
if to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Administration
Facsimile: (212) 815-5915
Telephone: (212) 815-5783
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed, first-class, postage prepaid, to
a Holder including any notice delivered in connection with TIA ? 310(b), TIA ?
313(c), TIA ? 314(a) and TIA ? 315(b), shall be mailed to him at his address as
set forth on the Security Register and shall be sufficiently given to him if so
mailed within the time prescribed. To the extent required by the TIA, any notice
or communication shall also be mailed to any Person described in TIA ? 313(c).
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. Except for a notice to the Trustee, which is deemed given only
when received, if a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.03 Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA ? 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other person shall
have the protection of TIA ? 312(c).
SECTION 13.04 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to
take or refrain from taking any action under this Indenture, the Company shall
furnish to the Trustee at the request of the Trustee:
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(1) an Officers' Certificate in form and substance satisfactory to
the Trustee stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel in form and substance satisfactory to the
Trustee stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
SECTION 13.05 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with; provided, however, that with
respect to matters of fact an Opinion of Counsel may rely on an Officers'
Certificate or certificates of public officials.
SECTION 13.06 Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting
of Securityholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 13.07 Governing Law.
The laws of the State of New York shall govern this Indenture, the
Securities and the Security Guarantees without regard to principles of conflicts
of law.
SECTION 13.08 No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the
Company or any Guarantor shall not have any liability for any obligations of the
Company or any Guarantor under the Securities, the Guaranty of such Guarantor or
this Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Securityholder by accepting a Security
waives and releases all such liability.
- 93 -
<PAGE> 94
SECTION 13.09 Successors.
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of each Guarantor in this Indenture and
such Guarantor's Guaranty shall bind its successor. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 13.10 Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 13.11 Severability.
In case any provision in this Indenture, in the Securities or in the
Guaranty shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and a Holder shall have no claim therefor against any party
hereto.
SECTION 13.12 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of the Company or a Subsidiary. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 13.13 Legal Holidays.
If a payment date is a not a Business Day at a place of payment,
payment may be made at that place on the next succeeding Business Day, and no
interest shall accrue for the intervening period.
[Signature Pages Follow]
- 94 -
<PAGE> 95
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
SOVEREIGN SPECIALTY CHEMICALS, INC.
By: /s/ Robert B. Covalt
----------------------------------
Name: Robert B. Covalt
Title: Chairman, President and
Chief Executive Officer
PIERCE & STEVENS CORP.,
as Guarantor
By: /s/ Robert B. Covalt
Name: Robert B. Covalt
Title: Chairman
SIA ADHESIVES, INC.,
as Guarantor
By: /s/ Robert Covalt
Name: Robert B. Covalt
Title: Chairman
LA PORTE CONSTRUCTION CHEMICALS
NORTH AMERICA, INC.,
as Guarantor
By: /s/ Robert B. Covalt
Name: Robert B. Covalt
Title: Chairman
- 95 -
<PAGE> 96
MERCER PRODUCTS COMPANY, INC.,
as Guarantor
By: /s/ Robert B. Covalt
Name: Robert B. Covalt
Title: Chairman
EVODE-TANNER INDUSTRIES, INC.,
as Guarantor
By: /s/ Robert B. Covalt
Name: Robert B. Covalt
Title: Chairman
THE BANK OF NEW YORK,
as Trustee
By: /s/ Mary La Gumina
Name: Mary La Gumina
Title: Vice President
- 96 -
<PAGE> 97
EXHIBIT A
[FORM OF SERIES A SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR
FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A
MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000 FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION
IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO
THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER
PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN THE
CASE OF THE FOREGOING CAUSE (D), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING
ON THE OTHER SIDE OF THIS SECURITY COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE ISSUER AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE
HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
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<PAGE> 98
SOVEREIGN SPECIALTY CHEMICALS, INC.
9 1/2 % Senior Subordinated Note
due August 1 , 2007, Series A
CUSIP No.:[ ]
No. [ ] $[ ]
SOVEREIGN SPECIALTY CHEMICALS, INC., a Delaware corporation (the
"Company", which term includes any successor corporation), for value received
promises to pay to [ ] or registered assigns, the principal sum of [ ] Dollars,
on August 1, 2007.
Interest Payment Dates: February 1 and August 1, commencing on February 1,
1998.
Interest Record Dates: January 15 and July 15
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officer.
SOVEREIGN SPECIALTY CHEMICALS, INC.
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
Dated: [ ]
- 98 -
<PAGE> 99
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 9 1/2% Senior Subordinated Notes due August 1,
2007, Series A, described in the within-mentioned Indenture. Dated: [ ]
THE BANK OF NEW YORK,
as Trustee
By:
-------------------------
Authorized Signatory
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<PAGE> 100
(REVERSE OF SECURITY)
SOVEREIGN SPECIALTY CHEMICALS, INC.
9 1/2% Senior Subordinated Note
due August 1, 2007, Series A
1. Interest.
SOVEREIGN SPECIALTY CHEMICALS, INC., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Security at
the rate per annum shown above. Cash interest on the Securities will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from August 1, 1997. The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing February 1, 1998. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time to
time on demand and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful from time to time on demand, in
each case at the rate borne by the Securities.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Interest Record Date immediately preceding the Interest Payment Date even
if the Securities are cancelled on registration of transfer or registration of
exchange after such Interest Record Date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by wire transfer of Federal funds
(provided that the Paying Agent shall have received wire instructions on or
prior to the relevant Interest Record Date), or interest by check payable in
such U.S. Legal Tender. The Company may deliver any such interest payment to the
Paying Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar.
Initially, The Bank of New York (the "Trustee") will act as Paying
Agent and Registrar. The Company may change any Paying Agent or Registrar
without notice to the Holders. The Company or any of its Subsidiaries may,
subject to certain exceptions, act as Registrar.
4. Indenture and Guarantees.
The Company issued the Securities under an Indenture, dated as of
August 1, 1997 (the "Indenture"), by and among the Company, the Guarantors and
the Trustee. Capitalized terms
- 100 -
<PAGE> 101
herein are used as defined in the Indenture unless otherwise defined herein.
This Security is one of a duly authorized issue of Securities of the Company
designated as its 9 1/2% Senior Subordinated Notes due 2007, Series A (the
"Initial Securities"), limited (except as otherwise provided in the Indenture)
in aggregate principal amount to $125,000,000, which may be issued under the
Indenture. The Securities include the Initial Securities, the Private Exchange
Securities (as defined in the Indenture) and the Unrestricted Securities (as
defined below) issued in exchange for the Initial Securities pursuant to the
Registration Rights Agreement. The Initial Securities and the Unrestricted
Securities are treated as a single class of securities under the Indenture. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
?? 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture (except
as otherwise indicated in the Indenture) until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and holders of Securities
are referred to the Indenture and the TIA for a statement of them. The
Securities are general unsecured obligations of the Company. The Securities are
subordinated in right of payment to all Senior Indebtedness of the Company to
the extent and in the manner provided in the Indenture. Each Holder of a
Security, by accepting a Security, agrees to such subordination, authorizes the
Trustee to give effect to such subordination and appoints the Trustee as
attorney-in-fact for such purpose.
Payment on the Securities is guaranteed (each, a "Guaranty"), on a senior
subordinated basis, jointly and severally, by each Restricted Subsidiary (other
than Foreign Subsidiaries) of the Company existing on the Issue Date (each, a
"Guarantor") pursuant to Article Eleven and Article Twelve of the Indenture. In
addition, the Indenture requires the Company to cause each Restricted Subsidiary
(other than Foreign Subsidiaries) formed, created or acquired after the Issue
Date to become a party to the Indenture as a Guarantor and guarantee payment on
the Securities pursuant to Article Eleven and Article Twelve of the Indenture.
In certain circumstances, the Guaranties may be released.
5. Optional Redemption.
The Securities will be redeemable at the option of the Company, in
whole or in part, at any time on or after August 1, 2002, at the redemption
prices (expressed as a percentage of principal amount) set forth below, plus
accrued and unpaid interest thereon, if any, to the redemption date (subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date), if redeemed during the twelve-month
period beginning on August 1, of the years indicated below:
----------------------------------------
Year Redemption Price
----------------------------------------
2002 104.750%
----------------------------------------
2003 103.167%
----------------------------------------
2004 101.584%
----------------------------------------
2005 and thereafter 100.000%
----------------------------------------
- 101 -
<PAGE> 102
6. Optional Redemption upon Public Equity Offerings.
In addition, at any time and from time to time on or prior to August
1, 2000, the Company may redeem in the aggregate up to $40.0 million aggregate
principal amount of the Securities with the net cash proceeds of one or more
Public Equity Offerings by the Company after which there is a Public Market, at
a redemption price in cash equal to 109.50% of the principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the date of redemption
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least $85.0 million aggregate principal amount of the Securities must
remain outstanding immediately after giving effect to each such redemption
(excluding any Securities held by the Company or any of its Affiliates). Notice
of any such redemption must be given within 60 days after the date of the
closing of the relevant Public Equity Offering of the Company.
7. Notice of Redemption.
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Securities to be redeemed at its registered address. The Trustee may select for
redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption so long as the Company has deposited with the Paying Agent for the
Securities funds in satisfaction of the redemption price pursuant to the
Indenture and the Paying Agent is not prohibited from paying such funds to the
Holders pursuant to the terms of the Indenture.
8. Change of Control Offer.
Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall, within 20
days after the Change of Control Date, make an Offer to Purchase all Securities
then outstanding at a purchase price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the Purchase Date (subject to the right of Holders of record on the relevant
Interest Record Date to receive interest due on the relevant Interest Payment
Date).
9. Limitation on Disposition of Assets.
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<PAGE> 103
The Company is, subject to certain conditions, obligated to make an
Offer to Purchase Securities at a purchase price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Purchase Date (subject to the right of Holders of record on the Interest
Relevant Record Date to receive interest due on the relevant Interest Payment
Date) with the proceeds of certain asset dispositions.
10. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
11. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
12. Unclaimed Funds.
If funds for the payment of principal or interest remain unclaimed
for two years, the Trustee and the Paying Agent will repay the funds to the
Company at its written request. After that, all liability of the Trustee and
such Paying Agent with respect to such funds shall cease.
13. Legal Defeasance and Covenant Defeasance.
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guaranties, except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Guaranties, in each case upon satisfaction of certain conditions specified in
the Indenture.
14. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture, the Securities and the
Guaranties may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any existing Default or Event of Default or compliance
with any provision may be waived with the consent of the Holders of a majority
in aggregate principal amount of the Securities then outstanding. Without notice
to or consent of any Holder, the parties thereto may amend or supplement the
Indenture, the Securities and the Guaranties to, among other things, cure any
ambiguity, defect or inconsistency, provide for uncertificated Securities in
addition to or in place of certificated Securities or comply with any
- 103 -
<PAGE> 104
requirements of the SEC in connection with the qualification of the Indenture
under the TIA, or make any other change that does not materially adversely
affect the rights of any Holder of a Security.
15. Restrictive Covenants.
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
to the Company, to consolidate, merge or sell all or substantially all of its
assets, to engage in transactions with affiliates or certain other related
persons or to engage in certain businesses. The limitations are subject to a
number of important qualifications and exceptions. The Company must report
quarterly to the Trustee on compliance with such limitations Defaults. 16. and
Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture, the Securities or the Guaranties except as
provided in the Indenture. The Trustee is not obligated to enforce the
Indenture, the Securities or the Guaranties unless it has received indemnity
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Securities then outstanding to direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of Securities notice of certain
continuing Defaults or Events of Default if it determines that withholding
notice is in their interest.
17. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
18. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as
such, of the Company or any Guarantor shall have any liability for any
obligation of the Company or any Guarantor under the Securities, the Guaranty of
such Guarantor or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities and the
Guaranties.
- 104 -
<PAGE> 105
19. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
20. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
21. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
22. Registration Rights.
Pursuant to the Registration Rights Agreement, the Company will be
obligated upon the occurrence of certain events to consummate an exchange offer
pursuant to which the Holder of this Security shall have the right to exchange
this Security for a 9 1/2% Senior Subordinated Note due 2007, Series B, of the
Company (an "Unrestricted Security") which have been registered under the
Securities Act, in like principal amount and having terms identical in all
material respects to the Initial Securities. The Holders shall be entitled to
receive certain additional interest payments in the event such exchange offer is
not consummated and upon certain other conditions, all pursuant to and in
accordance with the terms of the Registration Rights Agreement.
23. Governing Law.
The laws of the State of New York shall govern the Indenture, this
Security and any Guaranty thereof without regard to principles of conflicts of
laws.
- 105 -
<PAGE> 106
[FORM OF SECURITY GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
The Guarantor (as defined in the Indenture referred to in the
Security upon which this notation is endorsed) hereby unconditionally guarantees
on a senior subordinated basis (such guaranty by the Guarantor being referred to
herein as the "Guaranty") the due and punctual payment of the principal of,
premium, if any, and interest on the Securities, whether at maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal, premium and interest on the Securities, and the due and
punctual performance of all other obligations of the Company to the Holders or
the Trustee, all in accordance with the terms set forth in Article Eleven of the
Indenture.
The obligations of the Guarantor to the Holders of Securities and to
the Trustee pursuant to the Guaranty and the Indenture are expressly set forth,
and are expressly subordinated and subject in right of payment to the prior
payment in full of all Guarantor Senior Indebtedness (as defined in the
Indenture) of such Guarantor, to the extent and in the manner provided in
Article Eleven and Article Twelve of the Indenture, and reference is hereby made
to such Indenture for the precise terms of the Guaranty therein made.
This Security Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Securities upon which
this Security Guarantee is noted shall have been executed by the Trustee under
the Indenture by the manual signature of one of its authorized officers.
This Security Guarantee shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of law.
This Security Guarantee is subject to release upon the terms set
forth in the Indenture.
PIERCE & STEVENS CORP.
By:
Name:
Title:
SIA ADHESIVES, INC.
By:
Name:
- 106 -
<PAGE> 107
Title:
LA PORTE CONSTRUCTION CHEMICALS
NORTH AMERICA, INC.
By:
Name:
Title:
MERCER PRODUCTS COMPANY, INC.
By:
Name:
Title:
EVODE-TANNER INDUSTRIES, INC.
By:
Name:
Title:
- 107 -
<PAGE> 108
ASSIGNMENT FORM
I or we assign and transfer this Security to
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
________________________________________________________________________________
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint_________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated: Signed:
------------------- ------------------------------
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:
- -------------------------
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
- 108 -
<PAGE> 109
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.05 or Section 4.14 of the Indenture, check the appropriate
box: Section 4.05 [ ] Section 4.14 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.05 or Section 4.14 of the Indenture, state the
amount: $_____________
Dated: Your Signature:
------------------- -----------------------------
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:
- -------------------------
SIGNATURE GUARANTEE
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include membership
or participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
- 109 -
<PAGE> 110
EXHIBIT B
[FORM OF SERIES B SECURITY]
SOVEREIGN SPECIALTY CHEMICALS, INC.
9 1/2% Senior Subordinated Note
due August 1, 2007, Series B
CUSIP No.:[ ]
No. [ ] $[ ]
SOVEREIGN SPECIALTY CHEMICALS, INC., a Delaware corporation (the
"Company", which term includes any successor corporation), for value received
promises to pay to [ ] or registered assigns, the principal sum of [ ] Dollars,
on August 1, 2007.
Interest Payment Dates: February 1 and August 1, commencing on
February 1, 1998.
Interest Record Dates: January 15 and July 15
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officer.
SOVEREIGN SPECIALTY CHEMICALS, INC.
By:
Name:
Title:
By:
Name:
Title:
Dated: [ ]
- 110 -
<PAGE> 111
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 9 1/2% Senior Subordinated Notes due August 1,
2007, Series B, described in the within-mentioned Indenture. Dated: [ ]
THE BANK OF NEW YORK,
as Trustee
By:
Authorized Signatory
- 111 -
<PAGE> 112
(REVERSE OF SECURITY)
SOVEREIGN SPECIALTY CHEMICALS, INC.
9 1/2% Senior Subordinated Note
due August 1, 2007, Series B
1. Interest.
SOVEREIGN SPECIALTY CHEMICALS, INC., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Security at
the rate per annum shown above. Cash interest on the Securities will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from August 5, 1997. The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing February 1, 1998. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time to
time on demand and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful from time to time on demand, in
each case at the rate borne by the Securities.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Interest Record Date immediately preceding the Interest Payment Date even
if the Securities are cancelled on registration of transfer or registration of
exchange after such Interest Record Date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by wire transfer of Federal funds
(provided that the Paying Agent shall have received wire instructions on or
prior to the relevant Interest Record Date), or interest by check payable in
such U.S. Legal Tender. The Company may deliver any such interest payment to the
Paying Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar.
Initially, The Bank of New York (the "Trustee") will act as Paying
Agent and Registrar. The Company may change any Paying Agent or Registrar
without notice to the Holders. The Company or any of its Subsidiaries may,
subject to certain exceptions, act as Registrar.
4. Indenture and Guarantees.
The Company issued the Securities under an Indenture, dated as of
August 1, 1997 (the "Indenture"), by and among the Company, the Guarantors and
the Trustee. Capitalized terms
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<PAGE> 113
herein are used as defined in the Indenture unless otherwise defined herein.
This Security is one of a duly authorized issue of Securities of the Company
designated as its 9?% Senior Subordinated Notes due 2007, Series B (the
"Unrestricted Securities"), limited (except as otherwise provided in the
Indenture) in aggregate principal amount to $125,000,000, which may be issued
under the Indenture. The Securities include the 9 1/2% Senior Subordinated Notes
due 2007, Series A (the "Initial Securities"), the Private Exchange Securities
(as defined in the Indenture) and the Unrestricted Securities. The Initial
Securities, the Private Exchange Securities and the Unrestricted Securities are
treated as a single class of securities under the Indenture. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ??
77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture (except as
otherwise indicated in the Indenture) until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and holders of Securities
are referred to the Indenture and the TIA for a statement of them. The
Securities are general unsecured obligations of the Company. The Securities are
subordinated in right of payment to all Senior Indebtedness of the Company to
the extent and in the manner provided in the Indenture. Each Holder of a
Security, by accepting a Security, agrees to such subordination, authorizes the
Trustee to give effect to such subordination and appoints the Trustee as
attorney-in-fact for such purpose.
Payment on the Securities is guaranteed (each, a "Guaranty"), on a
senior subordinated basis, jointly and severally, by each Restricted Subsidiary
(other than Foreign Subsidiaries) of the Company existing on the Issue Date
(each, a "Guarantor") pursuant to Article Eleven and Article Twelve of the
Indenture. In addition, the Indenture requires the Company to cause each
Restricted Subsidiary (other than Foreign Subsidiaries) formed, created or
acquired after the Issue Date to become a party to the Indenture as a Guarantor
and guarantee payment on the Securities pursuant to Article Eleven and Article
Twelve of the Indenture. In certain circumstances, the Guaranties may be
released.
5. Optional Redemption.
The Securities will be redeemable at the option of the Company, in
whole or in part, at any time on or after August 1, 2002, at the redemption
prices (expressed as a percentage of principal amount) set forth below, plus
accrued and unpaid interest thereon, if any, to the redemption date (subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date), if redeemed during the twelve-month
period beginning on August 1 of the years indicated below:
---------------------------------------
Year Redemption Price
---------------------------------------
2002 104.750%
---------------------------------------
2003 103.167%
---------------------------------------
2004 101.584%
---------------------------------------
2005 and thereafter 100.000%
---------------------------------------
6. Optional Redemption upon Public Equity Offerings.
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<PAGE> 114
In addition, at any time and from time to time on or prior to August
1, 2000, the Company may redeem in the aggregate up to $40.0 million aggregate
principal amount of the Securities with the net cash proceeds of one or more
Public Equity Offerings by the Company after which there is a Public Market, at
a redemption price in cash equal to 9 1/2% of the principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the date of redemption (subject
to the right of Holders of record on the relevant record date to receive
interest due on the relevant interest payment date); provided, however, that at
least $85.0 million aggregate principal amount of the Securities must remain
outstanding immediately after giving effect to each such redemption (excluding
any Securities held by the Company or any of its Affiliates). Notice of any such
redemption must be given within 60 days after the date of the closing of the
relevant Public Equity Offering of the Company.
7. Notice of Redemption.
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Securities to be redeemed at its registered address. The Trustee may select for
redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption so long as the Company has deposited with the Paying Agent for the
Securities funds in satisfaction of the redemption price pursuant to the
Indenture and the Paying Agent is not prohibited from paying such funds to the
Holders pursuant to the terms of the Indenture.
8. Change of Control Offer.
Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall, within 20
days after the Change of Control Date, make an Offer to Purchase all Securities
then outstanding at a purchase price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the Purchase Date (subject to the right of Holders of record on the relevant
Interest Record Date to receive interest due on the relevant Interest Payment
Date).
9. Limitation on Disposition of Assets.
The Company is, subject to certain conditions, obligated to make an
Offer to Purchase Securities at a purchase price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Purchase Date (subject to the right of Holders of record on the Interest
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<PAGE> 115
Relevant Record Date to receive interest due on the relevant Interest Payment
Date) with the proceeds of certain asset dispositions.
10. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
11. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
12. Unclaimed Funds.
If funds for the payment of principal or interest remain unclaimed
for two years, the Trustee and the Paying Agent will repay the funds to the
Company at its written request. After that, all liability of the Trustee and
such Paying Agent with respect to such funds shall cease.
13. Legal Defeasance and Covenant Defeasance.
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guaranties, except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Guaranties, in each case upon satisfaction of certain conditions specified in
the Indenture.
14. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture, the Securities and the
Guaranties may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any existing Default or Event of Default or compliance
with any provision may be waived with the consent of the Holders of a majority
in aggregate principal amount of the Securities then outstanding. Without notice
to or consent of any Holder, the parties thereto may amend or supplement the
Indenture, the Securities and the Guaranties to, among other things, cure any
ambiguity, defect or inconsistency, provide for uncertificated Securities in
addition to or in place of certificated Securities or comply with any
requirements of the SEC in connection with the qualification of the Indenture
under the TIA, or make any other change that does not materially adversely
affect the rights of any Holder of a Security.
- 115 -
<PAGE> 116
15. Restrictive Covenants.
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
to the Company, to consolidate, merge or sell all or substantially all of its
assets, to engage in transactions with affiliates or certain other related
persons or to engage in certain businesses. The limitations are subject to a
number of important qualifications and exceptions. The Company must report
quarterly to the Trustee on compliance with such limitations.
16. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture, the Securities or the Guaranties except as
provided in the Indenture. The Trustee is not obligated to enforce the
Indenture, the Securities or the Guaranties unless it has received indemnity
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Securities then outstanding to direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of Securities notice of certain
continuing Defaults or Events of Default if it determines that withholding
notice is in their interest.
17. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
18. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as
such, of the Company or any Guarantor shall have any liability for any
obligation of the Company or any Guarantor under the Securities, the Guaranty of
such Guarantor or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities and the
Guaranties.
19. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
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<PAGE> 117
20. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
21. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
22. Governing Law.
The laws of the State of New York shall govern the Indenture, this
Security and any Guaranty thereof without regard to principles of conflicts of
laws.
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<PAGE> 118
[FORM OF SECURITY GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
The Guarantor (as defined in the Indenture referred to in the
Security upon which this notation is endorsed) hereby unconditionally guarantees
on a senior subordinated basis (such guaranty by the Guarantor being referred to
herein as the "Guaranty") the due and punctual payment of the principal of,
premium, if any, and interest on the Securities, whether at maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal, premium and interest on the Securities, and the due and
punctual performance of all other obligations of the Company to the Holders or
the Trustee, all in accordance with the terms set forth in Article Eleven of the
Indenture.
The obligations of the Guarantor to the Holders of Securities and to
the Trustee pursuant to the Guaranty and the Indenture are expressly set forth,
and are expressly subordinated and subject in right of payment to the prior
payment in full of all Guarantor Senior Indebtedness (as defined in the
Indenture) of such Guarantor, to the extent and in the manner provided in
Article Eleven and Article Twelve of the Indenture, and reference is hereby made
to such Indenture for the precise terms of the Guaranty therein made.
This Security Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Securities upon which
this Security Guarantee is noted shall have been executed by the Trustee under
the Indenture by the manual signature of one of its authorized officers.
This Security Guarantee shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of law.
This Security Guarantee is subject to release upon the terms set
forth in the Indenture.
PIERCE & STEVENS CORP.
By:
Name:
Title:
SIA ADHESIVES, INC.
By:
Name:
Title:
LA PORTE CONSTRUCTION CHEMICALS
NORTH AMERICA, INC.
By:
Name:
Title:
MERCER PRODUCTS COMPANY, INC.
- 118 -
<PAGE> 119
By:
Name:
Title:
EVODE-TANNER INDUSTRIES, INC.
By:
Name:
Title:
- 119 -
<PAGE> 120
ASSIGNMENT FORM
I or we assign and transfer this Security to
(Print or type name, address and zip code of assignee or transferee)
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated: Signed:
---------------------- ------------------------------
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:
- -------------------------------
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
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<PAGE> 121
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.05 or Section 4.14 of the Indenture, check the appropriate
box: Section 4.05 [ ] Section 4.14 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.05 or Section 4.14 of the Indenture, state the
amount: $_____________
Dated: Your Signature:
------------------- ------------------------------------
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:
- -----------------------------
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<PAGE> 122
SIGNATURE GUARANTEE
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include membership
or participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
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<PAGE> 123
EXHIBIT C
FORM OF LEGEND FOR GLOBAL SECURITIES
Any Global Security authenticated and delivered hereunder shall bear
a legend (which would be in addition to any other legends required in the case
of a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF
THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN
THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A
SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE
FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER
THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER
OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY
AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE
DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE
REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE &
CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF
THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL
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<PAGE> 124
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE
WITH THE RESTRICTIONS SET FORTH IN SECTION 2.16 OF THE
INDENTURE.
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<PAGE> 125
EXHIBIT D
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 9 1/2% Senior Subordinated Notes due 2007
(the "Securities"), of Sovereign Specialty Chemicals, Inc.
This Certificate relates to $_______ principal amount of Securities
held in the form of* ___ a beneficial interest in a Global Security or* _______
Physical Securities by ______ (the "Transferor"). The Transferor:*
has requested by written order that the Registrar deliver in
exchange for its beneficial interest in the Global Security held by the
Depositary a Physical Security or Physical Securities in definitive, registered
form of authorized denominations and an aggregate number equal to its beneficial
interest in such Global Security (or the portion thereof indicated above); or
has requested that the Registrar by written order to exchange or
register the transfer of a Physical Security or Physical Securities.
In connection with such request and in respect of each such
Security, the Transferor does hereby certify that the Transferor is familiar
with the Indenture relating to the above captioned Securities and the
restrictions on transfers thereof as provided in Section 2.16 of such Indenture,
and that the transfer of the Securities does not require Registration under the
Securities Act of 1933, as amended (the "Act"), because*:
Such Security is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 2.16 of the Indenture).
Such Security is being transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the Act), in reliance on Rule 144A.
Such Security is being transferred to an institutional "accredited
investor" (within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule
501 under the Act) which delivers a certificate to the Trustee in the form of
Exhibit E to the Indenture.
Such Security is being transferred in reliance on Rule 144 under the
Act.
Such Security is being transferred in reliance on and in compliance
with an exemption from the Registration requirements of the Act other than Rule
144A or Rule 144 under the Act to a person other than an institutional
"accredited investor." [An Opinion of Counsel to the effect that such transfer
does not require Registration under the Securities Act accompanies this
certification.]
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<PAGE> 126
--------------------------------
[INSERT NAME OF TRANSFEROR]
By:
----------------------------
[Authorized Signatory]
Date:
* Check applicable box.
- 126 -
<PAGE> 127
EXHIBIT E
FORM OF TRANSFEREE LETTER OF REPRESENTATION
Sovereign Specialty Chemicals, Inc.
c/o The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Administration
Dear Sirs:
This certificate is delivered to request a transfer of $________
principal amount of the 9 1/2% Senior Subordinated Notes due 2007 (the "Notes")
of Sovereign Specialty Chemicals, Inc. (the "Company"). Upon transfer, the Notes
would be registered in the name of the new beneficial owner as follows:
Name:
Address:
Taxpayer ID Number:
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933 (the "Securities
Act")) purchasing for our own account or for the account of such an
institutional "accredited investor" at least $250,000 principal amount of the
Notes, and we are acquiring the Notes not with a view to, or for offer or sale
in connection with, any distribution in violation of the Securities Act. We have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risk of our investment in the Notes and we invest
in or purchase securities similar to the Notes in the normal course of our
business. We and any accounts for which we are acting are each able to bear the
economic risk of our or its investment.
2. We understand that the Notes have not been registered under the
Securities Act and, unless so registered, may not be sold except as permitted in
the following sentence. We agree on our own behalf and on behalf of any investor
account for which we are purchasing Notes to offer, sell or otherwise transfer
such Notes prior to the date which is two years after the later of the date of
original issue and the last date on which the Company or any affiliate of the
Company was the owner of such Notes (or any predecessor thereto) (the "Resale
Restriction Termination Date") only (a) to the Company, (b) pursuant to a
registration statement which has been declared effective under the Securities
Act, (c) in a transaction complying with the requirements of Rule 144A under the
Securities Act, to a person we reasonably believe is a qualified institutional
buyer under Rule 144A (a "QIB") that purchases for its own account or for the
account of a QIB and to whom
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<PAGE> 128
notice is given that the transfer is being made in reliance on Rule 144A, (d) to
an institutional "accredited investor" within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act, that is purchasing for its own account
or for the account of such an institutional "accredited investor," in each case
in a minimum principal amount of Notes of $250,000 or (e) pursuant to any other
available exemption from the registration requirements of the Securities Act,
subject in each of the foregoing cases to any requirement of law that the
disposition of our property or the property of such investor account or accounts
be at all times within our or their control and in compliance with any
applicable state securities laws. The foregoing restrictions on resale will not
apply subsequent to the Resale Restriction Termination Date. If any resale or
other transfer of the Notes is proposed to be made pursuant to clause (d) above
prior to the Resale Restriction Termination Date, the transferor shall deliver a
letter from the transferee substantially in the form of this letter to the
Company and the Trustee, which shall provide, among other things, that the
transferee is an institutional "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring
such Notes for investment purposes and not for distribution in violation of the
Securities Act. Each purchaser acknowledges that the Company and the Trustee
reserve the right prior to any offer, sale or other transfer prior to the Resale
Restriction Termination Date of the Notes pursuant to clause (d) or (e) above to
require the delivery of an opinion of counsel, certificates and/or other
information satisfactory to the Company and the Trustee.
Dated: TRANSFEREE: By:
---------------------- -------------------------
- 128 -
<PAGE> 1
Exhibit 4.4
<PAGE> 2
-2-
SOVEREIGN SPECIALTY CHEMICALS, INC.
$125,000,000
9 1/2% Senior Subordinated Notes due 2007
REGISTRATION RIGHTS AGREEMENT
August 5, 1997
CHASE SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
c/o Chase Securities Inc.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
Sovereign Specialty Chemicals, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to Chase Securities Inc. ("CSI") and
Donaldson, Lufkin & Jenrette Securities Corporation (together with CSI, the
"Initial Purchasers"), upon the terms and subject to the conditions set forth in
a purchase agreement dated July 31, 1997 (the "Purchase Agreement") among the
Company, the Initial Purchasers, and the subsidiaries of the Company party
thereto (the "Guarantors" and, together with the Company, the "Issuers"),
$125,000,000 aggregate principal amount of its 9 1/2% Senior Subordinated Notes
due 2007 (the "Notes"). The Notes will be unconditionally guaranteed (the
"Guaranties" and, together with the Notes, the "Securities") by each of the
Guarantors pursuant to the terms of the Indenture. Capitalized terms used but
not defined herein shall have the meanings given to such terms in the Purchase
Agreement.
As an inducement to the Initial Purchasers to enter into the
Purchase Agreement and in satisfaction of a condition to the obligations of the
Initial Purchasers thereunder, the Issuers agree with the Initial Purchasers,
for the benefit of the holders (including the Initial Purchasers) of the
Securities, the Exchange Securities (as defined herein) and the Private Exchange
Securities (as defined herein) (collectively, the "Holders"), as follows:
1. Registered Exchange Offer. The Issuers shall (i) prepare and, not
later than 90 days following the date of original issuance of the Securities
(the "Issue Date"), file with the Commission a registration statement (the
"Exchange Offer Registration Statement") on an appropriate form under the
Securities Act with respect to a proposed offer to the Holders of the Securities
(the "Registered Exchange Offer") to issue and deliver to such Holders, in
exchange for the Securities, a like aggregate principal amount of debt
securities of the Company that are identical in all material respects to the
Securities and are guaranteed by the Guarantors with terms identical in all
material respects with the Guaranties (the "Exchange Securities"), except for
the transfer restrictions relating to the Securities, (ii) use their reason-
<PAGE> 3
-3-
able best efforts to cause the Exchange Offer Registration Statement to become
effective under the Securities Act no later than 270 days after the Is sue Date
and the Registered Exchange Offer to be consummated no later than 300 days after
the Issue Date and (iii) keep the Exchange Offer Registration Statement
effective for not less than 30 days (or longer, if required by applicable law)
after the date on which notice of the Registered Exchange Offer is mailed to
the Holders (such period being called the "Exchange Offer Registration Period").
The Exchange Securities will be issued under the Indenture or an indenture (the
"Exchange Securities Indenture") between the Issuers and the Trustee or such
other bank or trust company that is reasonably satisfactory to the Initial
Purchasers, as trustee (the "Exchange Securities Trustee"), such indenture to be
identical in all material respects to the Indenture, except for the transfer
restrictions relating to the Securities (as described above).
Upon the effectiveness of the Exchange Offer Registration Statement,
the Issuers shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Securities for Exchange Securities (assuming that such Holder (a) is
not an affiliate of the Company or an Exchanging Dealer (as defined herein) not
complying with the requirements of the next sentence, (b) is not an Initial
Purchaser holding Securities that have, or that are reasonably likely to have,
the status of an unsold allotment in an initial distribution, (c) acquires the
Exchange Securities in the ordinary course of such Holder's business and (d) has
no arrangements or understandings with any person to participate in the
distribution of the Exchange Securities) and to trade such Exchange Securities
from and after their receipt with out any limitations or restrictions under the
Securities Act and without material restrictions under the securities laws of
the several states of the United States. The Issuers, the Initial Purchasers and
each Exchanging Dealer acknowledge that, pursuant to current interpretations by
the Commission's staff of Section 5 of the Securities Act, each Holder that is a
broker-dealer electing to exchange Securities, acquired for its own account as a
result of market-making activities or other trading activities, for Exchange
Securities (an "Exchanging Dealer"), is required to deliver a prospectus
containing substantially the information set forth in Annex A hereto on the
cover, in Annex B hereto in the "Exchange Offer Procedures" section and the
"Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of
Distribution" section of such prospectus in connection with a sale of any such
Exchange Securities received by such Exchanging Dealer pursuant to the
Registered Ex change Offer.
If, prior to the consummation of the Registered Exchange Offer, any
Holder holds any Securities acquired by it that have, or that are reasonably
likely to be determined to have, the status of an unsold allotment in an initial
distribution, or any Holder is not entitled to participate in the Registered
Exchange Offer, the Issuers shall, upon the request of any such Holder,
simultaneously with the delivery of the Exchange Securities in the Registered
Exchange Offer, issue and deliver to any such Holder, in exchange for the
Securities held by such Holder (the "Private Exchange"), a like aggregate
principal amount of debt securities of the Company that are identical in all
material respects to the Exchange Securities and are guaranteed by the
Guarantors with terms identical in all material respects to the Guaranties (the
"Private Exchange Securities"), except for the transfer restrictions relating to
such Private Exchange Securities. The Private Exchange Securities will be issued
under the same inden-
<PAGE> 4
-4-
ture as the Exchange Securities, and the Company shall use its reasonable best
efforts to cause the Private Exchange Securities to bear the same CUSIP number
as the Exchange Securities.
In connection with the Registered Exchange Offer, the Issuers shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Ex change Offer Registration Statement, together with an appropriate
letter of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 20
business days (or longer, if required by applicable law) after the date
on which notice of the Registered Exchange Offer is mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
(d) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York City time, on the last business day on
which the Registered Exchange Offer shall remain open; and
(e) otherwise comply in all respects with all laws that are
applicable to the Registered Exchange Offer.
As soon as practicable after the close of the Registered Exchange
Offer and any Private Exchange, as the case may be, the Issuers shall:
(a) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer and the Private
Exchange;
(b) deliver to the Trustee for cancellation all Securities so
accepted for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee, as the
case may be, promptly to authenticate and deliver to each Holder, Exchange
Securities or Private Exchange Securities, as the case may be, equal in
principal amount to the Securities of such Holder so accepted for
exchange.
Each of the Issuers shall use its reasonable best efforts to keep
the Exchange Offer Registration Statement effective and to amend and supplement
the prospectus contained therein in order to permit such prospectus to be used
by all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such per sons must comply with such requirements
in order to resell the Exchange Securities; provided that (i) in the case where
such prospectus and any amendment or supplement thereto must be delivered by an
Exchanging Dealer, such period shall be the lesser of 180 days and the date on
which all Exchanging Dealers have sold all Exchange Securities held by them and
(ii) the Issuers shall make such prospectus and any amendment or supplement
thereto available to any broker-dealer for use in connection with any resale of
any Exchange Securities for a period of not less
<PAGE> 5
-5-
than 180 days after the consummation of the Registered Exchange Offer.
The Indenture or the Exchange Securities Indenture, as the case may
be, shall provide that the Securities, the Exchange Securities and the Private
Exchange Securities shall vote and consent together on all matters as one class
and that none of the Securities, the Exchange Securities or the Private
Exchange Securities will have the right to vote or consent as a separate class
on any matter.
Interest on each Exchange Security and Private Exchange Security
issued pursuant to the Registered Exchange Offer and in the Private Exchange
will accrue from the last interest payment date on which interest was paid on
the Securities surrendered in exchange therefor or, if no interest has been paid
on the Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Ex change Offer (i) any Exchange Securities received by such Holder
will be acquired in the ordinary course of business, (ii) such Holder will have
no arrangements or understanding with any person to participate in the
distribution of the Securities or the Exchange Securities within the meaning of
the Securities Act and (iii) such Holder is not an affiliate of the Company or,
if it is such an affiliate, such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
Notwithstanding any other provisions hereof, the Issuers will ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto and
any prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Exchange Offer Registration Statement and any
amendment thereto does not, when it be comes effective, contain 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 and
(iii) any prospectus forming part of any Exchange Offer Registration Statement,
and any supplement to such prospectus, does not, as of the consummation of the
Registered Exchange Offer, include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
2. Shelf Registration. If (i) because of any change in law or
applicable interpretations thereof by the Commission's staff the Issuers are not
permitted to effect the Registered Exchange Offer as contemplated by Section 1
hereof, or (ii) any Securities validly tendered pursuant to the Registered
Exchange Offer are not exchanged for Exchange Securities within 300 days after
the Issue Date, or (iii) any Initial Purchaser so requests with respect to
Securities or Private Exchange Securities not eligible to be exchanged for
Exchange Securities in the Registered Exchange Offer and held by it following
the consummation of the Registered Exchange Offer, or (iv) any applicable law
or interpretations do not permit any Holder to participate in the Registered
Exchange Offer, or (v) any Holder that participates in the Registered Exchange
Offer does not receive freely transfer able Exchange Securities in exchange for
tendered Securities (other than due solely to the status of a Holder (other than
an Initial
<PAGE> 6
-6-
Purchaser) as an affiliate of any of the Issuers within the meaning of the
Securities Act, and other than any state securities law restrictions which,
individually or in the aggregate, do not materially adversely affect the ability
of any such Holder to resell the securities held by such Holder), or (vi) the
Company so elects, then the following provisions shall apply:
(a) Each of the Issuers shall use its reasonable best efforts to
file as promptly as practicable (but in no event more than 30 days after so
required or requested pursuant to this Section 2) with the Commission, and
thereafter shall use its reasonable best efforts to cause to be declared
effective, a shelf registration statement on an appropriate form under the
Securities Act relating to the offer and sale of the Transfer Restricted
Securities (as defined below) by the Holders thereof from time to time in
accordance with the methods of distribution set forth in such registration
statement (hereafter, a "Shelf Registration Statement" and, together with any
Exchange Offer Registration Statement, a "Registration Statement").
(b) Each of the Issuers shall use its reasonable best efforts to
keep the Shelf Registration Statement continuously effective in order to permit
the prospectus forming part thereof to be used by Holders of Transfer
Restricted Securities for a period ending on the earlier of (i) two years from
the Issue Date or such shorter period that will terminate when all the Transfer
Restricted Securities covered by the Shelf Registration Statement have been sold
pursuant thereto and (ii) the date on which the Securities become eligible for
resale without volume restrictions pursuant to Rule 144 under the Securities Act
(in any such case, such period being called the "Shelf Registration Period"). An
Issuer shall be deemed not to have used its reasonable best efforts to keep the
Shelf Registration Statement effective during the requisite period if it
voluntarily takes any action that would result in Holders of Transfer Restricted
Securities covered thereby not being able to offer and sell such Transfer
Restricted Securities during that period, unless such action is required by
applicable law; provided, however, that the foregoing shall not apply to actions
taken by the Company and the Subsidiary Guarantors in good faith and for valid
business reasons (not including avoidance of their obligations hereunder),
including, without limitation, the acquisition or divestiture of assets, so
long as the Company within 60 days there after complies with the requirements of
Section 4(j) hereof. Any such period during which the Company fails to keep the
registration statement effective and usable for offers and sales of Securities
and Exchange Securities is referred to as a "Suspension Period." A Suspension
Period shall commence on and include the date that the Company gives notice to
the Holders to the effect that, in the reasonable judgment of the Company, the
use of the Shelf Registration Statement would materially interfere with a valid
business purpose of the Company and the Guarantors and that the Shelf
Registration Statement is no longer effective or the prospectus included
therein is no longer usable for offers and sales of Securities and Exchange
Securities and shall end on the date when each Holder of Securities and Ex
change Securities covered by such registration statement either receives the
copies of the supplemented or amended prospectus contemplated by Section 4(j)
hereof or is advised in writing by the Company that use of the prospectus may be
resumed. If one or more Suspension Periods occur, the two year time period
referenced above shall be extended by the number of days included in each such
Suspension Period; provided that the aggregate number of days of any Suspension
Periods shall not exceed 60 days in any 12-month period.
(c) Notwithstanding any other provisions hereof, the Issuers will
ensure
<PAGE> 7
-7-
that (i) any Shelf Registration Statement and any amendment thereto and any
prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Shelf Registration Statement and any amendment
thereto (in either case, other than with respect to information included therein
in reliance upon or in conformity with written information furnished to the
Company by or on behalf of any Holder specifically for use therein (the
"Holders' Information")) does not contain 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 and (iii) any prospectus forming part
of any Shelf Registration Statement, and any supplement to such prospectus (in
either case, other than with respect to Holders' Information), does not include
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
3. Liquidated Damages. (a) The parties hereto agree that the Holders
of Transfer Restricted Securities will suffer damages if the Issuers fail to
fulfill their obligations under Section 1 or Section 2, as applicable, and that
it would not be feasible to ascertain the extent of such damages. Accordingly,
if (i) the applicable Registration Statement is not filed with the Commission
on or prior to 90 days after the Issue Date, (ii) the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may be,
is not declared effective within 270 days after the Issue Date, (iii) the
Registered Ex change Offer is not consummated on or prior to 300 days after the
Issue Date, or (iv) the Shelf Registration Statement is filed and declared
effective within 270 days after the Issue Date but shall thereafter cease to be
effective (at any time that the Issuers are obligated to maintain the
effectiveness thereof) without being succeeded within 60 days by an additional
Registration Statement filed and declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), the Issuers, jointly and
severally, will be obligated to pay liquidated damages to each Holder of
Transfer Restricted Securities, during the period of one or more such
Registration Defaults, in an amount equal to $ 0.192 per week per $1,000
principal amount of Transfer Restricted Securities held by such Holder until (a)
the applicable Registration Statement is filed, (b) the Exchange Offer
Registration Statement is declared effective and the Registered Exchange Offer
is consummated, (c) the Shelf Registration Statement is declared effective or
(d) the Shelf Registration Statement again becomes effective, as the case may
be. Following the cure of all Registration Defaults, the accrual of liquidated
damages will cease. As used herein, the term "Transfer Restricted Securities"
means (i) each Security until the date on which such Security has been exchanged
for a freely transferable Exchange Security in the Registered Exchange Offer,
(ii) each Security or Private Exchange Security until the date on which it has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iii) each Security or
Private Exchange Security until the date on which it is distributed to the
public pursuant to Rule 144 under the Securities Act or is saleable pursuant to
Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary
in this Section 3(a), the Issuers shall not be required to pay liquidated
damages to a Holder of Transfer Restricted Securities if such Holder failed to
comply with its obligations to make the representations set forth in the second
to last paragraph of Section 1 or failed to provide the information required to
be provided by it, if any, pursuant to Section 4(n). Liqui-
<PAGE> 8
-8-
dated damages shall not accrue during any Suspension Period permitted pursuant
to Section 2(b).
(b) The Company shall notify the Trustee and the Paying Agent under
the Indenture immediately upon the happening of each and every Registration
Default. The Issuers shall pay the liquidated damages due on the Transfer
Restricted Securities by depositing with the Paying Agent (which may not be an
Issuer for these purposes), in trust, for the benefit of the Holders thereof,
prior to 10:00 a.m., New York City time, on the next interest payment date
specified by the Indenture and the Securities, sums sufficient to pay the
liquidated damages then due. The liquidated damages due shall be payable on each
interest payment date specified by the Indenture and the Securities to the
record holder entitled to receive the interest payment to be made on such date.
Each obligation to pay liquidated damages shall be deemed to accrue from and
including the date of the applicable Registration Default.
(c) The parties hereto agree that the liquidated damages provided
for in this Section 3 constitute a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by Holders of Transfer
Restricted Securities by reason of the failure of (i) the Shelf Registration
Statement or the Exchange Offer Registration Statement to be filed, (ii) the
Shelf Registration Statement to remain effective or (iii) the Exchange Offer
Registration Statement to be declared effective and the Registered Exchange
Offer to be consummated, in each case to the extent required by this Agreement.
4. Registration Procedures. In connection with any Registration
Statement, the following provisions shall apply:
(a) The Issuers shall (i) furnish to each Initial Purchaser, prior
to the filing thereof with the Commission, a copy of the Registration Statement
and each amendment thereof and each supplement, if any, to the prospectus
included therein and shall use its reasonable best efforts to reflect in each
such document, when so filed with the Commission, such comments as any Initial
Purchaser may reasonably propose; (ii) include the information set forth in
Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section and in Annex
C hereto in the "Plan of Distribution" section of the prospectus forming a part
of the Exchange Offer Registration Statement, and include the information set
forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the
Registered Exchange Offer; and (iii) if requested by any Initial Purchaser,
include the information required by Items 507 or 508 of Regulation S-K, as
applicable, in the prospectus forming a part of the Ex change Offer Registration
Statement.
(b) The Company shall advise each Initial Purchaser, each Exchanging
Dealer and the Holders (if applicable) and, if requested by any such person,
confirm such advice in writing (which advice pursuant to clauses (ii)-(v) hereof
shall be accompanied by an instruction to suspend the use of the prospectus
until the requisite changes have been made):
(i) when any Registration Statement and any amendment thereto
has been filed with the Commission and when such Registration Statement or
any post-effective amendment thereto has become effective;
<PAGE> 9
-9-
(ii) of any request by the Commission for amendments or
supplements to any Registration Statement or the prospectus included
therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of any Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Issuers of any notification with
respect to the suspension of the qualification of the Securities, the
Exchange Securities or the Private Exchange Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; and
(v) of the happening of any event that requires the making of
any changes in any Registration Statement or the prospectus included
therein in order that the statements therein are not misleading and do
not omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(c) The Issuers will make every reasonable effort to obtain the
withdrawal at the earliest possible time of any order suspending the
effectiveness of any Registration Statement.
(d) The Issuers will furnish to each Holder of Transfer Restricted
Securities included within the coverage of any Shelf Registration Statement,
without charge, at least one conformed copy of such Shelf Registration Statement
and any post-effective amendment thereto, including financial statements and
schedules and, if any such Holder so requests in writing, all exhibits thereto
(including those, if any, incorporated by reference).
(e) The Issuers will, during the Shelf Registration Period, promptly
deliver to each Holder of Transfer Restricted Securities included within the
coverage of any Shelf Registration Statement, without charge, as many copies of
the prospectus (including each preliminary prospectus) included in such Shelf
Registration Statement and any amendment or supplement thereto as such Holder
may reasonably request; and each Issuer consents to the use of such prospectus
or any amendment or supplement thereto by each of the selling Holders of
Transfer Restricted Securities in connection with the offer and sale of the
Transfer Restricted Securities covered by such prospectus or any amendment or
supplement thereto.
(f) The Issuers will furnish to each Initial Purchaser and each
Exchanging Dealer, and to any other Holder who so requests, without charge, at
least one conformed copy of the Exchange Offer Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
and, if any Initial Purchaser or Exchanging Dealer or any such Holder so
requests in writing, all exhibits thereto (including those, if any, incorporated
by reference).
(g) The Issuers will, during the Exchange Offer Registration Period
or the Shelf Registration Period, as applicable, promptly deliver to each
Initial Purchaser, each Ex-
<PAGE> 10
-10-
changing Dealer and such other persons that are required to deliver a prospectus
following the Registered Exchange Offer, without charge, as many copies of the
final prospectus included in the Exchange Offer Registration Statement or the
Shelf Registration Statement and any amendment or supplement thereto as such
Initial Purchaser, Exchanging Dealer or other persons may reasonably request;
and each of the Issuers consents to the use of such prospectus or any amendment
or supplement thereto by any such Initial Purchaser, Exchanging Dealer or other
persons, as applicable, as aforesaid.
(h) Prior to the effective date of any Registration Statement, each
of the Issuers will use its reasonable best efforts to register or qualify, or
cooperate with the Holders of Securities, Exchange Securities or Private
Exchange Securities included therein and their respective counsel in connection
with the registration or qualification of, such Securities, Exchange Securities
or Private Exchange Securities for offer and sale under the securities or blue
sky laws of such jurisdictions as any such Holder reasonably requests in writing
and do any and all other acts or things necessary or advisable to enable the
offer and sale in such jurisdictions of the Securities, Exchange Securities or
Private Exchange Securities covered by such Registration Statement; provided
that none of the Issuers will be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action which
would subject it to general service of process or to taxation in any such
jurisdiction where it is not then so subject.
(i) The Issuers will cooperate with the Holders of Securities,
Exchange Securities or Private Exchange Securities to facilitate the timely
preparation and delivery of certificates representing Securities, Exchange
Securities or Private Exchange Securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such denominations
and registered in such names as the Holders thereof may request in writing prior
to sales of Securities, Exchange Securities or Private Exchange Securities
pursuant to such Registration Statement.
(j) If any event contemplated by Section 4(b)(ii) through (v) occurs
during the period for which the Issuers are required to maintain an effective
Registration Statement, the Issuers will promptly prepare and file with the
Commission a post-effective amendment to the Registration Statement or a
supplement to the related prospectus or file any other required document so
that, as thereafter delivered to purchasers of the Securities, Exchange
Securities or Private Exchange Securities from a Holder, the prospectus will not
include an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(k) Not later than the effective date of the applicable Registration
Statement, the Issuers will provide a CUSIP number for the Securities, the
Exchange Securities and the Private Exchange Securities, as the case may be, and
provide the applicable trustee with printed certificates for the Securities, the
Exchange Securities or the Private Exchange Securities, as the case may be, in a
form eligible for deposit with The Depository Trust Company.
(l) The Issuers will comply with all applicable rules and
regulations of the
<PAGE> 11
-11-
Commission and the Company will make generally available to its security holders
as soon as practicable after the effective date of the applicable Registration
Statement an earning statement satisfying the provisions of Section 11(a) of
the Securities Act; provided that in no event shall such earning statement be
delivered later than 45 days after the end of a 12-month period (or 90 days, if
such period is a fiscal year) beginning with the first month of the Company's
first fiscal quarter commencing after the effective date of the applicable
Registration Statement, which statement shall cover such 12-month period.
(m) The Issuers will cause the Indenture or the Exchange Securities
In denture, as the case may be, to be qualified under the Trust Indenture Act as
required by applicable law in a timely manner.
(n) The Issuers may require each Holder of Transfer Restricted
Securities to be registered pursuant to any Shelf Registration Statement to
furnish to the Company such information concerning the Holder and the
distribution of such Transfer Restricted Securities as the Issuers may from time
to time reasonably require for inclusion in such Shelf Registration Statement,
and the Issuers may exclude from such registration the Transfer Restricted
Securities of any Holder that fails to furnish such information within a
reasonable time after receiving such request.
(o) In the case of a Shelf Registration Statement, each Holder of
Transfer Restricted Securities to be registered pursuant thereto agrees by
acquisition of such Transfer Restricted Securities that, upon receipt of any
notice from the Company pursuant to Section 4(b)(ii) through (v), such Holder
will discontinue disposition of such Transfer Restricted Securities until such
Holder's receipt of copies of the supplemental or amended prospectus
contemplated by Section 4(j) or until advised in writing (the "Advice") by the
Company that the use of the applicable prospectus may be resumed. If the Company
shall give any notice under Section 4(b)(ii) through (v) during the period that
the Issuers are required to maintain an effective Registration Statement (the
"Effectiveness Period"), such Effectiveness Period shall be extended by the
number of days during such period from and including the date of the giving of
such notice to and including the date when each seller of Transfer Restricted
Securities covered by such Registration Statement shall have received (x) the
copies of the supplemental or amended prospectus contemplated by Section 4(j)
(if an amended or supplemental prospectus is required) or (y) the Advice (if no
amended or supplemental prospectus is required).
(p) In the case of a Shelf Registration Statement, the Issuers shall
enter into such customary agreements (including, if requested, an underwriting
agreement in customary form) and take all such other action, if any, as Holders
of a majority in aggregate principal amount of the Securities, Exchange
Securities and Private Exchange Securities being sold or the managing
underwriters (if any) shall reasonably request in order to facilitate any
disposition of Securities, Exchange Securities or Private Exchange Securities
pursuant to such Shelf Registration Statement.
(q) In the case of a Shelf Registration Statement, the Issuers shall
(i) make reasonably available for inspection by a representative of, and Special
Counsel (as defined below) acting for, Holders of a majority in aggregate
principal amount of the Securities, Ex-
<PAGE> 12
-12-
change Securities and Private Exchange Securities being sold and any underwriter
participating in any disposition of Securities, Exchange Securities or Private
Exchange Securities pursuant to such Shelf Registration Statement, all relevant
financial and other records, pertinent corporate documents and properties of
the Company and its subsidiaries and (ii) use its reasonable best efforts to
have its officers, directors, employees, accountants and counsel supply all
relevant information reasonably requested by such representative, Special
Counsel or any such underwriter (an "Inspector") in connection with such Shelf
Registration Statement.
(r) In the case of a Shelf Registration Statement, the Issuers
shall, if requested by Holders of a majority in aggregate principal amount of
the Securities, Exchange Securities and Private Exchange Securities being sold,
their Special Counsel or the managing underwriters (if any) in connection with
such Shelf Registration Statement, use their reasonable best efforts to cause
(i) their counsel to deliver an opinion relating to the Shelf Registration
Statement and the Securities, Exchange Securities or Private Exchange
Securities, as applicable, in customary form, (ii) their officers to execute and
deliver all customary documents and certificates requested by Holders of a
majority in aggregate principal amount of the Securities, Exchange Securities
and Private Exchange Securities being sold, their Special Counsel or the
managing underwriters (if any) and (iii) their independent public accountants
to provide a comfort letter or letters in customary form, in form and sub stance
reasonably satisfactory to the managing underwriters subject to receipt of
appropriate documentation as contemplated, and only if permitted, by Statement
of Auditing Standards No. 72.
5. Registration Expenses. The Issuers will bear all expenses
incurred in connection with the performance of its obligations under Sections 1,
2, 3 and 4 and the Issuers will reimburse the Initial Purchasers and the Holders
for the reasonable fees and disbursements of one firm of attorneys (in addition
to any local counsel) chosen by the Holders of a majority in aggregate principal
amount of the Securities, the Exchange Securities and the Private Exchange
Securities to be sold pursuant to each Registration Statement (the "Special
Counsel") acting for the Initial Purchasers or Holders in connection therewith.
6. Indemnification. (a) In the event of a Shelf Registration
Statement or in connection with any prospectus delivery pursuant to an Exchange
Offer Registration Statement by an Initial Purchaser or Exchanging Dealer, as
applicable, the Issuers shall jointly and severally, indemnify and hold harmless
each Holder (including, without limitation, any such Initial Purchaser or
Exchanging Dealer), its affiliates, their respective officers, directors,
employees, representatives and agents, and each person, if any, who controls
such Holder within the meaning of the Securities Act or the Exchange Act
(collectively referred to for purposes of this Section 6 and Section 7 as a
Holder) from and against any loss, claim, damage or liability, joint or several,
or any action in respect thereof (including, without limitation, any loss,
claim, damage, liability or action relating to purchases and sales of
Securities, Exchange Securities or Private Exchange Securities), to which that
Holder may become subject, whether commenced or threatened, under the
Securities Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any such Registration
Statement or any prospectus forming part thereof or in any amendment or
supplement thereto or (ii) the omission
<PAGE> 13
-13-
or alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and shall
reimburse each Holder promptly upon demand for any legal or other expenses
reasonably incurred by that Holder in connection with investigating or defending
or preparing to defend against or appearing as a third party witness in
connection with any such loss, claim, damage, liability or action as such
expenses are incurred; provided, how ever, that the Issuers shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, an untrue statement or alleged untrue
statement in or omission or alleged omission from any of such documents in
reliance upon and in conformity with any Holders' Information; and provided,
further, that with respect to any such untrue statement in or omission from any
related preliminary prospectus, the indemnity agreement contained in this
Section 6(a) shall not inure to the benefit of any Holder from whom the person
asserting any such loss, claim, damage, liability or action received Securities,
Exchange Securities or Private Exchange Securities to the extent that such loss,
claim, damage, liability or action of or with respect to such Holder results
from the fact that both (A) a copy of the final prospectus was not sent or given
to such person at or prior to the written confirmation of the sale of such
Securities, Exchange Securities or Private Exchange Securities to such person
and (B) the untrue statement in or omission from the related preliminary
prospectus was corrected in the final prospectus unless, in either case, such
failure to deliver the final prospectus was a result of non-compliance by the
Company with Section 4(d), 4(e), 4(f) or 4(g).
(b) In the event of a Shelf Registration Statement, each Holder,
severally and not jointly, shall indemnify and hold harmless the Issuers, their
affiliates, their respective officers, directors, employees, representatives
and agents, and each person, if any, who controls the Issuers within the meaning
of the Securities Act or the Exchange Act (collectively referred to for
purposes of this Section 6(b) and Section 7 as the Issuers), from and against
any loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which the Issuers may become subject, whether commenced or
threatened, under the Securities Act, the Exchange Act, any other federal or
state statutory law or regulation, at common law or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is based upon, (i)
any untrue statement or alleged untrue statement of a material fact contained in
any such Registration Statement or any prospectus forming part thereof or in any
amendment or supplement thereto or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with any Holders'
Information furnished to the Issuers by such Holder, and shall reimburse the
Issuers for any legal or other expenses reasonably incurred by the Issuers in
connection with investigating or defending or preparing to defend against or
appearing as a third party witness in connection with any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that no such Holder shall be liable for any indemnity claims hereunder in
excess of the amount of net proceeds received by such Holder from the sale of
Securities, Exchange Securities or Private Exchange Securities pursuant to such
Shelf Registration Statement.
<PAGE> 14
-14-
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 6(a) or 6(b), notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 6 except to the extent
that it has been materially prejudiced (through the forfeiture of substantive
rights or defenses) by such failure; and provided, further, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section 6. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than the reasonable costs of investigation; provided, however,
that an indemnified party shall have the right to employ its own counsel in any
such action, but the fees, expenses and other charges of such counsel for the
indemnified party will be at the expense of such indemnified party unless (1)
the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based upon advice of counsel to the indemnified party) that there may
be legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party, (3)
a conflict or potential conflict exists (based upon advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying
party has not in fact employed counsel reasonably satisfactory to the
indemnified party to assume the defense of such action within a reasonable time
after receiving notice of the commencement of the action, in each of which cases
the reasonable fees, disbursements and other charges of counsel will be at the
expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm of attorneys (in
addition to any local counsel) at any one time for all such indemnified party or
parties. Each indemnified party, as a condition of the indemnity agreements
contained in Sections 6(a) and 6(b), shall use all reasonable efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party (which
consent shall not be unreasonably withheld), effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party
<PAGE> 15
-15-
and indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of such proceeding.
7. Contribution. If the indemnification provided for in Section 6 is
unavailable or insufficient to hold harmless an indemnified party under Section
6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company from the offering and sale of the Securities,
on the one hand, and a Holder with respect to the sale by such Holder of
Securities, Exchange Securities or Private Exchange Securities, on the other, 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 Issuers on the one hand and such Holder on the other with respect to the
statements or omissions that resulted in such loss, claim, damage or liability,
or action in respect thereof, as well as any other relevant equitable
considerations.. The relative benefits received by the Issuers on the one hand
and a Holder on the other with respect to such offering and such sale shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Securities (before deducting expenses) received by or on behalf of the
Issuers as set forth in the table on the cover of the Offering Memorandum, on
the one hand, bear to the total proceeds received by such Holder with respect to
its sale of Securities, Exchange Securities or Private Exchange Securities, on
the other. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to the Issuers or
information supplied by the Issuers on the one hand or to any Holders'
Information supplied by such Holder on the other, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The parties hereto agree that it
would not be just and equitable if contributions pursuant to this Section 7 were
to be determined by pro rata allocation or by any other method of allocation
that does not take into account the equitable considerations referred to herein.
The amount paid or payable by an indemnified party as a result of the loss,
claim, damage or liability, or action in respect thereof, referred to above in
this Section 7 shall be deemed to include, for purposes of this Section 7, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending or preparing to defend any such
action or claim. Notwithstanding the provisions of this Section 7, an
indemnifying party that is a Holder of Securities, Exchange Securities or
Private Exchange Securities shall not be required to contribute any amount in
excess of the amount by which the total price at which the Securities, Exchange
Securities or Private Exchange Securities sold by such indemnifying party to
any purchaser exceeds the amount of any damages which such indemnifying party
has otherwise paid or become liable to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
<PAGE> 16
-16-
8. Rules 144 and 144A. Each of the Issuers shall use its reasonable
best efforts to file the reports required to be filed by it under the Securities
Act and the Exchange Act in a timely manner and, if at any time the Issuers are
not required to file such reports, they shall, upon the written request of any
Holder of Transfer Restricted Securities, provide other information so long as
necessary to permit sales of such Holder's securities pursuant to Rules 144 and
144A. Each of the Issuers covenants that it will take such further reasonable
action as any Holder of Transfer Restricted Securities may reason ably request,
all to the extent required from time to time to enable such Holder to sell
Transfer Restricted Securities without registration under the Securities Act
within the limitation of the exemptions provided by Rules 144 and 144A
(including, without limitation, the requirements of Rule 144A(d)(4)).
Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to
require the Issuers to register any of their securities pursuant to the Exchange
Act.
9. Underwritten Registrations. If any of the Transfer Restricted
Securities covered by any Shelf Registration Statement are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority in aggregate principal amount of such Transfer Restricted Securities
included in such offering, subject to the consent of the Company (which shall
not be unreasonably withheld or delayed), and such Holders shall be responsible
for all underwriting commissions and discounts in connection therewith.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted
Securities on the basis reasonably provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
10. Miscellaneous. (a) Amendments and Waivers. The provisions of
this Agreement may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities, taken as a single class. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders whose Securities, Exchange
Securities or Private Exchange Securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly materially
affect the rights of other Holders may be given by Holders of a majority in
aggregate principal amount of the Securities, the Exchange Securities and the
Private Exchange Securities being sold by such Holders pursuant to such
Registration Statement.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telecopier or air courier guaranteeing next-day delivery:
(1) if to a Holder, at the most current address given by such Holder
to the
<PAGE> 17
-17-
Company in accordance with the provisions of this Section 10(b), which
address initially is, with respect to each Holder, the address of such
Holder maintained by the Registrar under the Indenture, with a copy in
like manner to Chase Securities Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation;
(2) if to an Initial Purchaser, initially at its address set forth
in the Purchase Agreement; and
(3) if to the Issuers, initially at the address of the Company set
forth in the Purchase Agreement.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; one business day
after being delivered to a next-day air courier; five business days after being
deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if sent by telecopier.
(c) Successors And Assigns. This Agreement shall be binding upon the
Issuers and their successors and assigns.
(d) Counterparts. This Agreement may be executed in any number of
counterparts (which may be delivered in original form or by telecopier) and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(e) Definition of Terms. For purposes of this Agreement, (a) the
term "business day" means any day on which the New York Stock Exchange, Inc. is
open for trading, (b) the term "subsidiary" has the meaning set forth in Rule
405 under the Securities Act and (c) except where otherwise expressly provided,
the term "affiliate" has the meaning set forth in Rule 405 under the Securities
Act.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
(h) Remedies. In the event of a breach by the Issuers or by any
Holder of any of their obligations under this Agreement, each Holder or the
Issuers, as the case may be, in addition to being entitled to exercise all
rights granted by law, including recovery of damages (other than the recovery
of damages for a breach by the Issuers of their obligations under Sections 1 or
2 hereof for which liquidated damages have been paid pursuant to Section 3
hereof), will be entitled to specific performance of its rights under this
Agreement. The Issuers and each Holder agree that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agree that, in the event
of any action for specific performance in respect of such breach, it shall
waive the defense that a remedy at law would be adequate.
<PAGE> 18
-18-
(i) No Inconsistent Agreements. Each of the Issuers represents,
warrants and agrees that (i) it has not entered into, shall not, on or after the
date of this Agreement, enter into any agreement that is inconsistent with the
rights granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof, (ii) it has not previously entered into any agreement which
remains in effect granting any registration rights with respect to any of its
debt securities to any person and (iii) without limiting the generality of the
foregoing, without the written consent of the Holders of a majority in aggregate
principal amount of the then outstanding Transfer Restricted Securities, it
shall not grant to any person the right to request the Issuers to register any
debt securities of the Issuers under the Securities Act unless the rights so
granted are not in conflict or inconsistent with the provisions of this
Agreement.
(j) No Piggyback on Registrations. Neither the Issuers nor any of
their security holders (other than the Holders of Transfer Restricted Securities
in such capacity) shall have the right to include any securities of the Issuers
in any Shelf Registration or Registered Exchange Offer other than Transfer
Restricted Securities.
(k) Severability. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
<PAGE> 19
-19-
Please confirm that the foregoing correctly sets forth the agreement
among the Issuers and the Initial Purchasers.
Very truly yours,
SOVEREIGN SPECIALTY CHEMICALS, INC.
By: /s/ Robert B. Covalt
-------------------------------------
Name: Robert B. Covalt
Title: Chairman, President and Chief
Executive Officer
PIERCE & STEVENS CORP.
By: /s/ Robert B. Covalt
-------------------------------------
Name: Robert B. Covalt
Title: Chairman
SIA ADHESIVES, INC.
By: /s/ Robert B. Covalt
-------------------------------------
Name: Robert B. Covalt
Title: Chairman
Accepted:
CHASE SECURITIES INC.
By: /s/ Daniel P. Tredwell
----------------------------------
Authorized Signatory
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ James F. Collier, III
----------------------------------
Authorized Signatory
<PAGE> 20
-20-
Each of the Subsidiaries specified below agrees to become a party to
this Agreement as a Guarantor as of the date hereof:
LAPORTE CONSTRUCTION CHEMICALS
NORTH AMERICA, INC.
By: /s/ Robert B. Covalt
-------------------------------------
Name: Robert B. Covalt
Title: Chairman
MERCER PRODUCTS COMPANY, INC.
By: /s/ Robert B. Covalt
-------------------------------------
Name: Robert B. Covalt
Title: Chairman
EVODE-TANNER INDUSTRIES, INC.
By: /s/ Robert B. Covalt
-------------------------------------
Name: Robert B. Covalt
Title: Chairman
<PAGE> 21
-21-
725
<PAGE> 1
Exhibit 4.5
CONFORMED COPY
************************************************************
SOVEREIGN SPECIALTY CHEMICALS, INC.
SIA ADHESIVES, INC.
PIERCE & STEVENS CORP.
as Initial Borrowers
and
SUBSIDIARY GUARANTORS
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
-----------------------------
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of August 5, 1997
------------------------------
CHASE SECURITIES INC.
as Arranger
************************************************************
<PAGE> 2
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience of reference only.
Page
Section 1. Definitions and Accounting Matters............................... 2
1.01 Certain Defined Terms......................................... 2
1.02 Accounting Terms and Determinations........................... 38
1.03 Classes and Types of Loans.................................... 39
1.04 References to Date............................................ 39
Section 2. Commitments, Loans, Notes and Prepayments........................ 40
2.01 Loans......................................................... 40
2.02 Borrowings.................................................... 42
2.03 Letters of Credit............................................. 42
2.04 Changes of Commitments........................................ 49
2.05 Commitment Fee................................................ 49
2.06 Lending Offices............................................... 50
2.07 Several Obligations; Remedies Independent..................... 50
2.08 Notes......................................................... 50
2.09 Optional Prepayments and Conversions or
Continuations of Loans..................................... 51
2.10 Mandatory Prepayments and Reductions of
Commitments................................................ 52
2.11 Joint and Several Obligations................................. 59
2.12 Acquisition Loans............................................. 59
Section 3. Payments of Principal and Interest............................... 59
3.01 Repayment of Loans............................................ 59
3.02 Interest...................................................... 60
Section 4. Payments; Pro Rata Treatment; Computations; Etc.
................................................................... 61
4.01 Payments...................................................... 61
4.02 Pro Rata Treatment............................................ 62
4.03 Computations.................................................. 62
4.04 Minimum Amounts............................................... 63
4.05 Certain Notices............................................... 63
4.06 Non-Receipt of Funds by the Administrative Agent.............. 64
4.07 Sharing of Payments, Etc...................................... 65
Section 5. Yield Protection, Etc............................................ 67
5.01 Additional Costs.............................................. 67
5.02 Limitation on Types of Loans.................................. 70
5.03 Illegality.................................................... 70
5.04 Treatment of Affected Loans................................... 71
5.05 Compensation.................................................. 71
(i)
<PAGE> 3
Page
----
5.06 Additional Costs in Respect of Letters of Credit.............. 72
5.07 U.S. Taxes.................................................... 73
5.08 Replacement of Lenders........................................ 74
Section 6. Guarantee........................................................ 75
6.01 The Guarantee................................................. 75
6.02 Obligations Unconditional..................................... 76
6.03 Reinstatement................................................. 77
6.04 Subrogation................................................... 77
6.05 Remedies...................................................... 77
6.07 Continuing Guarantee.......................................... 78
6.08 Rights of Contribution........................................ 78
6.09 General Limitation on Guarantee Obligations................... 79
Section 7. Conditions Precedent............................................. 79
7.01 Effectiveness of this Agreement............................... 79
7.02 Initial and Subsequent Extensions of Credit................... 89
Section 8. Representations and Warranties................................... 90
8.01 Corporate Existence........................................... 90
8.02 Financial Condition........................................... 90
8.03 Litigation.................................................... 91
8.04 No Breach..................................................... 91
8.05 Action........................................................ 92
8.06 Approvals..................................................... 92
8.07 ERISA......................................................... 92
8.08 Taxes......................................................... 92
8.09 Investment Company Act........................................ 93
8.10 Public Utility Holding Company Act............................ 93
8.11 Material Agreements and Liens................................. 93
8.12 Environmental Matters......................................... 94
8.13 Capitalization................................................ 96
8.14 Subsidiaries, Etc............................................. 97
8.15 True and Complete Disclosure.................................. 97
8.16 Real Property................................................. 98
8.17 Certain Documents............................................. 98
8.18 Solvency...................................................... 98
Section 9. Covenants of the Obligors........................................ 99
9.01 Financial Statements Etc...................................... 99
9.02 Litigation....................................................103
9.03 Existence, Etc................................................103
9.04 Insurance.....................................................104
9.05 Prohibition of Fundamental Changes............................107
9.06 Limitation on Liens...........................................110
9.07 Indebtedness..................................................112
9.08 Investments...................................................113
9.09 Restricted Payments...........................................115
9.10 Certain Financial Covenants...................................116
9.11 Management Fees...............................................118
9.12 Capital Expenditures..........................................118
(ii)
<PAGE> 4
Page
----
9.13 Holding Company...............................................118
9.14 Subordinated Indebtedness.....................................119
9.15 Lines of Business.............................................119
9.16 Transactions with Affiliates..................................119
9.17 Use of Proceeds...............................................120
9.18 Certain Obligations Respecting Restricted
Subsidiaries...............................................120
9.19 Modifications of Certain Documents............................121
9.20 Equity Issuance...............................................122
9.21 Newly-Acquired Real Property..................................122
9.22 Governmental Approvals........................................123
9.23 Appraisal............................................123
Section 10. Events of Default...............................................124
Section 11. The Administrative Agent........................................129
11.01 Appointment, Powers and Immunities...........................129
11.02 Reliance by Administrative Agent.............................130
11.03 Defaults.....................................................130
11.04 Rights as a Lender...........................................131
11.05 Indemnification..............................................131
11.06 Non-Reliance on Administrative Agent and Other
Lenders....................................................132
11.07 Failure to Act...............................................132
11.08 Resignation or Removal of Administrative Agent...............132
11.09 Consents under Other Loan Documents..........................133
Section 12. Miscellaneous...................................................134
12.01 Waiver.......................................................134
12.02 Notices......................................................134
12.03 Expenses, Etc................................................134
12.04 Amendments, Etc..............................................136
12.05 Successors and Assigns.......................................137
12.06 Assignments and Participations...............................137
12.07 Survival.....................................................140
12.08 Captions.....................................................140
12.09 Counterparts.................................................140
12.10 Governing Law; Submission to Jurisdiction....................140
12.11 Waiver of Jury Trial.........................................141
12.12 Limitation of Liability......................................141
12.13 Treatment of Certain Information;
Confidentiality............................................141
(iii)
<PAGE> 5
SCHEDULE I - Material Agreements and Liens
SCHEDULE II - Capitalization and Investments
SCHEDULE III - Real Property
SCHEDULE IV - List of Affiliate Transactions
SCHEDULE V - Environmental Matters
EXHIBIT A-1 - Form of Revolving Credit Note
EXHIBIT A-2 - Form of Term Loan Note
EXHIBIT B - Form of Borrowing Base Certificate
EXHIBIT C - Form of Security Agreement
EXHIBIT D - Form of Partnership Pledge Agreement
EXHIBIT E - Form of Confidentiality Agreement
EXHIBIT F - Form of Assignment and Acceptance
EXHIBIT G - Form of Joinder Agreement
(iv)
<PAGE> 6
AMENDED AND RESTATED CREDIT AGREEMENT dated as of August 5, 1997
between: SOVEREIGN SPECIALTY CHEMICALS, INC., a corporation duly organized and
validly existing under the laws of the State of Delaware ("SSC"); SIA ADHESIVES,
INC., a corporation duly organized and validly existing under the laws of the
State of Delaware ("SIA") and successor by merger to Sovereign Engineered
Adhesives, L.L.C., a Delaware limited liability company ("SEA"); and PIERCE &
STEVENS CORP., a corporation duly organized and validly existing under the laws
of the State of New York and into which P&S (as defined below) has merged
("Pierce & Stevens" and together with SSC, SIA and (after the consummation of
the Acquisition (as defined in Section 1.01 hereof) and the execution and
delivery by Evode-Tanner Industries, Inc., a corporation duly organized and
validly existing under the laws of the state of New Hampshire ("Evode"), Laporte
Construction Chemicals North America, Inc., a corporation duly organized and
validly existing under the laws of the State of Illinois ("LCCNA"), and Mercer
Products Company, Inc., a corporation duly organized and validly existing under
the laws of the State of New Jersey ("Mercer"), of a Joinder Agreement (as
defined in Section 1.01 hereof)), Evode, LCCNA and Mercer, individually a
"Borrower" and collectively, the "Borrowers"); each of the Subsidiaries of SSC
that becomes a "Guarantor" after the date hereof pursuant to Section 9.18(a)
hereof (individually, a "Guarantor" and, collectively, the "Guarantors"; the
Guarantors and the Borrowers being referred to herein as the "Obligors"); each
of the lenders that is a signatory hereto identified under the caption "LENDERS"
on the signature pages hereto and each lender that becomes a "Lender" after the
date hereof pursuant to Section 12.06(b) hereof (individually, a "Lender" and,
collectively, the "Lenders"); and THE CHASE MANHATTAN BANK, a New York banking
corporation, as administrative agent for the Lenders (in such capacity, together
with its successors in such capacity, the "Administrative Agent").
WHEREAS, Sovereign Specialty Chemicals, L.P., a Delaware limited
partnership (the "Partnership"), SIA and Pierce & Stevens (the "Existing
Borrowers"), certain of the Lenders (the "Existing Lenders") and the
Administrative Agent are parties to a Credit Agreement dated as of August 19,
1996 (as heretofore modified and supplemented and in effect on the date hereof
immediately before giving effect to the amendment and restatement contemplated
hereby, the "Existing Credit Agreement"). Pursuant to the Existing Credit
Agreement, (a) certain of the Existing Lenders committed to make revolving
credit loans to the Existing Borrowers in an original aggregate principal amount
not exceeding $15,000,000 at any one time outstanding, with a portion of such
commitments made available for the issuance of letters of credit in an aggregate
amount not exceeding $5,000,000 at any one time
Credit Agreement
<PAGE> 7
- 2 -
outstanding and (b) certain of the Existing Lenders committed to make term loans
to the Existing Borrowers in an original aggregate principal amount not
exceeding $25,000,000.
WHEREAS, the Borrowers have requested that the Existing Lenders
(which include all of the Persons that on the date hereof are Lenders under, and
as defined in, the Existing Credit Agreement) and the Administrative Agent agree
to amend and restate the Existing Credit Agreement in its entirety, and the
Existing Lenders and the Administrative Agent are willing to amend and restate
the Existing Credit Agreement in its entirety, in order to, among other things,
(a) cause the Borrowers to be the joint and several borrowers thereunder and
cause the Guarantors to be the joint and several guarantors thereunder, (b)
increase the aggregate amount of the commitments to make revolving credit loans
to $30,000,000 and (c) reinstate the commitments to make term loans and increase
the aggregate amount thereof to $30,000,000.
NOW, THEREFORE, the parties hereto hereby agree that the Existing
Credit Agreement shall be amended and restated as of the date hereof (but
subject to Section 7.01) to read in its entirety as follows:
Accordingly, the parties hereto agree as follows:
Section 1. Definitions and Accounting Matters.
1.01 Certain Defined Terms. As used herein, the following terms
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Agreement in the singular to have the same meanings
when used in the plural and vice versa):
"ABR Loans" shall mean Loans that bear interest at rates based upon
the ABR Rate.
"ABR Rate" shall mean, for any day, a rate per annum equal to the
highest of (a) the Federal Funds Rate for such day plus 1/2 of 1%, (b) the Prime
Rate for such day and (c) the Base CD Rate for such day plus 1%. Each change in
any interest rate provided for herein based upon the ABR Rate resulting from a
change in the ABR Rate shall take effect at the time of such change in the ABR
Rate.
"Acquisition" shall mean the acquisition by the Partnership and SSC,
in accordance with the Acquisition Documents, of all outstanding shares of
capital stock of the
Credit Agreement
<PAGE> 8
- 3 -
Target Companies, immediately followed by the contribution by the Partnership to
SSC of all such shares so acquired by the Partnership.
"Acquisition Agreement" shall mean the Stock Purchase Agreement
dated as of May 22, 1997 between Laporte, as seller, and the Partnership and
SSC, as buyers, as amended by that certain Closing Agreement as of August 5,
1997, as the same shall, subject to Section 9.19 hereof, be further modified and
supplemented and in effect from time to time.
"Acquisition Documents" shall mean the Acquisition Agreement and the
documents referred to in the Schedules thereto.
"Acquisition Loan" has the meaning assigned to such term in Section
2.01(b) hereof.
"Acquisition Loan Availability Period" has the meaning assigned to
such term in Section 2.01(b) hereof.
"Administrative Agent" has the meaning assigned to such term in the
heading hereof.
"Affiliate" shall mean, with respect to any Person (the "First
Person") any other Person (the "Other Person") that directly or indirectly
controls, or is under common control with, or is controlled by, such First
Person and, if such Other Person is an individual, any member of the immediate
family (including parents, spouse, children and siblings) of such individual and
any trust whose principal beneficiary is such individual or one or more members
of such immediate family and any Person who is controlled by any such member or
trust. As used in this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise), provided that, in any
event, any Person that owns directly or indirectly securities having 5% or more
of the voting power for the election of directors or other governing body of a
corporation or 5% or more of the partnership or other ownership interests of any
other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person. Notwithstanding the
foregoing, (a) no individual (and no member of the immediate family (including
parents, spouse, children and siblings) of any individual or any trust whose
principal beneficiary is such individual or one or more members of such
Credit Agreement
<PAGE> 9
- 4 -
immediate family and no Person who is controlled by any such member or trust)
shall be an Affiliate of SSC or any of its Subsidiaries solely by reason of such
individuals being a director, officer or employee of a Borrower, the
Partnership, any Partner, any shareholder of any Partner or any Subsidiary of
any of the foregoing Persons, (b) no Restricted Subsidiaries that are Wholly
Owned Subsidiaries of a Borrower shall be Affiliates of SSC or any of its
Restricted Subsidiaries and (c) no Lender and no affiliate of any Lender shall
be an Affiliate of SSC or any of its Restricted Subsidiaries.
"Applicable Lending Office" shall mean, for each Lender and for each
Type of Loan, the "Lending Office" of such Lender (or of an affiliate of such
Lender) designated for such Type of Loan on the signature pages hereof or such
other office of such Lender (or of an affiliate of such Lender) as such Lender
may from time to time specify to the Administrative Agent and the Borrowers as
the office by which its Loans of such Type are to be made and maintained.
"Applicable Rate" shall mean: (a) with respect to ABR Loans, 1.250%
per annum; (b) with respect to Eurodollar Loans, 2.500% per annum; (c) with
respect to commitment fees, 0.500%; and (d) with respect to letter of credit
fees, 2.500%; provided that if the Pricing Ratio as at the last day of any
fiscal quarter of SSC ending on or after September 30, 1997 shall fall within
any of the ranges set forth below then, subject to the delivery to the
Administrative Agent of a certificate of a Senior Officer demonstrating such
fact prior to the end of the next succeeding fiscal quarter, the "Applicable
Rate" for each such item shall be reduced to the rate for such item set forth
below opposite such range during the period commencing on the Quarterly Date on
or immediately following the date of receipt of such certificate to but not
including the next succeeding Quarterly Date thereafter (except that
notwithstanding the foregoing, the Applicable Rate for any such Loan shall not
as a consequence of this proviso be so reduced for any period during which an
Event of Default shall have occurred and be continuing):
Credit Agreement
<PAGE> 10
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================================================================================
Pricing Ratio ABR Loans Eurodollar Commitment Letter of
Loans Fees Credit
Fees
- --------------------------------------------------------------------------------
Less than 3.0 0.250 1.500 0.375 1.500
to 1
- --------------------------------------------------------------------------------
Greater than or 1.750 0.375 1.750
equal to 3.0 to
1 and less than 0.500
3.5 to 1
- --------------------------------------------------------------------------------
Greater than or 2.000 0.375 2.000
equal to 3.5 to
1 and less than 0.750
4.0 to 1
- --------------------------------------------------------------------------------
Greater than or 2.250 0.500 2.250
equal to 4.0 to
1 and less than 1.000
4.5 to 1
- --------------------------------------------------------------------------------
Greater than or 1.250 2.500 0.500 2.500
equal to 4.5 to
1
================================================================================
"Assessment Rate" shall mean, for any Interest Period, the average
of the highest and lowest annual assessment rates (determined by the
Administrative Agent as at the first day of such Interest Period and rounded
upwards, if necessary, to the nearest 1/100 of 1%) that the Federal Deposit
Insurance Corporation (or any successor) charges members of the Bank Insurance
Fund pursuant to 12 C.F.R. Part 327 (or any successor) for such Corporation's
(or such successor's) insuring time deposits at offices of such members in the
United States of America.
"BAIC/MIG Stock Purchase Agreement" shall mean the BAIC/MIG Stock
Purchase Agreement dated as of August 19, 1996 among SCC, BankAmerica Investment
Corporation and MIG Partners II, as the same shall, subject to Section 9.19
hereof, be modified and supplemented and in effect from time to time.
"BAIC/MIC Unit Purchase Agreement" shall mean the BAIC/MIG Unit
Purchase Agreement dated as of August 19, 1996 among the Partnership,
BankAmerica Investment Corporation and MIG
Credit Agreement
<PAGE> 11
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Partners II, as the same shall, subject to Section 9.19 hereof, be modified and
supplemented and in effect from time to time.
"Bankruptcy Code" shall mean the Federal Bankruptcy Code of 1978, as
amended from time to time.
"Base CD Rate" means the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is one
and the denominator of which is one minus the Reserve Requirement and (b) the
Assessment Rate.
"Basle Accord" shall mean the proposals for risk-based capital
framework described by the Basle Committee on Banking Regulations and
Supervisory Practices in its paper entitled "International Convergence of
Capital Measurement and Capital Standards" dated July 1988, as amended, modified
and supplemented and in effect from time to time or any replacement thereof.
"Borrowers" has the meaning assigned to such term in the heading
hereof.
"Borrowing Base" shall mean, as at any date, the sum of (a) 85% of
the aggregate amount of Eligible Receivables (other than Eligible Foreign
Receivables) as at the date (the "Base Date") covered by the Borrowing Base
Certificate received by the Administrative Agent on or most recently prior to
such date plus (b) 75% of the aggregate amount of Eligible Foreign Receivables
as at the Base Date plus (c) 50% of the aggregate value of Eligible Inventory as
at the Base Date, provided that in no event shall the portion of the Borrowing
Base attributable to Eligible Inventory exceed 50% of the Borrowing Base and the
Borrowing Base shall be reduced by the amount of the excess to the extent such
portion would otherwise exceed 50%. The "value" of Eligible Inventory shall be
determined at the lower of cost or market in accordance with GAAP, except that
cost shall be determined on a first-in-first-out basis.
"Borrowing Base Certificate" shall mean a certificate of a Senior
Officer, substantially in the form of Exhibit B hereto and appropriately
completed.
"Business Day" shall mean any day (a) on which commercial banks are
not authorized or required to close in New York City or Illinois, (b) if such
day relates to a borrowing of, a payment or prepayment of principal of or
interest on, a Conversion of or into, or an Interest Period for, a Eurodollar
Loan or a notice by the Borrowers with respect to any such borrowing, payment,
prepayment, Conversion or Interest Period,
Credit Agreement
<PAGE> 12
- 7 -
that is also a day on which dealings in Dollar deposits are carried out in the
London interbank market and (c) if such day relates to the determination of the
Dollar Equivalent of any amount denominated in a currency other than Dollars,
that is also a day on which the London foreign exchange market settles payments
in such other currency.
"Capital Expenditures" shall mean, for any period, expenditures
(including, without limitation, the aggregate amount of Capital Lease
Obligations incurred during such period) made by SSC or any of its Restricted
Subsidiaries (including the Target Companies prior to the Restatement Effective
Date) to acquire or construct fixed assets, plant and equipment (including
renewals, improvements and replacements, but excluding repairs) during such
period computed in accordance with GAAP; provided that the term "Capital
Expenditures" shall not include expenditures made in connection with
acquisitions permitted by Section 9.05(d) or 9.05(e) hereof.
"Capital Lease Obligations" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Casualty Event" shall mean, with respect to any Property of any
Person, any loss of or damage to, or any condemnation or other taking of, such
Property for which such Person or any of its Restricted Subsidiaries receives
insurance proceeds, or proceeds of a condemnation award or other compensation.
"Casualty-Related Reserved Commitment Amount" shall have the meaning
assigned to such term in Section 2.01(a) hereof.
"Change of Control" shall mean any of the following events:
(i) prior to any Qualifying Public Offering, either (a) the failure
by the Controlling Partners, the Lenders and the affiliates of the Lenders
to own, directly or indirectly, more than 50% of the financial and
management controlling interests in the Partnership, (b) any Partner shall
grant a Lien on its partnership interest in the Partnership in
contravention of the Investors Agreement or
Credit Agreement
<PAGE> 13
- 8 -
(c) any Person other than the Partnership shall own any capital stock of
SSC,
(ii) after any Qualifying Public Offering, any Person or group of
related Persons (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, as amended) (other than the Partnership, the
Controlling Partners, the Lenders and the affiliates of the Lenders) shall
own, directly or indirectly, 25% or more of the financial or management
controlling interests in SSC, or
(iii) a "Change of Control" under and as defined in the Senior
Subordinated Debt Documents.
"Chase" shall mean The Chase Manhattan Bank, a New York banking
corporation.
"Class" shall have the meaning assigned to such term in Section 1.03
hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral Account" shall have the meaning assigned to such term in
Section 4.01 of the Security Agreement.
"Commitments" shall mean the Revolving Credit Commitments and the
Term Loan Commitments.
"Contingent Repurchase Obligations" shall mean obligations to
purchase, redeem, retire or otherwise acquire from any individual that is an
officer or employee of the Partnership, SSC or any Restricted Subsidiary of SSC
any capital stock issued by, or partnership interest (whether general or
limited) or other similar equity interest in the Partnership, SSC or any
Restricted Subsidiary of SSC and held by such individual, which obligations
shall become owing (whether or not then due and payable) upon the death or
disability of such individual or upon the termination of employment of such
individual by the Partnership or any of its Subsidiaries.
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.09 hereof of a Eurodollar Loan from one
Interest Period to the next Interest Period.
"Controlling Partners" shall mean First Chicago Equity Corporation,
Cross Creek Partners, Waud Capital Partners, L.L.C.,
Credit Agreement
<PAGE> 14
- 9 -
Waud Capital Partners-I, L.P., Waud Capital Partners-II, L.P., Robert Covalt,
William Schram, and the Affiliates of the aforementioned Persons.
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.09 hereof of one Type of Loans into the other Type of
Loans, which may be accompanied by the transfer by a Lender (at its sole
discretion) of a Loan from one Applicable Lending Office to another.
"Credit Exposure" shall mean, with respect to any Lender, the
aggregate unutilized amount of the Commitments of such Lender, the aggregate
outstanding principal amount of all Loans made by such Lender and the aggregate
amount of Letter of Credit Liabilities of such Lender.
"Credit Parties" shall mean the Obligors and the Partnership.
"Credit-Supported Receivable" shall mean a Receivable to the extent
that the payment thereof is Guaranteed under a letter of credit issued for
account of the related account debtor by a Lender or by a bank with a combined
capital and surplus of at least $500,000,000, or insured by Export-Import Bank
of the United States of America or Overseas Private Investment Corporation or by
American International Group Inc or a Subsidiary thereof.
"Debt Issuance" shall mean the creation, issuance or incurrence by
SSC or any of its Restricted Subsidiaries after the Restatement Effective Date
of Subordinated Indebtedness.
"Debt Service" shall mean, for any period, the sum, for SSC and its
Restricted Subsidiaries (determined on a consolidated basis without duplication
in accordance with GAAP), of the following: (a) all regularly scheduled payments
or prepayments of principal of Indebtedness (excluding prepayments under Section
2.09 or 2.10 hereof, but including, without limitation, the principal component
of any payments in respect of Capital Lease Obligations) made or required to be
made during such period plus (b) all Interest Expense for such period.
"Deductible Reserves" shall mean, with respect to any Disposition,
reasonable and customary reserves established by SSC or a Restricted Subsidiary
to cover direct or contingent obligations incurred or undertaken in connection
with such Disposition as certified by SSC to the Administrative Agent at the
time of such Disposition.
Credit Agreement
<PAGE> 15
- 10 -
"Default" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.
"Disposition" shall mean any sale, assignment, transfer or other
disposition of any Property (whether now owned or hereafter acquired) by SSC or
any of its Restricted Subsidiaries to any other Person excluding any sale,
assignment, transfer or other disposition of any Property sold or disposed of to
any Obligor or in the ordinary course of business and on ordinary business
terms.
"Disposition-Related Reserved Commitment Amount" shall have the
meaning assigned to such term in Section 2.01(a) hereof.
"Dollar Equivalent" shall mean, on any date of determination, with
respect to any amount (the "Non-Dollar Amount") denominated in a currency other
than Dollars, the amount of Dollars that would be required to purchase the
Non-Dollar Amount on such date based upon the spot selling rate at which Chase
offers to sell such Non-Dollar Amount for Dollars in the London foreign exchange
market at approximately 11:00 a.m. London time for delivery two Business Days
later.
"Dollars" and "$" shall mean lawful money of the United States of
America.
"EBITDA" shall mean, for any period, the sum, for SSC and its
Restricted Subsidiaries (determined on a consolidated basis without duplication
in accordance with GAAP), of the following: (a) net operating income (calculated
before taxes or payments made in lieu of taxes, Interest Expense, extraordinary
and unusual items) for such period plus (b) depletion, depreciation,
amortization and other non-cash charges and expenses (to the extent deducted in
determining net operating income) for such period, plus (c) transaction costs
and expenses incurred in connection with the Acquisition and the closing of the
other transactions and permitted acquisitions contemplated hereby (to the extent
deducted in determining net operating income) for such period minus (d) (except
to the extent deducted in calculating net operating income) Management Fees paid
during such period; provided that in no event shall Management Fees referred to
in the last sentence of Section 9.11 of the Existing Credit Agreement be
deducted in calculating net operating income or by operation of the preceding
clause (d). If at any time during such period SSC or any of its Restricted
Subsidiaries shall have made an acquisition of a business (other than the
Acquisition), EBITDA for such period shall be calculated after
Credit Agreement
<PAGE> 16
- 11 -
giving pro forma effect to such acquisition as if such acquisition occurred on
the first day of such period.
"Eligible Foreign Country" shall mean Australia, Canada, New
Zealand, Japan, South Korea, Taiwan, Malaysia, Thailand, Singapore or a member
country of the European Union.
"Eligible Foreign Receivables" shall mean Eligible Receivables
(other than Credit-Supported Receivables) owing by an account debtor whose
principal place of business is in an Eligible Foreign Country.
"Eligible Inventory" shall mean, as at any date, the sum of the
following (determined without duplication) all Inventory (i) that is owned by
(and (except to the extent provided in the last sentence of this definition) in
the possession or under the control of) the Obligors as at such date, (ii) that
is located in a jurisdiction in the United States of America, (iii) as to which
appropriate Uniform Commercial Code financing statements have been filed naming
such Obligor as "debtor" and the Administrative Agent as "secured party", (iv)
that is in good condition, (v) that meets all standards imposed by any
governmental agency or department or division thereof having regulatory
authority over such Inventory, its use or sale and (vi) that is either currently
usable or currently saleable in the normal course of such Obligor's business
without any notice to, or consent of, any governmental agency or department or
division thereof (excluding however, except to the extent that the Majority
Lenders otherwise agree with respect to any specific customer, any such
Inventory that has been shipped to a customer of such Obligor on a consignment
or "sale or return" basis); provided that in no event shall Inventory that is
unmarketable be "Eligible Inventory". Inventory that would otherwise be Eligible
Inventory but for the parenthetical subclause of clause (i) above shall not be
excluded from Eligible Inventory solely because it has been shipped to a
customer, provided that the aggregate amount of such Inventory may not exceed
20% of the Eligible Inventory; and Inventory that would otherwise be Eligible
Inventory but for clause (ii) above shall not be excluded from Eligible
Inventory solely because it is not located in a jurisdiction in the United
States of America, provided that the aggregate amount of such Inventory may not
exceed 20% of the Eligible Inventory.
"Eligible Receivables" shall mean, as at any date, the aggregate
amount of all Receivables at such date payable to any Obligor as to which
appropriate Uniform Commercial Code financing statements have been filed naming
such Obligor as "debtor" and
Credit Agreement
<PAGE> 17
- 12 -
the Administrative Agent as "secured party", other than the following
(determined without duplication):
(a) any Receivable not payable in Dollars or in any other freely
convertible currency,
(b) any Receivable that, at the date of issuance of the invoice
therefor, was payable more than 60 days (or, in the case of any Receivable
owing from an account debtor whose principal place of business is located
outside of the United States of America, 90 days) after shipment of the
related Inventory,
(c) any Receivable owing from a Subsidiary or Affiliate of such
Obligor,
(d) the amount of any Receivable (other than a Credit-Supported
Receivable) owing from an account debtor whose principal place of business
is located outside of the United States of America as may be necessary
such that (i) the Receivables (other than Credit-Supported Receivables)
owing from such account debtor and its Affiliates at the time would not
exceed 3-1/2% of all Eligible Receivables then payable to the Obligors and
(ii) the Receivables (other than Credit-Supported Receivables) owing by
all account debtors whose principal place of business is located outside
of the United States of America and their Affiliates would not exceed 30%
of all Eligible Receivables then payable to the Obligors (provided that
Eligible Receivables shall in any event not include any Receivable (other
than Credit-Supported Receivables) owing by any account debtor whose
principal place of business is not in the United States or an Eligible
Foreign Country),
(e) any Receivable that remains unpaid for more than 120 days after
the date of the issuance of the original invoice therefor,
(f) all Receivables of any account debtor if more than 25% of the
aggregate amount of the Receivables owing from such account debtor shall
at the time have remained unpaid for more than 120 days after the date of
the issuance of the original invoices therefor,
(g) the amount, if any, of Receivables owing from any account debtor
(other than General Motors Corporation, Ford Motor Company, Chrysler
Corporation, The Boeing Company or their respective Subsidiaries) as may
be necessary such that
Credit Agreement
<PAGE> 18
- 13 -
the Receivables owing from such account debtor and its Affiliates at the
time would not exceed 7% of all Eligible Receivables then payable to the
Obligors,
(h) any Receivable as to which there is any unresolved dispute with
the respective account debtor (but only to the extent of the amount
thereof in dispute),
(i) any Receivable evidenced by an Instrument (as defined in the
Security Agreement) not in the possession of the Administrative Agent, and
(j) any Receivable representing an obligation for goods sold on
consignment, approval or a sale-or-return basis or subject to any other
repurchase or return arrangement.
"Environmental Claim" shall mean, with respect to any Person, any
written or oral notice, claim, demand or other communication (collectively, a
"claim") by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other Property, personal injuries, fines or penalties
arising out of, based on or resulting from (i) the presence, or Release into the
environment, of any Hazardous Material at any location, whether or not owned by
such Person, or (ii) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law. The term "Environmental Claim"
shall include, without limitation, any claim by any governmental authority for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and any claim by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence of Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
"Environmental Laws" shall mean any and all present and future
Federal, state, local and foreign laws, rules or regulations, and any orders or
decrees, in each case as now or hereafter in effect, relating to the regulation
or protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or toxic or hazardous substances or wastes into the indoor or outdoor
environment, including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
Credit Agreement
<PAGE> 19
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disposal, transport or handling of pollutants, contaminants, chemicals or toxic
or hazardous substances or wastes.
"Environmental Reports" shall mean the environmental assessments
referred to in Section 7.01(k) hereof.
"Equity Documents" shall mean, collectively, (i) the Stock Purchase
and Exchange Agreement, dated as July 31, 1997, by and among the General
Partner, the purchasers listed on Schedule I thereto and the management
employees listed on Schedule II thereto, as the same shall, subject to Section
9.19 hereof, be modified and supplemented and in effect from time to time, (ii)
the Partnership Unit Purchase and Exchange Agreement, dated as of July 31, 1997,
by and among the Partnership, the purchasers listed on Schedule I thereto and
the management employees listed on Schedule II thereto, as the same shall,
subject to Section 9.19 hereof, be modified and supplemented and in effect from
time to time, (iii) the Investors Agreement, (iv) the Partnership Agreement, (v)
Contribution Agreement, dated as July 31, 1997, by the General Partner as the
same shall, subject to Section 9.19 hereof, be modified and supplemented and in
effect from time to time, (vi) the Stock Subscription and Contribution
Agreement, dated as of July 31, 1997, between the Partnership and SSC, as the
same shall, subject to Section 9.19 hereof, be modified and supplemented and in
effect from time to time, (vii) the Purchase Agreement, dated as of July 31,
1997, between the Class A Common Stock Partnership and SSC, as the same shall,
subject to Section 9.19 hereof, be modified and supplemented and in effect from
time to time, (viii) BAIC/MIG Stock Purchase Agreement and (ix) the BAIC/MIC
Unit Purchase Agreement.
"Equity Issuance" shall mean (a) any issuance or sale by SSC or any
of its Restricted Subsidiaries after the Restatement Effective Date of (i) any
of its partnership interests (whether as a general or a limited partner),
membership interests or capital stock, (ii) any warrants or options exercisable
in respect of any of its partnership interests (whether as a general or a
limited partner), membership interests or capital stock (other than any warrants
or options issued to directors, officers or employees of SSC or any of its
Restricted Subsidiaries exercisable in respect of partnership interests in the
Partnership pursuant to employee benefit plans established in the ordinary
course of business and any partnership interests in the Partnership issued upon
the exercise of such warrants or options) or (iii) any other security or
instrument representing an equity interest (or the right to obtain any equity
interest) in SSC or any of its Restricted Subsidiaries or (b) the receipt
Credit Agreement
<PAGE> 20
- 15 -
by SSC or any of its Restricted Subsidiaries after the Restatement Effective
Date of any capital contribution (whether or not evidenced by any equity
security issued by the recipient of such contribution); provided that Equity
Issuance shall not include (x) any such issuance or sale by a Restricted
Subsidiary of a Borrower to a Borrower or any Restricted Subsidiary that is a
Wholly Owned Subsidiary of a Borrower, (y) any capital contribution by a
Borrower or any Restricted Subsidiary that is a Wholly Owned Subsidiary of a
Borrower to any Restricted Subsidiary of such Borrower or (z) any such issuance
(other than a Qualifying Public Offering) required by any Transaction Document
as in effect on the date hereof.
"Equity Rights" shall mean, with respect to any Person, any
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including, without limitation, any stockholders' or voting trust
agreements) for the issuance, sale, registration or voting of, or securities
convertible into, any additional shares of capital stock of any class, or
partnership or other ownership interests of any type in, such Person.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business
that is a member of any group of organizations (i) described in Section 414(b)
or (c) of the Code of which any Obligor is a member and (ii) solely for purposes
of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11)
of the Code and the lien created under Section 302(f) of ERISA and Section
412(n) of the Code, described in Section 414(m) or (o) of the Code of which any
Obligor is a member.
"Escrowed Funds" shall mean the "Environmental Escrowed Funds" as
defined in the Purchase Agreement dated as of August 19, 1996 among The
Sherwin-Williams Company, Pierce & Stevens, the Partnership and P&S, as in
effect on the date hereof.
"Eurodollar Loans" shall mean Loans that bear interest at rates
based on rates referred to in the definition of "Eurodollar Rate" in this
Section 1.01.
"Eurodollar Rate" shall mean, with respect to any Eurodollar Loan
for any Interest Period therefor, the rate per annum quoted by Chase
approximately 11:00 a.m. London time (or as soon thereafter as practicable) on
the date two Business Days
Credit Agreement
<PAGE> 21
- 16 -
prior to the first day of such Interest Period for the offering by Chase to
leading banks in the London interbank market of Dollar deposits having a term
comparable to such Interest Period and in an amount comparable to the principal
amount of the Eurodollar Loan to be made by Chase for such Interest Period. If
Chase is not participating in any Eurodollar Loans during any Interest Period
therefor, the Eurodollar Rate for such Loans for such Interest Period shall be
determined by reference to deposits in the amount of $5,000,000.
"Event of Default" shall have the meaning assigned to such term in
Section 10 hereof.
"Evode" shall mean Evode-Tanner Industries, Inc., a New Hampshire
corporation.
"Excess Cash Flow" shall mean, for any fiscal year of SSC (the
"Applicable Year"), the excess of (a) the sum of EBITDA for such Applicable Year
plus non-cash credits included in calculating EBITDA in a fiscal year of SSC
preceding such Applicable Year that are paid in cash in such fiscal year over
(b) the sum (without duplication) of (i) Capital Expenditures and acquisitions
made during such Applicable Year and cash consideration paid by SSC and its
Restricted Subsidiaries for permitted acquisitions in such Applicable Year
(other than Capital Expenditures financed by the incurrence of Indebtedness)
plus (ii) the aggregate amount of Debt Service for such Applicable Year plus
(iii) the amount (the "Carry Forward Amount") of Capital Expenditures permitted
to have been made, but not made, during such Applicable Year under the first
sentence of Section 9.12 hereof and permitted to be made in the following fiscal
year of SSC minus (iv) the Carry Forward Amount from the preceding fiscal year
of SSC not used as Capital Expenditures in such Applicable Year plus (v)
Restricted Payments made during such Applicable Year by any Obligor plus (vi)
any increase (or minus any decrease) in Working Capital from the first to the
last day of such period plus (viii) taxes paid in cash by SSC and its Restricted
Subsidiaries for such Applicable Year plus (ix) non-cash charges deducted in
calculating EBITDA in a fiscal year of SSC preceding such Applicable Year that
are paid in cash in such fiscal year plus (x) non-cash credits included in
calculating EBITDA in such Applicable Year plus (xi) to the extent not already
deducted in the determination of EBITDA for such period, the aggregate amount of
cash payments in respect of incentive compensation and earn-out and similar
arrangements made during such period, plus (xii) the Net Available Proceeds of
any Disposition included in determining EBITDA for such period. All calculations
relating to the Target Companies for purposes of
Credit Agreement
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determining Excess Cash Flow for the fiscal year of SSC ending December 31, 1997
shall be for the period commencing on the Restatement Effective Date and ending
December 31, 1997.
"Exchange Securities Indenture" shall have the meaning assigned to
such term in the Registration Rights Agreement, as such Exchange Securities
Indenture shall, subject to Section 9.19 hereof, be modified and supplemented
and in effect from time to time.
"Existing Borrowers" shall have the meaning assigned to such term in
the recitals hereto.
"Existing Credit Agreement" shall have the meaning assigned to such
term in the recitals hereto.
"Existing Lenders" shall have the meaning assigned to such term in
the recitals hereto.
"Existing Letters of Credit" shall mean letters of credit issued
hereunder prior to the Restatement Effective Date that are outstanding on the
Restatement Effective Date.
"Existing Subordinated Debt" shall mean the Indebtedness of the
Borrowers and the Guarantors under the Senior Subordinated Note, Stock and Unit
Purchase Agreement dated as of August 19, 1996 among SSC, the Existing
Borrowers, the General Partner, Bank of America Illinois, BankAmerica Investment
Corporation and MIG Partners II, the promissory notes evidencing Indebtedness
thereunder substantially in the form of Exhibit A thereto and the guarantees of
such Indebtedness issued by Guarantors substantially in the form of Exhibit K
thereto.
"Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (a) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day and (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate charged to Chase on such Business Day on such
transactions as determined by the Administrative Agent.
Credit Agreement
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"Final Maturity Date" shall mean the seventh anniversary of the
Restatement Effective Date, or, if such anniversary is not a Business Day, the
Business Day preceding such anniversary.
"Foreign Companies" shall mean (i) Pierce & Stevens Holding
Corporation de Mexico S.A. de C.V., Pierce & Stevens de Mexico S.A. de C.V. and
Pierce & Stevens Corporation S.A. de C.V., each of which is organized under the
laws of Mexico and (ii) Sovereign Specialty Chemicals (SPte. Ltd), which is
organized under the laws of Singapore.
"GAAP" shall mean generally accepted accounting principles applied
on a basis consistent with those that, in accordance with the last sentence of
Section 1.02(a) hereof, are to be used in making the calculations for purposes
of determining compliance with this Agreement.
"General Partner" shall mean the general partner of the Partnership.
"Guarantee" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, working capital or earnings of any
Person, or a guarantee of the payment of dividends or other distributions upon
the stock or equity interests of any Person, or an agreement to purchase, sell
or lease (as lessee or lessor) Property, products, materials, supplies or
services primarily for the purpose of enabling a debtor to make payment of such
debtor's obligations or an agreement to assure a creditor against loss, and
including, without limitation, causing a bank or other financial institution to
issue a letter of credit or other similar instrument for the benefit of another
Person, but excluding endorsements for collection or deposit in the ordinary
course of business. The terms "Guarantee" and "Guaranteed" used as a verb shall
have a correlative meaning.
"Guarantor" has the meaning assigned to such term in the heading
hereof.
"Hazardous Material" shall mean, collectively, (a) any petroleum or
petroleum products, flammable materials, explosives, radioactive materials,
asbestos, urea formaldehyde foam insulation, and transformers or other equipment
that contain polychlorinated biphenyls ("PCB's"), (b) any chemicals or other
materials or substances that are now or hereafter become defined
Credit Agreement
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as or included in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", "extremely hazardous wastes", "restricted hazardous
wastes", "toxic substances", "toxic pollutants", "contaminants", "pollutants" or
words of similar import under any Environmental Law and (c) any other chemical
or other material or substance, exposure to which is now or hereafter
prohibited, limited or regulated under any Environmental Law.
"Hedging Agreement" shall mean, for any Person, a swap, cap or
collar agreement, hedge, exchange or similar protection arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest risks, foreign currency exchange fluctuations or
fluctuations in prices of commodity chemicals either generally or under specific
contingencies.
"Holding Company" shall mean a Person whose sole material Properties
consist of capital stock of, or partnership or membership interests and/or other
equity interests in, one or more Subsidiaries of SSC.
"Indebtedness" shall mean, for any Person: (a) obligations created,
issued or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of Property to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such Property from such Person); (b) obligations of such Person to pay the
deferred purchase or acquisition price of Property or services, other than trade
accounts payable (other than for borrowed money) arising, and accrued expenses
incurred, in the ordinary course of business so long as such trade accounts
payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the Property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) Capital Lease
Obligations of such Person; and (e) Indebtedness of others Guaranteed by such
Person.
"Interest Coverage Ratio" shall mean, as at any date, the ratio of
(i) the sum of (a) EBITDA (excluding the portion attributable to the Target
Companies) for the period of four fiscal quarters of SSC ending on or most
recently ended prior to such date and (b) the product of the portion of EBITDA
attributable to the Target Companies for the Relevant Period for such date
multiplied by a fraction the numerator of which is 365 and the denominator of
which is the number of days in such
Credit Agreement
<PAGE> 25
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Relevant Period to (ii) Interest Expense for such Relevant Period.
"Interest Expense" shall mean, for any period, the sum, for SSC and
its Restricted Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following: (a) all interest in
respect of Indebtedness (including, without limitation, the interest component
of any payments in respect of Capital Lease Obligations) accrued or capitalized
during such period (whether or not actually paid during such period) plus (b)
the net amount payable (or minus the net amount receivable) under Hedging
Agreements relating to interest during such period (whether or not actually paid
or received during such period).
If at any time during such period SSC or any of its Restricted
Subsidiaries shall have made an acquisition (whether by merger or otherwise)
financed with Indebtedness, such acquisition shall, for the purposes of
calculating Interest Expense, be deemed to have occurred on the first day of
such period, and Interest Expense for such period shall be calculated as if the
interest rate applicable to such Indebtedness were, throughout such period equal
to Loans made from time to time under this Agreement throughout such period (or
if a senior financial officer can demonstrate to the reasonable satisfaction of
the Majority Lenders that a different interest rate should be used for such
purpose, such different rate).
"Interest Period" shall mean, with respect to any Eurodollar Loan,
each period commencing on the date such Eurodollar Loan is made or Converted
from an ABR Loan or (in the event of a Continuation) the last day of the next
preceding Interest Period for such Loan and ending on the numerically
corresponding day in the first or second or (subject to the provisions of
Section 2.01(c) hereof) third or sixth calendar month thereafter, as the
Borrowers may select as provided in Section 4.05 hereof, except that each
Interest Period that commences on the last Business Day of a calendar month (or
on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) if any Interest Period for any
Revolving Credit Loan would otherwise end after the Revolving Credit Commitment
Termination Date, such Interest Period shall end on the Revolving Credit
Commitment Termination Date; (ii) no Interest Period for any Term Loans may
commence before and end after any Principal Payment Date unless, after
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giving effect thereto, the aggregate principal amount of the Term Loans having
Interest Periods that end after such Principal Payment Date shall be equal to or
less than the aggregate principal amount of the Term Loans scheduled to be
outstanding after giving effect to the payments of principal required to be made
on such Principal Payment Date; (iii) each Interest Period that would otherwise
end on a day that is not a Business Day shall end on the next succeeding
Business Day (or, if such next succeeding Business Day falls in the next
succeeding calendar month, on the next preceding Business Day); and (iv)
notwithstanding clause (i) and (ii) above, no Interest Period shall have a
duration of less than one month and, if the Interest Period for any Eurodollar
Loan would otherwise be a shorter period, such Loan shall not be available
hereunder for such period.
"Inventory" shall mean specialty chemical products and related
products and other readily marketable materials, including raw materials, of a
type manufactured, sold or consumed by the Obligors in the ordinary course of
business.
"Investment" shall mean, for any Person: (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of any
securities at a time when such securities are not owned by the Person entering
into such sale); (b) the making of any deposit with, or advance, loan or other
extension of credit to, any other Person (including the purchase of Property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such Property to such Person), but excluding any such
advance, loan or extension of credit having a term not exceeding 90 days arising
in connection with the sale of inventory or supplies by such Person in the
ordinary course of business; (c) the entering into of any Guarantee of, or other
contingent obligation with respect to, Indebtedness or other liability of any
other Person and (without duplication) any amount committed to be advanced, lent
or extended to such Person; or (d) the entering into of any Hedging Agreement.
"Investors Agreement" shall mean the Amended and Restated Investors
Agreement dated as of August 19, 1996, as amended as of October 7, 1996 and as
of July 31, 1997, among the General Partner, the Partnership and each of the
investors party thereto, as the same shall, subject to Section 9.19 hereof, be
modified and supplemented and in effect from time to time.
Credit Agreement
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"IPO" shall mean an initial public offering of any capital stock,
partnership interests or other similar equity interests by SSC, the Partnership
or the General Partner.
"Issuance-Related Reserved Commitment Amount" shall have the meaning
assigned to such term in Section 2.01(a) hereof.
"Issuing Bank" shall mean Chase, as the issuer of Letters of Credit
under Section 2.03 hereof, together with its successors and assigns in such
capacity.
"Joinder Agreement" shall mean a Joinder Agreement substantially in
the form of Exhibit G hereto among the Target Companies and the Administrative
Agent.
"Laporte" shall mean Laporte Inc., a Delaware corporation.
"LCCNA" shall mean Laporte Construction Chemicals North America,
Inc., an Illinois corporation.
"Lender" has the meaning assigned to such term in the heading
hereof.
"Letters of Credit" shall have the meaning assigned to such term in
Section 2.03 hereof, and shall include the Existing Letters of Credit.
"Letter of Credit Documents" shall mean, with respect to any Letter
of Credit, collectively, any application therefor and any other agreements,
instruments, guarantees or other documents (whether general in application or
applicable only to such Letter of Credit) governing or providing for (a) the
rights and obligations of the parties concerned or at risk with respect to such
Letter of Credit or (b) any collateral security for any of such obligations,
each as the same may be modified and supplemented and in effect from time to
time.
"Letter of Credit Interest" shall mean, for each Revolving Credit
Lender, such Lender's participation interest (or, in the case of the Issuing
Bank, the Issuing Bank's retained interest) in the Issuing Bank's liability
under Letters of Credit and such Lender's rights and interests in Reimbursement
Obligations and fees, interest and other amounts payable in connection with
Letters of Credit and Reimbursement Obligations.
"Letter of Credit Liability" shall mean, without duplication, at any
time and in respect of any Letter of Credit,
Credit Agreement
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the sum of (a) the undrawn face amount of such Letter of Credit plus (b) the
aggregate unpaid principal amount of all Reimbursement Obligations of the
Borrowers at such time due and payable in respect of all drawings made under
such Letter of Credit. For purposes of this Agreement, a Revolving Credit Lender
(other than the Issuing Bank) shall be deemed to hold a Letter of Credit
Liability in an amount equal to its participation interest in the related Letter
of Credit under Section 2.03 hereof, and the Issuing Bank shall be deemed to
hold a Letter of Credit Liability in an amount equal to its retained interest in
the related Letter of Credit after giving effect to the acquisition by the
Revolving Credit Lenders other than the Issuing Bank of their participation
interests under said Section 2.03.
"Leverage Ratio" shall mean, as at any date, the ratio of (i) the
aggregate principal amount of all Indebtedness of SSC and its Restricted
Subsidiaries on such date (calculated on a consolidated basis in accordance with
GAAP) to (ii) the sum of (a) EBITDA (excluding the portion thereof attributable
to the Target Companies) for the period of four fiscal quarters of SSC ending on
or most recently ended prior to such date and (b) the product of the portion of
EBITDA attributable to the Target Companies for the Relevant Period for such
date multiplied by a fraction the numerator of which is 365 and the denominator
of which is the number of days in such Relevant Period.
"Lien" shall mean, with respect to any Property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
Property. For purposes of this Agreement and the other Loan Documents, a Person
shall be deemed to own subject to a Lien any Property that it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement (other than an
operating lease) relating to such Property.
"Limited Partners" shall mean the limited partners of the
Partnership.
"Loan Documents" shall mean, collectively, this Agreement, the
Notes, the Letter of Credit Documents, the Security Documents and the Joinder
Agreement.
"Loans" shall mean the Revolving Credit Loans and the Term Loans.
Credit Agreement
<PAGE> 29
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"Majority Lenders" shall mean Lenders holding more than 50% of the
Credit Exposures of all of the Lenders, as calculated at the time of
determination.
"Majority Revolving Credit Lenders" shall mean Revolving Credit
Lenders having more than 50% of the aggregate amount of the Revolving Credit
Commitments or, if the Revolving Credit Commitments shall have terminated,
Lenders holding more than 50% of the sum of (a) the aggregate unpaid principal
amount of the Revolving Credit Loans plus (b) the aggregate amount of all Letter
of Credit Liabilities.
"Majority Term Lenders" shall mean Term Loan Lenders holding more
than 50% of the aggregate outstanding principal amount of the Term Loans or, if
the Term Loans shall not have been made, more than 50% of the Term Loan
Commitments.
"Management Fees" shall mean, for any period, the sum of all fees,
salaries and other compensation paid or incurred by SSC or any of its Restricted
Subsidiaries to any of its Affiliates (other than Affiliates that are employees
of SSC or any of its Restricted Subsidiaries) in respect of services rendered in
connection with the management or supervision of SSC and its Restricted
Subsidiaries, or any of them, plus all out-of-pocket expenses incurred by the
Manager or any Affiliate of SSC on behalf of SSC and its Restricted Subsidiaries
during such period in connection with the operation of the business of SSC and
its Restricted Subsidiaries.
"Management Notes" shall have the meaning assigned to such term in
Section 7.01(o) hereof.
"Manager" shall mean the General Partner.
"Material Adverse Effect" shall mean a material adverse effect on
(a) the Transactions, (b) the Property, business, operations, financial
condition, prospects, liabilities or capitalization of SSC and its Restricted
Subsidiaries taken as a whole, (c) the ability of any Obligor to perform its
obligations under any of the Loan Documents to which it is a party, (d) the
validity or enforceability of any of the Loan Documents, (e) the rights and
remedies of the Lenders and the Administrative Agent under any of the Loan
Documents or (f) the timely payment of the principal of or interest on the Loans
or the Reimbursement Obligations or other amounts payable in connection
therewith.
"Mercer" shall mean Mercer Products Company, Inc., a New Jersey
corporation.
Credit Agreement
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"Mercer Disposition" shall mean the Disposition by SSC or any of its
Restricted Subsidiaries of all of the capital stock of Mercer or the Disposition
by Mercer of all or substantially all of its Properties.
"Mortgages" shall mean one or more instruments of mortgage,
assignment of rents, security agreement and fixture filing executed by SSC or
one of its Restricted Subsidiaries in favor of the Administrative Agent and the
Lenders, executed and delivered to the Administrative Agent prior to the date
hereof or pursuant to Section 7.01(i) of this Agreement and covering the
respective Properties and leasehold interests, identified therein (but in any
event excluding leases of office space or warehouses which do not include ground
leases), as such instruments shall be modified and supplemented and in effect
from time to time including without limitation (in the case of Mortgages
executed and delivered pursuant to the Existing Credit Agreement) by operation
of the Mortgage Amendments.
"Mortgage Amendments" shall mean instruments satisfactory to the
Administrative Agent in form and substance amending those Mortgages that were
executed and delivered to the Administrative Agent prior to the date hereof
pursuant to the Existing Credit Agreement.
"Multiemployer Plan" shall mean a multiemployer plan defined as such
in Section 3(37) of ERISA, if any, to which contributions have been made by the
Obligors or any ERISA Affiliate and that is covered by Title IV of ERISA.
"Net Available Proceeds" shall mean:
(i) in the case of any Disposition, the amount of Net Cash Payments
received in connection with such Disposition net of amounts expended to
replace the Property that was the subject of such Disposition;
(ii) in the case of any Casualty Event, the aggregate amount of
proceeds of insurance, condemnation awards and other compensation received
by SSC and its Restricted Subsidiaries in respect of such Casualty Event
net of (A) reasonable expenses incurred by SSC and its Restricted
Subsidiaries in connection therewith, (B) contractually required
repayments of Indebtedness to the extent secured by a Lien on such
Property and any income and transfer taxes payable by SSC or any of its
Restricted Subsidiaries in respect of such Casualty Event and
Credit Agreement
<PAGE> 31
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(C) amounts expended to repair or replace the Property that was the
subject of such Casualty Event; and
(iii) in the case of any Debt Issuance or Equity Issuance, the
aggregate amount of all cash received by SSC and its Restricted
Subsidiaries in respect of such Debt Issuance or Equity Issuance net of
reasonable expenses incurred by SSC and its Restricted Subsidiaries in
connection therewith.
"Net Cash Payments" shall mean, with respect to any Disposition, the
aggregate amount of all cash payments, including any cash payments received by
way of deferred payment of principal pursuant to a note or installment
receivable or otherwise, received by SSC and its Restricted Subsidiaries
directly or indirectly in connection with such Disposition; provided that (a)
Net Cash Payments shall be net of (i) the amount of any legal, title and
recording tax expenses, commissions and other fees and expenses paid by SSC and
its Restricted Subsidiaries in connection with such Disposition and (ii) any
Federal, state and local income or other taxes estimated to be payable by SSC
and its Restricted Subsidiaries as a result of such Disposition (but only to the
extent that such estimated taxes are in fact paid to the relevant Federal, state
or local governmental authority within three months of the date such taxes are
due) and (b) Net Cash Payments shall be net of any repayments by SSC or any of
its Restricted Subsidiaries of Indebtedness to the extent that (i) such
Indebtedness is secured by a Lien on the Property that is the subject of such
Disposition and (ii) the transferee of (or holder of a Lien on) such Property
requires that such Indebtedness be repaid as a condition to the purchase of such
Property.
"Net Worth" shall mean, as at any date for any Person, the sum for
such Person and its Restricted Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP), of the following:
(a) the amount of capital stock, paid in capital and paid in
membership interests (excluding the cost of treasury shares or other
similar equity interests); plus
(b) the amount of surplus and retained earnings (or, in the case of
a surplus or retained earnings deficit, minus the amount of such deficit).
"Notes" shall mean the Revolving Credit Notes and the Term Loan
Notes.
Credit Agreement
<PAGE> 32
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"Obligor" has the meaning assigned to such term in the heading
hereof.
"P&S" has the meaning assigned to such term in the heading hereof.
"Partners" shall mean the General Partner and the Limited Partners.
"Partnership" has the meaning assigned to such term in the recitals
hereto.
"Partnership Agreement" shall mean the Agreement of Limited
Partnership dated as of March 31, 1996, as amended as of August 19, 1996, and as
of October 7, 1996 and as of July 31, 1997, by and among the Partners, as the
same shall, subject to Section 9.19 hereof, be modified and supplemented and in
effect from time to time.
"Partnership Pledge Agreement" shall mean an Amended and Restated
Pledge Agreement substantially in the form of Exhibit D hereto between the
Partnership and the Administrative Agent, as the same shall be modified and
supplemented and in effect from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permitted Investments" shall mean: (a) direct obligations of the
United States of America, or of any agency thereof, or obligations guaranteed as
to principal and interest by the United States of America, or of any agency
thereof, in either case maturing not more than six months from the date of
acquisition thereof; (b) bankers' acceptances, time deposits, demand deposits
and certificates of deposit accepted by, placed with or issued either by a
Lender or by any bank or trust company organized under the laws of the United
States of America or any state thereof and having capital, surplus and undivided
profits of at least $500,000,000, and maturing not more than six months from the
date of acquisition thereof; (c) commercial paper rated A-1 or better or P-1 by
Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies,
Inc., or Moody's Investors Services, Inc., respectively, maturing not more than
90 days from the date of acquisition thereof; in each case so long as the same
(x) provide for the payment of principal and interest (and not principal alone
or interest alone) and (y) are not subject to any contingency regarding the
payment of principal or interest;
Credit Agreement
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(d) investments in repurchase agreements (or reverse repurchase agreements)
covering other Permitted Investments with financial institutions that are
elected primary government securities dealers by the Federal Reserve Board or
whose securities are rated AA- or better by Standard & Poor's Ratings Services,
a Division of The McGraw-Hill Companies, Inc., or Aa or better by Moody's
Investors Service, Inc.; (e) money-market funds or money-market mutual funds
that (i) seek to maintain a constant net asset value, (ii) maintain fund assets
under management having an aggregate market value of at least $500,000,000, and
(iii) invest primarily in Investments referred to in clauses (a) through (d)
above; and (f) direct obligations of foreign governmental entities or foreign
banks rated AA- or better by Standard & Poor's Ratings Services, a Division of
The McGraw-Hill Companies, Inc. or Aa or better by Moody's Investors Services,
Inc.
"Person" shall mean any individual, corporation, company, voluntary
association, partnership, limited liability company, joint venture, trust,
unincorporated organization or government (or any agency, instrumentality or
political subdivision thereof).
"Pierce & Stevens" has the meaning assigned to such term in the
heading hereof.
"Plan" shall mean an employee benefit or other plan established or
maintained by any Obligor or any ERISA Affiliate and that is covered by Title IV
of ERISA, other than a Multiemployer Plan.
"Post-Default Rate" shall mean a rate per annum equal to 2.0% plus
the ABR Rate as in effect from time to time plus the Applicable Rate for ABR
Loans, provided that, with respect to principal of a Eurodollar Loan that shall
become due (whether at stated maturity, by acceleration, by optional or
mandatory prepayment or otherwise) on a day other than the last day of the
Interest Period therefor, the "Post-Default Rate" shall be, for the period from
and including such due date to but excluding the last day of such Interest
Period, 2.0% plus the interest rate for such Loan as provided in Section 3.02(b)
hereof and, thereafter, the rate provided for above in this definition.
"Pricing Ratio" shall mean, as at any date, the ratio of (i) the
aggregate principal amount of all Indebtedness of SSC and its Restricted
Subsidiaries on such date (calculated on a consolidated basis in accordance with
GAAP) to (ii) the sum of (a) EBITDA (excluding the portion thereof attributable
to the Target Companies) for the period of four fiscal quarters of SSC
Credit Agreement
<PAGE> 34
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ending on or most recently ended prior to such date and (b) the product of the
portion of EBITDA attributable to the Target Companies for the Relevant Period
for such date multiplied by a fraction the numerator of which is 365 and the
denominator of which is the number of days in such Relevant Period.
"Prime Rate" shall mean the rate of interest from time to time
announced by Chase at the Principal Office as its prime commercial lending rate.
"Principal Office" shall mean the principal office of Chase located
on the date hereof at 270 Park Avenue, New York, New York 10017.
"Principal Payment Dates" shall mean (i) the Quarterly Dates falling
on or nearest to March 31, June 30, September 30 and December 31 of each year,
commencing with September 30, 1998 through and including June 30, 2004 and (ii)
the Final Maturity Date.
"Property" shall mean any right or interest in or to property of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Qualifying Public Offering" shall mean an underwritten primary
public offering of common stock of SSC pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended (excluding
registration statements filed on Form S-8) which results in at least 15% of the
total issued and outstanding common stock of SSC having been distributed by
means of such registration statement.
"Quarterly Dates" shall mean the last Business Day of each March,
June, September, and December, the first of which shall be the first such day
after the date hereof.
"Receivables" shall mean, as at any date, the unpaid portion of the
obligation, as stated on the respective invoice, of a customer of the Obligors
in respect of Inventory sold and shipped by such Obligor to such customer, net
of any credits, rebates or offsets owed to such customer and also net of any
commissions payable to third parties (and for purposes hereof, a credit or
rebate paid by check or draft of the Obligors shall be deemed to be outstanding
until such check or draft shall have been debited to the account of such Obligor
on which such check or draft was drawn).
Credit Agreement
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"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated August 5, 1997 among Chase Securities Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and SSC, as the same shall, subject to Section
9.19 hereof, be modified and supplemented and in effect from time to time.
"Regulations A, D, G, T, U and X" shall mean, respectively,
Regulations A, D, G, T, U and X of the Board of Governors of the Federal Reserve
System (or any successor), as the same may be modified and supplemented and in
effect from time to time.
"Regulatory Change" shall mean, with respect to any Lender, any
change after the date hereof in Federal, state or foreign law or regulations
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or request applying to a class of
banks including such Lender of or under any Federal, state or foreign law or
regulations (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
"Reimbursement Obligations" shall mean, at any time, the obligations
of the Borrowers then outstanding, or that may thereafter arise in respect of
all Letters of Credit then outstanding, to reimburse amounts paid by the Issuing
Bank in respect of any drawings under a Letter of Credit.
"Release" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the environment, including, without limitation, the movement of Hazardous
Materials through ambient air, soil, surface water, ground water, wetlands, land
or subsurface strata, but excluding, without limitation, any spill, discharge or
release of a Hazardous Material into a containment structure or onto an
impermeable surface.
"Relevant Period" shall mean, with respect to any date, the period
of four fiscal quarters of SSC ending on or most recently ended prior to such
date, excluding any portion of such period falling before the Restatement
Effective Date.
"Reserve Requirement" shall mean, for any Interest Period for any
Eurodollar Loan, the average maximum rate at which reserves (including, without
limitation, any marginal, supplemental or emergency reserves) are required to be
maintained
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during such Interest Period under Regulation D by member banks of the Federal
Reserve System in New York City with deposits exceeding one billion Dollars
against (a) in the case of Eurodollar Loans, "Eurocurrency liabilities" (as such
term is used in Regulation D) and (b) for purposes of calculating the Base CD
Rate, non-personal Dollar time deposits in an amount of $100,000 or more.
Without limiting the effect of the foregoing, the Reserve Requirement shall
include any other reserves required to be maintained by such member banks by
reason of any Regulatory Change with respect to (i) any category of liabilities
that includes deposits by reference to which the Eurodollar Rate or the Base CD
Rate (as the case may be) is to be determined as provided in the definitions of
"Eurodollar Rate" and "Base CD Rate" in this Section 1.01 or (ii) any category
of extensions of credit or other assets that includes Eurodollar Loans or ABR
Loans.
"Restatement Effective Date" shall mean the date on which the
conditions to effectiveness set forth in Section 7.01 hereof shall have been
satisfied or waived.
"Restricted Payment" shall mean, with respect to any Person, all
dividends or partnership distributions (in cash, Property or obligations) on, or
other payments or distributions on account of, or the setting apart of money for
a sinking or other analogous fund for, or the purchase, redemption, retirement
or other acquisition of, any shares of any class of capital stock of such Person
or any portion of any partnership interest (whether general or limited) in such
Person or of any warrants, options or other rights to acquire the same (or to
make any payments to any Person, such as "phantom stock" payments, where the
amount thereof is calculated with reference to fair market or equity value of
SSC or its Restricted Subsidiaries, or any of them), but excluding (i)
Management Fees and (ii) dividends payable solely in shares of common stock of
such Person.
"Restricted Subsidiary" shall mean each Subsidiary of SSC that is
not an Unrestricted Subsidiary.
"Revolving Credit Commitment" shall mean, as to each Revolving
Credit Lender, the obligation of such Lender to make Revolving Credit Loans, and
to issue or participate in Letters of Credit pursuant to Section 2.03 hereof, in
an aggregate principal or face amount at any one time outstanding up to but not
exceeding the amount set opposite the name of such Lender on the signature pages
hereof under the caption "Revolving Credit Commitment" or, in the case of a
Person that becomes a Revolving Credit Lender pursuant to an assignment
permitted under
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Section 12.06(b) hereof, as specified in the respective instrument of assignment
pursuant to which such assignment is effected (as the same may be reduced from
time to time pursuant to Section 2.04 or 2.10 hereof). The original aggregate
amount of the Revolving Credit Commitments is $30,000,000.
"Revolving Credit Commitment Percentage" shall mean, with respect to
any Revolving Credit Lender, the ratio of (a) the amount of the Revolving Credit
Commitment of such Lender to (b) the aggregate amount of the Revolving Credit
Commitments of all of the Lenders.
"Revolving Credit Commitment Termination Date" shall mean the Final
Maturity Date.
"Revolving Credit Lenders" shall mean (a) on the date hereof, the
Lenders having Revolving Credit Commitments on the signature pages hereof and
(b) thereafter, the Lenders from time to time holding Revolving Credit Loans,
Revolving Credit Commitments or Letter of Credit Interests after giving effect
to any assignments thereof permitted by Section 12.06(b) hereof.
"Revolving Credit Loans" shall have the meaning assigned to such
term in Section 2.01(a) hereof and shall include the revolving credit loans made
hereunder prior to the Restatement Effective Date that remain outstanding at the
opening of business on the Restatement Effective Date.
"Revolving Credit Notes" shall mean the promissory notes provided
for by Section 2.08(a) hereof and all promissory notes delivered in substitution
or exchange therefor, in each case as the same shall be modified and
supplemented and in effect from time to time.
"SCC" shall mean Sovereign Chemicals Corporation, a Delaware
corporation.
"SEA" shall have the meaning assigned to such term in the heading
hereof.
"Security Agreement" shall mean an Amended and Restated Security
Agreement substantially in the form of Exhibit C hereto between the Obligors and
the Administrative Agent, as the same shall be modified and supplemented and in
effect from time to time.
"Security Documents" shall mean, collectively, the Security
Agreement, the Partnership Pledge Agreement, the
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Mortgages, the Mortgage Amendments, all Uniform Commercial Code financing
statements required by the Security Agreement, the Partnership Pledge Agreement,
the Mortgages or the Mortgage Amendments to be filed with respect to the
security interests in personal Property and fixtures created pursuant to the
Security Agreement, the Partnership Pledge Agreement, the Mortgages or the
Mortgage Amendments, and all other documents executed and delivered by any of
the Obligors in favor of the Administrative Agent for the benefit of the Lenders
creating a Lien on any or all of their respective Properties.
"Seller Subordinated Note" shall mean the Junior Subordinated Note
issued by the Partnership in an original principal amount equal to $3,000,000
under, and in accordance with, the Acquisition Agreement, as the same shall,
subject to Section 9.19 hereof, be modified and supplemented and in effect from
time to time.
"Senior Officer" shall mean the president or chief financial officer
of SSC.
"Senior Subordinated Notes" shall mean (i) notes issued by SSC under
the Senior Subordinated Notes Indenture in the original aggregate principal
amount not exceeding $125,000,000 and (ii) notes issued in exchange for such
notes under the Exchange Securities Indenture, in each of the cases referred to
in the foregoing clauses (i) and (ii), as the same shall, subject to Section
9.19 hereof, be modified and supplemented and in effect from time to time.
"Senior Subordinated Notes Documents" shall mean the Senior
Subordinated Notes, the Registration Rights Agreement, the Senior Subordinated
Notes Indenture and the Exchange Securities Indenture.
"Senior Subordinated Notes Indebtedness" shall mean the Indebtedness
of the Obligors under the Senior Subordinated Notes Documents.
"Senior Subordinated Notes Indenture" shall mean the Indenture dated
as of August 5, 1997 among SSC, the "Guarantors" referred to therein and The
Bank of New York, as trustee, as the same shall, subject to Section 9.19 hereof,
be modified and supplemented and in effect from time to time.
"SIA" shall have the meaning assigned to such term in the heading
hereof.
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"Significant Group of Restricted Subsidiaries" shall mean two or
more Restricted Subsidiaries of SSC (other than any Foreign Company) that would
constitute a Significant Restricted Subsidiary if their assets and operations
were combined in accordance with GAAP. References in Section 10 hereof to any
event or condition in respect of a Significant Group of Restricted Subsidiaries
shall be deemed to refer to one or more of such events or conditions in respect
of each of the Restricted Subsidiaries that are included in such Significant
Group of Restricted Subsidiaries and shall not be construed to mean a single
such event or condition that applies jointly to all of such Subsidiaries.
"Significant Restricted Subsidiary" shall mean, as at any date of
determination, a Restricted Subsidiary of SSC (other than a Foreign Company)
that either had revenues of at least $2,000,000 for the period of four fiscal
quarters of such Restricted Subsidiary ending on or most recently ended prior to
such date or had assets (valued at the higher of fair market value or book
value) of at least $1,000,000 as at the last day of such period.
"SSC" has the meaning assigned to such term in the heading hereof.
"Subordinated Debt Documents" shall mean the Senior Subordinated
Notes Documents and the Seller Subordinated Note.
"Subordinated Indebtedness" shall mean, collectively, (a) the Senior
Subordinated Notes Indebtedness, (b) the Seller Subordinated Note and (c)
unsecured Indebtedness of the Obligors that is subordinated to the obligations
of the Obligors to pay principal of and interest on the Loans, Reimbursement
Obligations and Notes hereunder, and to the obligations of the Obligors under
Hedge Agreements with Lenders, on terms, and pursuant to documentation
containing other terms (including interest, amortization, covenants and events
of default), in form and substance reasonably satisfactory to the Majority
Lenders.
"Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have
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voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person.
"Supplemental Acquisition Loan Commitment Termination Date" shall
mean the date falling 24 months after the Restatement Effective Date.
"Target Companies" shall mean (i) LCCNA, (ii) Mercer and (iii)
Evode.
"Tax Payment Amount" shall mean, for any Partner (including, without
limitation, any Partner in its or his capacity, as a member of SEA during the
period prior to the Restatement Effective Date) or any member of SEA, for any
period, an amount not exceeding in the aggregate the amount of Federal, state
and local income taxes that would be payable by such Partner or member in
respect of income of SSC and its Subsidiaries for such period (including,
without limitation, income of SEA during the period prior to the Restatement
Effective Date) at a rate equal to the actual highest combined marginal Federal,
state and local income tax rates (after giving effect to the deductibility of
state and local income taxes) applicable to any of the Partners (or to any
investors in any of the Partners) or any of such members, provided that (i) the
aggregate amount of the Tax Payment Amount for all periods attributable to all
of the Partners (or to any investors in any of the Partners) shall not exceed
$250,000 in respect of their respective ownership interests in SEA and (ii) the
aggregate amount of the Tax Payment Amount for such period attributable to
Unrestricted Subsidiaries shall not exceed the aggregate amount of dividends
paid in cash by the Unrestricted Subsidiaries and received by SSC and its
Restricted Subsidiaries during such period.
"Term Loan Commitment" shall mean, as to each Term Loan Lender, the
obligation of such Lender to make a Term Loan in a principal amount up to but
not exceeding the amount set opposite the name of such Lender on the signature
pages hereof under the caption "Term Loan Commitment" or, in the case of a
Person that becomes a Term Loan Lender pursuant to an assignment permitted under
Section 12.06(b) hereof, as specified in the respective instrument of assignment
pursuant to which such assignment is effected (as the same may be reduced from
time to time pursuant to Section 2.04 or 2.10 hereof). The original aggregate
amount of the Term Loan Commitments is $30,000,000.
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"Term Loan Commitment Termination Date" shall mean August 22, 1997.
"Term Loan Notes" shall mean the promissory notes provided for by
Section 2.08(b) hereof and all promissory notes delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"Term Loans" shall have meaning assigned to such term in Section
2.01(b) hereof and shall include the term loans made hereunder prior to the
Restatement Effective Date remain outstanding at the opening of business on the
Restatement Effective Date.
"Term Loan Lenders" shall mean (a) on the date hereof, the Lenders
having Term Loan Commitments on the signature pages hereof and (b) thereafter,
the Lenders from time to time holding Term Loans and Term Loan Commitments after
giving effect to any assignments thereof permitted by Section 12.06(b) hereof.
"Three-Month Secondary CD Rate" means, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day is not a Business Day, the next preceding Business
Day) by the Board of Governors of the Federal Reserve System through the public
information telephone line of the Federal Reserve Bank of New York (which rate
will, under the current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such day), or, if such
rate is not so reported, the average (rounded upwards to the nearest 1/100 of
1%) of the secondary market quotations for three-month certificates of deposit
of major money center banks in New York city received at approximately 10:00
a.m., New York City time, on such day or the next preceding Business Day by the
Administrative Agent from three New York City negotiable certificate of deposit
dealers of recognized standing selected by it.
"Transaction Documents" shall mean the Loan Documents, the
Acquisition Documents, the Equity Documents and the Subordinated Debt Documents.
"Transactions" means the following transactions, all to be
consummated substantially simultaneously on the Restatement Effective Date: (i)
the Acquisition, (ii) the issuance by SSC of the Senior Subordinated Notes under
the Senior Subordinated Notes Indenture, (iii) the borrowing and prepayment
referred to in Section 2.01(c) hereof, (iv) the redemption and repayment in full
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of the Existing Subordinated Debt, (v) the exchange by the shareholders of SIA
(other than the Partnership) of their capital in SIA for stock of the General
Partner and partnership interests in the Partnership, (vi) the exchange by the
shareholders of Pierce & Stevens (other than the Partnership) of their stock in
Pierce & Stevens for stock of the General Partner and partnership interest in
the Partnership, (vii) the issuance by the Partnership and the General Partner
of $36,000,000 of equity, (viii) the contribution by the General Partner to the
Partnership of all of its stock in SIA and Pierce & Stevens, (ix) the issuance
by SSC of its capital stock to the Partnership pursuant to the Equity Documents,
(x) the contribution by the Partnership to SSC of $33,800,000 in cash and all of
its stock in SIA and Pierce & Stevens, and (xi) the contribution by the
Partnership to SSC of the Management Notes.
"Type" shall have the meaning assigned to such term in Section 1.03
hereof.
"Unrestricted Subsidiary" shall mean a Subsidiary of SSC designated
as such by SSC in a notice to the Administrative Agent and to which designation
the Majority Lenders have consented in a notice to SSC.
"U.S. Person" shall mean a citizen or resident of the United States
of America, a corporation, partnership or other entity created or organized in
or under any laws of the United States of America or any State thereof, or any
estate or trust that is subject to U.S. Federal income taxation regardless of
the source of its income.
"U.S. Taxes" shall mean any present or future tax, assessment or
other charge or levy imposed by or on behalf of the United States of America or
any taxing authority thereof.
"Wholly Owned Subsidiary" shall mean, with respect to any Person,
any corporation, partnership or other entity of which all of the equity
securities or other ownership interests (other than, in the case of a
corporation, directors' qualifying shares) are directly or indirectly owned or
controlled by such Person or one or more Wholly Owned Subsidiaries of such
Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person.
"Working Capital" shall mean, as at such date, the sum for SSC and
its Restricted Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP) of the following: (a) current assets minus
(b) current
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liabilities (excluding the current portion of long term debt and of any
installments of principal payable hereunder).
1.02 Accounting Terms and Determinations.
(a) Except as otherwise expressly provided herein, all accounting
terms used herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be delivered to the
Lenders hereunder shall (unless otherwise disclosed to the Lenders in writing at
the time of delivery thereof in the manner described in subsection (b) below) be
prepared, in accordance with generally accepted accounting principles applied on
a basis consistent with those used in the preparation of the latest financial
statements furnished to the Lenders hereunder. All calculations made for the
purposes of determining compliance with this Agreement shall (except as
otherwise expressly provided herein) be made by application of generally
accepted accounting principles applied on a basis consistent with those used in
the preparation of the latest annual or quarterly financial statements furnished
to the Lenders pursuant to Section 9.01 hereof unless (i) SSC shall have
objected to determining such compliance on such basis at the time of delivery of
such financial statements or (ii) the Majority Lenders shall so object in
writing within 30 days after delivery of such financial statements, in either of
which events such calculations shall be made on a basis consistent with those
used in the preparation of the latest financial statements as to which such
objection shall not have been made.
(b) SSC shall deliver to the Lenders at the same time as the
delivery of any annual or quarterly financial statement under Section 9.01
hereof (i) a description in reasonable detail of any material variation between
the application of accounting principles employed in the preparation of such
statement and the application of accounting principles employed in the
preparation of the next preceding annual or quarterly financial statements as to
which no objection has been made in accordance with the last sentence of
subsection (a) above and (ii) reasonable estimates of the difference between
such statements arising as a consequence thereof.
(c) To enable the ready and consistent determination of compliance
with the covenants set forth in Section 9 hereof, SSC will not change the last
day of its fiscal year from December 31, or the last days of the first three
fiscal quarters in each of its fiscal years from March 31, June 30 and September
30 of each year, respectively.
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(d) Except as otherwise expressly provided herein, all financial
statements and certificates and reports as to financial matters required to be
delivered to the Administrative Agent or the Lenders hereunder shall be
prepared, and all calculations made for purposes of determining compliance with
the terms hereof shall be made, as if the Unrestricted Subsidiaries were carried
as equity investments by SSC and its Restricted Subsidiaries; provided that:
(i) earnings and other increases in the value of Unrestricted
Subsidiaries shall not increase earnings of SSC and its Restricted
Subsidiaries for purposes of determining EBITDA until received by SSC or a
Restricted Subsidiary in cash;
(ii) the value of equity investments in any Unrestricted Subsidiary
shall not be increased except to reflect the book value of any assets
subsequently contributed thereto by SSC and its Restricted Subsidiaries,
such book value in the case of any asset to be determined as of the date
of its contribution; and
(iii) losses and other decreases of value of the Unrestricted
Subsidiaries, when recognized by the respective Unrestricted Subsidiaries,
shall, at the time of such recognition, decrease the value of equity
investments in Unrestricted Subsidiaries held by SSC and its Restricted
Subsidiaries, but shall not decrease the earnings of SSC and its
Restricted Subsidiaries for purposes of determining EBITDA.
1.03 Classes and Types of Loans. Loans hereunder are distinguished
by "Class" and by "Type". The "Class" of a Loan (or of a Commitment to make a
Loan) refers to whether such Loan is a Revolving Credit Loan or a Term Loan,
each of which constitutes a Class. The "Type" of a Loan refers to whether such
Loan is a ABR Loan or a Eurodollar Loan, each of which constitutes a Type. Loans
may be identified by both Class and Type.
1.04 References to Date. All references herein to "the date hereof"
and the "the date of this Agreement", and similar references, shall mean August
5, 1997.
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Section 2. Commitments, Loans, Notes and Prepayments.
2.01 Loans.
(a) Revolving Credit Loans. Each Revolving Credit Lender severally
agrees, on the terms and conditions of this Agreement, to make loans to the
Borrowers in Dollars during the period from and including the Restatement
Effective Date to but not including the Revolving Credit Commitment Termination
Date in an aggregate principal amount at any one time outstanding up to but not
exceeding the amount of the Revolving Credit Commitment of such Lender as in
effect from time to time (such loans being herein called "Revolving Credit
Loans"), provided that in no event shall the aggregate principal amount of all
Revolving Credit Loans plus the aggregate amount of all Letter of Credit
Liabilities exceed the lesser of the Borrowing Base or the aggregate amount of
the Revolving Credit Commitments of all of the Revolving Credit Lenders as in
effect from time to time. Subject to the terms and conditions of this Agreement,
during such period the Borrowers may borrow, repay and reborrow the amount of
the Revolving Credit Commitments by means of ABR Loans and Eurodollar Loans and
may Convert Revolving Credit Loans of one Type into Revolving Credit Loans of
the other Type (as provided in Section 2.09 hereof) or Continue Revolving Credit
Loans that are Eurodollar Loans from one Interest Period into another Interest
Period (as provided in Section 2.09 hereof).
Proceeds of Revolving Credit Loans shall be available for any use
permitted under Section 9.17 hereof, provided that, in the event that as
contemplated by Section 2.10(b), 2.10(c) or 2.10(e) hereof, the Borrowers shall
prepay Revolving Credit Loans from the Net Available Proceeds of a Casualty
Event, a Debt Issuance, an Equity Issuance or a Disposition hereunder, then an
amount of Revolving Credit Commitments equal to the amount of such prepayment
(herein the "Casualty-Related Reserved Commitment Amount", in the case of a
Casualty Event, the "Issuance-Related Reserved Commitment Amount", in the case
of a Debt Issuance or Equity Issuance or the "Disposition-Related Reserved
Commitment Amount", in the case of Disposition) shall be reserved and shall not
be available for borrowings hereunder except and to the extent that the proceeds
of such borrowings are to be applied (i) to repair or replace the Property that
was the subject of the related Casualty Event or to make prepayments of Loans
under Section 2.10(b)(y)(B) hereof, in the case of the Casualty-Related Reserved
Commitment Amount, (ii) to make acquisitions permitted under Section 9.05
hereof, Investments permitted under Section 9.08(g) hereof (in the case of Debt
Issuances), Investments permitted under Section 9.08(h) hereof (in the case
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of Equity Issuances), Restricted Payments permitted under Section 9.09(b) hereof
(in the case of Equity Issuances) or Capital Expenditures permitted under
Section 9.12 hereof or to make prepayments of Loans under Section 2.10(c)(y)(B)
hereof, in the case of the Issuance-Related Reserved Commitment Amount, or (iii)
to make Capital Expenditures permitted under Section 9.12 hereof, to replace the
Property of the Borrowers that was the subject of the related Disposition or to
pay liabilities underlying the related Deductible Reserves, in the case of the
Disposition-Related Reserved Commitment Amount. The Borrowers agree, upon the
occasion of any borrowing of Revolving Credit Loans hereunder that is to
constitute a utilization of any Casualty-Related Reserved Commitment Amount,
Issuance-Related Reserved Commitment Amount or Disposition-Related Reserved
Commitment Amount, to advise the Administrative Agent in writing of such fact at
the time of such borrowing, identifying the amount of such borrowing that is to
constitute such utilization, the repair or replacement, acquisition, Capital
Expenditure or liability underlying a Deductible Reserve, as the case may be, in
respect of which the proceeds of such borrowing are to be applied and the
reduced Casualty-Related Reserved Commitment Amount, Issuance-Related Reserved
Commitment Amount or Disposition-Related Reserved Commitment Amount to be in
effect after giving effect to such borrowing.
(b) Term Loans. Each Term Loan Lender severally agrees, on the terms
and conditions of this Agreement, (i) to make a single term loan to the
Borrowers in Dollars on the Restatement Effective Date (provided that the same
shall occur no later than the Term Loan Commitment Termination Date) in a
principal amount up to but not exceeding the amount of the Term Loan Commitment
of such Lender and (ii) in the event that such Term Loan Lender receives as a
prepayment of its initial Term Loan hereunder Net Available Proceeds from a
Mercer Disposition, to make additional loans (each, an "Acquisition Loan") to
the Borrowers during the period from and including the date of such prepayment
to but not including the Supplemental Acquisition Loan Commitment Termination
Date (the "Acquisition Loan Availability Period") in an aggregate principal
amount at any time outstanding up to but not exceeding the aggregate principal
amount of its initial Term Loan so prepaid (provided that (x) no such additional
loans shall be made after the Supplemental Acquisition Loan Commitment
Termination Date and (y) the aggregate principal amount of all such additional
loans made by all of the Term Loan Lenders to all of the Borrowers shall not
exceed $20,000,000) at any one time outstanding. Subject to the terms and
conditions of this Agreement, during the Acquisition Loan Availability Period,
the Borrowers may borrow, repay and reborrow the Acquisition
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Loans from each of the Term Loan Lenders by means of ABR Loans and Eurodollar
Loans and may Convert Acquisition Loans of one Type into Acquisition Loans of
the other Type (as provided in Section 2.09 hereof) or Continue Acquisition
Loans that are Eurodollar Loans from one Interest Period into another Interest
Period (as provided in Section 2.09 hereof). The loans made or to be made
pursuant to this paragraph (b), including, without limitation, the Acquisition
Loans, are herein called "Term Loans". Thereafter the Borrowers may Convert Term
Loans of one Type into Term Loans of the other Type (as provided in Section 2.09
hereof) or Continue Term Loans that are Eurodollar Loans from one Interest
Period into another Interest Period (as provided in Section 2.09 hereof).
(c) Payment of Existing Loans. On the Restatement Effective Date the
Borrowers shall borrow, and use the proceeds of, Revolving Credit Loans and Term
Loans in a sufficient amount to prepay in full the principal of and interest on
the Revolving Credit Loans and the Term Loans outstanding at the opening of
business on such date and any amounts payable under Section 5.05 hereof in
connection with such prepayment.
(d) Limit on Eurodollar Loans. Notwithstanding anything contained
herein to the contrary, no more than twelve separate Interest Periods in respect
of Eurodollar Loans of both Classes may be outstanding at any one time.
2.02 Borrowings. The Borrowers shall give the Administrative Agent
notice of each borrowing hereunder as provided in Section 4.05 hereof. Not later
12:00 noon New York time on the date specified for each borrowing hereunder,
each Lender shall make available the amount of the Loan or Loans to be made by
it on such date to the Administrative Agent, at an account designated by the
Administrative Agent to the Lenders, in immediately available funds, for account
of the Borrowers. The amount so received by the Administrative Agent shall,
subject to the terms and conditions of this Agreement, be made available to the
Borrowers by depositing the same, in immediately available funds, in an account
of the Borrowers designated by the Borrowers and maintained with Chase at its
principal office (it being understood and agreed that the Borrowers may maintain
other accounts at banks other than Chase).
2.03 Letters of Credit. Subject to the terms and conditions of this
Agreement, the Revolving Credit Commitments may be utilized, upon the request of
the Borrowers, in addition to the Revolving Credit Loans provided for by Section
2.01(a) hereof, by the issuance by the Issuing Bank of letters of credit
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(collectively, "Letters of Credit") for account of any Borrower or any
Restricted Subsidiary of any Borrower (as specified by the Borrowers), provided
that in no event shall (i) the aggregate amount of all Letter of Credit
Liabilities plus the aggregate principal amount of the Revolving Credit Loans
exceed the lesser of the Borrowing Base or the aggregate amount of the Revolving
Credit Commitments of all of the Revolving Credit Lenders as in effect from time
to time, (ii) the outstanding aggregate amount of all Letter of Credit
Liabilities exceed $10,000,000 or (iii) the expiration date of any Letter of
Credit extend beyond the earlier of (a) five Business Days prior to the
Revolving Credit Commitment Termination Date and (b) the date falling twelve
months after the issuance of such Letter of Credit (or, in the case of any
renewal or extension thereof, one year after such renewal or execution, which
shall in no event extend beyond the date referred to clause (a) above). The
following additional provisions shall apply to Letters of Credit:
(a) The Borrowers shall give the Administrative Agent at least three
Business Days' irrevocable prior notice (effective upon receipt)
specifying the Business Day (which shall be no later than 30 days
preceding the Revolving Credit Commitment Termination Date) each Letter of
Credit is to be issued and the account party or parties therefor and
describing in reasonable detail the proposed terms of such Letter of
Credit (including the beneficiary thereof) and the nature of the
transactions or obligations proposed to be supported thereby (including
whether such Letter of Credit is to be a commercial letter of credit or a
standby letter of credit). Upon receipt of any such notice, the
Administrative Agent shall advise the Issuing Bank of the contents
thereof.
(b) On each day during the period commencing with the issuance by
the Issuing Bank of any Letter of Credit (or in the case of an Existing
Letter of Credit, on the Restatement Effective Date) and until such Letter
of Credit shall have expired or been terminated, the Revolving Credit
Commitment of each Revolving Credit Lender shall be deemed to be utilized
for all purposes of this Agreement in an amount equal to such Lender's
Revolving Credit Commitment Percentage of the then undrawn face amount of
such Letter of Credit. Each Revolving Credit Lender (other than the
Issuing Bank) agrees that, upon the issuance of any Letter of Credit
hereunder (or in the case of an Existing Letter of Credit, on the
Restatement Effective Date), it shall automatically acquire a
participation in the Issuing Bank's liability under such Letter of Credit
in an amount equal to
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such Lender's Revolving Credit Commitment Percentage of such liability,
and each Revolving Credit Lender (other than the Issuing Bank) thereby
shall absolutely, unconditionally and irrevocably assume, as primary
obligor and not as surety, and shall be unconditionally obligated to the
Issuing Bank to pay and discharge when due, its Revolving Credit
Commitment Percentage of the Issuing Bank's liability under such Letter of
Credit.
(c) Upon receipt from the beneficiary of any Letter of Credit of any
demand for payment under such Letter of Credit, the Issuing Bank shall
promptly notify the Borrowers (through the Administrative Agent) of the
amount to be paid by the Issuing Bank as a result of such demand and the
date on which payment is to be made by the Issuing Bank to such
beneficiary in respect of such demand. Notwithstanding the identity of the
account party of any Letter of Credit, the Borrowers hereby
unconditionally agree to pay and reimburse the Administrative Agent for
account of the Issuing Bank for the amount of each demand for payment
under such Letter of Credit that is in substantial compliance with the
provisions of such Letter of Credit on the Business Day on which payment
is to be made by the Issuing Bank to the beneficiary thereunder if the
Borrower shall have received notice of such payment prior to 11:00 a.m.
New York time on such Business Day or, if the Borrower shall have received
notice of such payment after such time, on the Business Day following the
date of receipt of such notice, in any case, without presentment, demand,
protest or other formalities of any kind.
(d) Forthwith upon its receipt of a notice referred to in paragraph
(c) of this Section 2.03, the Borrowers shall advise the Administrative
Agent whether or not the Borrowers intend to borrow hereunder to finance
its obligation to reimburse the Issuing Bank for the amount of the related
demand for payment and, if they do, submit a notice of such borrowing as
provided in Section 4.05 hereof.
(e) Each Revolving Credit Lender (other than the Issuing Bank) shall
pay to the Administrative Agent for account of the Issuing Bank at its
principal office in Dollars and in immediately available funds, the amount
of such Lender's Revolving Credit Commitment Percentage of any payment
under a Letter of Credit upon notice by the Issuing Bank (through the
Administrative Agent) to such Revolving Credit Lender requesting such
payment and specifying such amount. Each such Revolving Credit Lender's
obligation to
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make such payment to the Administrative Agent for account of the Issuing
Bank under this paragraph (e), and the Issuing Bank's right to receive the
same, shall be absolute and unconditional and shall not be affected by any
circumstance whatsoever, including, without limitation, the failure of any
other Revolving Credit Lender to make its payment under this paragraph
(e), the financial condition of the Obligors (or any other account party),
the existence of any Default or the termination of the Commitments. Each
such payment to the Issuing Bank shall be made without any offset,
abatement, withholding or reduction whatsoever. If any Revolving Credit
Lender shall default in its obligation to make any such payment to the
Administrative Agent for account of the Issuing Bank, for so long as such
default shall continue the Administrative Agent may at the request of the
Issuing Bank withhold from any payments received by the Administrative
Agent under this Agreement or any Note for account of such Revolving
Credit Lender the amount so in default and, to the extent so withheld, pay
the same to the Issuing Bank in satisfaction of such defaulted obligation.
(f) Upon the making of each payment by a Revolving Credit Lender to
the Issuing Bank pursuant to paragraph (e) above in respect of any Letter
of Credit, such Lender shall, automatically and without any further action
on the part of the Administrative Agent, the Issuing Bank or such Lender,
acquire (i) a participation in an amount equal to such payment in the
Reimbursement Obligation owing to the Issuing Bank by the Borrowers
hereunder and under the Letter of Credit Documents relating to such Letter
of Credit and (ii) a participation in a percentage equal to such Lender's
Revolving Credit Commitment Percentage in any interest or other amounts
payable by the Borrowers hereunder and under such Letter of Credit
Documents in respect of such Reimbursement Obligation (other than the
commissions, charges, costs and expenses payable to the Issuing Bank
pursuant to paragraph (g) of this Section 2.03). Upon receipt by the
Issuing Bank from or for account of the Borrowers of any payment in
respect of any Reimbursement Obligation or any such interest or other
amount (including by way of setoff or application of proceeds of any
collateral security) the Issuing Bank shall promptly pay to the
Administrative Agent for account of each Revolving Credit Lender entitled
thereto, such Revolving Credit Lender's Revolving Credit Commitment
Percentage of such payment, each such payment by the Issuing Bank to be
made in the same money and funds in which received by the Issuing Bank. In
the event any payment received by the Issuing Bank
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and so paid to the Revolving Credit Lenders hereunder is rescinded or must
otherwise be returned by the Issuing Bank, each Revolving Credit Lender
shall, upon the request of the Issuing Bank (through the Administrative
Agent), repay to the Issuing Bank (through the Administrative Agent) the
amount of such payment paid to such Lender, with interest at the rate
specified in paragraph (j) of this Section 2.03.
(g) The Borrowers shall pay to the Administrative Agent for account
of each Revolving Credit Lender (ratably in accordance with their
respective Commitment Percentages) a letter of credit fee on the amount of
each Letter of Credit outstanding on each day at a rate per annum equal to
the Applicable Rate for such day for the period from and including the
date of issuance of such Letter of Credit (or in the case of an Existing
Letter of Credit, the Restatement Effective Date) (i) in the case of a
Letter of Credit that expires in accordance with its terms, to and
including such expiration date and (ii) in the case of a Letter of Credit
that is drawn in full or is otherwise terminated other than on the stated
expiration date of such Letter of Credit, to but excluding the date such
Letter of Credit is drawn in full or is terminated (such fee to be
non-refundable, to be paid in arrears on each Quarterly Date and on the
Revolving Credit Commitment Termination Date and to be calculated for any
day after giving effect to any payments made under such Letter of Credit
on such day). In addition, the Borrowers shall pay to the Administrative
Agent for account of the Issuing Bank a fronting fee in respect of each
Letter of Credit in an amount equal to 0.25% per annum of the daily
average undrawn face amount of such Letter of Credit for the period from
and including the date of issuance of such Letter of Credit (or in the
case of an Existing Letter of Credit, the Restatement Effective Date) (i)
in the case of a Letter of Credit that expires in accordance with its
terms, to and including such expiration date and (ii) in the case of a
Letter of Credit that is drawn in full or is otherwise terminated other
than on the stated expiration date of such Letter of Credit, to but
excluding the date such Letter of Credit is drawn in full or is terminated
(such fee to be non-refundable, to be paid in arrears on each Quarterly
Date and on the Revolving Credit Commitment Termination Date and to be
calculated for any day after giving effect to any payments made under such
Letter of Credit on such day) plus all commissions, charges, costs and
expenses in the amounts customarily charged by the Issuing Bank from time
to time in like circumstances with respect to the issuance of each
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Letter of Credit and drawings and other transactions relating thereto.
(h) Promptly following the end of each calendar month, the Issuing
Bank shall deliver (through the Administrative Agent) to each Revolving
Credit Lender and the Borrowers a notice describing the aggregate amount
of all Letters of Credit outstanding at the end of such month. Upon the
request of any Revolving Credit Lender from time to time, the Issuing Bank
shall deliver any other information reasonably requested by such Lender
with respect to each Letter of Credit then outstanding.
(i) The issuance by the Issuing Bank of each Letter of Credit shall,
in addition to the conditions precedent set forth in Section 7 hereof, be
subject to the conditions precedent that (i) such Letter of Credit shall
be in such form, contain such terms and support such transactions as shall
be satisfactory to the Issuing Bank consistent with its then current
practices and procedures with respect to letters of credit of the same
type and (ii) the Borrowers shall have executed and delivered such
applications, agreements and other instruments relating to such Letter of
Credit as the Issuing Bank shall have reasonably requested consistent with
its then current practices and procedures with respect to letters of
credit of the same type, provided that in the event of any conflict
between any such application, agreement or other instrument and the
provisions of this Agreement or any Security Document, the provisions of
this Agreement and the Security Documents shall control.
(j) To the extent that any Lender shall fail to pay any amount
required to be paid pursuant to paragraph (e) or (f) of this Section 2.03
on the due date therefor, such Lender shall pay interest to the Issuing
Bank (through the Administrative Agent) on such amount from and including
such due date to but excluding the date such payment is made at a rate per
annum equal to the Federal Funds Rate, provided that if such Lender shall
fail to make such payment to the Issuing Bank within three Business Days
of such due date, then, retroactively to the due date, such Lender shall
be obligated to pay interest on such amount at the Post-Default Rate.
(k) The issuance by the Issuing Bank of any modification or
supplement to any Letter of Credit hereunder shall be subject to the same
conditions applicable under
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this Section 2.03 to the issuance of new Letters of Credit, and no such
modification or supplement shall be issued hereunder unless either (i) the
respective Letter of Credit affected thereby would have complied with such
conditions had it originally been issued hereunder in such modified or
supplemented form or (ii) each Revolving Credit Lender shall have
consented thereto.
(l) Any Letter of Credit requested by the Borrowers hereunder may,
at the request of the Borrowers, be payable in a currency other than
Dollars, provided that such currency of payment is freely convertible in
the determination of the Issuing Bank. In the event that the Issuing Bank
issues any Letter of Credit that is not denominated in Dollars (a "Foreign
Currency LC"): (i) the obligations of the Borrowers and the Lenders
hereunder, including without limitation under paragraphs (c) and (e) of
this Section 2.03, to make payments with respect to such Letter of Credit
in Dollars shall not be affected because such Letter of Credit is a
Foreign Currency LC, (ii) the respective amounts to be paid by the
Borrowers and the Lenders under paragraphs (c) and (e) of this Section
2.03 with respect to any payment by the Issuing Bank under a Foreign
Currency LC shall, for all purposes hereof (including, without limitation,
the definition of "Reimbursement Obligations" in Section 1.01 hereof), be
calculated by reference to the Dollar Equivalent of such payment by the
Issuing Bank on the date of such payment by the Issuing Bank and (iii) the
undrawn amount of any Foreign Currency LC on any date shall, for all
purposes hereof (including, without limitation, the definition of "Letter
of Credit Liabilities" in Section 1.01 hereof, Section 2.03(g) hereof,
Section 2.05 hereof and 2.10(h) hereof), be calculated by reference to the
Dollar Equivalent of such amount on the Quarterly Date falling on or most
recently prior to such date or (if falling after such Quarterly Date) on
the date of issuance or latest date of extension of such Foreign Currency
LC.
The Borrowers hereby jointly and severally indemnify and hold harmless each
Revolving Credit Lender and the Administrative Agent from and against any and
all claims and damages, losses, liabilities, costs or expenses that such Lender
or the Administrative Agent may incur (or that may be claimed against such
Lender or the Administrative Agent by any Person whatsoever) by reason of or in
connection with the execution and delivery or transfer of or payment or refusal
to pay by the Issuing Bank under any Letter of Credit; provided that the
Borrowers shall not
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be required to indemnify any Lender or the Administrative Agent for any claims,
damages, losses, liabilities, costs or expenses to the extent, but only to the
extent, caused by (x) the willful misconduct or gross negligence of the Issuing
Bank in determining whether a request presented under any Letter of Credit
complied with the terms of such Letter of Credit or (y) in the case of the
Issuing Bank, such Lender's failure to pay under any Letter of Credit after the
presentation to it of a request strictly complying with the terms and conditions
of such Letter of Credit unless such payment would have violated any injunction,
decree or other order of any count. Nothing in this Section 2.03 is intended to
limit the other obligations of the Borrowers, any Lender or the Administrative
Agent under this Agreement.
2.04 Changes of Commitments.
(a) The aggregate amount of the Revolving Credit Commitments shall
be automatically reduced to zero on the Revolving Credit Commitment Termination
Date.
(b) The Borrowers shall have the right at any time or from time to
time (i) to terminate or reduce the aggregate unused amount of the Term Loan
Commitments, (ii) so long as no Revolving Credit Loans or Letter of Credit
Liabilities are outstanding, to terminate the Revolving Credit Commitments and
(iii) to reduce the aggregate unused amount of the Revolving Credit Commitments
provided that (x) the Borrowers shall give notice of each such termination or
reduction as provided in Section 4.05 hereof and (y) each partial reduction
shall be in an aggregate amount at least equal to $1,000,000 (or a larger
multiple of $1,000,000).
(c) Any portion of the Term Loan Commitments not used on the
Restatement Effective Date shall be automatically terminated.
(d) Subject to Section 2.12 hereof, the Commitments once terminated
or reduced may not be reinstated.
2.05 Commitment Fee. The Borrowers shall pay to the Administrative
Agent for account of each Lender a commitment fee (i) on the daily average
unused amount of such Lender's Revolving Credit Commitment for the period from
and including the date hereof to but not including the earlier of the date such
Revolving Credit Commitment is terminated and the Revolving Credit Commitment
Termination Date, at a rate per annum equal to the Applicable Rate and (ii) on
the daily average unused amount of such Lender's Term Loan Commitment for the
period from and including the date, if any, that such Lender's Term Loan
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Commitment is reinstated pursuant to Section 2.12 hereof to but not including
the earlier of the date (following the date of such reinstatement) such Term
Loan Commitment is terminated and the Supplemental Term Loan Commitment
Termination Date, at a rate per annum equal to the Applicable Rate. Accrued
commitment fee shall be payable (x) in arrears on each Quarterly Date and
(y)(1), with respect to the Revolving Credit Loan, on the earlier of the date
the Revolving Credit Commitments are terminated and the Revolving Credit
Commitment Termination Date or (2), with respect to the Term Loan described in
clause (ii) of this Section, on the earlier of date such Term Loan Commitment is
terminated and the Supplemental Term Loan Commitment Termination Date.
2.06 Lending Offices. The Loans of each Type made by each Lender
shall be made and maintained at such Lender's Applicable Lending Office for
Loans of such Type.
2.07 Several Obligations; Remedies Independent. The failure of any
Lender to make any Loan to be made by it on the date specified therefor shall
not relieve any other Lender of its obligation to make its Loan on such date,
but neither any Lender nor the Administrative Agent shall be responsible for the
failure of any other Lender to make a Loan to be made by such other Lender, and
(except as otherwise provided in Section 4.06 hereof) no Lender shall have any
obligation to the Administrative Agent or any other Lender for the failure by
such Lender to make any Loan required to be made by such Lender. The amounts
payable by the Borrowers at any time hereunder and under the Notes to each
Lender shall be a separate and independent debt and each Lender shall be
entitled to protect and enforce its rights arising out of this Agreement and the
Notes, and it shall not be necessary for any other Lender or the Administrative
Agent to consent to, or be joined as an additional party in, any proceedings for
such purposes.
2.08 Notes.
(a) The Revolving Credit Loans made by each Lender shall, if
requested by such Lender, be evidenced by a single promissory note of the
Borrowers substantially in the form of Exhibit A-1 hereto, dated the date
hereof, payable to such Lender in a principal amount equal to the amount of its
Revolving Credit Commitment as originally in effect and otherwise duly
completed.
(b) The Term Loan made by each Lender shall, if requested by such
Lender, be evidenced by a single promissory note of the Borrowers substantially
in the form of Exhibit A-2 hereto, dated the date hereof, payable to such Lender
in a
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principal amount equal to the amount of its Term Loan Commitment as originally
in effect and otherwise duly completed.
(c) The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Loan of each Class made by each Lender to the
Borrowers, and each payment made on account of the principal thereof, shall be
recorded by such Lender on its books and, prior to any transfer of any Note
evidencing the Loans of such Class held by it, endorsed by such Lender on the
schedule attached to such Note or any continuation thereof; provided that the
failure of such Lender to make any such recordation or endorsement shall not
affect the obligations of the Borrowers to make a payment when due of any amount
owing hereunder or under such Note in respect of such Loans.
(d) No Lender shall be entitled to have its Notes substituted or
exchanged for any reason, or subdivided for promissory notes of lesser
denominations, except in connection with a permitted assignment of all or any
portion of such Lender's relevant Commitment, Loans and Notes pursuant to
Section 12.06 hereof (and, if requested by any Lender, the Borrowers agree to so
exchange any Note).
(e) Each Existing Lender shall return to SSC on the Restatement
Effective Date each promissory note evidencing Loans held by such Existing
Lender under the Existing Credit Agreement. Without limiting its obligation
under the preceding sentence, each Existing Lender agrees that each such
promissory note held by it shall, from and after the Restatement Effective Date,
be superseded by the Notes received by it hereunder on the Restatement Effective
Date.
2.09 Optional Prepayments and Conversions or Continuations of Loans.
Subject to Sections 4.04 and 5.05 hereof, the Borrowers shall have the right to
prepay Loans, or to Convert Loans of one Type into Loans of another Type or
Continue Loans of one Type as Loans of the same Type, at any time or from time
to time, provided that: (a) the Borrowers shall give the Administrative Agent
notice of each such prepayment, Conversion or Continuation as provided in
Section 4.05 hereof (and, upon the date specified in any such notice of
prepayment, the amount to be prepaid shall become due and payable hereunder);
(b) prepayments of the Term Loans (other than the Acquisition Loans) made on or
after the initial Principal Payment Date shall be applied to the installments of
the Term Loans ratably in accordance with the respective amounts thereof; (c)
prepayments of the Acquisition Loans made after the Supplemental Acquisition
Loan Commitment Termination Date shall be applied ratably in accordance with the
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respective amounts thereof; and (d) any Conversion or Continuation of Eurodollar
Loans shall be subject to the provisions of Section 2.01(d) hereof.
Notwithstanding the foregoing, and without limiting the rights and remedies of
the Lenders under Section 10 hereof, in the event that any Event of Default
shall have occurred and be continuing, the Administrative Agent may (and at the
request of the Majority Lenders shall) suspend the right of the Borrowers to
Convert any Loan into a Eurodollar Loan, or to Continue any Loan as a Eurodollar
Loan, in which event all Loans shall be Converted (on the last day(s) of the
respective Interest Periods therefor) or Continued, as the case may be, as ABR
Loans.
2.10 Mandatory Prepayments and Reductions of Commitments.
(a) Borrowing Base. Until the Revolving Credit Commitment
Termination Date, the Borrowers shall from time to time prepay the Revolving
Credit Loans (and/or provide cover for Letter of Credit Liabilities as specified
in paragraph (h) below) in such amounts as shall be necessary so that at all
times the aggregate outstanding amount of the Revolving Credit Loans together
with the outstanding Letter of Credit Liabilities shall not exceed the Borrowing
Base, such amount to be applied, first, to Revolving Credit Loans outstanding
and, second, as cover for Letter of Credit Liabilities outstanding.
(b) Casualty Events. Upon the date 90 days following the receipt by
SSC or any of its Restricted Subsidiaries of the proceeds of insurance,
condemnation award or other compensation in respect of any Casualty Event
affecting any Property of SSC or any of its Restricted Subsidiaries (or upon
such earlier date as such Borrower or Restricted Subsidiary, as the case may be,
shall have determined not to repair or replace the Property affected by such
Casualty Event), the Borrowers shall prepay the Loans (and/or provide cover for
Letter of Credit Liabilities as specified in paragraph (h) below), and the
Commitments shall be subject to automatic reduction, in an aggregate amount,
equal to 100% of the Net Available Proceeds of such Casualty Event not
theretofore applied to the repair or replacement of such Property, such
prepayment and reduction to be effected in each case in the manner and to the
extent specified in paragraph (g) of this Section 2.10. Nothing in this
paragraph (b) shall be deemed to limit any obligation of SSC or any of its
Restricted Subsidiaries pursuant to any of the Security Documents to remit to a
collateral or similar account (including, without limitation, the Collateral
Account) maintained by the Administrative Agent pursuant to any of the Security
Documents
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the proceeds of insurance, condemnation award or other compensation received in
respect of any Casualty Event.
Notwithstanding the foregoing, the Borrowers shall not be required
to make a prepayment pursuant to this paragraph (b) with respect to (and the
Commitments shall not be subject to reduction) (i) the first $1,000,000 of the
Net Available Proceeds from Casualty Events received by SSC and its Restricted
Subsidiaries after the Restatement Effective Date required to be so applied
after giving effect to the following clause (ii) and (ii) the Net Available
Proceeds from any Casualty Event in the event that the Borrowers advise the
Administrative Agent not later than the 90th day following the date the Net
Available Proceeds from such Casualty Event are received that they intend to use
such Net Available Proceeds to repair or replace the Property that was the
subject of such Casualty Event, so long as:
(x) such Net Available Proceeds are applied by the Borrowers to the
prepayment of Revolving Credit Loans hereunder (in which event the
Borrowers agree to advise the Administrative Agent in writing at the time
of such prepayment of Revolving Credit Loans that such prepayment is being
made from the proceeds of such Casualty Event, and that, as contemplated
by Section 2.01(a) hereof, a portion of the Revolving Credit Commitments
hereunder equal to the amount of such prepayment gives rise to a
Casualty-Related Reserved Commitment Amount that shall be available
hereunder only for purposes of repairing or replacing such Property)
provided that any excess of such Net Available Proceeds over the amount of
Revolving Credit Loans shall be held by the Borrowers in a segregated
deposit account pending such repair or replacement, and
(y) the Net Available Proceeds from such Casualty Event are in fact
so used (or committed to be used pursuant to executed construction
agreements) within twelve months of the receipt of such Net Available
Proceeds from such Casualty Event (it being understood that, in the event
Net Available Proceeds from more than one Casualty Event are applied to
the prepayment of Revolving Credit Loans, or held by the Borrowers in a
segregated deposit account, as provided in clause (x) above, such Net
Available Proceeds shall be released from such segregated deposit account
(or, as the case may be, Revolving Credit Loans utilizing the
Casualty-Related Reserved Commitment Amount shall be made) only to repair
or replace the Property that was the subject of such Casualty Event) and,
accordingly, (A) any such Net Available Proceeds so held in a segregated
deposit account
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for more than twelve months shall be forthwith applied to the prepayment
of Loans and reductions of Commitments as provided in paragraph (g) below
and (B) any Casualty-Related Reserved Commitment Amount that remains so
unutilized for more than twelve months shall, subject to the satisfaction
of the conditions precedent to such borrowing in Section 7.02 hereof, be
utilized through the borrowing by the Borrowers of Revolving Credit Loans
the proceeds of which shall be applied to the prepayment of Loans and
reductions of Commitments as provided in paragraph (g) below.
(c) Debt Issuance and Equity Issuance. Upon any Debt Issuance or
Equity Issuance, the Borrowers shall prepay the Loans (and/or provide cover for
Letter of Credit Liabilities as specified in paragraph (h) below), and the
Commitments shall be subject to automatic reduction, in an aggregate amount
equal to 100% of the Net Available Proceeds thereof, such prepayment and
reduction to be effected in each case in the manner and to the extent specified
in paragraph (g) of this Section 2.10.
Notwithstanding the foregoing, the Borrowers shall not be required
to make a prepayment (and the Commitments shall not be subject to reduction)
pursuant to this paragraph (c) with respect to the Net Available Proceeds from
any Debt Issuance or Equity Issuance (other than a Qualifying Public Offering)
in the event that the Borrowers advise the Administrative Agent at the time the
Net Available Proceeds from such Debt Issuance or Equity Issuance are received
that they intend to use such Net Available Proceeds in connection with
acquisitions permitted under Section 9.05 hereof, Investments permitted under
Section 9.08(g) hereof (in the case of Debt Issuances), Investments permitted
under Section 9.08(h) hereof (in the case of Equity Issuances), Restricted
Payments permitted under Section 9.09(b) hereof (in the case of Equity
Issuances) or Capital Expenditures permitted under Section 9.12 hereof, so long
as:
(x) such Net Available Proceeds are applied by the Borrowers to the
prepayment of Revolving Credit Loans hereunder (in which event the
Borrowers agree to advise the Administrative Agent in writing at the time
of such prepayment of Revolving Credit Loans that such prepayment is being
made from the proceeds of such Debt Issuance or Equity Issuance and that,
as contemplated by Section 2.01(a) hereof, a portion of the Revolving
Credit Commitments hereunder equal to the amount of such prepayment gives
rise to an Issuance-Related Reserved Commitment Amount that shall be
available hereunder only for purposes of making acquisitions permitted
under Section 9.05 hereof,
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Investments permitted under Section 9.08(g) hereof (in the case of Debt
Issuances), Investments permitted under Section 9.08(h) hereof (in the
case of Equity Issuances), Restricted Payments permitted under Section
9.09(b) hereof (in the case of Equity Issuances) or Capital Expenditures
permitted under Section 9.12 hereof), provided that any excess of such Net
Available Proceeds over the amount of Revolving Credit Loans shall be held
by the Borrowers in a segregated deposit account pending such
acquisitions, Investments, Restricted Payments or Capital Expenditures,
and
(y) the Net Available Proceeds from such Debt Issuance or Equity
Issuance are in fact so used (or committed to be used pursuant to executed
acquisition agreements or letters of intent) within twelve months of such
Debt Issuance or Equity Issuance (it being understood that, in the event
Net Available Proceeds from more than one Debt Issuance or Equity Issuance
are applied to the prepayment of Revolving Credit Loans, or held by the
Borrowers in a segregated deposit account, as provided in clause (x)
above, such Net Available Proceeds shall be deemed to be released from
such segregated deposit account (or, as the case may be, Revolving Credit
Loans utilizing the Issuance-Related Reserved Commitment Amount shall be
deemed to be made) in the same order in which such Debt Issuances and
Equity Issuances occurred) and, accordingly, (A) any such Net Available
Proceeds so held in a segregated deposit account for more than twelve
months shall be forthwith applied to the prepayment of Loans and
reductions of Commitments as provided in paragraph (g) below and (B) any
Issuance-Related Reserved Commitment Amount that remains so unutilized for
more than twelve months shall, subject to the satisfaction of the
conditions precedent to such borrowing in Section 7.02 hereof, be utilized
through the borrowing by the Borrowers of Revolving Credit Loans the
proceeds of which shall be applied to the prepayment of Loans and
reductions of Commitments as provided in paragraph (g) below.
(d) Excess Cash Flow. Not later than the date 150 days after the end
of each fiscal year of SSC ending after the date hereof, the Borrowers shall
prepay the Loans in an aggregate amount equal to the excess of (A) 50% of Excess
Cash Flow for such fiscal year over (B) the aggregate amount of prepayments of
Term Loans (other than prepayments of Acquisition Loans before the Supplemental
Acquisition Loan Commitment Termination Date) made during such fiscal year
pursuant to Section 2.09 hereof,
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such prepayment to be effected in each case in the manner and to the extent
specified in paragraph (g) of this Section 2.10.
(e) Sale of Assets. Without limiting the obligation of any Obligor
pursuant to Section 9.05 hereof to any Disposition not otherwise permitted
hereunder, in the event that the Net Available Proceeds of any Disposition
(herein, the "Current Disposition"), and of all prior Dispositions as to which a
prepayment has not yet been made under this Section 2.10(e), shall exceed
$2,000,000 (excluding for all purposes of this Section 2.10(e), any Disposition
the Net Available Proceeds of which is less than $250,000) then, no later than
five Business Days prior to the occurrence of the Current Disposition, the
Borrowers will deliver to the Lenders a statement, certified by a Senior
Officer, in form and detail satisfactory to the Administrative Agent, of the
amount of the Net Available Proceeds of the Current Disposition and of all such
prior Dispositions and will prepay the Loans in an aggregate amount equal to
100% of the Net Available Proceeds of the Current Disposition and such prior
Dispositions, such prepayment to be effected in each case in the manner and to
the extent specified in paragraph (g) of this Section 2.10.
Notwithstanding the foregoing, the Borrowers shall not be required
to make a prepayment pursuant to this paragraph (e) with respect to the Net
Available Proceeds from any Disposition to the extent that the Borrowers advise
the Administrative Agent at the time they deliver the statement referred to
above in this paragraph (e) that (i) they intend to use such Net Available
Proceeds in connection with Capital Expenditures permitted under Section 9.12
hereof or (ii) in the case of any Disposition, the amount of such Net Available
Proceeds constitute Deductible Reserves with respect to such Disposition, so
long as:
(x) such Net Available Proceeds are applied by the Borrowers to the
prepayment of Revolving Credit Loans hereunder (in which event the
Borrowers agree to advise the Administrative Agent in writing at the time
of such prepayment of Revolving Credit Loans that such prepayment is being
made from the proceeds of such Disposition, and that, as contemplated by
Section 2.01(a) hereof, a portion of the Revolving Credit Commitments
hereunder equal to the amount of such prepayment gives rise to a
Disposition-Related Reserved Commitment Amount that shall be available
hereunder only for purposes of making Capital Expenditures permitted by
Section 9.12 hereof or for paying the liabilities underlying such
Deductible Reserves) provided that any excess of such Net Available
Proceeds over the amount of
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Revolving Credit Loans shall be held by the Borrowers in a segregated
deposit account pending such Capital Expenditures or payments, and
(y) the Net Available Proceeds from such Disposition are in fact so
used (or, in the case of Capital Expenditures, committed to be used
pursuant to binding agreements) within 270 days (in the case of Capital
Expenditures) or twelve months (in the case of Deductible Reserves) of the
receipt of such Net Available Proceeds from such Disposition (it being
understood that, in the event Net Available Proceeds from more than one
Disposition are applied to the prepayment of Revolving Credit Loans, or
held by the Borrowers in a segregated deposit account, as provided in
clause (x) above, such Net Available Proceeds shall be released from such
segregated deposit account (or, as the case may be, Revolving Credit Loans
utilizing the Disposition-Related Reserved Commitment Amount shall be
made) only to make such Capital Expenditures or to pay such underlying
liabilities) and, accordingly, (A) any such Net Available Proceeds so held
in a segregated deposit account for more than 270 days (in the case of
Capital Expenditures) or twelve months (in the case of Deductible
Reserves) shall be forthwith applied to the prepayment of Loans as
provided in paragraph (g) below and (B) any Disposition-Related Reserved
Commitment Amount that remains so unutilized for more than 270 days (in
the case of Capital Expenditures) or twelve months (in the case of
Deductible Reserves) shall, subject to the satisfaction of the conditions
precedent to such borrowing in Section 7.02 hereof, be utilized through
the borrowing by the Borrowers of Revolving Credit Loans the proceeds of
which shall be applied to the prepayment of Loans as provided in paragraph
(g) below.
(f) Pension Fund Reversions. In the event that SSC or any of its
Restricted Subsidiaries receives any reversion from any pension fund and the
amount of such reversion (herein, the "Current Reversion"), and of all prior
reversions from pension funds as to which a prepayment has not yet been made
under this Section 2.10(f), shall exceed $500,000 then, no later than the date
falling 30 days after the Current Reversion, the Borrowers will prepay the Loans
(and/or provide cover for Letter of Credit Liabilities as specified in paragraph
(h) below), and the Commitments shall be subject to automatic reduction, in an
aggregate amount equal to 100% of the amounts received from the Current
Reversion and such prior reversions, such prepayment and reduction to be
effected in each case in the manner and to the extent specified in clause (g) of
this Section 2.10.
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(g) Application. Prepayments and reductions of Commitments described
in the above paragraphs of this Section 2.10 (other than in paragraph (a) above)
shall be effected as follows:
(i) first, the amount of the prepayment specified in such paragraphs
(other than the Net Available Proceeds from a Mercer Disposition received
not later than the date falling 24 months after the Restatement Effective
Date to the extent the amount thereof exceeds $20,000,000 (the "Excess
Mercer Proceeds") shall be applied to the Term Loans (other than
Acquisition Loans) then outstanding (which shall be applied on and after
the initial Principal Payment Date to the installments thereof pro rata in
accordance with the amounts of such installments) and (after payment in
full of such Term Loans) to the Acquisition Loans then outstanding (which
shall be applied after the Supplemental Acquisition Loan Commitment
Termination Date to the installments thereof pro rata in accordance with
the amounts of such installments); and
(ii) second, (x) (except in the case of paragraphs (d) and (e)
above) the Revolving Credit Commitments shall be automatically reduced in
an amount equal to any excess over the amount referred to in the foregoing
clause (i) (and to the extent that, after giving effect to such reduction,
the aggregate principal amount of Revolving Credit Loans plus the
aggregate amount of all Letter of Credit Liabilities would exceed the
Revolving Credit Commitments, the Borrowers shall, first, prepay Revolving
Credit Loans and, second, provide cover for Letter of Credit Liabilities
as specified in paragraph (h) below, in an aggregate amount equal to such
excess), (y) in the case of paragraphs (d) and (e) above, the amount equal
to any excess over the amount referred to in the foregoing clause (i)
shall be applied to the prepayment of the Revolving Credit Loans, and (z)
the Excess Mercer Proceeds (as defined in said clause (i)) shall be
applied to the prepayment of the Revolving Credit Loans.
(h) Cover for Letter of Credit Liabilities. In the event that the
Borrowers shall be required pursuant to this Section 2.10, or pursuant to
Section 10 hereof, to provide cover for Letter of Credit Liabilities, the
Borrowers shall effect the same by paying to the Administrative Agent
immediately available funds in an amount equal to the required amount, which
funds shall be retained by the Administrative Agent in the Collateral Account
(as provided therein as collateral security in the first instance for the Letter
of Credit Liabilities) until such time as
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the Letters of Credit shall have been terminated and all of the Letter of Credit
Liabilities paid in full.
2.11 Joint and Several Obligations. The Borrowers shall be jointly
and severally liable for the payment and performance of all obligations and
covenants required by this Agreement to be performed by any of them, and each
Borrower shall be bound by any notices (including without limitation notices of
borrowings and Conversions), consents or other actions furnished or taken by the
other Borrowers hereunder. At the request of the Administrative Agent or any
Lender, each Borrower shall confirm in writing any action taken or proposed to
be taken by the other Borrowers hereunder; provided that the failure by any
Borrower to furnish such confirmation shall not affect such Borrower's
obligations under the preceding sentence or any other provision of this
Agreement. In the event that the Administrative Agent receives inconsistent
notices from the Borrowers, it shall be entitled to act in compliance with, or
to take no action pursuant to, any such notice.
2.12 Acquisition Loans. If the Borrowers make a prepayment of the
Term Loans pursuant to Section 2.10(e) hereof with the Net Available Proceeds of
a Mercer Disposition on or before the date falling 24 months after the
Restatement Effective Date, the Term Loan Commitment of each Term Loan Lender
shall be reinstated for the purpose of Section 2.01(b) hereof by an amount equal
to the lesser of the principal amount of the Term Loan of such Term Loan Lender
so prepaid or such Term Loan Lender's pro rata share (determined by reference to
the respective principal amounts of the Term Loans of all of the Term Loan
Lenders before giving effect to such prepayment) of $20,000,000.
Section 3. Payments of Principal and Interest.
3.01 Repayment of Loans.
(a) The Borrowers hereby promise to pay to the Administrative Agent
for account of each Lender the entire outstanding principal amount of such
Lender's Revolving Credit Loans, and each Revolving Credit Loan shall mature, on
the Revolving Credit Commitment Termination Date.
(b) The Borrowers hereby promise to pay to the Administrative Agent
for account of each Lender the principal of such Lender's Term Loans in 25
installments payable on the Principal Payment Dates. Each of such installments
that falls due on or prior to the Supplemental Acquisition Loan Commitment
Termination Date shall, subject to any prepayments applied as
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provided in Sections 2.09 and 2.10 hereof, be in a scheduled amount equal to
one-twenty-fifth of the principal amount of such Lender's Term Loans outstanding
at the close of business on the day preceding the first Principal Payment Date.
Each of such installments that falls due after the Supplemental Acquisition Loan
Commitment Termination Date shall, subject to any prepayments applied as
provided in Sections 2.09 and 2.10 hereof, be in an amount equal to the sum of
(i) an amount equal to one-twenty-fifth of the principal amount of such Lender's
Term Loans outstanding at the close of business on the day preceding the first
Principal Payment Date plus (ii) an amount equal to the aggregate principal
amount of such Lender's Acquisition Loans outstanding at the close of business
on the Supplemental Acquisition Loan Commitment Termination Date divided by the
number of Principal Payment Dates that fall on or after the Supplemental Term
Loan Commitment Termination Date.
3.02 Interest. The Borrowers hereby promise to pay to the
Administrative Agent for account of each Lender interest on the unpaid principal
amount of each Loan made by such Lender for the period from and including the
date of such Loan to but excluding the date such Loan shall be paid in full, at
the following rates per annum:
(a) during such periods as such Loan is a ABR Loan, the ABR Rate (as
in effect from time to time) plus the Applicable Rate and
(b) during such periods as such Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for such Loan for
such Interest Period plus the Applicable Rate.
Notwithstanding the foregoing, the Borrowers hereby promise to pay to the
Administrative Agent for account of each Lender interest at the applicable
Post-Default Rate on any principal of any Loan made by such Lender, on any
Reimbursement Obligation held by such Lender and on any other amount payable by
the Borrowers hereunder or under the Notes held by such Lender to or for account
of such Lender, that shall not be paid in full when due (whether at stated
maturity, by acceleration, by mandatory prepayment or otherwise), for the period
from and including the due date thereof to but excluding the date the same is
paid in full. Accrued interest on each Loan shall be payable (i) in the case of
an ABR Loan, quarterly on the Quarterly Dates, (ii) in the case of a Eurodollar
Loan, on the last day of each Interest Period therefor and, if such Interest
Period is longer than three months, at three-month intervals following the first
day of such
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Interest Period, and (iii) in the case of any Loan, upon the payment or
prepayment thereof or the Conversion of such Loan to a Loan of another Type (but
only on the principal amount so paid, prepaid or Converted), except that
interest payable at the Post-Default Rate shall be payable from time to time on
demand. Promptly after the determination of any interest rate provided for
herein or any change therein, the Administrative Agent shall give notice thereof
to the Lenders to which such interest is payable and to the Borrowers.
Section 4. Payments; Pro Rata Treatment; Computations; Etc.
4.01 Payments.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest, Reimbursement Obligations and other amounts to be made by
the Borrowers under this Agreement and the Notes, and, except to the extent
otherwise provided therein, all payments to be made by the Obligors under any
other Loan Document, shall be made in Dollars, in immediately available funds,
without deduction, set-off or counterclaim, to the Administrative Agent at an
account designated by the Administrative Agent to the Borrowers, not later than
1:00 p.m. New York time on the date on which such payment shall become due (each
such payment made after such time on such due date to be deemed to have been
made on the next succeeding Business Day).
(b) Any Lender for whose account any such payment is to be made may
(but shall not be obligated to) debit the amount of any such payment that is not
made by such time to any ordinary deposit account of the Borrowers with such
Lender (with notice to the Borrowers and the Administrative Agent), provided
that such Lender's failure to give such notice shall not affect the validity
thereof.
(c) The Borrowers shall, at the time of making each payment under
this Agreement or any Note for account of any Lender, specify to the
Administrative Agent (which shall so notify the intended recipient(s) thereof)
the Loans, Reimbursement Obligations or other amounts payable by the Borrowers
hereunder to which such payment is to be applied (and in the event that the
Borrowers fail to so specify, or if an Event of Default has occurred and is
continuing, the Administrative Agent may distribute such payment to the Lenders
for application in such manner as it or the Majority Lenders, subject to Section
4.02 hereof, may determine to be appropriate).
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(d) Except to the extent otherwise provided in the last sentence of
Section 2.03(e) hereof, each payment received by the Administrative Agent under
this Agreement or any Note for account of any Lender shall be paid by the
Administrative Agent promptly to such Lender, in immediately available funds,
for account of such Lender's Applicable Lending Office for the Loan or other
obligation in respect of which such payment is made.
(e) If the due date of any payment under this Agreement or any Note
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension.
4.02 Pro Rata Treatment. Except to the extent otherwise provided
herein: (a) each borrowing of Loans of a particular Class from the Lenders under
Section 2.01 hereof shall be made from the relevant Lenders, each payment of
commitment fee under Section 2.05 hereof in respect of Commitments of a
particular Class shall be made for account of the relevant Lenders, and each
termination or reduction of the amount of the Commitments of a particular Class
under Section 2.04 hereof shall be applied to the respective Commitments of such
Class of the relevant Lenders, pro rata according to the amounts of their
respective Commitments of such Class; (b) except as otherwise provided in
Section 5.04 hereof, Eurodollar Loans of any Class having the same Interest
Period shall be allocated pro rata among the relevant Lenders according to the
amounts of their respective Revolving Credit and Term Loan Commitments (in the
case of the making of Loans) or their respective Revolving Credit and Term Loans
(in the case of Conversions and Continuations of Loans); (c) each payment or
prepayment of principal of Revolving Credit Loans or Term Loans by the Borrowers
shall be made for account of the relevant Lenders pro rata in accordance with
the respective unpaid principal amounts of the Loans of such Class held by them;
and (d) each payment of interest on Revolving Credit Loans and Term Loans by the
Borrowers shall be made for account of the relevant Lenders pro rata in
accordance with the amounts of interest on such Loans then due and payable to
the respective Lenders.
4.03 Computations. Interest and fees payable hereunder shall be
computed on the basis of a year of 360 days (or 365/366 days, in the case the
ABR Rate when it is calculated by reference to the Prime Rate) and actual days
elapsed (including the first day but, except as otherwise provided in Section
2.03(g) hereof, excluding the last day) occurring in the period for which
payable.
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4.04 Minimum Amounts. Except for mandatory prepayments made pursuant
to Section 2.10 hereof and Conversions or prepayments made pursuant to Section
5.04 hereof, each borrowing, Conversion and partial prepayment of principal of
Loans shall be in an aggregate amount at least equal to $250,000 or a larger
multiple of $250,000 (borrowings, Conversions or prepayments of or into Loans of
different Types or, in the case of Eurodollar Loans, having different Interest
Periods at the same time hereunder to be deemed separate borrowings, Conversions
and prepayments for purposes of the foregoing, one for each Type or Interest
Period), provided that the aggregate principal amount of Eurodollar Loans having
the same Interest Period shall be in an amount at least equal to $1,000,000 or a
larger multiple of $1,000,000 and, if any Eurodollar Loans would otherwise be in
a lesser principal amount for any period, such Loans shall be ABR Loans during
such period.
4.05 Certain Notices. Notices by the Borrowers to the Administrative
Agent of terminations or reductions of the Commitments, of borrowings,
Conversions, Continuations and optional prepayments of Loans and of Classes of
Loans, of Types of Loans and of the duration of Interest Periods shall be
irrevocable and shall be effective only if received by the Administrative Agent
not later than 11:00 a.m. New York time on the number of Business Days prior to
the date of the relevant termination, reduction, borrowing, Conversion,
Continuation or prepayment or the first day of such Interest Period specified
below:
Number of
Business
Notice Days Prior
------ ----------
Termination or reduction
of Commitments 3
Borrowing or prepayment of,
or Conversions into,
ABR Loans Same day
Borrowing or prepayment of,
Conversions into, Continuations
as, or duration of Interest
Period for, Eurodollar Loans 3
Each such notice of termination or reduction shall specify the amount and the
Class of the Commitments to be terminated or reduced. Each such notice of
borrowing, Conversion, Continuation
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or optional prepayment shall specify the Class of Loans to be borrowed,
Converted, Continued or prepaid and the amount (subject to Section 4.04 hereof)
and Type of each Loan to be borrowed, Converted, Continued or prepaid and the
date of borrowing, Conversion, Continuation or optional prepayment (which shall
be a Business Day). Each such notice of the duration of an Interest Period shall
specify the Loans to which such Interest Period is to relate. The Administrative
Agent shall promptly notify the Lenders of the contents of each such notice. In
the event that the Borrowers fail to select the Type of Loan, or the duration of
any Interest Period for any Eurodollar Loan, within the time period and
otherwise as provided in this Section 4.05, such Loan (if outstanding as a
Eurodollar Loan) will be automatically Converted into an ABR Loan on the last
day of the then current Interest Period for such Loan or (if outstanding as an
ABR Loan) will remain as, or (if not then outstanding) will be made as, an ABR
Loan.
4.06 Non-Receipt of Funds by the Administrative Agent. Unless the
Administrative Agent shall have been notified by a Lender or the Borrowers (the
"Payor") prior to the date on which the Payor is to make payment to the
Administrative Agent of (in the case of a Lender) the proceeds of a Loan to be
made by such Lender hereunder or (in the case of the Borrowers) a payment to the
Administrative Agent for account of one or more of the Lenders hereunder (such
payment being herein called the "Required Payment"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to the Administrative Agent, the Administrative Agent may assume that
the Required Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available to the
intended recipient(s) on such date; and, if the Payor has not in fact made the
Required Payment to the Administrative Agent, the recipient(s) of such payment
shall, on demand, repay to the Administrative Agent the amount so made available
together with interest thereon in respect of each day during the period
commencing on the date (the "Advance Date") such amount was so made available by
the Administrative Agent until the date the Administrative Agent recovers such
amount at a rate per annum equal to the Federal Funds Rate for such day and, if
such recipient(s) shall fail promptly to make such payment, the Administrative
Agent shall be entitled to recover such amount, on demand, from the Payor,
together with interest as aforesaid, provided that if neither the recipient(s)
nor the Payor shall return the Required Payment to the Administrative Agent
within three Business Days of the Advance Date, then, retroactively to the
Advance Date, the Payor and the recipient(s)
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shall each be obligated to pay interest on the Required Payment as follows:
(i) if the Required Payment shall represent a payment to be made by
the Borrowers to the Lenders, the Borrowers and the recipient(s) shall
each be obligated retroactively to the Advance Date to pay interest in
respect of the Required Payment at the Post-Default Rate (without
duplication of the obligation of the Borrowers under Section 3.02 hereof
to pay interest on the Required Payment at the Post-Default Rate), it
being understood that the return by the recipient(s) of the Required
Payment to the Administrative Agent shall not limit such obligation of the
Borrowers under said Section 3.02 to pay interest at the Post-Default Rate
in respect of the Required Payment and
(ii) if the Required Payment shall represent proceeds of a Loan to
be made by the Lenders to the Borrowers, the Payor and the Borrowers shall
each be obligated retroactively to the Advance Date to pay interest in
respect of the Required Payment pursuant to whichever of the rates
specified in Section 3.02 hereof is applicable to the Type of such Loan
(which payment by the Borrowers shall pro tanto discharge their
obligations under said Section 3.02 with respect to interest on such
Loan), it being understood that the return by the Borrowers of the
Required Payment to the Administrative Agent shall not limit any claim the
Borrowers may have against the Payor in respect of such Required Payment.
4.07 Sharing of Payments, Etc.
(a) Each Obligor agrees that, in addition to (and without limitation
of) any right of set-off, banker's lien or counterclaim a Lender may otherwise
have, each Lender shall be entitled, at its option (to the fullest extent
permitted by law), to set off and apply any deposit (general or special, time or
demand, provisional or final), or other indebtedness, held by it for the credit
or account of such Obligor at any of its offices, in Dollars or in any other
currency, against any principal of or interest on any of such Lender's Loans,
Reimbursement Obligations or any other amount payable to such Lender hereunder,
that is not paid when due (regardless of whether such deposit or other
indebtedness are then due to such Obligor), in which case it shall promptly
notify such Obligor and the Administrative Agent thereof, provided that such
Lender's failure to give such notice shall not affect the validity thereof.
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(b) If any Lender shall obtain from any Obligor payment of any
principal of or interest on any Loan of any Class or Letter of Credit Liability
owing to it or payment of any other amount under this Agreement or any other
Loan Document through the exercise of any right of set-off, banker's lien or
counterclaim or similar right or otherwise (other than from the Administrative
Agent as provided herein), and, as a result of such payment, such Lender shall
have received a greater percentage of the principal of or interest on the Loans
of such Class or Letter of Credit Liabilities or such other amounts then due
hereunder or thereunder by such Obligor to such Lender than the percentage
received by any other Lender, it shall promptly purchase from such other Lenders
participations in (or, if and to the extent specified by such Lender, direct
interests in) the Loans of such Class or Letter of Credit Liabilities or such
other amounts, respectively, owing to such other Lenders (or in interest due
thereon, as the case may be) in such amounts, and make such other adjustments
from time to time as shall be equitable, to the end that all the Lenders shall
share the benefit of such excess payment (net of any expenses that may be
incurred by such Lender in obtaining or preserving such excess payment) pro rata
in accordance with the unpaid principal of and/or interest on the Loans of such
Class or Letter of Credit Liabilities or such other amounts, respectively, owing
to each of the Lenders. To such end all the Lenders shall make appropriate
adjustments among themselves (by the resale of participations sold or otherwise)
if such payment is rescinded or must otherwise be restored.
(c) The Obligors agree that any Lender so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Lender were a direct holder of Loans or other amounts (as the case
may be) owing to such Lender in the amount of such participation.
(d) Nothing contained herein shall require any Lender to exercise
any such right or shall affect the right of any Lender to exercise, and retain
the benefits of exercising, any such right with respect to any other
indebtedness or obligation of any Obligor. If, under any applicable bankruptcy,
insolvency or other similar law, any Lender receives a secured claim in lieu of
a set-off to which this Section 4.07 applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders entitled under this Section 4.07 to
share in the benefits of any recovery on such secured claim.
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Section 5. Yield Protection, Etc.
5.01 Additional Costs.
(a) The Borrowers shall pay directly to each Lender from time to
time such amounts as such Lender may determine to be necessary to compensate
such Lender for any costs that such Lender determines are attributable to its
making or maintaining of any Eurodollar Loans or its obligation to make any
Eurodollar Loans hereunder, or any reduction in any amount receivable by such
Lender hereunder in respect of any of such Loans or such obligation (such
increases in costs and reductions in amounts receivable being herein called
"Additional Costs"), resulting from any Regulatory Change that:
(i) shall subject any Lender (or its Applicable Lending Office for
any of such Loans) to any tax, duty or other charge in respect of such
Loans or its Notes or changes the basis of taxation of any amounts payable
to such Lender under this Agreement or its Notes in respect of any of such
Loans (excluding changes in the rate of tax on the overall net income of
such Lender or of such Applicable Lending Office by the jurisdiction in
which such Lender has its principal office or such Applicable Lending
Office); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements (other than the Reserve Requirement utilized in the
calculation of any amounts payable under Section 5.01(d) hereof) relating
to any extensions of credit or other assets of, or any deposits with or
other liabilities of, such Lender (including, without limitation, any of
such Loans or any deposits referred to in the definition of "Eurodollar
Rate" in Section 1.01 hereof), or any commitment of such Lender
(including, without limitation, the Commitments of such Lender hereunder);
or
(iii) imposes any other condition affecting this Agreement or its
Notes (or any of such extensions of credit or liabilities) or its
Commitments.
If any Lender requests compensation from the Borrowers under this Section
5.01(a), the Borrowers may, by notice to such Lender (with a copy to the
Administrative Agent), suspend the obligation of such Lender thereafter to make
or Continue Eurodollar Loans, or to Convert ABR Loans into Eurodollar Loans,
until the Regulatory Change giving rise to such request ceases to be in effect
(in which case the provisions of Section 5.04 hereof shall
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be applicable), provided that such suspension shall not affect the right of such
Lender to receive the compensation so requested.
(b) Without limiting the effect of the foregoing provisions of this
Section 5.01 (but without duplication), the Borrowers shall pay directly to each
Lender from time to time on request such amounts as such Lender may reasonably
determine to be necessary to compensate such Lender (or, without duplication,
the bank holding company of which such Lender is a subsidiary) for any costs
that it determines are attributable to the maintenance by such Lender (or any
Applicable Lending Office or such bank holding company), pursuant to any law or
regulation or any interpretation, directive or request (whether or not having
the force of law and whether or not failure to comply therewith would be
unlawful) of any court or governmental or monetary authority (i) following any
Regulatory Change or (ii) implementing any risk-based capital guideline or other
requirement (whether or not having the force of law and whether or not the
failure to comply therewith would be unlawful) hereafter issued by any
government or governmental or supervisory authority implementing at the national
level the Basle Accord, of capital in respect of its Commitments or Loans (such
compensation to include, without limitation, an amount equal to any reduction of
the rate of return on assets or equity of such Lender (or any Applicable Lending
Office or such bank holding company) to a level below that which such Lender (or
any Applicable Lending Office or such bank holding company) could have achieved
but for such law, regulation, interpretation, directive or request).
(c) Each Lender shall notify the Borrowers of any event occurring
after the date hereof entitling such Lender to compensation under paragraph (a)
or (b) of this Section 5.01 as promptly as practicable, but in any event within
45 days, after such Lender obtains actual knowledge thereof; provided that (i)
if any Lender fails to give such notice within 45 days after it obtains actual
knowledge of such an event, such Lender shall, with respect to compensation
payable pursuant to this Section 5.01 in respect of any costs resulting from
such event, only be entitled to payment under this Section 5.01 for costs
incurred from and after the date 45 days prior to the date that such Lender does
give such notice and (ii) each Lender will designate a different Applicable
Lending Office for the Loans of such Lender affected by such event if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the sole opinion of such Lender, be disadvantageous to such
Lender, except that such Lender shall have no obligation to designate an
Applicable Lending Office located in the United
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States of America. Each Lender will furnish to the Borrowers a certificate
setting forth the basis and amount of each request by such Lender for
compensation under paragraph (a) or (b) of this Section 5.01 and under Sections
5.05, 5.06 and 5.07 hereof. Determinations and allocations by any Lender for
purposes of this Section 5.01 of the effect of any Regulatory Change pursuant to
paragraph (a) of this Section 5.01, or of the effect of capital maintained
pursuant to paragraph (b) of this Section 5.01, on its costs or rate of return
of maintaining Loans or its obligation to make Loans, or on amounts receivable
by it in respect of Loans, and of the amounts required to compensate such Lender
under this Section 5.01, shall be conclusive, provided that such determinations
and allocations are made on a reasonable basis.
(d) Without limiting the effect of (but without duplication of) the
foregoing, the Borrowers shall pay to each Lender on the last day of the
Interest Period therefor so long as such Lender is required by the Board of
Governors of the Federal Reserve System to maintain reserves against
"Eurocurrency liabilities" under Regulation D (or, unless the provisions of
paragraph (b) above are applicable, so long as such Lender is, by reason of any
Regulatory Change, required to maintain reserves against any other category of
liabilities that includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or against any
category of extensions of credit or other assets of such Lender that includes
any Eurodollar Loans) an additional amount (determined by such Lender and
notified to the Borrowers through the Administrative Agent not later than 15
days prior to the last day of such Interest Period) equal to the product of the
following for each Eurodollar Loan for each day during such Interest Period:
(i) the principal amount of such Eurodollar Loan outstanding on such
day; and
(ii) the remainder of (x) a fraction the numerator of which is the
rate (expressed as a decimal) at which interest accrues on such Eurodollar
Loan for such Interest Period as provided in this Agreement (less the
Applicable Margin) and the denominator of which is one minus the effective
rate (expressed as a decimal) at which such reserve requirements are
imposed on such Lender on such day minus (y) such numerator; and
(iii) 1/360.
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5.02 Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any Eurodollar Rate for
any Interest Period:
(a) the Administrative Agent determines, which determination shall
be conclusive, that quotations of interest rates for the relevant deposits
referred to in the definition of "Eurodollar Rate" in Section 1.01 hereof
are not being provided in the relevant amounts or for the relevant
maturities for purposes of determining rates of interest for Eurodollar
Loans as provided herein; or
(b) if the related Loans are Revolving Credit Loans, the Majority
Revolving Credit Lenders or, if the related Loans are Term Loans, the
Majority Term Lenders determine, which determination shall be conclusive,
and notify the Administrative Agent that the relevant rates of interest
referred to in the definition of "Eurodollar Rate" in Section 1.01 hereof
upon the basis of which the rate of interest for Eurodollar Loans for such
Interest Period is to be determined are not likely adequately to cover the
cost to such Lenders of making or maintaining Eurodollar Loans for such
Interest Period;
then the Administrative Agent shall give the Borrowers and each Lender prompt
notice thereof and, so long as such condition remains in effect, the Lenders
shall be under no obligation to make additional Eurodollar Loans, to Continue
Eurodollar Loans or to Convert ABR Loans into Eurodollar Loans, and the
Borrowers shall, on the last day(s) of the then current Interest Period(s) for
the outstanding Eurodollar Loans, either prepay such Loans or Convert such Loans
into ABR Loans in accordance with Section 2.09 hereof.
5.03 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain Eurodollar
Loans hereunder (and, in the sole opinion of such Lender, the designation of a
different Applicable Lending Office would either not avoid such unlawfulness or
would be disadvantageous to such Lender), then such Lender shall promptly notify
the Borrowers thereof (with a copy to the Administrative Agent) and such
Lender's obligation to make or Continue, or to Convert Loans of any other Type
into, Eurodollar Loans shall be suspended until such time as such Lender may
again make and maintain Eurodollar Loans (in which case the provisions of
Section 5.04 hereof shall be applicable).
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5.04 Treatment of Affected Loans. If the obligation of any Lender to
make Eurodollar Loans or to Continue, or to Convert ABR Loans into, Eurodollar
Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof, such Lender's
Eurodollar Loans shall be automatically Converted into ABR Loans on the last
day(s) of the then current Interest Period(s) for Eurodollar Loans (or, in the
case of a Conversion resulting from a circumstance described in Section 5.03
hereof, on such earlier date as such Lender may specify to the Borrowers with a
copy to the Administrative Agent) and, unless and until such Lender gives notice
as provided below that the circumstances specified in Section 5.01 or 5.03
hereof that gave rise to such Conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans have been so
Converted, all payments and prepayments of principal that would otherwise
be applied to such Lender's Eurodollar Loans shall be applied instead to
its ABR Loans; and
(b) all Loans that would otherwise be made or Continued by such
Lender as Eurodollar Loans shall be made or Continued instead as ABR
Loans, and all ABR Loans of such Lender that would otherwise be Converted
into Eurodollar Loans shall remain as ABR Loans.
If such Lender gives notice to the Borrowers with a copy to the Administrative
Agent that the circumstances specified in Section 5.01 or 5.03 hereof that gave
rise to the Conversion of such Lender's Eurodollar Loans pursuant to this
Section 5.04 no longer exist (which such Lender agrees to do promptly upon such
circumstances ceasing to exist) at a time when Eurodollar Loans of the same
Class made by other Lenders are outstanding, such Lender's ABR Loans of such
Class shall be automatically Converted, on the first day(s) of the next
succeeding Interest Period(s) for such outstanding Eurodollar Loans, to the
extent necessary so that, after giving effect thereto, all ABR and Eurodollar
Loans of such Class are allocated among the Lenders ratably (as to principal
amounts, Types and Interest Periods) in accordance with their respective
Commitments of such Class.
5.05 Compensation. The Borrowers shall pay to the Administrative
Agent for account of each Lender, upon the request of such Lender through the
Administrative Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of such Lender) to compensate it for any loss, cost or
expense that such Lender determines is attributable to:
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(a) any payment, mandatory or optional prepayment or Conversion of a
Eurodollar Loan made by such Lender for any reason (including, without
limitation, the acceleration of the Loans pursuant to Section 10 hereof)
on a date other than the last day of the Interest Period for such Loan; or
(b) any failure by the Borrowers for any reason (including, without
limitation, the failure of any of the conditions precedent specified in
Section 7 hereof to be satisfied) to borrow a Eurodollar Loan from such
Lender on the date for such borrowing specified in the relevant notice of
borrowing given pursuant to Section 2.02 hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid,
Converted or not borrowed for the period from the date of such payment,
prepayment, Conversion or failure to borrow to the last day of the then current
Interest Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan that would have commenced on the date specified
for such borrowing) at the applicable rate of interest for such Loan provided
for herein over (ii) the amount of interest that otherwise would have accrued on
such principal amount at a rate per annum equal to the interest component of the
amount such Lender would have bid in the London interbank market for Dollar
deposits of leading banks in amounts comparable to such principal amount and
with maturities comparable to such period (as reasonably determined by such
Lender).
5.06 Additional Costs in Respect of Letters of Credit. Without
limiting the obligations of the Borrowers under Section 5.01 hereof (but without
duplication), if as a result of any Regulatory Change or any risk-based capital
guideline or other requirement heretofore or hereafter issued by any government
or governmental or supervisory authority implementing at the national level the
Basle Accord there shall be imposed, modified or deemed applicable any tax,
reserve, special deposit, capital adequacy or similar requirement against or
with respect to or measured by reference to Letters of Credit issued or to be
issued hereunder and the result shall be to increase the cost to any Lender or
Lenders of issuing (or purchasing participations in) or maintaining its
obligation hereunder to issue (or purchase participations in) any Letter of
Credit hereunder or reduce any amount receivable by any Lender hereunder in
respect of any Letter of Credit (which increases in cost, or reductions in
amount receivable, shall be the result of such Lender's or
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Lenders' reasonable allocation of the aggregate of such increases or reductions
resulting from such event), then, upon demand by such Lender or Lenders (through
the Administrative Agent), the Borrowers shall pay immediately to the
Administrative Agent for account of such Lender or Lenders, from time to time as
specified by such Lender or Lenders (through the Administrative Agent), such
additional amounts as shall be sufficient to compensate such Lender or Lenders
(through the Administrative Agent) for such increased costs or reductions in
amount. A statement as to such increased costs or reductions in amount incurred
by any such Lender or Lenders, submitted by such Lender or Lenders to the
Borrowers shall be conclusive in the absence of manifest error as to the amount
thereof.
5.07 U.S. Taxes.
(a) The Borrowers agree to pay to each Lender that is not a U.S.
Person such additional amounts as are necessary in order that the net payment of
any amount due to such non-U.S. Person hereunder after deduction for or
withholding in respect of any U.S. Taxes imposed with respect to such payment
(or in lieu thereof, payment of such U.S. Taxes by such non-U.S. Person), will
not be less than the amount stated herein to be then due and payable, provided
that the foregoing obligation to pay such additional amounts shall not apply:
(i) to any payment to any Lender hereunder unless such Lender is, on
the date hereof (or on the date it becomes a Lender hereunder as provided
in Section 12.06(b) hereof) and on the date of any change in the
Applicable Lending Office of such Lender, either entitled to submit a Form
1001 (relating to such Lender and entitling it to a complete exemption
from withholding on all interest to be received by it hereunder in respect
of the Loans) or Form 4224 (relating to all interest to be received by
such Lender hereunder in respect of the Loans), or
(ii) to any U.S. Taxes imposed solely by reason of the failure by
such non-U.S. Person (or, if such non-U.S. Person is not the beneficial
owner of the relevant Loan, such beneficial owner) to comply with
applicable certification, information, documentation or other reporting
requirements concerning the nationality, residence, identity or
connections with the United States of America of such non-U.S. Person (or
beneficial owner, as the case may be) if such compliance is required by
statute or regulation of the United States of America as a precondition to
relief or exemption from such U.S. Taxes.
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For the purposes of this Section 5.07(a), (A) "Form 1001" shall mean Form 1001
(Ownership, Exemption, or Reduced Rate Certificate) of the Department of the
Treasury of the United States of America and (B) "Form 4224" shall mean Form
4224 (Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) of the Department of the
Treasury of the United States of America (or in relation to either such Form
such successor and related forms as may from time to time be adopted by the
relevant taxing authorities of the United States of America to document a claim
to which such Form relates). Each of the Forms referred to in the foregoing
clauses (A) and (B) shall include such successor and related forms as may from
time to time be adopted by the relevant taxing authorities of the United States
of America to document a claim to which such Form relates.
(b) Within 30 days after paying any amount to the Administrative
Agent or any Lender from which it is required by law to make any deduction or
withholding, and within 30 days after it is required by law to remit such
deduction or withholding to any relevant taxing or other authority, the
Borrowers shall deliver to the Administrative Agent for delivery to such
non-U.S. Person evidence satisfactory to such Person of such deduction,
withholding or payment (as the case may be).
5.08 Replacement of Lenders. If any Lender requests compensation
pursuant to Section 5.01 or 5.06 hereof or in respect of U.S. Taxes pursuant to
Section 5.07 hereof, or any Lender's obligation to make or Continue, or to
Convert Loans of any Type into, any other Type of Loan shall be suspended
pursuant to Section 5.01 or 5.03 hereof (any such Lender requesting such
compensation, or whose obligations are so suspended, being herein called a
"Requesting Lender"), SSC, upon three Business Days notice, may require that
such Requesting Lender transfer all of its right, title and interest under this
Agreement and such Requesting Lender's Notes, if any, to any bank or other
financial institution (a "Proposed Lender") identified by SSC that is
satisfactory to the Administrative Agent and the Issuing Bank (i) if such
Proposed Lender agrees to assume all of the obligations of such Requesting
Lender hereunder, and to purchase all of such Requesting Lender's Loans
hereunder for consideration equal to the aggregate outstanding principal amount
of such Requesting Lender's Loans, together with interest thereon to the date of
such purchase, and satisfactory arrangements are made for payment to such
Requesting Lender of all other amounts payable hereunder to such Requesting
Lender on or prior to the date of such transfer (including any fees accrued
hereunder and any amounts that would be payable under Section 5.05 hereof as if
all of such
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Requesting Lender's Loans were being prepaid in full on such date), (ii) if such
Requesting Lender has requested compensation pursuant to Section 5.01, 5.06 or
5.07 hereof, such Proposed Lender's aggregate requested compensation, if any,
pursuant to said Section 5.01, 5.06 or 5.07 with respect to such Requesting
Lender's Loans is lower than that of the Requesting Lender and (iii) if no
Default shall have occurred and be continuing. Subject to the provisions of
Section 12.06(b) hereof, such Proposed Lender shall be a "Lender" for all
purposes hereunder. Without prejudice to the survival of any other agreement of
SSC hereunder the agreements of SSC contained in Sections 5.01, 5.06, 5.07 and
12.03 hereof (without duplication of any payments made to such Requesting Lender
by SSC or the Proposed Lender) shall survive for the benefit of such Requesting
Lender under this Section 5.08 with respect to the time prior to such
replacement.
Section 6. Guarantee.
6.01 The Guarantee. The Guarantors hereby (or, if applicable, by
execution and delivery of Joinder Agreements) jointly and severally guarantee to
each Lender and the Administrative Agent and their respective successors and
assigns the prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the principal of and interest on the Loans made by
the Lenders to, and the Notes held by each Lender of, the Borrowers and all
other amounts from time to time owing to the Lenders or the Administrative Agent
by the Borrowers under this Agreement and under the Notes and by any Obligor
under any of the other Loan Documents, and all obligations of SSC or any of its
Restricted Subsidiaries to any Lender in respect of any Hedging Agreement, in
each case strictly in accordance with the terms thereof (such obligations being
herein collectively called the "Guaranteed Obligations"). The Guarantors hereby
(or, if applicable, by execution and delivery of Joinder Agreements) further
jointly and severally agree that if the Borrowers shall fail to pay in full when
due (whether at stated maturity, by acceleration or otherwise) any of the
Guaranteed Obligations, the Guarantors will promptly pay the same, without any
demand or notice whatsoever, and that in the case of any extension of time of
payment or renewal of any of the Guaranteed Obligations, the same will be
promptly paid in full when due (whether at extended maturity, by acceleration or
otherwise) in accordance with the terms of such extension or renewal. The
obligations of the Guarantors under this Section 6.01 constitute guarantees of
payment, not guarantees of collectibility.
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6.02 Obligations Unconditional. The obligations of the Guarantors
under Section 6.01 hereof are absolute and unconditional, joint and several,
irrespective of the value, genuineness, validity, regularity or enforceability
of the obligations of the Borrowers under this Agreement, the Notes or any other
agreement or instrument referred to herein or therein, or any substitution,
release or exchange of any other guarantee of or security for any of the
Guaranteed Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent of this Section 6.02 that the obligations of the Guarantors
hereunder shall be absolute and unconditional, joint and several, under any and
all circumstances. Without limiting the generality of the foregoing, it is
agreed that the occurrence of any one or more of the following shall not alter
or impair the liability of the Guarantors hereunder which shall remain absolute
and unconditional as described above:
(i) at any time or from time to time, without notice to the
Guarantors, the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or
compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of this
Agreement or the Notes or any other agreement or instrument referred to
herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this Agreement
or the Notes or any other agreement or instrument referred to herein or
therein shall be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with; or
(iv) any lien or security interest granted to, or in favor of, the
Administrative Agent or any Lender or Lenders as security for any of the
Guaranteed Obligations shall fail to be perfected.
The Guarantors hereby (or, if applicable, by execution and delivery of Joinder
Agreements) expressly waive diligence, presentment, demand of payment, protest
and all notices whatsoever, and any requirement that the Administrative Agent or
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any Lender exhaust any right, power or remedy or proceed against the Borrowers
under this Agreement or the Notes or any other agreement or instrument referred
to herein or therein, or against any other Person under any other guarantee of,
or security for, any of the Guaranteed Obligations.
6.03 Reinstatement. The obligations of the Guarantors under this
Section 6 shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of the Borrowers in respect of the Guaranteed
Obligations is rescinded or must be otherwise restored by any holder of any of
the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy
or reorganization or otherwise and the Guarantors jointly and severally agree
that they will indemnify the Administrative Agent and each Lender on demand for
all reasonable costs and expenses (including, without limitation, fees of
counsel) incurred by the Administrative Agent or such Lender in connection with
such rescission or restoration, including any such costs and expenses incurred
in defending against any claim alleging that such payment constituted a
preference, fraudulent transfer or similar payment under any bankruptcy,
insolvency or similar law.
6.04 Subrogation. The Guarantors hereby (or, if applicable, by
execution and delivery of Joinder Agreements) waive all rights of subrogation or
contribution, whether arising by contract or operation of law (including,
without limitation, any such right arising under the Bankruptcy Code) or
otherwise by reason of any payment by it pursuant to the provisions of this
Section 6 and further agree with each Borrower for the benefit of each of its
creditors (including, without limitation, each Lender and the Administrative
Agent) that any such payment by them shall constitute a contribution of capital
by the relevant Guarantor to such Borrower (or an investment in the equity
capital of such Borrower by such Guarantor).
6.05 Remedies. The Guarantors jointly and severally agree that, as
between the Guarantors and the Lenders, the obligations of the Borrowers under
this Agreement and the Notes may be declared to be forthwith due and payable as
provided in Section 10 hereof (and shall be deemed to have become automatically
due and payable in the circumstances provided in said Section 10) for purposes
of Section 6.01 hereof notwithstanding any stay, injunction or other prohibition
preventing such declaration (or such obligations from becoming automatically due
and payable) as against the Borrowers and that, in the event of such declaration
(or such obligations being deemed to have become automatically due and payable),
such
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obligations (whether or not due and payable by the Borrowers) shall forthwith
become due and payable by the Guarantors for purposes of said Section 6.01.
6.06 Instrument for the Payment of Money. Each Guarantor hereby (or,
if applicable, by execution and delivery of a Joinder Agreement) acknowledges
that the guarantee in this Section 6 constitutes an instrument for the payment
of money, and consents and agrees that any Lender or the Administrative Agent,
at its sole option, in the event of a dispute by such Guarantor in the payment
of any moneys due hereunder, shall have the right to bring motion-action under
New York CPLR Section 3213.
6.07 Continuing Guarantee. The guarantee in this Section 6 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
6.08 Rights of Contribution. The Guarantors hereby agree, as between
themselves, that if any Guarantor shall become an Excess Funding Guarantor (as
defined below) by reason of the payment by such Guarantor of any Guaranteed
Obligations, each other Guarantor shall, on demand of such Excess Funding
Guarantor (but subject to the next sentence), pay to such Excess Funding
Guarantor an amount equal to such Guarantor's Pro Rata Share (as defined below
and determined, for this purpose, without reference to the Properties, debts and
liabilities of such Excess Funding Guarantor) of the Excess Payment (as defined
below) in respect of such Guaranteed Obligations. The payment obligation of a
Guarantor to any Excess Funding Guarantor under this Section 6.08 shall be
subordinate and subject in right of payment to the prior payment in full of the
obligations of such Guarantor under the other provisions of this Section 6 and
such Excess Funding Guarantor shall not exercise any right or remedy with
respect to such excess until payment and satisfaction in full of all of such
obligations.
For purposes of this Section 6.08, (i) "Excess Funding Guarantor"
shall mean, in respect of any Guaranteed Obligations, a Guarantor that has paid
an amount in excess of its Pro Rata Share of such Guaranteed Obligations, (ii)
"Excess Payment" shall mean, in respect of any Guaranteed Obligations, the
amount paid by an Excess Funding Guarantor in excess of its Pro Rata Share of
such Guaranteed Obligations and (iii) "Pro Rata Share" shall mean, for any
Guarantor, the ratio (expressed as a percentage) of (x) the amount by which the
aggregate present fair saleable value of all Properties of such Guarantor
(excluding any shares of stock of any other Guarantor) exceeds the amount of all
the debts and liabilities of such Guarantor (including contingent,
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subordinated, unmatured and unliquidated liabilities, but excluding the
obligations of such Guarantor hereunder and any obligations of any other
Guarantor that have been Guaranteed by such Guarantor) to (y) the amount by
which the aggregate fair saleable value of all Properties of all of the
Guarantors exceeds the amount of all the debts and liabilities (including
contingent, subordinated, unmatured and unliquidated liabilities, but excluding
the obligations of the Obligors hereunder and under the other Loan Documents) of
all of the Guarantors, determined as of the date the respective Guarantor
becomes a Guarantor hereunder.
6.09 General Limitation on Guarantee Obligations. In any action or
proceeding involving any state corporate law, or any state or Federal
bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of any Guarantor under Section 6.01
hereof would otherwise, taking into account the provisions of Section 6.08
hereof, be held or determined to be void, invalid or unenforceable, or
subordinated to the claims of any other creditors, on account of the amount of
its liability under said Section 6.01, then, notwithstanding any other provision
hereof to the contrary, the amount of such liability shall, without any further
action by such Guarantor, any Lender, the Administrative Agent or any other
Person, be automatically limited and reduced to the highest amount that is valid
and enforceable and not subordinated to the claims of other creditors as
determined in such action or proceeding.
Section 7. Conditions Precedent.
7.01 Effectiveness of this Agreement. The effectiveness of the
amendment and restatement of the Existing Credit Agreement provided for hereby
is subject to the satisfaction of the following conditions precedent (provided,
that if such conditions precedent shall not have been satisfied on or before
August 22, 1997, such amendment and restatement shall not occur, regardless of
whether such conditions precedent are thereafter satisfied): (i) the execution
and delivery of an execution counterpart of this Agreement by each Person stated
to be a party to this Agreement and (ii) the receipt by the Administrative Agent
of the following documents (with, in the case of clauses (a), (b), (d), (e), (f)
and (g) below, sufficient copies for each Lender), each of which shall be
satisfactory to the Administrative Agent in form and substance (except that, in
the case of any agreement, instrument or other document to be signed, or any
other action to be taken by the Target Companies,
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the Administrative Agent shall have received evidence that such agreements,
instruments and other documents will be signed, and such other action will be
taken by the Target Companies immediately after the borrowing hereunder and the
consummation of the Acquisition to occur on the Restatement Effective Date):
(a) Corporate and Partnership Documents. Certified copies of the
Partnership Agreement and of the charter and by-laws (or equivalent
documents) of each Credit Party, and of all partnership and corporate
authority for the Credit Parties (including, without limitation, board of
director resolutions and evidence of the incumbency, including specimen
signatures, of officers for such Credit Parties) with respect to the
execution, delivery and performance of such of the Transaction Documents
to which such Credit Party is intended to be a party and each other
document to be delivered by such Credit Party from time to time in
connection herewith and the extensions of credit hereunder (and the
Administrative Agent and each Lender may conclusively rely on such
certificate until it receives notice in writing from the General Partner
or such Credit Party to the contrary).
(b) Officer's Certificate. A certificate of a Senior Officer, dated
the Restatement Effective Date, to the effect that, on and as of the
Restatement Effective Date, both immediately before and immediately after
the borrowing hereunder to occur on the Restatement Effective Date, the
consummation of the Acquisition (by operation of which the Target
Companies will become Restricted Subsidiaries of SSC) and execution and
delivery of the Joinder Agreement (by operation of which the Target
Companies will become Borrowers and Obligors hereunder) and the other
agreements, instruments and other documents, and the taking of the other
actions, by the Target Companies contemplated by this Section 7.01 to be
taken by the Target Companies immediately after the borrowing hereunder
and the consummation of the Acquisition to occur on the Restatement
Effective Date: (i) no Default shall have occurred and be continuing; and
(ii) the representations and warranties made by the Obligors in Section 8
hereof, and by each Credit Party in each of the other Loan Documents to
which it is a party, shall be true and complete.
(c) Borrowing Base Certificate. A Borrowing Base Certificate as of a
date not earlier than June 30, 1997 (provided that the information
contained therein as to the Target Companies shall be as at March 31,
1997) evidencing
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availability under the Revolving Credit Commitments, together with a
certificate of a Senior Officer, dated the Restatement Effective Date, to
the effect that the Consolidated Borrowing Base of SSC and its
Subsidiaries has not decreased by a material amount since June 30, 1997
(or, in the case of the Target Companies, March 31, 1997).
(d) Opinion of Counsel to the Obligors. An opinion, dated the
Restatement Effective Date, of Kirkland & Ellis, counsel to the Obligors,
in form and substance satisfactory to the Administrative Agent (and each
Obligor hereby instructs such counsel to deliver such opinion to the
Lenders and the Administrative Agent).
(e) Opinion(s) of Local Counsel. Opinion(s), dated the Restatement
Effective Date, of local counsel in the respective states in which the
properties covered by the Mortgage(s) are located, in form and substance
satisfactory to the Administrative Agent (and each Obligor hereby
instructs such counsel to deliver such opinion(s) to the Lenders and the
Administrative Agent).
(f) Opinion of Special New York Counsel to Chase. An opinion, dated
the Restatement Effective Date, of Milbank, Tweed, Hadley & McCloy,
special New York counsel to Chase, in form and substance satisfactory to
the Administrative Agent (and Chase hereby instructs such counsel to
deliver such opinion to the Lenders).
(g) Notes. The Notes, duly completed and executed for each Lender.
(h) Personal Property Security Documents; Joinder Agreement.
(i) The Security Agreement, duly executed and delivered by the
Obligors and the Administrative Agent and the stock certificates
identified under the name of such Obligor in Annex 1 thereto (in
each case accompanied by undated stock powers executed in blank). In
addition, each Obligor shall have taken such other action
(including, without limitation, delivering to the Administrative
Agent, for filing, appropriately completed and duly executed copies
of Uniform Commercial Code financing statements) as the
Administrative Agent shall have requested in order to perfect the
security interests created pursuant to the Security Agreement;
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(ii) the Partnership Pledge Agreement, duly executed and
delivered by the Partnership and the Administrative Agent and the
stock certificates listed in Annex 1 thereto, accompanied by undated
stock powers executed in blank. In addition, the Partnership shall
have taken such other action (including, without limitation,
delivering to the Administrative Agent, for filing, appropriately
completed and duly executed copies of Uniform Commercial Code
financing statements) as the Administrative Agent shall have
requested in order to perfect the security interests created
pursuant to the Partnership Pledge Agreement; and
(iii) the Joinder Agreement, duly executed and delivered by
the Target Companies and the Administrative Agent.
(i) Mortgage and Title Insurance for Acquired Facilities. The
following documents each of which shall be executed (and, where
appropriate, acknowledged) by Persons satisfactory to the Administrative
Agent:
(i) one or more Mortgages covering the fee interests in
facilities acquired by the Obligors in the Acquisition located in
Mentor, Ohio, in LaGrange, Georgia, and Umatilla, Florida (the
"Acquired Facilities"), in each case duly executed and delivered by
the owner thereof in recordable form (in such number of copies as
the Administrative Agent shall have requested);
(ii) if, and to the extent, requested by the Administrative
Agent, one or more mortgagee policies of title insurance on forms of
and issued by one or more title companies satisfactory to the
Administrative Agent (the "Title Companies"), insuring the validity
and first priority of the Liens created by the Mortgage(s) over the
Acquired Facilities in form and in amounts satisfactory to the
Administrative Agent, subject only to such exceptions as are
satisfactory to the Administrative Agent and, to the extent
necessary under applicable law, for filing in the appropriate county
land office(s), Uniform Commercial Code financing statements
covering fixtures, in each case appropriately completed and duly
executed;
(iii) if, and to the extent, requested by the Administrative
Agent, as-built surveys of recent date
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of each of the Acquired Facilities, showing such matters as may be
required by any Lender, which surveys shall be in form and content
acceptable to the Administrative Agent, and certified to the
Administrative Agent and the Title Companies, and shall have been
prepared by a registered surveyor acceptable to the Administrative
Agent; and
(iv) if, and to the extent, requested by the Administrative
Agent, certified copies of permanent and unconditional certificates
of occupancy (or, if it is not the practice to issue certificates of
occupancy in the jurisdiction in which the Acquired Facilities are
located, then such other evidence reasonably satisfactory to the
Administrative Agent) permitting the fully functioning operation and
occupancy of each Acquired Facility.
In addition, the Borrowers shall have paid to the Title Companies all
expenses and premiums of the Title Companies in connection with the
issuance of such policies and in addition shall have paid to the Title
Companies an amount equal to the recording and stamp taxes payable in
connection with recording the Mortgage(s) over the Acquired Facilities in
the appropriate county land office(s). If the Administrative Agent does
not require delivery of any item referred to in any of the preceding
clauses (ii), (iii) or (iv) on the Restatement Effective Date, the
Borrowers shall, if requested by the Administrative Agent on the
Restatement Effective Date, deliver or cause to be delivered to the
Administrative Agent such item as promptly as practicable after the
Restatement Effective Date; provided that, in the case of the policies of
title insurance referred to in said clause (ii) with respect to the
facility in Florida, such policies shall be delivered no later than the
90th day after the Restatement Effective Date.
(j) Mortgage Amendments. The following documents each of which shall
be executed (and, where appropriate, acknowledged) by Persons satisfactory
to the Administrative Agent:
(i) Mortgage Amendments amending the Mortgages executed and
delivered pursuant to the Existing Credit Agreement (the "Existing
Mortgages"), in each case duly executed and delivered by the owner
thereof in recordable form (in such number of copies as the
Administrative Agent shall have requested);
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(ii) if, and to the extent, requested by the Administrative
Agent, one or more mortgagee policies of title insurance or
endorsements to existing title insurance policies on forms of and
issued by the applicable Title Companies, insuring the validity and
first priority of the Liens created under the Existing Mortgages as
amended by the Mortgage Amendments in form and in amounts
satisfactory to the Administrative Agent, subject only to the
exceptions in the existing title insurance policies and such other
exceptions as are satisfactory to the Administrative Agent and, to
the extent necessary under applicable law, for filing in the
appropriate county land office(s), Uniform Commercial Code financing
statements covering fixtures, in each case appropriately completed
and duly executed; and
(iii) if, and to the extent, requested by the Title Companies
to provide title insurance coverage acceptable to the Administrative
Agent, a recertification by a registered surveyor acceptable to the
Title Companies of as-built surveys of each of the facilities
covered by the Existing Mortgages, showing such matters as may be
required by any Lender, which surveys shall be in form and content
acceptable to the Administrative Agent.
In addition, the Borrowers shall have paid to the Title Companies all
expenses and premiums of the Title Companies in connection with the
issuance of such policies or endorsements to existing title policies and
in addition shall have paid to the Title Companies an amount equal to the
recording and stamp taxes payable in connection with recording the
Mortgage Amendments in the appropriate county land office(s). If the
Administrative Agent does not require delivery of any item referred to in
any of the preceding clauses (ii) or (iii) on the Restatement Effective
Date, the Borrowers shall, if requested by the Administrative Agent on the
Restatement Effective Date, deliver or cause to be delivered to the
Administrative Agent such item as promptly as practicable after the
Restatement Effective Date.
(k) Environmental Assessments. An environmental assessment prepared
by IT Corporation ("IT") in respect of each of the sites and facilities to
be acquired in the Acquisition, such environmental assessment to be in
form,
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scope and substance, and based upon investigations, satisfactory to the
Administrative Agent.
(l) Solvency Certificate. A certificate of the chief financial
officer of SSC to the effect that, as of the Restatement Effective Date
and after giving effect to the initial extension of credit hereunder, the
Acquisition, the issuance of the Senior Subordinated Notes and the Seller
Subordinated Note, and the other transactions contemplated hereby, (i) the
aggregate value of all Properties of SSC and its Restricted Subsidiaries
at their present fair saleable value (i.e., the amount that may be
realized within a reasonable time, considered to be six months to one
year, either through collection or sale at the regular market value,
conceiving the latter as the amount that could be obtained for the
Property in question within such period by a capable and diligent
businessman from an interested buyer who is willing to purchase under
ordinary selling conditions), exceed the amount of all the debts and
liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities) of SSC and its Restricted Subsidiaries, (ii) SSC
and its Restricted Subsidiaries will not, on a consolidated basis, have an
unreasonably small capital with which to conduct their business operations
as heretofore conducted and (iii) SSC and its Restricted Subsidiaries will
have, on a consolidated basis, sufficient cash flow to enable them to pay
their debts as they mature.
(m) Senior Subordinated Notes. Evidence that the Senior Subordinated
Notes Documents shall have been duly authorized, executed and delivered in
the forms thereof furnished to the Lenders prior to the date hereof, and
the Administrative Agent shall have received copies of each of the Senior
Subordinated Notes Documents certified by a Senior Officer. In addition,
the Administrative Agent shall have received evidence to the effect that
SSC shall have received, or simultaneously with the borrowing hereunder to
occur on the Restatement Effective Date will receive, cash proceeds (prior
to the payment of any transaction fees, expenses, commissions or
discounts) from the issuance of the Senior Subordinated Notes in an
aggregate amount of at least $125,000,000.
(n) Approvals. Evidence that all governmental and material third
party approvals (including landlords' and other consents) necessary or, in
the discretion of the Administrative Agent, advisable in connection with
the Acquisition, the financings contemplated hereby and the
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continuing operations of SSC and its Subsidiaries shall have been obtained
and be in full force and effect, and that all applicable waiting periods
shall have expired without any action being taken or threatened by any
competent authority which would restrain, prevent or otherwise impose
adverse conditions on the Acquisition or such financings.
(o) Equity. Evidence that (i) the Partnership shall have received,
or simultaneously with the borrowing hereunder to occur on the Restatement
Effective Date will receive, (x) from a Person or Persons acceptable to
the Administrative Agent cash consideration (prior to the payment of any
transaction fees or expenses) in an amount not less than $33,800,000 (when
aggregated with cash contributions made by the General Partner to the
Partnership) in exchange for the issuance of limited partnership interests
in the Partnership and (y) from management employees of the Partnership,
in exchange for the issuance of limited partnership interests in the
Partnership and capital stock in the General Partner, promissory notes in
the aggregate principal amount of $2,029,685 (together with the promissory
notes referred to in Section 10(o) hereof if any, as such promissory notes
referred to in this paragraph (o) and in said Section 10(o) if any shall,
subject to Section 9.19 hereof, be modified and supplemented and in effect
from time to time, the "Management Notes"), in each of the cases referred
to in the foregoing clauses (x) and (y) on terms and conditions reasonably
satisfactory to the Administrative Agent and (ii) SSC shall have received,
or simultaneously with the borrowing hereunder to occur on the Restatement
Effective Date will receive from the Partnership a contribution to its
common equity of cash in an amount not less than $33,800,000 and of the
Management Notes executed and delivered on the Restatement Effective Date.
(p) Transactions. (i) Evidence that the Acquisition shall have been,
or simultaneously with the borrowing hereunder to occur on the Restatement
Effective Date will be, consummated for an aggregate purchase price
(including the refinancing of the existing indebtedness related to the
Target Companies, the payment for the consideration of all outstanding
shares of common stock of the Target Companies and the Seller Subordinated
Note) not exceeding $136,000,000 (subject to adjustments relating to the
amount of working capital as provided in the Acquisition Agreement) and in
all other material respects in accordance with the terms of the
Acquisition Documents (all conditions precedent to the
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consummation of the Acquisition set forth in the Acquisition Agreement
requiring the satisfaction of any Person to be deemed for this purpose to
require the satisfaction of the Lenders), including the schedules and
exhibits thereto (except for any modifications, supplements or waivers
thereof, or written consents or determinations made by any parties
thereto, each of which shall be reasonably satisfactory to the
Administrative Agent), (ii) evidence that the other Transactions shall
have been, or simultaneously with the borrowing hereunder to occur on the
Restatement Effective Date will be consummated, (iii) a certificate of a
Senior Officer to that effect and to the effect that attached thereto are
true and complete copies of the Seller Subordinated Note and the other
documents delivered in connection with the closing thereunder and (iv)
letters, addressed to the Administrative Agent and the Lenders, from all
counsel that rendered legal opinions in connection with the Transactions,
permitting the Administrative Agent and the Lenders to rely upon such
legal opinions.
(q) Pro Forma Financial Statements. A pro forma consolidated balance
sheet and a consolidated statement of cash flows for SSC, its Subsidiaries
and the Target Companies as at and for the period of four fiscal quarters
ending on March 31, 1997, giving effect to the Acquisition, in form and
substance and providing such details as are reasonably satisfactory to the
Administrative Agent, and accompanied by a certificate of a Senior
Officer, which certificate shall state that, in the opinion of the Senior
Officer, the assumptions contained therein are reasonable and that such
financial statements fairly present in all material respects the
consolidated financial condition of SSC, its Subsidiaries and the Target
Companies as at such date and for such period after giving pro forma
effect to the Acquisition in accordance with generally accepted accounting
principles.
(r) Insurance. Certificates of insurance evidencing the existence of
all insurance required to be maintained by SSC pursuant to Section 9.04
hereof and the designation of the Administrative Agent as the loss payee
or additional named insured, as the case may be, thereunder to the extent
required by said Section 9.04, such certificates to be in such form and
contain such information as is specified in said Section 9.04.
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(s) Business Plan. A copy of a business plan for fiscal year 1997
and a written analysis of the business and prospects of SSC and its
Restricted Subsidiaries for the period from the Restatement Effective Date
through the Final Maturity Date in form and substance and providing such
details as are reasonably satisfactory to the Administrative Agent.
(t) No Judgment and Litigation. A certificate of a Senior Officer
certifying that (i) there exists no judgment, order, injunction or other
restraint issued or filed which prohibits the making of any Loans, the
issuance of any Letters of Credit or the consummation of the Acquisition
or the other transactions contemplated hereby and (ii) no action, suit or
litigation proceeding at law or in equity by or before any court or
Governmental Authority or agency exists or is threatened with respect to
the Acquisition.
(u) Interest, Fees and Expenses under the Existing Credit Agreement.
Evidence that the Administrative Agent and the Existing Lenders shall have
received all accrued and unpaid interest, fees and expenses, and amounts
due under Section 5.05 hereof, owing to them under the Existing Credit
Agreement.
(v) Lien Searches. Results of recent lien searches in each relevant
jurisdiction with respect to SSC and its Subsidiaries and the Target
Companies showing that there are no Liens except for Permitted Liens and
Liens listed on Part B of Schedule I to this Agreement.
(w) Audit. A report of an independent collateral auditor (which may
be, or be affiliated with, one of the Lenders) in form and substance, and
as at a date, satisfactory to the Administrative Agent with respect to the
Receivables and Inventory of SSC and its Restricted Subsidiaries and the
Target Companies.
(x) Structure, Etc. Neither the Administrative Agent nor any Lender
shall have objected to (i) the state and Federal tax assumptions of SSC,
(ii) the ownership, capital, organization and legal structure of the
Partnership and its Subsidiaries, including, without limitation, all
limited partnership units or capital stock issued by the Partnership and
its Subsidiaries and any options, warrants or other securities issued in
connection therewith and the other transactions contemplated hereby, (iii)
the quality and condition of the Properties of SSC and its Subsidiaries
and
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the Target Companies or (iv) the material contracts of the Target
Companies to be assumed or acquired as part of the Acquisition, including,
without limitation (i) documents evidencing or otherwise relating to any
material amount of Indebtedness (including Guarantees) to be assumed, (ii)
material supply and purchase contracts and (iii) indemnities in favor of
SSC or any of its Subsidiaries.
(y) Other Documents. Such other documents as the Administrative
Agent or special New York counsel to Chase may reasonably request.
The obligation of any Lender to make any extension of credit hereunder on or
after the Restatement Effective Date is also subject to the payment by the
Borrowers of such fees as any Obligor shall have agreed to pay or deliver to any
Lender or the Administrative Agent in connection herewith, including, without
limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy,
special New York counsel to Chase, in connection with the negotiation,
preparation, execution and delivery of this Agreement and the Notes and the
other Loan Documents and the extensions of credit hereunder (to the extent that
statements for such fees and expenses have been delivered to the Borrowers).
7.02 Initial and Subsequent Extensions of Credit. The obligation of
the Lenders to make any Loan or otherwise extend any credit to the Borrowers
upon the occasion of each borrowing or other extension of credit hereunder
(including on the Restatement Effective Date) is subject to the further
conditions precedent that, both immediately prior to the making of such Loan or
other extension of credit and also after giving effect thereto and to the
intended use thereof:
(a) no Default shall have occurred and be continuing (except that
this paragraph (a) shall not apply to a default in the payment when due
during the applicable grace period of any amount referred to in Section
10(a)(ii) hereof if the amount to be borrowed is to be used simultaneously
with such borrowing to cure such default);
(b) the representations and warranties made by the Obligors in
Section 8 hereof, and by each Credit Party in each of the other Loan
Documents to which it is a party, shall be true and complete in all
material respects on and as of the date of the making of such Loan or
other extension of credit with the same force and effect as if made on and
as of such date (or, if any such representation or warranty
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is expressly stated to have been made as of a specific date, as of such
specific date); and
(c) the aggregate principal amount of the Revolving Credit Loans
together with the aggregate amount of all Letter of Credit Liabilities
shall not exceed the Borrowing Base reflected on the most recent Borrowing
Base Certificate delivered pursuant to Section 9.01(f) hereof.
Each notice of borrowing or request for the issuance of a Letter of Credit by
the Borrowers hereunder shall constitute a certification by the Borrowers to the
effect set forth in the preceding sentence (both as of the date of such notice
or request and, unless the Borrowers otherwise notify the Administrative Agent
prior to the date of such borrowing or issuance, as of the date of such
borrowing or issuance).
Section 8. Representations and Warranties. Each of the Obligors
represents and warrants to the Administrative Agent and the Lenders that:
8.01 Corporate Existence. Each of SSC and its Restricted
Subsidiaries (other than the Foreign Companies): (a) is a corporation,
partnership or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization; (b) has all
requisite corporate or other power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on
its business as now being or as proposed to be conducted; and (c) is qualified
to do business and is in good standing in all jurisdictions in which the nature
of the business conducted by it makes such qualification necessary and where
failure so to qualify could (either individually or in the aggregate) have a
Material Adverse Effect.
8.02 Financial Condition. SSC has heretofore furnished to each of
the Lenders consolidated balance sheets of the Partnership and its Subsidiaries
as at December 31, 1996 and the related consolidated statements of income,
retained earnings and cash flows of the Partnership and its Subsidiaries for the
fiscal year ended on said date, with the opinion thereon of Ernst & Young, and
the unaudited consolidated balance sheets of the Partnership and its
Subsidiaries as at March 31, 1997 and the related consolidated statements of
income, retained earnings and cash flows of the Partnership and its Subsidiaries
for the three-month period ended on such date. All such financial statements are
complete and correct and fairly present the consolidated financial condition of
the Partnership and its
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Subsidiaries as at said dates and the consolidated and unconsolidated results of
their operations for the fiscal year and three-month period ended on said dates
(subject, in the case of such financial statements as at March 31, 1997, to
normal year-end audit adjustments), all in accordance with generally accepted
accounting principles and practices applied on a consistent basis. None of the
Partnership nor any of its Subsidiaries has on the date hereof any material
contingent liabilities, liabilities for taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in said balance
sheets as at said dates. Since December 31, 1996, there has been no material
adverse change in the consolidated financial condition, operations, business or
prospects taken as a whole of SSC and its Restricted Subsidiaries from that set
forth in said financial statements as at said date.
8.03 Litigation. There are no legal or arbitral proceedings, or any
proceedings by or before any governmental or regulatory authority or agency, now
pending or (to the knowledge of any Obligor) threatened against SSC or any of
its Restricted Subsidiaries that, if adversely determined could (either
individually or in the aggregate) have a Material Adverse Effect.
8.04 No Breach. None of the execution and delivery of this Agreement
and the Notes and the other Transaction Documents, the consummation of the
transactions herein and therein contemplated or compliance with the terms and
provisions hereof and thereof will conflict with or result in a breach of, or
require any consent under, the Partnership Agreement or the charter or by-laws
of the General Partner or any Guarantor, or any applicable law or regulation, or
any order, writ, injunction or decree of any court or governmental authority or
agency, or any agreement or instrument (other than an immaterial agreement or
instrument) to which the General Partner or SSC or any of its Restricted
Subsidiaries is a party or by which any of them or any of their Property is
bound or to which any of them is subject, or constitute a default under any such
agreement or instrument (other than an immaterial agreement or instrument), or
(except for the Liens created pursuant to the Security Documents) result in the
creation or imposition of any Lien upon any Property of the General Partner, SSC
or any of its Restricted Subsidiaries pursuant to the terms of any such
agreement or instrument (other than an immaterial agreement). An "immaterial
agreement or instrument" shall mean an agreement or instrument the relevant
breach of or default under which would not have a Material Adverse Effect or a
material adverse effect upon the ranking of any of the obligations of any Credit
Party under any thereof.
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8.05 Action. Each Obligor has all necessary partnership or corporate
(as the case may be) power, authority and legal right to execute, deliver and
perform its obligations under each of the Transaction Documents to which it is a
party; the execution, delivery and performance by each Obligor of each of the
Transaction Documents to which it is a party have been duly authorized by all
necessary partnership or corporate (as the case may be) action on its part
(including, without limitation, any required shareholder approvals); and this
Agreement has been duly and validly executed and delivered by each Obligor and
constitutes, and each of the Notes and the other Transaction Documents to which
it is a party when executed and delivered by such Obligor (in the case of the
Notes, for value) will constitute, its legal, valid and binding obligation,
enforceable against each Obligor in accordance with its terms, except as such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or similar laws of general applicability affecting the enforcement of
creditors' rights and (b) the application of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
8.06 Approvals. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency, or any securities exchange, are necessary for the execution, delivery or
performance by any Obligor of this Agreement or any of the other Transaction
Documents to which it is a party or for the legality, validity or enforceability
hereof or thereof, except for (a) filings and recordings in respect of the Liens
created pursuant to the Security Documents, (b) those that have been obtained or
made and are in full force and effect on the date hereof and (c) routine filings
and consents not required on the date hereof and obtainable in the ordinary
course of business and when and as required.
8.07 ERISA. Each Plan, and, to the knowledge of the Obligors, each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other Federal or State law, and no event
or condition has occurred and is continuing as to which SSC would be under an
obligation to furnish a report to the Lenders under Section 9.01(e) hereof.
8.08 Taxes. SSC and its Subsidiaries (and the General Partner and
the Partnership) have filed all Federal income tax returns and all other
material tax returns and information
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statements that are required to be filed by them and have paid all material
taxes due pursuant to such returns or pursuant to any assessment received by SSC
or any of its Subsidiaries. The charges, accruals and reserves on the books of
SSC and its Subsidiaries in respect of taxes and other governmental charges are,
in the opinion of SSC, adequate. As of the Restatement Effective Date, neither
SSC nor any of its Subsidiaries has given or been requested to give a waiver of
the statute of limitations relating to the payment of any Federal, state, local
and foreign taxes or other impositions.
8.09 Investment Company Act. Neither SSC nor any of its Restricted
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
8.10 Public Utility Holding Company Act. Neither SSC nor any of its
Restricted Subsidiaries is a "holding company", or an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company", within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
8.11 Material Agreements and Liens.
(a) Part A of Schedule I hereto is a complete and correct list of
each credit agreement, loan agreement, indenture, purchase agreement, guarantee,
letter of credit or other arrangement providing for or otherwise relating to any
Indebtedness or any extension of credit (or commitment for any extension of
credit) to, or guarantee by, SSC or any of its Subsidiaries or any of the Target
Companies outstanding on the date hereof the aggregate principal or face amount
of which equals or exceeds (or may equal or exceed) $10,000, and the aggregate
principal or face amount outstanding or that may become outstanding under each
such arrangement is correctly described in Part A of said Schedule I.
(b) Part B of Schedule I hereto is a complete and correct list of
each Lien securing Indebtedness of any Person outstanding on the date hereof the
aggregate principal or face amount of which equals or exceeds (or may equal or
exceed) $10,000 and covering any Property of SSC or any of its Subsidiaries or
any of the Target Companies, and the aggregate Indebtedness secured (or that may
be secured) by each such Lien and the Property covered by each such Lien is
correctly described in Part B of said Schedule I.
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8.12 Environmental Matters. Except as disclosed on Schedule V hereto
and except as would not reasonably be expected for each of the following matters
to lead to liability in excess of $200,000, to the knowledge of the Obligors:
(a) Each of SSC and its Subsidiaries has obtained all environmental,
health and safety permits, licenses and other authorizations required under all
Environmental Laws to carry on its business as now being or as proposed to be
conducted, except to the extent failure to have any such permit, license or
authorization would not (either individually or in the aggregate) have a
Material Adverse Effect.
(b) Each of such permits, licenses and authorizations is in full
force and effect and each of SSC and its Subsidiaries is in compliance with the
terms and conditions thereof, and is also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any applicable Environmental
Law or in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder,
except to the extent failure to comply therewith would not (either individually
or in the aggregate) have a Material Adverse Effect.
(c) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending or
threatened by any governmental or other entity with respect to any alleged
failure by SSC or any of its Subsidiaries to have any environmental, health or
safety permit, license or other authorization required under any Environmental
Law in connection with the conduct of the business of SSC or any of its
Subsidiaries or with respect to any generation, treatment, storage, recycling,
transportation, discharge or disposal, or any Release of any Hazardous Materials
generated by SSC or any of its Subsidiaries.
(d) Neither SSC nor any of its Subsidiaries owns, operates or leases
a treatment, storage or disposal facility requiring a permit under the Resource
Conservation and Recovery Act of 1976, as amended, or under any comparable state
or local statute;
(e) Except to the extent duly authorized by law:
(i) no polychlorinated biphenyls (PCB's) are or have been
present at any site or facility now or
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previously owned, operated or leased by SSC or any of its
Subsidiaries; and
(ii) there are no underground storage tanks or surface
impoundments for Hazardous Materials, active or abandoned, at any
site or facility now or previously owned, operated or leased by SSC
or any of its Subsidiaries.
(f) No Hazardous Materials have been Released at, on or under any
site or facility now or previously owned, operated or leased by SSC or any of
its Subsidiaries in a reportable quantity established by and required to be
reported under any statute, ordinance, rule, regulation or order.
(g) No Hazardous Materials have been otherwise Released at, on or
under any site or facility now or previously owned, operated or leased by SSC or
any of its Subsidiaries that would (either individually or in the aggregate)
have a Material Adverse Effect.
(h) No asbestos containing materials is or has been present at any
site or facility now or previously owned, operated or leased by SSC or any of
its Subsidiaries that would result in more than $500,000 in response removal
costs at a single facility, or in the aggregate would have a Material Adverse
Effect.
(i) To the Obligors' knowledge, neither SSC nor any of its
Subsidiaries has transported or arranged for the transportation of any Hazardous
Material to any location that is listed on the National Priorities List ("NPL")
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"), listed for possible inclusion on the NPL by the
Environmental Protection Agency in the Comprehensive Environmental Response and
Liability Information System, as provided for by 40 C.F.R. ss. 300.5
("CERCLIS"), or on any similar state or local list or that is the subject of
Federal, state or local enforcement actions or other investigations that may
lead to Environmental Claims against SSC or any of its Subsidiaries.
(j) Except to the extent duly authorized by law and in a manner that
would not lead to liability, no Hazardous Material generated by SSC or any of
its Subsidiaries has been recycled, treated, stored, disposed of or Released by
SSC or any of its Subsidiaries at any location.
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(k) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of SSC or any of its Subsidiaries, and
no site or facility now or previously owned, operated or leased by SSC or any of
its Subsidiaries is listed or proposed for listing on the NPL, CERCLIS or any
similar state list of sites requiring investigation or clean-up.
(l) No Liens have arisen under or pursuant to any Environmental Laws
on any site or facility owned, operated or leased by SSC or any of its
Subsidiaries, and no government action has been taken or is in process that
could subject any such site or facility to such Liens, and neither SSC nor any
of its Subsidiaries would be required to place any notice or restriction
relating to the presence of Hazardous Materials at any site or facility owned by
it in any deed to the real property on which such site or facility is located.
(m) All environmental investigations, studies, audits, tests,
reviews or other analyses (excluding any privileged analyses by legal counsel on
behalf of the any Obligor) conducted by or that are in the possession of SSC or
any of its Subsidiaries in relation to facts, circumstances or conditions at or
affecting any site or facility now or previously owned, operated or leased by
SSC or any of its Subsidiaries and that could result in a Material Adverse
Effect have been made available to the Lenders.
8.13 Capitalization. The authorized capital stock of SSC consists,
on the date hereof, of an aggregate of 1,000 shares consisting of 100 shares of
Class A common stock, $.01 per share and 900 shares of Class B common stock,
$0.1 per share, all of which shares are duly and validly issued and outstanding,
each of which shares is fully paid and nonassessable. As of the date hereof all
of such issued and outstanding shares of common stock are owned beneficially and
of record by the Partnership. As of the date hereof, (x) there are no
outstanding Equity Rights with respect to SSC and (y) there are no outstanding
obligations of SSC or any of its Subsidiaries to repurchase, redeem, or
otherwise acquire any shares of capital stock of SSC nor are there any
outstanding obligations of SSC or any of its Subsidiaries to make payments to
any Person, such as "phantom stock" payments, where the amount thereof is
calculated with reference to the fair market value or equity value of SSC or any
of its Subsidiaries.
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8.14 Subsidiaries, Etc.
(a) Set forth in Part B of Schedule II hereto is a complete and
correct list of all of the Subsidiaries of SSC and the Target Companies as of
the date hereof together with, for each such Person, (i) the jurisdiction of
organization of such Person, (ii) each Person holding ownership interests in
such Person and (iii) the nature of the ownership interests held by each such
Person and the percentage of ownership of such Person represented by such
ownership interests. Except as disclosed in Part B of Schedule II hereto, (x)
each of SSC and its Subsidiaries owns, free and clear of Liens (other than Liens
created pursuant to the Security Documents), and has the unencumbered right to
vote, all outstanding ownership interests in each Person shown to be held by it
in Part B of Schedule II hereto, (y) all of the issued and outstanding capital
stock of each such Person organized as a corporation is validly issued, fully
paid and nonassessable and (z) there are no outstanding Equity Rights with
respect to such Person.
(b) Set forth in Part C of Schedule II hereto is a complete and
correct list of all Investments (other than Investments disclosed in Part B of
said Schedule II hereto and Investments permitted by paragraphs (b), (c), (d)
and (e) of Section 9.08 hereof) held by SSC or its Subsidiaries or the Target
Companies in any Person on the date hereof having a fair market value of
$200,000 or greater (provided, that, the aggregate fair market value of all
Investments (other than Investments so disclosed or permitted) not listed on
said Schedule II does not exceed $500,000), and, for each such Investment, (x)
the identity of the Person or Persons holding such Investment and (y) the nature
of such Investment. Except as disclosed in Part C of Schedule II hereto, each of
SSC and its Subsidiaries owns, free and clear of all Liens (other than Liens
created pursuant to the Security Documents), all such Investments.
(c) None of the Target Companies or the Subsidiaries of SSC is, on
the date hereof, subject to any indenture, agreement, instrument or other
arrangement of the type described in Section 9.18(c) hereof.
8.15 True and Complete Disclosure. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Obligors to the Administrative Agent or any Lender in connection
with the negotiation, preparation or delivery of this Agreement and the other
Loan Documents or included herein or therein or delivered pursuant
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hereto or thereto, when taken as a whole do not contain any untrue statement of
material fact or omit to state any material fact necessary to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading. All written information furnished after the date
hereof by SSC and its Subsidiaries to the Administrative Agent and the Lenders
in connection with this Agreement and the other Loan Documents and the
transactions contemplated hereby and thereby will be true, complete and accurate
in every material respect, or (in the case of projections) based on reasonable
estimates, on the date as of which such information is stated or certified.
There is no fact known to the Obligors that could have a Material Adverse Effect
that has not been disclosed herein, in the other Loan Documents or in a report,
financial statement, exhibit, schedule, disclosure letter or other writing
furnished to the Lenders for use in connection with the transactions
contemplated hereby or thereby.
8.16 Real Property. Set forth on Schedule III attached hereto is a
list, as of the date hereof, of all of the real property interests held by SSC,
any of its Subsidiaries or any of the Target Companies, indicating in each case
whether the respective Property is owned or leased, the identity of the owner or
lessee and the location of the respective Property.
8.17 Certain Documents. SSC has furnished to the Lenders a true and
complete copy of the Acquisition Agreement, the Equity Documents, the
Registration Rights Agreement and the Senior Subordinated Notes Indenture as in
effect on the date hereof.
8.18 Solvency. As of the date of each extension of credit hereunder
(and after giving effect thereto and to the use thereof by the Borrowers), (i)
the aggregate value of all Properties of SSC and its Restricted Subsidiaries at
their present fair saleable value (i.e., the amount that may be realized within
a reasonable time, considered to be six months to one year, either through
collection or sale at the regular market value, conceiving the latter as the
amount that could be obtained for the Property in question within such period by
a capable and diligent businessman from an interested buyer who is willing to
purchase under ordinary selling conditions), exceed the amount of all the debts
and liabilities (including contingent, subordinated, unmatured and unliquidated
liabilities) of SSC and its Restricted Subsidiaries, (ii) SSC and its Restricted
Subsidiaries do not, on a consolidated basis, have an unreasonably small capital
with which to conduct their business operations as heretofore conducts and (iii)
SSC and its
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Restricted Subsidiaries have, on a consolidated basis, sufficient cash flow to
enable them to pay their debts as they mature.
Section 9. Covenants of the Obligors. Each of the Obligors covenants
and agrees with the Lenders and the Administrative Agent that, so long as any
Commitment, Loan or Letter of Credit Liability is outstanding and until payment
in full of all outstanding amounts payable by the Borrowers hereunder:
9.01 Financial Statements Etc. SSC shall deliver to each of the
Lenders:
(a) as soon as available and in any event within 45 days after the
end of each quarterly fiscal period of each fiscal year of SSC,
consolidated statements of income, retained earnings and cash flows of SSC
and its Restricted Subsidiaries for such period and for the period from
the beginning of the respective fiscal year to the end of such period, and
the related consolidated balance sheet of SSC and its Restricted
Subsidiaries as at the end of such period, setting forth in each case in
comparative form the corresponding consolidated figures for the
corresponding periods in the preceding fiscal year, if available (except
that, in the case of balance sheets, such comparison shall be to the last
day of the prior fiscal year), accompanied by a certificate of a Senior
Officer, which certificate shall state that said consolidated financial
statements fairly present in all material respects the consolidated
financial condition and results of operations of SSC and its Restricted
Subsidiaries (except as provided in Section 1.02(d) hereof) in accordance
with generally accepted accounting principles, consistently applied, as at
the end of, and for, such period (subject to normal year-end audit
adjustments);
(b) as soon as available and in any event within 120 days after the
end of each fiscal year of SSC, consolidated and consolidating statements
of income, retained earnings and cash flows of SSC and its Restricted
Subsidiaries for such fiscal year and the related consolidated and
consolidating balance sheets of SSC and its Restricted Subsidiaries as at
the end of such fiscal year, setting forth in each case in comparative
form the corresponding consolidated and consolidating figures for the
preceding fiscal year, and accompanied (i) in the case of said
consolidated statements and balance sheet of SSC, by an opinion thereon of
independent certified public accountants
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of recognized national standing, which opinion shall state that said
consolidated financial statements fairly present in all material respects
the consolidated financial condition and results of operations of SSC and
its Restricted Subsidiaries as at the end of, and for, such fiscal year in
accordance with generally accepted accounting principles, and a statement
of such accountants to the effect that, in making the examination
necessary for their opinion, nothing came to their attention that caused
them to believe that SSC was not in compliance with Sections 9.06(h),
9.07(e), 9.10, 9.11 and 9.12 hereof, insofar as such Sections relate to
accounting matters, and (ii) in the case of said consolidating statements
and balance sheets, by a certificate of a Senior Officer, which
certificate shall state that said consolidating financial statements
fairly present the respective individual unconsolidated financial
condition and results of operations of SSC and its Restricted
Subsidiaries, in each case in accordance with generally accepted
accounting principles, consistently applied, as at the end of, and for,
such fiscal year;
(c) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, that SSC or
any of its Restricted Subsidiaries shall have filed with the Securities
and Exchange Commission (or any governmental agency substituted therefor)
or any national securities exchange;
(d) promptly upon the mailing thereof to the partners of SSC
generally or to holders of any class of Subordinated Indebtedness
generally, copies of all financial statements, reports and proxy
statements so mailed and promptly upon receipt from the holders of any
class of Subordinated Indebtedness, copies of all notices and statements
delivered to any of the Obligors;
(e) as soon as possible, and in any event within ten days after SSC
knows or has reason to believe that any of the events or conditions
specified below with respect to any Plan or Multiemployer Plan has
occurred or exists, a statement signed by a Senior Officer setting forth
details respecting such event or condition and the action, if any, that
SSC or its ERISA Affiliate proposes to take with respect thereto (and a
copy of any report or notice required to be filed with or given to the
PBGC by any of the Obligors or an ERISA Affiliate with respect to such
event or condition):
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(i) any reportable event, as defined in Section 4043(b) of
ERISA and the regulations issued thereunder, with respect to a Plan,
as to which the PBGC has not by regulation waived the requirement of
Section 4043(a) of ERISA that it be notified within 30 days of the
occurrence of such event (provided that a failure to meet the
minimum funding standard of Section 412 of the Code or Section 302
of ERISA, including, without limitation, the failure to make on or
before its due date a required installment under Section 412(m) of
the Code or Section 302(e) of ERISA, shall be a reportable event
regardless of the issuance of any waivers in accordance with Section
412(d) of the Code); and any request for a waiver under Section
412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of a notice
of intent to terminate any Plan or any action taken by SSC or an
ERISA Affiliate to terminate any Plan;
(iii) the institution by the PBGC of proceedings under Section
4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by SSC or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has
been taken by the PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer
Plan by SSC or any ERISA Affiliate that results in liability under
Section 4201 or 4204 of ERISA (including the obligation to satisfy
secondary liability as a result of a purchaser default) or the
receipt by SSC or any ERISA Affiliate of notice from a Multiemployer
Plan that it is in reorganization or insolvency pursuant to Section
4241 or 4245 of ERISA or that it intends to terminate or has
terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against SSC or any ERISA Affiliate to enforce
Section 515 of ERISA, which proceeding is not dismissed within 30
days; and
(vi) the adoption of an amendment to any Plan that, pursuant
to Section 401(a)(29) of the Code or Section 307 of ERISA, would
result in the loss of
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tax-exempt status of the trust of which such Plan is a part if SSC
or an ERISA Affiliate fails to timely provide security to the Plan
in accordance with the provisions of said Sections;
(f) as soon as available and in any event within 15 days (or, in the
case of each monthly accounting period ending before the first anniversary
of the Restatement Effective Date, 30 days) after the end of each monthly
accounting period (ending on the last day of each calendar month), a
Borrowing Base Certificate as at the last day of such accounting period;
(g) periodically at the request of the Administrative Agent or the
Majority Lenders (but not more frequently than once per calendar year
unless a Default shall have occurred and be continuing), a report of an
independent collateral auditor (which may be, or be affiliated with, one
of the Lenders) with respect to the Receivables and Inventory components
included in the Borrowing Base as at the end of any monthly accounting
period which report shall indicate that, based upon a review by such
auditors of the Receivables (including, without limitation, verification
with respect to the amount, aging, identity and credit of the respective
account debtors and the billing practices of SSC and its Restricted
Subsidiaries) and Inventory (including, without limitation, verification
as to the value, location and respective types), the information set forth
in the Borrowing Base Certificate delivered by SSC as at the end of such
accounting period is accurate and complete in all material respects and in
addition, as soon as available and in any event within 120 days after the
end of each fiscal year of SSC, a like report of Ernst & Young LLP or
other independent public accountants with respect to the Receivables and
Inventory components included in the Borrowing Base as at the end of such
fiscal year;
(h) promptly after SSC knows or has reason to believe that any
Default has occurred, a notice of such Default describing the same in
reasonable detail and, together with such notice or as soon thereafter as
possible, a description of the action that SSC has taken or proposes to
take with respect thereto;
(i) from time to time such other information regarding the financial
condition, operations, business or prospects of SSC or any of its
Subsidiaries (including, without limitation, any Plan or Multiemployer
Plan and any reports
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or other information required to be filed under ERISA) as any Lender or
the Administrative Agent may reasonably request.
SSC will furnish to each Lender, at the time it furnishes each set of financial
statements pursuant to paragraph (a), (b) or (c) above, a certificate of a
Senior Officer (i) to the effect that no Default has occurred and is continuing
(or, if any Default has occurred and is continuing, describing the same in
reasonable detail and describing the action that SSC has taken or proposes to
take with respect thereto) and (ii) setting forth in reasonable detail the
computations necessary to determine whether SSC is in compliance with Sections
9.06(h), 9.07(e), 9.10, 9.11 and 9.12 hereof as of the end of the respective
month, quarterly fiscal period or fiscal year.
9.02 Litigation. SSC will promptly give to each Lender notice of all
legal or arbitral proceedings, and of all proceedings by or before any
governmental or regulatory authority or agency, and any material development in
respect of such legal or other proceedings, affecting SSC or any of its
Subsidiaries, except proceedings that, if adversely determined, would not
reasonably be expected (either individually or in the aggregate) to have a
Material Adverse Effect. Without limiting the generality of the foregoing, SSC
will give to each Lender notice of the assertion of any Environmental Claim by
any Person against, or with respect to the activities of, SSC or any of its
Subsidiaries and notice of any alleged violation of or non-compliance with any
Environmental Laws or any permits, licenses or authorizations, other than any
Environmental Claim or alleged violation that, if adversely determined, would
not reasonably be expected (either individually or in the aggregate) to have a
Material Adverse Effect.
9.03 Existence, Etc. SSC will, and will cause each of its Restricted
Subsidiaries to:
(a) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises (provided that
nothing in this Section 9.03 shall prohibit any transaction expressly
permitted under Section 9.05 hereof);
(b) comply with the requirements of all applicable laws, including
but not limited to Environmental Laws, rules, regulations and orders of
governmental or regulatory authorities if failure to comply with such
requirements
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could reasonably be expected (either individually or in the aggregate) to
have a Material Adverse Effect;
(c) pay and discharge all material taxes, assessments and
governmental charges or levies imposed on it or on its income or profits
or on any of its Property prior to the date on which penalties attach
thereto, except for any such tax, assessment, charge or levy the payment
of which is being contested in good faith and by proper proceedings and
against which adequate reserves are being maintained;
(d) maintain all of its material Properties used or useful in its
business in good working order and condition, ordinary wear and tear
excepted;
(e) keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied; and
(f) permit representatives of any Lender or the Administrative
Agent, during normal business hours, to examine, copy and make extracts
from its books and records, to inspect any of its Properties, and to
discuss its business and affairs with its officers, all to the extent
reasonably requested by such Lender or the Administrative Agent (as the
case may be).
9.04 Insurance. SSC will, and will cause each of its Restricted
Subsidiaries to, maintain insurance with financially sound and reputable
insurance companies, and with respect to Property and risks of a character
usually maintained by corporations engaged in the same or similar business
similarly situated, against loss, damage and liability of the kinds and in the
amounts customarily maintained by such corporations, provided that SSC will in
any event maintain (with respect to itself and each of its Restricted
Subsidiaries) casualty insurance and insurance against claims for damages with
respect to defamation, libel, slander, privacy or other similar injury to person
or reputation (including misappropriation of personal likeness), in such amounts
as are then customary for Persons engaged in the same or similar business
similarly situated. SSC will in any event maintain (with respect to itself and
each of its Restricted Subsidiaries):
(1) Casualty Insurance -- insurance against loss or damage covering
all of the tangible real and personal Property and improvements of SSC and
each of its Restricted Subsidiaries by reason of any Peril (as defined
below) in
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such amounts (subject to such deductibles as shall be satisfactory to the
Majority Lenders) as shall be reasonable and customary and sufficient to
avoid the insured named therein from becoming a co-insurer of any loss
under such policy but in any event in an amount (i) in the case of fixed
assets and equipment (including, without limitation, vehicles), at least
equal to 100% of the actual replacement cost of such assets (including,
without limitation, foundation, footings and excavation costs), subject to
deductibles as aforesaid and (ii) in the case of inventory, not less than
the fair market value thereof, subject to deductibles as aforesaid.
(2) Automobile Liability Insurance for Bodily Injury and Property
Damage -- insurance against liability for bodily injury and property
damage in respect of all vehicles (whether owned, hired or rented by SSC
or any of its Restricted Subsidiaries) at any time located at, or used in
connection with, its Properties or operations in such amounts as are then
customary for vehicles used in connection with similar Properties and
businesses, but in any event to the extent required by applicable law.
(3) Comprehensive General Liability Insurance --insurance against
claims for bodily injury, death or Property damage occurring on, in or
about the Properties (and adjoining streets, sidewalks and waterways) of
SSC and its Restricted Subsidiaries, in such amounts as are then customary
for Property similar in use in the jurisdictions where such Properties are
located.
(4) Workers' Compensation Insurance -- workers' compensation
insurance (including, without limitation, Employers' Liability Insurance)
to the extent required by applicable law.
(5) Product Liability Insurance -- insurance against claims for
bodily injury, death or Property damage resulting from the use of products
sold by SSC or any of its Restricted Subsidiaries in such amounts as are
then customarily maintained by responsible persons engaged in businesses
similar to that of SSC and its Restricted Subsidiaries.
(6) Business Interruption Insurance -- insurance against loss of
operating income (up to an aggregate amount equal to $500,000 and subject
to a deductible, or
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self-insured amount, not in excess of $100,000) by reason of any Peril.
(7) Other Insurance -- such other insurance, as generally carried by
owners of similar Properties in the jurisdictions where such Properties
are located, in such amounts and against such risks as are then customary
for Property similar in use.
Such insurance shall be written by financially responsible companies selected by
SSC and having an A. M. Best rating of "A" or better and being in a financial
size category of VII or larger, or by other companies acceptable to the Majority
Lenders, and (other than workers' compensation) shall name the Administrative
Agent as loss payee (to the extent covering risk of loss or damage to tangible
property) and as an additional named insured as its interests may appear (to the
extent covering any other risk). Each policy referred to in this Section 9.04
shall provide that it will not be canceled or reduced, or allowed to lapse
without renewal, except after not less than 10 days' notice to the
Administrative Agent and shall also provide that the interests of the
Administrative Agent and the Lenders shall not be invalidated by any act or
negligence of the Obligors or any Person having an interest in any Property
covered by the Mortgage nor by occupancy or use of any such Property for
purposes more hazardous than permitted by such policy nor by any foreclosure or
other proceedings relating to such Property. SSC will advise the Administrative
Agent promptly of any policy cancellation, reduction or amendment.
On or before the Restatement Effective Date, SSC will deliver to the
Administrative Agent certificates of insurance satisfactory to the
Administrative Agent evidencing the existence of all insurance required to be
maintained by SSC hereunder setting forth the respective coverages, limits of
liability, carrier, policy number and period of coverage and showing that such
insurance will remain in effect at least through December 31, 1997, subject only
to the payment of premiums as they become due (and attaching copies of or
certificates evidencing any policies with respect to casualty insurance).
Thereafter, not later than 5 days prior to the stated termination date of any
policy of insurance required to be maintained by SSC hereunder, SSC will deliver
to the Administrative Agent a certificate of insurance evidencing that such
policy has been extended for at least one year, subject only to the payment of
premiums as they become due. SSC will not obtain or carry separate insurance
concurrent in form or contributing in the event of loss with that required by
this Section 9.04 unless the Administrative Agent is
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the named insured thereunder, with loss payable as provided herein. SSC will
immediately notify the Administrative Agent whenever any such separate insurance
is obtained and shall deliver to the Administrative Agent the certificates
evidencing the same.
Without limiting the obligations of SSC under the foregoing
provisions of this Section 9.04, in the event SSC shall fail to maintain in full
force and effect insurance as required by the foregoing provisions of this
Section 9.04, then the Administrative Agent may, but shall have no obligation so
to do, procure insurance covering the interests of the Lenders and the
Administrative Agent in such amounts and against such risks as the
Administrative Agent (or the Majority Lenders) shall deem appropriate, and SSC
shall reimburse the Administrative Agent in respect of any premiums paid by the
Administrative Agent in respect thereof.
For purposes hereof, the term "Peril" shall mean, collectively,
fire, lightning, flood, windstorm, hail, explosion, riot and civil commotion,
vandalism and malicious mischief, damage from aircraft, vehicles and smoke and
all other perils covered by the "all-risk" endorsement then in use in the
jurisdictions where the Properties of SSC and its Restricted Subsidiaries are
located.
9.05 Prohibition of Fundamental Changes. SSC will not, nor will it
permit any of its Restricted Subsidiaries to, enter into any transaction of
merger or consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution).
SSC will not, nor will it permit any of its Restricted Subsidiaries
to, acquire any business or Property from, or capital stock of, or be a party to
any acquisition of, any Person except for acquisitions permitted by paragraph
(e) below, purchases of inventory and other Property to be sold or used in the
ordinary course of business, Investments permitted under Section 9.08 hereof,
and Capital Expenditures permitted under Section 9.12 hereof.
SSC will not, nor will it permit any of its Restricted Subsidiaries
to, convey, sell, lease, transfer or otherwise dispose of, in one transaction or
a series of transactions, any part of its business or Property, whether now
owned or hereafter acquired (including, without limitation, receivables and
leasehold interests, but excluding (i) obsolete or worn-out Property, tools or
equipment no longer used or useful in its
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business so long as the amount thereof sold in any single fiscal year by SSC and
its Restricted Subsidiaries shall not have a fair market value in excess of
$500,000 and (ii) any inventory or other Property licensed, leased, sold or
disposed of in the ordinary course of business and on ordinary business terms).
Notwithstanding the foregoing provisions of this Section 9.05 (but subject to
the last sentence of this Section 9.05):
(a) any Restricted Subsidiary of a Borrower may be merged or
consolidated with or into: (i) a Borrower if such Borrower shall be the
continuing or surviving corporation or (ii) any other such Restricted
Subsidiary; provided that (x) if any such transaction shall be between a
Subsidiary and a Wholly Owned Subsidiary, the Wholly Owned Subsidiary
shall be the continuing or surviving corporation and (y) that if any such
transaction shall be between a Guarantor and a Subsidiary not a Guarantor,
and such Guarantor is not the continuing or surviving corporation, then
the continuing or surviving corporation shall have assumed all of the
obligations of such Guarantor hereunder and under the other Loan
Documents;
(b) any Borrower or any Restricted Subsidiary of a Borrower may
sell, lease, transfer or otherwise dispose of any or all of its Property
(upon voluntary liquidation or otherwise) to a Borrower or a Restricted
Subsidiary that is a Wholly Owned Subsidiary of a Borrower; provided that
(i) if any such sale, lease, transfer or other disposition is by a
Borrower, then the transferee shall be a Borrower and (ii) if any such
sale, lease, transfer or other disposition is by a Guarantor to a
Subsidiary of a Borrower not a Guarantor, then such Subsidiary shall have
assumed all of the obligations of such Guarantor hereunder and under the
other Loan Documents;
(c) the Borrowers or any Restricted Subsidiary of the Borrowers may
merge or consolidate with any other Person if (i) in the case of a merger
or consolidation of a Borrower, a Borrower is the surviving corporation
and, in any other case, the surviving corporation is a Restricted
Subsidiary that is a Wholly Owned Subsidiary of a Borrower and (ii) after
giving effect thereto no Default would exist hereunder;
(d) SSC and its Restricted Subsidiaries may consummate the
Transactions;
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(e) SSC and its Restricted Subsidiaries may acquire any business
consisting of manufacturing and/or selling specialty chemicals products or
otherwise engaged in the specialty chemicals business, and closely related
businesses or businesses incidental thereto (collectively, the "Specialty
Chemicals Business"), and the related assets or stock (by merger or
consolidation or otherwise), and subject to clause (iv) below and Section
9.05(h) hereof, any business unrelated to the Specialty Chemicals
Business, so long as:
(i) no Default exists either before or after giving effect
thereto;
(ii) SSC shall have demonstrated in reasonable detail after
giving effect to such acquisition and any borrowings in connection
with such acquisition that SSC is in compliance with Section 9.10
hereof and shall have furnished to the Lenders projections
demonstrating that SSC will be in compliance for the period from the
date of such acquisition through the twelve-month anniversary of
such acquisition;
(iii) SSC shall have provided the Lenders with not less than
10 Business Days' prior notice of each such acquisition, together
with copies of the documentation for such acquisition as and when
the same become available, and the Majority Lenders or the
Administrative Agent shall not have objected to such documentation;
and
(iv) any portion of such business that is not a Specialty
Chemicals Business shall comprise less than the greater of (x)
$4,000,000 or (y) 10% of the value of the business so acquired, as
determined by SSC in good faith using any reasonable methodology;
(f) SSC and its Restricted Subsidiaries may sell Properties having
an aggregate fair market value not exceeding $5,000,000 in any fiscal year
of SSC;
(g) SSC and its Restricted Subsidiaries may consummate the Mercer
Disposition for fair market value, provided that not less than 80% of the
consideration received therefor consists of cash;
(h) if any acquisition by SSC or any of its Restricted Subsidiaries
permitted by Section 9.05(e) hereof includes
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any business that is not a Specialty Chemicals Business (as defined in
said Section 9.05(e)), SSC or such Restricted Subsidiary shall, within
twelve months of such acquisition, sell such business;
(i) Evode may sell its grinding operations; and
(j) SSC and its Restricted Subsidiaries may sell accounts receivable
in connection with the collection or compromise thereof in the ordinary
course of their business.
In no event shall SSC or any of its Subsidiaries make any tender offer or other
public offer for any capital stock or partnership or other equity interest
issued by any Person unless a majority of the board of directors or similar
governing body of such Person shall have adopted a resolution approving such
offer.
9.06 Limitation on Liens. SSC will not, nor will it permit any of
its Restricted Subsidiaries to, create, incur, assume or suffer to exist any
Lien upon any of its Property, whether now owned or hereafter acquired, except:
(a) Liens created pursuant to the Security Documents;
(b) Liens in existence on the date hereof that either (x) are listed
in Part B of Schedule I hereto or (y) secure Indebtedness the aggregate
principal or face amount of which is less than $100,000, and renewals or
replacements thereof provided that the amount of the obligations secured
thereby is not increased, and such Liens are not spread to cover any
additional Property;
(c) Liens imposed by any governmental authority for taxes,
assessments or charges not yet due or either that do not exceed $100,000
in the aggregate or that are being contested in good faith and by
appropriate proceedings if (in the case of such contested taxes) adequate
reserves with respect thereto are maintained on the books of SSC or the
affected Restricted Subsidiaries, as the case may be, in accordance with
GAAP;
(d) carriers', warehousemen's, mechanics', materialmen's,
landlord's, repairmen's or other like Liens arising in the ordinary course
of business that are not overdue for a period of more than 30 days or that
are being contested in good faith and by appropriate proceedings and Liens
securing judgments but only to the extent for an
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amount and for a period not resulting in an Event of Default under Section
10(i) hereof;
(e) pledges or deposits under worker's compensation, unemployment
insurance and other social security legislation;
(f) deposits to secure the performance of bids, trade contracts
(other than for Indebtedness), leases, statutory obligations, insurance,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on
the use of Property or minor imperfections in title thereto that, in the
aggregate, are not material in amount, and that do not in any case
materially detract from the value of the Property subject thereto or
interfere with the ordinary conduct of the business of SSC or any of its
Restricted Subsidiaries;
(h) additional Liens upon real and/or personal Property created
after the date hereof, provided that the aggregate Indebtedness secured
thereby and incurred on and after the date hereof shall not exceed
$4,000,000 in the aggregate at any one time outstanding.
(i) Liens on Property of any Person that becomes a Restricted
Subsidiary of SSC after the date hereof, provided that such Liens are in
existence at the time such corporation becomes a Restricted Subsidiary of
SSC and were not created in anticipation thereof;
(j) Liens upon real and/or tangible personal Property acquired after
the date hereof by SSC or any of its Restricted Subsidiaries that existed
on such Property before the time of its acquisition and were not created
in anticipation thereof; provided that no such Lien shall extend to or
cover any Property of SSC or such Restricted Subsidiary other than the
Property so acquired and improvements thereon;
(k) rights of set-off held by banks by operation of law or pursuant
to customary deposit agreements against deposits held at or certificates
of deposit issued by such banks so long as such deposits or certificates
of deposit
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are made or acquired in the ordinary course of business and not in
anticipation of the incurrence of any Indebtedness;
(l) the interests of licensors, lessors, sublessors, licensees,
lessees and sublicensees in licenses and leases entered into in the
ordinary course of business and not securing Indebtedness;
(m) Liens on capital stock of, or partnership interests or other
equity interests in, Unrestricted Subsidiaries securing obligations of
Unrestricted Subsidiaries; and
(n) Liens on Property located outside of the United States of
America of any Restricted Subsidiary the jurisdiction of organization of
which and the principal place of business of which is located outside of
the United States of America to the extent that such Liens secure the
Indebtedness of such Restricted Subsidiary permitted by Section 9.07(f)
hereof.
9.07 Indebtedness. SSC will not, nor will it permit any of its
Restricted Subsidiaries to, create, incur or suffer to exist any Indebtedness
except:
(a) Indebtedness to the Lenders hereunder and under the other
Transaction Documents;
(b) Indebtedness outstanding on the date hereof that either (x) is
listed in Part A of Schedule I hereto or (y) has an aggregate principal or
face amount less than $100,000, and renewals or refinancings thereof
provided that the aggregate amount thereof is not increased;
(c) Subordinated Indebtedness;
(d) Indebtedness of Restricted Subsidiaries of SSC to SSC or to
other Restricted Subsidiaries of SSC;
(e) Indebtedness of any Person that becomes a Restricted Subsidiary
of SSC after the date hereof, provided that such Indebtedness is
outstanding at the time such Person becomes a Restricted Subsidiary of SSC
and is not created in anticipation thereof;
(f) additional Indebtedness of SSC and its Restricted Subsidiaries
(including without limitation, Capital Lease Obligations and other
Indebtedness secured by Liens
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permitted under Section 9.06(h) hereof) up to but not exceeding $2,000,000
at any one time outstanding;
(g) Indebtedness of any Restricted Subsidiary the jurisdiction of
organization of which and the principal place of business of which is
located outside of the United States of America to the extent that such
Indebtedness is incurred to provide working capital for such Restricted
Subsidiary and that the aggregate amount of all such Indebtedness of all
such Restricted Subsidiaries at any one time outstanding does not exceed
the Dollar Equivalent of $10,000,000;
(h) Indebtedness incurred in connection with financing the costs of
insurance premiums in the ordinary course of business and to the extent
customary for Persons situated similarly to SSC and its Restricted
Subsidiaries; and
(i) obligations under incentive, earn-out or other similar
arrangements incurred in connection with acquisitions permitted hereunder,
provided that, if there is a reasonable possibility that the amounts to be
paid thereunder by SSC and its Restricted Subsidiaries will be material,
the same shall have been approved by the Administrative Agent and the
Majority Lenders.
In no event shall SSC or any of its Restricted Subsidiary be liable, directly or
contingently, for any Contingent Repurchase Obligation.
9.08 Investments. SSC will not, nor will it permit any of its
Restricted Subsidiaries to, make or permit to remain outstanding any Investments
except:
(a) Investments outstanding on the date hereof that either (x) are
identified in Part C of Schedule II hereto or (y) have an individual fair
market value less than $200,000 as of the Restatement Effective Date
(provided, that the aggregate fair market value of all such Investments as
of the Restatement Effective Date not identified in said Part C shall not
exceed $1,000,000);
(b) operating deposit accounts with banks;
(c) Permitted Investments;
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(d) Investments by SSC and its Restricted Subsidiaries in or to SSC
and any of its Wholly Owned Subsidiaries that are Restricted Subsidiaries;
(e) Hedging Agreements entered into as bona fide hedges against
fluctuations in interest rates, foreign currency exchange rates or
commodity chemicals prices, and not for speculative purposes;
(f) capital stock of any Person acquired in the Acquisition or in
other acquisitions permitted by Section 9.05 hereof if, after giving
effect thereto, such Person is a Restricted Subsidiary of SSC;
(g) Investments in Restricted Subsidiaries that are not Wholly Owned
Subsidiaries and in joint ventures in an aggregate amount for all such
Restricted Subsidiaries and joint ventures not exceeding at any time
outstanding the sum of $10,000,000 plus the aggregate amount of such
Investments made with the Net Available Proceeds of Debt Issuances;
(h) Investments in Restricted Subsidiaries that are not Wholly Owned
Subsidiaries and in joint ventures made with the Net Available Proceeds of
Equity Issuances;
(i) promissory notes, and earn-out obligations and similar rights,
obtained in connection with sales of Properties permitted hereby;
(j) promissory notes and other securities received in settlement of
disputed claims;
(k) deposits constituting Liens permitted by Section 9.06 hereof;
(l) loans to employees of SSC and its Restricted Subsidiaries in an
amount not exceeding at any one time outstanding $200,000 per employee,
provided that the aggregate amount thereof (together with loans to
employees of SSC and its Restricted Subsidiaries permitted by Section
9.08(a) hereof) for all such employees does not exceed $2,670,315 at any
one time outstanding;
(m) capital stock of, or partnership interests or other equity
interests in, Unrestricted Subsidiaries held by SSC or any of its
Subsidiaries at the respective times the relevant Subsidiaries are
designated Unrestricted
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Subsidiaries (but excluding capital contributions made thereafter);
(n) prepaid expenses incurred and prepaid in the ordinary course of
business; and
(o) additional Investments in an aggregate amount not exceeding
$1,000,000 at any time outstanding.
9.09 Restricted Payments. SSC will not make any Restricted Payment
at any time, except that (a) SSC or any of its Restricted Subsidiaries may make
cash dividends to the Partnership quarterly in respect of each tax year of the
Partnership in an amount equal to the estimated portion of Tax Payment Amount
for the Partnership for such tax payable for such quarter, so long as at least
fifteen days prior to making any such Restricted Payment, SSC shall have
delivered to each Lender (i) notification of the amount and proposed payment
date of such Restricted Payment and (ii) a statement from the chief financial
officer of SSC setting forth a detailed calculation of the estimated portion of
such Tax Payment Amount for such quarter, (b) if no Default shall have occurred
and be continuing or would result therefrom, SSC may make cash dividends to the
Partnership to enable the Partnership to pay Contingent Repurchase Obligations
that have become owing provided that, except to the extent paid with the Net
Available Proceeds of Equity Issuances, such amount paid in any fiscal year of
SSC does not exceed $1,000,000 (provided that the unused availability for
Restricted Payments permitted by this clause (b) for any fiscal year of SSC
(beginning with its fiscal year ending December 31, 1997) may be carried forward
into subsequent years until it is used so long as the aggregate amount of
Restricted Payments made as permitted by this clause (b) (excluding any portion
thereof paid with the Net Available Proceeds of Equity Issuances) does not
exceed $4,000,000 in any fiscal year of SSC, (c) SSC may make the Restricted
Payments referred to in the definition of "Transactions" in Section 1.01 hereof
on the Restatement Effective Date, (d) if no Default shall have occurred and be
continuing or would result therefrom, SSC may make cash dividends to the
Partnership on the dates and in the amounts required to pay Subordinated
Indebtedness of the Partnership, (e) cash distributions to the Partnership to
pay fees and expenses (including directors fees and employee salaries) of the
General Partner and the Partnership and (f) other Restricted Payments in any
fiscal year not to exceed $2,000,000. Not later than October 16 of each year,
SSC shall furnish to the Administrative Agent a certificate of a firm of
independent certified public accountants setting forth in reasonable detail
calculations demonstrating
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that the Tax Payment Amounts paid by SSC in the preceding calendar year were
accurate. In preparing such certificate, such firm may rely on certificates of
independent public accountants for the Partnership (or investor in the
Partnership, as applicable) as to the actual combined marginal Federal, state
and local income tax rates (after giving effect to the deductibility of state
and local income taxes) applicable to the Partnership (or investor, as
applicable) unless such combined rates exceed the highest theoretical combined
marginal Federal, state and local income tax rates (after giving effect to the
deductibility of state and local income taxes), as determined by such firm.
Nothing herein shall be deemed to prohibit the payment of dividends by any
Restricted Subsidiary of SSC to SSC or to any other Restricted Subsidiary of
SSC.
9.10 Certain Financial Covenants.
(a) Leverage Ratio. SSC will not permit the Leverage Ratio to exceed
the following respective ratios at any time during the following respective
periods:
Period Ratio
------ -----
March 31, 1998 through
March 31, 1999 5.75 to 1
April 1, 1999 through
September 30, 1999 5.25 to 1
October 1, 1999 through
June 30, 2000 4.75 to 1
July 1, 2000 through
September 30, 2000 4.50 to 1
October 1, 2000 through
March 31, 2001 4.25 to 1
April 1, 2001 through
June 30, 2001 4.00 to 1
July 1, 2001 through
September 30, 2001 3.75 to 1
October 1, 2001 and
thereafter 3.50 to 1
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(b) Net Worth. SSC will not permit Net Worth to be less than the
following respective amounts at any time during the following respective
periods:
Period Amount
------ ------
Restatement Effective Date
through March 30, 1999 $44,000,000
March 31, 1999 through
September 29, 1999 $46,000,000
September 30, 1999 through
March 30, 2000 $48,000,000
March 31, 2000 through
September 29, 2000 $50,000,000
September 30, 2000 through
March 30, 2001 $52,500,000
March 31, 2001 through
September 29, 2001 $55,000,000
September 30, 2001 through
March 30, 2002 $57,500,000
March 31, 2002 through
September 29, 2002 $60,000,000
September 30, 2002 through
March 30, 2003 $62,500,000
March 31, 2003 through
September 29, 2003 $65,000,000
September 30, 2003 and
thereafter $67,500,000
(c) Interest Coverage Ratio. SSC will not permit the Interest
Coverage Ratio to be less than the following respective ratios as at the last
day of any fiscal quarter ending during the following respective periods:
Period Ratio
------ -----
March 31, 1998 through
March 30, 1999 1.75 to 1
March 31, 1999 through
March 30, 2000 2.00 to 1
March 31, 2000 through
March 30, 2001 2.25 to 1
March 31, 2001 through
March 30, 2002 2.50 to 1
March 31, 2002 through
March 30, 2003 2.75 to 1
March 31, 2003 and
thereafter 3.00 to 1
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9.11 Management Fees. SSC will not permit the aggregate amount of
Management Fees payable in respect of any fiscal year of SSC to exceed $250,000
plus the amount of any reasonable out-of-pocket expenses incurred by the Manager
or any Affiliate of SSC in connection with the operation of the Partnership, SSC
and its Subsidiaries, provided that Management Fees may not be paid (i) more
than quarterly in advance, (ii) at any time after a Default shall have occurred
and be continuing or (iii) to any Person other than the Partnership, First
Chicago Equity Corp., Waud Capital Partners, L.L.C. or Affiliates of First
Chicago Equity Corp. or Waud Capital Partners, L.L.C.
9.12 Capital Expenditures. SSC will not permit the aggregate amount
of Capital Expenditures (excluding Capital Expenditures made from Escrowed
Funds, from the Net Available Proceeds of Casualty Events, Equity Issuances or
Dispositions, from amounts offset against the Seller Note in accordance with the
terms thereof and from amounts received from Persons other than SSC and its
Subsidiaries pursuant to indemnities for Environmental Claims) by SSC and its
Restricted Subsidiaries to exceed for any period set forth below the amount set
forth below opposite such period:
Fiscal Year Amount
----------- ------
1997 $5,500,000
1998 5,500,000
1999 5,000,000
2000 5,000,000
2001 5,000,000
2002 5,000,000
2003 5,000,000
If the aggregate amount of Capital Expenditures for any fiscal year shall be
less than the amount permitted for such fiscal year, then the shortfall shall be
added to the amount of Capital Expenditures permitted for the immediately
succeeding (but not any other) fiscal year and, for purposes hereof, the amount
of Capital Expenditures made during any period shall be deemed to have been made
first from the permitted amount for such fiscal year and last from the amount of
any carryover from any previous fiscal year.
9.13 Holding Company. Notwithstanding anything contained herein to
the contrary, SSC shall at all times be a Holding Company.
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9.14 Subordinated Indebtedness. SSC will not, nor will it permit any
of its Subsidiaries to, purchase, redeem, retire or otherwise acquire for value,
or set apart any money for a sinking, defeasance or other analogous fund for the
purchase, redemption, retirement or other acquisition of, or make any voluntary
payment or prepayment of the principal of or interest on, or any other amount
owing in respect of, any Subordinated Indebtedness, except (subject to the terms
of subordination thereof) for (i) regularly scheduled payments or prepayments of
principal and interest in respect thereof required pursuant to the instruments
evidencing such Subordinated Indebtedness, (ii) offsets against the Seller
Subordinated Note in accordance with the terms thereof and (iii) exchanges of
Senior Subordinated Notes for other Senior Subordinated Notes in accordance with
the Registration Rights Agreement. SSC will not permit any Indebtedness, other
than Indebtedness hereunder, to be "Designated Senior Indebtedness" under, and
as defined in the Senior Subordinated Notes Indenture on the Exchange Securities
Indenture.
9.15 Lines of Business. SSC will not, nor will it permit any of its
Subsidiaries to, engage to any substantial extent in any line or lines of
business activity other than the specialty chemicals products business and
closely related businesses or businesses incidental thereto.
9.16 Transactions with Affiliates. Except as expressly permitted by
this Agreement or as set forth in Schedule IV, SSC will not, nor will it permit
any of its Restricted Subsidiaries to, directly or indirectly: (a) make any
Investment in an Affiliate of SSC; (b) transfer, sell, lease, assign or
otherwise dispose of any Property to an Affiliate of SSC; (c) merge into or
consolidate with or purchase or acquire Property from an Affiliate of SSC; (d)
make any contribution towards, or reimbursement for, any Federal income taxes
payable by any Partner or any of its Subsidiaries in respect of income of SSC;
or (e) enter into any other transaction directly or indirectly with or for the
benefit of an Affiliate of SSC (including, without limitation, Guarantees and
assumptions of obligations of an Affiliate of SSC); provided that (x) any
Affiliate of SSC who is an individual may serve as a director, officer or
employee of SSC or any of its Restricted Subsidiaries and receive reasonable
compensation for his or her services in such capacity and (y) SSC and its
Restricted Subsidiaries may enter into transactions (other than extensions of
credit by SSC or any of its Subsidiaries to an Affiliate of SSC) providing for
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the leasing of Property, the rendering or receipt of services or the purchase or
sale of inventory and other Property in the ordinary course of business if the
monetary or business consideration arising therefrom would be substantially as
advantageous to SSC and its Restricted Subsidiaries as the monetary or business
consideration that would obtain in a comparable transaction with a Person not an
Affiliate of SSC.
9.17 Use of Proceeds. SSC will use the proceeds of the Loans
hereunder solely to provide part of the financing for the Acquisition (including
related fees and expenses), to refinance existing Indebtedness, to finance the
ongoing working capital requirements of SSC and its Restricted Subsidiaries and
to finance other acquisitions permitted hereunder (in compliance with all
applicable legal and regulatory requirements); provided that neither the
Administrative Agent nor any Lender shall have any responsibility as to the use
of any of such proceeds. SSC will use the proceeds of the Acquisition Loans
solely for the purpose of financing acquisitions permitted by Section 9.05(e)
hereof.
9.18 Certain Obligations Respecting Restricted Subsidiaries.
(a) Guarantors. In the event that SSC or any of its Restricted
Subsidiaries shall form or acquire any new Restricted Subsidiary, SSC will cause
such new Restricted Subsidiary (so long as such new Restricted Subsidiary is not
a "controlled foreign corporation" within the meaning of Section 957 of the
Code) to become a "Guarantor" (and, thereby, an "Obligor") hereunder, and to
pledge and grant a security interest in its Property pursuant to the Security
Agreement to the Administrative Agent for the benefit of the Lenders, pursuant
to a written instrument in form and substance satisfactory to the Administrative
Agent and to deliver such proof of corporate action, incumbency of officers,
opinions of counsel and other documents as is consistent with those delivered by
each "Obligor" pursuant to Section 7.01 hereof upon the Restatement Effective
Date or as the Administrative Agent shall have requested.
(b) Ownership of Restricted Subsidiaries. SSC will, and will cause
each of its Restricted Subsidiaries to, take such action from time to time as
shall be necessary to ensure that each of its Restricted Subsidiaries is a
Wholly Owned Subsidiary, except as permitted by Section 9.08 hereof. In the
event that any additional shares of stock, partnership or membership or similar
equity interests shall be issued by any Restricted Subsidiary to any Obligor,
such Obligor agrees forthwith to
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deliver to the Administrative Agent pursuant to the Security Agreement the
certificates evidencing such shares of stock, accompanied by undated stock
powers executed in blank and to take such other action as the Administrative
Agent shall request to perfect the security interest created therein pursuant to
the Security Agreement; provided that, notwithstanding anything contained herein
to the contrary, no capital stock of any "controlled foreign corporation" within
the meaning of Section 957 of the Code (other than 65% of the capital stock of
each class of each such "controlled foreign corporation" directly owned by an
Obligor) shall be pledged under the Security Agreement.
(c) Certain Restrictions. SSC will not permit any of its Restricted
Subsidiaries to enter into, after the date hereof, any indenture, agreement,
instrument or other arrangement that, directly or indirectly, prohibits or
restrains, or has the effect of prohibiting or restraining, or imposes
materially adverse conditions upon, the incurrence or payment of Indebtedness,
the granting of Liens, the declaration or payment of dividends, the making of
loans, advances or Investments or the sale, assignment, transfer or other
disposition of Property, except for any prohibition or restraint as to the
granting of Liens on, or sales, assignments, transfers or other dispositions of,
Property that is covered by a Lien in favor of any other Person (except for SSC
or any of its Subsidiaries or Affiliates) permitted by 9.06 hereof or that is
the subject of a lease with any Person (except for SSC or any of its
Subsidiaries or Affiliates).
9.19 Modifications of Certain Documents. SSC will not consent to
(a) any modification, supplement or waiver of any of the provisions
of the Acquisition Documents,
(b) any modification, supplement or waiver of any of the provisions
of the Investors Agreement, the Equity Documents or the organizational
documents of any Obligor to the extent that such modification, supplement
or waiver is materially adverse to any Obligor or to the interests of the
Administrative Agent or the Lenders or
(c) any modification, supplement or waiver of any of the provisions
of the Subordinated Debt Documents or any agreement, instrument or other
document evidencing or relating to Subordinated Indebtedness, other than
the Subordinated Debt Documents, to the extent that the Administrative
Agent reasonably determines that such
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modification, supplement or waiver is adverse to any Obligor or the
interests of the Administrative Agent or the Lenders.
9.20 Equity Issuance. SSC will not, nor will not permit its
Restricted Subsidiaries to, effect any Equity Issuance, except that SSC may make
an Equity Issuance to the Partnership and, if no Default shall have occurred and
be continuing or would result therefrom, SSC may make a Qualifying Public
Offering.
9.21 Newly-Acquired Real Property.
(a) Not later than 60 days after the date of acquisition, SSC shall
take the following actions with respect to any interests in real property
acquired by SSC or any of its Restricted Subsidiaries after the date hereof (but
excluding (x) real property having a fair market value of less than $500,000 and
(if leased) with annual rental payments of less than $200,000 (provided, that,
the aggregate fair market value of all such real property is less than
$2,000,000 and (if leased) has aggregate annual rental payments of less than
$500,000), and that is not material to the business of such Borrower or
Restricted Subsidiary and (y) real property located outside the United States of
America):
(i) cause such interests to be mortgaged to the Administrative Agent
as security for its obligations under the Loan Documents pursuant to a
mortgage, deed of trust or similar instrument in form and substance
satisfactory to the Administrative Agent in its reasonable judgment;
(ii) in the case of leases under which such owner is lessee, use its
best efforts to cause the respective landlords to execute such estoppel
agreements, cause such leases to be recorded in the appropriate county
land offices and take such other action as the Administrative Agent may
reasonably request to ensure that such leases are "mortgageable", as
determined by the Administrative Agent in its reasonable judgment;
(iii) cause to be issued by and delivered to the Administrative
Agent mortgagee policies of title insurance satisfactory to the
Administrative Agent in form and substance insuring the validity and
first-priority of the Liens created under each of the Mortgages for and in
amounts reasonably satisfactory to the Administrative Agent subject only
to Liens permitted by Section 9.06 hereof and
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containing such affirmative coverage and endorsements as the Lenders may
require;
(iv) cause to be delivered to the Administrative Agent, in respect
of each of the facilities covered by the Mortgages, as-built surveys, or
such other evidence demonstrating to the satisfaction of the
Administrative Agent that the improvements represented to the
Administrative Agent as being located on such facility are in fact located
thereon; and
(v) cause to be executed and delivered to the Administrative Agent
such other documentation as the Administrative Agent may reasonably
request in connection therewith, including, without limitation, Uniform
Commercial Code financing statements, certified corporate resolutions and
other corporate documents of the mortgagor and favorable opinions of
counsel to the mortgagor (which shall cover, among other things, the
legality, validity, binding effect and enforceability of such mortgage,
subject to customary exceptions satisfactory to the Administrative Agent
in its reasonable judgment).
(b) In connection with the foregoing clause (a)(iii) of this Section
9.21, the Borrowers shall pay all expenses and premiums in connection with the
issuance of the title insurance and in addition shall pay the recording and
stamp taxes payable in connection with recording each Mortgage in the
appropriate county land office.
9.22 Governmental Approvals. Each Obligor agrees that it will
promptly obtain from time to time at its own expense all such governmental
licenses, authorizations, consents, permits and approvals as may be required for
such Obligor to (a) comply with its obligations, and preserve its rights under,
each of the Loan Documents and (b) maintain the existence, priority and
perfection of the Liens purported to be created under the Security Documents.
9.23 Appraisal. SSC shall deliver to the Administrative Agent as
soon as available and in any event within 30 days after the Restatement
Effective Date, an appraisal prepared by a firm satisfactory to the
Administrative Agent in form and substance satisfactory to the Administrative
Agent covering the Acquired Facilities owned in fee.
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Section 10. Events of Default. If one or more of the following
events (herein called "Events of Default") shall occur and be continuing:
(a) Any Obligor shall (i) default in the payment when due (whether
at stated maturity or upon mandatory or optional prepayment) of any
principal of any Loan or any Reimbursement Obligation or (ii) default in
the payment when due (whether at stated maturity or upon mandatory or
optional prepayment) of any interest on any Loan or Reimbursement
Obligation, any fee or any other amount payable by them hereunder or under
any other Loan Document and, in the case of this clause (ii), such default
shall continue for two Business Days; or
(b) SSC or any of its Restricted Subsidiaries shall default in the
payment when due of any principal of or interest on any of its other
Indebtedness in an aggregate amount of $2,000,000 or more; or any event
(including the giving of any notice and the lapse of any grace period as
originally in effect (without giving effect to any extension of any such
grace period)) specified in any note, agreement, indenture or other
document evidencing or relating to any such Indebtedness shall occur if
the effect of such event is to cause, or to permit the holder or holders
of such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, such Indebtedness to become due, or to be prepaid in
full (whether by redemption, purchase, offer to purchase or otherwise),
prior to its stated maturity; or any Obligor shall default in the payment
when due of any amount under any Hedging Agreement that, if terminated,
would result in termination or liquidation payments owing by SSC or any of
its Restricted Subsidiaries in an aggregate amount of $1,000,000 or more;
or any event (including the giving of any notice and the lapse of any
grace period as originally in effect (without giving effect to any
extension of any such grace period))specified in any such Hedging
Agreement shall occur if the effect of such event is to cause, or to
permit, a termination or liquidation payment or payments to become due; or
(c) Any representation, warranty or certification made or deemed
made herein or in any other Loan Document (or in any modification or
supplement hereto or thereto) by any Credit Party, or any certificate
furnished to any Lender or the Administrative Agent pursuant to the
provisions hereof or thereof, shall prove to have been false or misleading
as of the time made or furnished in any material respect; or
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(d) SSC shall default in the performance of any of its obligations
under any of Sections 9.01(f), 9.01(h), 9.05, 9.06, 9.07, 9.08, 9.09,
9.10, 9.11, 9.12, 9.14, 9.16, 9.18 or 9.19 hereof; or any Obligor shall
default in the performance of any of its obligations under Section 4.02 or
5.02 of the Security Agreement; or SSC shall default in the performance of
any of its obligations under Section 4.02 of the Partnership Pledge
Agreement; or any Credit Party shall default in the performance of any of
its other obligations in this Agreement or any other Loan Document and
such default shall continue unremedied for a period of thirty or more days
after notice thereof to SSC by the Administrative Agent or any Lender
(through the Administrative Agent); or
(e) Any Credit Party, any of Significant Restricted Subsidiary or
any Significant Group of Restricted Subsidiaries shall admit in writing
its or their inability to, or be generally unable to, pay its or their
respective debts as such debts become due; or
(f) Any Credit Party, any Significant Restricted Subsidiary or any
Significant Group of Restricted Subsidiaries shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee, examiner or liquidator of itself or themselves or of
all or a substantial part of its or their respective Property, (ii) make a
general assignment for the benefit of its or their respective creditors,
(iii) commence a voluntary case under the Bankruptcy Code, (iv) file a
petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution,
arrangement or winding-up, or composition or readjustment of debts, (v)
fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it or them in an involuntary case
under the Bankruptcy Code or (vi) take any corporate action for the
purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the application
or consent of the affected Credit Party, any Significant Restricted
Subsidiary or any Significant Group of Restricted Subsidiaries, in any
court of competent jurisdiction, seeking (i) its or their reorganization,
liquidation, dissolution, arrangement or winding-up, or the composition or
readjustment of its or their debts, (ii) the appointment of a receiver,
custodian, trustee, examiner, liquidator or the like of such Obligor,
Significant
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Restricted Subsidiary or Significant Group of Restricted Subsidiaries or
of all or any substantial part of its Property or (iii) similar relief in
respect of such Obligor, Significant Restricted Subsidiary or Group of
Significant Group of Restricted Subsidiaries under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of
the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 or more days; or an order for relief against such Obligor,
Significant Restricted Subsidiary or Significant Group of Restricted
Subsidiaries shall be entered in an involuntary case under the Bankruptcy
Code; or
(h) The Partnership shall be terminated, dissolved or liquidated (as
a matter of law or otherwise) or proceedings shall be commenced by any
Person (including the Partnership) seeking the termination, dissolution or
liquidation of the Partnership; or
(i) A final judgment or judgments for the payment of money of
$200,000 or more in the aggregate shall be rendered by one or more courts,
administrative tribunals or other bodies having jurisdiction against SSC
or any of its Restricted Subsidiaries and the same shall not be discharged
(or provision shall not be made for such discharge), or a stay of
execution thereof shall not be procured, within 30 days from the date of
entry thereof and the affected Borrower or Restricted Subsidiary shall
not, within said period of 30 days, or such longer period during which
execution of the same shall have been stayed, appeal therefrom and cause
the execution thereof to be stayed during such appeal; or
(j) An event or condition specified in Section 9.01(e) hereof shall
occur or exist with respect to any Plan or Multiemployer Plan and, as a
result of such event or condition, together with all other such events or
conditions, any Obligor or any ERISA Affiliate shall incur or in the
opinion of the Majority Lenders shall be reasonably likely to incur a
liability to a Plan, a Multiemployer Plan or the PBGC (or any combination
of the foregoing) that, in the determination of the Majority Lenders,
would (either individually or in the aggregate) have a Material Adverse
Effect; or
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(k) There shall have been asserted against SSC or any of its
Subsidiaries an Environmental Claim that, in the judgment of the Majority
Lenders is reasonably likely to be determined adversely to SSC or any of
its Subsidiaries, and the amount thereof (either individually or in the
aggregate) is reasonably likely to have a Material Adverse Effect (insofar
as such amount is payable by SSC or any of its Subsidiaries but after
deducting any portion thereof that is reasonably expected to be paid by
other creditworthy Persons jointly and severally liable therefor); or
(l) A Change of Control shall occur; or
(m) The Liens created by the Security Documents shall at any time
not constitute a valid and perfected Lien on the collateral intended to be
covered thereby (to the extent perfection by filing, registration,
recordation or possession is required herein or therein) in favor of the
Administrative Agent, free and clear of all other Liens (other than Liens
permitted under Section 9.06 hereof or under the respective Security
Documents), or, except for expiration in accordance with its terms, any of
the Security Documents shall for whatever reason be terminated or cease to
be in full force and effect, or the enforceability thereof shall be
contested by any Obligor; or
(n) The Guarantee created under Section 6 hereof or the
subordination provisions of any Subordinated Indebtedness shall be
contested by any Credit Party; or
(o) SSC shall not have received on or before December 31, 1997, as a
contribution to its capital from the Partnership, promissory notes (in
addition to the Management Notes contributed as contemplated by Section
7.01(o) hereof) execited and delivered by management employees of the
Partnership in an aggregate principal amount of at least $170,315 in
exchange for the issuance of limited partnership interests in the
Partnership and capital stock in the General Partner;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 10 with respect to any Obligor, the Majority
Lenders may through the Administrative Agent, by notice to the Borrowers,
terminate the Commitments and/or declare the principal amount then outstanding
of, and the accrued interest on, the Loans, the Reimbursement Obligations and
all other amounts payable by the Obligors hereunder and under the Notes
(including, without limitation, any
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amounts payable under Section 5.05 or 5.06 hereof) to be forthwith due and
payable (provided that (x) if so requested by the Majority Revolving Credit
Lenders, the Administrative Agent shall take such action with respect to the
Revolving Credit Commitments and/or the Revolving Credit Loans, Reimbursement
Obligations and such interest and other amounts to the extent owed to the
Revolving Credit Lenders and (y) if so requested by the Majority Term Lenders,
the Administrative Agent shall take such action with respect to the Term Loan
Commitments and the Term Loans and such interest and other amounts to the extent
owed to the Term Loan Lenders), whereupon such amounts shall be immediately due
and payable without presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by the Obligors; and (2) in the
case of the occurrence of an Event of Default referred to in clause (f) or (g)
of this Section 10 with respect to any Obligor, the Commitments shall
automatically be terminated and the principal amount then outstanding of, and
the accrued interest on, the Loans, the Reimbursement Obligations and all other
amounts payable by the Obligors hereunder and under the Notes (including,
without limitation, any amounts payable under Section 5.05 or 5.06 hereof) shall
automatically become immediately due and payable without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by each Obligor.
In addition, upon the occurrence and during the continuance of any
Event of Default (if the Administrative Agent has declared the principal amount
then outstanding of, and accrued interest on, the Revolving Credit Loans and all
other amounts payable by the Borrowers hereunder and under the Notes to be due
and payable), the Borrowers agree that they shall, if requested by the
Administrative Agent or the Majority Revolving Credit Lenders through the
Administrative Agent (and, in the case of any Event of Default referred to in
clause (f) or (g) of this Section 10 with respect to any of the Borrowers,
forthwith, without any demand or the taking of any other action by the
Administrative Agent or such Lenders) provide cover for the Letter of Credit
Liabilities by paying to the Administrative Agent immediately available funds in
an amount equal to the then aggregate undrawn face amount of all Letters of
Credit, which funds shall be held by the Administrative Agent in the Collateral
Account as collateral security in the first instance for the Letter of Credit
Liabilities and be subject to withdrawal only as therein provided.
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Section 11. The Administrative Agent. The Administrative Agent and
the Lenders hereby agree among themselves (with no obligation or benefit of or
to SSC or any of its Subsidiaries) as follows:
11.01 Appointment, Powers and Immunities. Each Lender hereby
appoints and authorizes the Administrative Agent to act as its agent hereunder
and under the other Loan Documents with such powers as are specifically
delegated to the Administrative Agent by the terms of this Agreement and of the
other Loan Documents, together with such other powers as are reasonably
incidental thereto. The Administrative Agent (which term as used in this
sentence and in Section 11.05 and the first sentence of Section 11.06 hereof
shall include reference to its affiliates and its own and its affiliates'
officers, directors, employees and agents):
(a) shall have no duties or responsibilities except those expressly
set forth in this Agreement and in the other Loan Documents, and shall not
by reason of this Agreement or any other Loan Document be a trustee for
any Lender;
(b) shall not be responsible to the Lenders for any recitals,
statements, representations or warranties contained in this Agreement or
in any other Loan Document, or in any certificate or other document
referred to or provided for in, or received by any of them under, this
Agreement or any other Loan Document, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this
Agreement, any Note or any other Loan Document or any other document
referred to or provided for herein or therein or for any failure by the
Borrowers or any other Person to perform any of its obligations hereunder
or thereunder;
(c) shall not, except to the extent expressly instructed by the
Majority Lenders with respect to collateral security under the Security
Documents, be required to initiate or conduct any litigation or collection
proceedings hereunder or under any other Loan Document; and
(d) shall not be responsible to any Lender for any action taken or
omitted to be taken by it hereunder or under any other Loan Document or
under any other document or instrument referred to or provided for herein
or therein or in connection herewith or therewith, except for its own
gross negligence or willful misconduct.
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The Administrative Agent may employ agents and attorneys-in-fact and shall not
be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith. The Administrative Agent may
deem and treat the payee of a Note as the holder thereof for all purposes hereof
unless and until a notice of the assignment or transfer thereof shall have been
filed with the Administrative Agent, together with the consent of the Borrowers
to such assignment or transfer (to the extent required by Section 12.06(b)
hereof).
11.02 Reliance by Administrative Agent. The Administrative Agent
shall be entitled to rely upon any certification, notice or other communication
(including, without limitation, any thereof by telephone, telecopy, telegram or
cable) reasonably believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel, independent accountants and other experts
selected by the Administrative Agent. As to any matters not expressly provided
for by this Agreement or any other Loan Document, the Administrative Agent shall
in all cases be fully protected in acting, or in refraining from acting,
hereunder or thereunder in accordance with instructions given by the Majority
Lenders or, if provided herein, in accordance with the instructions given by the
Majority Revolving Credit Lenders, the Majority Term Lenders or all of the
Lenders as is required in such circumstance, and such instructions of such
Lenders and any action taken or failure to act pursuant thereto shall be binding
on all of the Lenders.
11.03 Defaults. The Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default unless the Administrative
Agent has received notice from a Lender or SSC specifying such Default and
stating that such notice is a "Notice of Default". In the event that the
Administrative Agent receives such a notice of the occurrence of a Default, the
Administrative Agent shall give prompt notice thereof to the Lenders and to SSC.
The Administrative Agent shall (subject to Sections 11.07 and 12.04 hereof) take
such action with respect to such Default as shall be directed by the Majority
Lenders or, if provided herein, the Majority Revolving Credit Lenders or the
Majority Term Lenders, provided that, unless and until the Administrative Agent
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default as it shall deem advisable in the best interest of the
Lenders except to the extent that this Agreement expressly requires that such
action be taken, or not be taken, only with the consent or upon the
authorization of the Majority Lenders,
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the Majority Revolving Credit Lenders, the Majority Term Lenders or all of the
Lenders.
11.04 Rights as a Lender. With respect to its Commitments and the
Loans made by it, Chase (and any successor acting as Administrative Agent) in
its capacity as a Lender hereunder shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
acting as the Administrative Agent, and the term "Lender" or "Lenders" shall,
unless the context otherwise indicates, include the Administrative Agent in its
individual capacity. Chase (and any successor acting as Administrative Agent)
and its affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money to, make investments in and generally engage in any
kind of banking, trust or other business with the Obligors (and any of their
Subsidiaries or Affiliates) as if it were not acting as the Administrative
Agent, and Chase (and any such successor) and its affiliates may accept fees and
other consideration from the Obligors for services in connection with this
Agreement or otherwise without having to account for the same to the Lenders.
11.05 Indemnification. The Lenders agree to indemnify the
Administrative Agent (to the extent not reimbursed under Section 12.03 hereof,
but without limiting the obligations of the Borrowers under said Section 12.03)
ratably in accordance with the aggregate principal amount of the Loans and
Reimbursement Obligations held by the Lenders (or, if no Loans or Reimbursement
Obligations are at the time outstanding, ratably in accordance with their
respective Commitments), for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever that may be imposed on, incurred by or
asserted against the Administrative Agent (including by any Lender) arising out
of or by reason of any investigation in or in any way relating to or arising out
of this Agreement or any other Loan Document or any other documents contemplated
by or referred to herein or therein or the transactions contemplated hereby or
thereby (including, without limitation, the costs and expenses that the
Borrowers are obligated to pay under Section 12.03 hereof, but excluding, unless
a Default has occurred and is continuing, normal administrative costs and
expenses incident to the performance of its agency duties hereunder) or the
enforcement of any of the terms hereof or thereof or of any such other
documents, provided that no Lender shall be liable for any of the foregoing to
the extent they arise from the gross negligence or willful misconduct of the
party to be indemnified.
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11.06 Non-Reliance on Administrative Agent and Other Lenders. Each
Lender agrees that it has, independently and without reliance on the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of SSC
and its Subsidiaries and decision to enter into this Agreement and that it will,
independently and without reliance upon the Administrative Agent or any other
Lender, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own analysis and decisions in taking or not
taking action under this Agreement or under any other Loan Document. The
Administrative Agent shall not be required to keep itself informed as to the
performance or observance by any Obligor of this Agreement or any of the other
Loan Documents or any other document referred to or provided for herein or
therein or to inspect the Properties or books of SSC or any of its Subsidiaries.
Except for notices, reports and other documents and information expressly
required to be furnished to the Lenders by the Administrative Agent hereunder or
under the Security Documents, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of SSC or any of its
Subsidiaries (or any of their affiliates) that may come into the possession of
the Administrative Agent or any of its affiliates.
11.07 Failure to Act. Except for action expressly required of the
Administrative Agent hereunder and under the other Loan Documents, the
Administrative Agent shall in all cases be fully justified in failing or
refusing to act hereunder and thereunder unless it shall receive further
assurances to its satisfaction from the Lenders of their indemnification
obligations under Section 11.05 hereof against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action.
11.08 Resignation or Removal of Administrative Agent. Subject to the
appointment and acceptance of a successor Administrative Agent as provided
below, the Administrative Agent may resign at any time by giving notice thereof
to the Lenders and the Borrowers, and the Administrative Agent may be removed at
any time with or without cause by the Majority Lenders. Upon any such
resignation or removal, the Majority Lenders shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall have
been so appointed by the Majority Lenders and shall have accepted such
appointment within 30 days after the retiring Administrative Agent's giving of
notice of resignation or the Majority Lenders' removal of the
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retiring Administrative Agent, then the retiring Administrative Agent may, on
behalf of the Lenders, appoint a successor Administrative Agent, that shall be a
bank that has an office in New York, New York with a combined capital and
surplus of at least $500,000,000. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its duties
and obligations hereunder. After any retiring Administrative Agent's resignation
or removal hereunder as Administrative Agent, the provisions of this Section 11
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Administrative Agent.
11.09 Consents under Other Loan Documents. Except as otherwise
provided in Section 12.04 hereof with respect to this Agreement, the
Administrative Agent may, with the prior consent of the Majority Lenders (but
not otherwise), consent to any modification, supplement or waiver under any of
the Loan Documents, provided that, without the prior consent of each Lender, the
Administrative Agent shall not (except as provided herein or in the Security
Documents) release all or any substantial part of the collateral or otherwise
terminate any Lien under any Security Document providing for collateral
security, agree to additional obligations being secured by such collateral
security (unless the Lien for such additional obligations shall be junior to the
Lien in favor of the other obligations secured by such Security Document, in
which event the Administrative Agent may consent to such junior Lien provided
that it obtains the consent of the Majority Lenders thereto), alter the relative
priorities of the obligations entitled to the benefits of the Liens created
under the Security Documents, except that no such consent shall be required, and
the Administrative Agent is hereby authorized, (a) to release any Lien covering
Property that is the subject of either a disposition of Property permitted
hereunder or a disposition to which the Majority Lenders have consented and (b)
to terminate the obligations of any Guarantor hereunder if such Guarantor ceases
to be a Subsidiary of SSC by reason of the sale of all of the capital stock of
such Subsidiary owned by SSC and its Subsidiaries in a disposition permitted
hereunder or to which the Majority Lenders have consented.
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Section 12. Miscellaneous.
12.01 Waiver. No failure on the part of the Administrative Agent or
any Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under this Agreement or any Note shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under this Agreement or any Note preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
Each Obligor irrevocably waives, to the fullest extent permitted by
applicable law, any claim that any action or proceeding commenced by the
Administrative Agent or any Lender relating in any way to this Agreement should
be dismissed or stayed by reason, or pending the resolution, of any action or
proceeding commenced by any Obligor relating in any way to this Agreement
whether or not commenced earlier. To the fullest extent permitted by applicable
law, the Obligors shall take all measures necessary for any such action or
proceeding commenced by the Administrative Agent or any Lender to proceed to
judgment prior to the entry of judgment in any such action or proceeding
commenced by any Obligor.
12.02 Notices. All notices, requests and other communications
provided for herein and under the Security Documents (including, without
limitation, any modifications of, or waivers, requests or consents under, this
Agreement) shall be given or made in writing (including, without limitation, by
telecopy) delivered to the intended recipient at the "Address for Notices"
specified below its name on the signature pages hereof (below the name of SSC,
in the case of any Obligor); or, as to any party, at such other address as shall
be designated by such party in a notice to each other party. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by telecopier or personally delivered or, in the
case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
12.03 Expenses, Etc. The Borrowers agree to pay or reimburse (a) the
Administrative Agent for all reasonable out-of-pocket costs and expenses of the
Administrative Agent (including, without limitation, the reasonable fees and
expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to Chase)
in connection with (i) the negotiation, preparation, execution and delivery of
this Agreement and the other Loan
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Documents and the extension of credit hereunder and (ii) the negotiation or
preparation of any modification, supplement or waiver of any of the terms of
this Agreement or any of the other Loan Documents (whether or not consummated);
(b) each of the Lenders and the Administrative Agent for all reasonable
out-of-pocket costs and expenses of the Lenders and the Administrative Agent
(including, without limitation, the reasonable fees and expenses of legal
counsel) in connection with (i) any Default and any enforcement or collection
proceedings resulting therefrom, including, without limitation, all manner of
participation in or other involvement with (x) bankruptcy, insolvency,
receivership, foreclosure, winding up or liquidation proceedings, (y) judicial
or regulatory proceedings and (z) workout, restructuring or other negotiations
or proceedings (whether or not the workout, restructuring or transaction
contemplated thereby is consummated) and (ii) the enforcement of this Section
12.03; (c) each of the Lenders and the Administrative Agent for all transfer,
stamp, documentary or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of this Agreement or any of the
other Loan Documents or any other document referred to herein or therein and all
costs, expenses, taxes, assessments and other charges incurred in connection
with any filing, registration, recording or perfection of any security interest
contemplated by any Security Document or any other document referred to therein;
and (d) the Administrative Agent for all costs, expenses and other charges in
respect of title insurance procured with respect to the Liens created pursuant
to the Mortgages.
The Borrowers hereby agree to indemnify the Administrative Agent and
each Lender and their respective directors, officers, employees, attorneys and
agents from, and hold each of them harmless against, any and all losses,
liabilities, claims, damages or expenses incurred by any of them (including,
without limitation, any and all losses, liabilities, claims, damages or expenses
incurred by the Administrative Agent to any Lender, whether or not the
Administrative Agent or any Lender is a party thereto) arising out of or by
reason of any investigation or litigation or other proceedings (including any
threatened investigation or litigation or other proceedings) relating to the
extensions of credit hereunder or any actual or proposed use by SSC or any of
its Subsidiaries of the proceeds of any of the extensions of credit hereunder,
including, without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation or litigation or other
proceedings (but excluding any such losses, liabilities, claims, damages or
expenses incurred by reason of the gross
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negligence or willful misconduct of the Person to be indemnified).
Notwithstanding the foregoing, with respect to environmental matters, the
Borrowers will indemnify the Administrative Agent and each Lender from, and hold
the Administrative Agent and each Lender harmless against, any losses,
liabilities, claims, damages or expenses described in the preceding sentence
(including any Lien filed against any Property covered by the Mortgages or any
part of the Trust Estate thereunder in favor of any governmental entity, but
excluding, as provided in the preceding sentence, any loss, liability, claim,
damage or expense incurred by reason of the gross negligence or willful
misconduct of the Person to be indemnified) arising under any Environmental Law
as a result of the past, present or future operations of SSC or any of its
Subsidiaries (or any predecessor in interest to SSC or any of its Subsidiaries),
or the past, present or future condition of any site or facility owned, operated
or leased at any time by SSC or any of its Subsidiaries (or any such predecessor
in interest), or any Release or threatened Release of any Hazardous Materials at
or from any such site or facility, excluding any such conditions or Release or
threatened Release that shall arise or occur during any period when the
Administrative Agent or any Lender shall be in possession of any such site or
facility following the exercise by the Administrative Agent or any Lender of any
of its rights and remedies hereunder or under any of the Security Documents, but
including any such Release or threatened Release occurring during such period
that is a continuation of conditions previously in existence or of practices
employed by SSC and its Subsidiaries, at such site or facility, except for such
conditions or practices that may be unlawful or negligent and which the
Borrowers have disclosed to the Administrative Agent and the Lenders prior to
the exercise of the administrative remedies.
12.04 Amendments, Etc. Except as otherwise expressly provided in
this Agreement, any provision of this Agreement may be modified or supplemented
only by an instrument in writing signed by SSC, the Borrowers and the Majority
Lenders, or by SSC, the Borrowers and the Administrative Agent acting with the
consent of the Majority Lenders, and any provision of this Agreement may be
waived by the Majority Lenders or by the Administrative Agent acting with the
consent of the Majority Lenders; provided that: (a) no modification, supplement
or waiver shall, unless by an instrument signed by all of the Lenders or by the
Administrative Agent acting with the consent of all of the Lenders: (i)
increase, or extend the term of any of the Commitments, or extend the time or
waive any requirement for the reduction or termination of any of the
Commitments, (ii) extend the date fixed for the payment of principal of or
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interest on any Loan, the Reimbursement Obligations or any fee hereunder, (iii)
reduce the amount of any such payment of principal, (iv) reduce the rate at
which interest is payable thereon or any fee is payable hereunder, (v) alter the
rights or obligations of the Borrowers to prepay Loans, (vi) alter the manner in
which payments or prepayments of principal, interest or other amounts hereunder
shall be applied as between the Lenders or Types or Classes of Loans, (vii)
alter the terms of this Section 12.04, (viii) modify the definition of the term
"Majority Lenders", "Majority Revolving Credit Lenders" or "Majority Term
Lenders", or modify in any other manner the number or percentage of the Lenders
required to make any determinations or waive any rights hereunder or to modify
any provision hereof, (ix) release any Guarantor from any of its guarantee
obligations under Section 6 hereof, unless all of the capital stock of such
Guarantor has been acquired by a Person other than SSC or any of its
Subsidiaries as permitted hereunder, or (x) waive any of the conditions
precedent set forth in Section 7.01 hereof; (b) any modification or supplement
of Section 11 hereof, or of any of the rights or duties of the Administrative
Agent hereunder, shall require the consent of the Administrative Agent; and (c)
any modification or supplement of Section 6 hereof shall require the consent of
each Guarantor.
12.05 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
12.06 Assignments and Participations.
(a) No Obligor may assign any of its rights or obligations hereunder
or under the Notes without the prior consent of all of the Lenders and the
Administrative Agent.
(b) Each Lender may assign any of its Loans, its Notes, its
Commitments, and, if such Lender is a Revolving Credit Lender, its Letter of
Credit Interest (but only with the consent of the Borrowers and the
Administrative Agent (which consents shall not be unreasonably withheld) and, in
the case of the Revolving Credit Commitment or a Letter of Credit Interest, the
Issuing Bank); provided that
(i) no such consent by the Borrowers or the Administrative Agent
shall be required in the case of any assignment to another Lender or an
affiliate of another Lender;
Credit Agreement
<PAGE> 143
- 138 -
(ii) except to the extent the Borrowers and the Administrative Agent
shall otherwise consent, any such assignment (other than to another Lender
or to an affiliate of another Lender) shall be in an amount at least equal
to $5,000,000 or if less, the amount of the Commitments, Loans and Letters
of Credit Interests of such Lender and its affiliates;
(iii) each such assignment by a Lender of its Revolving Credit
Loans, Revolving Credit Note, Revolving Credit Commitment or Letter of
Credit Interest shall be made in such manner so that the same portion of
its Revolving Credit Loans, Revolving Credit Note, Revolving Credit
Commitment and Letter of Credit Interest is assigned to the respective
assignee;
(iv) each such assignment by a Lender of its Term Loans or Term Loan
Commitment shall be made in such manner so that the same portion of its
Term Loans and Term Loan Commitment is assigned to the respective
assignee; and
(v) upon each such assignment, the assignor and assignee shall
deliver to the Borrowers, the Administrative Agent and the Issuing Bank an
Assignment and Acceptance in the form of Exhibit F hereto.
Upon execution and delivery by the assignor and the assignee to the Borrowers,
the Administrative Agent and the Issuing Bank of such Assignment and Acceptance,
and upon consent thereto by the Borrowers, the Administrative Agent and the
Issuing Bank to the extent required above, the assignee shall have, to the
extent of such assignment (unless otherwise consented to by the Borrowers, the
Administrative Agent and the Issuing Bank), the obligations, rights and benefits
of a Lender hereunder holding the Commitment(s), Loans and, if applicable,
Letter of Credit Interest (or portions thereof) assigned to it and specified in
such Notice of Assignment (in addition to the Commitment(s), Loans and Letter of
Credit Interest, if any, theretofore held by such assignee) and the assigning
Lender shall, to the extent of such assignment, be released from the
Commitment(s) (or portion(s) thereof) so assigned. Upon each such assignment the
assigning Lender shall pay the Administrative Agent an assignment fee of $3,000.
(c) A Lender may sell or agree to sell to one or more other Persons
(each a "Participant") a participation in all or any part of any Loans or Letter
of Credit Interest held by it, or in its Commitments (but only with the consent
of the Borrowers
Credit Agreement
<PAGE> 144
- 139 -
(which consents shall not be unreasonably withheld)), provided that such
Participant shall not have any rights or obligations under this Agreement or any
Note or any other Loan Document (the Participant's rights against such Lender in
respect of such participation to be those set forth in the agreements executed
by such Lender in favor of the Participant). All amounts payable by the
Borrowers to any Lender under Section 5 hereof in respect of Loans, Letter of
Credit Interest held by it, and its Commitments, shall be determined as if such
Lender had not sold or agreed to sell any participations in such Loans, Letter
of Credit Interest and Commitments, and as if such Lender were funding each of
such Loan, Letter of Credit Interest and Commitments in the same way that it is
funding the portion of such Loan, Letter of Credit Interest and Commitments in
which no participations have been sold. In no event shall a Lender that sells a
participation agree with the Participant to take or refrain from taking any
action hereunder or under any other Loan Document except that such Lender may
agree with the Participant that it will not, without the consent of the
Participant, agree to (i) increase or extend the term of such Lender's related
Commitment, (ii) extend the date fixed for the payment of principal of or
interest on the related Loan or Loans, Reimbursement Obligations or any portion
of any fee hereunder payable to the Participant, (iii) reduce the amount of any
such payment of principal, (iv) reduce the rate at which interest is payable
thereon, or any fee hereunder payable to the Participant, to a level below the
rate at which the Participant is entitled to receive such interest or fee or (v)
consent to any modification, supplement or waiver hereof or of any of the other
Loan Documents to the extent that the same, under Section 11.09 or 12.04 hereof,
requires the consent of each Lender.
(d) In addition to the assignments and participations permitted
under the foregoing provisions of this Section 12.06, any Lender may (without
notice to the Borrowers, the Administrative Agent or any other Lender and
without payment of any fee) (i) assign and pledge all or any portion of its
Loans and its Notes to any Federal Reserve Bank as collateral security pursuant
to Regulation A and any Operating Circular issued by such Federal Reserve Bank
and (ii) assign all or any portion of its rights under this Agreement and its
Loans and its Notes to an affiliate. No such assignment shall release the
assigning Lender from its obligations hereunder.
(e) A Lender may furnish any information concerning SSC or any of
its Subsidiaries in the possession of such Lender from time to time to assignees
and participants (including prospective assignees and participants, but only if
the Borrowers
Credit Agreement
<PAGE> 145
- 140 -
have consented to the respective prospective assignees and participants),
subject, however, to the provisions of Section 12.13(b) hereof.
(f) Anything in this Section 12.06 to the contrary notwithstanding,
no Lender may assign or participate any interest in any Loan or Reimbursement
Obligation held by it hereunder to SSC or any of its Affiliates or Subsidiaries
without the prior consent of each Lender.
12.07 Survival. The obligations of the Borrowers under Sections
5.01, 5.05, 5.06, 5.07 and 12.03 hereof, the obligations of each Guarantor under
Section 6.03 hereof, and the obligations of the Lenders under Section 11.05
hereof, shall survive the repayment of the Loans and Reimbursement Obligations
and the termination of the Commitments and, in the case of any Lender that may
assign any interest in its Commitments, Loans or Letter of Credit Interest
hereunder, shall survive the making of such assignment, notwithstanding that
such assigning Lender may cease to be a "Lender" hereunder. In addition, each
representation and warranty made, or deemed to be made by a notice of any
extension of credit (whether by means of a Loan or a Letter of Credit), herein
or pursuant hereto shall survive the making of such representation and warranty,
and no Lender shall be deemed to have waived, by reason of making any extension
of credit hereunder (whether by means of a Loan or a Letter of Credit), any
Default that may arise by reason of such representation or warranty proving to
have been false or misleading, notwithstanding that such Lender or the
Administrative Agent may have had notice or knowledge or reason to believe that
such representation or warranty was false or misleading at the time such
extension of credit was made.
12.08 Captions. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
12.09 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
12.10 Governing Law; Submission to Jurisdiction. This Agreement and
the Notes shall be governed by, and construed in accordance with, the law of the
State of New York. Each Obligor hereby submits to the nonexclusive jurisdiction
of the United
Credit Agreement
<PAGE> 146
- 141 -
States District Court for the Southern District of New York and of the Supreme
Court of the State of New York sitting in New York County (including its
Appellate Division), and of any other appellate court in the State of New York,
for the purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. Each Obligor hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
objection that it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.
12.11 Waiver of Jury Trial. EACH OF THE OBLIGORS, THE ADMINISTRATIVE
AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
12.12 Limitation of Liability. It is understood that, except for the
Collateral (as defined in each of the Security Documents) and except for
representations and warranties made by the Partnership in the Partnership Pledge
Agreement and except for any guarantees of the obligations of the Borrowers
hereunder that the Administrative Agent and the Lenders may have received, the
sole recourse of the Administrative Agent and the Lenders in respect of the
obligations of the Borrowers hereunder shall be to the assets of the Borrowers
and to the Collateral under the Security Documents and that nothing contained
herein shall create any obligation of or right to look to any Partner or its
assets individually for the satisfaction of such obligations.
12.13 Treatment of Certain Information; Confidentiality.
(a) The Obligors acknowledge that from time to time financial
advisory, investment banking and other services may be offered or provided to
SSC or one or more of its Subsidiaries or Affiliates (in connection with this
Agreement or otherwise) by any Lender or by one or more subsidiaries or
affiliates of such Lender and, subject to the further written consent of SSC
(the granting or withholding of which consent shall be in the sole discretion of
SSC), the Obligors hereby authorize each Lender to share any information
delivered to such Lender by SSC and its Subsidiaries pursuant to this Agreement,
or in connection with the decision of such Lender to enter into this Agreement,
to any
Credit Agreement
<PAGE> 147
- 142 -
such subsidiary or affiliate, it being understood that any such subsidiary or
affiliate receiving such information shall be bound by the provisions of
paragraph (b) below as if it were a Lender hereunder. Such authorization shall
survive the repayment of the Loans and Reimbursement Obligations and the
termination of the Commitments.
(b) Each Lender and the Administrative Agent agrees (on behalf of
itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking practices, any
non-public information supplied to it by the Obligors pursuant to this
Agreement, provided that nothing herein shall limit the disclosure of any such
information (i) after such information shall have become public (other than
through a violation of this Section 12.13 or a Confidentiality Agreement
substantially in the form of Exhibit E hereto), (ii) to the extent required by
statute, rule, regulation or judicial process, (iii) to counsel for any of the
Lenders or the Administrative Agent, (iv) to bank examiners (or any other
regulatory authority having jurisdiction over any Lender or the Administrative
Agent), or to auditors or accountants, (v) to the Administrative Agent or any
other Lender (or to Chase Securities Inc.), (vi) in connection with any
litigation to which any one or more of the Lenders or the Administrative Agent
is a party, or in connection with the enforcement of rights or remedies
hereunder or under any other Loan Document, (vii) to a subsidiary or affiliate
of such Lender as provided in paragraph (a) above or (viii) to any assignee or
participant (or prospective assignee or participant) so long as such assignee or
participant (or prospective assignee or participant) first executes and delivers
to the respective Lender a Confidentiality Agreement substantially in the form
of Exhibit E hereto and a copy thereof has been furnished to SSC; provided,
further, that (x) unless specifically prohibited by applicable law or court
order, each Lender and the Administrative Agent shall, prior to disclosure
thereof, notify SSC of any request for disclosure of any such non-public
information (A) by any governmental agency or representative thereof (other than
any such request in connection with an examination of the financial condition of
such Lender by such governmental agency) or (B) pursuant to legal process and
(y) in no event shall any Lender or the Administrative Agent be obligated or
required to return any materials furnished by any Obligor. The obligations of
any assignee that has executed a Confidentiality Agreement in the form of
Exhibit E hereto shall be superseded by this
Credit Agreement
<PAGE> 148
- 143 -
Section 12.13 upon the date upon which such assignee becomes a Lender hereunder
pursuant to Section 12.06(b) hereof.
Credit Agreement
<PAGE> 149
- 144 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
SOVEREIGN SPECIALTY CHEMICALS, INC.
By: /s/ Robert Covalt
Title: President, Chairman,
CEO
Address for Notices:
Sovereign Specialty Chemicals, L.P.
225 West Washington Street
Suite 2200
Chicago, Illinois 60606
Attention: William T. Schram
Telecopier No.: (312) 419-7145
Telephone No.: (312) 419-7299
With copies to:
First Chicago Equity Capital
Three First National Plaza
Suite 1210
Chicago, Illinois 60670-0610
Attention: Larry Fox
Telecopier No.: (312) 732-7483
Telephone No.: (312) 732-1227
Attention: Carol E. Bramson
Telecopier No.: (312) 732-7483
Telephone No.: (312) 732-7508
Attention: Eric Larson
Telecopier No.: (312) 732-7483
Telephone No.: (312) 732-3323
Credit Agreement
<PAGE> 150
- 145 -
First Chicago Equity Corporation
One First National Plaza
21st Floor
Mail Suite 0369
Chicago, Illinois 60670-0369
Attention: Michael E. Brost
Telecopier No.: (312) 732-1520
Telephone No.: (312) 732-5280
Davis, Graham & Stubbs LLP
1314 19th Street, N.W.
Washington, DC 20036
Attention: J. Hovey Kemp
Telecopier No.: (202) 293-4794
Telephone No.: (202) 822-1029
Credit Agreement
<PAGE> 151
- 146 -
SIA ADHESIVES, INC.
By: /s/ Robert Covalt
Title: Chairman
Address for Notices:
SIA Adhesives, Inc.
225 West Washington Street
Suite 2200
Chicago, Illinois 60606
Attention: William T. Schram
Telecopier No.: (312) 419-7145
Telephone No.: (312) 419-7299
Credit Agreement
<PAGE> 152
- 147 -
PIERCE & STEVENS CORP.
By: /s/ Robert Covalt
Title: Chairman
Address for Notices:
Pierce & Stevens Corp.
225 West Washington Street
Suite 2200
Chicago, Illinois 60606
Attention: William T. Schram
Telecopier No.: (312) 419-7145
Telephone No.: (312) 419-7299
Credit Agreement
<PAGE> 153
- 148 -
LENDERS
Revolving Credit Commitment THE CHASE MANHATTAN BANK
- ---------------------------
$4,250,000.00
Term Loan Commitment By: /s/ Robert T. Sacks
- -------------------- Title: Managing Director
$4,250,000.00
Lending Office for all Loans:
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Address for Notices:
The Chase Manhattan Bank
The Loan and Agency Services
Group
1 Chase Manhattan Plaza
8th Floor
New York, New York 10081
Attention: Janet Belden
Telecopier No.: (212) 552-5658
Credit Agreement
<PAGE> 154
- 149 -
Revolving Credit Commitment HARRIS TRUST AND SAVINGS BANK
- ---------------------------
$3,750,000.00
Term Loan Commitment By: /s/ Daniel K. Sabol
- -------------------- Title: Vice President
$3,750,000.00
Lending Office for all Loans:
Harris Trust & Savings
111 W. Monroe Street
Suite 10W
Chicago, IL 60690
Address for Notices:
Harris Trust & Savings
111 W. Monroe Street
Suite 10W
Chicago, IL 60690
Attention: Dan Sabol
Telecopier No.: 312-765-1655
Telephone No.: 312-461-3766
Credit Agreement
<PAGE> 155
- 150 -
Revolving Credit Commitment LASALLE NATIONAL BANK
- ---------------------------
$3,750,000.00
Term Loan Commitment By: /s/ Jennifer D. Bailey
- -------------------- Title: Assistant Vice
$3,750,000.00 President
Lending Office for all Loans:
LaSalle National Bank
136 S. LaSalle Street
Chicago, IL 60603
Address for Notices:
LaSalle National Bank
136 S. LaSalle Street
Chicago, IL 60603
Attention: Stefano Robertson
Telecopier No.: 312-904-4605
Telephone No.: 312-904-7277
Credit Agreement
<PAGE> 156
- 151 -
Revolving Credit Commitment BANK OF AMERICA NATIONAL TRUST
- --------------------------- AND SAVINGS ASSOCIATION
$3,750,000.00
Term Loan Commitment By: /s/ Aleana Hiles
- -------------------- Title: Senior Vice
$3,750,000.00 President
Lending Office for all Loans:
Bank of America
231 S. LaSalle Street
Chicago, IL 60697
Address for Notices:
Bank of America
231 S. LaSalle Street
Chicago, IL 60697
Attention: Terry Capsay
Telecopier No.: 312-828-4747
Telephone No.: 312-828-5841
Credit Agreement
<PAGE> 157
- 152 -
Revolving Credit Commitment BHF-BANK AKTIENGESELLSCHAFT
- ---------------------------
$3,000,000.00
Term Loan Commitment By: /s/ Linda Pace
- -------------------- Title: Vice President
$3,000,000.00
By: /s/ John Sykes
Title: Assistant Vice
President
Lending Office for all Loans:
BHF Bank
590 Madison Avenue
New York, NY 10022-2540
Address for Notices:
BHF Bank
590 Madison Avenue
New York, NY 10022-2540
Attention: Linda Pace
Telecopier No.: 212-756-5536
Telephone No.: 212-756-5915
Credit Agreement
<PAGE> 158
- 153 -
Revolving Credit Commitment CAISSE NATIONALE DE CREDIT
- --------------------------- AGRICOLE
$3,000,000.00
Term Loan Commitment By: /s/ David Bouhl
- -------------------- Title: F.V.P., Head of
$3,000,000.00 Corporate Banking,
Chicago
Lending Office for all Loans:
Credit Agricole
55 East Monroe Street
Chicago, IL 60603-5702
Address for Notices:
Credit Agricole
55 East Monroe Street
Chicago, IL 60603-5702
Attention: David Bouhl
Telecopier No.: 312-372-2830
Telephone No.: 312-372-9200
Credit Agreement
<PAGE> 159
- 154 -
Revolving Credit Commitment BANKBOSTON, N.A.
- ---------------------------
$3,000,000.00
Term Loan Commitment By: /s/ C. Andrew Piculelle
- -------------------- Title: Vice President
$3,000,000.00
Lending Office for all Loans:
The Bank of Boston
100 Federal Street
MS01-08-05
Boston, MA 02016-2016
Address for Notices:
The Bank of Boston
100 Federal Street
MS01-08-05
Boston, MA 02016-2016
Attention: Tim Barns
Telecopier No.: 617-434-4440
Telephone No.: 617-434-7976
Credit Agreement
<PAGE> 160
- 155 -
Revolving Credit Commitment NATIONAL CITY BANK
- ---------------------------
$3,000,000.00
Term Loan Commitment By: /s/ Andrew J. Walshaw
- -------------------- Title: Account Officer
$3,000,000.00
Lending Office for all Loans:
National City Bank
1900 E. 9th Street
10th Floor
Cleveland, OH 44114
Address for Notices:
National City Bank
1900 E. 9th Street
10th Floor
Cleveland, OH 44114
Attention: Robert Rowe
Telecopier No.: 216-222-0003
Telephone No.: 216-575-3163
Attention: Andrew Walshaw
Telecopier No.: 216-575-9396
Telephone No.: 216-575-2193
Credit Agreement
<PAGE> 161
- 156 -
Revolving Credit Commitment VAN KAMPEN AMERICAN CAPITAL
- --------------------------- PRIME RATE INCOME TRUST
$2,500,000.00
Term Loan Commitment By: /s/ Jeffrey W. Maillet
- -------------------- Title: Senior Vice President
& Director
$2,500,000.00
Lending Office for all Loans:
Van Kampen American Capital
One Parkview Plaza
Oakbrook Terrace, IL 60181
Address for Notices:
Van Kampen American Capital
One Parkview Plaza
Oakbrook Terrace, IL 60181
Attention: Jeffrey Maillet
Telecopier No.: 630-684-6740
Telephone No.: 630-684-6438
Credit Agreement
<PAGE> 162
- 157 -
THE CHASE MANHATTAN BANK,
as Administrative Agent
By: /s/ Robert T. Sacks
Title: Managing Director
Address for Notices to
Chase as Administrative Agent:
The Chase Manhattan Bank
Loan and Agency Services Group
1 Chase Manhattan Plaza,
8th Floor
New York, New York 10081
Attention: Janet Belden
Telephone No.: (212) 552-5658
Credit Agreement
<PAGE> 163
SCHEDULE I
Material Agreements and Liens
[See Sections 8.11, 9.06(b) or 9.07(b)]
Part A - Indebtedness
None.
Part B - Liens
<TABLE>
<CAPTION>
LIEN SCHEDULE
PIERCE & STEVENS CORP.
Date Jurisdiction Debtor Secured Party Property Covered
---- ------------ ------ ------------- ----------------
<S> <C> <C> <C> <C>
9-26-94 Erie County, New York Pierce & Stevens Corp. GE Capital/LeaseAmerica Copier (2), sorter
(2)
9-26-94 State of New York Pierce & Stevens Corp. GE Capital/LeaseAmerica Lanier copier (2)
No. 195940 sorter (2)
7-11-96 State of New York Pierce & Stevens Corp. FINOVA Capital IBM software,
No. 138167 Corporation hardware, disk
drive, disk unit
7-11-96 Erie County, New York Pierce & Stevens Corp. FINOVA Capital IBM software,
Book 26 Page 5663 Corporation hardware, disk
drive, disk unit
8-14-96 State of New York Pierce & Stevens Corp. Manufacturers & Traders Sharp projector
No. 161645 Trust Co. w/carry case
</TABLE>
Schedule I
<PAGE> 164
- 2 -
<TABLE>
<S> <C> <C> <C> <C>
8-20-96 Erie County, New York Pierce & Stevens Corp. Manufacturers & Traders Sharp projector
Book 27 Page 5819 Trust Co. w/carry case
6-23-97 State of New York Pierce & Stevens Corp. Business Methods, Inc. 2 Konica copiers
No. 129077
</TABLE>
<TABLE>
<CAPTION>
LAPORTE CONSTRUCTION CHEMICALS NORTH AMERICA, INC.
Date Jurisdiction Debtor Secured Party Property Covered
---- ------------ ------ ------------- ----------------
<S> <C> <C> <C> <C>
4-27-92 Lake County, Ohio Laporte Construction Hastings Industries Property located
Mechanic's Lien No. Chemicals North at 7405 Production
9210308841 America, Inc. Drive, Mentor,
Ohio
6-12-95 Dept. of Licensing, Laporte Construction Associates Leasing Inc. Forklift
Olympia, WA Chemicals North
No. 95-163-0839 America, Inc.
6-26-97 Lake County, Ohio Laporte Construction Tokai Financial Lanier and Toshiba
No. 97194943 Chemicals North Services, Inc. copier systems
America, Inc.
1-15-95 Lake County, Ohio Lapote (sic) Associates Leasing, Forklift
No. 95181094 Construction Chemicals Inc.
North America, Inc.
3-11-93 Lake County, Ohio Laporte Construction Bell Atlantic Tricon Canon Copier
No. 93170394 Chemical Leasing Corporation
3-15-93 Ohio Laporte Construction Bell Atlantic Tricon Canon Copier
AK 04258 Chemical Leasing Corporation
</TABLE>
- ----------
1. See attached letter dated April 23, 1997 to Mr. Carl Tomsic.
Schedule I
<PAGE> 165
- 3 -
<TABLE>
<S> <C> <C> <C> <C>
5-12-95 Ohio Laporte Construction First United Leasing Rider Scrubber
AL 85255 Chemicals North Corp.
America, Inc.
6-12-95 Ohio Laporte Construction Associates Leasing, Specific Equipment
AL 92895 Chemicals North Inc.
America, Inc. (dba
Ohio Sealants)
6-12-95 Ohio Ohio Sealants, Inc. Toyota Motor Credit Forklift
AL 92581 Corp.
6-12-95 Ohio Laporte Construction Associates Leasing, Specific equipment
AL 92895 Chemicals North Inc.
America, Inc. (dba:
Ohio Sealants)
</TABLE>
<TABLE>
<CAPTION>
MERCER PRODUCTS COMPANY, INC.
Date Jurisdiction Debtor Secured Party Property Covered
---- ------------ ------ ------------- ----------------
<S> <C> <C> <C> <C>
9-3-92 Florida Mercer Products Florida forklift trucks
No. 920000179669 Company Inc. Clarklift, Inc.
12-8-92 Florida Mercer Products Advanta Leasing UPS shipping system
No. 920000251621 Company Inc. Corp.
12-7-94 Florida Mercer Products Florida forklift trucks
No. 940000246477 Company Inc. Clarklift, Inc.
12-19-94 Florida Mercer Products Florida Pallet Truck
No. 940000255246 Company Inc. Clarklift Inc.
</TABLE>
Schedule I
<PAGE> 166
- 4 -
<TABLE>
<S> <C> <C> <C> <C>
1-30-95 Secretary of State Mercer Products Clark Credit
California Company Inc. Corporation walkie pallet truck
No. 9503760362
1-30-95 Secretary of State Mercer Products Clark Credit CROWN electric
California Company Inc. Corporation counterbalanced
No. 9503760367 stockpicker
1-30-95 Florida Mercer Products Florida Pallet Truck
No. 950000021323 Company Inc. Clarklift Inc.
1-30-95 Florida Mercer Products Florida Electric
No. 950000021324 Company Inc. Clarklift Inc. Stockpicker
3-17-95 Florida Mercer Products Florida Poly load wheel
No. 950000054168 Co. Inc. Clarklift Inc. walkie pallet truck
3-17-95 Florida Mercer Products Florida Poly load wheel
No. 950000054171 Co Inc. Clarklift Inc. walkie pallet truck
3-17-95 Florida Mercer Products Florida forklift
No. 950000054174 Co Inc. Clarklift Inc. truck
3-17-95 Florida Mercer Products Florida forklift
No. 950000054176 Co Inc Clarklift Inc. truck
7-5-95 Florida Mercer Products Florida counterbalanced
No. 950000133815 Co Inc Clarklift Inc. stockpicker
7-5-95 Florida Mercer Products Florida walkie
No. 950000133817 Co Inc Clarklift Inc. pallet truck
11-1-95 Florida Mercer Products Florida stand-up rider
No. 950000220577 Co Inc Clarklift Inc. forklift truck
</TABLE>
Schedule I
<PAGE> 167
- 5 -
<TABLE>
<S> <C> <C> <C> <C>
2-19-96 Florida Mercer Products Florida poly load wheel
No. 960000034805 Co Inc Clarklift Inc. forklift truck
2-19-96 Florida Mercer Products Florida poly load wheel
No. 960000034806 Co. Inc. Clarklift Inc. forklift truck
2-19-96 Florida Mercer Products Florida poly load wheel
No. 960000034807 Co. Inc. Clarklift Inc. forklift truck
2-19-96 Florida Mercer Products Florida poly load wheel
No. 960000034809 Co. Inc. Clarklift Inc. forklift truck
9-9-96 Florida Mercer Products Associates Stockpicker
No. 960000189681 Co Inc. Commercial Corp
9-9-96 Florida Mercer Products Associates Rider Reach Truck
No. 960000189682 Co Inc. Commercial Corp
9-25-96 Florida Mercer Products Credential Leasing Telephone System
No. 960000201519 Company Inc. Corp. of Florida
Inc.
10-9-96 Florida Mercer Products Associates Leasing Lift Truck
No. 960000212589 Co Inc. Inc.
</TABLE>
<TABLE>
<CAPTION>
EVODE-TANNER INDUSTRIES, INC.
<S> <C> <C> <C> <C>
4-20-93 South Carolina Evode-Tanner, Inc. Bell Atlantic IBM system
105548A Tricon Leasing
3-28-96 South Carolina Evode-Tanner Ervin Leasing Panasonic equipment
160041A Industries, Inc. Company
1-18-93 South Carolina Evode-Tanner Clark Rental Lift truck
</TABLE>
Schedule I
<PAGE> 168
- 6 -
<TABLE>
<S> <C> <C> <C> <C>
123439A Industries, Inc. System, Inc.
11-14-94 South Carolina Evode-Tanner Yale Financial Forklift
150928A Industries, Inc. Services, Inc.
</TABLE>
Schedule I
<PAGE> 169
SCHEDULE II
Subsidiaries and Investments
[See Sections 8.14 and 9.08(a)]
Part A - Capitalization
(a) Equity Rights
1. Pursuant to the BAIC/MIG Partnership Unit Purchase Agreement, MIG
Partners II and BankAmerica Investment Corporation have certain
anti-dilution rights and registration rights for their Units.
2. Waud Capital Partners, L.L.C. has a carried interest pursuant to the
Partnership Agreement on distributions made to the holders of Class
A Common Units.
3. 445.12 Class C Common Units have been reserved for issuance to
future executives of the Partnership.
4. The Amended & Restated Investors Agreement provides each of the
Limited Partners with preemptive rights on the issuance of
additional Units (with certain exceptions).
5. The Partnership Unit Purchase Agreement provides for the issuance
and sale of additional Preferred Units upon a call by the General
Partner.
(b) Redemption Rights
1. Pursuant to Section 8 of the Amended & Restated Investor's
Agreement, Waud Capital Partners-I, L.P. and Waud Capital Partners,
L.L.C. have the right to cause the Partnership to repurchase their
Units for the fair market value thereof.
2. Pursuant to Section 4 of the Executive Securities Agreements, dated
as of March 31, 1997, with each of Robert Cobalt and William Schram
and the Executive Securities Agreements, dated as of July 31, 1997,
with each of Robert Cobalt, William Schram, Louis Pace, Peter Longo,
Mark Longo, Mike Prude, Gerard Loftus, Paul Gavlinski, John Edholm,
Richard Bashford, Richard Johnston, and Stephen Zavodny, each of
such executives
Schedule II
<PAGE> 170
- 2 -
has the right to require the Partnership to repurchase their Units
after their termination from employment without cause or resignation
with good reason, or, in the case of Stephen Zavodny, nonrenewal of
the employment period.
Part B - Subsidiaries
(a) List of Subsidiaries
1. SIA Adhesives, Inc. ("SIA") is a Delaware corporation. The
authorized capital stock of SIA consists of 1,000 shares of common
stock, $.01 per share. All of the outstanding capital stock (1,000
shares of common stock) of SIA is owned by SSC.
2. Pierce & Stevens Corp. ("Pierce & Stevens") is a New York
corporation. The authorized capital stock of Pierce & Stevens
consists of 200 shares of common stock, no par value per share. All
of the outstanding capital stock (200 shares of common stock) of
Pierce & Stevens is owned by SSC.
3. Pierce & Stevens Holding Corporation de Mexico S.A. de C.V. ("P&S
Mexico") is a corporation incorporated under the laws of Mexico.
Pierce & Stevens is the owner of 49,500 pesos fixed and 16,936,073
peso variable shares of the capital stock of P&S Mexico (or the
total amount of shares in pesos of 16,985,573) and Pierce & Stevens
de Mexico S.A. de C.V. is the owner of 500 shares of P&S Mexico (all
of which are fixed). The par value of each share is one peso per
share.
4. Pierce & Stevens de Mexico S.A. de C.V. is a corporation
incorporated under the laws of Mexico. P&S Mexico is the owner of
49,999 pesos fixed and 16,791,060 pesos variable shares of the
capital stock of Pierce & Stevens de S.A. de C.V. (a total amount of
shares in pesos of 16,841,059) and Pierce & Stevens is the owner of
one peso fixed and no pesos variable shares of capital stock of
Pierce & Stevens S.A. de C.V. The par value of each share is one
peso per share.
Schedule II
<PAGE> 171
- 3 -
5. Pierce & Stevens de Mexico S.A. de C.V. is a corporation
incorporated under the laws of Mexico. P&S Mexico is the owner of
49,999 pesos fixed and no pesos variable shares of the capital stock
of Pierce & Stevens de Mexico S.A. de C.V. and Pierce & Stevens is
the owner of one peso fixed and no pesos variable shares of capital
stock of Pierce & Stevens S.A. de C.V. P&S Mexico is the owner of
all of the outstanding capital stock of Pierce & Stevens Corporation
S.A. de C.V. (consisting of one share of capital stock (49,999 pesos
fixed and no pesos variable, or a total amount in pesos of
16,841,059)). The par value of each share is one peso per share.
6. Laporte Construction Chemicals North America, Inc. ("LCCNA") is an
Illinois corporation. The authorized capital stock of LCCNA consists
of 5,000,000 shares of common stock, no par value per share. All of
the outstanding capital stock of LCCNA (505,980) is owned by SSC.
7. Evode-Tanner Industries, Inc. ("Evode") is a New Hampshire
corporation. The authorized capital stock of Evode-Tanner consists
of 300 shares of common stock, with a par value of $1.00 per share.
All of the outstanding capital stock of Evode-Tanner (270) is owned
by SSC.
8. Mercer Products Company, Inc. ("Mercer") is a New Jersey
corporation. The authorized capital stock of Mercer consists of
1,000 shares of common stock, with a par value of $.10 per share.
All of the outstanding capital stock of Mercer (10) is owned by SSC.
9. Sovereign Specialty Chemicals (SPte. Ltd) ("SPTE") is a corporation
incorporated under the laws of Singapore. The authorized capital
stock of SPTE consists of 100,000 shares of common stock, $1.00 par
value per share. All of the outstanding capital stock of SPTE
(100,000) is owned by SSC.
(b) Equity Rights
Schedule II
<PAGE> 172
- 4 -
Part C - Investments
Receivable dated April 26, 1996 in the principal amount of
$71,723.23 from David L. Young.
Mercer Products Company, Inc.
Mercer Products Company, Inc. owns one (1) share of Pine Meadows
Golf Estates, Inc./ Stock Certificate No. 1445 issued April 29,
1986. This share is owned in connection with a country club
membership.
Schedule II
<PAGE> 173
SCHEDULE III
Real Property
[See Section 8.16]
Real Property
A. Owned Property:
1. 123 West Bartges Street
Akron, Ohio
as more fully described in Chicago Title Insurance Company Policy
No. 0248049M, dated August 21, 1996.
Owner: Engineered Adhesives, Inc.
2. Coldstream Road
Box 128
Kimberton, Pennsylvania 19442
as more fully described in Chicago Title Insurance Company Policy
No. 9681-00450, dated August 27, 1996.
Owner: Pierce & Stevens Corp., a New York corporation, f/k/a
Pierce & Stevens Chemical Corp. [Chester County
Industrial Development Authority, a Body Politic and
Corporate existing under the laws of the Commonwealth of
Pennsylvania, as to Parcel B]
3. 710 Ohio Street
Buffalo, New York 14240
as more fully described in Chicago Title Insurance Company Policy
No. 9613-25049, dated August 21, 1996.
Owner: Pierce & Stevens Inc. and Pierce & Stevens Corp., f/k/a
Pierce & Stevens Chemical Corp.
4. 245 East Kehoe Boulevard
Carol Stream, Illinois 60187
as more fully described in Chicago Title Insurance Company Policy
No. 1410 009608337 dated August 26, 1996.
Owner: Pierce & Stevens Corp., f/k/a Pierce & Stevens Chemical Corp.
Schedule III
<PAGE> 174
- 2 -
5. 7405 Production Drive - Sublot 8
Mentor, Ohio 44060
as more fully described in Chicago Title Insurance Company Commit
No. 0207433C, dated August 5, 1997
Owner: Laporte Construction Chemicals North America, Inc.
Sublot No. 9 -- Tyler Industrial Park located on Division Drive
adjacent to property listed above.
as more fully described in Chicago Title Insurance Company
Commitment No. 0207429C, dated August 5, 1997
Owner: Laporte Construction Chemicals North America, Inc.
6. 1600 Executive Drive
LaGrange, Georgia 30240
as more fully described in Chicago Title Insurance Company
Commitment No. 51446, dated August 5, 1997
Owner: Laporte Construction Chemicals North America, Inc.
7. 37235 State Road 19
Umatilla, Florida 32784
as more fully described in Chicago Title Insurance Company
Commitment No. 5097307000M, dated August 5, 1997
Owner: Mercer Products Company, Inc.
B. Leased Property:
1. Calle de Gladiolas No. 1
Colonial Loma Linda
Naucalpan de Juarez
C.P. 53618-Mexico City, Mexico
Lessor: Nieves del Pilar Canal Figaredo
Lessee: Pierce & Stevens de Mexico S.A. de C.V.
2. 805 Sinclair Frontage Road
Schedule III
<PAGE> 175
- 3 -
Milpitas, CA 95035
as more fully described in short term lease between Pierce & Stevens
Corp. and Sherwin-Williams Company
Lessor: Sherwin-Williams Company
Lessee: Pierce & Stevens Corp.
3. 13.8 acres on the Southeastern side of Furman Hall Road
Greenville, South Carolina
Lessor: United Carolina Bank of South Carolina, as Trustee
Lessee: Evode-Tanner Industries, Inc.
4. 0.2 acres (along railroad)
News, Greenville County, South Carolina
Lessor: Seaboard Coast Line Railroad Company
Lessee: Evode-Tanner Industries, Inc.
5. 1000 Executive Parkway
Suite 225
Creve Couer, Missouri 63141
Lessor: Joe H. Scott, Sr. and Loretta A. Scott as Trustees
Lessee: Laporte Construction Chemicals North America, Inc.
6. 17830 N.E. 65th
Redmond, Washington 98052
Lessor: Puget Pacific, Inc. Trustees
Sublessor: Kasco Corporation
Sublessee: Laporte Construction Chemicals North America, Inc.
d/ba Ohio Sealants (OSI)
Sub-Sublessee: Genie Industries, Inc.
Schedule III
<PAGE> 176
- 4 -
7. 3700 E. Olympic Blvd.
Los Angeles, California
Lessor: Rockwood Industries, Inc.
Lessee: Laporte Construction Chemicals North America, Inc.
(Glaze 'N Seal Division)
8. 9070 Bridgeport
Rancho Cucamonga, California 91730
Lessor: The Childs Family Trust u/t/a of 4/30/81 and The
A.G. Gardner Family Trust u/t/a 3/5/81 dba LANDCO
Lessee Mercer Products Co., Inc.
9. Premises including a portion of Building 10 at the River Terminal
Facility
Kearny, New Jersey
Lessor: RTC Properties, Inc.
Lessee Mercer Products Co., Inc.
Schedule III
<PAGE> 177
SCHEDULE IV
List of Affiliate Transactions
[See Section 9.16]
1. Payment of Brokerage Fees equal to an aggregate of $325,000, plus interest
at the rate of 10% per annum from April 1, 1996, to First Chicago Equity
Corporation, Waud Capital Partners, L.L.C. and Robert Covalt.
2. Executives Securities Agreement dated March 31, 1996 among Robert Covalt
("Covalt"), the Partnership and the General partner.
3. Executive Securities Agreement dated March 31, 1996 among William Schram
("Schram"), the Partnership and the General Partner.
4. Executive Security Agreements, dated as of July 31, 1997, among the
Partnership, the General Partner, and each of Robert Cobalt, William
Schram, Louis Pace, Peter Longo, Mark Longo, Mike Prude, Gerard Loftus,
Paul Gavlinski, John Edholm, Richard Bashford, Richard Johnston, and
Stephen Zavodny.
5. Director Security Agreements, dated as of July 31, 1997 and November 1,
1996, among the Partnership, the General Partner, and each of Karl Loos,
Charles Aldag, Jr. and Neal Reddeman.
6. Consultant Security Agreements, dated as of July 31, 1997 and November 1,
1996, among the Partnership, the General Partner, and Martyn Howell-Jones.
7. Employment Agreement dated March 31, 1996 among Covalt, the Partnership
and the General Partner.
8. Employment Agreement dated March 31, 1996 among Schram, the Partnership
and the General Partner.
9. Employment Agreement dated March 31, 1996 between Loftus and SEA.
10. Employment Agreements dated August 19, 1996 between each of Messrs. Edholm
and Johnston and Pierce & Stevens.
11. Future Executive Securities Agreements (in forms similar to existing
agreements) in connection with future purchases of up to any of the
foregoing:
Schedule IV
<PAGE> 178
- 2 -
(i) 445-12 Class C Common Units of the Partnership
(ii) 44.96 Class A Common Shares of the General Partner
12. Future Employment Agreements with senior executives of the Partnership and
its Subsidiaries.
13. Tax payments made pursuant to either (i) the Partnership Agreement; (ii)
the SEA Operating Agreement; or (iii) any other flow-through entity
subsequently acquired by the Partnership.
14. Partnership Unit Purchase Agreement of the Partnership dated March 31,
1996, as amended.
15. BAIC/MIG Partnership Unit Purchase Agreement of the Partnership dated
August 19, 1996 among the General Partner, the Partnership, MIG Partners
II and BankAmerica Investment Corporation.
16. Stock Purchase Agreement of the General Partner dated March 31, 1996, as
amended.
17. BAIC/MIG Stock Purchase Agreement dated August 19, 1996 among the General
Partner, MIG Partner II and BankAmerica Investment Corporation.
18. Promissory Note dated as of March 31, 1996 from Loftus to the Partnership.
19. Promissory Notes, dated as of July 31, 1997 from each of Robert Cobalt,
William Schram(2), Louis Pace, and Stephen Zavodny to the Partnership.
20. Partnership Unit Purchase and Exchange Agreement of the Partnership, dated
as of July 31, 1997.
21. Stock Purchase and Exchange Agreement of the General Partner dated as of
July 31, 1997.
Schedule IV
<PAGE> 179
SCHEDULE V
Environmental Matters
[See Section 8.12]
[Schedule from Existing Credit Agreement to be inserted]
Laporte Construction Chemicals North America, Inc.
Mentor, Ohio
1. Mentor facility has three (3) underground storage tanks.
2. Potential liability at Willow Drum Superfund Site.
Evode-Tanner Industries, Inc.
1. On May 12, 1994, Evode received a General Notice and Request for
Information Letter with respect to the Love Springs Site in Cherokee
County, South Carolina, from the South Carolina Department of Health and
Environmental Control, dated May 6, 1994.
On June 21, 1991, Tanner Chemical received a potential Responsible Party
Notice with respect to the White Chemical Superfund Site from the United
States Environmental Protection Agency.
On July 12, 1991, Tanner Chemical received a Request for information with
respect to the White Chemical Superfund Site from the United States
Environmental Protection Agency.
2. Re: Furman Hall, Greenville County, South Carolina Property
(a) Consent Agreement 94-49-HW dated November 21, 1994 between the South
Carolina Department of Health and Environmental Control and Evode.
(b) Release, Settlement and Guarantee Agreement dated June 14, 1995 by
and among Evode U.S.A. Inc., Evode, Laporte Inc. (as guarantor),
Michael Blakely, United Carolina Bank of South Carolina (as
Successor Trustee under an irrevocable trust between Ernest Blakely,
Jr. and United Carolina Bank), United Carolina Bank (as Trustee of
that certain revocable trust agreement dated October 20, 1989
between Ernest Blakely, Jr. and United Carolina Bank) and The Estate
of Ernest Blakely, Jr.) and United Carolina Bank of South Carolina.
(c) Release and Settlement Agreement dated October 24, 1996 as filed in
the U.S. District Court for the District of
Schedule V
<PAGE> 180
- 2 -
South Carolina/Greenville Division in connection with Civil Action
No. 6:93-1558-20.
3. Re: Medley Farm Superfund Site, Gaffney, South Carolina
(a) Agreement and Release dated December 31, 1986 by and between the
"Settling Defendants" (Including Tanner Chemical Company).
(b) Medley Farm Superfund Site Cost Sharing Agreement dated July 31,
1992 entered into by William F. Lehr, the Estate of Ernest Blakely,
Jr. and Evode-Tanner.
(c) Release and Settlement Agreement dated October 24, 1996 as filed in
the U.S. District Court for the District of South
Carolina/Greenville Division in connection with Civil Action No.
6:93-1558-20.
All Target Companies
All matters disclosed in or arising out of facts and circumstances discussed in
the following environmental reports:
Environmental Review
Darworth Company
LaGrange, Georgia E098-068
Prepared by Delta Environmental Consultants, Inc.
October 1996
Environmental Review
Evode-Tanner Industries
Greenville, South Carolina E096-068
Prepared by Delta Environmental Consultants, Inc.
October 1996
Environmental Review
LCCNAI - Mentor
Mentor, Ohio E096-068
Prepared by Delta Environmental Consultants, Inc.
October 1996
Environmental Review
Mercer Products Company, Inc.
Eustis, Florida E098-068
Prepared by Delta Environmental Consultants, Inc.
October 1996
Schedule V
<PAGE> 181
- 3 -
Environmental Review
Mercer Products Company, Inc.
Laporte Construction Chemicals North America, Inc.
Leased Warehouses: Redmond, Washington; South Kearny, New
Jersey; Rancho Cucamonga, California
Delta Project No. E096-068
Prepared by Delta Environmental Consultants, Inc.
October 1996
Additional Liability to be Indemnified by Laporte pursuant to the
Acquisition Agreement:
The following Third Party Claims (as such term is defined in the Acquisition
Agreement) with respect to the facility indicated have been disclosed to the
Partnership and will be subject to indemnification by Laporte in accordance with
the Acquisition Agreement (The Partnership will have Principal Management (as
defined in the Acquisition Agreement) of each of the following):
1. Evode Tanner Industries, Inc. -- Greenville, SC
(a) Fifty percent of repair costs for deformed structural beam in
building 4. The Partnership's share of such costs will not be
applied towards the thresholds specified in Section 8.4(a)(iv) of
the Acquisition Agreement.
2. Darworth Company, La Grange, GA
(a) Third-Party Claims resulting from the fact that required storm water
sampling was not completed in 1996.
(b) Third-Party Claims resulting from possible organic solvent
contamination occurring prior to the closing of the Acquisition
Agreement within subsurface of the drainage ditch adjacent to the
tank farm, as described in the Environmental Review of the Darworth
Company by Delta Environmental consultants, Inc., dated October
1996.
3. Mercer, Eustis, FL
(a) Third-Party Claims brought during the six-month period following
closing of the Acquisition Agreement regarding the OSHA citation
prior to such closing relating to electrical wiring practices.
Mercer will
Schedule V
<PAGE> 182
- 4 -
take corrective action responsive to such citation prior to such
closing.
4. LCCNA, Mentor, OH
(a) Third-Party Claims regarding the one-half of the underground storage
tank that possibly does not meet Ohio UST regulations, unless LCCNA
obtains regulatory approval of the existing system prior to the
closing of the Acquisition Agreement (and LCCNA will use its
reasonable efforts to obtain such approval).
(b) Third-Party Claims resulting from mineral spirits spill (prior to
the closing of the Acquisition Agreement) associated with UST's.
Schedule V
<PAGE> 1
EXHIBIT 5.1
[Letterhead of Kirkland & Ellis]
April 3, 1998
Sovereign Specialty Chemicals, Inc.
225 West Washington Street
Chicago, Illinois 60606
Re: 9 1/2% Senior Subordinated Notes due 2007, Series B
Ladies and Gentlemen:
We are acting as special counsel to Sovereign Specialty Chemicals, Inc., a
Delaware corporation (the "Company"), in connection with the proposed
registration by the Company of up to $125,000,000 in aggregate principal amount
of the Company's 9 1/2% Senior Subordinated Notes due 2007, Series B (the
"Exchange Notes"), pursuant to a Registration Statement on Form S-4 originally
filed with the Securities and Exchange Commission (the "Commission") on
November 3, 1997 under the Securities Act of 1933, as amended (the "Securities
Act") (such Registration Statement, as amended or supplemented, is hereinafter
referred to as the "Registration Statement"), for the purpose of effecting an
exchange offer (the "Exchange Offer") for the Company's 9 1/2% Senior
Subordinated Notes due 2007 (the "Old Notes"). We are also acting as special
counsel to Pierce & Stevens Corp., SIA Adhesives, Inc., OSI Sealants, Inc.,
Mercer Products Company, Inc. and Tanner Chemicals, Inc. (collectively, the
"Guarantors") as issuers of guaranties (collectively, the "Guaranties") of the
obligations of the Company under the Exchange Notes. The Exchange Notes and the
Guaranties are to be issued pursuant to the Indenture (the "Indenture"), dated
as of August 1, 1997, among the Company, the Guarantors and The Bank of New
York, as Trustee, in exchange for and in replacement of the Company's
outstanding Old Notes, of which $125,000,000 in aggregate principal amount is
outstanding.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purpose of this
opinion, including (i) the corporate and organizational documents of the Company
and each Guarantor, (ii) minutes and records of the corporate proceedings of the
Company and each Guarantor with respect to the issuance of the Exchange Notes
and the Guarantees, respectively, (iii) the Registration Statement and exhibits
thereto and (iv) the Registration Rights Agreement, dated as of August 5, 1997,
among the Company, the Guarantors, and Chase Securities Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation.
<PAGE> 2
Sovereign Specialty Chemicals, Inc.
April 3, 1998
Page 2
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the genuineness of the
signatures of persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto other than the Company and the Guarantors, and the due
authorization, execution and delivery of all documents by the parties thereto
other than the Company and the Guarantors. As to any facts material to the
opinions expressed herein which we have not independently established or
verified, we have relied upon statements and representations of officers and
other representatives of the Company and others.
Based upon the subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that:
(1) The sale and issuance of the Exchange Notes has been validly authorized
by the Company.
(2) The Guaranties have been validly authorized by each of the Guarantors.
(3) When, as and if (i) the Registration Statement shall
have become effective pursuant to the provisions of the Securities Act, (ii) the
Indenture shall have been qualified pursuant to the provisions of the Trust
Indenture Act of 1939, as amended, (iii) the Old Notes shall have been validly
tendered to the Company and (iv) the Exchange Notes shall have been issued in
the form and containing the terms described in the Registration Statement, the
Indenture, the resolutions of the Company's and each Guarantor's Board of
Directors (or authorized committee thereof) authorizing the foregoing and any
legally required consents, approvals, authorization and other order of the
Commission and any other regulatory authorities to be obtained, the Exchange
Notes when issued pursuant to the Exchange Offer will be legally issued and will
constitute valid and binding obligations of the Company and each Guarantie will
constitute the valid and binding obligation of the respective Guarantor.
Our opinions expressed above are subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of
(i) any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity or at law
(regardless of whether
<PAGE> 3
Sovereign Specialty Chemicals, Inc.
April 3, 1998
Page 3
enforcement is considered in a proceeding in equity or at law), and (iii) public
policy considerations which may limit the rights of parties to obtain certain
remedies.
Our advice on every legal issue addressed in this letter is based
exclusively on the federal law of the United States and the laws of the States
of Illinois and New York except that certain of the opinions are based on the
Delaware General Corporation Law (in the case of the Company and SIA Adhesives,
Inc.), on the New Jersey Business Corporation Act (in the case of Mercer
Products Company, Inc.) and on the Business Corporation Act of the State of New
Hampshire (in the case of Tanner Chemicals, Inc.). We advise you that we are not
admitted to practice in New Jersey or New Hampshire and our knowledge of the New
Jersey Business Corporation Act or the Business Corporation Act of the State of
New Hampshire for purposes of this opinion is limited to a reading of a copy of
those statutes as reproduced in the Prentice Hall Law and Business Corporation
Statutes; we did not review or attempt to identify New Jersey or New Hampshire
case law or any other New Jersey or New Hampshire law which might be relevant
for purposes of our opinions. Issues addressed by this letter may be governed in
whole or in part by other laws, but we express no opinion as to whether any
relevant difference exists between the laws upon which our opinions are based
and any other laws which may actually govern.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. We also consent to the reference to our firm under the
heading "Legal Matters" in the Registration Statement. In giving this consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and regulations of
the Commission.
We do not find it necessary for the purposes of this opinion, and
accordingly we do not purport to cover herein, the application of the securities
or "Blue Sky" laws of the various states to the issuance of the Exchange Notes.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the States of Delaware, New York or Illinois be changed by legislative
action, judicial decision or otherwise.
<PAGE> 4
Sovereign Specialty Chemicals, Inc.
April 3, 1998
Page 4
This opinion is furnished to you in connection with the filing of
the Registration Statement, and is not to be used, circulated, quoted or
otherwise relied upon for any other purposes.
Very truly yours,
Kirkland & Ellis
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of March 31, 1996, by and between
Sovereign Specialty Chemicals, L.P., a Delaware limited partnership (the "Parent
Partnership"), Sovereign Chemicals Corporation, a Delaware corporation (the
"Company"), and the general partner of the Parent Partnership, and Robert B.
Covalt ("Executive").
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company and the Parent Partnership shall employ
Executive, and Executive hereby accepts employment with the Company and the
Parent Partnership, upon the terms and conditions set forth in this Agreement
for the period beginning on the date hereof and ending as provided in paragraph
4 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the Chief
Executive Officer of the Company and the Parent Partnership and shall have the
normal duties, responsibilities and authority of the Chief Executive Officer,
subject to the power of the Board of Directors of the Company (the "Board") to
expand or limit such executive duties, responsibilities and authority and to
override actions of the Chief Executive Officer. During the Employment Period,
Executive shall render such administrative, sales, marketing and other executive
and managerial services which are consistent with Executive's positions to the
Company, the Parent Partnership and their Subsidiaries as the Board may from
time to time direct.
(b) Executive shall report to the Board, and Executive shall devote
his best efforts and his full business time and attention (except for permitted
vacation periods and reasonable periods of illness or other incapacity) to the
business and affairs of the Company, the Parent Partnership and their
Subsidiaries. Executive shall perform his duties and responsibilities to the
best of his abilities in a diligent, trustworthy, businesslike and efficient
manner.
3. Base Salary and Benefits.
(a) During the Employment Period, the Parent Partnership shall pay
to Executive a base salary (the "Base Salary") equal to $150,000 per annum;
provided that (i) if for any fiscal year EBITDA is at least $6 million but less
than $8 million, the Base Salary shall increase to $200,000 per annum effective
as of the beginning of the succeeding fiscal year and (ii) if for any fiscal
year EBITDA is at least $8 million, the Base Salary shall increase to $250,000
per annum effective as of the beginning of the succeeding fiscal year, or such
higher rate as the Board may designate from time to time. The Base Salary shall
be payable in regular installments in accordance with the Company's and the
Parent Partnership's general payroll practices and shall be subject to customary
withholding.
<PAGE> 2
In addition, during the Employment Period, Executive shall be entitled to
participate in all of the Company's and the Parent Partnership's employee
benefit programs for which senior executive employees of the Company and the
Parent Partnership are generally eligible, which programs shall include health
and dental insurance coverage.
(b) The Company and the Parent Partnership shall reimburse Executive
for all reasonable expenses incurred by him in the course of performing his
duties under this Agreement which are consistent with the Company's policies in
effect from time to time with respect to travel, entertainment and other
business expenses, subject to the Company's and the Parent Partnership's
requirements with respect to reporting and documentation of such expenses.
(c) Within three months after the date hereof, the Company, the
Parent Partnership and Executive shall in good faith develop a bonus plan
applicable to Executive which shall provide for Executive to receive an annual
bonus not exceeding 100% of his Base Salary for the year to which such annual
bonus relates if the Parent Partnership and its Subsidiaries achieve specified
financial measures established by the Board as part of its annual operating
budget for a calendar year.
4. Term.
(a) Except as otherwise provided in the following sentence, the
Employment Period shall end on the third anniversary of the date hereof;
provided that (i) the Employment Period shall terminate prior to such date upon
Executive's resignation, death or Disability and (ii) the Employment Period may
be terminated by the Company and the Parent Partnership at any time prior to
such date for Cause (as defined below) or without Cause. The Employment Period
shall be automatically renewed and extended for successive one year terms
beginning on the third anniversary of the date hereof and on each anniversary
date thereafter unless the Company and the Parent Partnership or Executive
receives within six months prior to such anniversary date written notice of an
election not to renew the Employment Period as of such anniversary date.
(b) If the Employment Period is terminated as a result of a
nonrenewal pursuant to paragraph 4(a) above, by the Company and the Parent
Partnership without Cause or with Performance Shortfall Cause or by Executive
with or without Good Reason, Executive shall be entitled to receive his Base
Salary, payable in accordance with the Company's and the Parent Partnership's
normal payroll practices, and to continue to participate in the Company's and
the Parent Partnership's health, insurance and disability plans and programs
during the Noncompete Period, if any; provided that Executive shall be entitled
to receive such compensation and benefits during the Noncompete Period if and
only if Executive has complied with and continues to comply with the provisions
of paragraphs 5, 6 and 7 hereof. The amounts payable pursuant to this paragraph
4(b) shall be reduced by the amount of any compensation Executive earns with
respect to any other employment during the Severance Period. Upon reasonable
request from time to time, Executive
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<PAGE> 3
shall furnish the Company and the Parent Partnership with a true and complete
certificate specifying any such compensation due to or received by him during
the Noncompete Period.
(c) If the Employment Period is terminated by the Company and the
Parent Partnership for Cause (other than Performance Shortfall Cause) or as a
result of Executive's death or Disability, Executive shall be entitled to
receive his Base Salary through the date of termination and accrued but unpaid
vacation in accordance with the policy of the Company and the Parent Partnership
and to continue to participate in the Company's health, insurance and disability
plans and programs through the date of termination and thereafter only to the
extent permitted under the terms of such plans and programs.
(d) Except as otherwise expressly provided herein, all of
Executive's rights to salary, employee benefits, fringe benefits and bonuses
hereunder (if any) which accrue after the termination of the Employment Period
shall cease upon such termination. The Company, the Parent Partnership and their
Subsidiaries may offset any loans, cash advances or fixed amounts which
Executive owes the Company, the Parent Partnership or their Subsidiaries against
any amounts it owes Executive.
5. Trade Secret Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
and the Parent Partnership concerning the business or affairs of the Company,
the Parent Partnership or any of their Subsidiaries which the Company, the
Parent Partnership or any such Subsidiary considers to be confidential and which
is proprietary to the Company, the Parent Partnership or any such Subsidiary
("Trade Secret Information") are the property of the Company, the Parent
Partnership or any such Subsidiary. Therefore, Executive agrees that he shall
not disclose to any unauthorized Person (except (i) to any entity which shall
succeed to the business of the Company, the Parent Partnership or any such
Subsidiary, (ii) as may be required in the regular course of business of the
Company, the Parent Partnership or any such Subsidiary or (iii) as required by
law) or use for his own purposes any Trade Secret Information without the prior
written consent of the Board, unless and to the extent that the aforementioned
matters become generally known to and available for use by the public or Persons
knowledgeable in the Company's industry other than as a result of Executive's
acts or omissions which constitute a breach hereof. Executive shall deliver to
the Company at the termination of the Employment Period, or at any other time
the Company may request, all memoranda, notes, plans, records, reports, computer
tapes, printouts and software and other documents and data (and copies thereof)
relating to the Trade Secret Information, Work Product (as defined below) or the
business of the Company, the Parent Partnership or any such Subsidiary which he
may then possess or have under his control.
6. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which (i) relate to the Company's, the
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<PAGE> 4
Parent Partnership's or any of their Subsidiaries' actual or anticipated
business, research and development or existing or future products or services or
(ii) result from any work performed by Executive for the Company, the Parent
Partnership and their Subsidiaries, and which are conceived, developed or made
by Executive while employed by the Company and the Parent Partnership ("Work
Product") belong to the Company, the Parent Partnership or such Subsidiaries;
provided that this Section of this Agreement regarding the Company's, the Parent
Partnership's and their Subsidiaries' ownership of Work Product does not apply
to any invention for which no equipment, supplies, facilities or trade secret
information of the Company, the Parent Partnership or any of their Subsidiaries
was used and which was developed entirely on Executive's own time, unless (i)
the invention relates to the business of the Company, the Parent Partnership or
any of their Subsidiaries or to the Company's, the Parent Partnership's or any
of their Subsidiaries' actual or demonstrably anticipated research or
development or (ii) the invention results from any work performed by Executive
for the Company, the Parent Partnership or any of their Subsidiaries. Executive
shall promptly disclose such Work Product to the Board and perform all actions
reasonably requested by the Board (whether during or after the Employment
Period) to establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder and his exposure to or involvement in the Trade Secret
Information, Executive acknowledges that in the course of his employment with
the Company and the Parent Partnership, he shall become familiar with trade
secrets and other Trade Secret Information concerning the Company, the Parent
Partnership and their Subsidiaries and that his services have been and shall be
of special, unique and extraordinary value to the Company, the Parent
Partnership and their Subsidiaries. Therefore, Executive agrees that, during the
Noncompete Period, he shall not directly or indirectly own any interest in,
manage, control, participate in, consult with, render services for, or in any
manner engage in any business competing with the businesses of the Company, the
Parent Partnership or their Subsidiaries, as such businesses exist or are in
process on the date of the termination of Executive's employment, within any
states or geographical regions in which the Company, the Parent Partnership or
their Subsidiaries engage or plan to engage in such businesses on the date of
the termination of Executive's employment; provided that nothing herein shall
prohibit Executive from being a passive owner of not more than 2% of the
outstanding stock of any class of a corporation which is publicly traded, so
long as Executive has no active participation in the business of such
corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company, the Parent Partnership or any of their Subsidiaries to leave the
employ of the Company, the Parent Partnership or such Subsidiaries, or in any
way interfere with the relationship between the Company, the Parent Partnership
or any of their Subsidiaries and any employee thereof, (ii) hire any person who
was a management employee of the Company, the Parent Partnership or any of their
Subsidiaries at any
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<PAGE> 5
time during the one year period prior to the termination of the Employment
Period or (iii) induce or attempt to induce any customer, supplier, licensee,
licensor, franchisee or other business relation of the Company, the Parent
Partnership or any of their Subsidiaries to cease doing business with the
Company, the Parent Partnership or such Subsidiaries, or in any way materially
interfere with the relationship between any such customer, supplier, licensee or
business relation and the Company, the Parent Partnership or any of their
Subsidiaries (including, without limitation, making any negative statements or
communications about the Company, the Parent Partnership or their Subsidiaries).
(c) If, at the time of enforcement of this paragraph 7, a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law. Executive agrees that the restrictions
contained in this paragraph 7 are reasonable.
(d) In the event of any breach or threatened breach by Executive of
any of the provisions of this paragraph 7, the Company, the Parent Partnership
and their Subsidiaries, in addition and supplementary to other rights and
remedies existing in its favor, may apply to any court of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce
or prevent any violations of the provisions hereof (without posting a bond or
other security). In addition, in the event of an alleged breach or violation by
Executive of this paragraph 7, the Noncompete Period shall be tolled until such
breach or violation has been duly cured.
8. Executive's Representations. Executive hereby represents and
warrants to the Company and the Parent Partnership that (i) the execution,
delivery and performance by Executive of this Agreement, the Investors Agreement
and all other agreements contemplated hereby and thereby to which Executive is a
party do not and shall not conflict with, breach, violate or cause a default
under any contract, agreement, instrument, order, judgment or decree to which
Executive is a party or by which he is bound, (ii) except for confidentiality
agreements entered into in connection with contemplated acquisitions of
speciality chemical businesses, Executive is not a party to or bound by any
employment agreement, noncompete agreement or confidentiality agreement with any
other person or entity (or if a party to such an agreement, Executive has
disclosed the material terms thereof to the Board prior to the execution hereof
and promptly after the date hereof shall deliver a copy of such agreement to the
Board), and (iii) upon the execution and delivery of this Agreement by the
Company and the Parent Partnership, this Agreement shall be the valid and
binding obligation of Executive, enforceable in accordance with its terms.
Executive hereby acknowledges and represents that (i) he has consulted with
independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein and (ii) subject to change by the Board at any time, the Company's and
the Parent Partnership's headquarters are in, and substantially all of the
services to be performed by Executive
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<PAGE> 6
for the Company, the Parent Partnership and their Subsidiaries shall be
performed in, the State of Illinois.
9. Definitions.
"Cause" means (i) the commission of a felony or a crime involving
moral turpitude or the commission of any other act or omission involving
dishonesty, disloyalty or fraud with respect to the Company, the Parent
Partnership or any of their Subsidiaries, (ii) conduct which brings the Company,
the Parent Partnership or any of their Subsidiaries into substantial public
disgrace or disrepute (including abuse of drugs or alcohol), (iii) substantial
and repeated failure to perform duties as reasonably directed by the Board, (iv)
gross negligence or willful misconduct with respect to the Company, the Parent
Partnership or any of their Subsidiaries, (v) any other material breach of this
Agreement which is not cured within 15 days after written notice thereof to
Executive or (vi) for purposes of this Agreement only, a Performance Shortfall
(clause (vi) of this definition being "Performance Shortfall Cause"); provided
that a termination of Executive's employment by the Company and the Parent
Partnership shall not be deemed a termination for Cause unless and until (A) in
the case of a termination pursuant to any one or more of clauses (i) through (v)
above, there shall have been delivered to Executive a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the entire
membership of the Board (other than Executive) at a meeting of the Board called
and held for that purpose (after reasonable notice to and an opportunity for
Executive to be heard before the Board) finding that in the good faith opinion
of the Board, Executive was guilty of the conduct set forth in any one or more
of such clauses and (B) in the case of a termination pursuant to clause (vi)
above, Executive shall have been given written notice thereof not more than 60
days following the date that EBITDA was finally determined for the applicable
period.
"Disability" means Executive's inability, because of injury, illness
or other incapacity to perform the services to the Company, the Parent
Partnership or their Subsidiaries contemplated hereby (as determined by the
Board in its good faith judgment) for a continuous period of 90 days or for 120
days out of a continuous period of 360 days. Such Disability shall be deemed to
have occurred on the 90th consecutive day or the 120th day within the specified
period, as applicable.
"EBITDA" means, for any period, the net income of the Parent
Partnership and its Subsidiaries for any such period plus the amount deducted
(or in the case of extraordinary gains, minus any amount added) in the
computation thereof for (i) all federal, state and local income taxes, (ii)
interest expense, (iii) any extraordinary gains or losses, (iv) management fees
and corporate overhead of the Parent Partnership, (v) depreciation and (vi)
amortization of goodwill and other intangibles, determined in accordance with
generally accepted accounting principles consistently applied. For purposes of
this Agreement, EBITDA shall be determined from the audited financial statements
of the Parent Partnership and its Subsidiaries (or, if audited financial
statements are unavailable for such period, from the financial statements of the
Parent Partnership and its
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<PAGE> 7
Subsidiaries for such period delivered to the limited partners of the Parent
Partnership pursuant to Section 7.3 of the Partnership Agreement, which
statements shall be reviewed at the election of the either the First Chicago
Investors or Executive by the Parent Partnership's independent public
accountants) and the components of EBITDA contained in the financial statements
shall be conclusive and binding upon the parties.
"Executive Securities Agreement" means the Executive Securities
Agreement, dated as of the date hereof, between the Parent Partnership, the
Company and Executive.
"First Chicago Investors" has the meaning set forth in the Investors
Agreement.
"Forecasted EBITDA" means (i) with respect to the last three
calendar quarters in calendar year 1996 and the first calendar quarter in
calendar year 1997, the amounts set forth below and (ii) with respect to each
calendar quarter thereafter, amounts to be determined in good faith by the
Company's board of directors from time to time, which amounts shall be based
upon the Parent Partnership's annual budget:
Second calendar quarter in calendar
year 1996 $940,000
-------
Third calendar quarter in calendar
year 1996 $908,000
-------
Fourth calendar quarter in calendar
year 1996 $895,000
-------
First calendar quarter in calendar year 1997 $1,096,000
---------
In the event that the Parent Partnership or any of its Subsidiaries acquires a
company or business through merger, stock purchase, asset purchase or otherwise,
or disposes of any operating unit, during the Employment Period, the amounts set
forth above with respect to the quarter during which the transaction occurs and
all subsequent quarters shall be equitably adjusted to reflect such acquisition
or disposition, as reasonably determined in good faith by the Board and the
Chief Executive Officer of the Company.
"Good Reason" means (i) a Qualified Sale of the Parent Partnership
(as defined in the Investors Agreement), (ii) a Qualified Sale of the Company
(as defined in the Investors Agreement), (iii) the time at which the First
Chicago Investors and their Permitted Transferees own less than 25% of the
Common Units originally purchased by the First Chicago Investors under the
Partnership Unit Purchase Agreement, (iv) the removal without Cause of Executive
as the Chief Executive Officer of the Company or the Parent Partnership, or its
imposition upon him of substantial additional or
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<PAGE> 8
different duties which are inconsistent with such position, (v) either the
reduction of Executive's salary or a material reduction of other benefits under
any employee benefit plan, program or arrangement of the Company and the Parent
Partnership (other than a change that affects all senior executives of the
Company and the Parent Partnership) from the level in effectupon Executive's
commencement of participation therein, (vi) the relocation of the executive
offices of the Company or the Parent Partnership from the Chicago, Illinois
metropolitan area or (vii) the failure by the First Chicago Investors to
purchase Additional Preferred Units or Additional Preferred Stock as and when
required under the Partnership Unit Purchase Agreement and the Stock Purchase
Agreement, respectively.
"Investors Agreement" means that certain Investors Agreement, dated
as of the date hereof, by and among the Parent Partnership, the Company and
certain partners and stockholders thereof, as amended or modified from time to
time.
"Noncompete Period" means the Employment Period and (i) in the case
of a termination of the Employment Period by Executive with Good Reason or by
the Company and the Parent Partnership without Cause or with Performance
Shortfall Cause, a period of time, to be determined by the Company's board of
directors in its sole discretion within 30 days after such termination, of no
less than one additional year and no more than two additional years thereafter,
(ii) in the case of a nonrenewal of the Employment Period pursuant to paragraph
4(a) hereof or a termination of the Employment Period by Executive without Good
Reason, a period of time, to be determined by the Company's board of directors
in its sole discretion within 30 days after such nonrenewal or termination, of
no more than two additional years thereafter, (iii) in the case of a termination
of the Employment Period by the Company and the Parent Partnership with Cause
(other than Performance Shortfall Cause), two additional years thereafter and
(iv) in the case of a termination of the Employment Period as a result of
Executive's Disability, one additional year thereafter.
"Partnership Agreement" means that certain Agreement of Limited
Partnership of Sovereign Specialty Chemicals, L.P., dated as of the date hereof,
by and among the Company, as general partner, and the limited partners listed on
Schedule I attached thereto, as amended and modified from time to time.
"Partnership Unit Purchase Agreement" means the Partnership Unit
Purchase Agreement, dated as of the date hereof, among the Parent Partnership
and the Purchasers listed therein.
"Performance Shortfall" means, with respect to any four consecutive
calendar quarters beginning with the four-quarter period consisting of the last
three calendar quarter of 1996 and the first calendar quarter of 1997, the
aggregate EBITDA for such quarters is less than 70% of the aggregate Forecasted
EBITDA for such quarters.
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<PAGE> 9
"Stock Purchase Agreement" means the Stock Purchase Agreement, dated
as of the date hereof, among the Company and the Purchasers listed therein.
"Subsidiaries" means, with respect to any person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such person or entity or one or more of
the other Subsidiaries of such person or entity or a combination thereof, or
(ii) if a limited liability company, partnership, association or other business
entity, a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by any
person or entity or one or more Subsidiaries of such person or entity or a
combination thereof. For purposes hereof, a person or persons shall be deemed to
have a majority ownership interest in a limited liability company, partnership,
association or other business entity if such person or persons shall be
allocated a majority of limited liability company, partnership, association or
other business entity gains or losses or shall be or control any managing
director or general partner of such limited liability company, partnership,
association or other business entity.
10. Survival. Paragraphs 4 through 18 shall survive and continue in
full force in accordance with their terms notwithstanding any termination of the
Employment Period.
11. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, sent by first class mail,
return receipt requested, or sent by reputable overnight courier service
(charges prepaid) to the recipient at the address indicated below:
Notices to Executive:
Robert B. Covalt
7517 Bull Valley Road
McHenry, Illinois 60050
with copies to:
McBride Baker & Coles
500 West Madison Street
Chicago, IL 60661
Attn: Robert I. Schwimmer
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<PAGE> 10
Notices to the Company and the Parent Partnership:
Sovereign Chemicals Corporation
Suite 2200
225 West Washington Street
Chicago, Illinois 60606
Attn: Chief Executive Officer
with copies to:
First Capital Corporation of Chicago
Three First National Plaza, Suite 1210
Chicago, IL 60670
Attn: Carol E. Bramson
and
Waud Capital Partners, L.L.C.
Suite 103
560 Oakwood Avenue
Lake Forest, Illinois 60045
Attn: Reeve B. Waud
and
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attn: Edward T. Swan
Gary R. Silverman
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or, if mailed, three days after deposit in the U.S. mail and one day after
deposit with a reputable overnight courier service.
12. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced
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<PAGE> 11
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
13. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
14. No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
16. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive, the Company, the Parent
Partnership and their respective heirs, successors and assigns, except that
Executive may not assign his rights or delegate his obligations hereunder
without the prior written consent of the Company and the Parent Partnership.
17. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by, and construed in accordance with, the laws of the State of
Illinois, without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of Illinois or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of Illinois.
18. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company, the Parent
Partnership and Executive, and no course of conduct or failure or delay in
enforcing the provisions of this Agreement shall affect the validity, binding
effect or enforceability of this Agreement.
* * * *
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
SOVEREIGN CHEMICALS CORPORATION
By /s/ William T. Schram
----------------------------
Its Secretary & C.F.O.
----------------------------
SOVEREIGN SPECIALTY CHEMICALS, L.P.
By Sovereign Chemicals Corporation
Its General Partner
By /s/ William T. Schram
----------------------------
Its Secretary & CFO
----------------------------
/s/ Robert B. Covalt
----------------------------
ROBERT B. COVALT
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<PAGE> 1
Exhibit 10.2
PROMISSORY NOTE
$1,829,531 July 31, 1997
For value received, Robert Covalt ("Executive") promises to pay to
the order of Sovereign Specialty Chemicals, L.P., a Delaware limited partnership
(the "Partnership"), at its offices in 225 W. Washington, Suite 2200, Chicago,
IL 60606, or such other place as designated in writing by the holder hereof, the
aggregate principal sum of one million eight hundred twenty-nine thousand five
hundred thirty-one dollars ($1,829,531). This Note was issued in connection with
and is subject to the terms of the Executive Securities Agreement, dated as of
the date hereof, between Sovereign Speciality Chemicals, L.P., a Delaware
limited partnership (the "Partnership"), Sovereign Chemicals Corporation, a
Delaware corporation (the "General Partner") and Executive (the "Executive
Agreement"). Unless otherwise provided herein, capitalized terms shall have the
same meanings as set forth in the Executive Agreement.
Interest shall accrue on the outstanding principal amount of this
Note at a rate equal to the lesser of (i) the prime rate as announce from time
to time by The First National Bank of Chicago or (ii) the highest rate permitted
by applicable law, and shall be payable at such time as the principal of this
Note becomes due and payable. Interest shall compound annually on each
anniversary of the date of issuance of this Note.
The then outstanding principal amount of this Note and all accrued
interest thereon is due and payable on the date the Employment Period
terminates. Executive may, at any time and from time to time without prepayment
penalty, prepay all or any portion of the outstanding principal amount of this
Note. Executive shall prepay a portion of this Note equal to (i) as and when
received, the amount of any distributions from time to time paid or distributed
with respect to Securities (except, so long as Executive is not in default of
this Note, distributions paid or distributed pursuant to paragraph 4.1(b) of the
Partnership Agreement), for which purpose Executive hereby authorizes and
directs the Partnership and the General Partner (on his own behalf and on behalf
of his Permitted Transferees) to directly apply such dividends and distributions
to the prepayment of this Note, (ii) as and when received, an amount equal to
the proceeds from any Transfer of Securities and (iii) as and when received, an
amount equal to 50% of all annual bonuses (before taxes) paid to Executive
pursuant to the Employment Agreement, for which purpose Executive hereby
authorizes and directs the Partnership and the General Partner to directly apply
such amounts to the prepayment of this Note. Payments received by the holder
hereof shall be applied towards the amount due under this Note (i) first, to the
payment of all accrued and unpaid interest on this Note at the time of such
payment and (ii) second, to the payment of principal of this Note.
As security for Executive's payment in full of this Note and all
interest thereon and other amounts payable in accordance with this Note,
Executive hereby assigns, transfers and delivers to the Partnership and grants
the Partnership a continuing security interest in Executive's right, title and
interest in and to the Securities and all cash, securities, distributions,
payments, rights and other
<PAGE> 2
property at any time and from time to time received, receivable or otherwise
distributed in respect of or in exchange for any of the Securities
(collectively, the "Collateral"), to have and to hold, together with all rights,
titles, interests, privileges and preferences appertaining or incidental
thereto, unto the Partnership, its successors and assigns, forever, subject to
the terms and conditions of this Note. Notwithstanding the foregoing, the
Partnership shall not have a security interest in, and the term "Collateral"
shall not include, any distributions paid or distributed pursuant to Section
4.1(b) of the Partnership Agreement.
Notwithstanding anything to the contrary contained herein, during
the term of this Note until such time as there exists a default in the payment
of principal or interest on this Note or any other default under this Note,
Executive shall be entitled to all voting rights with respect to the Securities
and shall be entitled to receive all distributions paid in respect of the
Securities, subject to the right of the Partnership to apply such distributions
to the prepayment of principal and accrued interest under this Note. Upon the
occurrence of and during the continuance of any such default, Executive shall no
longer be able to vote the Securities and Executive hereby authorizes and
directs the Partnership and the General Partner to apply all such distributions
payable on the Securities as additional security hereunder to the extent not
otherwise paid to the Partnership for application to the prepayment of principal
and accrued interest under this Note.
In the event Executive fails to pay any amounts when due, Executive,
subject to the following paragraph shall pay to the holder hereof, in addition
to such amounts due, all costs of collection, including reasonable attorneys
fees. To the extent permitted by law and subject to the following paragraph, in
case Executive shall fail to make any payments required hereunder, holder shall
have the right, in addition to all other rights and remedies available to it, to
receive for application to the unpaid balance payment of this Note, and
Executive hereby authorizes and directs the Partnership and the General Partner
to apply to the unpaid balance of this Note, any and all obligations of the
General Partner and the Partnership to Executive under the Executive Agreement
or under the Employment Agreement; provided that any severance payments owed to
Executive under the Employment Agreement which are subject to payment to the
Partnership for application to the unpaid balance of this Note shall be so paid
to the Partnership in equal amounts from each installment payment during the
Noncompete Period (as defined in the Employment Agreement); such rights shall
exist whether or not the holder hereof shall have made any demand under this
Note and whether or not this Note has matured.
Notwithstanding anything to the contrary herein, holder hereby
agrees that Executive shall not have personal liability with respect to any
amounts owed under this Note, except as set forth in this paragraph and except
for Executive's obligation to pay to the Partnership certain amounts for
application to the unpaid balance of this Note as set forth in this Note. The
holder's claim against Executive (other than Executive's obligation to pay, and
the Partnership's right to be paid, certain amounts for application to the
unpaid balance of this Note as set forth in this Note) shall not at any time
exceed the Aggregate Recourse Amount determined as of such time. "Aggregate
Recourse Amount" means as of any time an amount equal to (A) 50% of the
aggregate original principal amount of this Note, minus (B) the aggregate amount
of all principal and interest payments made under this Note from the date of
issuance of this Note through such time, including payments incident to
Executive's declaring bankruptcy.
<PAGE> 3
Executive, or his successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest, demand, dishonor and
nonpayment of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended from time to time and that the holder hereof may
accept security for this Note or release security for this Note, all without in
any way affecting the liability of Executive hereunder.
This note shall be governed by the internal laws, not the laws of
conflicts, of the State of Illinois.
* * *
<PAGE> 4
IN WITNESS WHEREOF, Executive has executed this Note as of the date
first above written.
/s/ Robert Covalt
-----------------------------------
Robert Covalt
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of March 31, 1996, by and between
Sovereign Specialty Chemicals, L.P., a Delaware limited partnership (the "Parent
Partnership"), Sovereign Chemicals Corporation, a Delaware corporation (the
"Company"), and the general partner of the Parent Partnership, and William T.
Schram ("Executive").
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company and the Parent Partnership shall employ
Executive, and Executive hereby accepts employment with the Company and the
Parent Partnership, upon the terms and conditions set forth in this Agreement
for the period beginning on the date hereof and ending as provided in paragraph
4 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the Chief
Financial Officer of the Company and the Parent Partnership and shall have the
normal duties, responsibilities and authority of the Chief Financial Officer,
subject to the power of the Board of Directors of the Company (the "Board") to
expand or limit such executive duties, responsibilities and authority and to
override actions of the Chief Financial Officer. During the Employment Period,
Executive shall render such administrative, financial and other executive and
managerial services which are consistent with Executive's positions to the
Company, the Parent Partnership and their Subsidiaries as the Board may from
time to time direct.
(b) Executive shall report to the Board, and Executive shall devote
his best efforts and his full business time and attention (except for permitted
vacation periods and reasonable periods of illness or other incapacity) to the
business and affairs of the Company, the Parent Partnership and their
Subsidiaries. Executive shall perform his duties and responsibilities to the
best of his abilities in a diligent, trustworthy, businesslike and efficient
manner.
3. Base Salary and Benefits.
(a) During the Employment Period, the Parent Partnership shall pay
to Executive a base salary equal to $100,000 (the "Base Salary") or such higher
rate as the Board may designate from time to time. The Base Salary shall be
payable in regular installments in accordance with the Company's and the Parent
Partnership's general payroll practices and shall be subject to customary
withholding. In addition, during the Employment Period, Executive shall be
entitled to participate in all of the Company's and the Parent Partnership's
employee benefit programs for which senior executive employees of the Company
and the Parent Partnership are generally eligible, which programs shall include
health and dental insurance coverage.
<PAGE> 2
(b) The Company and the Parent Partnership shall reimburse Executive
for all reasonable expenses incurred by him in the course of performing his
duties under this Agreement which are consistent with the Company's policies in
effect from time to time with respect to travel, entertainment and other
business expenses, subject to the Company's and the Parent Partnership's
requirements with respect to reporting and documentation of such expenses.
(c) Within three months after the date hereof, the Company, the
Parent Partnership and Executive shall in good faith develop a bonus plan
applicable to Executive which shall provide for Executive to receive an annual
bonus not exceeding 50% of his Base Salary for the year to which such annual
bonus relates if the Parent Partnership and its Subsidiaries achieve specified
financial measures established by the Board as part of its annual operating
budget for a calendar year.
4. Term.
(a) Except as otherwise provided in the following sentence, the
Employment Period shall end on the third anniversary of the date hereof;
provided that (i) the Employment Period shall terminate prior to such date upon
Executive's resignation, death or Disability and (ii) the Employment Period may
be terminated by the Company and the Parent Partnership at any time prior to
such date for Cause (as defined below) or without Cause. The Employment Period
shall be automatically renewed and extended for successive one year terms
beginning on the third anniversary of the date hereof and on each anniversary
date thereafter unless the Company and the Parent Partnership or Executive
receives within six months prior to such anniversary date written notice of an
election not to renew the Employment Period as of such anniversary date.
(b) If the Employment Period is terminated as a result of a
nonrenewal pursuant to paragraph 4(a) above, by the Company and the Parent
Partnership without Cause or with Performance Shortfall Cause or by Executive
with or without Good Reason, Executive shall be entitled to receive his Base
Salary, payable in accordance with the Company's and the Parent Partnership's
normal payroll practices, and to continue to participate in the Company's and
the Parent Partnership's health, insurance and disability plans and programs
during the Noncompete Period, if any; provided that Executive shall be entitled
to receive such compensation and benefits during the Noncompete Period if and
only if Executive has complied with and continues to comply with the provisions
of paragraphs 5, 6 and 7 hereof. The amounts payable pursuant to this paragraph
4(b) shall be reduced by the amount of any compensation Executive earns with
respect to any other employment during the Noncompete Period. Upon reasonable
request from time to time, Executive shall furnish the Company and the Parent
Partnership with a true and complete certificate specifying any such
compensation due to or received by him during the Noncompete Period.
(c) If the Employment Period is terminated by the Company and the
Parent Partnership for Cause (other than Performance Shortfall Cause) or as a
result of Executive's death
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<PAGE> 3
or Disability, Executive shall be entitled to receive his Base Salary through
the date of termination and accrued but unpaid vacation in accordance with the
policy of the Company and the Parent Partnership and to continue to participate
in the Company's health, insurance and disability plans and programs through the
date of termination and thereafter only to the extent permitted under the terms
of such plans and programs.
(d) Except as otherwise expressly provided herein, all of
Executive's rights to salary, employee benefits, fringe benefits and bonuses
hereunder (if any) which accrue after the termination of the Employment Period
shall cease upon such termination. The Company, the Parent Partnership and their
Subsidiaries may offset any loans, cash advances or fixed amounts which
Executive owes the Company, the Parent Partnership or their Subsidiaries against
any amounts it owes Executive.
5. Trade Secret Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
and the Parent Partnership concerning the business or affairs of the Company,
the Parent Partnership or any of their Subsidiaries which the Company, the
Parent Partnership or any such Subsidiary considers to be confidential and which
is proprietary to the Company, the Parent Partnership or any such Subsidiary
("Trade Secret Information") are the property of the Company, the Parent
Partnership or any such Subsidiary. Therefore, Executive agrees that he shall
not disclose to any unauthorized Person (except (i) to any entity which shall
succeed to the business of the Company, the Parent Partnership or any such
Subsidiary, (ii) as may be required in the regular course of business of the
Company, the Parent Partnership or any such Subsidiary or (iii) as required by
law) or use for his own purposes any Trade Secret Information without the prior
written consent of the Board, unless and to the extent that the aforementioned
matters become generally known to and available for use by the public or Persons
knowledgeable in the Company's industry other than as a result of Executive's
acts or omissions which constitute a breach hereof. Executive shall deliver to
the Company at the termination of the Employment Period, or at any other time
the Company may request, all memoranda, notes, plans, records, reports, computer
tapes, printouts and software and other documents and data (and copies thereof)
relating to the Trade Secret Information, Work Product (as defined below) or the
business of the Company, the Parent Partnership or any such Subsidiary which he
may then possess or have under his control.
6. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which (i) relate to the Company's, the Parent Partnership's or any
of their Subsidiaries' actual or anticipated business, research and development
or existing or future products or services or (ii) result from any work
performed by Executive for the Company, the Parent Partnership and their
Subsidiaries, and which are conceived, developed or made by Executive while
employed by the Company and the Parent Partnership ("Work Product") belong to
the Company, the Parent Partnership or such Subsidiaries; provided that this
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<PAGE> 4
Section of this Agreement regarding the Company's, the Parent Partnership's and
their Subsidiaries' ownership of Work Product does not apply to any invention
for which no equipment, supplies, facilities or trade secret information of the
Company, the Parent Partnership or any of their Subsidiaries was used and which
was developed entirely on Executive's own time, unless (i) the invention relates
to the business of the Company, the Parent Partnership or any of their
Subsidiaries or to the Company's, the Parent Partnership's or any of their
Subsidiaries' actual or demonstrably anticipated research or development or (ii)
the invention results from any work performed by Executive for the Company, the
Parent Partnership or any of their Subsidiaries. Executive shall promptly
disclose such Work Product to the Board and perform all actions reasonably
requested by the Board (whether during or after the Employment Period) to
establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder and his exposure to or involvement in the Trade Secret
Information, Executive acknowledges that in the course of his employment with
the Company and the Parent Partnership, he shall become familiar with trade
secrets and other Trade Secret Information concerning the Company, the Parent
Partnership and their Subsidiaries and that his services have been and shall be
of special, unique and extraordinary value to the Company, the Parent
Partnership and their Subsidiaries. Therefore, Executive agrees that, during the
Noncompete Period, he shall not directly or indirectly own any interest in,
manage, control, participate in, consult with, render services for, or in any
manner engage in any business competing with the businesses of the Company, the
Parent Partnership or their Subsidiaries, as such businesses exist or are in
process on the date of the termination of Executive's employment, within any
states or geographical regions in which the Company, the Parent Partnership or
their Subsidiaries engage or plan to engage in such businesses on the date of
the termination of Executive's employment; provided that nothing herein shall
prohibit Executive from being a passive owner of not more than 2% of the
outstanding stock of any class of a corporation which is publicly traded, so
long as Executive has no active participation in the business of such
corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company, the Parent Partnership or any of their Subsidiaries to leave the
employ of the Company, the Parent Partnership or such Subsidiaries, or in any
way interfere with the relationship between the Company, the Parent Partnership
or any of their Subsidiaries and any employee thereof, (ii) hire any person who
was a management employee of the Company, the Parent Partnership or any of their
Subsidiaries at any time during the one year period prior to the termination of
the Employment Period or (iii) induce or attempt to induce any customer,
supplier, licensee, licensor, franchisee or other business relation of the
Company, the Parent Partnership or any of their Subsidiaries to cease doing
business with the Company, the Parent Partnership or such Subsidiaries, or in
any way materially interfere with the relationship between any such customer,
supplier, licensee or business relation and the Company,
- 4 -
<PAGE> 5
the Parent Partnership or any of their Subsidiaries (including, without
limitation, making any negative statements or communications about the Company,
the Parent Partnership or their Subsidiaries).
(c) If, at the time of enforcement of this paragraph 7, a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law. Executive agrees that the restrictions
contained in this paragraph 7 are reasonable.
(d) In the event of any breach or threatened breach by Executive of
any of the provisions of this paragraph 7, the Company, the Parent Partnership
and their Subsidiaries, in addition and supplementary to other rights and
remedies existing in its favor, may apply to any court of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce
or prevent any violations of the provisions hereof (without posting a bond or
other security). In addition, in the event of an alleged breach or violation by
Executive of this paragraph 7, the Noncompete Period shall be tolled until such
breach or violation has been duly cured.
8. Executive's Representations. Executive hereby represents and
warrants to the Company and the Parent Partnership that (i) the execution,
delivery and performance by Executive of this Agreement, the Investors Agreement
and all other agreements contemplated hereby and thereby to which Executive is a
party do not and shall not conflict with, breach, violate or cause a default
under any contract, agreement, instrument, order, judgment or decree to which
Executive is a party or by which he is bound, (ii) Executive is not a party to
or bound by any employment agreement, noncompete agreement or confidentiality
agreement with any other person or entity (or if a party to such an agreement,
Executive has disclosed the material terms thereof to the Board prior to the
execution hereof and promptly after the date hereof shall deliver a copy of such
agreement to the Board), and (iii) upon the execution and delivery of this
Agreement by the Company and the Parent Partnership, this Agreement shall be the
valid and binding obligation of Executive, enforceable in accordance with its
terms. Executive hereby acknowledges and represents that (i) he has consulted
with independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein and (ii) subject to change by the Board at any time, the Company's and
the Parent Partnership's headquarters are in, and substantially all of the
services to be performed by Executive for the Company, the Parent Partnership
and their Subsidiaries shall be performed in, the State of Illinois.
9. Definitions.
"Cause" means (i) the commission of a felony or a crime involving
moral turpitude or the commission of any other act or omission involving
dishonesty, disloyalty or fraud with respect
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<PAGE> 6
to the Company, the Parent Partnership or any of their Subsidiaries, (ii)
conduct which brings the Company, the Parent Partnership or any of their
Subsidiaries into substantial public disgrace or disrepute (including abuse of
drugs or alcohol), (iii) substantial and repeated failure to perform duties as
reasonably directed by the Board, (iv) gross negligence or willful misconduct
with respect to the Company, the Parent Partnership or any of their
Subsidiaries, (v) any other material breach of this Agreement which is not cured
within 15 days after written notice thereof to Executive or (vi) for purposes of
this Agreement only, a Performance Shortfall (clause (vi) of this definition
being "Performance Shortfall Cause"); provided that a termination of Executive's
employment by the Company and the Parent Partnership shall not be deemed a
termination for Cause unless and until (A) in the case of a termination pursuant
to any one or more of clauses (i) through (v) above, there shall have been
delivered to Executive a copy of a resolution duly adopted by the affirmative
vote of not less than a majority of the entire membership of the Board at a
meeting of the Board called and held for that purpose (after reasonable notice
to and an opportunity for Executive to be heard before the Board) finding that
in the good faith opinion of the Board, Executive was guilty of the conduct set
forth in any one or more of such clauses (B) in the case of a termination
pursuant to clause (vi) above, Executive shall have been given written notice
thereof not more than 60 days following the date that EBITDA was finally
determined for the applicable period.
"Disability" means Executive's inability, because of injury, illness
or other incapacity to perform the services to the Company, the Parent
Partnership or their Subsidiaries contemplated hereby (as determined by the
Board in its good faith judgment) for a continuous period of 90 days or for 120
days out of a continuous period of 360 days. Such Disability shall be deemed to
have occurred on the 90th consecutive day or the 120th day within the specified
period, as applicable.
"EBITDA" means, for any period, the net income of the Parent
Partnership and its Subsidiaries for any such period plus the amount deducted
(or in the case of extraordinary gains, minus any amount added) in the
computation thereof for (i) all federal, state and local income taxes, (ii)
interest expense, (iii) any extraordinary gains or losses, (iv) management fees
and corporate overhead of the Parent Partnership, (v) depreciation and (vi)
amortization of goodwill and other intangibles, determined in accordance with
generally accepted accounting principles consistently applied. For purposes of
this Agreement, EBITDA shall be determined from the audited financial statements
of the Parent Partnership and its Subsidiaries for such period (or, if audited
financial statements are unavailable for such period, from the financial
statements of the Parent Partnership and its Subsidiaries delivered to the
limited partners of the Parent Partnership pursuant to Section 7.3 of the
Partnership Agreement, which statements shall be reviewed at the election of
either the First Chicago Investors or Executive by the Parent Partnership's
independent public accountants) and the components of EBITDA contained in the
financial statements shall be conclusive and binding upon the parties.
"Executive Securities Agreement" means the Executive Securities
Agreement, dated as of the date hereof, between the Parent Partnership, the
Company and Executive.
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<PAGE> 7
"First Chicago Investors" has the meaning set forth in the Investors
Agreement.
"Forecasted EBITDA" means (i) with respect to the last three
calendar quarters in calendar year 1996 and the first calendar quarter in
calendar year 1997, the amounts set forth below and (ii) with respect to each
calendar quarter thereafter, amounts to be determined in good faith by the
Company's board of directors from time to time, which amounts shall be based
upon the Parent Partnership's annual budget:
Second calendar quarter in calendar
year 1996 $940,000
-------
Third calendar quarter in calendar
year 1996 $908,000
-------
Fourth calendar quarter in calendar
year 1996 $895,000
-------
First calendar quarter in calendar year 1997 $1,096,000
---------
In the event that the Parent Partnership or any of its Subsidiaries acquires a
company or business through merger, stock purchase, asset purchase or otherwise,
or disposes of any operating unit, during the Employment Period, the amounts set
forth above with respect to the quarter during which the transaction occurs and
all subsequent quarters shall be equitably adjusted to reflect such acquisition
or disposition, as reasonably determined in good faith by the Board and the
Chief Executive Officer of the Company.
"Good Reason" means (i) a Qualified Sale of the Parent Partnership
(as defined in the Investors Agreement), (ii) a Qualified Sale of the Company
(as defined in the Investors Agreement), (iii) the time at which the First
Chicago Investors and their Permitted Transferees own less than 25% of the
Common Units originally purchased by the First Chicago Investors under the
Partnership Unit Purchase Agreement, (iv) the removal without Cause of Executive
as the Chief Financial Officer of the Company or the Parent Partnership, or its
imposition upon him of substantial additional or different duties which are
inconsistent with such position, (v) either the reduction of Executive's salary
or a material reduction of other benefits under any employee benefit plan,
program or arrangement of the Company and the Parent Partnership (other than a
change that affects all senior executives of the Company and the Parent
Partnership) from the level in effect upon Executive's commencement of
participation therein, (vi) the relocation of the executive offices of the
Company or the Parent Partnership from the Chicago, Illinois metropolitan area
or (vii) the failure by the First Chicago Investors to purchase Additional
Preferred Units or Additional Preferred Stock as and when required under the
Partnership Unit Purchase Agreement and the Stock Purchase Agreement,
respectively.
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<PAGE> 8
"Investors Agreement" means that certain Investors Agreement, dated
as of the date hereof, by and among the Parent Partnership, the Company and
certain partners and stockholders thereof, as amended or modified from time to
time.
"Noncompete Period" means the Employment Period and (i) in the case
of a nonrenewal of the Employment Period pursuant to paragraph 4(a) hereof or a
termination of the Employment Period by Executive with Good Reason or by the
Company and the Parent Partnership without Cause or with Performance Shortfall
Cause, a period of time, to be determined by the Company's board of directors in
its sole discretion within 30 days after such nonrenewal or termination, of no
less than one additional year and no more than two additional years thereafter,
(ii) in the case of a termination of the Employment Period by Executive without
Good Reason, a period of time, to be determined by the Company's board of
directors in its sole discretion within 30 days after such termination, of no
more than two additional years thereafter, (iii) in the case of a termination of
the Employment Period by the Company and the Parent Partnership with Cause
(other than Performance Shortfall Cause), two additional years thereafter and
(iv) in the case of a termination of the Employment Period as a result of
Executive's Disability, one additional year thereafter.
"Partnership Agreement" means that certain Agreement of Limited
Partnership of Sovereign Specialty Chemicals, L.P., decided as of the date
hereof, by and among the Company, as general partner, and the limited partners
listed on Schedule I attached thereto, as amended and modified from time to
time.
"Partnership Unit Purchase Agreement" means the Partnership Unit
Purchase Agreement, dated as of the date hereof, among the Parent Partnership
and the Purchasers listed therein.
"Performance Shortfall" means, with respect to any four consecutive
calendar quarters beginning with the four-quarter period consisting of the last
three calendar quarter of 1996 and the first calendar quarter of 1997, the
aggregate EBITDA for such quarters is less than 70% of the aggregate Forecasted
EBITDA for such quarters.
"Stock Purchase Agreement" means the Stock Purchase Agreement, dated
as of the date hereof, among the Company and the Purchasers listed therein.
"Subsidiaries" means, with respect to any person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such person or entity or one or more of
the other Subsidiaries
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<PAGE> 9
of such person or entity or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any person or entity or one or
more Subsidiaries of such person or entity or a combination thereof. For
purposes hereof, a person or persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such person or persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other business
entity.
10. Survival. Paragraphs 4 through 18 shall survive and continue in
full force in accordance with their terms notwithstanding any termination of the
Employment Period.
11. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, sent by first class mail,
return receipt requested, or sent by reputable overnight courier service
(charges prepaid) to the recipient at the address indicated below:
Notices to Executive:
William T. Schram
444 Parkside
Elmhurst, IL 60126
with copies to:
Notices to the Company and the Parent Partnership:
Sovereign Chemicals Corporation
Suite 2200
225 West Washington Street
Chicago, Illinois 60606
Attn: Chief Executive Officer
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<PAGE> 10
with copies to:
First Capital Corporation of Chicago
Three First National Plaza, Suite 1210
Chicago, IL 60670
Attn: Carol E. Bramson
and
Waud Capital Partners, L.L.C.
Suite 103
560 Oakwood Avenue
Lake Forest, Illinois 60045
Attn: Reeve B. Waud
and
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attn: Edward T. Swan
Gary R. Silverman
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or, if mailed, three days after deposit in the U.S. mail and one day after
deposit with a reputable overnight courier service.
12. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
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<PAGE> 11
14. No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
16. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive, the Company, the Parent
Partnership and their respective heirs, successors and assigns, except that
Executive may not assign his rights or delegate his obligations hereunder
without the prior written consent of the Company and the Parent Partnership.
17. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by, and construed in accordance with, the laws of the State of
Illinois, without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of Illinois or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of Illinois.
18. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company, the Parent
Partnership and Executive, and no course of conduct or failure or delay in
enforcing the provisions of this Agreement shall affect the validity, binding
effect or enforceability of this Agreement.
* * * *
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
SOVEREIGN CHEMICALS CORPORATION
By /s/ Robert B. Covalt
---------------------------
Its C.E.O.
---------------------------
SOVEREIGN SPECIALTY CHEMICALS, L.P.
By Sovereign Chemicals Corporation
Its General Partner
By /s/ Robert B. Covalt
---------------------------
Its C.E.O.
---------------------------
/s/ William T. Schram
---------------------------
WILLIAM T. SCHRAM
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<PAGE> 1
Exhibit 10.4
PROMISSORY NOTE
$141,654 July 31, 1997
For value received, William Schram ("Executive") promises to pay to
the order of Sovereign Specialty Chemicals, L.P., a Delaware limited partnership
(the "Partnership"), at its offices in 225 W. Washington, Suite 2200, Chicago,
IL 60606, or such other place as designated in writing by the holder hereof, the
aggregate principal sum of one hundred forty-one thousand six hundred fifty-four
dollars ($141,654). This Note was issued in connection with and is subject to
the terms of the Executive Securities Agreement, dated as of the date hereof,
between Sovereign Speciality Chemicals, L.P., a Delaware limited partnership
(the "Partnership"), Sovereign Chemicals Corporation, a Delaware corporation
(the "General Partner") and Executive (the "Executive Agreement"). Unless
otherwise provided herein, capitalized terms shall have the same meanings as set
forth in the Executive Agreement.
Interest shall accrue on the outstanding principal amount of this
Note at a rate equal to the lesser of (i) the prime rate as announce from time
to time by The First National Bank of Chicago or (ii) the highest rate permitted
by applicable law, and shall be payable at such time as the principal of this
Note becomes due and payable. Interest shall compound annually on each
anniversary of the date of issuance of this Note.
The then outstanding principal amount of this Note and all accrued
interest thereon is due and payable on the date the Employment Period
terminates. Executive may, at any time and from time to time without prepayment
penalty, prepay all or any portion of the outstanding principal amount of this
Note. Executive shall prepay a portion of this Note equal to (i) as and when
received, the amount of any distributions from time to time paid or distributed
with respect to Securities (except, so long as Executive is not in default of
this Note, distributions paid or distributed pursuant to paragraph 4.1(b) of the
Partnership Agreement), for which purpose Executive hereby authorizes and
directs the Partnership and the General Partner (on his own behalf and on behalf
of his Permitted Transferees) to directly apply such dividends and distributions
to the prepayment of this Note, (ii) as and when received, an amount equal to
the proceeds from any Transfer of Securities and (iii) as and when received, an
amount equal to 50% of all annual bonuses (before taxes) paid to Executive
pursuant to the Employment Agreement, for which purpose Executive hereby
authorizes and directs the Partnership and the General Partner to directly apply
such amounts to the prepayment of this Note. Payments received by the holder
hereof shall be applied towards the amount due under this Note (i) first, to the
payment of all accrued and unpaid interest on this Note at the time of such
payment and (ii) second, to the payment of principal of this Note.
As security for Executive's payment in full of this Note and all
interest thereon and other amounts payable in accordance with this Note,
Executive hereby assigns, transfers and delivers to the Partnership and grants
the Partnership a continuing security interest in Executive's right, title and
interest in and to the Securities and all cash, securities, distributions,
payments, rights and other
<PAGE> 2
property at any time and from time to time received, receivable or otherwise
distributed in respect of or in exchange for any of the Securities
(collectively, the "Collateral"), to have and to hold, together with all rights,
titles, interests, privileges and preferences appertaining or incidental
thereto, unto the Partnership, its successors and assigns, forever, subject to
the terms and conditions of this Note. Notwithstanding the foregoing, the
Partnership shall not have a security interest in, and the term "Collateral"
shall not include, any distributions paid or distributed pursuant to Section
4.1(b) of the Partnership Agreement.
Notwithstanding anything to the contrary contained herein, during
the term of this Note until such time as there exists a default in the payment
of principal or interest on this Note or any other default under this Note,
Executive shall be entitled to all voting rights with respect to the Securities
and shall be entitled to receive all distributions paid in respect of the
Securities, subject to the right of the Partnership to apply such distributions
to the prepayment of principal and accrued interest under this Note. Upon the
occurrence of and during the continuance of any such default, Executive shall no
longer be able to vote the Securities and Executive hereby authorizes and
directs the Partnership and the General Partner to apply all such distributions
payable on the Securities as additional security hereunder to the extent not
otherwise paid to the Partnership for application to the prepayment of principal
and accrued interest under this Note.
In the event Executive fails to pay any amounts when due, Executive,
subject to the following paragraph shall pay to the holder hereof, in addition
to such amounts due, all costs of collection, including reasonable attorneys
fees. To the extent permitted by law and subject to the following paragraph, in
case Executive shall fail to make any payments required hereunder, holder shall
have the right, in addition to all other rights and remedies available to it, to
receive for application to the unpaid balance payment of this Note, and
Executive hereby authorizes and directs the Partnership and the General Partner
to apply to the unpaid balance of this Note, any and all obligations of the
General Partner and the Partnership to Executive under the Executive Agreement
or under the Employment Agreement; provided that any severance payments owed to
Executive under the Employment Agreement which are subject to payment to the
Partnership for application to the unpaid balance of this Note shall be so paid
to the Partnership in equal amounts from each installment payment during the
Noncompete Period (as defined in the Employment Agreement); such rights shall
exist whether or not the holder hereof shall have made any demand under this
Note and whether or not this Note has matured.
Notwithstanding anything to the contrary herein, holder hereby
agrees that Executive shall not have personal liability with respect to any
amounts owed under this Note, except as set forth in this paragraph and except
for Executive's obligation to pay to the Partnership certain amounts for
application to the unpaid balance of this Note as set forth in this Note. The
holder's claim against Executive (other than Executive's obligation to pay, and
the Partnership's right to be paid, certain amounts for application to the
unpaid balance of this Note as set forth in this Note) shall not at any time
exceed the Aggregate Recourse Amount determined as of such time. "Aggregate
Recourse Amount" means as of any time an amount equal to (A) 50% of the
aggregate original principal amount of this Note, minus (B) the aggregate amount
of all principal and interest payments made under this Note from the date of
issuance of this Note through such time, including payments incident to
Executive's declaring bankruptcy.
<PAGE> 3
Executive, or his successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest, demand, dishonor and
nonpayment of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended from time to time and that the holder hereof may
accept security for this Note or release security for this Note, all without in
any way affecting the liability of Executive hereunder.
This note shall be governed by the internal laws, not the laws of
conflicts, of the State of Illinois.
* * *
<PAGE> 4
IN WITNESS WHEREOF, Executive has executed this Note as of the date
first above written.
/s/ William Schram
---------------------------
William Schram
<PAGE> 1
Exhibit 10.5
PROMISSORY NOTE
$20,896 July 31, 1997
For value received, William Schram ("Executive") promises to pay to
the order of Sovereign Specialty Chemicals, L.P., a Delaware limited partnership
(the "Partnership"), at its offices in 225 W. Washington, Suite 2200, Chicago,
IL 60606, or such other place as designated in writing by the holder hereof, the
aggregate principal sum of twenty thousand eight hundred ninety-six dollars
($20,896). This Note was issued in connection with and is subject to the terms
of the Executive Securities Agreement, dated as of the date hereof, between
Sovereign Speciality Chemicals, L.P., a Delaware limited partnership (the
"Partnership"), Sovereign Chemicals Corporation, a Delaware corporation (the
"General Partner") and Executive (the "Executive Agreement"). Unless otherwise
provided herein, capitalized terms shall have the same meanings as set forth in
the Executive Agreement.
Interest shall accrue on the outstanding principal amount of this
Note at a rate equal to the lesser of (i) the prime rate as announce from time
to time by The First National Bank of Chicago or (ii) the highest rate permitted
by applicable law, and shall be payable at such time as the principal of this
Note becomes due and payable. Interest shall compound annually on each
anniversary of the date of issuance of this Note.
The then outstanding principal amount of this Note and all accrued
interest thereon is due and payable on August 31, 1997. Executive may, at any
time and from time to time without prepayment penalty, prepay all or any portion
of the outstanding principal amount of this Note.
As security for Executive's payment in full of this Note and all
interest thereon and other amounts payable in accordance with this Note,
Executive hereby assigns, transfers and delivers to the Partnership and grants
the Partnership a continuing security interest in Executive's right, title and
interest in and to the Securities and all cash, securities, distributions,
payments, rights and other property at any time and from time to time received,
receivable or otherwise distributed in respect of or in exchange for any of the
Securities (collectively, the "Collateral"), to have and to hold, together with
all rights, titles, interests, privileges and preferences appertaining or
incidental thereto, unto the Partnership, its successors and assigns, forever,
subject to the terms and conditions of this Note. Notwithstanding the foregoing,
the Partnership shall not have a security interest in, and the term "Collateral"
shall not include, any distributions paid or distributed pursuant to Section
4.1(b) of the Partnership Agreement.
Notwithstanding anything to the contrary contained herein, during
the term of this Note until such time as there exists a default in the payment
of principal or interest on this Note or any other default under this Note,
Executive shall be entitled to all voting rights with respect to the Securities
and shall be entitled to receive all distributions paid in respect of the
Securities, subject to the right of the Partnership to apply such distributions
to the prepayment of principal and accrued
<PAGE> 2
interest under this Note. Upon the occurrence of and during the continuance of
any such default, Executive shall no longer be able to vote the Securities and
Executive hereby authorizes and directs the Partnership and the General Partner
to apply all such distributions payable on the Securities as additional security
hereunder to the extent not otherwise paid to the Partnership for application to
the prepayment of principal and accrued interest under this Note.
In the event Executive fails to pay any amounts when due, Executive,
subject to the following paragraph shall pay to the holder hereof, in addition
to such amounts due, all costs of collection, including reasonable attorneys
fees. To the extent permitted by law and subject to the following paragraph, in
case Executive shall fail to make any payments required hereunder, holder shall
have the right, in addition to all other rights and remedies available to it, to
receive for application to the unpaid balance payment of this Note, and
Executive hereby authorizes and directs the Partnership and the General Partner
to apply to the unpaid balance of this Note, any and all obligations of the
General Partner and the Partnership to Executive under the Executive Agreement
or under the Employment Agreement; such rights shall exist whether or not the
holder hereof shall have made any demand under this Note and whether or not this
Note has matured.
Executive, or his successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest, demand, dishonor and
nonpayment of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended from time to time and that the holder hereof may
accept security for this Note or release security for this Note, all without in
any way affecting the liability of Executive hereunder.
This note shall be governed by the internal laws, not the laws of
conflicts, of the State of Illinois.
* * *
<PAGE> 3
IN WITNESS WHEREOF, Executive has executed this Note as of the date
first above written.
/s/ William Schram
---------------------------
William Schram
<PAGE> 1
Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of August 19, 1996, by and between Pierce
& Stevens Corp., a New York corporation (the "Company"), and John Edholm
("Executive").
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive
hereby accepts employment with the Company, upon the terms and conditions set
forth in this Agreement for the period beginning on the date hereof and ending
as provided in paragraph 4 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
Executive Vice President of the Company and shall have the normal duties,
responsibilities and authority of the Executive Vice President, subject to the
power of the Board (as defined below) or the Company's Chief Executive Officer,
if any, to expand or limit such executive duties, responsibilities and authority
and to override actions of the Executive Vice President. During the Employment
Period, Executive shall render such administrative, sales, marketing and other
managerial services as the Company's Chief Executive Officer or the Board may
from time to time direct.
(b) Executive shall report to the Company's Chief Executive
Officer and the Board, and Executive shall devote his best efforts and his full
business time and attention (except for permitted vacation periods and
reasonable periods of illness or other incapacity) to the business and affairs
of the Company and its Subsidiaries. Executive shall perform his duties and
responsibilities to the best of his abilities in a diligent, trustworthy,
businesslike and efficient manner.
3. Base Salary and Benefits.
(a) During the Employment Period, the Company shall pay to
Executive a base salary (the "Base Salary") equal to $145,000 per annum, or such
higher rate as the Board may designate from time to time. The Base Salary shall
be payable in regular installments in accordance with the Company's general
payroll practices and shall be subject to customary withholding. In addition,
during the Employment Period, Executive shall be entitled to participate in all
of the Company's employee benefit programs for which senior executive employees
of the Company are generally eligible.
(b) The Company shall reimburse Executive for all reasonable
expenses incurred by him in the course of performing his duties under this
Agreement which are consistent
<PAGE> 2
with the Company's policies in effect from time to time with respect to travel,
entertainment and other business expenses, subject to the Company's requirements
with respect to reporting and documentation of such expenses.
(c) Within three months after the date hereof, the Company and
Executive shall in good faith develop a bonus plan applicable to Executive which
shall provide for Executive to receive an annual bonus not exceeding 50% of his
Base Salary, for the year to which such annual bonus relates if the Company and
its Subsidiaries achieve specified financial measures established by the Board
as part of its annual operating budget for a calendar year.
4. Term.
(a) Except as otherwise provided in the following sentence,
the Employment Period shall end on the third anniversary of the date hereof;
provided that (i) the Employment Period shall terminate prior to such date upon
Executive's resignation, death or Disability and (ii) the Employment Period may
be terminated by the Company at any time prior to such date for Cause (as
defined below) or without Cause. The Employment Period shall be automatically
renewed and extended for successive one-year terms beginning on the third
anniversary of the date hereof and on each anniversary date thereafter unless
the Company or Executive receives within three months prior to such anniversary
date written notice of an election not to renew the Employment Period as of such
anniversary date.
(b) If the Employment Period is terminated as a result of a
nonrenewal pursuant to paragraph 4(a) above, by the Company without Cause or by
Executive with Good Reason, Executive shall be entitled to (i) receive his Base
Salary, payable in accordance with the Company's normal payroll practices, (ii)
receive his pro rata share of Executive's targeted bonus for the fiscal year in
which Executive has been terminated (i.e., if Executive is terminated on June 30
he will receive 50% of his target bonus) and (iii) continue to participate in
the Company's health insurance and disability plans and programs during the
period ending one year from the date the Employment Period is terminated (the
"Severance Period"); provided that Executive shall be entitled to receive such
compensation, bonus and benefits during the Severance Period if and only if
Executive has complied with and continues to comply with the provisions of
paragraphs 5, 6 and 7 hereof; provided, however, that if such termination is
prior to August 19, 1998, then Executive shall be only be entitled to the
severance provided in that certain special severance agreement (the "Special
Severance Agreement") between Pratt & Lambert United, Inc. and Executive dated
October 30, 1995. After the expiration of the Severance Period, the Company
shall pay to Executive 50% of his Base Salary (payable in accordance with the
Company's normal payroll practices) so long as the Noncompete Period, if any,
continues. The amounts payable pursuant to this paragraph 4(b) shall be reduced
by the amount of any compensation Executive earns with respect to any other
employment during the Noncompete Period. Upon reasonable request from time to
time, Executive shall furnish the Company with a true and complete certificate
specifying any such compensation due to or received by him during the Noncompete
Period.
- 2 -
<PAGE> 3
(c) If the Employment Period is terminated by the Company for
Cause (other than Performance Shortfall Cause), Executive shall be entitled to
receive his Base Salary through the date of termination and to receive one week
of severance for each year of service with the Company payable in accordance
with the Company's severance program and accrued but unpaid vacation in
accordance with the policy of the Company and to continue to participate in the
Company's health, insurance and disability plans and programs through the date
of termination and thereafter only to the extent permitted under the terms of
such plans and programs.
(d) If the Employment Period is terminated by Executive
without Good Reason or as a result of Executive's death or Disability, Executive
shall be entitled to receive his Base Salary through the date of termination and
accrued but unpaid vacation in accordance with the policy of the Company and to
continue to participate in the Company's health, insurance and disability plans
and programs through the date of termination and thereafter only to the extent
permitted under the terms of such plans and programs.
(e) If the Employment Period is terminated by the Company for
Performance Shortfall Cause, Executive shall be entitled to (i) receive his Base
Salary, payable in accordance with the Company's normal payroll practices, (ii)
receive his pro rata share of Executive's targeted bonus for the fiscal year in
which Executive has been terminated and (iii) continue to participate in the
Company's health, insurance and disability plans and programs during the period
ending on the number of weeks equal to the number of years of Executive's
service with the Company (the "PS Severance Period"); provided that Executive
shall be entitled to receive such compensation, bonus and benefits during the PS
Severance Period if and only if Executive has complied with and continues to
comply with the provisions of paragraphs 5, 6 and 7 hereof; provided, however,
that if such termination is prior to August 19, 1998, then Executive shall be
only be entitled to the severance provided in the Special Severance Agreement.
After the expiration of the PS Severance Period, the Company shall pay to
Executive 50% of his Base Salary (payable in accordance with the Company's
normal payroll practices) so long as the Noncompete Period, if any, continues.
The amounts payable pursuant to this paragraph 4(e) shall be reduced by the
amount of any compensation Executive earns with respect to any other employment
during the Noncompete Period. Upon reasonable request from time to time,
Executive shall furnish the Company with a true and complete certificate
specifying any such compensation due to or received by him during the Noncompete
Period.
(f) Except as otherwise expressly provided herein, all of
Executive's rights to salary, employee benefits, fringe benefits and bonuses
hereunder (if any) which accrue after the termination of the Employment Period
shall cease upon such termination. The Company and its Subsidiaries may offset
any loans, cash advances or fixed amounts which Executive owes the Company and
its Subsidiaries against any amounts it owes Executive.
5. Trade Secret Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
concerning the business or affairs of the Company, the Parent Partnership or any
of their Subsidiaries (or any of their predecessors) which the Company, the
Parent Partnership or any such Subsidiary considers to be
- 3 -
<PAGE> 4
confidential and which is proprietary to the Company, the Parent Partnership or
any such Subsidiary ("Trade Secret Information") are the property of the
Company, the Parent Partnership or any such Subsidiary. Therefore, Executive
agrees that he shall not disclose to any unauthorized Person (except (i) to any
entity which shall succeed to the business 'of the Company, the Parent
Partnership or any such Subsidiary, (ii) as may be required in the regular
course of business of the Company, the Parent Partnership or any such Subsidiary
or (iii) as required by law) or use for his own purposes any Trade Secret
Information without the prior written consent of the Board, unless and to the
extent that the aforementioned matters become generally known to and available
for use by the public or Persons knowledgeable in the Company's industry other
than as a result of Executive's acts or omissions which constitute a breach
hereof. Executive shall deliver to the Company at the termination of the
Employment Period, or at any other time the Company may request, all memoranda,
notes, plans, records, reports, computer tapes, printouts and software and other
documents and data (and copies thereof) relating to the Trade Secret
Information, Work Product (as defined below) or the business of the Company, the
Parent Partnership or any such Subsidiary which he may then possess or have
under his control.
6. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, developments, methods, designs,
analyses, drawings, reports and all similar or related information (whether or
not patentable) which (i) relate to the Company's or any of its Subsidiaries'
(or any of their predecessors) actual or anticipated business, research and
development or existing or fixture products or services or (ii) result from any
work performed by Executive for the Company and its Subsidiaries (or any of
their predecessors) and which are conceived, developed or made by Executive
while employed by the Company ("Work Product") belong to the Company or such
Subsidiaries; provided that this paragraph 6 regarding the Company's and its
Subsidiaries' ownership of Work Product does not apply to any invention for
which no equipment, supplies, facilities or trade secret information of the
Company or any of its Subsidiaries was used and which was developed entirely on
Executive's own time, unless (i) the invention relates to the business of the
Company or any of its Subsidiaries or to the Company's or any of its
Subsidiaries (or any of their predecessors) actual or demonstrably anticipated
research or development or (ii) the invention results from any work performed by
Executive for the Company or any of its Subsidiaries (or any of their
predecessors). Executive shall promptly disclose such Work Product to the Board
and perform all actions reasonably requested by the Board (whether during or
after the Employment Period) to establish and confirm such ownership
(including, without limitation, assignments, consents, powers of attorney and
other instruments).
7. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder and his exposure to or involvement in the Trade Secret
Information, Executive acknowledges that in the course of his employment with
the Company, he shall become familiar with trade secrets and other Trade Secret
Information concerning the Company and its Subsidiaries and that his services
have been and shall be of special, unique and extraordinary value to the Company
and its Subsidiaries. Therefore, Executive agrees that, during the Noncompete
Period, he shall not directly or indirectly own any interest in, manage,
control, participate in, consult with, render
- 4 -
<PAGE> 5
services for, or in any manner engage in any business competing with the
businesses of the Company and its Subsidiaries, as such businesses exist or are
in process on the date of the termination of Executive's employment, within any
states or geographical regions in which the Company and its Subsidiaries engage
or plan to engage in such businesses on the date of the termination of
Executive's employment; provided that nothing herein shall prohibit Executive
from being a passive owner of not more than 2% of the outstanding stock of any
class of a corporation which is publicly traded, so long as Executive has no
active participation in the business of such corporation.
(b) During the Noncompete Period, Executive shall not directly
or indirectly through another entity (i) induce or attempt to induce any
employee of the Company or any of its Subsidiaries to leave the employ of the
Company or such Subsidiaries, or in any way interfere with the relationship
between the Company or any of its Subsidiaries and any employee thereof, (ii)
hire any person who was a management employee of the Company or any of its
Subsidiaries at any time during the one-year period prior to the termination of
the Employment Period or (iii) induce or attempt to induce any customer,
supplier, licensee, licensor, franchisee or other business relation of the
Company or any of its Subsidiaries to cease doing business with the Company or
such Subsidiaries, or in any way materially interfere with the relationship
between any such customer, supplier, licensee or business relation and the
Company or any of its Subsidiaries (including, without limitation, making any
negative statements or communications about the Company or its Subsidiaries).
(c) If, at the time of enforcement of this paragraph 7, a
court shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law. Executive agrees that the restrictions
contained in this paragraph 7 are reasonable.
(d) In the event of any breach or threatened breach by
Executive of any of the provisions of this paragraph 7, the Company and its
Subsidiaries, in addition and supplementary to other rights and remedies
existing in its favor, may apply to any court of competent jurisdiction for
specific performance and/or injunctive or other relief in order to enforce or
prevent any violations of the provisions hereof (without posting a bond or other
security). In addition, in the event of an alleged breach or violation by
Executive of this paragraph 7, the Noncompete Period shall be tolled until such
breach or violation has been duly cured.
(e) After the later of (i) the date Executive's employment
hereunder is terminated or (ii) the expiration of either the Severance Period or
the PS Severance Period, as applicable (such date being referred to as the
"Effective Date"), the Company shall advise Executive of its election to
continue to enforce the provisions of paragraph 7 above for the period of time
desired, in incremental periods of one month, in writing within 15 business days
after the Effective Date. If the Company elects to continue to enforce the
provisions of paragraph 7 after the Effective Date, the Company shall pay the
Executive, as additional consideration for Executive's agreement not to compete,
an amount equal to 50% of Executive's then monthly Base Salary during
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<PAGE> 6
each month of the non-compete commencing with the first calendar month after the
month of the Effective Date, such amount to be paid to Executive in accordance
with the Company's normal payroll schedule. In no event shall such time period
exceed the Noncompete Period.
8. Executive's Representations. Executive hereby represents and
warrants to the Company that (i) the execution, delivery and performance by
Executive of this Agreement and all other agreements contemplated hereby to
which Executive is a party do not and shall not conflict with, breach, violate
or cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity (or if a party to such
an agreement, Executive has disclosed the material terms thereof to the Board
prior to the execution hereof and promptly after the date hereof shall deliver a
copy of such agreement to the Board), and (iii) upon the execution and delivery
of this Agreement by the Company, this Agreement shall be the valid and binding
obligation of Executive, enforceable in accordance with its terms. Executive
hereby acknowledges and represents that (i) he has consulted with independent
legal counsel regarding his rights and obligations under this Agreement and that
he fully understands the terms and conditions contained herein and (ii) subject
to change by the Board at any time, the Company's headquarters are in, and a
majority of the services to be performed by Executive for the Company and its
Subsidiaries shall be performed in, the State of New York.
9. Definitions.
"Board" shall mean the Company's Board of Directors.
"Cause" means (i) the Executive's conviction of a felony or a
crime involving moral turpitude or the commission of any other act or omission
involving dishonesty, disloyalty or fraud with respect to the Company or any of
its Subsidiaries which is materially injurious to the Company, (ii) conduct
which brings the Company or any of its Subsidiaries into substantial public
disgrace or disrepute (including abuse of drugs or alcohol) which is materially
injurious to the Company, (iii) substantial and repeated failure to perform
duties as reasonably directed by the Board, (iv) gross negligence or willful
misconduct by the Executive with respect to the Company or any of its
Subsidiaries which is materially injurious to the Company, or (v) any other
material breach of this Agreement by Executive which is not cured within 15 days
after written notice thereof to Executive, provided that a termination of
Executive's employment by the Company shall not be deemed a termination for
Cause unless and until there shall have been delivered to Executive a copy of a
resolution duly adopted by the Board at a meeting called and held for that
purpose (after reasonable notice to and an opportunity for Executive to be heard
before the Board) finding that in the good faith opinion of the Board, Executive
was guilty of the conduct set forth in any one or more of such clauses and such
conduct is not or cannot be cured within 30 days following such date.
"Disability" means Executive's inability, because of injury,
illness or other incapacity to perform the services to the Company or its
Subsidiaries contemplated hereby (as
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<PAGE> 7
determined by the Board in its good faith judgment) for a continuous period of
90 days or for 120 days out of a continuous period of 360 days. Such Disability
shall be deemed to have occurred on the 90th consecutive day or the 120th day
within the specified period, as applicable.
"EBITDA" means, for any period, the net income of the Company
and its Subsidiaries for any such period plus the amount deducted (or in the
case of extraordinary gains, minus any amount added) in the computation thereof
for (i) all federal, state and local income taxes, (ii) interest expense, (iii)
any extraordinary gains or losses, (iv) management fees and corporate overhead
of the Parent Partnership, (v) depreciation and (vi) amortization of goodwill
and other intangibles, determined in accordance with generally accepted
accounting principles consistently applied. For purposes of this Agreement,
EBITDA shall be determined from the audited financial statements of the Company
and its Subsidiaries (or, if audited financial statements are unavailable for
such period, from the financial statements of the Company and its Subsidiaries
for such period, which statements shall be reviewed at the election of the Board
by the Company's independent public accountants) and the components of EBITDA
contained in the financial statements shall be conclusive and binding upon the
parties.
"Forecasted EBITDA" means EBITDA amounts to be determined in
good faith by the Board from time to time after consultations with the
Executive, which EBITDA amounts shall be based upon those set forth in the
Company's annual budget. In the event that the Company or any of its
Subsidiaries acquires a company or business through merger, stock purchase,
asset purchase or otherwise, or disposes of any operating unit, during the
Employment Period, the EBITDA Amounts and the annual budget shall be equitably
adjusted to reflect such acquisition or disposition, as reasonably determined in
good faith by the Board.
"Good Reason" means (i) the removal without Cause of Executive
as an Executive Vice President of the Company, or its imposition upon him of
substantial additional or different duties which are inconsistent with such
position, (ii) either the reduction of Executive's salary or a material
reduction of other benefits under any employee benefit plan, program or
arrangement of the Company (other than a change that affects all senior
executives of the Company) from the level in effect upon Executive's
commencement of participation therein or (iii) the relocation of the executive
offices of the Company from the Buffalo, New York metropolitan area.
"Noncompete Period" means the Employment Period and during the
Severance Period, the PS Severance Period or any other period during which
Executive is receiving any severance pay from the Company, and thereafter for a
period of time, to be determined by the Board in its sole discretion within 30
days after the expiration of the Employment Period or the end of such severance
period, of up to two additional years thereafter.
"Parent Partnership" means Sovereign Specialty Chemicals,
L.P., a Delaware limited partnership.
"Performance Shortfall" means, with respect to any four
consecutive calendar quarters beginning with the four-quarter period consisting
of the last calendar quarter of
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<PAGE> 8
1996 and the first three calendar quarters of 1997, the aggregate EBITDA for
such quarters is less than 75% of the aggregate Forecasted EBITDA for such
quarters. Executive shall be given written notice of any Performance Shortfall
by the Company not more than 60 days following the date that EBITDA was finally
determined for the applicable period.
"Subsidiaries" means, with respect to any person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such person or
entity or one or more of the other Subsidiaries of such person or entity or a
combination thereof, or (ii) if a limited liability company, partnership,
association or other business entity, a majority of the partnership or other
similar ownership interest thereof is at the time owned or controlled, directly
or indirectly, by any person or entity or one or more Subsidiaries of such
person or entity or a combination thereof. For purposes hereof, a person or
persons shall be deemed to have a majority ownership interest in a limited
liability company, partnership, association or other business entity if such
person or persons shall be allocated a majority of limited liability company,
partnership, association or other business entity gains or losses or shall be or
control any managing director or general partner of such limited liability
company, partnership, association or other business entity.
10. Survival. Paragraphs 4 through 18 shall survive and continue in
full force in accordance with their terms notwithstanding any termination of the
Employment Period.
11. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, sent by first class mail,
return receipt requested, or sent by reputable overnight courier service
(charges prepaid) to the recipient at the address indicated below:
Notices to Executive:
John Edholm
710 Ohio Street
Buffalo, New York 14240
with copies to:
Giardino & Schober, LLP
268 Main Street
Second Floor
Buffalo, New York 14202-4186
Attn: John Giardino
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<PAGE> 9
Notices to the Company:
Pierce & Stevens Corp.
c/o Sovereign Chemicals Corporation
Suite 2200
225 West Washington Street
Chicago, Illinois 60606
Attn: Chief Executive Officer
with copies to:
First Chicago Equity Corporation
Three First National Plaza, Suite 1210
Chicago, IL 60670
Attn: Carol E. Bramson
Eric C. Larson
and
Davis, Graham & Stubbs LLP
1314 Nineteenth Street, N.W.
Washington, D.C. 20036
Attn: Christopher J. Hagan, Esq.
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or, if mailed, three days after deposit in the U.S. mail and one day after
deposit with a reputable overnight courier service.
12. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
- 9 -
<PAGE> 10
14. No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
16. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company.
17. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by, and construed in accordance with, the laws of the State of New
York, without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of New York or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of New York.
18. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
PIERCE & STEVENS CORP.
By: /s/ William T. Schram
------------------------------
Its: Vice President & Secretary
------------------------------
/s/ John Edholm
-----------------------------------
JOHN EDHOLM
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<PAGE> 1
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of March 31, 1996, by and between
Sovereign Engineered Adhesives, L.L.C., a Delaware limited liability company
(the "Company"), and Gerard A. Loftus ("Executive").
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive
hereby accepts employment with the Company, upon the terms and conditions set
forth in this Agreement for the period beginning on the date hereof and ending
as provided in paragraph 4 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
President of the Company and shall have the normal duties, responsibilities and
authority of the President, subject to the power of the Manager to expand or
limit such executive duties, responsibilities and authority and to override
actions of the President. During the Employment Period, Executive shall render
such administrative, sales, marketing and other executive and managerial
services which are consistent with Executive's position to the Company and its
Subsidiaries as the Manager may from time to time direct.
(b) Executive shall report to the Manager, and Executive shall
devote his best efforts and his full business time and attention (except for
permitted vacation periods and reasonable periods of illness or other
incapacity) to the business and affairs of the Company and its Subsidiaries.
Executive shall perform his duties and responsibilities to the best of his
abilities in a diligent, trustworthy, businesslike and efficient manner.
3. Base Salary and Benefits.
(a) During the Employment Period, the Company shall pay to Executive
a base salary equal to $100,000 (the "Base Salary") or such higher rate as the
Manager may designate from time to time. The Base Salary shall be payable in
regular installments in accordance with the Company's general payroll practices
and shall be subject to customary withholding. In addition, during the
Employment Period, Executive shall be entitled to participate in all of the
Company's employee benefit programs for which senior executive employees of the
Company and the Parent Partnership are generally eligible.
(b) The Company shall reimburse Executive for all reasonable
expenses incurred by him in the course of performing his duties under this
Agreement which are consistent with the
<PAGE> 2
Company's policies in effect from time to time with respect to travel,
entertainment and other business expenses, subject to the Company's requirements
with respect to reporting and documentation of such expenses.
(c) Within three months after the date hereof, the Company and
Executive shall in good faith develop a bonus plan applicable to Executive which
shall provide for Executive to receive an annual bonus not exceeding 50% of his
Base Salary for the year to which such annual bonus relates if the Company and
its Subsidiaries achieve specified financial measures established by the Manager
as part of its annual operating budget for a calendar year.
4. Term.
(a) Except as otherwise provided in the following sentence, the
Employment Period shall end on the third anniversary of the date hereof;
provided that (i) the Employment Period shall terminate prior to such date upon
Executive's resignation, death or Disability and (ii) the Employment Period may
be terminated by the Company at any time prior to such date for Cause (as
defined below) or without Cause. The Employment Period shall be automatically
renewed and extended for successive one year terms beginning on the third
anniversary of the date hereof and on each anniversary date thereafter unless
the Company or Executive receives within three months prior to such anniversary
date written notice of an election not to renew the Employment Period as of such
anniversary date.
(b) If the Employment Period is terminated as a result of a
nonrenewal pursuant to paragraph 4(a) above or by the Company without Cause or
with Performance Shortfall Cause or by Executive with or without Good Reason,
Executive shall be entitled to receive his Base Salary, payable in accordance
with the Company's normal payroll practices, and to continue to participate in
the Company's health, insurance and disability plans and programs during the
Noncompete Period, if any; provided that Executive shall be entitled to receive
such compensation and benefits during the Noncompete Period if and only if
Executive has complied with and continues to comply with the provisions of
paragraphs 5, 6 and 7 hereof. The amounts payable pursuant to this paragraph
4(b) shall be reduced by the amount of any compensation Executive earns with
respect to any other employment during the Noncompete Period. Upon reasonable
request from time to time, Executive shall furnish the Company with a true and
complete certificate specifying any such compensation due to or received by him
during the Noncompete Period.
(c) If the Employment Period is terminated by the Company with Cause
(other than Performance Shortfall Cause) or as a result of Executive's death or
Disability, Executive shall be entitled to receive his Base Salary through the
date of termination and accrued but unpaid vacation in accordance with the
policy of the Company and to continue to participate in the Company's health,
insurance and disability plans and programs through the date of termination and
thereafter only to the extent permitted under the terms of such plans and
programs.
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<PAGE> 3
(d) Except as otherwise expressly provided herein, all of
Executive's rights to salary, employee benefits, fringe benefits and bonuses
hereunder (if any) which accrue after the termination of the Employment Period
shall cease upon such termination. The Company and its Subsidiaries may offset
any loans, cash advances or fixed amounts which Executive owes the Company or
its Subsidiaries against any amounts it owes Executive.
5. Trade Secret Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
concerning the business or affairs of the Company, the Parent Partnership or any
of their Subsidiaries (or any of their predecessors) which the Company, the
Parent Partnership or any such Subsidiary considers to be confidential and which
is proprietary to the Company, the Parent Partnership or any such Subsidiary
("Trade Secret Information") are the property of the Company, the Parent
Partnership or any such Subsidiary. Therefore, Executive agrees that he shall
not disclose to any unauthorized Person (except (i) to any entity which shall
succeed to the business of the Company, the Parent Partnership or any such
Subsidiary, (ii) as may be required in the regular course of business of the
Company, the Parent Partnership or any such Subsidiary or (iii) as required by
law) or use for his own purposes any Trade Secret Information without the prior
written consent of the Manager, unless and to the extent that the aforementioned
matters become generally known to and available for use by the public or Persons
knowledgeable in the Company's industry other than as a result of Executive's
acts or omissions which constitute a breach hereof. Executive shall deliver to
the Company at the termination of the Employment Period, or at any other time
the Company may request, all memoranda, notes, plans, records, reports, computer
tapes, printouts and software and other documents and data (and copies thereof)
relating to the Trade Secret Information, Work Product (as defined below) or the
business of the Company, the Parent Partnership or any such Subsidiary (or any
of their predecessors) which he may then possess or have under his control.
6. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which (i) relate to the Company's or any of its Subsidiaries' (or
any of their predecessors') actual or anticipated business, research and
development or existing or future products or services or (ii) result from any
work performed by Executive for the Company and its Subsidiaries (or any of
their predecessors), and which are conceived, developed or made by Executive
while employed by the Company (or any of its predecessors) ("Work Product")
belong to the Company or such Subsidiaries; provided that this Section of this
Agreement regarding the Company's and its Subsidiaries' ownership of Work
Product does not apply to any invention for which no equipment, supplies,
facilities or trade secret information of the Company or any of its Subsidiaries
was used and which was developed entirely on Executive's own time, unless (i)
the invention relates to the business of the Company or any of its Subsidiaries
or to the Company's or any of its Subsidiaries' (or any of their predecessors')
actual or demonstrably anticipated research or development or (ii) the invention
results from any work performed by Executive for the Company or any of its
Subsidiaries (or any of their predecessors).
- 3 -
<PAGE> 4
Executive shall promptly disclose such Work Product to the Manager and perform
all actions reasonably requested by the Manager (whether during or after the
Employment Period) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder and his exposure to or involvement in the Trade Secret
Information, Executive acknowledges that in the course of his employment with
the Company he shall become familiar with trade secrets and other Trade Secret
Information concerning the Company and its Subsidiaries and that his services
have been and shall be of special, unique and extraordinary value to the Company
and its Subsidiaries. Therefore, Executive agrees that, during the Noncompete
Period, he shall not directly or indirectly own any interest in, manage,
control, participate in, consult with, render services for, or in any manner
engage in any business competing with the businesses of the Company or its
Subsidiaries, as such businesses exist or are in process on the date of the
termination of Executive's employment, within any states or geographical regions
in which the Company or its Subsidiaries engage or plan to engage in such
businesses on the date of the termination of Executive's employment; provided
that nothing herein shall prohibit Executive from being a passive owner of not
more than 2% of the outstanding stock of any class of a corporation which is
publicly traded, so long as Executive has no active participation in the
business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company or any of its Subsidiaries to leave the employ of the Company or
such Subsidiaries, or in any way interfere with the relationship between the
Company or any of its Subsidiaries and any employee thereof, (ii) hire any
person who was a management employee of the Company or any of its Subsidiaries
at any time during the one year period prior to the termination of the
Employment Period or (iii) induce or attempt to induce any customer, supplier,
licensee, licensor, franchisee or other business relation of the Company or any
of its Subsidiaries to cease doing business with the Company or such
Subsidiaries, or in any way materially interfere with the relationship between
any such customer, supplier, licensee or business relation and the Company or
any of its Subsidiaries (including, without limitation, making any negative
statements or communications about the Company or its Subsidiaries).
(c) If, at the time of enforcement of this paragraph 7, a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law. Executive agrees that the restrictions
contained in this paragraph 7 are reasonable.
- 4 -
<PAGE> 5
(d) In the event of any breach or threatened breach by Executive of
any of the provisions of this paragraph 7, the Company and its Subsidiaries, in
addition and supplementary to other rights and remedies existing in its favor,
may apply to any court of competent jurisdiction for specific performance and/or
injunctive or other relief in order to enforce or prevent any violations of the
provisions hereof (without posting a bond or other security). In addition, in
the event of an alleged breach or violation by Executive of this paragraph 7,
the Noncompete Period shall be tolled until such breach or violation has been
duly cured.
8. Executive's Representations. Executive hereby represents and
warrants to the Company that (i) the execution, delivery and performance by
Executive of this Agreement and all other agreements contemplated hereby and
thereby to which Executive is a party do not and shall not conflict with,
breach, violate or cause a default under any contract, agreement, instrument,
order, judgment or decree to which Executive is a party or by which he is bound,
(ii) Executive is not a party to or bound by any employment agreement,
noncompete agreement or confidentiality agreement with any other person or
entity (or if a party to such an agreement, Executive has disclosed the material
terms thereof to the Manager prior to the execution hereof and promptly after
the date hereof shall deliver a copy of such agreement to the Manager), and
(iii) upon the execution and delivery of this Agreement by the Company, this
Agreement shall be the valid and binding obligation of Executive, enforceable in
accordance with its terms. Executive hereby acknowledges and represents that (i)
he has consulted with independent legal counsel regarding his rights and
obligations under this Agreement and that he fully understands the terms and
conditions contained herein and (ii) subject to change by the Manager at any
time, the Company's headquarters are in, and substantially all of the services
to be performed by Executive for the Company and its Subsidiaries shall be
performed in, the State of Ohio.
9. Definitions.
"Cause" means (i) the commission of a felony or a crime involving
moral turpitude or the commission of any other act or omission involving
dishonesty, disloyalty or fraud with respect to the Company or any of its
Subsidiaries, (ii) conduct which brings the Company or any of its Subsidiaries
into substantial public disgrace or disrepute (including abuse of drugs or
alcohol), (iii) substantial and repeated failure to perform duties as reasonably
directed by the Manager, (iv) gross negligence or willful misconduct with
respect to the Company or any of its Subsidiaries, (v) any other material breach
of this Agreement which is not cured within 15 days after written notice thereof
to Executive or (vi) for purposes of paragraph 4 of this Agreement only, a
Performance Shortfall (clause (vi) of this definition being "Performance
Shortfall Cause"); provided that a termination of Executive's employment by the
Company shall not be deemed a termination for Cause unless and until (A) in the
case of a termination pursuant to any one or more of clauses (i) through (v)
above, there shall have been delivered to Executive a copy of a resolution duly
adopted by the Manager at a meeting of the board of directors of the Manager
called and held for that purpose (after reasonable notice to and an opportunity
for Executive to be heard before the Manager) finding that
- 5 -
<PAGE> 6
in the good faith opinion of the Manager, Executive was guilty of the conduct
set forth in any one or more of such clauses (B) in the case of a termination
pursuant to clause (vi) above, Executive shall have been given written notice
thereof not more than 60 days following the date that EBITDA was finally
determined for the applicable period.
"Disability" means Executive's inability, because of injury, illness
or other incapacity to perform the services to the Company or its Subsidiaries
contemplated hereby (as determined by the Manager in its good faith judgment)
for a continuous period of 90 days or for 120 days out of a continuous period of
360 days. Such Disability shall be deemed to have occurred on the 90th
consecutive day or the 120th day within the specified period, as applicable.
"EBITDA" means, for any period, the net income of the Company and
its Subsidiaries for any such period plus the amount deducted (or in the case of
extraordinary gains, minus any amount added) in the computation thereof for (i)
all federal, state and local income taxes, (ii) interest expense, (iii) any
extraordinary gains or losses, (iv) management fees and corporate overhead of
the Parent Partnership, (v) depreciation and (vi) amortization of goodwill and
other intangibles, determined in accordance with generally accepted accounting
principles consistently applied. For purposes of this Agreement, EBITDA shall be
determined from the audited financial statements of the Company and its
Subsidiaries (or, if audited financial statements are unavailable for such
period, from the financial statements of the Company and its Subsidiaries for
such period, which statements shall be reviewed at the election of the Manager
by the Company's independent public accountants) and the components of EBITDA
contained in the financial statements shall be conclusive and binding upon the
parties.
"Executive Note" means the promissory note delivered by Executive to
the Parent Partnership substantially in the form of Annex A attached hereto in
an aggregate principal amount of $110,000.
"Forecasted EBITDA" means (i) with respect to the last three
calendar quarters in calendar year 1996 and the first calendar quarter in
calendar year 1997, the amounts set forth below and (ii) with respect to each
calendar quarter thereafter, amounts to be determined in good faith by the
Manager from time to time, which amounts shall be based on the Company's annual
budget created in good faith by Executive and reasonably acceptable to the
Manager:
Second calendar quarter in calendar
year 1996 $940,000
-------
Third calendar quarter in calendar
year 1996 $908,000
-------
Fourth calendar quarter in calendar
year 1996 $895,000
-------
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<PAGE> 7
First calendar quarter in calendar year 1997 $1,096,000
---------
In the event that the Company or any of its Subsidiaries acquires a company or
business through merger, stock purchase, asset purchase or otherwise, or
disposes of any operating unit, during the Employment Period, the amounts set
forth above with respect to the quarter during which the transaction occurs and
all subsequent quarters shall be equitably adjusted to reflect such acquisition
or disposition, as reasonably determined in good faith by the Manager and the
Chief Executive Officer of the Company.
"Good Reason" means (i) the removal without Cause of Executive as
the President of the Company, or its imposition upon him of substantial
additional or different duties which are inconsistent with such position, (ii)
either the reduction of Executive's salary or a material reduction of other
benefits under any employee benefit plan, program or arrangement of the Company
(other than a change that affects all senior executives of the Company) from the
level in effect upon Executive's commencement of participation therein or (iii)
the relocation of the executive offices of the Company from the Akron, Ohio
metropolitan area.
"Manager" shall have the meaning given to such term in that certain
Operating Agreement, dated as of the date hereof, by and among the Parent
Partnership, as managing member, and the other members listed on Schedule A
thereto, as amended and modified from time to time.
"Noncompete Period" means the Employment Period and (i) in the case
of a nonrenewal of the Employment Period pursuant to paragraph 4(a) hereof or a
termination of the Employment Period by Executive with Good Reason or by the
Company without Cause or with Performance Shortfall Cause, a period of time, to
be determined by the Manager in its sole discretion within 30 days after such
nonrenewal or termination, of no less than one additional year and no more than
two additional years thereafter, (ii) in the case of a termination of the
Employment Period by Executive without Good Reason, a period of time, to be
determined by the Manager in its sole discretion within 30 days after such
termination, of no more than two additional years thereafter, (iii) in the case
of a termination of the Employment Period by the Company with Cause (other than
Performance Shortfall Cause), two additional years thereafter and (iv) in the
case of a termination of the Employment Period as a result of Executive's
Disability, one additional year thereafter.
"Parent Partnership" means Sovereign Specialty Chemicals, L.P., a
Delaware limited partnership.
"Performance Shortfall" means, with respect to any four consecutive
calendar quarters beginning with the four-quarter period consisting of the last
three calendar quarter of 1996 and the first calendar quarter of 1997, the
aggregate EBITDA for such quarters is less than 70% of the aggregate Forecasted
EBITDA for such quarters.
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<PAGE> 8
"Subsidiaries" means, with respect to any person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such person or entity or one or more of
the other Subsidiaries of such person or entity or a combination thereof, or
(ii) if a limited liability company, partnership, association or other business
entity, a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by any
person or entity or one or more Subsidiaries of such person or entity or a
combination thereof. For purposes hereof, a person or persons shall be deemed to
have a majority ownership interest in a limited liability company, partnership,
association or other business entity if such person or persons shall be
allocated a majority of limited liability company, partnership, association or
other business entity gains or losses or shall be or control any managing
director or general partner of such limited liability company, partnership,
association or other business entity.
10. Survival. Paragraphs 4 through 19 shall survive and continue in
full force in accordance with their terms notwithstanding any termination of the
Employment Period.
11. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, sent by first class mail,
return receipt requested, or sent by reputable overnight courier service
(charges prepaid) to the recipient at the address indicated below:
Notices to Executive:
Gerard A. Loftus
8500 Countryview Drive
Broadview Heights, Ohio 44147
with copies to:
Richards & Merrill
1000 Bank One Tower
101 Central Plaza South
Canton, Ohio 44702-1402
Attn: Homer Richards
- 8 -
<PAGE> 9
Notices to the Company:
Sovereign Engineered Adhesives, L.L.C.
123 West Bartges
Akron, Ohio 44311
Attn: President
- 9 -
<PAGE> 10
with copies to:
First Capital Corporation of Chicago
Three First National Plaza, Suite 1210
Chicago, IL 60670
Attn: Carol E. Bramson
and
Waud Capital Partners, L.L.C.
Suite 103
560 Oakwood Avenue
Lake Forest, Illinois 60045
Attn: Reeve B. Waud
and
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attn: Edward T. Swan
Gary R. Silverman
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or, if mailed, three days after deposit in the U.S. mail and one day after
deposit with a reputable overnight courier service.
12. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Executive Note. Executive authorizes and directs the Company to
pay certain amounts owed to Executive hereunder to the Parent Partnership for
application to the unpaid balance of the Executive Note as set forth in the
Executive Note.
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<PAGE> 11
14. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
15. No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
16. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
17. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company.
18. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by, and construed in accordance with, the laws of the State of Ohio,
without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of Ohio or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Ohio.
19. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
* * * *
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
SOVEREIGN ENGINEERED ADHESIVES, L.L.C.
By Sovereign Specialty Chemicals, L.P.
Its Managing Member
By Sovereign Chemicals Corporation
Its General Partner
By /s/ Robert B. Covalt
-------------------------------------
Its C.E.O.
-------------------------------------
/s/ Gerard A. Loftus
-----------------------------------------
GERARD A. LOFTUS
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<PAGE> 1
Exhibit 10.8
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of August 19, 1996, by and between Pierce
& Stevens Corp., a New York corporation (the "Company"), and Richard Johnston
("Executive").
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive
hereby accepts employment with the Company, upon the terms and conditions set
forth in this Agreement for the period beginning on the date hereof and ending
as provided in paragraph 4 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
Executive Vice President of the Company and shall have the normal duties,
responsibilities and authority of the Executive Vice President, subject to the
power of the Board (as defined below) or the Company's Chief Executive Officer,
if any, to expand or limit such executive duties, responsibilities and authority
and to override actions of the Executive Vice President. During the Employment
Period, Executive shall render such administrative, sales, marketing and other
managerial services as the Company's Chief Executive Officer or the Board may
from time to time direct.
(b) Executive shall report to the Company's Chief Executive
Officer and the Board, and Executive shall devote his best efforts and his full
business time and attention (except for permitted vacation periods and
reasonable periods of illness or other incapacity) to the business and affairs
of the Company and its Subsidiaries. Executive shall perform his duties and
responsibilities to the best of his abilities in a diligent, trustworthy,
businesslike and efficient manner.
3. Base Salary and Benefits.
(a) During the Employment Period, the Company shall pay to
Executive a base salary (the "Base Salary") equal to $145,000 per annum, or such
higher rate as the Board may designate from time to time. The Base Salary shall
be payable in regular installments in accordance with the Company's general
payroll practices and shall be subject to customary withholding. In addition,
during the Employment Period, Executive shall be entitled to participate in all
of the Company's employee benefit programs for which senior executive employees
of the Company are generally eligible.
(b) The Company shall reimburse Executive for all reasonable
expenses incurred by him in the course of performing his duties under this
Agreement which are consistent
<PAGE> 2
with the Company's policies in effect from time to time with respect to travel,
entertainment and other business expenses, subject to the Company's requirements
with respect to reporting and documentation of such expenses.
(c) Within three months after the date hereof, the Company and
Executive shall in good faith develop a bonus plan applicable to Executive which
shall provide for Executive to receive an annual bonus not exceeding 50% of his
Base Salary for the year to which such annual bonus relates if the Company and
its Subsidiaries achieve specified financial measures established by the Board
as part of its annual operating budget for a calendar year.
4. Term.
(a) Except as otherwise provided in the following sentence,
the Employment Period shall end on the third anniversary of the date hereof;
provided that (i) the Employment Period shall terminate prior to such date upon
Executive's resignation, death or Disability and (ii) the Employment Period may
be terminated by the Company at any time prior to such date for Cause (as
defined below) or without Cause. The Employment Period shall be automatically
renewed and extended for, successive one-year terms beginning on the third
anniversary of the date hereof and on each anniversary date thereafter unless
the Company or Executive receives within three months prior to such anniversary
date written notice of an election not to renew the Employment Period as of such
anniversary date.
(b) If the Employment Period is terminated as a result of a
nonrenewal pursuant to paragraph 4(a) above, by the Company without Cause or by
Executive with Good Reason, Executive shall be entitled to (i) receive his Base
Salary, payable in accordance with the Company's normal payroll practices, (ii)
receive his pro rata share of Executive's targeted bonus for the fiscal year in
which Executive has been terminated (i.e., if Executive is terminated on June 30
he will receive 50% of his target bonus) and (iii) continue to participate in
the Company's health, insurance and disability plans and programs during the
period ending one year from the date the Employment Period is terminated (the
"Severance Period"); provided that Executive shall be entitled to receive such
compensation, bonus and benefits during the Severance Period if and only if
Executive has complied with and continues to comply with the provisions of
paragraphs 5, 6 and 7 hereof; provided, however, that if such termination is
prior to August 19, 1998, then Executive shall be only be entitled to the
severance provided in that certain special severance agreement (the "Special
Severance Agreement") between Pratt & Lambert United, Inc. and Executive dated
October 30, 1995. After the expiration of the Severance Period, the Company
shall pay to Executive 50% of his Base Salary (payable in accordance with the
Company's normal payroll practices) so long as the Noncompete Period, if any,
continues. The amounts payable pursuant to this paragraph 4(b) shall be reduced
by the amount of any compensation Executive earns with respect to any other
employment during the Noncompete Period. Upon reasonable request from time to
time, Executive shall furnish the Company with a true and complete certificate
specifying any such compensation due to or received by him during the Noncompete
Period.
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<PAGE> 3
(c) If the Employment Period is terminated by the Company for
Cause (other than Performance Shortfall Cause), Executive shall be entitled to
receive his Base Salary through the date of termination and to receive one week
of severance for each year of service with the Company payable in accordance
with the Company's severance program and accrued but unpaid vacation in
accordance with the policy of the Company and to continue to participate in the
Company's health, insurance and disability plans and programs through the date
of termination and thereafter only to the extent permitted under the terms of
such plans and programs.
(d) If the Employment Period is terminated by Executive
without Good Reason or as a result of Executive's death or Disability, Executive
shall be entitled to receive hi s Base Salary through the date of termination
and accrued but unpaid vacation in accordance with the policy of the Company and
to continue to participate in the Company's health, insurance and disability
plans and programs through the date of termination and thereafter only to the
extent permitted under the terms of such plans and programs.
(e) If the Employment Period is terminated by the Company for
Performance Shortfall Cause, Executive shall be entitled to (i) receive his Base
Salary, payable in accordance with the Company's normal payroll practices, (ii)
receive his pro rata share of Executive's targeted bonus for the fiscal year in
which Executive has been terminated and (iii) continue to participate in the
Company's health, insurance and disability plans and programs during the period
ending on the number of weeks equal to the number of years of Executive's
service with the Company (the "PS Severance Period"); provided that Executive
shall be entitled to receive such compensation, bonus and benefits during the PS
Severance Period if and only if Executive has complied with and continues to
comply with the provisions of paragraphs 5, 6 and 7 hereof; provided, however,
that if such termination is prior to August 19, 1998, then Executive shall be
only be entitled to the severance provided in the Special Severance Agreement.
After the expiration of the PS Severance Period, the Company shall pay to
Executive 50% of his Base Salary (payable in accordance with the Company's
normal payroll practices) so long as the Noncompete Period, if any, continues.
The amounts payable pursuant to this paragraph 4(e) shall be reduced by the
amount of any compensation Executive earns with respect to any other employment
during the Noncompete Period. Upon reasonable request from time to time,
Executive shall furnish the Company with a true and complete certificate
specifying any such compensation due to or received by him during the Noncompete
Period.
(f) Except as otherwise expressly provided herein, all of
Executive's rights to salary, employee benefits, fringe benefits and bonuses
hereunder (if any) which accrue after the termination of the Employment Period
shall cease upon such termination. The Company and its Subsidiaries may offset
any loans, cash advances or fixed amounts which Executive owes the Company and
its Subsidiaries against any amounts it owes Executive.
5. Trade Secret Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
concerning the business or affairs of the Company, the Parent Partnership or any
of their Subsidiaries (or any of their predecessors) which the Company, the
Parent Partnership or any such Subsidiary considers to be
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<PAGE> 4
confidential and which is proprietary to the Company, the Parent Partnership or
any such Subsidiary ("Trade Secret Information") are the property of the
Company, the Parent Partnership or any such Subsidiary. Therefore, Executive
agrees that he shall not disclose to any unauthorized Person (except (i) to any
entity which shall succeed to the business of the Company, the Parent
Partnership or any such Subsidiary, (ii) as may be required in the regular
course of business of the Company, the Parent Partnership or any such Subsidiary
or (iii) as required by law) or use for his own purposes any Trade Secret
Information without the prior written consent of the Board, unless and to the
extent that the aforementioned matters become generally known to and available
for use by the public or Persons knowledgeable in the Company's industry other
than as a result of Executive's acts or omissions which constitute a breach
hereof. Executive shall deliver to the Company at the termination of the
Employment Period, or at any other time the Company may request, all memoranda,
notes, plans, records, reports, computer tapes, printouts and software and other
documents and data (and copies thereof) relating to the Trade Secret
Information, Work Product (as defined below) or the business of the Company, the
Parent Partnership or any such Subsidiary which he may then possess or have
under his control.
6. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, developments, methods, designs,
analyses, drawings, reports and all similar or related information (whether or
not patentable) which (i) relate to the Company's or any of its Subsidiaries'
(or any of their predecessors) actual or anticipated business, research and
development or existing or future products or services or (H) result from any
work performed by Executive for the Company and its Subsidiaries (or any of
their predecessors) and which are conceived, developed or made by Executive
while employed by the Company ("Work Product") belong to the Company or such
Subsidiaries; provided that this paragraph 6 regarding the Company's and its
Subsidiaries' ownership of Work Product does not apply to any invention for
which no equipment, supplies, facilities or trade secret information of the
Company or any of its Subsidiaries was used and which was developed entirely on
Executive's own time, unless (i) the invention relates to the business of the
Company or any of its Subsidiaries or to the Company's or any of its
Subsidiaries' (or any of their predecessors) actual or demonstrably anticipated
research or development or (ii) the invention results from any work performed by
Executive for the Company or any of its Subsidiaries (or any of their
predecessors). Executive shall promptly disclose such Work Product to the Board
and perform all actions reasonably requested by the Board (whether during or
after the Employment Period) to establish and confirm such ownership (including,
without limitation, assignments, consents, powers of attorney and other
instruments).
7. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder and his exposure to or involvement in the Trade Secret
Information, Executive acknowledges that in the course of his employment with
the Company, he shall become familiar with trade secrets and other Trade Secret
Information concerning the Company and its Subsidiaries and that his services
have been and shall be of special, unique and extraordinary value to the Company
and its Subsidiaries. Therefore, Executive agrees that, during the Noncompete
Period, he shall not directly or indirectly own any interest in, manage,
control, participate in, consult with, render
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<PAGE> 5
services for, or in any manner engage in any business competing with the
businesses of the Company and its Subsidiaries, as such businesses exist or are
in process on the date of the termination of Executive's employment, within any
states or geographical regions in which the Company and its Subsidiaries engage
or plan to engage in such businesses on the date of the termination of
Executive's employment; provided that nothing herein shall prohibit Executive
from being a passive owner of not more than 2% of the outstanding stock of any
class of a corporation which is publicly traded, so long as Executive has no
active participation in the business of such corporation.
(b) During the Noncompete Period, Executive shall not directly
or indirectly through another entity (i) induce or attempt to induce any
employee of the Company or any of its Subsidiaries to leave the employ of the
Company or such Subsidiaries, or in any way interfere with the relationship
between the Company or any of its Subsidiaries and any employee thereof, (ii)
hire any person who was a management employee of the Company or any of its
Subsidiaries at any time during the one-year period prior to the termination of
the Employment Period or (W) induce or attempt to induce any customer, supplier,
licensee' licensor, franchisee or other business relation of the Company or any
of its Subsidiaries to cease doing business with the Company or such
Subsidiaries, or in any way materially interfere with the relationship between
any such customer, supplier, licensee or business relation and the Company or
any of its Subsidiaries (including, without limitation, making any negative
statements or communications about the Company or its Subsidiaries).
(c) If, at the time of enforcement of this paragraph 7, a
court shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law. Executive agrees that the restrictions
contained in this paragraph 7 are reasonable.
(d) In the event of any breach or threatened breach by
Executive of any of the provisions of this paragraph 7, the Company and its
Subsidiaries, in addition and supplementary to other rights and remedies
existing in its favor, may apply to any court of competent jurisdiction for
specific performance and/or injunctive or other relief in order to enforce or
prevent any violations of the provisions hereof (without posting a bond or other
security). In addition, in the event of an alleged breach or violation by
Executive of this paragraph 7, the Noncompete Period shall be tolled until such
breach or violation has been duly cured.
(e) After the later of (i) the date Executive's employment
hereunder is terminated or (H) the expiration of either the Severance Period or
the PS Severance Period, as applicable (such date being referred to as the
"Effective Date"), the Company shall advise Executive of its election to
continue to enforce the provisions of paragraph 7 above for the period of time
desired, in incremental periods of one month, in writing within 15 business days
after the Effective Date. If the Company elects to continue to enforce the
provisions of paragraph 7 after the Effective Date, the Company shall pay the
Executive, as additional consideration for Executive's agreement not to compete,
an amount equal to 50% of Executive's then monthly Base Salary during
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<PAGE> 6
each month of the non-compete commencing with the first calendar month after the
month of the Effective Date, such amount to be paid to Executive in accordance
with the Company's normal payroll schedule. In no event shall such time period
exceed the Noncompete Period.
8. Executive's Representations. Executive hereby represents and
warrants to the Company that (i) the execution, delivery and performance by
Executive of this Agreement and all other agreements contemplated hereby to
which Executive is a party do not and shall not conflict with, breach, violate
or cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity (or if a party to such
an agreement, Executive has disclosed the material terms thereof to the Board
prior to the execution hereof and promptly after the date hereof shall deliver a
copy of such agreement to the Board), and (iii) upon the execution and delivery
of this Agreement by the Company, this Agreement shall be the valid and binding
obligation of Executive, enforceable in accordance with its terms. Executive
hereby acknowledges and represents that (i) he has consulted with independent
legal counsel regarding his rights and obligations under this Agreement and that
he fully understands the terms and conditions contained herein and (ii) subject
to change by the Board at any time, the Company's headquarters are in, and a
majority of the services to be performed by Executive for the Company and its
Subsidiaries shall be performed in, the State of New York.
9. Definitions.
"Board" shall mean the Company's Board of Directors.
"Cause" means (i) the Executive's conviction of a felony or a
crime involving moral turpitude or the commission of any other act or omission
involving dishonesty, disloyalty or fraud with respect to the Company or any of
its Subsidiaries which is materially injurious to the Company, (ii) conduct
which brings the Company or any of its Subsidiaries into substantial public
disgrace or disrepute (including abuse of drugs or alcohol) which is materially
injurious to the Company, (iii) substantial and repeated failure to perform
duties as reasonably directed by the Board, (iv) gross negligence or willful
misconduct by the Executive with respect to the Company or any of its
Subsidiaries which is materially injurious to the Company, or (v) any other
material breach of this Agreement by Executive which is not cured within 15 days
after written notice thereof to Executive, provided that a termination of
Executive's employment by the Company shall not be deemed a termination for
Cause unless and until there shall have been delivered to Executive a copy of a
resolution duly adopted by the Board at a meeting called and held for that
purpose (after reasonable notice to and an opportunity for Executive to be heard
before the Board) finding that in the good faith opinion of the Board, Executive
was guilty of the conduct set forth in any one or more of such clauses and such
conduct is not or cannot be cured within 30 days following such date.
"Disability" means Executive's inability, because of injury,
illness or other incapacity to perform the services to the Company or its
Subsidiaries contemplated hereby (as determined by the Board in its good faith
judgment) for a continuous period of 90 days or for 120
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<PAGE> 7
days out of a continuous period of 360 days. Such Disability shall be deemed to
have occurred on the 90th consecutive day or, the 120th day within the specified
period, as applicable.
"EBITDA" means, for any period, the net income of the Company
and its Subsidiaries for any such period plus the amount deducted (or in the
case of extraordinary gains, minus any amount added) in the computation thereof
for (i) all federal, state and local income taxes, (ii) interest expense, (iii)
any extraordinary gains or losses, (iv) management fees and corporate overhead
of the Parent Partnership, (v) depreciation and (vi) amortization of goodwill
and other intangibles, determined in accordance with generally accepted
accounting principles consistently applied. For purposes of this Agreement,
EBITDA shall be determined from the audited financial statements of the Company
and its Subsidiaries (or, if audited financial statements are unavailable for
such period, from the financial statements of the Company and its Subsidiaries
for such period, which statements shall be reviewed at the election of the Board
by the Company's independent public accountants) and the components of EBITDA
contained in the financial statements shall be conclusive and binding upon the
parties.
"Forecasted EBITDA" means EBITDA amounts to be determined in
good faith by the Board from time to time after consultations with the
Executive, which EBITDA amounts shall be based upon those set forth in the
Company's annual budget. In the event that the Company or any of its
Subsidiaries acquires a company or business through merger, stock purchase,
asset purchase or otherwise, or disposes of any operating unit, during the
Employment Period, the EBITDA Amounts and the annual budget shall be equitably
adjusted to reflect such acquisition or disposition, as reasonably determined in
good faith by the Board.
"Good Reason" means (i) the removal without Cause of Executive
as the Executive Vice President of the Company, or its imposition upon him of
substantial additional or different duties which are inconsistent with such
position, (ii) either the reduction of Executive's salary or a material
reduction of other benefits under any employee benefit plan, program or
arrangement of the Company (other than a change that affects all senior
executives of the Company) from the level in effect upon Executive's
commencement of participation therein or (iii) the relocation of the executive
offices of the Company from the Buffalo, New York metropolitan area.
"Noncompete Period" means the Employment Period and during the
Severance Period, the PS Severance Period or any other period during which
Executive is receiving any severance pay from the Company, and thereafter for a
period of time, to be determined by the Board in its sole discretion within 30
days after the expiration of the Employment Period or the end of such severance
period, of up to two additional years thereafter.
"Parent Partnership" means Sovereign Specialty Chemicals,
L.P., a Delaware limited partnership.
"Performance Shortfall" means, with respect to any four
consecutive calendar quarters beginning with the four-quarter period consisting
of the last calendar quarter of 1996 and the first three calendar quarters of
1997, the aggregate EBITDA for such quarters is less
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<PAGE> 8
than 75% of the aggregate Forecasted EBITDA for such quarters. Executive shall
be given written notice of any Performance Shortfall by the Company not more
than 60 days following the date that EBITDA was finally determined for the
applicable period.
"Subsidiaries" means, with respect to any person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such person or
entity or one or more of the other Subsidiaries of such person or entity or a
combination thereof, or (ii) if a limited liability company, partnership,
association or other business entity, a majority of the partnership or other
similar ownership interest thereof is at the time owned or controlled, directly
or indirectly, by any person or entity or one or more Subsidiaries of such
person or entity or a combination thereof. For purposes hereof, a person or
persons shall be deemed to have a majority ownership interest in a limited
liability company, partnership, association or other business entity if such
person or persons shall be allocated a majority of limited liability company,
partnership, association or other business entity gains or losses or shall be or
control any managing director or general partner of such limited liability
company, partnership, association or other business entity.
10. Survival. Paragraphs 4 through 18 shall survive and continue in
full force in accordance with their terms notwithstanding any termination of the
Employment Period.
11. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, sent by first class mail,
return receipt requested, or sent by reputable overnight courier service
(charges prepaid) to the recipient at the address indicated below:
Notices to Executive:
Richard Johnston
710 Ohio Street
Buffalo, New York 14240
with copies to:
Giardino & Schober, LLP
268 Main Street
Second Floor
Buffalo, New York 14202-4186
Attn: John Giardino
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<PAGE> 9
Notices to the Company:
Pierce & Stevens Corp.
c/o Sovereign Chemicals Corporation
Suite 2200
225 West Washington Street
Chicago, Illinois 60606
Attn: Chief Executive Officer
with copies to:
First Chicago Equity Corporation
Three First National Plaza, Suite 1210
Chicago, IL 60670
Attn: Carol E. Branison
Eric C. Larson
and
Davis, Graham & Stubbs LLP
1314 Nineteenth Street, N.W.
Washington, D.C. 20036
Attn: Christopher J. Hagan, Esq.
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or, if mailed, three days after deposit in the U.S. mail and one day after
deposit with a reputable overnight courier service.
12. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
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<PAGE> 10
14. No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
16. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
PIERCE & STEVENS CORP.
By: /s/ William T. Schram
------------------------------
Its: Vice President & Secretary
------------------------------
/s/ Richard Johnston
-----------------------------------
RICHARD JOHNSTON
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<PAGE> 1
Exhibit 10.9
CONSULTING AGREEMENT
THIS AGREEMENT, dated as of October 1, 1996, between SOVEREIGN SPECIALTY
CHEMICALS, L.P., a Delaware limited partnership (the "Company") and NEAL G.
REDDEMAN (the "Consultant").
1. Consulting. The Company hereby engages the Consultant to serve as
an advisor and consultant to the Company, and the Consultant hereby accepts such
engagement, on the terms and conditions of this Agreement.
2. Term of Engagement. The term of Consultant's engagement hereunder
shall commence as of the date first written above, and shall continue thereafter
until one month written notice is received from either the Consultant or the
Company to the other terminating this Agreement. In addition to any other
remedies the Company may have, the Company may terminate this Agreement
immediately in the event of the breach of any of the provisions of this
Agreement by Consultant.
3. Duties. The Consultant shall during the term of this Agreement,
be available to the Company and its Subsidiaries on a mutually agreeable basis
to provide information and consultation to the Company and its Subsidiaries in
the areas of flexible packaging and paper converting. Travel to customers and
potential customers will also be requested of the Consultant. The Consultant
will assist the Company's sales and technical service personnel as appropriate
and as the Consultant and the Company's Chairman deem necessary. In addition,
Consultant may be asked to consult with the Company in other areas and to engage
in other assignments as mutually agreed upon with the Company. The Consultant
shall discharge such consulting functions to the best of his ability. The
Consultant shall report to and receive instructions and directions from the
Company's Chairman. Consultant shall provide information as set forth above to
the Chairman of the Company or such other person as the Chairman may designate.
Information provided to the Company pursuant to the terms of this Agreement will
not be used by Consultant, or any company or entity which he owns or controls,
directly or indirectly, or provided to any company or other person or
organization without, in each case, the prior written consent of the Company.
The restriction in the foregoing sentence shall not apply to information which
is or subsequently becomes part of the public domain.
4. Compensation. For providing consulting services hereunder and the
Consultant's undertakings pursuant to paragraphs 6 and 7 hereof, the Company
shall pay the Consultant $1,000 per Working Day. For purposes of this Agreement,
a "Working Day" shall be deemed to mean the performance by the Consultant on
such day of at least eight (8) hours of consulting services for the Company. The
Consultant shall submit a statement defining his employment and the daily
services performed on a monthly basis in a form reasonably satisfactory to the
Chairman.
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5. Expenses. The Company will reimburse the Consultant for all
reasonable expenses incurred by Consultant in rendering services hereunder upon
submission to the Company of an accounting and substantiation for such expenses
and related receipts.
6. Trade Secret Information. Consultant acknowledges that the
information, observations and data obtained by him while engaged by the Company
concerning the business or affairs of the Company or any of its Subsidiaries (or
any of their predecessors) which the Company or any such Subsidiary considers to
be confidential and which is proprietary to the Company or any such Subsidiary
("Trade Secret Information") are the property of the Company or any such
Subsidiary. Therefore, Consultant agrees that he shall not disclose to any
unauthorized Person (except (i) to any entity which shall succeed to the
business of the Company or any such Subsidiary, (ii) as may be required in the
regular course of business of the Company or any such Subsidiary or (iii) as
required by law) or use for his own purposes any Trade Secret Information
without the prior written consent of the Company, unless and to the extent that
the aforementioned matters become generally known to and available for use by
the public or Persons knowledgeable in the Company's industry other than as a
result of Consultant's acts or omissions which constitute a breach hereof.
Consultant shall deliver to the Company at the termination of the Agreement, or
at any other time the Company may request, all memoranda, notes, plans, records,
reports, computer tapes, printouts and software and other documents and data
(and copies thereof) relating to the Trade Secret Information, Work Product (as
defined below) or the business of the Company or any such Subsidiary which he
may then possess or have under his control.
7. Inventions and Patents Consultant acknowledges that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which (i) relate to the Company's or any of its Subsidiaries' (or
any of their predecessors) actual or anticipated business, research and
development or existing or future products or services or (ii) result from any
work performed by Consultant for the Company and its Subsidiaries (or any of
their predecessors) and which are conceived, development or made by Consultant
while engaged by the Company ("Work Product") belong to the Company or such
Subsidiaries.
8. Non-Compete, Non-Solicitation.
a. In further consideration of the compensation to be paid to
Consultant hereunder and his exposure to or involvement in the Trade
Secret Information. Consultant acknowledges that in the course of
his engagement by the Company, he shall become familiar with trade
secrets and other Trade Secret Information concerning the Company
and its Subsidiaries and that his services have been and shall be of
special, unique and extraordinary value to the Company and its
Subsidiaries. Therefore, Consultant agrees that, during the
Noncompete Period, he shall not directly or indirectly own any
interest in, manage, control, participate in, consult with, render
services for, or in any manner engage in any business competing with
the businesses of the Company and its Subsidiaries for which
Consultant has been directly engaged,
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as such businesses exist or are in process on the date of the
termination of Consultant's engagement, within any countries or
geographical regions in which the Company and its Subsidiaries
engage or plan to engage in such businesses on the date of the
termination of Consultant's engagement; provided that nothing herein
shall prohibit Consultant from being a passive owner of not more
than 2% of the outstanding stock of any class of a corporation which
is publicly traded, so long as Consultant has no active
participation in the business of such corporation.
b. During the Noncompete Period, Consultant shall not directly or
indirectly through another entity (i) induce or attempt to induce
any employee of the Company or any of its Subsidiaries to leave the
employ of the Company or such Subsidiaries, or in any way interfere
with the relationship between the Company or any of its Subsidiaries
and any employee thereof, (ii) hire any person who was a management
employee of the Company or any of its Subsidiaries at any time
during the one-year period prior to the termination of the Agreement
or (iii) induce or attempt to induce any customer, supplier,
licensee, licensor, franchisee or other business relation of the
Company or any of its Subsidiaries to cease doing business with the
Company or such Subsidiaries, or in any way materially interfere
with the relationship between any such customer, supplier, licensee
or business relation and the Company or any of its Subsidiaries
(including, without limitation, making any negative statements or
communications about the Company or its Subsidiaries).
c. If, at the time of enforcement of this paragraph 8, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree
that the maximum duration, scope or area reasonable under such
circumstances shall be substituted for the stated duration, scope or
area and that the court shall be allowed to revise the restrictions
contained herein to cover the maximum period, scope and area
permitted by law. Consultant agrees that the restrictions contained
in this paragraph 7 are reasonable.
d. If, at the time of enforcement of this paragraph 8, the Consultant
is no longer employed by the Company and is not receiving any
severance or other pay from the Company or its Subsidiaries, then as
additional consideration for Consultant's covenant not to compete
contained herein the Company may, at its election, pay $3,000 per
month to Consultant during each month that the provisions of this
paragraph 8 remain in full force and effect.
e. In the event of any breach or threatened breach by Consultant of any
of the provisions of this paragraph 8, the Company and its
Subsidiaries, in addition and supplementary to other rights and
remedies existing in its favor, may apply to any court of competent
jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the
provisions hereof (without posting a bond or other security). In
addition, in the event of an alleged breach or violation by
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Consultant of this paragraph 8, the Noncompete Period shall be
tolled until such breach or violation has been duly cured.
9. Consultant's Representations. Consultant hereby represents and
warrants to the Company that (i) the execution, delivery and performance by
Consultant of this Agreement and all other agreements contemplated hereby to
which Consultant is a party do not and shall not conflict with, breach, violate
or cause a default under any contract, agreement, instrument, order, judgment or
decree to which Consultant is a party or by which he is bound, (ii) Consultant
is not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity that remains in full
force and effect, and (iii) upon the execution and delivery of this Agreement by
the Company, this Agreement shall be the valid and binding obligation of
Consultant, enforceable in accordance with its terms.
10. Definitions.
"Noncompete Period" means during the term of this Agreement
and upon termination of this Agreement by Consultant or the Company for any
reason, a period of time, to be determined by the Company in its sole discretion
within 30 days after such termination, of no more than one additional year
thereafter.
"Subsidiaries" means, with respect to any person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such person or
entity or one or more of the other Subsidiaries of such person or entity or a
combination thereof, or (ii) if a limited liability company, partnership,
association or other business entity, a majority of the partnership or other
similar ownership interest thereof is at the time owned or controlled, directly
or indirectly, by any person or entity or one or more Subsidiaries of such
person or entity or a combination thereof.
11. Non-Assignability, etc. The Consultant shall have no right to
assign or transfer any rights hereunder.
12. Binding Nature, Governing Law, Amendment and Waiver, Entire
Agreement. This Agreement shall be binding upon the Company, its successors and
assigns, and upon the Consultant and his respective heirs, legatees, executors
and administrators. This Agreement shall be construed and enforced in accordance
with the laws of Illinois. This Agreement may not be modified or amended except
by an instrument in writing signed by both the parties. Any inconsistency or
conflict between the terms of this Agreement and any purchase order, invoice or
other communication shall be solely governed by the terms of this Agreement.
This Agreement is the entire agreement between the parties hereto with regard to
the subject matter hereof and supersedes all prior discussions, arrangements or
agreements between the parties relating thereto.
4
<PAGE> 5
13. Independent Contractor. The relationship of Consultant to the
Company is that of an independent contractor. Consultant shall not be considered
an employee or agent of the Company, and except as specified elsewhere in this
Agreement, shall have absolutely no authority to bind, commit or otherwise
obligate the Company in any way whatsoever. Consultant is not eligible to
participate in any employee benefit or other plan of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first above written.
SOVEREIGN SPECIALTY CHEMICALS, L.P.
By: Sovereign Chemicals Corporation
Its: General Partner
By: /s/ Robert B. Covalt
----------------------------
Name: Robert B. Covalt
Title: Chief Executive Officer
/s/ Neal G. Reddeman
------------------------------
Neal G. Reddeman
5
<PAGE> 1
October 25, 1996 Exhibit 10.10
Mr. Robert B. Covalt
President and Chief Executive Officer
Sovereign Specialty Chemicals, L.P.
225 West Washington Street
Suite 2200
Chicago, Illinois 60606
Reference: 04-001
Dear Bob:
I am pleased to submit this proposal to work with you on the development of a
vision for Sovereign Specialty Chemicals. This proposal is based on our meeting
in Chicago on October 18, as well as insights and information I developed during
presentations in Akron, at Sovereign Engineered Adhesives (SEA) on September 24,
in Buffalo, at Pierce and Stevens on September 26. This is an exciting time for
Sovereign as it begins operation as a new company with ambitions to achieve
growth and leadership with superior financial performance in the adhesives and
coatings industry. I appreciate the confidence you have demonstrated by asking
me to work with you and look forward to getting started on this interesting
assignment.
Background
In April, Sovereign completed its first acquisition, purchasing the adhesives
business from The BF Goodrich Co. In August, sovereign acquired Pierce and
Stevens Corp. from the Sherwin-Williams Company. Together, these companies
bring $85 million in annual sales and a diverse line of adhesives and coatings.
Your stated objective is to grow these businesses aggressively by leveraging
existing products and technologies, entering new markets and expanding
internationally.
As a first step towards achieving these objectives, you would like to establish
a vision that will help position and guide the company as it develops and
implements its new strategy. As part of this process, we will evaluate tradeoffs
between the need for focus, to become well-known and highly regarded as the
leading supplier in your chosen field, and the need for breadth, to have a
sufficiently robust portfolio of opportunities to grow. The purpose of the work
outlined below is to support this process and in so doing, establish a framework
for developing and implementing strategies.
Scope and Approach
Vision definition is the first phase of the strategy process which also includes
business unit strategy development and implementation planning. As a point of
reference, I have outlined the three phases in a typical strategy process
(Figure 1) and have briefly described these additional
<PAGE> 2
October 25, 1996 Page 2
Mr. Robert B. Covalt
President and Chief Executive Officer
Sovereign Specialty Chemicals, L.P.
phases in the test below. At this time, we propose to work only on Phase 1. For
this work, we will take a holistic view of Sovereign Specialty Chemicals,
identifying and characterizing important segments which might lead to
interesting growth opportunities. I should note however, that this initial work
will not provide a detailed assessment of those opportunities. That is, we will
be addressing issues of strategic direction rather than strategy implementation.
Phase 1: Vision Definition
Adhesives and Coatings is a large and diverse "segment" of the chemical
industry. It is too large (over $20 billion, excluding the largest commodity
segments) to have a meaningful discussion about strategy. Therefore, one
objective of this first phase is to focus the discussion on those specialty
segments that fit Sovereign's image of its participation in this industry and
its ambitions for leadership. As part of the process we will identify and
examine Sovereign's core competencies and seek to understand those which truly
differentiate yourself in the industry today. In an iterative process which
moves from personal ambitions to market conditions and from today's bases of
competition to possible future scenarios, we will identify vision alternatives
that are a stretch for Sovereign, yet achievable.
Our work on Phase 1 will revolve around a Visioning Workshop. This workshop
should include 8 to 12 people from Sovereign, including those responsible for
key business and functions, as well as a few open-minding thinkers from across
the company. A proposed agenda for the workshop is included with this letter.
This is a divergent process and we want to encourage the free flow of ideas.
Preparation for this workshop will include personal interviews with each of the
participants as well as some advance reading. The session itself will be a one
and one-half day meeting, preferably at an off-site location.
The output from this meeting will be several vision alternatives for Sovereign
which describe the firm at some point 7 to 10 years distant. (The actual
time-frame for the vision is not critical as long as participants see the vision
as "achievable" and as "our responsibility.") Associated with each vision will
also be a statement of competencies required to be a leading competitor. To
provide a context for the vision, we will "create" a base line scenario of the
future. The results of this workshop will be summarized and circulated to
participants for their review and further comment and then finalized.
There will likely be the need for additional analysis following the workshop to
review, test and finalize the vision statement and its supporting documentation.
This work will be done off line and reviewed with you and (possibly) a few of
the business leaders from SEA and Pierce and Stevens.
<PAGE> 3
October 25, 1996 Page 3
Mr. Robert B. Covalt
President and Chief Executive Officer
Sovereign Specialty Chemicals, L.P.
Phase 2: Strategy Development
In Phase 2, we begin the process of translating our vision (what we want to
be/where we want to go) into strategies (how we are going to get there).
Depending on the results from the vision workshop, we may choose to use several
smaller working meetings to focus on specific strategy issues. For example, it
may be desirable to develop strategies for rejuvenation of the current product
line in one working session and strategies for accelerating growth in a second
working session. Strategy development requires that the business(es) have access
to good competitive and market information. If there are gaps in this
information base, particularly in the area of customer needs analysis, it is
most useful to fill in these gaps prior to strategy development. During these
working session, we will focus on Sovereign capabilities (and gaps) to execute
successful strategies. Our goal is to outline a statement of strategic direction
with investment priorities.
Today's strategies are both simpler in their focus and more complex in their
execution. That is, successful strategies today don't try to promise all things
to all people; they try to be more selective by emphasizing differences among
competitors. On the other hand, it is no longer possible to play a high-value
niche strategy against a low-value commodity strategy. Customers want both value
and price. Customer tailoring is also more prevalent leading to the challenge of
achieving simplicity with customization. These are issues we will explore in the
strategy working sessions. We will do this using segmentation, value chain and
competitive analysis tools to help us understand the options available.
Phase 3: Action Plan and Opportunity Screening
In Phase 3, we begin the process of implementation, which should include both
and internal work plan as well as an external work plan. Building on the
strategies completed in Phase 2, the internal plan covers functional and
business resource allocation and organization. The external plan will most
likely be built around your current acquisition candidate screening and
evaluation, as modified by the vision work completed in Phase 1. Any external
consulting support during this phase will be determined by specific tasks which
you may identify rather than a single, comprehensive program.
Benefits
A sound vision is an essential ingredient for growth. First, it serves to
motivate people by providing a goal and gets people moving together towards that
goal. Second, it allows a business to make informed decisions about new
opportunities. Managers can be more selective about which opportunities to
pursue and why. Finally, for a new company, a vision communicates to
<PAGE> 4
October 25, 1996 Page 4
Mr. Robert B. Covalt
President and Chief Executive Officer
Sovereign Specialty Chemicals, L.P.
its customers and the financial community a compelling story regarding its
contribution to the market and its value to stakeholders.
Unfortunately, vision alone is insufficient to produce an effective strategy.
The vision must fit the business and fit the business environment. Understanding
the capabilities required for succeeding in your chosen vision and having
confidence that the vision can withstand changes in the external environment are
important assessments along the path to strategy.
The deliverables from this assignment will be the edited notes from the vision
workshop and summary presentation which highlights the vision together with an
assessment of the skills and capabilities Sovereign has and needs to build to be
successful. Finally, we will work with you to develop and support the compelling
story which goes with the vision.
Project Schedule
We propose to begin work in December with management interviews and recommend
scheduling the vision workshop in early January. We should have a preliminary
document ready for review two weeks later and, following receipt of your
comments, a final presentation completed in February.
Managing the Project
I will assume overall responsibility for managing this project. Working with me
will be one or two other professionals with backgrounds appropriate to this
work. These professionals will assets me in preparing information and analysis
in advance of the workshops and supporting me during the workshops. This support
is particularly important in order to meet the project schedule discussed above.
Professional Fees and Expenses
For the work outlined above in Phase 1, we propose that you authorize a budget
for professional services of approximately $40,000. Related expenses, which may
include travel, materials and supplies, taxes, or other items directly related
to this project, will be billed in addition to the professional service charge
and shown as a separate figure. Upon execution of this agreement we will submit
an initial invoice for $15,000. One month after beginning our work, we will
submit a second invoice for $15,000, plus expenses. Within 30 days of the
completion of our work, we will submit a final invoice for any charges that may
be due. If the duration of the work differs from that indicated above, there may
be additional invoices prior to the final. Our invoices are payable upon
receipt.
<PAGE> 5
October 25, 1996 Page 5
Mr. Robert B. Covalt
President and Chief Executive Officer
Sovereign Specialty Chemicals, L.P.
Garnett Consulting is pleased to offer a satisfaction guarantee in the form of
an optional payment on the final 10% of the estimated professional service fee.
You may pay this final invoice only if you are completely satisfied with the
work we have completed. This amount ($4,000) will be noted in the final invoice
and accompanying letter.
Although we feel the proposed time and cost are adequate to bring the program to
a successful conclusion, completion within these limits depends not only on
daily developments in the work, but also on changes in the direction of the work
as dictated by your needs or desires. We will bring to your attention, as soon
as recognized, any factors that will affect these estimates.
<PAGE> 6
October 25, 1996 Page 6
Mr. Robert B. Covalt
President and Chief Executive Officer
Sovereign Specialty Chemicals, L.P.
Acceptance
We appreciate the opportunity to work with you on this important assignment,
which will be carried out in accordance with the attached General Provisions. To
authorize us to proceed with this work, please sign and return one copy of this
proposal.
Very truly yours,
/s/ Karl D. Loos
Karl D. Loos
President
Letter in duplicate
Attachment
Accepted for
Sovereign Specialty Chemicals, L.P.
By /s/ Robert B. Covalt
--------------------------------
Title Chairman, President & CEO
------------------------------
Date
--------------------------------
<PAGE> 7
ATTACHMENT
GENERAL PROVISIONS
Our ability to carry out the work required is heavily dependent upon our past
experience in providing similar services to others, and we expect to continue
such work in the future. We will, however, preserve the confidential nature of
information received from you or developed during the work in accordance with
our Established Professional Standards.
Either party may use the name of the other for advertising or promotional
purposes with prior written permission. It is understood that work products
resulting from this assignment are intended for your internal use and are not to
be used in whole or in part outside your organization. External use of our work
products will require our prior written approval. All work products approved for
external use will contain a notice that describes or limits the conditions under
which the work products can be distributed and/or used.
Our work will be performed on a best efforts basis consistent with that degree
of skill and care normally exercised by consulting firms performing services of
a similar nature. Our total liability arising out of or in connection with the
results of our work or any recommendations made pursuant to this Agreement shall
not exceed the total compensation paid to us, and you hereby agree to release,
indemnify, and hold us harmless from and against any costs or liability in
excess thereof (including claims against us by third parties). We shall not be
liable for any indirect, consequential, special, or incidental losses or
damages.
This agreement (including resolution of any disputes arising hereunder) will be
governed by and interpreted according to the laws of the Commonwealth of
Massachusetts.
<PAGE> 8
Sovereign Specialty Chemicals
Visioning Workshop
Proposed Agenda
1. Introduction: What is a vision, why do I need it, how do I get one?
o Objectives for the workshop
o The vision process: where are we today and where are we going?
o Meeting management
2. Session 1: Who is Sovereign Specialty Chemical anyway?
o Sovereign strengths and weaknesses
o Leverageable skills and capabilities
o Critical issues to be addressed
3. Session 2: Where is the adhesives and coatings industry headed?
o Industry segmentation and definition
o Key competitors and their strategies
o Driving forces and industry trends
o Possible scenarios and paths to the future
4. Vision Alternatives
o Identify attractive position(s) in each scenario
o Skills required to achieve attractive position in each
scenario
o Fit with Sovereign strengths, weaknesses and capabilities
o Evaluation of alternatives
5. Wrap-up
o What are the take-away messages?
o How has this workshop changed/confirmed your ideas about the
future for Sovereign?
<PAGE> 9
February 17, 1997
Mr. Robert B. Covalt
Chairman, President and CEO
Sovereign Specialty Chemicals, L.P.
225 West Washington Street
Suite 2200
Chicago, Illinois 60606
Dear Bob:
I am pleased to submit this proposal to work with Sovereign on the development
of a business strategy for Industrial Adhesives. This proposal follows from our
meeting on January 30 at which time you concluded that Industrial Adhesives was
the most appropriate business to begin Phase 2 of the strategy development
process. There were several reasons supporting this conclusion. First, although
not a new activity at Sovereign, Industrial Adhesives is in the process of being
organized as a business unit. As a new business, there is no ongoing business
plan; thus, there is an immediate need to develop a strategy. Second, at the
vision workshop in January, there was widespread support that Industrial
Adhesives could contribute significantly to the growth of Sovereign. Finally,
Industrial Adhesives provides a good opportunity to set the standards for
strategic planning that other Sovereign businesses can follow.
Objective
Our primary objective is to prepare a strategic planning document that will
guide the management, investment and growth of the Industrial Adhesives
business. We will complete this work in three parts: the Situation Analysis,
which includes the development and analysis of information about the industry,
the markets, and yourself; the Strategic Characterization, which includes the
synthesis of information and analysis to identify industry and market
opportunities; and Strategy Selection, which includes the formation and
evaluation of strategy alternatives. Figure 1, below (and also attached to this
letter) provides additional information on the Strategy Development phase of
work.
As a secondary objective, we will use this work to prepare a model of the
strategic planning process for Sovereign. This model will include both a
structure (what to do) as well as a process (how to do it). This is important
because our experience suggests that successful strategies are best developed
with direct participation by managers responsible for their implementation. This
participation is important for both understanding and, more importantly,
commitment.
<PAGE> 10
February 17, 1997 Page 2
Mr. Robert B. Covalt
President and Chief Executive Officer
Sovereign Specialty Chemicals, L.P.
Scope and Approach
As you may recall from our recently completed work, Vision definition is the
first phase of the strategy process which also includes business unit strategy
development and implementation planning. As a point of reference, I have
reprinted the overall process on the next page.
In Phase 2, we begin the process of translating our vision (what we want to be)
into strategies (how we are going to get there). Today's strategies are both
simpler in their focus and more complex in their execution. That is, successful
strategies today don't try to promise all things to all people; they try to be
more selective by emphasizing differences among competitors. On the other hand,
it is no longer possible to play a high-value niche strategy against a low-
value commodity strategy. Customers want both value and price. Customer
tailoring is also more prevalent leading to the challenge of achieving
simplicity with customization. These are some of the issues we will explore in
strategy working sessions which are the core of Phase 2.
Strategy development requires that the business have access to good competitive
and market information. If there are gaps in this information base, particularly
in the area of customer needs analysis, it is important to fill these gaps prior
to preceding with strategy working sessions. During these working sessions, we
will also focus on Sovereign's capabilities (and gaps) to execute successful
strategies. Thus, an honest self assessment of these capabilities will be
required.
The first part of strategy development, the Situation Analysis addresses these
information requirements. Based on my earlier meetings with Brian Dorenkott and
Kathy Gibbons, it is likely that a good deal of information may have already
been developed. At our first meeting with the business team (a group of three to
four people is a good number to work with), we will review the information,
discuss industry segmentation and agree on an industry model to focus our work.
This model may change as we learn more about the business and formulate
strategic options, but it should serve as a useful starting point. We will also
provide you with guidelines for analyzing competitor and customer information
and will work with you as required to complete the analysis. As we near the
conclusion of this part of the work, we will review the analyses and determine
if there are important gaps and agree on an approach to obtaining what is
required to continue with strategy development.
I should point out that the information we are seeking is for strategy
development; as such, too much detail can be as harmful as too little detail.
Our objective is to develop accurate information about the competitors and
customers who influence the industry and our strategy. In most assignments we
employ the "80/20" rule; that is, developing 80% of the information probably
takes 20% of the time and provides sufficient value for strategy planning. In
some
<PAGE> 11
February 17, 1997 Page 3
Mr. Robert B. Covalt
President and Chief Executive Officer
Sovereign Specialty Chemicals, L.P.
critical situations we may need to develop a more detailed understanding, but
the majority of the time, 80% is fine. Near the end of this work and at least
one week in advance of the Strategic Characterization workshop, we will schedule
a one day meeting to review the information package. If we identify important
gaps, we will agree on an approach to obtaining what is needed to continue.
In the second part of this process, Strategic Characterization, we will conduct
a one-day workshop with the business team to identify strategic options for
Industrial Adhesives. In the morning, we will build on the Situation Analysis
and address topics such as: what are the forces driving industry change; what
are the sources of value added in this industry for the customer as well as for
Sovereign; and, what customer needs are being met, and not met, effectively by
competitors.
These discussions will lead to the identification of "opportunity spaces" in the
industry. In the afternoon, we will develop business concepts for each
opportunity and define the key success factors. These concepts will become the
raw material for developing and analyzing strategic options.
In the third part of the process, Strategy Selection, we will again meet in a
one-day workshop to evaluate and select strategic options. In the time between
the two workshops, team members will be assigned responsibility for developing
each strategic option with enough detail to be able to evaluate its
attractiveness, fit and feasibility. At the workshop, we will establish
screening criteria which will be used to rank order the options. (This is not a
straight-forward process because of the trade-offs which are likely to be
encountered in this evaluation.) With two or three preferred options, we will
develop leadership strategies and discuss risk and reward as well as industry
conditions that would make our options more or less attractive. Based on this
last assessment, we will choose one strategy and hold the remaining "preferred"
strategies in reserve. Finally, time permitting, we will consider functional
implications for selecting the strategy. That is, what must be done in
marketing, sales, manufacturing, product development and management to move
ahead.
Garnett Consulting will document the output of each workshop and prepare a final
working paper on the strategy selected for Industrial Adhesives. We will also
document the structure and process for strategy development which should serve
as a guide for other Sovereign business.
<PAGE> 12
February 17, 1997 Page 4
Mr. Robert B. Covalt
President and Chief Executive Officer
Sovereign Specialty Chemicals, L.P.
Working with Garnett Consulting
We recognize your interest in working through this process efficiently and
effectively. To the extent possible, we will make use of information you have
readily available about the industry and the markets. Our primary role in this
assignment is to act as a facilitator during the meetings, provide guidance and
input on the development and evaluation of strategy options and support you
wherever it makes sense to meet schedule deadlines. We are prepared to support
you beyond this level, but that support will be at your direction and a budget
we jointly agree is appropriate.
Project Schedule
We can start work in early March with a meeting of the Industrial Adhesives
business team to review information and begin work on the Situation Analysis.
Assuming timely completion of this work, we may be able to schedule a working
session for Strategic Characterization in late March or early April. The second
workshop should follow two weeks later and the final strategy documents should
be ready in late April or early May.
Managing the Project
I will assume overall responsibility for managing this project. Working with me
will be Julie Lang as well as one or two other professionals with backgrounds
appropriate to this work. These professionals will assist us in preparing
information and analysis in advance of the workshops and supporting me during
the workshops. This support is particularly important in order to meet the
project schedule discussed above.
Professional Fees and Expenses
For the work outlined above we propose that you authorize a budget for
professional services of approximately $55,000. Related expenses, which may
include travel, materials and supplies, contract information services, report
reproduction, taxes, or other items directly related to this project, will be
billed at cost in addition to the professional service charge and shown as a
separate figure. A communications charge, equal to 3% of professional services,
will be included as an expense and shown as a separate item. This charge
includes telephone, fax, postage and express delivery charges as well as
electronic and day-to-day business communications.
Upon execution of this agreement we will submit an initial invoice for $15,000.
Thereafter, we will submit our invoices monthly for professional services and
expenses, as incurred. That is, we will invoice you monthly only for the work
that we actually perform on your behalf. We will
<PAGE> 13
February 17, 1997 Page 5
Mr. Robert B. Covalt
President and Chief Executive Officer
Sovereign Specialty Chemicals, L.P.
review all charges with you monthly (or more frequently if required) to
be certain we are meeting your requirements for deliverables within the agreed
upon budget. Within 30 days of the completion of our work, we will submit a
final invoice, adjusted for all prior payments, for any charges that may be due.
If the duration of the work differs from that indicated above, there may be
additional invoices prior to the final. Our invoices are payable upon receipt.
Garnett Consulting is pleased to offer a satisfaction guarantee in the form of
an optional payment on the final 10% of the estimated professional service fee.
You may pay this final invoice only if you are completely satisfied with the
work we have completed. This amount ($5,500) will be noted in the final invoice
and accompanying letter.
Although we feel the proposed time and cost are adequate to bring the program to
a successful conclusion, completion within these limits depends not only on
daily developments in the work, but also on changes in the direction of the work
as dictated by your needs or desires. We will bring to your attention, as soon
as recognized, any factors that will affect these estimates.
<PAGE> 14
February 17, 1997 Page 6
Mr. Robert B. Covalt
President and Chief Executive Officer
Sovereign Specialty Chemicals, L.P.
Acceptance
We appreciate the opportunity to work with you on this important assignment,
which will be carried out in accordance with the attached General Provisions. To
authorize us to proceed with this work, please sign and return one copy of this
proposal.
Very truly yours,
/s/ Karl D. Loos
- ---------------------
Karl D. Loos
President
Letter in duplicate
Attachment
Accepted for
Sovereign Specialty Chemicals, L.P.
By: /s/ Robert B. Covalt
----------------------------------
Title: Chairman, President & CEO
-------------------------------
Date:
---------------------------------
<PAGE> 15
September 8, 1997
Mr. Robert B. Covalt
Chairman, President and CEO
Sovereign Specialty Chemicals, L.P.
225 West Washington Street
Suite 2200
Chicago, Illinois 60606
Dear Bob:
It was good to meet with you last week and even though our agenda was partially
preempted by the Board teleconference, we were able to cover the highlights from
our work in both Industrial Adhesives and Graphic Arts (now know as Overprint
Coatings).
As we discussed briefly on Wednesday, I have prepared invoices for the work
completed over the last month. First, we have effectively completed the work in
Overprint Coatings (pending your review of the final strategy). The enclosed
invoice reflects the final payment for professional services on this project at
the budgeted level of $35,000. According to the contract terms, you may withhold
up to 10% of this value ($3,500) until you are completely satisfied with the
results of our work. I would like to note that our ability to meet the schedule
and budget has been closely linked to Mark Creighton's commitment to this
strategy process.
Our progress in Industrial Adhesives is another matter. As you know, this
project has taken longer and required more work on our part than originally
budgeted. There are two reasons for this. First, the quality and availability of
information about Sovereign's performance as well as the markets slowed our
analysis and ultimately required us to complete two Business Performance
Analyses, one for 1996, using RMO, and a second one for 1997, using Gross
Profit. Second, it required several meetings before the combined SEA/P&S team
began to function as a team. Appointing Gerry as the responsible leader helped a
great deal, but even today this is a business with more individual goals than
team goals.
Although we have completed our billing for the original budget, I would like to
ask your consideration for increasing the budget given the points outlined
above. Through June and July, we accrued about $20,000 more than we billed for
services. Given the circumstances, I should absorb about half that amount as
part of the normal business risk of working with clients. In addition, we
continued to work with the Industrial Adhesives team in August and are committed
to a final review in September. This final work will require $10-$15,000 to
complete. In total, I am requesting an increase in the budget form $55,000 to
$75,000 for Industrial Adhesives.
<PAGE> 16
September 8, 1997 Page 2
Mr. Robert B. Covalt
Chairman, President and CEO
Sovereign Specialty Chemicals, Inc.
I have prepared an invoice for Industrial adhesives which shows the additional
billing for June and July ($10,000) plus the work completed in August ($5,000).
The final $5,000 will be billed at the end of September, pending your final
review of our strategy. I will be traveling until September 22, but will call
you upon my return to discuss this with you in more detail.
Very truly yours,
/s/ Karl D. Loos
- ------------------------
Karl D. Loos
President
<PAGE> 17
June 24, 1997
Mr. Robert B. Covalt
Chairman, President and CEO
Sovereign Specialty Chemicals, L.P.
225 West Washington Street
Suite 2200
Chicago, Illinois 60606
Reference: 04-003
Dear Bob:
I am pleased to submit this proposal confirming our work with Sovereign on the
development of a strategy for the Graphic Arts business. This proposal (and our
ongoing work) follows from our discussions earlier this Spring at which time you
concluded that market changes affecting the Graphic Arts business made this a
timely undertaking.
Objective
Our primary objective is to prepare a strategic planning document that will
guide management and investment decisions for the Graphics Arts business. We
will complete this work in three parts: the Situation Analysis, which includes
the development and analysis of information about the industry, the markets, and
yourself; the Strategic Characterization, which includes the synthesis of
information and analysis to identify industry and market opportunities; and
Strategy Selection, which includes the formation and evaluation of strategy
alternatives.
We will build on the work underway for Industrial Adhesives, following a similar
process and working with the management of the business to learn from their
experience and build their commitment to achieve successful implementation. The
details of this approach were included in my proposal letter to you (dated
February 17) for the Industrial Adhesives strategy.
Strategic Issues
Pierce & Stevens (P&S) is a leader in the supply of radiation cured coatings to
the graphic arts industry. Historically, this has been a profitable, high growth
business in which P&S had a strong market position supported by a strong
technical service. Two developments have changed the outlook for P&S in this
market. First, printing practices and technology have changed, making the role
of the service coater, Pierce & Stevens' primary customer group, more
competitive. This customer group has in turn put pricing pressure on P&S where
there had been little pressure in the past. Second, advances in water based
coatings have made their
<PAGE> 18
June 24, 1997 Page 2
Mr. Robert B. Covalt
Chairman, President and CEO
Sovereign Specialty Chemicals, Inc.
performance nearly equal to radiation cured coatings, providing a viable product
alternative to the more expensive radiation cured coatings and opened up
competition to a larger group of suppliers.
At the same time, P&S has been exploring opportunities in market areas outside
of graphic arts (e.g., metal coating). The strategic dilemma is how should P&S
position itself for growth, as a supplier of products to the graphic arts market
or as a supplier of radiation cured coatings to all markets (except furniture
which is restricted by the purchase agreement with Sherwin Williams)?
For this assignment, we will be working directly with Mark Creighton and Rick
Johnston and keeping John Edholm involved as we progress. Mark has already
prepared an excellent first draft of the Situation Analysis based on his
knowledge of and supplementary research on the graphic arts industry and
radiation cured coatings. We will make good use of this information as we plan
for the strategic characterization phase of work in July. At that time, we will
consider a range of options including exiting the business.
Following our past practice, we will organize our work around working sessions
as the primary strategy development tool. Garnett Consulting will document the
output of each working session and prepare a final working paper on the strategy
selected.
Working with Garnett Consulting
We recognize your interest in working through this process efficiently and
effectively. To the extent possible, we will make use of information you have
readily available about the industry and the markets. Our primary role in this
assignment is to act as a facilitator during the meetings, provide guidance and
input on the development and evaluation of strategy options and support you
wherever it makes sense to meet schedule deadlines. We are prepared to support
you beyond this level, but that support will be at your direction and a budget
we jointly agree is appropriate.
Project Schedule
We started work in late April by meeting with John Edholm, Rick Johnston and
Mark Creighton to request initial development of information for the situation
analysis. This has since been completed by mark and reviewed with Garnett. We
have also laid out our initial understanding of the pros and cons of focusing a
strategy on either graphic arts or radiation cured coatings. We will target a
strategy characterization workshop in July to identify options and a final
meeting in August to evaluate options and develop a five-year plan.
<PAGE> 19
June 24, 1997 Page 3
Mr. Robert B. Covalt
Chairman, President and CEO
Sovereign Specialty Chemicals, Inc.
Managing the Project
I will assume overall responsibility for managing this project. Working with me
will be Julie Lang as well as one or two other professionals with backgrounds
appropriate to this work. These professionals will assist us in preparing
information and analysis in advance of the workshops and supporting me during
the workshops. This support is particularly important in order to meet the
project schedule discussed above.
Professional Fees and Expenses
For the work outlined above we propose that you authorize a budget for
professional services of approximately $35,000. Related expenses, which may
include travel, materials and supplies, contract information services, report
reproduction, taxes, or other items directly related to this project, will be
billed at cost in addition to the professional service charge and shown as a
separate figure. A communications charge, equal to 3% of professional services,
will be included as an expense and shown as a separate item. This charge
includes telephone, fax, postage and express delivery charges as well as
electronic and day-to-day business communications.
We will submit our invoices monthly for professional services and expenses, as
incurred. That is, we will invoice you monthly only for the work that we
actually perform on your behalf. We will review all charges with you monthly (or
more frequently if required) to be certain we are meeting your requirements for
deliverables within the agreed upon budget. Within 30 days of the completion of
our work, we will submit a final invoice, adjusted for all prior payments, for
any charges that may be due. If the duration of the work differs form that
indicated above, there may be additional invoices prior to the final. Our
invoices are payable upon receipt.
Garnett Consulting is pleased to offer a satisfaction guarantee in the form of
an optional payment on the final 10% of the estimated professional service fee.
You may pay this final invoice only if you are completely satisfied with the
work we have completed. This amount ($3,500) will be noted in the final invoice
and accompanying letter.
Although we feel the proposed time and cost are adequate to bring the program to
a successful conclusion, completion within these limits depends not only on
daily developments in the work, but also on changes in the direction of the work
as dictated by your needs or desires. We will bring to your attention, as soon
as recognized, any factors that will affect these estimates.
<PAGE> 20
June 24, 1997 Page 4
Mr. Robert B. Covalt
Chairman, President and CEO
Sovereign Specialty Chemicals, Inc.
Acceptance
We appreciate the opportunity to work with you on this important assignment,
which will be carried out in accordance with the attached General Provisions. To
confirm your authorization for this work, please sign and return one copy of
this proposal.
Very truly yours,
/s/ Karl D. Loos
- --------------------
Karl D. Loos
President
Letter in duplicate
Attachment
Accepted for
Sovereign Specialty Chemicals, L.P.
By /s/ Robert B. Covalt
---------------------------------------
Title Chairman, President & CEO
------------------------------------
Date
--------------------------------------
<PAGE> 21
ATTACHMENT
GENERAL PROVISIONS
Our ability to carry out the work required is heavily dependent upon our past
experience in providing similar services to others, and we expect to continue
such work in the future. We will, however, preserve the confidential nature of
information received from you or developed during the work in accordance with
our Established Professional Standards.
Either party may use the name of the other for advertising or promotional
purposes with prior written permission. It is understood that work products
resulting from this assignment are intended for your internal use and are not to
be used in whole or in part outside your organization. External use of our work
products will require our prior written approval. All work products approved for
external use will contain a notice that describes or limits the conditions under
which the work products can be distributed and/or used.
Our work will be performed on a best efforts basis consistent with that degree
of skill and care normally exercised by consulting firms performing services of
a similar nature. Our total liability arising out of or in connection with the
results of our work or any recommendations made pursuant to this Agreement shall
not exceed the total compensation paid to us. and you hereby agree to release,
indemnify, and hold us harmless from and against any costs or liability in
excess thereof (including claims against us by third parties). We shall not be
liable for any indirect, consequential, special, or incidental losses or
damages.
This agreement (including resolution of any disputes arising hereunder) will be
governed by and interpreted according to the laws of the Commonwealth of
Massachusetts.
<PAGE> 1
Exhibit 10.11
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement (this "Agreement") is made as of
July 31, 1997, by and among Sovereign Specialty Chemicals, L.P., a Delaware
limited partnership (the "Partnership"), Sovereign Specialty Chemicals
Corporation (the "General Partner") and Sovereign Specialty Chemicals, Inc., a
Delaware corporation (the "Corporation").
WHEREAS, the Partnership and the General Partner wish to assign certain
assets and all of their rights, interests and obligations under certain
contracts to the Corporation;
WHEREAS, the Corporation wishes to assume the obligations of the
Partnership and the General Partner under such contracts.
NOW THEREFORE, the parties hereto agree as follows:
1. Assignment. The Partnership and the General Partner hereby assign to
the Corporation the following assets and all of the Partnership's and the
General Partner's rights, interests and obligations under any of the following
contracts:
(a) the Lease among the Partnership and Corporate Center Executive
Suites of the Partnership's and the Corporation's offices located at 225
West Washington Street, Suite 2200, Chicago, Illinois 60606;
(b) the Employment Agreement, dated as of March 31, 1996 among the
Partnership, the General Partner and Robert B. Covalt;
(c) the Employment Agreement, dated as of March 31, 1996 among the
Partnership, the General Partner and William T. Schram;
(d) the Employment Agreement, dated as of June 1, 1997 among the
Partnership, the General Partner and Stephen J. Zavodny;
(e) the Consulting Agreements between the Partnership and each of
(i) Neal Reddeman, (ii) Karl Loos and (iii) Martyn Howell-Jones;
(f) any other employment or consulting agreements entered into by
the Partnership or the General Partner on or prior to the date hereof;
(g) all of the capital stock of Sovereign Specialty Chemicals (SPte.
Ltd.), a corporation organized under the laws of Singapore owned by the
Partnership; and
<PAGE> 2
(h) (i) the Executive Note issued on July 31, 1997 to the
Partnership by Robert Covalt in the principal amount of $1,829,531, (ii)
the Executive Note issued on July 31, 1997 to the Partnership by William
Schram in the principal amount of $20,896, (iii) the Executive Note issued
on July 31, 1997 to the Partnership by William Schram in the principal
amount of $120,758, (iv) the Executive Note issued on July 31, 1997 to the
Partnership by Louis Pace in the principal amount of $45,000 and (v) the
Executive Note issued on July 31, 1997 to the Partnership by Stephen
Zavodny in the principal amount of $13,500.
2. Assumption. The Corporation hereby assumes all obligations, including
but not limited to obligations to make lease, salary or consulting fee payments,
of the General Partner and the Partnership under all of the agreements specified
in paragraph 1.
3. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same agreement.
* * * * *
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement as of July
31, 1997.
SOVEREIGN CHEMICALS CORPORATION
By: /s/ Robert B. Covalt
---------------------------------------------
Its: Chairman, Chief Executive Officer & President
---------------------------------------------
SOVEREIGN SPECIALTY CHEMICALS, L.P.
By: Sovereign Chemicals Corporation
Its: General Partner
By: /s/ Robert B. Covalt
---------------------------------------------
Its: Chairman, Chief Executive Officer & President
---------------------------------------------
SOVEREIGN SPECIALTY CHEMICALS, INC.
By: /s/ Robert B. Covalt
---------------------------------------------
Its: Chairman, Chief Executive Officer & President
---------------------------------------------
3
<PAGE> 1
Exhibit 10.12
MANAGEMENT INCENTIVE PLAN
SOVEREIGN SPECIALTY CHEMICALS, L.P.
FOR PERIOD 1 JANUARY THROUGH 31 DECEMBER 1997
PURPOSE
The compensation strategy of Sovereign Specialty Chemicals, L.P. ("Sovereign" or
the "Company") is to reward its senior management employees in a manner that
permits the Company to attract, retain and motivate outstanding individuals.
The Sovereign Management Incentive Plan ("MIP") is designed to compensate key
managers for achieving annual Company objectives as well as for individual
contributions toward accomplishing these objectives. The Plan aligns the
interests of the Company's senior managers with the objectives and goals of the
Company.
ELIGIBILITY
Eligibility for the MIP is limited and will typically include those positions
which have a significant effect on the Company's growth and financial results.
Eligible positions and target bonus amounts will be recommended each year by the
CEO, reviewed by the Compensation Committee and approved by the Board of
Directors and may change from year to year. Participants must be full time
employees of Sovereign.
The eligible positions and participants will be reviewed annually.
Recommendations will be made by the CEO, reviewed by the Compensation Committee
and approved by the Board. Potential positions and participants will typically
include the Chief Executive Officer and senior managers of the Company;
participation is not intended to be limited to corporate officers.
TARGET BONUS
Each MIP participant will be eligible for bonus awards based on company
financial performance and on individual performance. For each participants,
there will be a target bonus award ("Target Bonus") equal to an established
percentage ("Target Bonus Percentage") (See Table 1) of each participant's base
salary ("Base Salary"). The Target Bonus will be awarded upon achievement of
Board-approved financial targets (See Table 11) and the satisfactory evaluation
of an individual for an award based on role specific goals. Awards may be higher
or lower than the Target Bonus as the company and/or individual performance is
above or below the level expected to achieve the Target Bonus. Base Salary for
Target Bonus is the participant's salary on 1 April 1997 or following a
promotional increase during 1997; or on the date during 1997 that the
participant is admitted as a participant in the MIP.
The Target Bonus components are described below and are shown on Enclosure 1 of
the attachment, corresponding to each individual participant in the Management
Incentive Plan.
<PAGE> 2
INCENTIVE COMPONENTS
FINANCIAL TARGETS
A. Revenue Bonus Component.
Participants will have a specified percentage of
their Target Bonuses, as determined annually by the
Compensation Committee and approved by the Board,
based on achieving certain revenue-related goals for
the company (the "Revenue Bonus").
No Revenue Bonus will be awarded unless at least 90%
of the Target Company Revenue has been achieved
(Target Company Revenue, as shown in Table 11 will be
referred to as "Target Revenue"). Upon the
achievement of 90% of Target Revenue, a participant
will earn 50% of his or her Revenue Bonus. Between
90% and 100% of Target Revenue the participant's
bonus will increase proportionately from 50% to 100%
of Revenue Bonus. Between 100% and 115% of Target
Revenue the participant's Revenue Bonus will increase
proportionally from 100% to 202% of Revenue Bonus.
B. Profit Bonus Component.
Participants will have a specified percentage of
their Target Bonuses, as determined annually by the
Compensation Committee and approved by the Board,
based on achieved certain profit-related goals for
the entire company as well as individual profits and
loss responsibilities if appropriate, measures as:
Earnings Before Interest, Taxes, Depreciation and
Amortization ("EBITDA"), cash flow, and/or other (the
"Profit Bonus").
ROLE SPECIFIC GOALS
The non-financial (Role Specific) portion of a participant's bonus will be
determined at the discretion of the Board of Directors (including the
recommendation of a participant's supervisor and the Compensation Committee)
taking into account factors such as the following: specifically defined
objectives, safety and environmental management, productivity, dealing with
issues and problems, demonstrated leadership, etc.
Role Specific Goal criteria for determination of the Bonuses for participants
are shown on Enclosure 1.
BONUS THRESHOLD(S)
Notwithstanding the above, no bonus under this plan will be earned (Revenue,
Profit or Discretionary Bonus) for the CEO, CFO, President of SEA and President
of P&S unless the cash flow threshold is attained (See Table II). The cash flow
threshold is made up of the cash flow from
-2-
<PAGE> 3
operations plus or minus the change in working capital for the 12 months ending
12/31/97. Further no financial (Revenue or Profit) Bonus will be paid to any
participating employee unless each individual element (Revenue and Profit)
reaches a 90% attainment level.
DETERMINATION OF AWARDS
After receipt of the audited financial statements for the year ending 12/31/97,
the Chief Executive Officer will submit to the Compensation Committee of the
Board of Directors his evaluation of the bonus earnings of each participant in
the Management Incentive Plan. The Board will make the final determination of
all awards. When a question arises regarding extraordinary gains or losses, for
example the impact of an acquisition (which would not have been included in the
calculation of Target Revenue or Target EBITDA), the Board will have sole
discretion in making adjustments to any earned bonus.
PAYOUTS AND NEW EMPLOYEES
The payor calculations will be reviewed by an independent accounting firm. This
accounting firm will then write a letter to the Board of Directors expressing
their opinion as to the accuracy of the calculation and the resulting payout
amounts. Earned awards will be paid no later than 15 days following the
regularly scheduled meeting of the Executive Committee of the Board of Directors
which follows the completion of the fiscal year end audit. This meeting is
scheduled to occur during the first week of March. A participant must be a full
time employee at the time awards are made in order to be eligible to receive a
payout.
DISABILITY, DEATH OR SPECIAL CIRCUMSTANCES
The Board of Directors is authorized to determine the entitlement of
participants who cease to be employed by the Company due to death, disability,
resignation, termination or retirement, the decisions of the Board may vary
depending upon the specific circumstances and the individual involved.
Also, the Board is authorized to determine the entitlement of participants who
joint the employ of the Company and are approved for participation in the plan
during an ongoing performance cycle. Generally, payouts for participants
employed for only a portion of the performance period will be prorated. However,
the Board at its discretion, may adjust prorated awards depended upon specific
circumstances and the contribution of the individual.
PLAN EXCEPTIONS AND ADMINISTRATION
All exceptions or modifications to the plan must be approved by the Board. All
decisions made by the Board will be final.
-3-
<PAGE> 4
DISCLAIMER
Participation in this plan is not to be construed as an employment contract or
employment agreement.
-4-
<PAGE> 1
EXHIBIT 10.13
SHORT-TERM INCENTIVE PLAN
PLAN DESIGN FEATURES
Performance measured at the Sovereign ("corporate"), company and location
levels
- Corporate and company performance measured by growth and improvement in
cash flow. For the first plan cycle, we recommend the following measures
for corporate and company performance.
- Revenue Growth
- Earnings before interest, taxes, depreciation and amortization
(EBITDA)
- Location/individual performance will be based on pre-established
location/individual objectives. The objectives should be role-specific,
measurable and produce high-impact results, e.g., systems development, cost
central, inventory management, special projects, etc.
<PAGE> 2
ALL-EMPLOYEE LONG-TERM INCENTIVE PLAN (CONT.)
PLAN DESIGN FEATURES (CONT.)
- All employees are eligible to participate in the plan with the exception of
executives who have been granted a significant long-term equity stake.
- Participants will be granted a phantom "participation share" in the
incentive award pool. Each "participation share" will have an expected
target value approximately equal to the participant's short-term incentive
target. For example:
Participant X
- Current Salary = $40,000
- Short-term incentive target = 10% of salary = $4,000
- Long-term incentive "participation share" = Short-term bonus target
-----------------------
Expected value Long-term incentive pool
= $ 4,000 = 0.30% of pool
----------
$1,350,000
If the value of the incentive pool is greater/less than the expected
target value, the value of each employee's "participation share" will be
greater/less than the target award value.
<PAGE> 3
ALL-EMPLOYEE LONG-TERM INCENTIVE PLAN (CONT.)
PLAN DESIGN FEATURES (CONT.)
- At IPO, the value of the long-term incentive pool is allocated to
participants based upon their "participation share" of total pool value.
- Earned awards are fully vested at payout.
- Payout will be in the form of stock options with an expected value equal
to the value of the "participation share" for each employee. The Board
of Directors will be authorized to make payments in stock, cash, or a
combination of stock and cash.
- If a participant leaves the company before an IPO transaction, the
participant forfeits their "participation share" in the long-term
incentive pool.
- If an individual joins the company during the plan cycle, the individual
may be permitted to participate in the plan on a pro rata basis, at the
discretion of the CEO and the Board of Directors.
- The Board of Directors will administer the plan and have the authority
and responsibility to approve award levels and make any changes to the
plan concept and design.
<PAGE> 4
OUR PAY-FOR-PERFORMANCE PROGRAM
Sovereign's compensation program will pay for successful individual and business
performance. The objectives of our compensation system are to:
- Reward and retain the best performers
- Pay competitively with the market based on your performance
- Pay fairly based on your value and contribution to the organization
- Foster and reward collaboration and group achievement
- Encourage employee ownership and loyalty
- Focus you on key measures of financial and operational success
- Reinforce our vision and values
The program can achieve these objectives only if you help us make it work by
understanding its components. After all, you and your team or work group produce
the business results that make it all possible. Here's a big picture.
WHAT MAKES UP MY COMPENSATION OPPORTUNITY*
ALL NON-UNION EMPLOYEES
SOVEREIGN'S ) ------- SALARY
COMPENSATION )
AND ) ------- BONUS OPPORTUNITY
RECOGNITION )-------------------
PROGRAM ) ------- EMPLOYEE RECOGNITION
IS ) PROGRAM
PAY FOR ) ------- LONG-TERM INCENTIVE
PERFORMANCE ) OPPORTUNITY
WHAT'S IT MEAN TO ME?
- A compensation program that delivers total pay above market median
if performance meets or exceeds target
- Salary based on individual performance job results and how you
achieve them
- Bonus tied directly to the successful performance of the business
and your achievement of individual objectives
- Long-term incentives, called phantom stock, that link you to the
future success of Sovereign
- Performance management process that encourages input and ties the
job results and competencies directly to your pay adjustment
- Formal Employee Recognition Program that rewards your sustained and
significant contributions to the organization
*TAKES EFFECT FOR ALL PIERCE & STEVENS NON-UNION, EXEMPT AND NON-EXEMPT STAFF ON
JANUARY 1, 1998.
<PAGE> 1
Exhibit 10.14
ASSET PURCHASE AGREEMENT
dated as of
March 31, 1996
among
THE B.F. GOODRICH COMPANY,
SOVEREIGN ENGINEERED ADHESIVES, L.L.C.
and
SOVEREIGN SPECIALTY CHEMICALS, L.P.
<PAGE> 2
TABLE OF CONTENTS
Page
----
I DEFINITIONS............................................................1
1.1 Accounts Receivable..............................................1
1.2 Accounts Payable.................................................1
1.3 Accrued Liabilities..............................................1
1.4 Agreement........................................................2
1.5 ASD Business.....................................................2
1.6 Assumed Liabilities..............................................2
1.7 Assumption Agreement.............................................2
1.8 Business.........................................................2
1.9 Business Assets..................................................2
1.10 Business Records.................................................2
1.11 Closing..........................................................3
1.12 Contracts........................................................3
1.13 Customer List....................................................3
1.14 Environmental Laws...............................................3
1.15 ERISA............................................................3
1.16 Equipment........................................................3
1.17 Excluded Assets..................................................4
1.18 Excluded Liabilities.............................................4
1.19 Facility.........................................................5
1.20 Facility Documents...............................................5
1.21 Governmental Authority...........................................5
1.21A Hazardous Materials..............................................5
1.22 Intellectual Property............................................6
1.23 Inventory........................................................6
1.24 Lien.............................................................6
1.25 Litigation.......................................................6
1.25A Material Adverse Effect or Material Adverse Change...............6
1.26 Ordinary Course of Business......................................6
1.27 Person...........................................................7
1.28 Personal Property................................................7
1.29 Prepaid Expenses.................................................7
1.30 Product Liability................................................7
1.31 Product Warranty Liability.......................................7
1.32 Products.........................................................7
1.33 Schedules........................................................8
1.34 Taxes............................................................8
1.35 Trademarks and Trade Names.......................................8
1.36 Licensed Technology..............................................8
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<PAGE> 3
II SALE OF ASSETS.........................................................9
2.1 Agreement to Sell Business Assets................................9
2.2 Assumption of Liability..........................................9
III PURCHASE PRICE.........................................................9
3.1 Purchase Price...................................................9
3.2 Closing Adjustment of the Purchase Price.........................9
3.3 Payment of Purchase Price.......................................10
3.4 Post-Closing Adjustment of the Purchase Price...................10
3.5 Allocation of Purchase Price to Business Assets.................11
IV REPRESENTATIONS AND WARRANTIES OF SELLER..............................12
4.1 Organization, Standing, and Qualification.......................12
4.2 Authorization; Non-contravention................................12
4.3 Financial Statements............................................13
4.4 Taxes...........................................................13
4.5 Governmental Permits............................................14
4.6 Compliance with Laws............................................14
4.7 Schedule of Certain Assets......................................15
4.8 Litigation and Claims...........................................16
4.9 Enforceability..................................................16
4.10 Title...........................................................16
4.11 Collective Bargaining Agreements................................17
4.12 Employees.......................................................17
4.13 Employee Benefits...............................................18
4.14 ERISA Compliance................................................18
4.15 Environmental Matters...........................................18
4.16 Commissions and Fees............................................21
4.17 Absence of Change or Events.....................................21
4.18 Intellectual Property...........................................22
4.19 Insurance.......................................................23
4.20 Accounts Receivable.............................................23
4.21 Inventory.......................................................23
4.22 Warranties......................................................23
4.23 Customers and Suppliers.........................................24
4.24 Limitation on Representations, and Warranties...................24
V REPRESENTATIONS AND WARRANTIES OF PURCHASER...........................25
5.1 Organization and Standing.......................................25
5.2 Authority.......................................................26
5.3 No Brokers......................................................27
5.4 Non-contravention...............................................27
5.5 Governmental Consents, etc......................................27
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<PAGE> 4
5.6 Legal Proceedings...............................................28
5.7 Financing.......................................................28
5.8 Disclosure......................................................28
5.9 Ongoing Business................................................29
VI COVENANTS.............................................................29
6.1 Confidentiality.................................................29
6.2 Access to Information...........................................30
6.3 Employees; Employee Benefits....................................30
6.4 Wage Reporting..................................................36
6.5 Workers Compensation............................................37
6.6 Conduct of ASD Business.........................................37
6.7 Material Changes................................................37
6.8 Best Efforts....................................................38
6.9 Prorations and Transfer Taxes...................................39
6.10 Assumption of Liabilities.......................................39
6.11 Access to Information After the Closing.........................42
6.12 Taxes...........................................................43
6.13 Seller's Identification.........................................43
6.14 Removal of Seller's Identification..............................43
6.15 Office Supplies.................................................44
6.16 Trademarks, Trade Names, and Technology Acquired By Purchaser...44
6.17 Post-Closing Supply Agreements..................................44
6.18 Post-Closing Issues.............................................44
VII CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS.......................45
7.1 Representations and Warranties..................................45
7.2 Obligations.....................................................45
7.3 Certificate.....................................................45
7.5 HSR Filing......................................................46
7.6 Completion of Environmental Audit...............................46
VIII CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS..........................46
8.1 Representations and Warranties..................................47
8.2 Obligations.....................................................47
8.3 Certificates....................................................47
8.4 No Legal Action.................................................47
8.5 HSR Filing......................................................48
8.6 Completion of Environmental Audit...............................48
IX CLOSING...............................................................48
9.1 Closing.........................................................48
9.2 Seller's Obligations............................................48
9.3 Purchaser's Obligations.........................................49
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<PAGE> 5
9.4 Additional Acts and Documents...................................50
9.5 Consent and Approvals...........................................51
9.6 Accounts Receivable.............................................52
9.7 Exhibited Documents and Schedules...............................52
X ADDITIONAL COVENANTS..................................................52
10.1 Payment of Assumed Liabilities..................................52
10.2 Payment of Excluded Liabilities.................................52
10.3 Seller's Non-Competition Covenant...............................52
10.4 Continued Business Activity.....................................53
10.5 Environmental Audit and Liabilities.............................54
10.6 Taxes...........................................................54
XI INDEMNIFICATION.......................................................55
11.1 Indemnification by Purchaser....................................55
11.2 Indemnification by Seller.......................................56
11.3 Procedure for Indemnification...................................58
11.4 Period of Seller's Indemnity....................................59
11.5 Limitation of Liability.........................................59
11.6 Exclusive Remedy; Survival......................................60
11.7 Special Defense Provisions......................................60
11.8 Special Indemnification by Seller...............................61
11.9 ENFORCEMENT OF COVENANTS........................................62
XII MISCELLANEOUS PROVISIONS..............................................63
12.1 Termination.....................................................63
12.2 Liability on Termination........................................63
12.3 Expenses........................................................63
12.4 Public Announcements............................................63
12.5 Notices.........................................................64
12.6 Benefit of the Agreement........................................65
12.7 Headings........................................................65
12.8 Entire Agreement................................................65
12.9 Gender and Number...............................................65
12.10 Modifications and Waivers.......................................66
12.11 Assignment......................................................66
12.12 Invalid Provisions..............................................66
12.13 Counterparts....................................................66
12.14 Bulk Sales......................................................67
12.15 Governing Law...................................................67
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XIII SOVEREIGN GUARANTY....................................................67
13.1 Guaranty........................................................67
13.2 Guaranty Unconditional..........................................68
13.3 Survival........................................................68
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SCHEDULES AND EXHIBITS
Schedule 1.3 Accrued Liabilities
Schedule 1.12 Contracts
Schedule 1.13 Customer List
Schedule 1.16 Equipment
Schedule 1.17 Excluded Assets
Schedule 1.18 Excluded Liabilities
Schedule 1.19 Facility Description
Schedule 1.32 Products
Schedule 1.35 Trademarks and Trade Names
Schedule 1.36 Licensed Technology
Schedule 3.4 Accounting Principles
Schedule 3.5 Allocation of Purchase Price
Schedule 4.2 Non-Contravention
Schedule 4.3 Financial Statements
Schedule 4.5 Permits
Schedule 4.6 Compliance with Laws
Schedule 4.7 Schedule of Assets
Schedule 4.8 Litigation and Claims
Schedule 4.10 Title to Property
Schedule 4.11 Collective Bargaining Agreements
Schedule 4.12 Employees
Schedule 4.13 Benefit Plans
Schedule 4.14 ERISA Compliance
Schedule 4.15 Environmental Matters
Schedule 4.17 Changes
Schedule 4.18 Intellectual Property
Schedule 4.19 Insurance
Schedule 4.20 Accounts Receivable
Schedule 4.22 Warranties
Schedule 4.23 Customers and Suppliers
Schedule 5.1 Purchaser Organization
Schedule 5.3 Brokers
Schedule 5.5 Purchaser Consents
Schedule 5.7 Financing
Schedule 5.8 Disclosure
Schedule 6.3(b) Certain Claims
Schedule 10.5 Environmental Audit Guidelines
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EXHIBITS
Exhibit A Assumption Agreement
Exhibit B License Agreement
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into as of the 31st day
of March, 1996, by and between The B.F. Goodrich Company, a New York corporation
("Seller"), and Sovereign Specialty Chemicals, L.P., a Delaware limited
partnership ("Sovereign"), and Sovereign Engineered Adhesives, L.L.C., a
Delaware limited liability company ("Purchaser").
WHEREAS, Seller is engaged in the manufacture and sale of Products through
its ASD business (as such terms are hereinafter defined); and
WHEREAS, Seller desires to sell, transfer and assign to Purchaser, and
Purchaser desires to purchase and acquire from Seller, substantially all of the
assets and properties of the ASD business as a going concern including
assumption of the Assumed Liabilities (as such term is hereinafter defined),
upon the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein, Seller and Purchaser do hereby covenant and agree
as follows:
ARTICLE I
DEFINITIONS
For all purposes of this Agreement, the following words shall have the
meanings set forth below:
1.1 Accounts Receivable. The uncollected trade and other accounts
receivable of the Business, net of allowances for doubtful accounts.
1.2 Accounts Payable. The trade accounts payable of the Business as of the
Closing Date.
1.3 Accrued Liabilities. The specific liabilities of the Business which
are more fully described in Schedule 1.3 hereto, which are for the purposes of
this Agreement Assumed Liabilities.
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1.4 Agreement. This Asset Purchase Agreement, together with all Exhibits
and Schedules referred to herein, including any Exhibits which are ancillary
contracts.
1.5 ASD Business. The Adhesives Systems Division business of The B.F.
Goodrich Company, which manufactures and sells the Products, as presently
conducted.
1.6 Assumed Liabilities. The obligations and liabilities of Seller assumed
by Purchaser in accordance with this Agreement.
1.7 Assumption Agreement. The Assumption Agreement whereby Purchaser
assumes the Assumed Liabilities, in the form attached hereto as Exhibit A.
1.8 Business. The commercial activities and operations undertaken by
Seller in the design, development, manufacture, distribution, and sale of
Products and in connection therewith and related thereto, in the ordinary course
of the ASD business.
1.9 Business Assets. All of the Business and the assets, properties, and
rights owned, held, or used by Seller solely in the conduct thereof as a going
concern, including, without limitation, the Inventory, Contracts, Equipment,
Accounts Receivable, Facility, Personal Property, Licensed Technology,
Intellectual Property, Trademarks, and Trade Names, Business Records, and
Customer List, but expressly excluding the Excluded Assets.
1.10 Business Records. All of the books, records, drawings, models. plans,
and information utilized, opened, maintained, and developed by Seller directly
and solely in respect of the ASD business which are necessary or desirable for
the continuation and performance of the Business, but not including the Excluded
Assets.
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1.11 Closing. The closing of the transactions contemplated by this
Agreement, which shall occur as of April 1, 1996, or such other date as
Purchaser and Seller mutually agree upon. The "Closing Date" as referred to
herein shall mean 12:01 A.M. E.S.T. on April 1, 1996.
1.12 Contracts. The agreements, orders, contracts, and other binding
obligations or commitments to which Seller is a party or otherwise bound in
relation to the Business, including, without limitation, the material contracts
listed in Schedule 1.12 attached hereto.
1.13 Customer List. Information and records pertaining to the persons or
entities purchasing the Products from Seller, including the names, addresses,
and the Product information relative to each such customer, including without
limitation the customer information set forth in Schedule 1.13.
1.14 Environmental Laws. Any federal, state or local law, statute, code,
ordinance, rule or regulation, or any order, writ, injunction, judgment or
decree issued by any Governmental Authority pursuant to any of the foregoing,
which governs or regulates any of the following: (i) the emission, discharge or
release of any substance into the air, water, soil, or substrata or (ii) the
generation, treatment, processing, storage, disposal, transport, labeling, or
other management of any solid waste or hazardous waste, or the remediation
thereof. All terms used in this section shall have the same definitions as they
have under Environmental Laws.
1.15 ERISA. The Employee Retirement Income Security Act of 1974, as
amended.
1.16 Equipment. The production, manufacturing, and maintenance machinery
and equipment, tooling and dies, computers (but excluding certain software and
other assets identified herein as Excluded Assets), test equipment, tools,
furniture and office equipment, equipment spare parts, production tooling
including that located with vendors, and all other tangible items of
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equipment utilized directly in the conduct of the Business, whether owned or
leased, including without limitation those which are set forth in Schedule 1.16
attached hereto, but not including the Excluded Assets.
1.17 Excluded Assets. Those assets not being sold or conveyed hereunder to
Purchaser, comprising:
(a) all amounts: (i) due and owing from Seller and its affiliates to
the ASD business and (ii) of cash on hand or on deposit pertaining to the
Business (other than Accounts Receivables);
(b) all books and records of Seller maintained by it from time to
time other than those included in the term Business Records;
(c) Sellers rights under any policies of insurance relating directly
or indirectly to the Business Assets or otherwise associated with the ASD
business and any return of premium arising thereunder;
(d) all rights of any nature in or to the names "The B.F. Goodrich
Company", "BF Goodrich", "Goodrich", "BFG", "Tremco", or any trademark,
trade name, service mark, logo, or design incorporating any such name or
mark or any variation or derivative thereof;
(e) Seller's rights under this Agreement and any other property or
asset listed on Schedule 1.17; and,
(f) all right, title and interest in and to the Licensed Technology,
subject to the provisions of the License Agreement.
1.18 Excluded Liabilities. The obligations and liabilities existing or
arising in respect of the Business and Business Assets which are expressly
retained by Seller and identified in
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Schedule 1.18 hereto, together with any other obligation and liability of Seller
in respect of the ASD business or otherwise which is not an "Assumed Liability".
1.19 Facility. All of the real property comprising the Akron Plant and
related buildings and structures, as are more fully defined and described in
Schedule 1.19 together with all improvements and fixtures thereon, and all
easements and appurtenances inuring thereto.
1.20 Facility Documents. The documents necessary to transfer the legal
title to the Facility from Seller to Purchaser, comprising: (i) a warranty deed
and (ii) a survey of the Facility. Subject to the terms and conditions of this
Agreement, Seller will reasonably cooperate with Purchaser to secure the
issuance of title insurance with respect to the Facility, to be paid for by
Purchaser, in form reasonably satisfactory to Purchaser.
1.21 Governmental Authority. Any Federal, State, County, City, Village,
Municipal, or other domestic governmental department, commission, board, bureau,
agency, authority, or instrumentality.
1.21A Hazardous Materials. For the purposes of this Agreement only, any
toxic substance, hazardous substance, hazardous material, hazardous chemical, or
hazardous waste defined, regulated or qualifying as such in (or for the purposes
of, any Environmental Law in effect on the Closing Date, and shall include, but
not be limited to, petroleum, including crude oil or any fraction thereof which
is liquid at standard conditions of temperature or pressure (60 degrees
Fahrenheit and 14.7 pounds per square inch absolute), and any radioactive
material, including but not limited to any source, special nuclear, or
by-product material as defined at 42 U.S.C. ss.2011, et seq., as amended or
hereafter amended, but specifically excluding asbestos containing materials
(ACM) incorporated into any building, equipment, or structure.
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1.22 Intellectual Property. All lights in and to the patents, copyrights,
trademarks, service marks, trade names, packaging, inventions, proprietary
technical information, technical know-how, and other intellectual property used
solely and directly in the conduct of the Business (the "Intellectual
Property"), as is more fully described in Schedule 4.18 hereto, but excluding
the Excluded Assets.
1.23 Inventory. The raw materials, work-in-process, finished goods and
capitalized labor/overhead owned or possessed by Seller in connection with the
Business, including without limitation the items identified in Schedule 1.23
attached hereto, net of the Inventory Reserve (but not net of the LIFO
adjustment).
1.24 Lien. Any security interest, mortgage, pledge, lien, claim, charge,
encumbrance, title retention agreement, or lessees interest under a capital
lease, in, of or on any of the Facility, the Business Assets or the Personal
Property.
1.25 Litigation. The litigation and claims identified in Schedule 4.8
hereto.
1.25A Material Adverse Effect or Material Adverse Change. One or more
occurrences, events, or changes in circumstance which occurs prior to Closing
and which causes Purchaser to Incur a liability after Closing in respect of the
Business in excess of $100,000 individually or $200,000 in the aggregate, and
which is not otherwise retained or indemnified against by Seller hereunder or as
a matter of law; subject always to the provisions of Section 11.4 and 11.5
hereof.
1.26 Ordinary Course of Business. The operation of the Business in a
manner, and in accordance with policies and practices, consistent with past
custom and practice of operations and administration.
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1.27 Person. An individual, a partnership, a joint venture, a corporation,
a trust, an unincorporated organization, or any other legal or juridical entity.
1.28 Personal Property. The personal property of Seller utilized in the
conduct of the Business, whether owned or leased, not otherwise described or
defined herein, including without limitation the items identified and set forth
in Schedule 1.28 attached hereto, but not including the Excluded Assets.
1.29 Prepaid Expenses. Prepaid expenses arising in the ordinary course of
the Business, as set forth in the Balance Sheet and the Closing Balance Sheet.
1.30 Product Liability. The liability of the manufacturer or seller of an
article for injury to persons, damage to property or any other cost, damage or
expense resulting from a defect in or the condition of such article or the
warnings or instructions with respect to such article, or consequential,
punitive or other similar costs or damages arising as a result thereof, whether
payable under the principles of strict liability, contract, tort, or other
applicable law excluding, however, any liability, costs, or expense which is
Product Warranty Liability (as defined herein).
1.31 Product Warranty Liability. The liability of the manufacturer or
seller of an article to service, repair, or replace such article (including all
costs thereof, whether for materials or labor or otherwise), or to refund the
purchase price thereof, pursuant to the terms of a product warranty given by
such manufacturer or seller, or otherwise arising under or established by law
with respect to such article.
1.32 Products. That group of products which has been designed, developed,
and/or produced and which is presently sold or offered for sale by the ASD
business of Seller, including all of the commercially produced products itemized
by product name and number on Schedule 1.32
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hereto; provided, however, that the term "Products" shall not include any
products or applications designed, developed, produced, sold or offered for sale
by Seller or its affiliates at any time which are now within the product lines
or capabilities of any business of Seller or its affiliates other than the ASD
business. Any one of the Products is referred to herein as a "Product."
1.33 Schedules. The schedules attached hereto. Information disclosed in
any schedule shall be deemed disclosed in any other schedule to which it may be
applicable, whether or not expressly set forth in such other schedule.
1.34 Taxes. Any federal, state, local, provincial, or foreign income,
gross receipts, license, poll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes imposed pursuant to
Section 59A of the Code), custom duties, capital stock, franchise, profits,
withholding, social security, unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, or other tax, fee, assessment, or charge of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
1.35 Trademarks and Trade Names. The trade names, trademarks (whether
registered or unregistered), trade designations, fictitious names, service
marks, or applications therefor used by Seller directly and solely in the
conduct of the Business, including all applications for registration related
thereto, to the extent identified in Schedule 1.35, but excluding the Excluded
Assets.
1.36 Licensed Technology. The technology, trade secrets, know-how,
patents, copyrights, trademarks and trade names, and other technical information
used directly (but not solely) by Seller in respect of the Business, including
the items described in Schedule 1.36 hereof, which shall be licensed to
Purchaser by Seller pursuant to the express provisions of this Agreement.
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ARTICLE II
SALE OF ASSETS
2.1 Agreement to Sell Business Assets. Upon the terms and subject to the
conditions set forth in this Agreement, on the Closing Date Seller shall sell,
convey, transfer, assign, and deliver to Purchaser and Purchaser shall purchase
and acquire from Seller, all of Seller's right, title, and interest in and to
the Business and the Business Assets, at the price and in accordance with the
allocation set forth in Article III.
2.2 Assumption of Liability. Pursuant to the provisions of Section 6.10
Purchaser shall assume or undertake certain of the duties, obligations, or
liabilities of Seller in respect of the Business and Business Assets; and
execute, deliver, or perform certain of the agreements, warranties, or
undertakings between Seller and any other person or entity, in respect of the
Business and Business Assets.
ARTICLE III
PURCHASE PRICE
3.1 Purchase Price. In consideration of the sale, transfer, conveyance,
assignment, and delivery of the Business and Business Assets by Seller to
Purchaser and the mutual covenants, undertakings, and agreements herein
contained, Purchaser shall pay to Seller the amount of Fifteen Million U.S.
Dollars ($15,000,000.00), hereinafter referred to as the "Purchase Price", as
adjusted pursuant to Section 3.2 hereof.
3.2 Closing Adjustment of the Purchase Price. Seller shall prepare and,
not less than five (5) business days prior to the Closing deliver to Purchaser,
an unaudited, pro forma balance sheet for the ASD business as of the close of
business on January 31, 1996 (the "Closing Balance Sheet").
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The Closing Balance Sheet shall be prepared on a basis consistent with the
Financial Statements (as such term is defined in Section 4.3). On the basis of
the Closing Balance Sheet, the parties shall calculate the change in the
respective amounts shown for Accounts Receivable, Prepaid Expenses, Accrued
Liabilities, and Inventory from the Balance Sheet (as such term is defined in
Section 4.3) to the Closing Balance Sheet. The resulting amount (whether
positive or negative in value) shall be referred to as the "Adjustment to
Purchase Price". The Purchase Price shall be automatically adjusted at the
Closing by the amount of the Adjustment to Purchase Price.
3.3 Payment of Purchase Price. On the Closing Date, Purchaser shall pay to
Seller the full amount of the Purchase Price, as adjusted pursuant to Section
3.2, by wire transfer in immediately available funds to Seller's commercial bank
account in the United States, which Seller shall identify in writing at least
twenty-four (24) hours prior to the Closing.
3.4 Post-Closing Adjustment of the Purchase Price. Within thirty (30) days
after the Closing, Seller shall make any adjustments necessary to finalize the
Closing Balance Sheet as of the close of business on the Closing Date (the
"Final Closing Balance Sheet") and furnish a copy thereof to Purchaser and to
Ernst & Young LLP (E&Y) within such period. The parties shall jointly retain E&Y
to conduct an audit of the respective amounts shown for Accounts Receivable,
Prepaid Expenses, Accrued Liabilities, and Inventory in the Final Closing
Balance Sheet. In conducting such audit, E&Y will verify that the amounts shown
for Accounts Receivable, Prepaid Expenses, Accrued Liabilities and Inventory in
the Final Closing Balance Sheet were accounted for in accordance with the
internal accounting policies of Seller as described in Schedule 3.4. Upon the
completion of such procedures, but in any event not more than ninety (90) days
from the Closing Date, E&Y shall issue concurrently to the parties: (i) its
audit report setting forth its conclusions and adjustments (if any)
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to the Final Closing Balance Sheet; and (ii) a special report which is limited
to a tabulation of the difference in the respective amounts shown for Accounts
Receivable, Prepaid Expenses, Accrued Liabilities, and Inventory from the
Balance Sheet to Final Closing Balance Sheet, and the resultant purchase price
adjustment. Any difference between the purchase price adjustment amount so
calculated by E&Y and the amount of the Adjustment to Purchase Price made at
Closing shall be promptly settled by cash payment between the parties. The fees
and expenses of E&Y in performing such work will be invoiced to and borne by the
Purchaser and Seller on a 50/50 basis. It is understood and agreed that no other
findings, conclusions, adjustments, qualifications, or recommendations of E&Y
resulting from or arising in connection with its audit of the Final Closing
Balance Sheet shall be material to the parties for the purposes of this Section
3.4 or included by E&Y in its special report for the purposes of this Section
3.4. Notwithstanding the foregoing, the parties have agreed that for the
purposes of the foregoing audit of Accrued Liabilities, the frozen medical
accrual of $92,000 shall not be audited or adjusted in connection therewith, the
parties having stipulated and accepted $92,000 as the final number for the
purposes of this item. Detail regarding the frozen medical accrual is included
with Schedule 3.4.
3.5 Allocation of Purchase Price to Business Assets. The parties mutually
agree that the Purchase Price shall be allocated among the Business Assets in
the manner required by Section 1060 of the Internal Revenue Code of 1986, as
amended (the "Code"). In making such allocation, the allocations as set forth in
Schedule 3.5 hereto shall apply, and each of the Purchaser and Seller shall file
Form 8594 with the Internal Revenue Service reflecting such allocation of the
Purchase Price. In the event of any adjustments to the Purchase Price pursuant
to Sections 3.2 or 3.4 hereof, the allocation shall be deemed to be amended in
order to conform to such adjustment.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser that, except as set
forth in the Schedules:
4.1 Organization, Standing, and Qualification. Seller is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of New York, having all corporate power and authority to enter into this
Agreement and to execute, deliver, and perform its obligations hereunder. Seller
is duly qualified to carry on the ASD business as now being conducted, and to
own, lease, or operate its properties in the State of Ohio and in each other
jurisdiction in which the ASD business is now being conducted, except where the
failure to so qualify would not have a Material Adverse Effect. Seller and its
Board of Directors shall on or before the Closing Date have taken all action
required by law, its Certificate of Incorporation, its By-laws or otherwise, to
authorize the execution and delivery of this Agreement, and the consummation of
the transactions contemplated herein.
4.2 Authorization; Non-contravention. The execution, delivery, and
performance by Seller of this Agreement are within Seller's corporate authority
and power, and, except as set forth in Schedule 4.2: (i) require no consent,
approval, or authorization of any Governmental Authority; (ii) do not contravene
or constitute a default under any material provision of applicable law, statute,
code, ordinance, rule, or regulation; and, (iii) will not result in the creation
or imposition of any Lien on any of the Business Assets. The execution and
delivery of this Agreement by Seller do not, and the consummation by Seller of
the transactions contemplated hereby will not, violate any provision of the
Certificate of Incorporation or By-laws of Seller or violate or result (with or
without the giving of notice or the lapse of time or both) in a violation of any
provision of, or result in the acceleration
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of or entitle any party to accelerate (whether after the giving of notice or the
lapse of time or both) any obligation under, or result in the creation or
imposition of any Lien of any kind upon the property or assets of Seller
pursuant to any provision of, any mortgage, Lien, lease, agreement, license,
instrument, or law to which Seller is a party or by which Seller or any of its
properties or assets are bound.
4.3 Financial Statements. Seller has delivered to Purchaser the following
financial statements prepared by Seller, copies of which are appended in
Schedule 4.3 (hereinafter collectively referred to as the "Financial
Statements"):
(a) unaudited Pro-Forma Assets and Liabilities Statement for the ASD
business at December 31, 1994 (the "Balance Sheet") (December 31, 1994
hereinafter referred to as the "Balance Sheet Date") and at December
31,1995; and (b) unaudited Pro-Forma Adjusted Income Statement for the ASD
business for the periods ended December 31, 1994 and December 31, 1995.
The Financial Statements have been prepared by Seller in accordance with
its internal accounting policies, and fairly present the assets and liabilities
and results of operations of the Business as of such dates (subject to pro forma
adjustments which have been made in the preparation thereof).
4.4 Taxes. Seller has to the best of its knowledge timely filed all Tax
returns relating to the Business which are required to be filed in connection
therewith for periods up to and including the date of this Agreement with
Federal, state, local, and municipal authorities, and Seller has paid, accrued
or timely protested all Taxes shown on such returns or any related reports or
forms. There is no pending claim by any Governmental Authority where Seller does
not file Tax returns claiming
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that Seller is or may be subject to taxation by that Governmental Authority in
respect of the Business. There are no Liens on any of the Business Assets which
have arisen in connection with any failure or alleged failure to pay any Tax in
respect of the Business. Seller has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
4.5 Governmental Permits. All material governmental permits, licenses,
certificates, approvals, and authorizations required to conduct the Business at
the Facilities have been obtained by Seller, including without limitation those
which are set forth in Schedule 4.5, and such items are, to the best of Sellers
knowledge, valid and in full force and effect in all material respects. Seller
has not received any notice of violation, and is not to its knowledge otherwise
in violation in any material respect, of any of such permits, licenses,
certificates, approvals, or authorizations set forth in Schedule 4.5, other than
violations which would not in the aggregate have a Material Adverse Effect upon
the ability of Purchaser to conduct. the Business after Closing. No additional
permit, license, or certificate is required from any Governmental Authority in
connection with the conduct of the Business other-than any which, if not
obtained, would not in the aggregate have a Material Adverse Effect upon the
ability of Purchaser to conduct the Business after Closing.
4.6 Compliance with Laws. Except as set forth in Schedule 4.6, Seller has
materially complied with the laws, rules, regulations, ordinances, orders,
judgments, and decrees applicable to the Business, other than violations which
would not in the aggregate have a Material Adverse Effect on the ability of
Purchaser to conduct the Business after Closing. There is no action or
proceeding pending or, to the knowledge of Seller threatened, against Seller
which seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement. Seller is not in violation of
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any pending order or decree entered against it by any Governmental Authority,
other than violations which would not in the aggregate have a Material Adverse
Effect on the ability of Purchaser to conduct the Business after Closing.
4.7 Schedule of Certain Assets. Attached hereto as Schedule 4.7 are
schedules describing or identifying:
(a) the Facilities;
(b) the Accounts Receivable;
(c) the Equipment;
(d) the Contracts;
(e) the Inventory;
(f) the Personal Property;
(g) the Customer List; and
(h) the Trademarks and Trade Names.
Except as indicated in Schedule 4.7 all of the Contracts are valid, binding,
enforceable, and in full force and effect in all material respects with respect
to Seller and, to the best of Seller's knowledge, with respect to the other
parties thereto; Seller has no written notice of any default under such
Contracts; and, to the best of Seller's knowledge no consent is required for the
transfer of any Contract by reason of the transactions contemplated herein.
Except as disclosed in Schedule 4.7, Seller is not and, to the best of Seller's
knowledge no other party thereto is in material default (and no event has
occurred which, with the passage of time or the giving of notice, or both, would
constitute a material default) under any of the Contracts.
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4.8 Litigation and Claims. Except as set forth in Schedule 4.8 hereof,
there is no action, claim, proceeding, suit, litigation, arbitration, worker's
compensation claim, labor dispute, grievance, or other legal or administrative
proceeding pending in respect of the ASO business, nor to the best of Seller's
knowledge are any of the same threatened by or against Seller relating to the
ASD business or the Facility, before or by any Governmental Authority, which, if
adversely determined, would have a material adverse affect on the ASO business.
4.9 Enforceability. This Agreement, when duly authorized, executed, and
delivered by Purchaser and Seller, will be a valid and binding obligation of
Seller enforceable in accordance with its terms (subject as to the enforcement
of remedies, to applicable laws governing the recovery of attorneys' fees;
public policy considerations; bankruptcy, reorganization, insolvency,
moratorium, or other similar laws affecting the enforcement of creditors' or
obligees' rights generally from time to time in effect, and subject to general
principles of equity including those limiting the right to obtain specific
performance of obligations of Seller thereunder).
4.10 Title. Seller has, and on the Closing Date will have, valid title to
the Business Assets, free and clear of all Liens, except: (a) Liens set forth in
Schedule 4.10; (b) liens for Taxes not yet due and payable or which are being
contested by Seller in good (c) easements, restrictions, or other matters of
record; and, (d) other minor encumbrances or imperfections of title which do not
materially detract from the value of or interfere with the present use or
operation of the property affected thereby (all matters referred to in
subsections (a) through (d) inclusive being referred to as "Permitted Liens").
Except as disclosed in Section 4.10, Seller has good and marketable title to (or
valid leasehold or contractual interests in) the Personal Property (other than
Intellectual Property with respect to which separate and exclusive warranties
are made in Section 4.18), free and clear of
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all Liens. The documents of transfer to be executed and delivered by Seller at
the Closing will be sufficient to convey good and marketable title to the
Business Assets to Purchaser in accordance with their respective terms, free and
clear of all Liens other than Permitted Liens or as may be imposed by Purchaser.
The Business Assets include all of the properties, assets, lights, contracts,
leases, easements, licenses, and Personal Property utilized by the Seller in the
conduct of the Business as of the date hereof and necessary for the conduct of
the Business as presently conducted, other than (i) the Excluded Assets; (ii)
permits, interests, or registrations which are not transferrable; and (iii) the
rights, title, and interest retained by Seller in respect of the Licensed
Technology.
4.11 Collective Bargaining Agreements. Except as set forth in Schedule
4.11, there are no collective bargaining agreements between Seller and any labor
union representing any employees of Seller in respect of the Business governing
the terms of employment of any such employees.
4.12 Employees. Schedule 4.12 lists the job title and classification of
each employee currently employed by Seller exclusively in connection with the
ASD business and the compensation and bonuses paid to each such employee from
January 1, 1995 to December 31, 1995. Since the Balance Sheet Date, no
compensation materially in excess of that reflected in Schedule 4.12 except as
disclosed therein and no bonuses have been paid or raises given to any employees
employed by Seller in connection with the Business, other than in the ordinary
course of business and in amounts consistent with Seller's past practice. There
is no unfair labor practice claim against the Seller pending before the National
Labor Relations Board with respect to the Business, or any strike, dispute,
slowdown, or stoppage pending or, to the best knowledge of Seller, threatened
against or involving the Business.
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4.13 Employee Benefits. Schedule 4.13 identifies any (i) "employee benefit
plan" within the meaning of Section 3(3) of ERISA; (ii) profit sharing, pension,
retirement, deferred compensation, bonus, stock option, stock purchase, 401(k),
severance, health, welfare, or incentive plan or agreement; (iii) written plan
or policy providing for "fringe benefits" to its employees, including but not
limited to vacation, paid holiday, personal leave, medical, hospitalization,
dental, life insurance, employee discount, educational benefit, severance, or
similar programs; and (iv) written employment agreement (in the case of the
plans, agreements, policies, and programs described in clauses (i), (ii), (iii),
and (iv), individually, a "Plan," and collectively the "Plans") to which Seller
is a party covering the employees of the Business. None of the Plans constitutes
a multi-employer plan as defined in Section 4001 (a)(3) of ERISA. Seller has
provided Purchaser with copies of documents or plan summaries as to each such
Plan.
4.14 ERISA Compliance. Except as disclosed in Schedule 4.14, each Plan (as
defined in Section 4.13) that is intended to be a "qualified" plan is qualified
within the meaning of Section 401(a) of the Code and the trust maintained
pursuant thereto is exempt from federal income taxation under Section 501(a) of
the Code; there are no liens on the assets of such Plans; and, favorable
determination letters that remain effective have been obtained from the Internal
Revenue Service for such Plans evidencing their compliance with applicable
provisions of the Code. Seller has complied in all material respects with all
laws, rules, regulations, ordinances, orders, judgments, or decrees applicable
to the Business relating to the Plans, including ERISA.
4.15 Environmental Matters.
(a) Except as disclosed on Schedule 4.15, Seller and each property,
operation, and facility that Seller may "own", 'operate" or "control" (as
each such term is defined by
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applicable Environmental Laws and other local, state and federal laws,
rules and regulations and case law in effect on the Closing Date as the
same apply to environmental matters) with respect to the ASD business: (i)
complies in all material respects with all such Environmental Laws; (ii)
is not subject to any judicial or administrative proceeding alleging the
violation of any such Environmental Law; (iii) within the past twelve
months, has not received any notice (A) that it maybe in violation of any
such Environmental Law, (B) alleging that it is or may be responsible for
any response, cleanup, or corrective action, including but not limited to
any remedial investigation/feasibility studies, under any such
Environmental Law; (iv) to Seller's knowledge, is not the subject of
federal or state investigation evaluating whether any investigation,
remedial action, or other response is needed to respond to spillage,
disposal or release, or threatened release into the environment of any
Hazardous Material; (v) to Seller's knowledge, has not filed any notice
under or relating to any such Environmental Law indicating or reporting
any past or present spillage, disposal, or release into the environment
of, or treatment, storage or disposal of, any Hazardous Material which
spill, release, treatment, storage, or disposal has not been performed
and/or addressed in accordance with such Environmental Laws, and there
exists no basis for such notice irrespective of whether such notice was
actually filed; and (vi) to Seller's knowledge, has no contingent
liability in connection with any actual or potential spillage, disposal,
or release into the environment of, or otherwise, with respect to any
Hazardous Material, whether on any premises owned or occupied by Seller or
on any other premises. Except as disclosed on Schedule 4.15 and in this
Section 4.15, to Seller's knowledge there are no Hazardous Materials on,
in or under any property or facilities
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"owned," "operated," or "controlled" (as each such term is defined by
applicable Environmental Laws and other state and federal laws and case
law in effect on the Closing Date as the same apply to environmental
matters) by Seller with respect to the ASD business, excepting such
Hazardous Materials used in accordance with all applicable Environmental
Laws in effect on the Closing Date.
(b) Certain equipment and structures located on the Property contain
asbestos containing materials (ACM) the repair or removal of which is
subject to state and federal statutory and/or regulatory requirements.
Purchaser assumes as an Assumed Liability full responsibility and
liability for any repairs or removal of any ACM that is undertaken by
Purchaser or at Purchaser's direction after Closing unless on the Closing
Date the condition of such ACM is not in compliance with Environmental
Laws in effect on the Closing Date, as reflected in the report entitled
"Asbestos Containing Building Material Update in Building 276", dated
March 25, 1996, a copy of which is attached to Schedule 4.15, in which
event Seller shall bear sole responsibility for any required remedial
actions to achieve compliance.
(c) Except as disclosed in Schedules 4.15 or 10.5, to Seller's
knowledge there are no (i) underground storage tanks located on the
Property, or (ii) units, conditions or sites located on the Property which
are subject to any liabilities or requirements under either the Resource
Conservation and Recovery Act, 42 U SC, Section 6901, et seq., or under
the Comprehensive Environmental Response, Compensation and Liability Act,
42 USC, Section 9601, et seq., as respectively amended, or the regulations
respectively promulgated thereunder.
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(d) There are no electrical transformers, capacitors, or other
equipment containing polychlorinated bipheyls (PCBs) located on the
property, the use or disposal of which would require special handling,
marking, or use of approved PCB disposal sites-as required under the Toxic
Substances Control Act, 15 USC, Section 2601, et seq., as amended.
4.16 Commissions and Fees. Seller has retained Einhorn Associates as
financial advisor in connection with the transactions contemplated by this
Agreement and is responsible for its fees. Seller has utilized no other finder,
broker, or similar source in connection therewith.
4.17 Absence of Change or Events. Except as expressly contemplated by this
Agreement or as set forth on Schedule 4.17, since December 31, 1995 the ASD
business has not, other than in the Ordinary Course of Business:
(a) mortgaged or pledged any Business Asset or subjected any such
asset to any Lien;
(b) sold, assigned, conveyed, transferred, canceled, or waived any
property, tangible asset, proprietary right, or other intangible asset or
right which would constitute a Business Asset if it were held by Seller on
the Closing Date;
(c) increased benefits or benefit plan costs or changed bonus,
insurance, pension, compensation, or other benefit plans or arrangements
made for or with or covering any officers or employees of the ASD
business;
(d) made commitments for capital expenditures relating to the ASD
business, which, in the aggregate, would exceed $50,000;
(e) granted any bonus or any increase in wages, salary, or other
compensation to any employee of the ASD business listed on Schedule 4.12;
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(f) suffered damages, destruction, or casualty losses which, in the
aggregate, exceed $25,000 to any asset or property of Seller;
(g) granted any license or sublicense of any rights under or with
respect to any Intellectual Property; or
(h) agreed to do any of the foregoing.
Schedule 4.17 also sets forth the agreement of the parties with respect to
certain items which have arisen since December 31, 1995.
4.18 Intellectual Property. Attached hereto as Schedule 4.18 is a list and
brief description of the Intellectual Property. Seller has furnished Purchased
with copies of all material license agreements to which Seller is a party,
either as licensor or licensee, with respect to any Intellectual Property.
Except for Intellectual Property which is licensed or leased from a third party,
Seller is the owner of all Intellectual Property, free and clear of all Liens
and free from any contractual restrictions. Except as described on Schedule 4.18
hereto, Seller has a valid and enforceable license or lease (as against the
licensor or lessor) to use or to license, all such Intellectual Property,
without the payment of any royalty or similar payment, except as specified in
the applicable agreements. Except as disclosed on Schedule 4.18, no claim by any
third party contesting the validity, enforceability, use or ownership of any
Intellectual Property has been made, is currently outstanding or, to the best of
Seller's knowledge, threatened. Except as disclosed on Schedule 4.18, and except
as to any circumstance or event which would not have a Material Adverse Effect:
(i) to the best of Seller's knowledge Seller is not infringing any patent night,
trade name, copyright, or trademark right of others; (ii) Seller is not aware of
any infringement by others of any such rights owned by Seller; and (iii) no
contract, agreement, or understanding between Seller and any party exists which
would
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prevent the continued use of the Intellectual Property by Seller or,
following the Closing, the Purchaser in a manner consistent with Seller's use
prior to the Closing.
4.19 Insurance. Attached hereto as Schedule 4.19 is a list of all policies
of fire, liability, or other forms of insurance and all fidelity bonds held by
or applicable to the ASD business or the Business Assets.
4.20 Accounts Receivable. All Accounts Receivable that have been recorded
on the books of the Business are bona fide and represent amounts validly due for
goods sold or services rendered in the Ordinary Course of Business. Except as
disclosed on Schedule 4.20 hereto (a) all of such Accounts Receivables are free
and clear of any Liens other than Liens created by Purchaser; (b) to the best of
Seller's knowledge none of such Accounts Receivables is subject to any offsets
or claims of offset; and (c) to the best of Seller's knowledge none of the
obligors of such Accounts Receivables has given notice that it will refuse to
pay the full amount or any portion thereof. No material change in accounting or
collection policies with respect to accounts receivable has occurred since
December 31, 1994.
4.21 Inventory. All Inventory on the books of the Business are utilizable
to Purchaser and are saleable at the lower of cost or market value. No material
change in accounting policy with respect to Inventory has occurred since
December 31, 1994.
4.22 Warranties. Except as disclosed in Schedule 4.22, there is no
outstanding claim, action, or proceeding against Seller and, to Seller's
knowledge, no threatened claim, action, or proceeding against Seller for Product
Liability or for breach of Product Warranty Liability to any customer of the ASD
business.
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4.23 Customers and Suppliers. Attached hereto as Schedule 4.23 is a list
of the Business' ten largest customers, as measured by gross revenues generated
by the sale of Products to such customers for the ten-month period ended October
31, 1995, and Schedule 4.23 also lists the Business' five largest suppliers, as
measured by billings from such suppliers during the ten-month period ending
October 31, 1995. Schedule 4.23 also sets forth a description of all
intercompany services provided by the Seller to the Business during the
ten-month period ending October 31, 1995, and the costs allocated to the
Business for such services.
4.24 Limitation on Representations, and Warranties. Except for the
representations and warranties set forth in this Agreement, the Business and
Business Assets are being sold "AS IS, WHERE IS." EXCEPT AS OTHERWISE EXPRESSLY
STATED ABOVE OR AS STATED IN THIS AGREEMENT, SELLER MAKES NO REPRESENTATIONS OR
WARRANTIES WHATSOEVER CONCERNING THE ASSUMED LIABILITIES, BUSINESS ASSETS, OR
THE BUSINESS, EXPRESS OR IMPLIED, ORAL, OR WRITTEN, AND SELLER HEREBY
SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTY OF MERCHANTABILITY AND THE IMPLIED
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. WITH RESPECT TO THE SELLER'S
REPRESENTATIONS AND WARRANTIES WHICH ARE CONTAINED IN THIS AGREEMENT, THE SELLER
SHALL ONLY BE LIABLE TO THE PURCHASER FOR DAMAGES TO THE EXTENT CAUSED SOLELY
AND DIRECTLY BY SELLER'S BREACH OF ANY SUCH REPRESENTATIONS OR WARRANTIES (OTHER
THAN DAMAGES AS A RESULT OF FRAUD). IN NO EVENT SHALL SELLER BE LIABLE FOR
CONSEQUENTIAL, INCIDENTAL, OR SPECIAL DAMAGES ARISING, DIRECTLY OR INDIRECTLY,
FROM ANY SUCH BREACH OR OTHERWISE, AND IN ANY EVENT, SELLER'S CUMULATIVE
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LIABILITY TO PURCHASER FOR BREACH OF REPRESENTATIONS OR WARRANTY OR OTHER CLAIMS
SHALL BE LIMITED IN THE AGGREGATE TO PROVEN COMPENSATORY DAMAGES, NOT TO EXCEED
THE PURCHASE PRICE (AS FINALLY DETERMINED AND ADJUSTED), PROVIDED, THAT IF AT
THE TIME OF SUCH BREACH PURCHASER IS IN DEFAULT UNDER ANY DEBT, OBLIGATION, OR
ASSUMED LIABILITY ASSUMED HEREUNDER, THEN THE AFORESAID LIMITATION ON LIABILITY
SHALL BE THE FINAL PURCHASE PRICE LESS THE REMAINING PRINCIPAL AMOUNT OF ANY
SUCH ASSUMED DEBT, OBLIGATION, OR ASSUMED LIABILITY IN RESPECT OF WHICH
PURCHASER IS IN DEFAULT.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser and Sovereign jointly and severally represent and warrant to
Seller that:
5.1 Organization and Standing. Purchaser is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Delaware and qualified to do business in Ohio, and has full power and
authority to conduct its business as it is now being conducted and to own and
lease its properties and assets. Sovereign owns ninety-five percent (95%) of the
membership interests of Purchaser. Sovereign is a limited liability partnership
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has full power and authority to conduct its business as
it is now being conducted and to own and lease its properties and assets.
Schedule 5.1 sets forth the names and addresses of the principal limited
partners and the general partner of Sovereign, as well as the percentage
interest owned or controlled by each. The copies of the Certificate of
Authorization and LLC Operating Agreement of Purchaser, as well as
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the Limited Partnership Agreement of Sovereign, are in full force and effect,
and complete and correct copies are attached to Schedule 5.1. Sovereign
Specialty Chemicals, Inc. ("SSCI") is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
full power and authority to conduct its business and to enter into and perform
under the Limited Partnership Agreement. First Chicago Equity Corporation
("FCC") is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, and has full power and authority to
conduct its business and to enter into and perform under the Limited Partnership
Agreement. The execution, delivery, and performance of and under the Limited
Partnership Agreement by SSCI and FCC has been duly authorized by all necessary
corporate action, respectively, and is a valid, binding, and enforceable
obligation of SSCI and FCC, respectively.
5.2 Authority. The execution, delivery, and performance of this Agreement
and the other transactions contemplated hereby have been duly authorized by
Purchaser and Sovereign by all necessary legal action, and this Agreement, when
duly authorized, executed, and delivered by Purchaser, Sovereign and Seller,
will be the valid and binding obligation of Purchaser and Sovereign enforceable
in accordance with its terms (subject as to the enforcement of remedies, to
applicable laws governing the recovery of attorneys' fees, public policy
considerations, bankruptcy, reorganization, insolvency, moratorium, or other
similar laws affecting the enforcement of creditors' or obligees' rights
generally from time to time in effect; and subject to general principles of
equity, including those limiting the right to obtain specific performance of
obligations of Purchaser thereunder).
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5.3 No Brokers. Except as set forth in Schedule 5.3 hereto, neither
Sovereign nor Purchaser have entered into any agreement or incurred any
obligation, directly or indirectly, for the payment of any brokers or finder's
fee or commission, or any other payment to any person or entity in connection
with this Agreement or the transactions contemplated hereby, and neither
Sovereign nor Purchaser is otherwise obligated to pay any such fee, commission,
or other payment and is not aware of any basis for any claim by any other
payment and is not aware of any basis for any claim by any person or entity for
the payment of such a fee, commission, or other payment.
5.4 Non-contravention. The execution and delivery of this Agreement by
Sovereign and Purchaser do not, and the consummation of the transactions
contemplated hereby by them will not, violate any provision of the limited
partnership agreement of Purchaser or violate or result (with or without the
giving of notice or the lapse of time or both) in a violation of any provision
of, or result in the acceleration of or entitle any party to accelerate (whether
after the giving of notice or the lapse of time or both) any obligation under,
or result in the creation or imposition of any Lien of any kind upon the
property or assets of Sovereign or Purchaser pursuant to any provision of, any
mortgage, lien, lease, agreement, license, instrument, law, ordinance,
regulation, order, arbitration award, judgment, or decree to which Sovereign or
Purchaser is a party or by which Sovereign or Purchaser or any of their
properties or assets are bound.
5.5 Governmental Consents, etc. Except as set forth in Schedule 5.5, no
consent, authorization, order or approval of, or filing or registration with,
any governmental commission, board or other regulatory body is required for or
in connection with the execution and delivery by Sovereign or Purchaser of this
Agreement and the consummation of the transaction contemplated on its part
hereby.
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5.6 Legal Proceedings. There is no action, proceeding, or governmental
investigation pending or, to the best knowledge of Sovereign or Purchaser,
threatened against Sovereign or Purchaser which (i) seeks to restrain or enjoin
the consummation of the transactions contemplated by this Agreement or (ii)
could reasonably be expected to restrain or enjoin the consummation of the
transactions contemplated by this Agreement. Neither Sovereign nor Purchaser is
in violation of any term of any judgment, decree, injunction, or order
outstanding against it, which violation could reasonably be expected to
materially and adversely affect Sovereign's or Purchaser's ability to consummate
the transactions contemplated by this Agreement.
5.7 Financing. Purchaser has secured binding, unconditional commitments as
set forth in Schedule 5.7 from one or more commercial banks to provide all funds
required to consummate the transactions contemplated hereby and, after the
Closing Date, to fully perform the Assumed Liabilities, including without
limitation the Contracts, and to otherwise perform its obligations hereunder.
Purchaser has delivered to Seller copies of such binding commitment(s) and such
copies are complete and correct.
5.8 Disclosure. Except for facts and circumstances which Purchaser has
disclosed in Schedule 5.8, there is no fact or circumstance known to Sovereign
or Purchaser or their respective employees, agents, or representatives by reason
of due diligence or otherwise that gives either of them any reason to believe
that any representation or warranty of Seller contained in this Agreement
(including any Schedule hereto) or any collateral agreement will not be true and
correct in any material respect on and as of the date hereof and the Closing
Date. As of the Closing Date, Purchaser has had adequate and sufficient
opportunity and access to conduct such investigations and reviews as it
considers desirable or appropriate in order to conduct due diligence, and
Purchaser
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accepts the Business and Business Assets in their present condition
subject only to the terms and conditions hereof.
5.9 Ongoing Business. It is the intention of Purchaser in acquiring the
Business and Business Assets to operate them as an ongoing business for the
foreseeable future. Neither Sovereign nor Purchaser have any plan or intention
to liquidate or substantially terminate or relocate any portion of the Business
as presently conducted.
ARTICLE VI
COVENANTS
6.1 Confidentiality. Purchaser agrees that, unless and until such time as
the transactions contemplated by this Agreement are consummated, Purchaser and
its advisors, accountants, counsel, employees, banks, and agents (collectively,
the "Restricted Parties") shall not disclose to any third party nor use for its
or their own benefit, or otherwise use to the detriment of Seller or its
affiliates, any information received from Seller or its affiliates with respect
to the Business, Business Assets, or Assumed Liabilities including, but not
limited to, information concerning Seller's trade secrets, customers,
manufacturing processes, or pricing, and shall return to Seller the originals
and all copies of any documents, materials, summaries, and other information
received or derived by Purchaser hereunder or pursuant hereto; provided,
however, that nothing herein shall be deemed to prevent use (a) by any
Restricted Party other than Purchaser and its employees of information which is
demonstrated to have been known by such Restricted Party independently from the
disclosure of such information by Seller or (b) by any Restricted Party of
information which thereafter becomes publicly known or available without
disclosure by any Restricted Party, or which is rightfully received by such
party from a third party.
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6.2 Access to Information. Upon reasonable notice and during regular
business hours, Seller will give Purchaser and its attorneys, accountants, and
other representatives reasonable access to Seller's ASD business personnel, the
Facility and the Business Records, and will furnish to Purchaser such
information with respect to the Business as Purchaser may from time to time
reasonably request.
6.3 Employees; Employee Benefits. Purchaser agrees to offer employment,
beginning on the Closing Date, to all of Seller's non-union employees who are
employed in the Business, except for Mr. Clifford C. Pearson, whose continuing
employment is governed by a contract between Seller and Mr. Pearson, in the same
or in substantially comparable positions, and with at least the same rate of
base compensation and with comparable bonus and commission opportunities as are
existing for such employees immediately prior to the Closing Date, and to
maintain the position and compensation level of such employees for a reasonable
period of time after the Closing Date. Purchaser further agrees to enter into a
collective bargaining agreement between the Purchaser and the United
Steelworkers of America, and to offer employment under the terms thereof,
beginning on the Closing Date, to Seller's union employees of the Business.
Non-union employees who are on a leave of absence or are not working due to a
short-term or long-term disability as of the Closing Date will remain the
responsibility of Seller until they are able to return to work, at which time
they will be offered employment by Purchaser in accordance with the provisions
of this section. All employees who accept offers of employment made to them
hereunder shall be referred to herein as the "Hired Employees." Purchaser agrees
that it shall not terminate any Hired Employees for a reasonable period of time
after the Closing Date except for poor job performance, an act or omission on
the part of the Hired Employee being terminated that would constitute "just
cause," or a material
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adverse change in the Business. In the event that a Hired Employee who is
terminated, whether such termination is actual or constructive, for any reason
within one year of the Closing Date should become entitled as a result to
severance, other benefits, or any other amounts of any kind from Seller solely
as a result of such termination, including any payments that may arise as a
result of the application of the WARN Act to the termination, Purchaser shall
indemnify Seller in full for all such severance costs or other benefits or other
amounts. Such indemnification shall include any reasonable attorney's fees or
costs incurred by Seller in defending against any claim for severance, benefits,
or other amounts made by any Hired Employee.
Purchaser agrees to provide the Hired Employees who are not subject to a
collective bargaining agreement with a program of benefits which is reasonably
similar, in the aggregate, in the reasonable opinion of Seller, to the program
of benefits being provided to the Hired Employees by Seller immediately prior to
the Closing Date. With respect to the Hired Employees whose employment is
subject to a collective bargaining agreement, Purchaser agrees to offer a
program of benefits which is reasonably similar, in the aggregate, in the
reasonable opinion of Seller, for each Hired Employee to the program of benefits
provided immediately prior to the Closing to such Hired Employees by Seller. The
following subparagraphs set forth certain specific covenants of Purchaser and
agreements between the parties with respect to particular benefits to be
provided to the Hired Employees by Purchaser pursuant to this section.
(a) Retirement Plan.
(1) 401(k) Plan. Commencing on the Closing Date, Hired
Employees who are eligible to participate in the Seller's Retirement
Plus Savings Plan ("Seller's Savings Plan") shall be eligible to
participate in a defined contribution plan
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of Purchaser (the "Purchaser's Savings Plan") which contains a
Section 401(k) feature, and which is otherwise substantially similar
in all respects to the Seller's Savings Plan. The Purchaser's
Savings Plan shall not fail to be considered substantially similar
merely because the plan contains different investment options than
those presently offered under Seller's Savings Plan, so long as a
range of investment options is offered. It shall also not fail to be
considered substantially similar because the Company match provided
under it totals $.50 per dollar on the first 6% of earnings
contributed to the Plan rather than the dollar-for-dollar match
provided under the Seller's Savings Plan, nor shall it fail to be
considered substantially similar because the Company match provided
under Purchaser's Savings Plan is not invested in Purchaser's Stock.
The parties agree that each participant in the Seller's Savings Plan
shall have the light to make an elective transfer of his or her
account balance in that Plan to the Purchaser's Savings Plan, under
the rules set forth in Treasury Reg. ss.1.411(d)-4. The Purchaser's
Savings Plan shall contain provisions pursuant to which participants
may make eligible rollover distributions, as such term is defined in
the Internal Revenue Code, from the Seller's Savings Plan and from
the qualified profit sharing plan of the Seller's known as the Akron
URW Chemicals and Adhesives Defined Contribution Plan into the
Purchaser's Savings Plan. The Purchaser's Savings Plan will
recognize service with Seller for all purposes for which service is
a criterion in the Plan. Purchaser also agrees to offer Hired
Employees who are covered by a collective bargaining agreement
participation in the Purchaser's
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Savings Plan on substantially the same conditions as they currently
are eligible to participate in Seller's Retirement Plus Savings Plan
for Wage Employees.
(2) Defined Benefit Pension Plan. Purchaser agrees to
establish a defined benefit pension plan substantially similar in
all respects to Seller's Retirement Program For Salaried Employees,
for those Hired Employees who are currently participants in the
Retirement Program For Salaried Employees. Under such plan of
Purchaser, each Hired Employee will be credited with service with
Seller for purposes of determining eligibility and vesting under the
Purchaser's plan, but not for benefit calculation purposes. Whether
such benefits substantially similar shall be determined using the
actuarial and interest rate assumptions used by Seller under the
Retirement Program For Salaried Employees.
(b) Welfare Benefit Plans. By not later than January 1, 1997,
Purchaser shall establish group medical, dental, life, dependent life,
disability, accident, and other welfare and fringe programs for the Hired
Employees which shall be reasonably similar to the welfare benefit plans
provided by Seller to the Hired Employees immediately prior to the Closing
Date. Seller agrees, however, that to be comparable, Purchaser need not
offer health or dependent care reimbursement accounts to the Hired
Employees or provide the so-called "flex credits" provided by the Seller
to its employees. Purchaser agrees that such plans shall not contain any
pre-existing condition exclusions, evidence of insurability provisions,
waiting period requirements and similar provisions and shall recognize
service for all purposes for which service is a criterion under
Purchaser's welfare benefit plans. Purchaser further agrees that such
welfare benefit plans shall be offered to those Hired Employees
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whose employment is covered by a collective bargaining agreement, as well
as provided to all other Hired Employees.
Seller agrees that until such time as Purchaser establishes separate
welfare benefit plans in accordance with the above paragraph, Seller shall
administer welfare benefit plans established by Purchaser which mirror the
comparable plans of Seller which presently cover the Hired Employees.
Buyer understands that any such agreement with respect to an insured
benefit plan, such as Seller's Long Term Disability Income Plan, is
contingent on obtaining the consent of the insurer to such agreement, in
such form as is satisfactory to the Seller. Purchaser agrees that such
plans shall be authorized by its Board of Directors prior to the Closing
Date and shall be effective as of such date. With respect to the medical,
dental, vision, and prescription drug coverages to be administered by
Seller hereunder, Purchaser agrees that it shall reimburse Seller and be
responsible for all charges which arise under such plans, except as set
forth in Schedule 6.3(b), for services rendered between the Closing Date
and the date on which separate non-mirror benefit plans are established by
Buyer, regardless of when the injury, illness, or condition giving rise to
such services occurred. Purchaser further agrees that Seller shall have no
responsibility under its plans for any charges which arise under such
plans for services which are rendered after the date on which separate,
non-mirror benefit plans are established by Purchaser. With respect to
welfare benefit plans other than those providing medical, dental, vision,
and prescription drug coverage, Purchaser agrees to reimburse Seller for
any amounts incurred by Seller under such plans for claims which arise
between the Closing Date, and the date on which E3uyer establishes
separate, non-mirror benefit plans, and agrees that Seller shall have no
responsibility under its plans
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for any claim for such benefit which arises after the date on which
separate, non-mirror benefit plans are established. Purchaser also agrees
to pay the administrative costs incurred by Seller in operating its
welfare benefit plans which are attributable to the Business during the
period of administration, in accordance with the formula used by Seller
prior to the Closing Date, and any additional costs directly incurred by
Seller as a result of its administering of the welfare benefit plans
hereunder. Purchaser agrees to indemnify and hold Seller harmless against
any claims, demands, liabilities, judgments, or losses of any kind which
may be incurred by Seller as a result of its agreement under this
paragraph. Seller further reserves the right to immediately terminate its
agreement under this paragraph if it reasonably determines that its
likelihood of obtaining repayment from Purchaser hereunder is jeopardized.
Seller further agrees to reimburse Purchaser for any medical or
prescription drug costs, whether premium costs or medical expense
reimbursements paid under the plan, incurred in the 12-month period which
begins on the Closing, attributable to claim(s) identified in Schedule
6.3(b), up to a total reimbursement of $100,000. Seller's obligation shall
not extend to any medical services rendered to or incurred by such
individual after 12 months have elapsed from the Closing Date.
Seller agrees to be responsible for providing any notice required
under Part 6 of Title I of ERISA and Section 4980B of the Code
(collectively "COBRA") for all Hired Employees as a result of the sale of
the Business to Purchaser. Purchaser agrees to indemnify Seller for any
costs incurred by Seller in providing continuation coverage under COBRA to
any Hired Employees as a result of Purchaser failing to provide the Hired
Employees with
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medical benefits sufficient to relieve Seller of the obligation to provide
continuation coverage to such employees.
(c) Retiree Medical Coverage. Hired Employees who are eligible to
retire from Seller as of the Closing Date shall, together with their
spouses and other eligible dependents, be entitled to retiree medical and
life insurance coverage from Seller, under the plans of Seller then in
effect, which coverage shall be secondary to the medical coverage provided
to such employees of Purchaser while they are actively employed by
Purchaser. Purchaser shall indemnify and reimburse Seller in full for any
costs incurred by Seller under Seller's retiree medical plans with respect
to any Hired Employees (including their spouses and eligible dependents)
during the period when such employees are employed by Purchaser, as a
result of the fact that such employees are not then receiving medical
coverage from Purchaser, whether due to the fact that such employees
elected to waive coverage under the Purchaser's medical plan, or
otherwise. Seller shall have no obligation to Purchaser with respect to
retiree medical coverage of any Hired Employee who did not meet the
requirements for retiree medical coverage under Seller's retiree medical
plans as of the Closing Date. It is understood that those salaried Hired
Employees who qualify for retiree medical coverage on the Closing Date may
elect it at that time or later, up to the date on which they terminate
employment with the Purchaser.
6.4 Wage Reporting. Seller shall furnish each Hired Employee one
Wage and Tax Statement (IRS Form W-2) for wages paid by Seller. Purchaser
shall furnish IRS Forms W-2 covering the period from the Closing Date
through the end of the year in which the
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Closing Date occurs. Both parties shall comply with the provisions of
Section 4 of Rev. Proc. 84-77.
6.5 Workers Compensation. Purchaser shall assume as an Assumed Liability
full responsibility for all workers compensation claims that have been filed by
employees of the Business before the Closing Date by employees who were
employees of the Business when such claims were incurred, and shall indemnify
and hold Seller harmless against all claims, payments, expenses, costs and
losses incurred or accrued by Seller with respect to or arising out of such
claims, or Purchaser's assumption of such obligations. Purchaser will also be
responsible for all workers compensation claims that are filed by Hired
Employees on and after the Closing Date, including claims for injuries or
illnesses that result from aggravation of pre-existing conditions that were in
existence prior to or as of the Closing Date. In assuming responsibility for
existing worker's compensation claims, the parties nevertheless acknowledge that
Seller, as a self-insured employer under the Ohio Workers' Compensation statutes
retains ultimate responsibility for said claims, and the pates agree to
cooperate to the extent necessary to insure that the handling of such claims is
consistent with this paragraph, with Seller's underlying obligation under Ohio
State law and with the agreement of Purchaser to provide indemnification against
said claims.
6.6 Conduct of ASD Business. From and after the date hereof, through and
including the Closing Date, Seller shall operate the ASD business in the usual,
ordinary and normal course, and, in all material respects, consistent with
operations prior to the date hereof.
6.7 Material Changes. Except for transactions entered into in the Ordinary
Course of Business, without the prior written consent or Purchaser, Seller shall
not, after the date hereof and before the Closing Date, with respect to the ASD
business: (a) enter into any contract of
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employment with, or materially increase the compensation paid or payable to, or
enter into any new arrangements with, any of its officers, employees, or agents
or pay or become committed to pay any of the foregoing bonuses or other special
compensation other than in the ordinary course; (b) make any single capital
expenditure in an amount exceeding $50,000, or any capital expenditures which in
the aggregate exceed $250,000; or (c) sell, transfer, assign or encumber, or
agree to sell, transfer, assign or encumber, any of the Assets, other than the
sale of Inventory, Equipment, and Personal Property and collection of Accounts
Receivable in the Ordinary Course of Business.
6.8 Best Efforts. Seller and Purchaser shall use their respective
reasonable best efforts to obtain all consents and to cause any governmental and
regulatory licenses, permits, and approvals which are legally transferable to
Purchaser to be so transferred at the Closing (and Purchaser shall cooperate
with Seller in such manner as Seller reasonably may request). Subject to the
terms and conditions of this Agreement, Seller and Purchaser shall use their
respective best efforts and take all reasonable actions to bring about their
respective timely performance of this Agreement. The Seller and Purchaser will
each use their respective reasonable best efforts (without incurring expense or
payment to any third party or instituting litigation) to obtain consents of all
third parties and Governmental Authorities necessary to the consummation of the
transactions contemplated by this Agreement. To the extent that Seller's rights
under any agreement, contract, commitment, lease, or other Business Asset may
not be assigned without the consent of another person which has not been
obtained at or prior to Closing, this Agreement shall not constitute an
agreement to assign the same if an attempted assignment would constitute a
breach thereof or be unlawful, and Seller shall use reasonable best efforts
(without incurring expense or payment to any third party or instituting
litigation) to obtain any such required consent(s) as promptly as possible. If
any such consent shall
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not be obtained or if any attempted assignment would be ineffective or would
impair Purchaser's right under the asset in question so that Purchaser would not
in effect acquire the full benefit of all such rights, Seller, to the maximum
extent permitted by law and the asset to be assigned, shall act after the
Closing as Purchaser's agent in order to obtain for it the full benefits
thereunder and shall cooperate, to the maximum extent permitted by law and the
asset to be assigned, with Purchaser in any other reasonable arrangement
designed to provide such benefits to Purchaser; provided that Seller shall not
be required to incur any expense or payment to any third party, to institute
litigation or to otherwise incur cost in connection with the foregoing.
6.9 Prorations and Transfer Taxes. Real estate taxes, personal property
taxes, utilities, and other pro-ratable items not included in the Assumed
Liabilities shall be adjusted ratably as of the Closing Date. All applicable
state, federal, and local sales, use, and transfer taxes payable in connection
with the transactions contemplated hereby shall be allocated and paid by the
Seller. Purchaser shall reimburse Seller for 50% of the amount of such taxes
actually paid by Seller.
6.10 Assumption of Liabilities. Except as expressly provided in this
Agreement, Purchaser shall not assume any liabilities or obligations of Seller.
Purchaser hereby undertakes, assumes and agrees to perform, pay, honor, satisfy,
fulfill, and discharge the following, hereinafter referred to as the "Assumed
Liabilities", whether liquidated, unliquidated, accrued, absolute, contingent,
or otherwise:
(a) any and all obligations, liabilities, or commitments
specifically undertaken or assumed by Purchaser pursuant to the terms of
this Agreement, including without limitation the Accrued Liabilities and
the matters described in Section 4.15(b) hereof, in accordance with the
provisions thereof;
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(b) any and all unperformed and unfulfilled liabilities,
obligations, and commitments required to be performed and fulfilled by
Seller under the terms of the Contracts and the other executory contracts,
agreements, purchase, and sales orders, leases, licenses, commitments, and
undertakings of the Business entered into in the Ordinary Course of
Business, whether or not set forth in Schedule 1.12, or which have been
entered into between the date hereof and Closing in the Ordinary Course of
Business;
(c) any and all liability for accrued vacation for all of the Hired
Employees for all relevant periods prior to Closing, together with the
other liabilities which collectively comprise the Accrued Liabilities;
(d) any and all liability and responsibility for workers'
compensation claims as set forth in Section 6.5;
(e) any and all liabilities and obligations relating to claims
asserted at any time on or after the Closing Date by any person or entity
(including the expense of defense and settlement thereof) for or relating
to personal injury, wrongful death, or property damage which occur on or
after the Closing Date, including without limitation claims which involve
allegations of Product Warranty Liability or Product Liability, which is
actually or allegedly caused by, arising out of or resulting from Products
or services sold or provided by Purchaser, whether directly or indirectly,
in the conduct of the ASD business; and,
(f) other than Accounts Payable and intercompany liabilities, any
and all liabilities, obligations, and commitments incurred in the Ordinary
Course of Business since the Balance Sheet Date and in accordance with the
terms of this Agreement.
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It is expressly agreed that Purchaser has not assumed or agreed to
perform, pay, or discharge, and that Seller hereby undertakes, assumes, and
agrees to perform, pay, honor, satisfy, fulfill, and discharge, the Excluded
Liabilities, whether liquidated, unliquidated, accrued, absolute, contingent, or
otherwise, including without limitation;
(u) all liabilities and obligations of any kind existing as of the
Closing of a nature characterized as an intercompany liability on the
Balance Sheet or Closing Balance Sheet (including any item removed as a
pro forma adjustment), and any similar item otherwise owed between Seller
and the ASD business other than items arising from arms-length commercial
transactions (such as the sale of Products);
(v) all Accounts Payable of the Business as of the Closing Date;
(w) claims, demands, damages, costs, expenses, losses, liabilities,
penalties, fines, suits, and proceedings (including attorney's fees) which
arise as the result of (i) the enforcement of Environmental Laws in effect
on the Closing Date resulting from the operation of the ASD business, the
sale of Products or Seller's activities at the Facility on or prior to the
Closing Date during the period of Seller's ownership, possession, or
control thereof; (ii) conditions caused, events occurring, or activities
at the Facility or with respect to the Business on or prior to the Closing
Date which result in any emission, disposal, deposit, contamination, or
discharges of Hazardous Materials; or (iii) the storage or release of
Hazardous Materials in the buildings, structures, and all other
improvements at the Facility on or prior to the Closing Date which storage
or release gives rise to a regulatory obligation to remediate same under
Environmental Laws in effect on the Closing Date, together with
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ACM conditions for which Seller shall bear sole responsibility pursuant to
Section 4.15(b) of this Agreement;
(x) any and all liabilities and obligations relating to claims
asserted by any person or entity (including the expense of defense and
settlement thereof) for or relating to personal injury, wrongful death, or
property damage, including without limitation claims which involve
allegations of Product Warranty Liability or Product Liability, which is
actually or allegedly caused by, arising out of or resulting from Products
or services sold or provided by Seller, whether directly or indirectly, in
the conduct of the ASD business prior to the Closing Date;
(y) all liabilities and obligations of Seller for Taxes, other than
for Taxes which are expressly identified herein as Accrued Liabilities;
and,
(z) any of the litigation and claims required to be set forth in
Schedule 4.8 hereof.
6.11 Access to Information After the Closing. After Closing, Purchaser
shall cooperate with Seller and grant Seller's employees and agents during
normal business hours reasonable access to Purchaser's management and personnel
and to the records of Purchaser relating to the operation of the Business during
the period it was owned and operated by Seller for the purpose of:
(a) any Tax examination of Seller or its affiliates for preparation
of any Tax return of Seller or its affiliates;
(b) any claim or litigation involving Seller or its affiliates
(including claims or investigations arising under or in connection with
this Agreement);
(c) any investigation of Seller or its affiliates relating to the
Business conducted by any governmental organizations;
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(d) any matter relating to any indemnification, representation,
warranty, covenant, or any other term of this Agreement; or
(e) any reasonable business purpose.
It is specifically agreed that Purchaser shall cooperate with Seller at Seller's
expense in Seller's continued defense of the litigation and claims described in
Schedule 4.8 hereto, and shall provide technical advice and assistance in
connection therewith as reasonably required by Seller.
6.12 Taxes. Purchaser shall prepare and file all federal, state, and local
income, sales, personal property, or similar Tax returns in connection with the
operation of the Business on and after the Closing Date.
6.13 Seller's Identification. It is expressly understood that Purchaser
acquires no right, title, or interest in and to the trademarks, trade names,
and/or trade designations "The B.F. Goodrich Company", "BFGoodrich", "Goodrich",
"BFG", "Tremco", or in and to any other trademark, trade names, or trade
designation which identifies Seller as The B.F.Goodrich Company.
6.14 Removal of Seller's Identification. Purchaser shall within six (6)
months after the Closing: (a) remove or otherwise permanently and completely
obliterate all trademarks, trade names, and/or trade designations which identify
Seller from the Facility and from all Products transferred hereunder as existing
Inventory or Business Assets on the Closing Date; and, (b) remove or permanently
or completely obliterate from any molds, dies, or other equipment used for
making Products, any trademarks, trade names, and/or trade designations that
identify Seller. In connection with Products manufactured or sold by Purchaser
after the Closing Date that include any trademark, trade name, or trade
designation that identifies Seller (to the extent permitted herein) Purchaser
will nevertheless identify such Products as having been manufactured by
Purchaser. The provisions of
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this Section 6.14 shall not in any way limit or restrict the indemnities
provided by Purchaser nor expand the indemnities provided by Seller herein with
respect to Products sold after the Closing Date.
6.15 Office Supplies. Except to the extent permitted under Section 6.14
hereof, Purchaser agrees not to use any office stationary, invoices, vouchers,
catalogs, brochures, product literature, publications, MSDS, business cards, and
other office supplies which bear any trademark, trade name, or trade designation
that in any way identifies Seller unless it first removes, obscures by a label,
or permanently and completely obliterates the designation of Seller from such
materials.
6.16 Trademarks, Trade Names, and Technology Acquired By Purchaser.
Notwithstanding the foregoing provisions, Seller has agreed to and shall, as of
the Closing Date, assign, transfer, and convey to Purchaser all of its right,
title, and interest in and to the Trademarks and Trade Names identified in
Schedule 1.35. On the Closing Date, Seller and Purchaser shall execute and
deliver License Agreement(s) substantially in the form of the document(s)
annexed hereto as Exhibit B, wherein Seller transfers to Purchaser the Licensed
Technology for use by Purchaser in the Business.
6.17 Post-Closing Supply Agreements. The ASD business as heretofore
conducted by Seller has included transactions wherein: (i) various divisions of
Seller supply materials or goods to the ASD business; and (ii) the ASD business
sells Products to various divisions of Seller. Purchaser and Seller will review
these arrangements and will, prior to the Closing Date, establish arrangements
for the continuity of supply after Closing.
6.18 Post-Closing Issues. With respect to environmental conditions for
which Seller is liable hereunder, Seller will continue to monitor developments
and the proposed regulations under Ohio law with respect to a potential filing
by Seller with respect to the Facility (at Seller's expense)
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under the Ohio Brownfield Program, Ohio Revised Code Section 3746.01, et seq.
(the "Program"). The parties shall reasonably cooperate in all respects relative
to Seller's performance and discharge of its liabilities hereunder, including
such actions as Seller may determine to take under the Program, and in
connection therewith Purchaser shall provide to Seller such access to the
Facility, its records and information and personnel as may be reasonably
required in connection with such actions by Seller.
ARTICLE VII
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
All obligations of Purchaser under this Agreement are subject to the
satisfaction on or prior to the Closing Date of each of the following
conditions, any of which conditions may be waived by Purchaser in its sole
discretion:
7.1 Representations and Warranties. The representations and warranties
made by Seller herein or in any document delivered pursuant hereto shall be
complete, true, and correct in all material respects when made and as of the
Closing Date.
7.2 Obligations. Seller shall have performed and complied in all material
respects with all obligations, covenants, agreements, and conditions, including
completion of the delivery required under Section 9.2, required hereunder to be
performed or complied with by it at or before the Closing Date.
7.3 Certificate. There shall be delivered to Purchaser a certificate
executed by Seller, dated as of the Closing Date, which (i) certifies that the
conditions set forth in Sections 7.1and 7.2 hereof have been fulfilled and (ii)
provides any information or particulars required to update the
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representations and warranties of Seller in respect of the period from the date
hereof through the Closing Date in order to permit such certification to be
made.
7.4 No Legal Action. No action or proceeding shall have been instituted or
threatened before any court or government body to restrain, prohibit, or
invalidate the sale of the Business and Business Assets contemplated by this
Agreement. No temporary restraining order or preliminary or permanent injunction
or other order, decree, or ruling shall have been issued by a court of competent
jurisdiction or by a governmental, regulatory, or administrative agency or
commission, and no statute, rule, regulation, or executive order shall have been
promulgated or enacted by any governmental authority or shall be in effect,
which would prevent the consummation of the transactions contemplated hereby or
cause same to be unlawful.
7.5 HSR Filing. All filings required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, shall have been made and the waiting
period thereunder including any extensions thereof shall have expired or
terminated.
7.6 Completion of Environmental Audit. The environmental audit report
referred to in Section 10.5 shall have been completed and delivered to Seller
and Purchaser.
ARTICLE VIII
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
All obligations of Seller under this Agreement are subject to the
satisfaction on or prior to the Closing Date of each of the following
conditions, any of which conditions may be waived by Seller in its sole
discretion:
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8.1 Representations and Warranties. The representations and warranties
made by Purchaser herein or in any document delivered pursuant hereto shall be
true, complete and correct in all material respects when made and as of the
Closing Date.
8.2 Obligations. Purchaser shall have performed and complied in all
material respects with all obligations, covenants, agreements, and conditions,
including completion of the delivery required under Section 9.3, required
hereunder to be performed or complied with by Purchaser at or before the Closing
Date.
8.3 Certificates. There shall be delivered to Seller a certificate
executed by an authorized officer or representative of Purchaser, dated as of
the Closing Date, which (i) certifies that the conditions set forth in Sections
8.1 and 8.2 hereof have been fulfilled and (ii) provides any information or
particulars required to update the representations and warranties of Purchaser
in respect of the period from the date hereof through the Closing Date in order
to permit such certification to be made.
8.4 No Legal Action. No action or proceeding shall have been instituted or
threatened before any court or governmental body to restrain, prohibit, or
invalidate the sale of the Business and Business Assets contemplated by this
Agreement. No temporary restraining order or preliminary or permanent injunction
or other order, decree, or ruling shall have been issued by a court of competent
jurisdiction or by a governmental, regulatory, or administrative agency or
commission, and no statute, rule, regulation, or executive order shall have been
promulgated or enacted by any governmental authority or shall be in effect,
which would prevent the consummation of the transactions contemplated hereby or
cause same to be unlawful.
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8.5 HSR Filing. All filings required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, shall have been made and the waiting
period thereunder including any extensions thereof shall have expired or
terminated.
8.6 Completion of Environmental Audit. The environmental audit report
referred to in Section 10.5 shall have been completed and delivered to Seller
and Purchaser.
ARTICLE IX
CLOSING
9.1 Closing. The Closing shall take place on the Closing Date, at the
offices of Kirkland and Ellis in Chicago, Illinois, or at such other place as
Seller and Purchaser may mutually agree. All documents and other instruments
required to be delivered at Closing shall be regarded as having been delivered
simultaneously, and no document or other instrument shall be regarded as having
been delivered until all have been delivered.
9.2 Seller's Obligations. On the Closing Date, Seller shall deliver to
Purchaser:
(a) such bills of sale, endorsements, assignments, and other
appropriate instruments of conveyance, all in form and substance
reasonably satisfactory to legal counsel for Purchaser as shall be
necessary to for the purpose of transferring, assigning, and conveying to
Purchaser on the Closing Date all of Seller's light, title, and interest
in and to the Business and the Business Assets in accordance with the
terms and conditions hereof, and to otherwise consummate the transactions
contemplated by this Agreement, including, without limitation, the
Facility Documents;
(b) the legal opinion of Seller's Assistant General Counsel, dated
as of the Closing Date, in a form reasonably satisfactory to legal counsel
for Purchaser;
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(c) the Contracts, Business Records, and similar written documents
pertaining or relating to the Business Assets;
(d) a Certificates of Good Standing for Seller's issued by the
Secretary of States of New York and Ohio;
(e) a certificate signed by Seller's Secretary or Assistant
Secretary which certifies (i) the resolutions of the Board of Directors of
Seller approving and authorizing the execution, delivery, and performance
of this Agreement and the instruments, documents, and transactions
contemplated herein and (ii) the names and signatures of the officers of
the Purchaser authorized to execute and deliver all such instruments;
(f) all contracts, files, documents, data, records, and information
of Seller relating to the conduct of the ASD business or the Business
Assets, all of which may be delivered to the custody of Purchaser at
offices of the Business;
(g) UCC termination statements necessary to release any UCC-1
statements (if any) affecting the Business Assets;
(h) copies of all consents, assignments, and waivers received by
Seller for the consummation of the transaction contemplated by this
Agreement; and
(i) all other documents required to be delivered by Seller to
Purchaser at Closing under the provisions of this Agreement.
9.3 Purchaser's Obligations. On the Closing Date, Purchaser shall deliver
to Seller:
(a) payment of the adjusted Purchase Price to be paid at Closing
pursuant to Article 3;
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(b) such documentation as is necessary or required to evidence the
assumption of the Assumed Liabilities (including, without limitation, the
Assumption Agreement);
(c) the legal opinion of counsel for Purchaser, dated as of the
Closing Date, in a form reasonably satisfactory to legal counsel for
Seller;
(d) a Certificate of Good Standing for Purchaser issued by the
Secretary of States of Delaware and Ohio;
(e) a certificate signed by the Secretary or President of the
general partner of Sovereign which certifies (1) the resolutions of the
Board of Directors of the general partner of Sovereign approving and
authorizing the execution, delivery, and performance of this Agreement and
the instruments, documents, and transactions contemplated herein and (2)
the names and signatures of the officers of the general partner of
Sovereign authorized to execute and deliver all such instruments.
(f) a certificate signed by the Chairman of the Board of Managers, a
Manager or the President of Purchaser which certifies; (i) the resolutions
of the Board of Managers
approving the execution, delivery and performance of this Agreement and
the instruments, documents and transactions contemplated herein, and (ii)
the names and signatures of all officers and/or members of Purchaser
authorized to execute and deliver all such instruments.
(g) all other documents and payments required to be delivered by
Purchaser to Seller at Closing under the provisions of this Agreement.
9.4 Additional Acts and Documents. At any time and from time to time after
the Closing, Purchaser and Seller will execute and deliver such other
instruments of sale, transfer, conveyance, assignment, and confirmation and take
such actions as are necessary or desirable in order to
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effectively transfer, convey, and assign to Purchaser and to confirm Purchaser's
ownership of and title to the Business and Business Assets.
9.5 Consent and Approvals. This Agreement shall not constitute an
agreement to assign or transfer any interest in any instrument, contract, lease,
permit, or other agreement or arrangement or any claim, right, or benefit
arising thereunder or resulting therefrom, if an assignment or transfer or an
attempt to make such an assignment or transfer without the consent of a third
party would constitute a breach or violation thereof; and any transfer or
assignment to Purchaser by Seller of any interest under any such instrument,
contract, lease, permit, or other agreement or arrangement that requires the
consent of a third party shall be made subject to such consent or approval being
obtained. In the event any such consent or approval is not obtained on or prior
to the Closing Date, Seller shall continue to use commercially reasonable
efforts to obtain any such approval or consent after the Closing Date until such
time as such consent or approval has been obtained, and Seller will cooperate
with Purchaser in any lawful and economically feasible arrangement to provide
that Purchaser shall receive Seller's interest in the benefits under any such
instrument, contract, lease, permit, or other agreement or arrangement,
including performance by such Seller as agent, if economically feasible,
provided that Purchaser snail undertake to pay or satisfy the corresponding
liabilities for the enjoyment of such benefit to the extent Purchaser would have
been responsible therefor if such consent or approval had been obtained.
Purchaser shall pay and discharge, and shall indemnify and hold Seller harmless
from and against, any and all out-of-pocket costs (other than its internal
administrative costs) of seeking to obtain or obtaining any such consent or
approval after the Closing Date.
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9.6 Accounts Receivable. Seller agrees to promptly transfer to Purchaser
any cash or other property which Seller may receive after Closing in respect of
the Accounts Receivable transferred to Purchaser hereunder.
9.7 Exhibited Documents and Schedules. Seller and Purchaser shall at
Closing execute and deliver the agreements annexed hereto as Exhibits A and B.
ARTICLE X
ADDITIONAL COVENANTS
10.1 Payment of Assumed Liabilities. Purchaser shall pay or perform when
due all Assumed Liabilities, provided, however, that nothing contained herein
shall require Purchaser to pay, perform, or discharge any Assumed Liability so
long as: (i) Purchaser shall, in good faith, be diligently contesting, or
causing to be contested the amount or validity thereof; (ii) execution thereof
against Seller has been stayed; and (iii) Purchaser provides Seller with a
complete defense and indemnity with respect to all matters arising out of such
contest.
10.2 Payment of Excluded Liabilities. Seller shall pay or perform when due
all Excluded Liabilities, provided, however, that nothing contained herein shall
require Seller to pay, perform, or discharge any Excluded Liability so long as:
(i) Seller shall, in good faith, be diligently contesting or causing to be
contested the amount or validity thereof; (ii) execution thereof against
Purchaser has been stayed; and (iii) Seller provides Purchaser with a complete
defense and indemnity with respect to ail matters arising out of such contest.
10.3 Seller's Non-Competition Covenant. In consideration of Purchaser
entering into and fulfilling its obligations under this Agreement, and ancillary
to the sale of the Business and Business Assets as provided herein, Seller
agrees that, without the prior written consent of Purchaser, it and
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its current affiliates and subsidiaries shall not, for a period of four (4)
years after the Closing Date, directly or indirectly: (a) engage in any
Competing Activity (as hereinafter defined) within the geographic area in which
Seller has conducted the Business, it being understood and agreed by the parties
that such geographic area is world-wide; (b) either for its own benefit or
purposes or the benefit or purposes of any other person, interfere with, attempt
to divert, entice away, or accept any business from any person who was listed in
the Customer List, if for the purpose of a Competing Activity; or (c) solicit
for employment by Seller any Hired Employee. For the purposes of this Agreement,
"Competing Activity" means any participation in, or other ownership or
organization of, any person or entity, which, directly or indirectly, is engaged
in, or hereafter engages in, the design, development, manufacture, distribution
or sale of any Product, whether Seller is acting as an agent, consultant,
investor, partner, shareholder, proprietor or in any representative capacity.
Provided, however, that nothing herein shall prevent or prohibit Seller or its
affiliates or subsidiaries in any way from conducting any activities other than
the ASD business or prohibit Seller from acquiring, investing in, controlling,
or otherwise having an interest in a business so long as not more than ten
percent (10%) of such business' sales and profits are derived from an operation
which is a Competing Activity, or from acquiring, investing in, or otherwise
having an interest in not more than a ten percent (10%) equity interest or
capital stock interest in a business whose sales and profits are derived from a
Competing Activity.
10.4 Continued Business Activity. It is understood and agreed that, any
activity of Seller which is conducted after Closing in a manner consistent with
its prior practice as a part of any of the divisions, business units, or
segments of Seller or its affiliates other than the ASD business as constituted
and operated on and after December 31, 1994, whether as the commencement,
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continuation, or restructuring of any such activity, shall be deemed not to
constitute a Competing Activity for the purposes of the foregoing Section 10.3,
and nothing in this Agreement shall restrict or limit, or be deemed to restrict
or limit, any such activity as may be hereafter conducted by Seller.
10.5 Environmental Audit and Liabilities. The parties have agreed to share
equally the expenses of an environmental audit of the Facility, conducted by
Environmental Mitigation Group ("EMG"), which audit report is attached here in
Schedule 10.5. Seller shall not be obligated by reason of this Agreement to
undertake any actions or to expend any funds in response to or as a consequence
of any matter or condition identified in EMG's report. EMG's report shall serve
as a baseline for future reference by the parties for the purposes of this
Agreement.
10.6 Taxes.
(a) Except as otherwise provided herein, and except as to items
which are Accrued Liabilities, Purchaser shall not be liable at any time
for, and Seller shall indemnify and hold Purchaser harmless from and
against, any Taxes which may be assessed against or incurred by Seller in
respect of the Business for any period ending on or prior to the Closing
Date, whether resulting from any audit or review conducted prior to or
subsequent to the Closing or otherwise. Seller shall be entitled to
recover and retain any refunds of Taxes paid in respect of all periods
ending on or prior to the Closing Date, except in respect of any Taxes
which are Accrued Liabilities.
(b) It is understood and agreed that, in connection with the sale of
certain real or personal property (whether owned or leased), certain
general or leasehold taxes which are assessed on an annual basis will be
prorated as of the Closing Date. The prorations will be based upon the
best information available at the time, and Purchaser and Seller agree
that
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when the relevant information is finalized as evidenced by issuance of the
relevant tax bills by the appropriate taxing body, any over- or
underpayment resulting from the earlier prorating of estimated figures
will be promptly adjusted by cash payment between parties.
(c) In the event Seller or Purchaser pay any amount which another is
obligated to pay pursuant to this Section 10.6, then the party so paying
shall be promptly reimbursed in cash by the other party.
(d) Purchaser shall be responsible and liable for, and shall
indemnify and hold Seller harmless against, any and all Taxes arising out
of or assessed against the Business and Business Assets in respect of the
operation or ownership, use, or transfer thereof after the Closing Date.
ARTICLE XI
INDEMNIFICATION
11.1 Indemnification by Purchaser. Purchaser agrees to indemnify, defend,
and hold harmless Seller, its affiliates and their respective officers,
directors, shareholders, employees, agents, successors, and assigns from and
against any liability, obligation, claim, cause of action, loss, cost, damage,
and expense of any kind or amount whatsoever, including reasonable attorneys'
fees and court costs incurred in prosecuting or defending same, but excluding
consequential damages (Seller's "Losses"), incurred or suffered by one or more
of said parties, arising out of or resulting from:
(a) The breach of any representation or warranty made by Purchaser
in this Agreement;
(b) The breach of or failure to perform any covenant, obligation, or
agreement of Purchaser set forth herein;
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(c) The Assumed Liabilities;
(d) Any liability relating to the Business or the Business Assets
claimed to arise under any Environmental Law, as now or hereafter enacted,
reauthorized or amended, arising out of facts or circumstances occurring
on or after the Closing Date, or otherwise arising out of or resulting
from the operation of the Business or the sale of Products after the
Closing Date; provided, however, that Purchaser shall not be required to
indemnify Seller hereunder if and to the extent any such claim by
Purchaser arises from facts or circumstances in respect of which Seller
has indemnified Purchaser pursuant to Section 11.2; and,
(e) Claims, demands, damages, costs, expenses, losses, liabilities,
penalties, fines, suits, and proceedings (including attorney fees) arising
or resulting from (1) conditions caused, events occurring, or activities
at the Facility or with respect to the Business after the Closing Date
which result in any emission, disposal, deposit, contamination, or
discharges of hazardous substances or regulated substances or (2) the
existence, storage, or presence of hazardous substances or regulated
substances in the buildings, structures, and all other improvements at the
Facility on or after the Closing Date and the remediation thereof except
to the extent Seller has provided indemnification pursuant to Section 11.2
hereof .
11.2 Indemnification by Seller. Seller shall indemnify, defend, and hold
harmless Purchaser, its officers, directors, shareholders, employees, agents,
successors, and assigns and against any liability, obligation, claim, cause of
action, loss, cost, damage, and expense of any kind or amount whatsoever,
including reasonable attorneys' fees and court costs fees incurred in
prosecuting or defending same, but excluding consequential damages (Purchaser's
"Losses") incurred or suffered by any one or more of said parties, arising out
of or resulting from:
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(a) The breach of any representation or warranty made by Seller in
this Agreement;
(b) The breach of or failure to perform any covenant, obligation, or
agreement of Seller set forth herein;
(c) The Excluded Liabilities;
(d) Claims, demands, damages, costs, expenses, losses, liabilities,
penalties, fines, suits, and proceedings (including attorney's fees) which
arise as the result of (i) the enforcement of Environmental Laws in effect
on the Closing Date resulting from the operation of the ASD business, the
sale of Products or Seller's activities at the Facility on or prior to the
Closing Date during the period of Seller's ownership, possession, or
control thereof; (ii) conditions caused, events occurring, or activities
at the Facility or with respect to the Business on or prior to the Closing
Date which result in any emission, disposal, deposit, contamination, or
discharges of Hazardous Materials; or (iii) the storage or release of
Hazardous Materials in the buildings, structures, and all other
improvements at the Facility on or prior to the Closing Date which storage
or release gives rise to a regulatory obligation to remediate same under
Environmental Laws in effect on the Closing Date, together with ACM
conditions for which Seller shall bear sole responsibility pursuant to
Section 4.15(b) of this Agreement; and,
(e) Any brokers' commission, finders' fees, or other like payments
incurred or alleged to have been incurred by Seller in connection with the
sale of the Assets and the consummation of the transactions contemplated
by this Agreement.
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11.3 Procedure for Indemnification. If any party hereto shall claim
indemnification hereunder arising from any claim or demand of a third party, the
party seeking indemnification (the "Indemnitee") shall promptly notify the party
from whom indemnification is sought (the "Indemnitee") in writing of the basis
for such claim or demand, setting forth the nature of the claim or demand in
reasonable detail. The indemnitor shall have the right to compromise or, if
appropriate, defend at its own cost and through counsel of its own choosing, any
claim or demand of any third party giving rise to such claim for
indemnification. Such notice and opportunity to compromise or defend, if
applicable, shall be conditions precedent to any asserted liability under this
indemnity. In the event the indemnitor undertakes to compromise or defend any
such claim or demand, it shall promptly notify the indemnitee in writing of its
intention to do so. The indemnitee shall fully cooperate with the indemnitor and
its counsel in the defense or compromise of such claim or demand. After the
assumption of the defense by the indemnitor, the indemnitor shall be liable for
any out-of-pocket legal or other expenses subsequently incurred in connection
with such defense, but the indemnitee may participate in such defense at its own
expense. No settlement of a third-party claim or demand defended by the
indemnitee shall be made without the written consent of the indemnitor. The
indemnitor shall not, except with the written consent of the indemnitee, consent
to the entry of a judgment or settlement which does not include as an
unconditional term thereof, the giving by all claimants which have or could
assert claims against indemnitee (including, without limitation, Claims for
Contribution or indemnity) to the indemnitee an unconditional and complete
release from all liability in respect of such third-party claim or demand.
Indemnitee will have the right to review and approve the form of release, which
approval will not be unreasonably withheld or delayed. If either party shall
claim 'indemnification hereunder for any claim other than third-party
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claims, the indemnitee shall promptly notify the indemnitor in writing of the
basis for such claim, setting forth the nature and amount of the claim in
reasonable detail, and after determination of the validity of such claim, which
the parties shall promptly pursue, payment therefor shall be made by the
indemnitor. Notwithstanding the foregoing, the indemnitor will not be entitled
to control the defense of a claim, and will pay the reasonable fees and expenses
of legal counsel retained by indemnitee, in the event a court of competent
jurisdiction rules that the indemnitor has breached its obligation herein to
defend such claim, or if the indemnitor is insolvent, bankrupt, or otherwise
unable or unwilling to pay the costs of defending such claim.
11.4 Period of Seller's Indemnity. The indemnities contained in Section
11.2 of this Agreement shall expire two (2) years from the Closing Date, except
with respect to (i) Losses as to which notice has been given pursuant to Section
11.3 within such period, in which case the indemnification period shall be
extended until final resolution of such Loss; (ii) the indemnities set forth in
Section 11.2(d) which shall expire four (4) years from the Closing Date; and
(iii) indemnities provided herein by Seller with respect to Taxes which shall
survive for the period of the applicable statute of limitations.
11.5 Limitation of Liability. Purchaser's right to indemnification under
this Agreement in relation to the transactions contemplated herein shall be
limited to a maximum recovery from Seller of $10,000,000, and Purchaser agrees
this shall constitute Purchaser's sole and exclusive remedy with respect to
Purchaser's Losses except as a result of fraud by Seller. Seller shall have no
obligation to indemnify Purchaser pursuant to this Agreement unless (a) the
claim for indemnity is in excess of $10,000 and (b) the total of all claims in
excess of $10,000 is in excess of $150,000. In the event the threshold on
liability for indemnification in clause (b) of this Section 11.5 is
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satisfied, Seller shall be liable for the entire amount (up to an aggregate of
$10,000,000) of all such claims which in total are in excess of $100,000, and
then only to the extent of such excess. Purchaser waives the light to be
indemnified by Seller with respect to any Losses to the extent of (i) any
insurance proceeds or other recovery received by it (in excess of any applicable
uninsured deductible or retention) with respect to Losses for which
indemnification by Seller would otherwise be required hereunder or (ii) any
reduction of any taxes otherwise payable by Purchaser resulting from a Loss,
after taking into account any taxes imposed upon any indemnity payment.
Notwithstanding anything to the contrary contained in this Agreement (except as
provided in Section 11.9), Seller shall not be liable under the indemnification
provisions of this Article II hereof or otherwise have any liability for any
misrepresentation or breach of warranty under this Agreement or otherwise have
any liability in connection with the transactions contemplated by this
Agreement, other than in an amount which is in the aggregate recoverable after
giving effect to the provisions and limitations of this Section 11.5.
11.6 Exclusive Remedy; Survival. The parties hereto agree that the
remedies provided by this Article shall be exclusive with respect to the matters
described in Sections 11.1 and 11.2. The representations and warranties of
Seller and Purchaser set forth in this Agreement shall expire two (2) years
after the Closing Date, and Seller's and Purchaser's respective liability with
respect thereto (including indemnification in respect of same) shall
automatically and absolutely expire, terminate and be extinguished at the end of
such two (2) year period, except as otherwise expressly provided in this
Agreement.
11.7 Special Defense Provisions. The provisions of Section 11.3 shall be
subject to the following provisions. In the event any Loss shall arise in
respect of any alleged exposure to Products
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or to materials contained therein or used in the production of Products, wherein
the period of exposure commences in respect of Products sold by Seller prior to
the Closing Date and terminates after the commencement of the sale of Products
by Purchaser on and after the Closing Date, then liability shall be allocated
based on the respective quantities of Products sold or based on the respective
time of exposure, whichever is more relevant to the Loss in question. At such
time as any such Loss is asserted, Purchaser and Seller shall reasonably
cooperate to determine which party is more likely to have the greater percentage
of any potential liability, and the party so mutually identified shall take the
lead in defending such action. The costs of defense shall be initially paid on
an estimated, mutually-agreed percentage basis. If the parties are unable to
agree as to which party should assume the defense, then the party which has been
named defendant shall assume the defense (or if both are named parties, then
they shall each defend themselves), and the total costs of defense shall be
borne on a 50/50 basis. The aforesaid allocations of defense costs shall be made
on a preliminary basis only, and shall be subject to final adjustment as between
Seller and Purchaser upon the final determination of the actual percentage
liability of the parties. If such final determination shall indicate that
neither party is liable for the alleged Loss, then the defense costs shall
remain allocated on the same basis as the preliminary allocation, unless
otherwise agreed by the parties. The foregoing shall not apply to any item
included in Schedule 4.8.
11.8 Special Indemnification by Seller. Notwithstanding anything to the
contrary in this Article 11 (including the limitations in Section 11.4, 11.5 and
11.6 hereof), Seller shall indemnify, defend and hold harmless Purchaser, its
officers, directors, shareholders, employees, agents, successors and assigns
from and against any liability, obligation, claim, cause of action, loss, cost,
damage and expense of any kind or amount whatsoever, including reasonable
attorneys' fees and
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court costs fees incurred in prosecuting or defending same, but excluding
consequential damages (Purchaser's "Losses"), incurred or suffered by any one or
more of said parties, arising out of or resulting from any claim or threatened
claim that either the Purchaser or the Seller, or any person in the chain of
distribution or use from Seller or Purchaser, has infringed on U.S. Patent
5,234,757 or 5,397,611 or any divisional, continuation, continuation-in-part or
reissue thereof, or any foreign patents corresponding to any of the foregoing
relating to expandable syntactic films. The obligations of Seller set forth
above shall apply only if (a) Purchaser promptly informs Seller in writing of
any claim or threatened claim within thirty (30) days of Purchaser receiving
written notice of such claim or threatened claim, (b) Seller is given exclusive
control of the defense of such claim and all negotiations relating to its
settlement, and (c) Purchaser shall assist Seller in all necessary respects in
defense of such claim including providing Seller reasonable and timely access to
any documents, employees, or the like required for the defense of such claims.
11.9 ENFORCEMENT OF COVENANTS. NOTWITHSTANDING ANYTHING CONTAINED IN THIS
AGREEMENT TO THE CONTRARY (INCLUDING WITHOUT LIMITATION THE PROVISIONS OF
SECTIONS 4.24,11.4,11.5 AND 11.6 HEREOF), THE PURCHASER SHALL HAVE THE RIGHT TO
ENFORCE ANY COVENANT CONTAINED IN THIS AGREEMENT AT ANY TIME HEREAFTER
(INCLUDING, WITHOUT LIMITATION, THE PERFORMANCE BY SELLER OF ANY EXCLUDED
LIABILITY), INCLUDING THE RIGHT TO SEEK SPECIFIC PERFORMANCE OF SUCH COVENANTS
OR ANY OTHER REMEDIES.
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ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Termination. This Agreement may be terminated at any time prior to
the Closing,
(a) by mutual consent of Purchaser and Seller;
(b) by Seller if the Closing has not occurred prior to a date thirty
(30) days after the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, has expired or been terminated; or
(c) by Seller if the Closing Date has not occurred by May 15, 1996.
12.2 Liability on Termination. In the event of termination of this
Agreement as provided in Section 12.1, above, neither party hereto shall
have any liability hereunder of any nature whatsoever to the other,
including any liability for damages, provided that this Section 12.2 shall
not preclude liability for a willful act, or a willful failure to act, in
violation or breach of the terms and conditions hereof.
12.3 Expenses. Except as otherwise specifically provided herein, each
party shall pay its own expenses, including fees of counsel and accountants
incurred in connection with the Acquisition Agreements and the transactions
contemplated thereby.
12.4 Public Announcements. From and after the date hereof and prior to the
Closing Date, except as Purchaser and Seller may otherwise agree, neither
Purchaser nor Seller shall make any release of information regarding matters
relating to the transactions contemplated hereby except: (i) Purchaser and
Seller may each continue such communications with their respective employees,
customers, licensees, suppliers, lenders, lessors, and other particular groups
as may be legally required or necessary or appropriate and not inconsistent with
the best interest of the other party or
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the prompt consummation of the transactions contemplated by this Agreement or
(ii) as required by law; provided, however, that Purchaser and Seller shall use
their best efforts to consult with each other prior to making any public
announcement regarding matters relating to the transactions contemplated by this
Agreement.
12.5 Notices. All notices or other communications required or permitted by
this Agreement shall be in writing and shall be deemed to have been duly given
(i) upon receipt if delivered in person, (ii) one (1) business day after notice
is sent by Federal Express or other national overnight courier of comparable
stature, or (iii) three (3) days after such notice is mailed by certified or
registered mail, return receipt requested, postage prepaid, and addressed as
follows:
(i) if to Purchaser or Sovereign:
Sovereign Engineered Adhesives, L.L.C.
Sovereign Specialty Chemicals, L.P.
225 W. Washington Street, Suite 220
Chicago, Illinois 60606
Attn: President
with copies to:
First Chicago Equity Capital
Three First National Plaza, Suite 1210
Chicago, Illinois 60670-0610
Attn: Burton E. McGillivray
and
Davis, Graham & Stubbs, L.L.C.
1225 New York Avenue, Suite 1200
Washington, DC 20005-3919
Attn: Christopher J. Hagan, Esq.
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(ii) if to Seller,
BFGoodrich Specialty Chemicals
9911 Brecksville Road
Cleveland, Ohio 44141-3247
Attn: Vice President - Legal
or to such other addresses as may be specified by either party hereto pursuant
to notice given by such party in accordance with the provisions of this Section
12.5.
12.6 Benefit of the Agreement. This Agreement shall be binding upon the
parties hereto and their respective permitted successors and assigns and shall
inure to the benefit of the parties hereto and their permitted successors and
assigns. This Agreement does not and is not intended to confer any lights or
remedies hereunder upon any person other than the parties hereto and their
respective permitted successors and assigns.
12.7 Headings. The headings used in this Agreement are for convenience
only, shall not be deemed to constitute a part hereof, and shall not be deemed
to limit, characterize or in any way affect the provisions of this Agreement.
12.8 Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the subject matter hereof, and no
other representations, warranties, promises, agreements, statements, or
understandings regarding the subject matter hereof shall be of any force or
effect unless in writing, executed by the party to be bound and dated on or
subsequent to the date hereof.
12.9 Gender and Number. Wherever from the context it appears appropriate,
each item stated in either the singular or the plural shall include the singular
and the plural, pronouns stated in either the masculine, feminine, and neuter
gender, and terms defined in Article I hereof in either the
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singular or the plural may be used in either the singular or plural herein
without otherwise changing the meaning thereof.
12.10 Modifications and Waivers. No change, modification, or waiver of any
provision of this Agreement shall be valid or binding unless it is in writing
dated subsequent to the date hereof and signed by the parties intended to be
bound. No waiver of any breach, term, or condition of this Agreement by either
party shall constitute a subsequent waiver of the same or any other breach,
term, or condition.
12.11 Assignment. This Agreement may not be assigned by either party
without prior written consent of the other party, which consent will not be
unreasonably withheld; provided, however, that Purchaser may assign its rights
hereunder to LaSalle National Bank as security for its secured financing
obtained to fund this transaction or any modification or replacement thereof.
12.12 Invalid Provisions. If any provision of this Agreement is deemed or
held to be illegal, invalid, or enforceable, this Agreement shall be considered
divisible and inoperative as to such provision to the extent it is deemed to be
illegal, invalid, or unenforceable, and in all other respects this Agreement
shall remain in full force and effect provided, however, that d any provision of
this Agreement is deemed or held to be illegal, invalid, or unenforceable there
shall be added hereto automatically a provision as similar as possible to such
illegal, invalid, or unenforceable provision and be legal, valid, and
enforceable. Further, should any provision contained in this Agreement ever be
reformed or rewritten by any judicial body of competent jurisdiction, such
provision as so reformed or rewritten shall be binding upon all parties hereto.
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12.13 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
12.14 Bulk Sales. Purchaser hereby waives compliance by Seller with the
provisions of the Bulk Sales Laws of any state, and Seller warrants and agrees
to pay and discharge when due all bona fide claims of creditors of Seller
actually made against Purchaser or which have been or will be asserted against
Purchaser by reason of such non-compliance to the extent that such liabilities
are not included within the Assumed Liabilities under this Agreement. Seller
indemnities and agrees to hold Purchaser harmless from, against and in respect
of (and shall on demand reimburse Purchaser for) any loss, liability, cost, or
reasonable expense, including, without limitation, reasonable attorneys' fees,
suffered or incurred by Purchaser by reason of the failure of Seller to pay or
discharge such claims, provided any such claims are promptly disclosed to Seller
pursuant to the indemnity procedures set forth in Article XI hereof.
12.15 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Ohio.
ARTICLE XIII
SOVEREIGN GUARANTY
13.1 Guaranty. Sovereign hereby unconditionally guarantees the full and
prompt performance by its wholly-owned subsidiary, Purchaser, of each and every
covenant, obligation, indemnity or undertaking of Purchaser hereunder, and
Sovereign shall cause Purchaser at all times to perform same in accordance with
the terms and conditions of this Agreement. Upon failure of Purchaser to
perform, discharge, satisfy or deliver pursuant to any such covenant,
obligation,
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indemnity or undertaking hereunder, Sovereign shall forthwith on demand by
Seller perform in place of Purchaser as though Sovereign had been the Purchaser
hereunder in place of Purchaser.
13.2 Guaranty Unconditional. The obligations of Sovereign hereunder shall
be unconditional and absolute, and without limiting the generality of the
foregoing, shall not be released, discharged or otherwise affected by:
(a) any extension, renewal, settlement, compromise, waiver or
release of any obligation of Purchaser under this Agreement;
(b) any modification or amendment of this Agreement;
(c) any change in the corporate existence, structure or ownership of
Purchaser or any insolvency, bankruptcy, reorganization, or similar
proceeding affecting Purchaser or its assets, or the dissolution of
Purchaser;
(d) any act or omission to act or delay of any kind by Purchaser,
Seller or any other person or entity or any other circumstance whatsoever
which might, but for the provisions of this paragraph, constitute a legal
or equitable discharge of Purchaser's or Sovereign's obligations
hereunder.
13.3 Survival. Notwithstanding any other provision hereof, the provisions
of this Article 13 shall survive. the Closing as independent obligations and
covenants of Sovereign.
[This space intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SELLER:
THE B. F. GOODRICH COMPANY
By: /s/ Steven Esakov
--------------------------------
Title: V.P. Strategic Planning & Commercial Development
-------------------------------------------------
SOVEREIGN:
SOVEREIGN SPECIALTY CHEMICALS, L.P.,
a Delaware limited partnership
By: SOVEREIGN CHEMICAL CORPORATION,
Delaware corporation, its General Partner
By: /s/ Robert B. Covalt
---------------------------
Title: CEO
-----------------------
PURCHASER:
SOVEREIGN ENGINEERED ADHESIVES, L.L.C.
a Delaware limited liability company
By: Sovereign Specialty Chemicals, L.P.
a Delaware limited partnership, its Manager
By: Sovereign Chemicals Corporation,
a Delaware corporation, its General Partner
By: /s/ Robert B. Covalt
---------------------------
Title: CEO
-----------------------
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<PAGE> 1
Exhibit 10.15
PURCHASE AGREEMENT
This Purchase Agreement ("Agreement") is made and entered into this 19th
day of August, 1996, by and among The Sherwin-Williams Company, an Ohio
corporation, ("Seller"), Pierce & Stevens Canada, Inc., a company incorporated
under the laws of the Province of Ontario, Canada ("P & S Canada"), Sovereign
Specialty Chemicals L.P., a Delaware limited partnership ("Sovereign"), and P&S
Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of
Sovereign ("Purchaser").
W I T N E S S E T H:
WHEREAS, Seller's directly and indirectly wholly-owned subsidiaries are
engaged in the business of manufacturing, distributing and selling specialty
adhesives and specialty coatings to certain market niches; and
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, such business as defined in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements set forth herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
(a) The following terms, as used herein, have the following meanings:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control
with such other Person.
"Business Day" means any day except a Saturday, Sunday or other day
on which commercial banks in the State of Ohio are authorized by law to
close.
"Business" means the business of manufacturing, distributing and
selling specialty adhesives and specialty coatings in the "paper
converting", "flexible packaging" and "engineered products" product
categories (including the manufacture, distribution and sale of the
Hybond(R) contact adhesives product line and specifically excluding the
wood finishes product category (including the Fabulon(R) and Cablon(R)
product lines)) conducted by the Company and the Subsidiaries.
<PAGE> 2
"Canadian Business" means the business of distributing and selling
specialty adhesives and specialty coatings in the "paper converting",
"flexible packaging" and "engineered Products" product categories
(including the manufacture, distribution and sale of the Hybond(R) contact
adhesives product line and specifically excluding the wood finishes
product category (including the Fabulon(R) and Cablon(R) product lines))
as conducted in Canada by P&S Canada.
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time.
"Company" means Pierce & Stevens Corp., a New York corporation.
"DOJ" means the Antitrust Division of the United States Department
of Justice or any successor governmental agency or body.
"Environmental Laws" means any Law or Order relating to protection
or regulation of the environment, Laws regulating or relating to the
emission, discharge, disposal, treatment, transportation, storage, release
or threatened release of hazardous, toxic or other pollutants,
contaminants, chemicals, materials, substances, wastes or Hazardous
Materials into the environment, including ambient air, surface water,
ground water, land surface or subsurface strata, or otherwise regulating
or relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of hazardous, toxic or other
pollutants, contaminants, chemicals, materials, substances, wastes or
Hazardous Materials, and all regulations, rules, codes, plans, decrees,
judgments, injunctions, Orders, notices and demand letters issued,
entered, promulgated or approved thereunder.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Facilities" means all of the real property comprising the Buffalo,
New York, Kimberton, Pennsylvania, Carol Stream, Illinois, and Mexico
City, Mexico manufacturing facilities and related buildings and
structures, as are more fully defined and described in Schedule 3.09
together with all improvements and fixtures thereon and all easements and
appurtenances inuring thereto.
"FTC" means the United States Federal Trade Commission or any
successor Governmental Body.
"Governmental Body" means any foreign, Federal, State, county, city,
town, village, municipal or other governmental department, commission,
board, bureau, agency, authority or instrumentality, domestic or foreign.
"Hazardous Materials" means any toxic substance, hazardous
substance, hazardous material, hazardous chemical or hazardous waste
defined, regulated or qualifying as such in (or for the purposes of) any
Environmental Law, or any pollutant or contaminant, and shall
2
<PAGE> 3
include, but not be limited to, petroleum, including crude oil or any
fraction thereof which is liquid at standard conditions of temperature or
pressure (60 degrees fahrenheit and 14.7 pounds per square inch absolute),
any radioactive material, including but not limited to any source, special
nuclear or by-product material as defined at 42 U.S.C. Section 2011 et
seq., as amended or hereafter amended, polychlorinated biphenyls and
asbestos in any form or condition.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Intellectual Property" means all present and future rights in
patents, copyrights, trademarks, service marks, trade names, logos,
inventions, discoveries, improvements, processes and formulae, trade
secrets, proprietary technical information, technical know-how, research,
computer hardware and software licenses, marketing and other data and
intellectual property rights and applications and registration therefor
used in connection with the Business, including without limitation, the
Intellectual Property listed on Schedule 3.11 hereto.
"Knowledge" means actual knowledge after reasonable investigation.
"Laws" means all laws, statutes, codes, rules, regulations,
ordinances, or Orders of any Governmental Body.
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest or other similar encumbrance with
respect to such property or asset.
"Material" or "Material Adverse Effect" means a material adverse
effect on the assets, financial condition or results of operations of the
Company and its Subsidiaries taken as a whole immediately upon the
effectiveness of the Closing on the Closing Date.
"Occupational Safety and Health Law" means the Occupational Safety
and Health Act of 1970 and any other Law or Order regulating, relating to
or imposing liability or standards of conduct concerning employee health
and/or safety.
"Order" means any order, writ, injunction, decree, judgment, award,
determination or written direction of any court, arbitrator or
Governmental Body.
"Ordinary Course of Business" means the operation of the business in
a manner, and in accordance with policies and practices, consistent with
past custom and practice (including with respect to quantity and
frequency) in the operation of the Business.
"Permitted Lien" means (i) any Lien for which the underlying
liability is disclosed on the Balance Sheet, (ii) any Lien for taxes not
yet due or being contested in good faith or
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(iii) any Lien which does not materially detract from the value or
materially interfere with the use of any asset as currently used in the
Business by Company or any Subsidiary.
"Person" means an individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Pre-Closing Tax Period" means any Tax period prior ending to the
Closing Date.
"Product Liability" means the liability of the manufacturer or
seller of an article for injury to persons, damage to property or any
other cost, damage or expense resulting from a manufacturer's defect in or
the condition of such article or the warnings or instructions with respect
to such article, or consequential, punitive or other similar costs or
damages arising as a result thereof, whether payable under the principles
of strict liability, contract, tort or other applicable law excluding,
however, any liability, cost or expense which is a Product Warranty
Liability.
"Product Warranty Liability" means the liability of the manufacturer
or seller of an article to service, repair or replace such article
(including all costs thereof, whether for materials or labor or
otherwise), or to refund the purchase price thereof, pursuant to the terms
of a product warranty given by such manufacturer or seller, or otherwise
arising under or established by Law with respect to such article.
"Products" shall mean that group of products which has been
designed, developed and/or produced or which is presently sold or offered
for sale by the Business, including all of the commercially produced
products itemized by product name and number on Schedule 1(a) hereto.
"Seller Group" means, with respect to federal income Taxes, the
affiliated group of corporations (as defined in Section 1504(a) of the
Code) of which Seller is a member and, with respect to state income or
franchise Taxes, the consolidated, combined or unitary group of which
Seller or any of its Affiliates is a member.
"Shares" means all of the issued and outstanding shares of common
stock, no par value, of the Company.
"Subsidiaries" means (i) Pierce and Stevens Holding Corporation de
Mexico, S.A. de C.V., a company incorporated under the laws of Mexico,
(ii) Pierce and Stevens de Mexico, S.A. de C.V., a company incorporated
under the laws of Mexico, and (iii) Pierce and Stevens Corporation, S.A.
de C.V., a company incorporated under the laws of Mexico.
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"Tax or Taxes" means all taxes, charges, fees, levies, or other
assessments, together with any interest, penalty, addition to tax or
additional amount imposed by any Taxing Authority.
"Tax Asset" means any net operating loss, net capital loss,
deduction, credit or other tax attribute which could reduce Taxes.
"Taxing Authority" means any Governmental Body (domestic or foreign)
responsible for the imposition of any Tax.
"Wood Finishes Business" means all of the assets (including, without
limitation, the real property and manufacturing facility located in Fort
Erie, Ontario, Canada and the parcels of real property adjacent thereto
located at 42 and 48 Concession Road, Fort Erie, Ontario, Canada, and all
manufacturing equipment, inventory, patents, trade secrets, trademarks,
copyrights, technology, formulas and the like, accounts receivable, books,
records and customer lists) and liabilities related to the business of
manufacturing, distributing and selling specialty coatings to the wood
finishes product category currently conducted by Seller including, without
limitation, the Fabulon(R) and Cablon(R) product lines.
(b) Each of the following terms is defined in the Section set forth opposite
such term:
Term Section
---- -------
Assets 2.01(b)
Benefit Arrangements 3.15(b)
Closing 12.01
Closing Date 12.01
Closing Date Balance Sheet 2.03(a)
Company Employee Plans 3.15(a)
Contracts 3.12
Current Employees 7.01
Financial Statements 3.06
Improper Claim 11.03(a)(ii)(C)
Indemnifying Party 11.03(b)
Indemnified Party 11.03(b)
Inventory 2.03(a)
Milpitas Property 5.03(f)
Non-Tendering Party 11.03(a)
PLU Capital Accumulation Plan 7.02(a)
PLU Retirement Plan 7.02(a)
Personal Claim 11.03
Proper Claim 11.03(a)(i)
Purchase Price 2.02
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Purchaser Preamble
Purchaser's 401(k) Plan 7.02(a)
Purchaser's Pension Plan 7.02(a)
Purchaser's Indemnitees 11.01
Purchaser's Losses 11.01
Purchaser's Welfare Benefit Plans 7.02(b)
Real Property 3.09
Seller Preamble
Seller's Indemnitees 11.02
Seller's Welfare Benefit Plans 7.02(a)
Tendering Party 11.03(a)
Third-Party Claim 11.03
ARTICLE II
PURCHASE AND SALE OF SHARES AND ASSETS
2.01 Shares and Assets to be Purchased; Liabilities to be Assumed. On the
Closing Date, Seller shall sell, assign, transfer and deliver to Purchaser
and Purchaser shall purchase, accept, assume and acquire from Seller, all
of Seller's right, title and interest in and to the following:
(a) the Shares;
(b) the following assets related to the Canadian Business (collectively
referred to hereafter as the "Assets"):
(i) all Inventory (as defined in Section 2.04(a) below); and
(ii) all accounts and accounts receivable, trade accounts, notes
and notes receivable, book debts and other debts due or
accruing due to P&S Canada in connection with the Canadian
Business and the full benefit of all security therefor,
including, but not limited to, those listed on Schedule
2.01(b)(ii) (collectively referred to hereafter as the
"Accounts Receivable"); and
(c) the following liabilities related to the Canadian Business
(collectively referred to hereafter as the "Assumed Liabilities"):
(i) bona-fide third party accounts payable, payroll liability,
liability for customer deposits, accrued expenses (other than
accrued expenses for Taxes) and other liabilities of the
Canadian Business, to the extent that such items are reflected
on the liability side of the Closing Date Balance Sheet; and
(ii) liabilities and obligations relating to the Canadian Business
pursuant to all contracts included in the Assets.
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2.02 Purchase Price. The total aggregate purchase price for the Shares and the
Assets ("Purchase Price") shall be Forty-Five Million Seventy-Five
Thousand and 00/100 Dollars ($45,075,000.00), which amount shall be
adjusted: (a) downward at Closing on a dollar-for-dollar basis by one-half
(1/2) of the premium paid or to be paid pursuant to a binding commitment
by Purchaser to procure special indemnity insurance in accordance with
Section 5.16 of this Agreement; provided, however, that in no event shall
such adjustment (i) result in a decrease to the Purchase Price of more
than Three Hundred Thousand and 00/100 Dollars ($300,000.00) or (ii) be
made in the event that Purchaser does not actually procure special
indemnity insurance as contemplated by Section 5.16 of this Agreement; and
(b) upward or downward on a dollar-for-dollar basis, by the amount, if
any, determined pursuant to Section 2.04.
2.03 Payments at Closing. On the Closing Date:
(a) Purchaser shall pay to Seller the amount of Forty-Three Million
Seventy-Five Thousand and 00/100 Dollars ($43,075,000.00) by wire
transfer of immediately available funds to an account designated by
Seller in writing prior to the Closing Date; provided, however, that
such amount shall be further adjusted downward on the Closing Date
in the manner provided in Section 2.02(a) if Purchaser has procured
the special indemnity insurance in accordance with Section 5.16.
(b) Purchaser shall deposit the sum of Two Million and 00/100 Dollars
($2,000,000.00) in escrow with respect to remediation and/or
correction of certain on-site environmental liabilities in the
manner contemplated by the Environmental Protocol Agreement attached
as Schedule 2.03(b)(i) and in accordance with the Environmental
Escrow Agreement attached as Schedule 2.03(b)(ii) ("Environmental
Escrowed Funds").
2.04 Adjustment to Purchase Price.
(a) Within ninety (90) days following the Closing Date, Purchaser shall
prepare and deliver to Seller a balance sheet ("Closing Date Balance
Sheet"), which balance sheet shall set forth, as of the Closing
Date, the total assets, total liabilities and net worth of the
Company. The Closing Date Balance Sheet shall be prepared in a
manner consistent with the manner in which the Company's April 30,
1996 balance sheet ("April 30 Balance Sheet") was prepared;
provided, however, that the parties hereto acknowledge and agree
that the Closing Date Balance Sheet shall reflect: (i) any and all
adjustments as are necessary to reflect all Subsidiaries and
transactions relating thereto; (ii) the transfer of ownership of P&S
Canada, the Milpitas Property and the other transfers and dividends
permitted pursuant to Section 5.03; (iii) the reversal of all
accruals relating to environmental liabilities, product liabilities,
litigation, tax liabilities and any other liability for which Seller
is obligated to indemnify Purchaser pursuant to Section 11.01; and
(iv) the actual accounts payable balance as of April 30, 1996 for
the Canadian Business. In preparing the Closing Date Balance Sheet,
Purchaser shall conduct a physical inventory of all raw materials,
work in process, finished goods, packaging materials and supplies
and containers (collectively, "Inventory") as of the Closing
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Date in accordance with the physical inventory instructions attached
as Schedule 2.04(a). The physical inventory shall be conducted on
the Closing Date. The Inventory and accounts receivable shall be
valued in accordance with the Company's past valuation practices.
Seller shall be entitled to full access to the relevant records and
working papers of Purchaser and the Company to aid Seller in its
review of the Closing Date Balance Sheet.
(b) The Purchase Price shall be:
(i) increased, on a dollar-for-dollar basis, by the amount, if
any, that net worth of the Company as set forth on the Closing
Date Balance Sheet is greater than Twenty-One Million Six
Hundred Sixty-Two Thousand and 00/100 Dollars
($21,662,000.00);
(ii) decreased, on a dollar-for-dollar basis, by the amount, if
any, that the net worth of the Company as set forth on the
Closing Date Balance Sheet is less than Twenty-One Million Six
Hundred Sixty-Two Thousand and 00/100 Dollars
($21,662,000.00);
(c) The Purchase Price shall be further adjusted as follows:
(i) the Purchase Price shall be increased, on a dollar-for-dollar
basis, by the amount, if any, that current assets of P&S
Canada (excluding cash and prepaid expenses) are greater than
Five Hundred Ninety-Eight Thousand and 00/100 Dollars
($598,000.00); or
(ii) the Purchase Price shall be increased, on a dollar-for-dollar
basis, by the amount, if any, that current liabilities of P&S
Canada are less than Two Hundred Sixty-Seven Thousand and
00/100 Dollars ($267,000.00); provided, however, that for
purposes of determining the adjustment to the Purchase Price
pursuant to this Section 2.04(c)(ii), the current liabilities
of P&S Canada may be increased to an amount not to exceed
Three Hundred Sixty-Seven Thousand and 00/100 Dollars
($367,000.00) to adjust the estimate of the accounts payable
balance as reflected in the April 30 Balance Sheet to the
actual accounts payable balance as of April 30, 1996 for the
Canadian Business.
(d) Seller and its auditors shall be entitled to full access to the
relevant records and working papers of Purchaser and the Company to
aid Seller in its review of the Closing Date Balance Sheet. In the
event Seller and Purchaser are unable to agree on the Closing Date
Balance Sheet (as computed in accordance with this Agreement) within
thirty (30) days following Seller's receipt of the Closing Date
Balance Sheet, either Seller or Purchaser shall be entitled to
demand in writing that such disagreement be submitted to arbitration
to settle any such dispute. Any such arbitration shall be conducted
in the City of Cleveland, State of Ohio, by an arbitrator acceptable
to both Seller and Purchaser, or in the event Seller and Purchaser
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<PAGE> 9
cannot agree on a single arbitrator within ten (10) days of any such
written demand, by three (3) arbitrators, one (1) of whom shall be
appointed by Seller, one (1) of whom shall be appointed by Purchaser
and the third of whom shall be appointed by the first two (2)
arbitrators. The parties agree that any issues involving primarily
financial matters shall be submitted to the public accounting firm
of Arthur Andersen LLP and that any issues involving matters other
than financial matters shall be submitted to persons having legal
expertise for arbitration. If either party fails to appoint an
arbitrator within ten (10) days of the written demand for
arbitration identified above, then the arbitrator appointed by the
other party shall arbitrate any such disagreements in accordance
with this Section 2.04. Except as to the manner of selection of
arbitrators as set forth herein, the arbitration proceedings shall
be conducted promptly and expeditiously pursuant to the rules of the
American Arbitration Association; provided, however, that whenever
appropriate and/or applicable in the context of any dispute, the
arbitrator(s) shall apply standards consistent with past practice of
the Company and the April 30 Balance Sheet in reaching a decision.
The decision of the arbitrator(s) shall be final, conclusive and
binding upon Seller and Purchaser. Seller and Purchaser shall share
equally the expenses for a single arbitrator and the arbitration, or
in the event the parties cannot agree upon a single arbitrator, each
party shall bear the expenses of its arbitrator and shall share
equally with the other the expenses of a third arbitrator and the
arbitration.
(e) Within five (5) Business Days after Seller and Purchaser agree upon
any Purchase Price adjustment pursuant to this Section 2.04 or the
Purchase Price adjustment is determined through arbitration:
(i) Purchaser shall pay to Seller the amount of any such increase
to the Purchase Price, together with interest on the amount of
any such increase to the Purchase Price at an annual rate
equal to the prime rate as published by the Wall Street
Journal on the date of payment, which interest shall accrue
beginning on the sixty-first (61st) day following the Closing
Date through and including the date upon which Purchaser
delivers to Seller the Closing Date Balance Sheet; or
(ii) Seller shall pay to Purchaser the amount of any such decrease
to the Purchase Price.
Any amounts paid pursuant to this Section 2.04 shall be paid by wire
transfer of immediately available funds to an account designated by
the recipient.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser the following:
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3.01 Organization, Standing and Authority of Seller.
(a) Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York. P&S Canada is a
corporation duly organized, validly existing and in good standing
under the laws of the Province of Ontario. Each of Seller and P&S
Canada has all requisite power and authority to execute and deliver
this Agreement and to perform its obligations hereunder.
(b) The execution and delivery of this Agreement by each of Seller and
P&S Canada and the performance by Seller and P&S Canada of the
transactions contemplated herein have been duly authorized by all
necessary corporate action on the part of Seller and P&S Canada.
This Agreement and all documents required to be executed and
delivered by Seller and P&S Canada hereunder constitute legal, valid
and binding obligations of Seller and P&S Canada, as the case may
be, enforceable against Seller and P&S Canada in accordance with
their terms subject to bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to
creditors' rights generally and to the application of equitable
principles.
3.02 Organization, Standing and Authority of Company. Company and each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and is duly
qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the conduct of its business makes such
qualification necessary, except for those jurisdictions where failure to
be so qualified or in good standing would not have a Material Adverse
Effect.
3.03 Capitalization of Company. The authorized capital stock of Company
consists of two hundred (200) shares of common stock, without par value,
of which shares two hundred (200) are issued and outstanding. The Shares
have been duly authorized and validly issued, fully paid and
nonassessable, and are owned beneficially and of record by Seller, free
and clear of any Liens. There are no outstanding or authorized options,
warrants, rights, contracts, calls, puts, rights to subscribe, conversion
rights, or other agreements to which the Seller or the Company are a party
or which are binding upon the Company providing for the issuance,
disposition or acquisition of any of the Company's capital stock. There
are no outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to the Company.
3.04 Certificate of Incorporation and By-Laws. The copy of the Certificate of
Incorporation and the ByLaws of Company, both of which are attached hereto
as Schedule 3.04, are true and complete copies of such instruments as
amended to the Closing Date, and are in full force and effect.
3.05 Subsidiaries. Company owns or as of the Closing Date will own, directly or
indirectly, one hundred percent (100%) of the issued and outstanding
capital stock of each of the Subsidiaries. There are no outstanding or
authorized options, warrants, rights, contacts, calls, puts, rights to
subscribe, conversion rights, or other agreements to which the Seller, the
Company or any Subsidiary are a
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party or which are binding upon any of the Subsidiaries providing for the
issuance, disposition or acquisition of any capital stock of any of the
Subsidiaries. There are no outstanding or authorized stock appreciation,
phantom stock or similar rights with respect to any of the Subsidiaries.
Except with respect to the Subsidiaries or as set forth in Schedule
3.05(i), the Company does not have any ownership interest in any other
entity. The authorized capital stock and the number of shares of capital
stock outstanding of each Subsidiary are set forth on Schedule 3.05(ii).
3.06 Financial Information. The unaudited income statement and balance sheet of
Company and the Subsidiaries are attached as Schedule 3.06 ("Financial
Statements"). Except as set forth on Schedule 3.06 or on the notes to the
Financial Statements, the Financial Statements were prepared from Seller's
internal accounting records and were prepared in conformity with Seller's
prior accounting practices applied on a consistent basis. In order to
present the Company and the Subsidiaries on a stand-alone operating basis,
certain reasonable allocations were made to centralized support expenses,
SG&A expenses and certain balance sheet assets and liabilities. The
Financial Statements fairly present the financial condition of Company and
the Subsidiaries as of the date thereof and the results of operations for
the period then ended. To the best of Seller's Knowledge, there are no
material obligations or liabilities of the Company and/or the Subsidiaries
relating to the Business other than liabilities (i) reflected or reserved
against on the April 30 Balance Sheet, (ii) disclosed on Schedule 3.06 or
(iii) incurred since April 30, 1996 in the Ordinary Course of Business.
There has been no significant change in the Company's method of accounting
or keeping its books of account or in the accounting practices of Seller
with respect to the Business since January 1, 1996. EXCEPT AS SET FORTH IN
SECTIONS 3.23 AND 3.24 OF THIS AGREEMENT, SELLER MAKES NO REPRESENTATION
OR WARRANTY WITH RESPECT TO ANY FINANCIAL INFORMATION FOR THE COMPANY OR
ANY SUBSIDIARY DELIVERED TO PURCHASER OTHER THAN AS CONTAINED IN THIS
SECTION 3.06. EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION 3.06 AND IN
SECTIONS 3.23 AND 3.24, SELLER MAKES NO OTHER REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, WITH RESPECT TO THE FINANCIAL INFORMATION PRESENTED IN
THE FINANCIAL STATEMENTS.
3.07 Absence of Certain Changes or Events. Except as set forth on Schedule
3.07, or as provided in Section 5.03, since April 30, 1996, the Company
and each Subsidiary has operated only in the Ordinary Course of Business
consistent with past practices and there has not been:
(a) any event, condition or occurrence which has had or could reasonably
be expected to have a Material Adverse Effect;
(b) any incurrence, assumption or guarantee by Company or any Subsidiary
of any third party indebtedness from a non-Affiliate for borrowed
money other than in the Ordinary Course of Business and in amounts
and on terms consistent with past practices;
(c) any creation or other incurrence of any Lien other than in the
Ordinary Course of Business consistent with past practices;
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(d) any activity engaged in by Company or any Subsidiary which has
resulted in the acceleration or delay of the collection of accounts
or notes receivable or any delay in the payment of accounts payable,
in each case as compared with its custom and practice in the conduct
of its business immediately prior to December 31, 1995;
(e) any sale, assignment, conveyance, transfer, cancellation or waiver,
other than in the Ordinary Course of Business, of any Material
property, tangible asset, proprietary right or other intangible
asset or right;
(f) any increased benefits or benefit plan costs or changed bonus,
insurance, pension, compensation or other benefit plans or
arrangements made for or with or covering any officers or employees
of the Business outside the Ordinary Course of Business;
(g) any waiver of any right relating to the Business other than in the
Ordinary Course of Business;
(h) any bonus granted or any increase in wages, salary or other
compensation to any employee of the Business, except in the Ordinary
Course of Business;
(i) any damages, destruction or casualty losses which, in the aggregate,
exceed $50,000 (whether or not covered by insurance) to any asset or
property of the Company or any Subsidiary;
(j) any transaction by the Company or any Subsidiary relating to the
Business, other than in the Ordinary Course of Business and
consistent with past practice, or has entered into any other
transaction relating to the Business, whether or not in the Ordinary
Course of Business, which could reasonably be expected to have a
Material Adverse Effect;
(k) any license or sublicense granted of any rights under or with
respect to any Intellectual Property; or
(l) any agreement to do any of the foregoing.
3.08 Government Authorizations. Except for the compliance with any applicable
requirements of the HSR Act, to the best of Seller's Knowledge, no
consent, approval or authorization of, or declaration, filing or
registration with, any federal, state, local or other governmental or
regulatory authority is required in connection with the execution and
delivery by Seller or P&S Canada of this Agreement and the consummation by
Seller or P&S Canada of the transactions contemplated hereby.
3.09 Title to and Condition of Real Property. Schedule 3.09 sets forth all real
property owned or leased by the Company and the Subsidiaries ("Real
Property"). Subject to the Permitted Liens and any Liens disclosed on
Schedule 3.09, each of the Company and the Subsidiaries has good title to,
or in the case of leased Real Property has a valid leasehold interest in,
the Real Property. All leases of Real Property are valid, binding and
enforceable in accordance with their respective terms, neither
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the Company nor any Subsidiary is in material default under any such
leases, and to the best of Seller's Knowledge, there does not exist under
any such lease any material default of any other party or any event which
with notice or lapse of time or both would constitute a material default.
To Seller's Knowledge, the Real Property is in good operating condition
and repair, normal wear and tear excepted, and is free from any defects
that have, or reasonably could have, a Material Adverse Effect. Except as
set forth on Schedule 3.09, to Seller's Knowledge, there are no existing
structural defects in any of the Real Property.
3.10 Sufficiency of Personal Property. Except as set forth on Schedule 3.10,
the Company and each Subsidiary has good and marketable title to all
machinery, equipment, furniture, fixtures, tooling, dies, leasehold
improvements and all other tangible personal property owned by the Company
and the Subsidiaries and used in the Business ("Personal Property") free
and clear of any Liens. To Seller's Knowledge, the Personal Property is in
good operating condition and repair, normal wear and tear excepted, and is
free from any defects that have, or reasonably could have, a Material
Adverse Effect. Except as set forth on Schedule 3.10, the Company and each
Subsidiary owns, leases or otherwise has the legal right to use all of the
assets, whether Real Property or Personal Property, necessary to carry on
the operations of the Business as the same is presently conducted and has
been conducted during the twelve (12) month period immediately preceding
the Closing. EXCEPT AS OTHERWISE STATED IN THIS SECTION 3.10, SELLER MAKES
NO OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO
SAID TANGIBLE PERSONAL PROPERTY.
3.11 Proprietary Rights.
(a) Schedule 3.11(a) lists U.S. and Foreign Intellectual Property owned
or utilized by Company and the Subsidiaries.
(b) Except as set forth on Schedule 3.11(b), no proceedings have been
instituted or are pending or, to the best of Seller's Knowledge,
threatened, which challenge the validity of the ownership or use by
Company or the Subsidiaries of the Intellectual Property.
(c) Except as set forth on Schedule 3.11(c), none of Seller, the Company
or any Subsidiary is infringing on any Intellectual Property Rights
of others and Seller has no Knowledge of the infringement of any of
its Intellectual Property by any other person.
(d) Except for Intellectual Property which is licensed or leased from a
third party, the Company is the owner of all Intellectual Property,
free and clear of all Liens and free from any contractual
restrictions. Except as described on Schedule 3.11 hereto, the
Company and each Subsidiary has a valid and enforceable license or
lease (as against the licensor or lessor) to use or to license, all
such Intellectual Property, without the payment of any royalty or
similar payment, except as specified in the applicable agreements.
No contract, agreement or understanding between the Company and any
party exists which would impede or prevent the continued use of the
Intellectual Property by the Company following the Closing. The
Intellectual Property listed on Schedule 3.11(a) represents all of
the Intellectual Property
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necessary to conduct the Business as the Business was conducted
immediately prior to Closing.
3.12 Material Contracts. Schedule 3.12 sets forth a list of all written
contracts and agreements (collectively, "Contracts") to which the Company
or any Subsidiary is bound which:
(a) have a remaining obligation in excess of One Hundred Thousand
Dollars and 00/100 ($100,000.00);
(b) are partnership, joint venture or other similar cooperative
arrangements; or
(c) are agency, dealer, sales representative, marketing or other similar
agreements that are not terminable on not more than ninety (90) days
notice.
All Contracts listed on Schedule 3.12 are valid, existing and enforceable
in accordance with their terms and in full force and effect. Seller has
provided to Purchaser a true and complete copy of all written Contracts
with all amendments and modifications thereto. Neither the Company or any
Subsidiary nor, to the best of Seller's Knowledge, any other party to any
of the foregoing have violated or breached any material provision of, any
Contracts, nor, to the best of Seller's Knowledge, does there exist any
event or condition which, with the giving of notice, the lapse of time, or
both, would become a default under any Contracts. Each of the Contracts
identified on Schedule 3.12 were entered into by the Company or any
Subsidiary in the Ordinary Course of Business.
3.13 Compliance with Laws. Except as set forth on Schedules 3.13, 3.16 and
3.17, the Company and each Subsidiary has substantially complied with and
is in substantial compliance with all federal, state, local and foreign
Laws and judicial and/or administrative decisions applicable to the
Business, except for any non-compliance which does not have, individually
or in the aggregate, a Material Adverse Effect.
3.14 Litigation. Except as set forth on Schedule 3.14, there is no suit, claim,
action, arbitration, proceeding or investigation, pending or, to the best
of Seller's Knowledge, threatened, against the Company or any Subsidiary
which individually or in the aggregate could reasonably be expected to
have a Material Adverse Effect.
3.15 Employee Benefits.
(a) Schedule 3.15(a) lists each material "employee benefit plan", as
such term is defined in Section 3(3) of ERISA, which (i) is subject
to any provision of ERISA, (ii) is maintained, administered or
contributed to by Company or any of its Affiliates and (iii) covers
any Current Employee (collectively, "Company Employee Plans"). With
respect to each Company Employee Plan, Seller has provided or made
available to Purchaser a true and complete copy of such plan
document (or an accurate summary description of such Company
Employee Plan).
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(b) Schedule 3.15(b) lists each material employment, severance or
similar contract, arrangement or policy (exclusive of any such
contract which is terminable within 30 days without liability to the
Company or any Subsidiary), and each material plan or arrangement
providing for severance, insurance coverage (including any
self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits,
pension or retirement benefits or for deferred compensation,
profit-sharing, bonuses, stock options, stock appreciation rights or
other forms of incentive compensation or post-retirement insurance,
compensation or benefits that (i) is not a Company Employee Plan,
(ii) is entered into, maintained or contributed to by Company or any
of its Affiliates and (iii) covers any Current Employee
(collectively, "Benefit Arrangements").
(c) To the best of Seller's Knowledge, neither the Company nor any
Affiliate has incurred, or reasonably expects to incur prior to the
Closing Date, any liability under Title IV of ERISA arising in
connection with the termination of, or complete or partial
withdrawal from, any plan covered or previously covered by Title IV
of ERISA that could become a liability of the Purchaser or any of
its Affiliates after the Closing Date.
(d) Except as set forth in Schedule 3.15(d), there is no unfair labor
practice claim against the Company or any Subsidiary before the
National Labor Relations Board with respect to the Business, or any
strike, dispute, slowdown, or stoppage pending or, to the Knowledge
of Seller, threatened against or involving the Business, and none
has occurred.
(e) Except as set forth in Schedule 3.15(e), there are no collective
bargaining agreements between the Company or any Subsidiary and any
labor union representing any employees of the Company or any
Subsidiary in respect of the Business governing the terms of
employment of any such employees.
3.16 Environmental Matters. Except as described on Schedule 3.16, the Company,
each Subsidiary and each property, operation and facility that the Company
or any Subsidiary may "own," "operate" or "control" (as each such term is
defined by applicable Environmental Laws and other Laws and case law as
the same apply to environmental matters) with respect to the Business, (a)
is not subject to any judicial or administrative proceeding alleging the
violation of or liability under any Environmental Law or Occupational
Safety and Health Law; (b) has not received any written notice (i) that it
is in violation of or otherwise liable under any Environmental Law or
Occupational Safety and Health Law, (ii) threatening the commencement of
any proceeding relating to allegedly unlawful, unsafe or unhealthy
conditions, (iii) alleging that it is responsible for any response,
cleanup, or corrective action or related costs or expenses, including but
not limited to any remedial investigation/feasibility studies, under any
Environmental Law or Occupational Safety and Health Law, or (iv) seeking
information under Section 104 of CERCLA or any other Environmental Laws;
(c) is not the subject of any federal or state investigation evaluating
whether any investigation, remedial action or other response is needed to
respond to a spillage, disposal, release or threatened release into the
environment of any Hazardous Material or other hazardous, toxic waste,
substance or constituent, or other substance at or in connection with the
Real Property or the conduct of the
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<PAGE> 16
Business or (ii) any allegedly unsafe or unhealthful condition under
Occupational Safety and Health Law; (d) has not filed any notice under or
relating to any Environmental Law or Occupational Safety and Health Law
indicating or reporting (i) any past or present spillage, disposal or
release into the environment of, or treatment, storage or disposal of, any
Hazardous Material or other hazardous or toxic waste, substance or
constituent, or other substance or (ii) any potentially unsafe or
unhealthful condition under Occupational Safety and Health Law; (e) has
obtained and has substantially complied with all permits, licenses,
consents, Orders or other authorizations required under any Environmental
Laws to conduct any operations or activities in connection with the Real
Property and the Business except where such failure to obtain or comply
would not have a Material Adverse Effect on the Business; and (f) has no
contingent Material liability in connection with any actual or potential
spillage, discharge, disposal or release into the environment or otherwise
with respect to, any Hazardous Material or other hazardous, toxic or
dangerous waste, substance or constituent, or other substance, whether on
any premises owned or occupied by the Company or any Subsidiary or any
other property. To the best of Seller's Knowledge and except as otherwise
disclosed on Schedule 3.16, there are no Hazardous Materials on, in or
under any property of Facilities "owned," "operated" or "controlled" (as
each such term is defined by applicable Environmental Laws) by the Company
or any Subsidiary or non-owned disposal sites with respect to the
Business, including but not limited to such Hazardous Materials that may
be contained in underground storage tanks, but excepting such Hazardous
Materials used in accordance with all applicable Laws. The Company and the
Subsidiaries are not in violation of any permits, licenses, consents,
Orders or other authorizations set forth in this Section 3.16, other than
violations which would not have a Material Adverse Effect. No additional
license, certificate, or permit is required from any Governmental Body in
connection with the conduct of the Business which license, certificate or
permit, if not obtained, would have a Material Adverse Effect.
3.17 Tax Matters. Except as set forth in the Financial Statements, on Schedule
3.17 or where the failure do so would not have a Material Adverse Effect:
(a) all Tax returns required to be filed with any Taxing Authority by or
with respect to the Business prior to the Closing Date with respect
to any Pre-Closing Tax Period have been filed or will be filed on or
before the Closing Date in accordance with all applicable laws;
(b) all amounts shown as due and payable on the Tax returns that have
been filed have been timely paid;
(c) the provisions and reserves for Taxes of the Company and its
Subsidiaries reflected on the Financial Statements are adequate to
cover the Tax liabilities accruing through the date thereof;
(d) there is no action, suit, proceeding, investigation, audit or claim
now proposed or pending against or with respect to the Company or
any Subsidiary in respect of any Tax; and
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<PAGE> 17
(e) Seller is not subject to withholding under Section 1445 of the Code
with respect to any transaction contemplated hereby.
3.18 Brokerage. No broker, finder or agent has acted directly or indirectly for
Seller and/or the Company in connection with this Agreement or with the
transactions contemplated hereby.
3.19 Authorization; Non-contravention. The execution, delivery and performance
by Seller and P&S Canada of this Agreement are within Seller's and P&S
Canada's corporate authority and power, and, except as set forth in
Schedule 3.19: (i) require no consent, approval or authorization of any
Governmental Body or official; (ii) do not contravene or constitute a
default under any material provision of applicable Law; and (iii) will not
result in the creation or imposition of any Lien on any of the assets of
the Business. The execution and delivery of this Agreement by Seller and
P&S Canada do not, and the consummation by Seller and P&S Canada of the
transactions contemplated hereby will not, violate any provision of the
articles of incorporation or bylaws of Seller and P&S Canada or violate or
result (with or without the giving of notice or the lapse of time or both)
in a violation of any provision of, or result in the acceleration of or
entitle any party to accelerate (whether after the giving of notice or the
lapse of time or both) any obligation under, or result in the creation or
imposition of any Lien of any kind upon the property or assets of the
Company or any Subsidiary pursuant to any provision of, any mortgage,
Lien, lease, agreement, license, instrument or Law to which the Company or
any Subsidiary is a party or by which the Company or any Subsidiary or any
of their properties or assets are bound.
3.20 Governmental Permits. Except for any permits, licenses, certificates,
approvals and authorizations relating to Environmental Laws or
Occupational Health and Safety Law, all Material governmental permits,
licenses, certificates, approvals and authorizations required to conduct
the Business at the Facilities are set forth in Schedule 3.20, all of
which have been obtained by the Company, and such items are valid and in
full force and effect in all material respects. The Business is not in
violation of any such permits, licenses, certificates, approvals or
authorizations set forth in Schedule 3.20, other than violations which
would not in the aggregate have a Material Adverse Effect. No additional
license, certificate, or permit is required from any Governmental Body in
connection with the conduct of the Business which license, certificate or
permit, if not obtained, would have a Material Adverse Effect.
3.21 ERISA Compliance.
(a) Employee Welfare Benefit Plans. With respect to each Material
"employee welfare benefit plan" as such term is defined in Section
3(i) of ERISA of the Company or any Subsidiary (each a "Plan"): (i)
the Plan is in substantial compliance with ERISA; (ii) the Plan has
been administered substantially in accordance with its governing
documents; (iii) neither the Plan, nor any fiduciary with respect to
the Plan, has engaged in any "prohibited transaction" as defined in
Section 406 of ERISA other than any transaction subject to a
statutory or administrative exemption; (iv) except for the
processing of routine claims in the ordinary course of
administration, there is no Material litigation, arbitration or
disputed claim
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outstanding; and (v) all premiums due on any insurance contract
through which the Plan is funded have been paid.
(b) Employee Pension Benefit Plans. Except as set forth in Schedule
3.21, with respect to each "employee pension benefit plan" relating
to employees, as such term is defined in Section 3(s) of ERISA of
the Company or any Subsidiary (each a "Plan"): (i) the Plan is
qualified under Section 401(a) of the Code, and any trust through
which the Plan is funded meets the requirements to be exempt from
federal income tax under Section 501(a) of the Code; (ii) the Plan
is in Material compliance with ERISA; (iii) the Plan has been
administered substantially in accordance with its governing
documents as modified by applicable law; (iv) the Plan has not
suffered an "accumulated funding deficiency" as defined in Section
412(a) of the Code; (v) the Plan has not engaged in, nor has any
fiduciary with respect to the Plan engaged in, any "prohibited
transaction" as defined in Section 406 of ERISA or Section 4975 of
the Code other than a transaction subject to statutory or
administrative exemption; (vi) the Plan has not been subject to a
"reportable event" (as defined in Section 4043(b) of ERISA), the
reporting of which has not been waived by regulation of the Pension
Benefit Guaranty Corporation; (vii) no termination or partial
termination of the Plan has occurred within the meaning of Section
411(d)(3) of the Code; (viii) all contributions required to be made
to the Plan or under any applicable collective bargaining agreement
have been made to or on behalf of the Plan; (ix) there is no
Material litigation, arbitration or disputed claim outstanding; and
(x) all applicable premiums due to the Pension Benefit Guaranty
Corporation for plan termination insurance have been paid in full on
a timely basis.
(c) Miscellaneous. Except as disclosed in Schedule 3.21, there are no
Liens on the assets of such Plans, and favorable determination
letters with respect to the employee pension benefit plans have been
obtained from the Internal Revenue Service for such Plans evidencing
their compliance with applicable provisions of the Code.
3.22 Warranties. Except as disclosed in Schedule 3.22, there is no outstanding
claim, action or investigation against the Company or any Subsidiary and,
to Seller's Knowledge, no threatened claim, action or investigation
against the Company or any Subsidiary for Product Liability or for breach
of Product Warranty Liability to any customer of the Business.
3.23 Accounts Receivable. All accounts receivable that have been recorded on
the books of the Company and each Subsidiary are bona fide and represent
amounts validly due for goods sold or services rendered in the Ordinary
Course of Business and, as of July 31, 1996, are collectible in the
Ordinary Course of Business, subject to bad debt experiences consistent
with past practices.
3.24 Inventory. All Inventory in "O" categories on the books of the Company and
each Subsidiary is, in all material respects, usable by the Business and
saleable at the value reflected on the books.
3.25 Insurance. Schedule 3.25 contains an accurate and complete list of all
policies of fire, liability, keyman life insurance, workers' compensation,
products liability and other forms of insurance owned
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or held by or beneficially for the Company or any Subsidiary. All such
policies are in full force and effect, no premiums with respect thereto
are past due and no notice of cancellation or termination has been
received by Seller, the Company or any Subsidiary with respect to any such
policy. Schedule 3.25 also identifies all risks for which the Company and
any Subsidiary are self-insured.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TO THE PURCHASER
Purchaser hereby represents and warrants to Seller and P&S Canada
the following:
4.01 Organization, Good Standing and Authority of Purchaser.
(a) Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of State of Delaware. Purchaser has all
requisite power and authority to execute and deliver this Agreement
and to perform its obligations hereunder.
(b) The execution and delivery by Purchaser and the performance by
Purchaser of the transactions contemplated herein have been duly
authorized by all necessary corporate action on the part of
Purchaser. This Agreement and all documents required to be executed
and delivered by Purchaser hereunder constitute legal, valid and
binding obligations of Purchaser enforceable against Purchaser in
accordance with their terms, subject to bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in
effect relating to creditors' rights generally and to the
application of equitable principles.
4.02 No Conflict. Neither the execution and delivery of this Agreement nor the
Purchaser's performance of the transactions contemplated herein will
violate or conflict with any provisions of Purchaser's Partnership
Agreement.
4.03 Broker's or Finder's Fees. Except for Chemquest Group, no broker, finder
or agent has acted directly or indirectly for Purchaser in connection with
this Agreement or with the transactions contemplated by this Agreement.
4.04 Financing. Purchaser has, or will have, at or prior to Closing, sufficient
cash, available lines of credit or other sources of immediately available
funds to enable it to purchase the Shares and pay any other amounts to be
paid by it hereunder.
4.05 Litigation. There is no action, suit, investigation or proceeding pending,
or to the Knowledge of Purchaser threatened, against Purchaser before any
court or arbitrator or any Governmental Body, agency or official which in
any manner challenges or seeks to prevent, enjoin, alter or Materially
delay the transactions contemplated hereby.
ARTICLE V
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COVENANTS
5.01 Access to Records. From the date hereof to the Closing Date, Seller shall
allow, and shall cause Company and the Subsidiaries to allow, Purchaser
and Purchaser's counsel, accountants and other representatives, access to
the properties, books and records of the Business at reasonable hours. Any
investigation pursuant to this Section 5.01 shall be conducted in such a
manner as to not interfere unreasonably with the conduct of the Company's
and Subsidiaries' businesses. Notwithstanding anything in this Section
5.01 to the contrary and except as may be permitted in the event the
Company or any Subsidiary is authorized and/or able to obtain a
confidentiality agreement, Seller, the Company and the Subsidiaries shall
have no obligation to provide Purchaser with any properties, books and/or
records which contain information which could (i) violate any federal,
state, local or foreign Law, rule or regulation, or (ii) result in a
breach of any contract or agreement to which Seller, the Company or any
Subsidiary is a party.
5.02 Conduct of the Business. Except as otherwise provided in this Agreement,
from the date hereof until the Closing Date, the Company and the
Subsidiaries shall continue to operate the Business in the ordinary course
and in a manner consistent with past practices. Without limiting the
generality of the foregoing and except as otherwise provided in this
Agreement, from the date hereof to the Closing Date, neither Seller, P&S
Canada, the Company nor any Subsidiary will take any of the following
actions with respect to the Business without the prior written consent of
Purchaser:
(a) (i) declare, set aside or pay any dividends on or make other
distributions in respect of any of its capital stock, or (ii) split,
combine or reclassify any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock;
(b) issue, grant, deliver, sell, pledge or otherwise encumber any shares
of its capital stock of any class, or any securities convertible
into, or any rights, warrants, calls, subscriptions or options to
acquire, any such shares, or convertible securities;
(c) amend or propose to amend its Certificate of Incorporation, as
amended, or By-Laws, as amended, or any other organizational and/or
charter documents;
(d) directly or indirectly, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest
in or a substantial portion of the assets of, or by any other
manner, any Person or acquire or agree to acquire any assets other
than in the Ordinary Course of Business and consistent with past
practices;
(e) except in the Ordinary Course of Business and consistent with past
practices, and except as otherwise provided for in this Agreement,
sell, lease, license, encumber or otherwise dispose of any of their
assets, other than as may be required by law or to consummate the
transactions contemplated hereby;
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(f) agree or commit to do any of the foregoing;
(g) take or agree or commit to take any action that would make any
representation and warranty of Seller hereunder inaccurate in any
Material respect at the Closing Date; or
(h) make any other change required to be disclosed on Schedule 3.07
hereof.
5.03 Permitted Transfers and Dividends. At or at any time prior to the Closing,
Seller, the Company, P&S Canada and the Subsidiaries shall have the right
to do each of the following:
(a) sell, assign or otherwise transfer the Wood Finishes Business to
Seller or any of Seller's Affiliates;
(b) dividend or otherwise transfer to Seller or any of Seller's
Affiliates all proceeds resulting from the sale, assignment or
transfer of the Wood Finishes Business pursuant to Section 5.03(a);
(c) change the corporate name of Pratt & Lambert de Mexico S.A. de C.V.
to Pierce & Stevens Holding Corporation de Mexico S.A. de C.V.;
(d) transfer ownership of the capital stock of Pratt & Lambert de Mexico
S.A. de C.V. from Seller to the Company;
(e) dividend or otherwise transfer to Seller or any of Seller's
Affiliates all assets from the Company and the Subsidiaries which
are not directly related to the operations of the Business as it is
currently conducted which are set forth on Schedule 5.03(e);
(f) dividend or otherwise transfer real property located at 805 Sinclair
Frontage Road, Milpitas, California ("Milpitas Property") from the
Company to Seller;
(g) merge P&S Subsidiary, Inc. into the Company;
(h) dividend or otherwise transfer to Seller ownership of the issued and
outstanding capital stock of P&S Canada from the Company to Seller;
and
(i) dividend or otherwise transfer to Seller all of the cash.
5.04 Accounts. On and after the Closing Date, Seller shall, within thirty (30)
days of receipt, forward to Purchaser any monies received by Seller with
respect to any goods and/or services delivered and/or performed by Company
or any Subsidiary after the Closing Date.
5.05 Reasonable Efforts; Further Assurances. Subject to the terms and
conditions of this Agreement, Purchaser and Seller will each use its
reasonable efforts to take, or cause to be taken, all actions and
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to do, or cause to be done, all things necessary (i) to satisfy their
respective conditions precedent set forth in Articles VIII and IX and (ii)
under applicable laws and regulations, to consummate the transactions
contemplated by this Agreement. Seller and Purchaser each agree to execute
and deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be necessary or desirable
in order to consummate the transactions contemplated by this Agreement and
to vest in Purchaser good title to the Shares.
5.06 HSR Act Filings. Purchaser and Seller will use reasonable efforts to file
or cause to be filed with the FTC and the DOJ, as promptly as practicable
but in no event later than five (5) Business Days after the execution of
this Agreement, the Notification and Report Form and related Material
required to be filed in connection with the transactions contemplated in
this Agreement pursuant to the HSR Act, and to promptly file any
additional information requested by the FTC or the DOJ as soon as
practicable after receipt of a request therefor. In addition, Purchaser
shall use its best efforts to take or cause to be taken all actions
necessary, proper or advisable to obtain any consent, waiver, approval or
authorizations relating to the HSR Act that is required for the
consummation of the transactions contemplated by this Agreement, which
efforts shall include, without limitation, the proffer by Purchaser of its
willingness to accept an order providing for the divestiture by Purchaser
of such of the assets relating to the Business (or, in lieu thereof,
assets and businesses of the Purchaser having an approximate equivalent
value) as are necessary to fully consummate the transactions contemplated
by this Agreement, and an offer to hold separate such assets and
businesses pending such divestiture. In the event that the FTC or the DOJ
requires the divestiture or the holding separate by Purchaser of any of
the assets relating to the Business, no adjustment shall be made to the
Purchase Price and Purchaser shall be required to hold such assets
separate, or to divest them, as the case may be, following the Closing.
5.07 Access.
(a) On and after the Closing Date, Purchaser will afford promptly to
Seller and its agents reasonable access to the Company's and
Subsidiaries' properties, books, records, employees and auditors to
the extent necessary to permit Seller to determine any matter
relating to its rights and obligations hereunder or to determine any
matter relating to its rights and obligations with respect to any
event occurring or period ending on or before the Closing Date;
provided that any such access by Seller shall not unreasonably
interfere with the conduct of the Business.
(b) Without limiting the provisions of paragraph (a) above, at all
reasonable times on and after the Closing Date, Purchaser will
afford promptly to Seller and its agents such access, including,
copies as applicable, as is reasonably required to the Company's and
Subsidiaries' database, testing equipment, properties, books,
records, and employees to the extent necessary to permit Seller to
determine matters relating to its rights and obligations under the
indemnity provisions of Section 11.01 or otherwise with respect to
claims arising in connection with the Company's Hybond
100NF(R)product line. To facilitate the settlement or other
disposition of claims relating to the Company's Hybond
100NF(R)product line,
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Purchaser agrees to maintain in force the Company's existing
agreement with Don Smith Consulting Inc. to perform laboratory
testing services with respect to claims alleging failure of test
samples of Hybond 100NF(R).
5.08 Confidentiality. Prior to the Closing Date and after any termination of
this Agreement, Purchaser and its Affiliates will hold and not disclose to
any Person, and will cause their respective officers, directors,
employees, accountants, counsel, consultants, advisors and agents to hold
and not disclose to any Person, in confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of
Law, all information concerning the Company, Subsidiaries or Seller
furnished to Purchaser or its employees, agents or representatives in
connection with the transactions contemplated by this Agreement and any
notes, analyses, studies or other documents prepared by or on behalf of
Purchaser or its employees, agents or representatives, except to the
extent that such information can be shown to have been (a) previously
known on a nonconfidential basis by Purchaser, (b) in the public domain
through no fault of Purchaser or (c) later lawfully acquired by Purchaser
from sources other than Seller or its Affiliates; provided that Purchaser
may disclose such information to its officers, directors, employees,
accountants, counsel, consultants, advisors and agents on a need-to-know
basis in connection with the transactions contemplated by this Agreement
and to its lenders on a need-to-know basis in connection with obtaining
any financing for the transactions contemplated by this Agreement so long
as such Persons are informed by Purchaser of the confidential nature of
such information and are directed by Purchaser to treat such information
confidentially. If this Agreement is terminated, Purchaser and its
Affiliates will, and will cause their respective officers, directors,
employees, accountants, counsel, consultants, advisors and agents to,
deliver to Seller, upon request, all documents and other materials, and
all copies thereof, obtained or prepared by or on behalf of Purchaser or
its employees, agents or representatives in connection with this Agreement
that are subject to such confidence.
5.09 Disclosure. Prior to the Closing Date, neither party to this Agreement
will issue any press release or make any other public disclosures
concerning this transaction or the contents of this Agreement without the
prior consent of the other party. The content of any such release or
disclosure shall be mutually agreed upon between the parties.
Notwithstanding the above, nothing in this Section 5.09 will preclude
either party from making any disclosures required by law or regulation or
necessary and proper in conjunction with the filing of any Tax return or
other document required to be filed with any federal, state or local
governmental body, authority or agency in which case the party making such
determination will, if practicable under the circumstances, use reasonable
efforts to allow the other party reasonable time to comment on such
release or disclosure in advance of its issuance.
5.10 Plant Closing Notification. Purchaser shall be responsible for providing
any notice of layoff or plant closing required with respect to any
manufacturing facility of Company pursuant to the Federal Worker
Adjustment and Retraining Notification Act of 1988, any successor federal
law and any applicable state or local plant closing notification statute,
for any such layoffs or plant closings which will commence effective on or
subsequent to the Closing Date.
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5.11 Intercompany Items. Seller shall, as of the date immediately preceding the
Closing Date, by appropriate documentation and accounting entries,
contribute to the paid in capital of the Company, any intercompany
payables, receivables and/or indebtedness to Seller arising prior to the
Closing Date.
5.12 Corporate Services. On the Closing Date, Purchaser and Seller shall
execute and deliver a corporate services agreement, in the form attached
as Schedule 5.12, pursuant to which Seller shall make available to
Purchaser certain administrative support services which are currently
being provided to the Business on a basis, and for a price, substantially
consistent with Seller's and the Company's recent historical practices
including, without limitation, computer and data processing services,
accounting services, human resource benefits administration services, the
use of warehouse facilities and related site services, and distribution
services.
5.13 Lease Agreement. On the Closing Date, Purchaser and Seller shall execute
and deliver a lease agreement, in the form attached as Schedule 5.13, for
the real property located in Milpitas, California for purposes of
warehousing finished goods. The term of such lease agreement shall
continue until December 31, 1996 and shall be renewable thereafter on a
month-to-month basis.
5.14 Use of Materials With Certain Trademarks and Names.
(a) For a period of six (6) months after the Closing Date, Seller hereby
grants to Purchaser, the Company and the Subsidiaries a
non-exclusive, non-assignable and royalty-free license to use the
trademark "Pratt & Lambert" and the names "Pratt & Lambert United"
and "Pratt & Lambert United, Inc." (hereafter in this Section 5.14,
individually or collectively, the ("P&L Trademark/Name") on any and
all packaging materials for products sold in the Business and on any
and all copyrighted and non-copyrighted promotional and sales
materials, office supplies and product literature being purchased
and sold hereunder on which the P&L Trademark/Name appears on the
Closing Date ("P&L Materials"). A stock of P&L Materials shall be in
the Business' possession on the Closing Date and neither Purchaser,
the Company nor any Subsidiary shall reorder any P&L Materials
bearing the P&L Trademark/Name at any time on or after the Closing
Date. Any P&L Materials bearing the P&L Trademark/Name not used
within six (6) months after the Closing Date may not thereafter be
used by Purchaser unless the P&L Trademark/Name is completely
obliterated therefrom. Any P&L Materials which remain shall be
destroyed at Purchaser's sole expense. Purchaser shall provide to
Seller a notarized affidavit, signed by an officer of Purchaser,
certifying that all P&L Materials have been used or destroyed within
seven (7) months after the Closing Date.
(b) For a period of six (6) months after the Closing Date, Purchaser
hereby grants to Seller and its Affiliates a non-exclusive,
non-assignable and royalty-free license to use the trademark "Pierce
& Stevens" and the names "Pierce & Stevens" and Pierce & Stevens
Corp. (hereafter in this Section 5.14, individually or collectively,
the "P&S Trademark/Name") on any and all packaging materials for
products sold in the Wood Finishes Business on any and all
copyrighted and non-copyrighted promotional and sales materials,
office supplies and
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product literature on which the P&S Trademark/Name appears on the
Closing Date ("P&S Materials"). A stock of P&S Materials shall be in
the Wood Finishes Business' possession on the Closing Date and
neither Seller nor any of its Affiliates shall reorder any P&S
Materials bearing the P&S Trademark/Name at any time on or after the
Closing Date. Any P&S Materials bearing the P&S Trademark/Name not
used within six (6) months after the Closing Date may not thereafter
be used by Seller unless the P&S Trademark/Name is completely
obliterated therefrom. Any P&S Materials which remain shall be
destroyed at Seller's sole expense. Seller shall provide to
Purchaser a notarized affidavit, signed by an officer of Seller,
certifying that all P&S Materials have been used or destroyed within
seven (7) months after the Closing Date.
5.15 Distribution Agreement. On the Closing Date, Purchaser and Seller shall
execute and deliver a distribution agreement, in the form attached as
Schedule 5.15, pursuant to which Seller shall supply to Purchaser
specified quantities of Cablon(R) for sale in connection with the sale of
products from the Hybond(R) product line.
5.16 Purchase and Maintenance of Additional Indemnity Insurance. Purchaser
agrees to procure from or through a reputable insurance broker or company
a binding commitment to issue an insurance policy, effective as of the
Closing Date, to provide additional excess insurance coverage for the
Company with respect to certain environmental liabilities, set forth on
Schedule 5.16, certain product liability claims (excluding claims relating
to Hybond 100NF(R)) set forth on Schedule 5.16, incurred but not filed
disability claims and other litigation arising prior to the Closing Date
and set forth on Schedule 5.16. Any such insurance policy or arrangement
shall include a waiver of any and all subrogation rights which the insurer
may have against Seller, its subsidiaries and Affiliates (but not against
any other third party) arising from or relating to the claims submitted
thereunder. Purchaser agrees to maintain such insurance policy or
arrangement until at least the later of (i) the seventh (7th) anniversary
of the Closing Date, or (ii) the expiration of any period during which a
claim for indemnification pursuant to Section 11.01(c) may exist. In the
event that Purchaser cancels such insurance policy or arrangement and is
entitled to a refund, Purchaser promptly shall notify Seller of that fact
and Seller shall be entitled to receive the lesser of (i) one-half (1/2)
of the amount of such refund or (ii) a percentage of such refund equal to
the percentage of the aggregate premiums paid by Seller.
5.17 Waiver of Rights Respecting Seller's Insurance. Purchaser agrees that it
hereby waives any and all rights whatsoever to protection under, or the
ability to claim directly against, any insurance policy of Seller or any
of Seller's Affiliates in connection with any claim or other event for
which Purchaser is entitled to indemnity from Seller pursuant to Article
XI; provided, however, that such waiver shall not apply with respect to
any insured claim for which Purchaser has exceeded the limitations as to
amount of indemnification set forth in Section 11.06. Purchaser further
agrees that with respect to claims arising from or related to Hybond
100NF(R), Purchaser promptly will (i) notify Seller or its designee of any
and all claims involving or relating to the alleged failure of any Hybond
100NF(R) product and (ii) refer any and all such claims to Seller or its
designee for appropriate disposition. Notwithstanding the foregoing,
except as set forth in the preceding sentence, Purchaser shall
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continue to have access to Seller's insurance policies with respect to
worker's compensation and disability insurance for claims incurred but not
filed on or prior to the Closing Date.
5.18 License Agreement. On the Closing Date, Purchaser and Seller shall execute
and deliver a license agreement, in the form attached as Schedule 5.18,
pursuant to which Purchaser shall grant to Seller a license to
manufacture, use and sell products currently identified and/or sold under
the Proxpeel designation and to use the Proxpeel trademark.
5.19 Guarantee by Sovereign.
(a) Sovereign hereby irrevocably and unconditionally guarantees the
prompt and complete payment and performance by Purchaser of all
obligations of Purchaser described in this Agreement and in any
Schedule attached hereto. This guarantee is a primary obligation
enforceable by Seller, its successors and assigns, before or after
proceeding against Purchaser and regardless of any insolvency,
receivership or bankruptcy of Purchaser or any discharge, reduction,
extension or other modification of any of Purchaser's indebtedness
and/or obligations under this Agreement or any Schedule attached
hereto. This guarantee shall survive and be binding following any
merger, reorganization, consolidation or other change in the
structure, personnel, business or affairs of Purchaser.
(b) Sovereign waives any claim or defense to this guarantee based upon
lack of consideration, and Sovereign irrevocably waives presentment,
demand, protest or other notice of any kind including, without
limitation, notice of acceptance of this guarantee and notice of any
claim or demand upon Purchaser or Sovereign. Sovereign agrees that
no act or omission on the part of Seller, or any employee, agent,
successor or assignee of Seller, will diminish or adversely affect
this guarantee. Without notice to Sovereign, Seller may extend the
time for any payment under this Agreement, extend the term of this
Agreement, modify, supplement or amend this Agreement, and otherwise
agree in any manner with Purchaser.
(c) This guarantee is for the benefit of Seller, and its successors and
assigns, and is binding upon Sovereign, its successors and assigns,
except that Sovereign may not assign or transfer any of its
obligations under this guarantee, whether by operation of law or
otherwise, without the prior written consent of Seller which consent
may be unreasonably withheld at the sole and absolute discretion of
Seller. Any modifications, amendments or supplements to this
Agreement will not diminish or adversely affect any obligation of
Sovereign under this guarantee. Sovereign will reimburse Seller for
any expenses incurred by Seller in enforcing this guarantee
including, without limitation, reasonable attorney fees.
ARTICLE VI
TAX MATTERS
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6.01 Tax Covenants.
(a) Section 338(h)(10) Election. Seller and Purchaser shall join in
making a timely election (but in no event later than sixty (60) days
following the Closing) under Section 338(h)(10) of the Code
(including the prerequisite election under Section 338 of the Code)
and any similar state law provisions in all applicable states, with
respect to the sale and purchase of the Shares pursuant to this
Agreement, and each party shall provide to the other all necessary
information to permit such elections to be made. Purchaser and
Seller shall, as promptly as practicable following the Closing Date,
take all actions necessary and appropriate (including filing such
forms, returns, schedules and other documents as may be required) to
effect and preserve timely elections. All Taxes attributable to the
elections made pursuant to this Section 6.01(a) shall be the
liability of Seller. In connection with such elections, within sixty
(60) days following the Closing Date, Purchaser and Seller shall act
together in good faith to determine and agree upon the "deemed sale
price" to be allocated to each asset of Purchaser in accordance with
Treasury Regulation Section 1.338(h)(10)-1(f) and the other
regulations under Section 338 of the Code. Notwithstanding the
generality of the immediately preceding sentence, Purchaser and
Seller agree that the "deemed sale price" shall be allocated to (i)
the monetary assets at their fair market value as of the Closing
Date as determined as part of the determination of the net worth of
the Company in accordance with Section 2.03(b) hereof; provided in
Schedule 6.01(a); (ii) the fixed assets of the Company at their
appraised fair market value as provided in Schedule 6.01(a); and
(iii) the balance of the "deemed sale price" shall be allocated to
good will and other intangible assets of the Company. Both Purchaser
and Seller shall report the tax consequences of the transactions
contemplated by this Agreement consistently with such allocations
and shall not take any position inconsistent with such allocations
in any Tax Return or otherwise. Seller shall be liable for, and
shall indemnify and hold Purchaser and the Company harmless against,
any Taxes or other costs attributable to a failure on the part of
Seller to take all actions required of them under this Section
6.01(a).
(b) Purchaser shall promptly pay or shall cause prompt payment to be
made to Seller of any refund of Taxes received by Purchaser, any
affiliate of Purchaser or Company, attributable to any Pre-Closing
Tax Period or Seller Taxes paid pursuant to Section 6.02(b) except
to the extent such refunds relate to Taxes paid or assumed by
Purchaser.
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6.02 Return Filings and Payment of Tax.
(a) Seller shall prepare and file or cause to be prepared and filed on a
timely basis all Tax returns of or with respect to the Business with
respect to all Pre-Closing Tax Periods, and shall pay or cause to be
paid to the appropriate Taxing Authority the Taxes shown to be due
on such returns.
(b) Purchaser shall prepare or cause to be prepared in a manner
consistent with applicable Laws, and shall file or cause to be filed
on a timely basis, all Tax returns with respect to all Tax periods
beginning before and ending on or after the Closing Date. Purchaser
shall timely pay or cause to be timely paid to the appropriate
Taxing Authority the Taxes shown to be due on such returns.
(c) All transfer, documentary, sales, use, stamp, registration and other
such Taxes incurred in connection with this Agreement (including any
New York State real property transfer and gains taxes and any
similar tax imposed in other states or subdivisions) shall be borne
and paid by Purchaser, and Purchaser will, at its own expense, file
all necessary Tax returns and other documentation with respect to
all such Taxes and, if required by applicable law, Seller will, and
will cause its Affiliates to, join in the execution of any such
returns and other documentation.
6.03 Cooperation on Tax Matters. Purchaser and Seller agree to furnish or cause
to be furnished to each other, upon request, as promptly as practicable,
such information (including access to books and records) and assistance
relating to the Business as is reasonably necessary for the filing of any
return, for the preparation for any audit, and for the prosecution or
defense of any claim, suit or proceeding relating to any proposed
adjustment. Purchaser and Seller agree to retain or cause to be retained
all books and records pertinent to the Business (such books and records
not limited solely to tax accounting books, records and work papers) until
the applicable period for assessment under applicable law (giving effect
to any and all extensions or waivers) has expired, and to abide by or
cause the abidance with all record retention agreements entered into with
any Taxing Authority. Purchaser agrees, and after the Closing shall cause
Company, to give Seller reasonable notice prior to transferring,
discarding or destroying any such books and records and, if Seller so
requests, Purchaser shall, or shall cause Company to, allow Seller to take
possession of such books and records. Purchaser and Seller shall cooperate
with each other in the conduct of any audit or other proceedings involving
Company for any Tax purpose and each shall execute and deliver such powers
of attorney and other documents as are necessary to carry out the intent
of this Section 6.03.
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ARTICLE VII
EMPLOYEE MATTERS
7.01 Employment. Schedule 7.01 lists all of the employees of the Business
("Current Employees"). For a period of one year after the Closing Date,
Purchaser agrees that it will not substantially reduce the base salary or
wage rate in effect immediately prior to the Closing Date of any Current
Employee.
7.02 Employee Benefit Plans. From and after the Closing Date, Purchaser shall
be the plan sponsor for each and every employee benefit plan, as defined
in Section 3(3) of ERISA and such other plans, programs, policies and
arrangements of Company or its Subsidiaries and shall assume or retain all
related trusts, insurance contracts, other assets and documents that have
been maintained by the Company or its Subsidiaries or Seller for the
benefit of employees or former employees of Company or its Subsidiaries;
provided, however, that with respect to:
(a) Pension Benefits Provided by Seller. Prior to the Closing Date or
within a reasonable period of time thereafter, Seller shall have
established or designated a defined contribution retirement plan of
the Company with a Code Section 401(k) arrangement ("Purchaser's
401(k) Plan") and shall have transferred to Purchaser's 401(k) Plan
all of the assets and liabilities pertaining to employees and former
employees of the Company from the Pratt & Lambert United Capital
Accumulation Program ("PLU Capital Accumulation Plan"). Seller shall
establish Purchaser's 401(k) Plan on terms substantially equivalent
to the PLU Capital Accumulation Plan. Effective as of the Closing
Date, Purchaser shall assume sponsorship of Purchaser's 401(k) Plan.
With respect to notes evidencing plan loans, the PLU Capital
Accumulation Plan will assign such notes to the Purchaser's 401(k)
Plan. The interests transferred to Purchaser's 401(k) Plan shall be
fully vested. All other retirement or pension benefits of the Seller
and its Affiliates (including the assets and liabilities thereunder)
shall remain the responsibility of Seller, including, without
limitation, the Pratt & Lambert United Retirement Plan (the "PLU
Retirement Plan"). Purchaser will assume all of the Company's plans
listed on Schedule 3.15(a) (to the extent such plans relate solely
to the Company and the Subsidiaries).
(b) Welfare Benefits Provided By Seller. Effective as of (i) the Closing
Date, Purchaser shall establish or designate a plan or plans to
provide HMO coverage, long-term disability, life insurance and
accidental death & dismemberment insurance (but not retiree medical
or life insurance) for the Company's employees and (ii) January 1,
1997, Purchaser shall establish or designate a plan or plans to
provide medical, dental and prescription drug benefits currently
self-insured by Seller for the Company's employees (collectively,
the "Purchaser's Welfare Benefit Plans"). The Purchaser's Welfare
Benefit Plans shall be reasonably similar to the benefits provided
under the welfare benefits plans, as such term is defined in Section
3(1) of ERISA, provided to employees or former employees of the
Company by plans, programs or policies of Seller ("Seller's Welfare
Benefit Plans"). Purchaser shall cause Purchaser's Welfare Benefit
Plans to (i) waive any waiting period and any restrictions or
limitations for pre-existing conditions with respect to Current
Employees already eligible
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under such plans and (ii) take into account expenses incurred by any
Current Employee or his/her dependents under Seller's Welfare
Benefit Plans after December 31, 1995 and prior to the Closing Date
or January 1, 1997, as the case may be, for purposes of determining
deductibles and out of pocket limits. Pursuant to the Corporate
Services Agreement attached hereto as Schedule 5.12, Seller shall
continue to administer all of Purchaser's medical, dental and
prescription drug welfare benefits claims through December 31, 1996
and all run-out claims through March 31, 1997. Notwithstanding the
foregoing, all medical, dental, prescription drug and other welfare
benefits claims incurred before the Closing Date (whether or not
actually filed prior to such date) shall be the responsibility of
Seller.
7.03 Back Service Credit. Service of each Current Employee from the service
date set forth in Schedule 7.01 shall be recognized by Purchaser's Pension
Plan, Purchaser's 401(k) Plan and Purchaser's Welfare Benefit Plans for
all purposes, including, without limitation, vesting, benefit accrual,
eligibility for benefits, level of benefits and optional forms of payment.
7.04 Seller's Pension Plans. Effective as of the Closing Date or as otherwise
provided pursuant to the applicable plan, Current Employees shall cease to
accrue benefits under the PLU Capital Accumulation Plan. Service with
Purchaser after the Closing Date will not be counted by either plan for
any purpose, including, without limitation, benefit accrual. Seller will
cause the PLU Pension Plan and the PLU Capital Accumulation Plan to vest
fully all Current Employees in their benefits under each plan, determined
as of the Closing Date.
7.05 Disability/Workers' Compensation. Purchaser and its plans shall assume all
responsibility for unpaid workers' compensation, short-term disability and
long-term disability claims made by a Current Employee made after the
Closing Date. With respect to any Current Employee on short-term
disability on the Closing Date, Purchaser shall, at its expense, continue
short-term disability coverage substantially similar to that provided by
Seller.
7.06 Severance Policy. Purchaser shall establish and maintain, for the period
commencing on the Closing Date and terminating not less than one (1) year
following the Closing Date, a severance policy for the Company and the
Subsidiaries which provides severance benefits to the Current Employees
which are substantially similar to the severance benefits described on
Schedule 7.06.
7.07 Special Severance Agreements. Purchaser shall assume, effective as of the
Closing Date, the obligations, responsibilities and liabilities of Seller
with respect to the Special Severance Agreements of the Current Employees
identified on Schedule 7.07. In addition, Purchaser agrees that the
Special Severance Agreements shall continue in effect for a period of not
less than two (2) years following the Closing Date. Seller shall cause to
be accrued on the Closing Date Balance Sheet the liabilities with respect
to the severance arrangements of Messrs. Fitch and Greizerstein.
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ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement shall be subject to Seller's satisfaction,
or written waiver by Purchaser, on or prior to the Closing Date, of each
of the following conditions:
8.01 Accuracy of Representations and Warranties and Performance of Obligations.
All representations and warranties made by Seller and P&S Canada in this
Agreement and in any other document delivered pursuant hereto shall be
true and correct in all Material respects on and as of the Closing Date.
Seller and P&S Canada shall have substantially performed or complied with
all covenants, agreements and conditions contained in this Agreement,
which are on its part required to be performed or complied with, at or
prior to the Closing.
8.02 Consents. All authorizations, permits, consents and approvals of any
Governmental Body and third parties required to be obtained by Seller and
P&S Canada, or which are necessary to consummate the transactions
contemplated in this Agreement, shall have been obtained and shall be in
full force and effect. All approvals of the Board of Directors and
shareholders of Seller and P&S Canada necessary for the consummation of
this Agreement and the transactions contemplated hereby shall have been
obtained.
8.03 No Contrary Judgment. The Closing shall not violate any order, decree or
judgment of any court or Governmental Body having competent jurisdiction
and no claim, action, suit, proceeding or investigation shall have been
commenced or threatened which questions the validity of this Agreement or
any action taken, or to be taken, to consummate the transactions
contemplated hereby.
8.04 HSR Act Compliance. All filings under the HSR Act shall have been made and
the applicable time period under the HSR Act shall have expired or been
earlier terminated.
8.05 Material Adverse Change. There has been no Material adverse change since
April 30, 1996 in the condition (financial or other) of the Business,
results of operation, assets, liabilities, customer or employee relations
as they relate to the Business or future prospects of the Business.
8.06 Consent of Collective Bargaining Representative. Purchaser shall have
negotiated in good faith with the collective bargaining representative of
those unionized employees of the Company to obtain a reasonably
satisfactory agreement relating to the rights of collectively bargained
employees following the Closing Date.
8.07 Closing Deliveries. Seller shall have delivered to Purchaser all of the
items required to be delivered pursuant to Section 12.02 hereof.
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ARTICLE IX
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions
contemplated by this Agreement shall be subject to Purchaser's
satisfaction, or waiver by Seller, on or prior to the Closing Date, of
each of the following conditions:
9.01 Accuracy of Representations and Warranties and Performance of Obligations.
All representations and warranties made by Purchaser in this Agreement and
in any other document delivered pursuant hereto shall be true and correct
in all Material respects on and as of the Closing Date. Purchaser shall
have substantially performed or complied with all covenants, agreements
and conditions contained in this Agreement which are required to be
performed or complied with, at or prior to the Closing.
9.02 Consents. All authorizations, permits, consents and approvals of any
Governmental Body and third parties required to be obtained by Purchaser,
or which are necessary to consummate the transactions contemplated in this
Agreement, shall have been obtained and shall be in full force and effect.
All approvals of the partners of Purchaser necessary for the consummation
of this Agreement and the transactions contemplated hereby shall have been
obtained.
9.03 No Contrary Judgment. The Closing shall not violate any order, decree or
judgment of any court or Governmental Body having competent jurisdiction
and no claim, action, suit, proceeding or investigation shall have been
commenced or threatened which questions the validity of this Agreement or
any action taken, or to be taken, to consummate the transactions
contemplated hereby or which is likely to Materially and adversely affect
the value of Company.
9.04 HSR Act Compliance. All filings under the HSR Act shall have been made and
the applicable time period under the HSR Act shall have expired or been
earlier terminated.
9.05 Closing Deliveries. Purchaser shall have delivered to Seller all of the
items required to be delivered pursuant to Section 12.03 hereof.
ARTICLE X
COVENANT NOT TO COMPETE
10.01 Purchaser's Non-Competition Covenant. In consideration of Seller's
non-competition covenant in Section 10.02 below, Purchaser and Sovereign
agree that neither Purchaser, Sovereign, the Company nor the Subsidiaries,
nor any of their Affiliates (for purposes of this Section 10.01, the term
"Affiliates" shall not be deemed to include Bank of America or its
Affiliates) will, at any time on or before December 31, 2000, participate,
engage in or have any interest in, directly or indirectly, any Person
(whether as an investor, owner, principal, promoter, shareholder,
licensee, agent, creditor, consultant or in any other capacity which calls
for the rendering of services, advice, acts of
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management, operation or control) which engages in any business which
competes with the Wood Finishes Business in the United States of America,
Canada and/or Mexico as currently conducted by the Seller. Provided,
however, that nothing herein shall prevent or prohibit Purchaser,
Sovereign or any of their Affiliates in any way from conducting any
activities other than the Wood Finishes Business or prevent or prohibit
Purchaser, Sovereign or any of their Affiliates from acquiring, investing
in, controlling or otherwise having an interest in any Person engaged in
the wood finishes business so long as not more than fifteen percent (15%)
of such business' sales of such Person (based on its latest annual
audited, or unaudited if audited statements are unavailable, financial
statements) are attributable to the wood finishes business, or from
acquiring, investing in or otherwise having an interest in not more than a
five percent (5%) equity interest or capital stock interest in a business
whose sales are substantially derived from (based on its latest annual
audited, or unaudited if audited statements are unavailable, financial
statements) the wood finishes business.
10.02 Seller's Non-Competition Covenant.
(a) In consideration of Purchaser's non-competition covenant in Section
10.01 above, Seller agrees that it shall not, and it shall cause
each of its Affiliates to not, at any time on or before December 31,
2000, without the prior written consent of Purchaser, anywhere in
the United States of America, Canada and/or Mexico, directly or
indirectly, participate in, engage in, manage, operate, control,
consult, be employed by or assist in any manner or capacity or have
any interest in any Person which is engaged in the Business as
conducted by the Company immediately prior to the Closing Date;
provided, however, that nothing herein shall prevent or prohibit:
(i) the acquisition by Seller or any of its Affiliates of more
than fifty percent (50%) of the voting securities, or
substantially all of the assets of, any Person having not more
than fifteen percent (15%) of its sales (based on its latest
annual audited, or unaudited if audited statements are
unavailable, financial statements) attributable to products
competing directly with the Business in the United States of
America, Canada and/or Mexico;
(ii) the acquisition or holding for investment purposes (A) by any
employee pension fund or other similar Person acting in a
fiduciary capacity with respect to Seller or any of its
Affiliates of up to 15% or (B) by Seller or any of its
Affiliates (other than those described in clause (A) of this
Section 10.02(a)(i) of up to 5%, of the outstanding capital
stock or other ownership interest in any Person having a class
of equity securities listed on any national or international
securities exchange;
(iii) the purchase from any Person (other than an Affiliate of
Seller) and the resale by Seller or any of its Affiliates of
the type of products involved in the Business (but only to the
extent conducted by Seller or any of its Affiliates as of the
Closing Date);
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(iv) the manufacture, marketing, distribution and sale by Seller or
any of its Affiliates of any products under the Proxpeel,
Cablon(R) or Fabulon(R) lines of business, or products derived
from or developed in the future based upon the technology and
formulas related to such lines of business;
(v) the manufacture, marketing, distribution and sale by Seller or
any of its Affiliates of any construction adhesives as
conducted by Miracles Adhesives Corporation;
(vi) the manufacture, marketing, distribution and sale by Seller or
any of its Affiliates of any products based upon formulations
or processes independently developed by Seller or any of its
Affiliates; or
(vii) the manufacture, marketing, distribution and sales by Seller
of any of its Affiliates of any adhesive products marketed as
"all-purpose" adhesives (but only to the extent conducted by
Seller or any of its Affiliates as of the Closing Date).
(b) Notwithstanding anything to the contrary set forth in paragraph (a)
of this Section 10.02, nothing herein shall prevent Seller or any of
its Affiliates from continuing their business activities (other than
any such activities that are also included in the Business as
currently conducted) of the manufacturing, marketing, distributing
and selling adhesives and coatings under technology and/or brand
names owned by Seller or any of its Affiliates.
ARTICLE XI
INDEMNIFICATION
11.01 Seller's Indemnification. Seller agrees to indemnify, defend and hold
Purchaser, its directors, officers, employees, subsidiaries, lenders,
affiliates and the successors and assigns, of any of the foregoing
("Purchaser's Indemnitees") harmless from and against any and all claims,
liabilities, obligations, demands, damages, losses, costs, expenses
(including reasonable attorney's fees), fines, penalties, judgments and
amounts paid in settlement imposed on, asserted against or incurred by
Purchaser's Indemnitees and which arise out of, in connection with, result
from or are incident to any of the following (collectively, "Purchaser's
Losses"):
(a) any misrepresentation or breach of any representation, warranty,
covenant, obligation or agreement of Seller in this Agreement or in
any document or agreement furnished or to be furnished by Seller
under this Agreement;
(b) any claim for breach of Product Warranty Liability or Product
Liability arising from the sale of Products prior to the Closing
Date to the extent not accrued on the Closing Date Balance Sheet;
including, but not limited to, any claim for breach of Product
Warranty Liability or Product Liability arising from or related to
the Hybond 100NF(R) product line;
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(c) all claims, demands, damages, costs, expenses, losses, liabilities,
penalties, fines, suits and proceedings (including attorney's fees)
to the extent not accrued on the Closing Date Balance Sheet arising
or resulting from (i) the violation of or the enforcement by any
Governmental Body or any third party of any Environmental Laws or
the remediation of Hazardous Materials resulting from the operation
of the Business, the sale of Products or activities at the
Facilities prior to the Closing Date; (ii) any liability relating to
the Business or the Company claimed to arise under any Environmental
Law, as now or hereafter enacted, reauthorized or amended, arising
out of facts or circumstances occurring prior to the Closing Date,
or otherwise arising out of or resulting from the operation of the
Business or the sale of Products prior to the Closing Date; (iii)
conditions caused, events occurring or activities at the Facilities
or with respect to the Business prior to the Closing Date which
result in any emission, disposal, deposit, contamination, release or
discharge of Hazardous Materials or regulated substances (whether on
or off of the Real Property) covered or regulated by Environmental
Laws; or (iv) the existence, storage or presence of Hazardous
Materials or other regulated substances in the buildings, structures
and all other improvements at the Facilities prior to the Closing
Date, and the remediation thereof;
(d) any liability for Taxes arising during any Pre-Closing Tax Period;
(e) any claim, action, suit or demand or any legal, administrative or
other proceeding identified on Schedule 3.14 to the extent not
accrued on the Closing Date Balance Sheet with respect to any act or
omission where the initial event or events giving rise to the same
occurred prior to the Closing Date;
(f) any liability arising from employee benefits plans retained by
Seller, worker's compensation or long-term disability claims made on
or prior to Closing; and
(g) any claim or other liability arising from or related to the Wood
Finishes Business or the Milpitas Property;
(h) any claim or other liability arising on or prior to Closing related
to the Assets; and
(i) any brokers' commission, finders' fees or other like payments
incurred or alleged to have been incurred by Seller in connection
with the sale of the Shares and the consummation of the transactions
contemplated by this Agreement.
11.02 Purchaser's Indemnification. Purchaser agrees to indemnify, defend and
hold Seller, its directors, officers, employees, subsidiaries, affiliates
and the successors and assigns of any of the foregoing ("Seller's
Indemnitees") harmless from and against any and all claims, liabilities,
obligations, demands, damages, losses, costs, expenses (including
reasonable attorney's fees), fines, penalties, judgments and amounts paid
in settlement, imposed on, asserted against or incurred by Seller's
Indemnitees and which arise out of, in connection with, result from or are
incident to any of the following:
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(a) misrepresentations or breach of any representation, warranty,
covenant, obligation or agreement of Purchaser in this Agreement or
in any document or agreement furnished or to be furnished by
Purchaser under this Agreement; and
(b) any liabilities and/or obligations of Company and/or either of the
Subsidiaries, regardless of whether the events or circumstances
giving rise to any such liability and/or obligation occurred prior
to, on or after the Closing Date except for matters for which Seller
has provided indemnification pursuant to Section 11.01 hereof other
than benefits retained by Seller pursuant to Article VII.
11.03 Claim for Indemnification. Any party seeking indemnification under the
provisions of this Agreement, within ninety (90) days after the time it
discovers that it has a claim against another party (a "Personal Claim")
or promptly upon receipt of written notice of any claim or the service of
a summons or other initial legal process upon it in any action instituted
against it which relates to this Agreement (a "Third-Party Claim"), shall
give written notice of such claim, or the commencement of such action, to
the party from whom indemnification will be sought hereunder.
(a) Third Party Claim. In the event of a Third-Party Claim, the party
seeking indemnification ("Tendering Party") shall tender the defense
of such Third Party Claim to the party from whom indemnification is
sought ("Non-Tendering Party"). The Non-Tendering Party shall,
within ten (10) days of the receipt thereof, inform the Tendering
Party in writing that the Non-Tendering Party will either:
(i) Accept the Tender of the Defense Without a Reservation of
Rights. If the Non-Tendering Party agrees that the Third Party
Claim is a claim for which indemnification is provided for
pursuant to the terms of this Agreement ("Proper Claim"), the
Non-Tendering Party shall accept the tender of the defense
without a reservation of rights. In such an event the
Non-Tendering Party shall control all aspects of the defense
of such Third Party Claim and shall indemnify the Tendering
Party in accordance with this Article XI.
(ii) Accept the Tender of the Defense With a Reservation of Rights.
If the Non-Tendering Party questions whether the Third Party
Claim is a Proper Claim, the Non-Tendering Party may accept
the tender of the defense with a reservation of rights. In
such an event, the Non-Tendering Party shall submit such Third
Party Claim to arbitration immediately in order to determine
whether it is a Proper Claim. While the arbitration is
pending, the Non-Tendering Party shall control all aspects of
the defense of such Third Party Claim; provided, however, that
the Tendering Party shall have a reasonable right to
participate in decisions with respect to defense of Third
Party Claims during the period the arbitration is pending. If
the decision of the arbitrator(s) is that it is:
36
<PAGE> 37
(A) a Proper Claim, and the Third Party Claim is still
pending, the Non-Tendering Party shall continue the
defense of such Third Party Claim and shall defend,
indemnify and hold the Tendering Party harmless in
accordance with this Article XI;
(B) a Proper Claim, but the Third Party Claim has already
been concluded, the Non-Tendering Party shall indemnify
and hold the Tendering Party harmless in accordance with
this Article XI;
(C) a claim for which indemnification is not provided for
pursuant to the terms of this Agreement ("Improper
Claim"), and the Third Party Claim is still pending, the
Non-Tendering Party shall return all aspects of the
defense of such Third Party Claim immediately to the
Tendering Party. In such an event, the Tendering Party
shall assume the control of all aspects of the defense
of such Third Party Claim immediately and shall
reimburse the Non-Tendering Party for all costs and
expenses (including, but not limited to, reasonable
attorneys fees) incurred by the Non-Tendering Party in
the defense of such Third Party Claim; or
(D) an Improper Claim, but the Third Party Claim has already
been concluded, the Tendering Party shall reimburse the
Non-Tendering Party for all costs and expenses
(including, but not limited to reasonable attorneys
fees) incurred by the Non-Tendering Party in the defense
of such Third Party Claim and shall reimburse the
Non-Tendering Party for all amounts paid by the
Non-Tendering Party for judgments or settlements
relating to such Third Party Claim.
(iii) Reject the Tender of the Defense. If the Non-Tendering Party
decides that the Third Party Claim is an Improper Claim, the
Non-Tendering Party shall reject the tender of the defense. In
such an event, the Non-Tendering Party shall submit such Third
Party Claim to arbitration immediately in order to determine
whether it is a Proper Claim. While the arbitration is
pending, the Tendering Party shall control all aspects of the
defense of such Third Party Claim. If the decision of the
arbitrator(s) is that it is:
(A) a Proper Claim, and the Third Party Claim is still
pending, the Tendering Party shall transfer the control
of all aspects of the defense of such Third Party Claim
to the Non-Tendering Party. The Non-Tendering Party
shall assume the defense of such Third Party Claim
immediately and shall reimburse the Tendering Party for
all costs and expenses (including, but not limited to,
reasonable attorneys fees) incurred by the Tendering
Party in the defense of such Third Party Claim and shall
defend, indemnify and hold the Tendering Party harmless
in accordance with this Article XI;
37
<PAGE> 38
(B) a Proper Claim, but the Third Party Claim has already
been concluded, the Non-Tendering Party shall indemnify
and hold the Tendering Party harmless in accordance with
this Article XI and shall reimburse the Tendering Party
for all costs and expenses (including, but not limited
to, reasonable attorneys fees) incurred by the Tendering
Party in the defense of such Third Party Claim and shall
defend, indemnify and hold the Tendering Party harmless
in accordance with this Article XI;
(C) an Improper Claim, and the Third Party Claim is still
pending, the Tendering Party shall continue to control
all aspects of the defense of such Third Party Claim; or
(D) an Improper Claim, but the Third Party Claim has already
been concluded, the Tendering Party shall bear all
losses incurred by the Tendering Party relating to such
Third Party Claim.
(b) Personal Claim. In the event of a Personal Claim, the party from
whom indemnification is sought ("Indemnifying Party") shall, within
thirty (30) days of the receipt of the claim for indemnification,
send written notice to the party seeking indemnification
("Indemnified Party") indicating whether the claim is disputed. If
the claim is disputed, the Indemnifying Party shall submit the
matter to arbitration in order to determine if it is a Proper Claim
and, if it is a Proper Claim, to determine the amount of such claim.
To the extent that the arbitrator(s) rules that a Personal Claim is
a Proper Claim and/or to the extent that a Personal Claim is not
disputed, the Indemnifying Party shall promptly indemnify the
Indemnified Party in accordance with this Article XI.
Notwithstanding the foregoing, the Indemnifying Party will not be entitled
to assume control of the defense of any such claim if:
(i) the Indemnified Party reasonably believes that an adverse
determination of such proceeding could be Materially
detrimental to or injure the Indemnified Party's reputation or
future business prospects;
(ii) the Indemnified Party reasonably believes that there exists or
could arise a conflict of interest which, under applicable
principles of legal ethics, could prohibit a single legal
counsel from representing both the Indemnified Party and the
Indemnifying Party in such proceeding; or
(iii) a court of competent jurisdiction rules that the Indemnifying
Party has failed or is failing to prosecute or defend
vigorously such claim.
11.04 Arbitration Procedure. Any arbitration conducted pursuant to this Article
XI shall be conducted in accordance with Section 2.04(c) of this
Agreement. If a party is required to submit a matter to
38
<PAGE> 39
arbitration pursuant to Section 11.03, and such party fails or refuses to
do so within ten (10) days, the other party may submit the matter to
arbitration. In any matter which is submitted to arbitration pursuant to
this Article XI, the party seeking indemnification shall bear the burden
of proof. If the prevailing party is the party seeking indemnification,
the prevailing party shall be entitled to receive from the indemnifying
party all sums due under the indemnification provisions plus all costs and
reasonable attorneys' fees incurred by the prevailing party relating to
the arbitration.
11.05 Period of Indemnity.
(a) The indemnities contained in Sections 11.01(a), 11.01(i) and 11.02
of this Agreement shall expire twenty-one (21) months after the
Closing Date, except with respect to Losses as to which notice has
been given pursuant to Section 11.03 within such period, in which
case the indemnification period shall be extended until final
resolution of such Loss;
(b) the indemnities contained in Sections 11.01(b), 11.01(e) and
11.01(f) shall expire on the fifth (5th) anniversary of the Closing
Date; provided, however, that the indemnities contained in Section
11.01(b) relating solely to Hybond 100NF(R) shall have no expiration
date;
(c) the indemnities contained in Section 11.01(c) shall expire on the
seventh (7th) anniversary of the Closing Date;
(d) the indemnities contained in Section 11.01(d) shall expire upon the
expiration of any applicable statute of limitations with respect to
the Tax liabilities in question; and
(e) the indemnities contained in Sections 11.01(g) and 11.01(h) shall
have no expiration date.
11.06 Limitation on Indemnification. With respect to any of Purchaser's Losses,
Purchaser's Indemnities shall not be entitled to indemnification therefor
until the aggregate amount of such Purchaser's Losses exceed a threshold
of One Hundred Thousand and 00/100 Dollars ($100,000.00) whereupon
Purchaser's Indemnitees shall be entitled to indemnification hereunder for
the aggregate amount of such Purchaser's Losses in excess of One Hundred
Thousand and 00/100 Dollars ($100,000.00) up to a maximum liability cap of
Seven Million and 00/100 Dollars ($7,000,000.00); provided, however, that
the following Losses shall not be subject to the minimum threshold or the
maximum liability cap:
(i) Product Liability claims arising from and relating solely to Hybond
100NF(R);
(ii) liability for Taxes arising during any Pre-Closing Tax Period;
(iii) liabilities arising from employee benefits plans retained by Seller,
worker's compensation or long-term disability claims made on or
prior to Closing;
39
<PAGE> 40
(iv) liabilities arising from or related to the Wood Finishes Business or
the Milpitas Property; and
(v) liabilities arising on or prior to Closing related to the Assets.
ARTICLE XII
CLOSING
12.01 Closing. The closing of the purchase and sale of the Shares pursuant to
this Agreement ("Closing") shall take place on August ____ , 1996
("Closing Date"), at the offices of The Sherwin-Williams Company, 101
Prospect Avenue, N.W., Cleveland, Ohio 44115 or at such other place as may
be mutually agreed upon by the parties. The Closing shall be effective as
of 12:00:01 a.m. on the Closing Date. The parties will in good faith use
all reasonable efforts to achieve the Closing.
12.02 Deliveries of Seller. Seller shall deliver to Purchaser at the Closing:
(a) such certificates representing (i) all of the Shares duly endorsed
in blank or accompanied by stock powers or other instruments of
transfer duly executed in blank in a form acceptable to Purchaser
and (ii) all of the capital stock of each Subsidiary;
(b) resignations duly executed by each officer and director of Company
whose resignations have been required by Purchaser prior to Closing;
(c) certificates of good standing for the Company certified by the
Secretaries of State of New York, Illinois, Pennsylvania and
California and certificates of registration with respect to
Subsidiaries in Mexico;
(d) copies, certified by the Secretary or Assistant Secretary of Seller,
of resolutions of Seller's board of directors authorizing the
execution, delivery and performance of this Agreement and all other
agreements, documents and instruments relating hereto and the
consummation of the transactions contemplated in this Agreement,
which certification shall recite that such resolutions have not been
subsequently amended, modified or rescinded and are in full force
and effect;
(e) the Corporate Services Agreement in the form attached as Schedule
5.12;
(f) the Lease Agreement in the form attached as Schedule 5.13;
(g) the Environmental Escrow Agreement in the form attached as Schedule
2.03(b)(ii);
(h) the Environmental Protocol Agreement in the form attached as
Schedule 2.03(b)(i);
(i) the Distribution Agreement in the form attached as Schedule 5.15;
40
<PAGE> 41
(j) the License Agreement in the form attached as Schedule 5.18;
(k) copies of all consents, including, without limitation, all landlord
consents, assignments and waivers necessary for the consummation of
the transaction contemplated by this Agreement;
(l) the General Assignment, Bill of Sale and Assumption Agreement
relating to the Assets ("Bill of Sale");
(m) the legal opinion of Seller's General Counsel, dated as of the
Closing Date, in a form reasonably satisfactory to legal counsel for
Purchaser; and
(n) such other Closing documents as Purchaser may reasonably request.
12.03 Deliveries of Purchaser. Purchaser shall deliver to Seller at the Closing:
(a) the amount of Forty-Two Million Eight Hundred Twenty-Four Thousand
Six Hundred Sixty-Seven and 50/100 Dollars ($42,824,667.50) as the
Purchase Price in the manner provided in Section 2.03;
(b) copies, certified by the Secretary or Assistant Secretary of
Purchaser, of resolutions of Purchaser's board of directors
authorizing the execution, delivery and performance of this
Agreement and all other agreements, documents and instruments
relating hereto and the consummation of the transactions
contemplated in this Agreement, which certification shall recite
that such resolutions have not been subsequently amended, modified
or rescinded and are in full force and effect;
(c) copies, certified by the General Partner of Sovereign, of
resolutions of Sovereign's partners authorizing the execution,
delivery and performance of this Agreement and all other agreements,
documents and instruments relating hereto and the consummation of
the transactions contemplated in this Agreement, which certification
shall recite that such resolutions have not been subsequently
amended, modified or rescinded and are in full force and effect;
(d) the Lease Agreement in the form attached as Schedule 5.13;
(e) Corporate Services Agreement in the form attached as Schedule 5.12;
(f) the Environmental Escrow Agreement in the form attached as Schedule
2.03(b)(ii);
(g) the Environmental Protocol Agreement in the form attached as
Schedule 2.03(b)(i) ;
(h) the Distribution Agreement in the form attached as Schedule 5.15;
and
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<PAGE> 42
(i) the License Agreement in the form attached as Schedule 5.18;
(j) the Bill of Sale;
(k) the legal opinion of Davis, Graham & Stubbs LLP, counsel to
Purchaser, dated as of the Closing Date, in a form reasonably
satisfactory to Seller's General Counsel; and
(l) such other Closing documents as Seller may reasonably request,
including but not limited to a certified copy of the Certificate of
Incorporation of Purchaser as certified by the State of Delaware.
ARTICLE XIII
TERMINATION
13.01 Grounds for Termination. This Agreement may be terminated at any time
prior to the Closing under any one of the following circumstances:
(a) by mutual written consent of the parties hereto;
(b) by Purchaser or Seller, by giving written notice of such termination
to the other party, if (i) any condition (other than as set forth in
Sections 8.04 and 9.04) set forth in Articles VIII or IX shall not
have been satisfied or waived and (ii) the Closing shall not have
occurred prior to August 31, 1996; provided that the terminating
party is not in Material breach of its obligations under this
Agreement;
(c) by Purchaser or Seller, by giving written notice of such termination
to the other party, if (i) the conditions set forth in Sections 8.04
and 9.04 shall not have been satisfied or waived and (ii) the
closing shall not have occurred prior to August 31, 1996; provided
that the terminating party is not in Material breach of its
obligations under this Agreement; and
(d) by Purchaser or Seller if there shall be in effect any law or
regulation that makes the consummation of the transactions
contemplated hereby illegal or otherwise prohibited or if the
consummation of the transactions contemplated hereby would violate
any nonappealable final order, decree or judgment of any court of
governmental body having competent jurisdiction.
13.02 Effect of Termination. Except as set forth in Section 13.03, in the event
this Agreement is terminated as permitted by Section 13.01, this Agreement
shall thereafter become void and have no effect, and, such termination
shall be without liability of either party (or any stockholder, director,
officer, employee, agent, consultant or representative of such party) to
the other party; provided, that nothing herein will release either party
from liability for any breach of this Agreement prior to such termination.
The provisions of Section 5.08 and Article XIV shall survive any
termination hereof pursuant to Section 13.01.
42
<PAGE> 43
13.03 Payments Required Upon Termination in Certain Circumstances. In the event
of a termination of this Agreement by either party in accordance with
Section 13.01(c) or Section 13.01(d) (but only if the law, regulation,
order, decree or judgment referred to in Section 13.01(d) relates to the
HSR Act), other than as a result of Seller's actions or inactions,
Purchaser shall pay to Seller (i) an amount equal to the out-of-pocket
expenses, including fees and disbursements of legal counsel, incurred by
Seller and any of Seller's Affiliates in connection with the transactions
contemplated by this Agreement, upon delivery by Seller to Purchaser of a
reasonable description of such expenses and the amounts thereof, and (ii)
an amount equal to the amount by which the Purchase Price hereunder
exceeds the aggregate value of the consideration received by the Seller as
a result of the disposition of the Business (substantially as an entirety
or otherwise) to another Person or Persons; provided in the case of this
clause (ii) that a binding agreement or agreements for the sale of all or
substantially all of the Business shall have been entered into within 12
months following such termination. The amount to be paid by Purchaser to
Seller pursuant to clause (ii) of the immediately preceding sentence shall
be adjusted to take into account any asset or liability of the Business
retained by Seller in connection with such subsequent sale or sales.
ARTICLE XIV
EXPENSES
Purchaser and Seller will bear their own respective expenses,
including, without limitation, counsel and accountants' fees, in
connection with the preparation and negotiation of, and transactions
contemplated under, this Agreement.
ARTICLE XV
MISCELLANEOUS
15.01 Notices. Any notices, requests, claims, demands, instructions and other
communications to be given hereunder to any party shall be in writing and
delivered in person, sent by certified mail, postage prepaid, return
receipt requested, or by facsimile transmission with a confirmed
telephonic transmission answer back, to the following addresses (or at
such other address or number as is given in writing by one party to the
others pursuant hereto):
If to Seller
or P&S Canada: The Sherwin-Williams Company
101 Prospect Avenue, N.W.
Cleveland, Ohio 44115
Attn: Vice President - Corporate Planning and
Development
Telecopy No.: (216) 566-2947
43
<PAGE> 44
with a copy to: The Sherwin-Williams Company
101 Prospect Avenue, N.W.
Cleveland, Ohio 44115
Attn: Vice President, General Counsel
and Secretary
Telecopy No.: (216) 566-1708
If to Purchaser: P&S Holdings, Inc.
c/o Sovereign Specialty Chemicals L.P.
225 W. Washington Street, Suite 2200
Chicago, Illinois 60606
Attn: Chief Executive Officer
Telecopy No.: (312) 419-7151
with copies to: First Chicago Equity Capital
Three First National Plaza, Suite 1210
Chicago, Illinois 60670-0610
Attn: Eric Larson and Carol Bramson
Telecopy No.: (312) 732-7483
and
Davis, Graham & Stubbs LLP
1314 19th Street, N.W.
Washington, D.C. 20036
Attn: Christopher J. Hagan, Esq.
Telecopy No.: (202) 293-4794
15.02 Amendments. This Agreement may be amended only upon the mutual written
consent of the parties hereto.
15.03 Duplicates, Originals Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same agreement.
15.04 Entire Agreement. This Agreement, including the Schedules hereto,
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior agreements and
understandings between the parties. There are no representations,
warranties, undertakings or agreements between the parties with respect to
the subject matter of this Agreement except as set forth herein.
15.05 Non-Assignability. Neither of the parties hereto may assign its rights,
interests, obligations or liabilities under this Agreement or delegate its
duties without the prior written consent of the other
44
<PAGE> 45
party; provided, however, that without the consent of Seller, Purchaser
may assign its rights (i) under this Agreement to a wholly-owned
subsidiary, or (ii) under Section 11.01 of this Agreement, to Chase
Manhattan Bank, N.A. (or any lender in replacement thereof).
15.06 Headings. The headings contained in this Agreement are for convenience of
reference only and shall not affect the interpretation of this Agreement.
15.07 Governing Law. This Agreement shall be governed and construed in
accordance with the Laws of the State of Ohio.
15.08 Severability. In the event any term or provision of this Agreement shall
be deemed to be illegal, invalid or unenforceable for any reason, such
illegality, invalidity or unenforceability will not affect any other term
or provision of this Agreement and the parties shall endeavor to replace
the invalid or null and void provision(s) with such which correspond best
to the intentions of the parties hereto.
15.09 Invalid Provisions. If any provision of this Agreement is deemed or held
to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it
is deemed to be illegal, invalid or unenforceable, and in all other
respects this Agreement shall remain in full force and effect. Should any
provision contained in the Agreement ever be reformed or rewritten by any
judicial body of competent jurisdiction, such provision as so reformed or
rewritten shall be binding upon all parties hereto.
45
<PAGE> 46
15.10 Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date hereinbefore stated.
WITNESS: THE SHERWIN-WILLIAMS COMPANY
/s/ Carol E. Bramson BY: /s/ / s /
--------------------------- ---------------------------------------
TITLE: Director - Corporate Development
--------------------------- ------------------------------------
WITNESS: PIERCE & STEVENS CANADA, INC.
/s/ Carol E. Bramson BY: /s/
--------------------------- ---------------------------------------
/s/ TITLE: Director - Corporate Development
--------------------------- ------------------------------------
SOVEREIGN SPECIALTY CHEMICALS, L.P.
BY: SOVEREIGN CHEMICALS CORPORATION,
WITNESS: ITS GENERAL PARTNER
/s/ Carol E. Bramson BY: /s/ Robert B. Covalt
--------------------------- ---------------------------------------
/s/ TITLE: President & Chief Executive Officer
--------------------------- ------------------------------------
WITNESS: P&S HOLDINGS, INC.
/s/ Carol E. Bramson BY: /s/ Robert B. Covalt
--------------------------- ---------------------------------------
/s/ TITLE: President & Chief Executive Officer
--------------------------- ------------------------------------
46
<PAGE> 1
Exhibit 10.16
-----------------------------------
STOCK PURCHASE AGREEMENT
between
Laporte Inc.
and
Sovereign Specialty Chemicals, L.P.
May 22, 1997
-----------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE OF SHARES ..................................... 1
1.1 Purchase and Sale .................................................. 1
1.2 Purchase Price and Payment ......................................... 1
1.3 Closing ............................................................ 2
1.4 Deliveries at the Closing .......................................... 3
1.5 Closing Date Balance Sheet; Adjustment Amount ...................... 4
1.6 Books and Records .................................................. 6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER ....................... 7
2.1.1 Organization and Good Standing ................................... 7
2.1.2 Subsidiaries ..................................................... 7
2.1.3 Capitalization ................................................... 8
2.1.4 Authority, Approvals and Consents ................................ 8
2.1.5 Financial Statements ............................................. 10
2.1.6 Absence of Undisclosed Liabilities ............................... 11
2.1.7 Absence of Material Adverse Change; Conduct of Business .......... 11
2.1.8 Taxes ............................................................ 13
2.1.9 Legal Matters .................................................... 15
2.1.10 Property ........................................................ 16
2.1.11 Material Contracts .............................................. 18
2.1.12 Employees; Labor Relations ...................................... 19
2.1.13 Benefit Plans ................................................... 20
(i)
<PAGE> 3
TABLE OF CONTENTS
(Continued)
2.1.14 Environmental Matters ........................................... 21
2.1.15 Transactions with Affiliates .................................... 22
2.1.16 Intellectual Property ........................................... 23
2.1.17 Brokers ......................................................... 24
2.1.18 Insurance ....................................................... 24
2.2.1 No Other Representations or Warranties ........................... 24
2.2.2 Environmental Matters ............................................ 25
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER ....................... 26
3.1 Incorporation of Buyer ............................................. 26
3.2 Power; Authorization; Consents ..................................... 26
3.3 Brokers ............................................................ 28
3.4 Investment Intent of Buyer ......................................... 28
3.5 Financing; Equity .................................................. 28
ARTICLE IV COVENANTS ...................................................... 28
4.1 Access; Confidentiality ............................................ 28
4.2 Announcements ...................................................... 30
4.3 Conduct of Business Prior to the Closing ........................... 30
4.4 Consents; Cooperation .............................................. 31
4.5 Use of Name ........................................................ 32
4.6 Notification of Certain Matters .................................... 34
4.7 Covenant Not To Compete ............................................ 35
4.8 Hart-Scott-Rodino .................................................. 36
4.9 Retention of Books and Records ..................................... 37
(ii)
<PAGE> 4
TABLE OF CONTENTS
(Continued)
4.10 Cash Management Agreement ......................................... 37
4.11 Permits ........................................................... 38
4.12 Tamms Agreements .................................................. 38
4.13 Audited Financial Statements ...................................... 38
4.14 Stay-On Bonuses ................................................... 39
4.15 Intercompany Debt ................................................. 40
4.16 Guarantees and Letters of Credit .................................. 40
4.17 Confidentiality ................................................... 40
4.18 Deferred Consideration ............................................ 41
4.19 Further Assurances ................................................ 41
ARTICLE V CONDITIONS TO THE OBLIGATIONS OF BUYER .......................... 41
5.1 Representations and Warranties; Covenants; Material Adverse Change . 41
5.2 HSR Waiting Period; Consents ....................................... 42
5.3 Opinion of Seller's Counsel ........................................ 42
5.4 Absence of Litigation .............................................. 43
5.5 Environmental Survey ............................................... 43
5.6 Audited Financial Statements ....................................... 43
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF SELLER ........................ 44
6.1 Representations and Warranties; Covenants .......................... 44
6.2 HSR Waiting Period; Consents ....................................... 44
6.3 Opinion of Buyer's Counsel ......................................... 45
6.4 Absence of Litigation .............................................. 45
6.5 Environmental Survey ............................................... 45
(iii)
<PAGE> 5
TABLE OF CONTENTS
(Continued)
ARTICLE VII TERMINATION ................................................... 46
7.1 Termination ........................................................ 46
7.2 Effect of Termination .............................................. 48
ARTICLE VIII SURVIVAL AND INDEMNIFICATION ................................. 49
8.1 Survival ........................................................... 49
8.2 Indemnification Obligations of Seller .............................. 49
8.3 Indemnification Obligations of Buyer ............................... 50
8.4 Limitations on Indemnification ..................................... 51
8.5 Payment; Insurance ................................................. 57
8.6 Procedure .......................................................... 57
8.7 Special Indemnification Procedures for Environmental Matters ....... 58
8.8 Further Limitations on Indemnification ............................. 60
ARTICLE IX TAX AND EMPLOYEE MATTERS ....................................... 61
9.1 Certain Tax Matters ................................................ 61
9.2 Employee Matters ................................................... 67
ARTICLE X MISCELLANEOUS ................................................... 71
10.1 Expenses .......................................................... 71
10.2 Headings .......................................................... 71
10.3 Notices ........................................................... 72
10.4 Assignment ........................................................ 73
10.5 Entire Agreement .................................................. 74
10.6 Amendment; Waiver ................................................. 74
10.7 Counterparts ...................................................... 74
(iv)
<PAGE> 6
TABLE OF CONTENTS
(Continued)
10.8 Governing Law ..................................................... 74
10.9 Severability ...................................................... 74
10.10 Specific Performance ............................................. 75
10.11 Consent to Jurisdiction .......................................... 75
10.12 Third Person Beneficiaries ....................................... 76
10.13 Representations and Warranties; Schedules ........................ 77
EXHIBITS
- --------
Exhibit A Certain Definitions
Exhibit B Form of Promissory Note
Exhibit C List of Certain Entities
Exhibit D Stay-On Bonus Agreements
Exhibit E Description of Existing Tamms Litigation
SCHEDULES
- ---------
Schedule 1.2 Allocation of Purchase Price to Shares
Schedule 2.1.1 Jurisdictions of Qualification
Schedule 2.1.2 Subsidiaries
Schedule 2.1.3 Capitalization
Schedule 2.1.4 Authority, Approvals and Consents
Schedule 2.1.5 Unaudited Financial Statements; Exceptions to GAAP
Schedule 2.1.6 Undisclosed Liabilities
Schedule 2.1.7 Changes Since December 31, 1996
Schedule 2.1.8 Tax Matters
Schedule 2.1.9 Legal Matters
Schedule 2.1.10(a) Owned Property
Schedule 2.1.10(b) Leases
Schedule 2.1.10(d) Title to Personal Property
Schedule 2.1.10(e) Condition of Property
Schedule 2.1.11 Material Contracts
Schedule 2.1.12 Collective Bargaining Agreements
Schedule 2.1.13 Employee Benefit Plans
Schedule 2.1.14 Environmental Matters
(v)
<PAGE> 7
TABLE OF CONTENTS
(Continued)
Schedule 2.1.15 Transactions with Affiliates
Schedule 2.1.16 Intellectual Property
Schedule 3.2 Authority, Approvals and Consents Required--Buyer
Schedule 4.1 Scope of Environmental Investigation
Schedule 8.2 Certain Environmental Liabilities
(vi)
<PAGE> 8
STOCK PURCHASE AGREEMENT
THIS AGREEMENT dated this 22nd day of May, 1997, by and between (i)
Laporte Inc., a Delaware corporation ("Seller"), and (ii) Sovereign Specialty
Chemicals, L.P., a Delaware limited partnership ("Buyer").
Buyer desires to purchase and Seller desires to cause the sale by certain
of its subsidiaries of all outstanding shares of common stock of Laporte
Construction Chemicals North America, Inc., an Illinois corporation ("LCCNA"),
Mercer Products Company, Inc., a New Jersey corporation ("Mercer"), and
Evode-Tanner Industries, Inc., a New Hampshire corporation ("Evode"), which
shares are owned by wholly-owned subsidiaries of Seller, on the terms and
conditions hereinafter set forth. Certain terms used herein and in the Schedules
hereto are defined in Exhibit A.
Accordingly, in consideration of the premises and of the respective
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale. Upon the terms and subject to the conditions set
forth in this Agreement, at the Closing, Seller will cause Rockwood and Evode
U.S.A. to sell to Buyer, and Buyer will purchase from Rockwood and Evode U.S.A.,
all of the Shares.
1.2 Purchase Price and Payment. As the purchase price for the Shares,
Buyer agrees to pay to Seller an amount equal to (x) One hundred thirty-six
million United States Dollars ($136,000,000), plus (y) the amount, if any, by
which Closing Working Capital exceeds, or minus the amount, if any, by which
Closing Working Capital is less than, $14,115,000 (the
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"Purchase Price"). The Purchase Price will be payable in cash at the Closing,
except that $3,000,000 of the Purchase Price allocable to the LCCNA Shares will
be payable by delivery to Rockwood of an unsecured, subordinated (to the extent
provided therein) promissory note (the "Note") in the form of Exhibit B. Buyer
will be the maker of the Note, except that if a subsidiary of Buyer is the
actual purchaser of the LCCNA Shares in accordance with Section 10.4, such
subsidiary shall be the maker of the Note and Buyer shall guarantee the
performance of such subsidiary's obligations under the Note pursuant to an
instrument in form and substance satisfactory to Seller. The Purchase Price will
be allocated among the Shares in accordance with Schedule 1.2.
1.3 Closing. Subject to the conditions set forth in Articles V and VI of
this Agreement, the parties will be required to consummate the purchase and sale
of the Shares pursuant to this Agreement (the "Closing") at the offices of
Hughes Hubbard & Reed LLP, One Battery Park Plaza, New York, N.Y. 10004 on the
later of (i) such date as is agreed by Buyer and Seller in their sole
discretion, (ii) August 14, 1997, which date shall be extended by the number of
days, if any, that the audited financial statements to be delivered pursuant to
Section 4.13 are delivered in compliance with such Section 4.13 after May 31,
1997, and (iii) the fifth business day after the date on which all conditions to
the obligations of Buyer and Seller under Articles V and VI of this Agreement
(other than those requiring an exchange of a certificate, opinion or other
document, or the taking of other action, at the Closing) shall have been
satisfied or waived. The date on which the Closing is to occur is herein
referred to as the "Closing Date". The Closing will be effective as of the start
of business on the Closing Date.
1.4 Deliveries at the Closing. Subject to the provisions of Articles V and
VI
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hereof, at the Closing:
(a) The following deliveries will be made by Seller to Buyer:
(i) certificates representing all Shares accompanied by stock
powers executed in blank, with all necessary stock transfer and other
documentary stamps attached;
(ii) except as Buyer may otherwise specify to Seller in
writing prior to the Closing, the written resignation of each director and
officer of the Companies who is not a full time employee of the Companies (or
such officers or directors shall have been otherwise removed), and the stock
transfer and minute books of the Companies; and
(iii) all opinions, certificates, consents and other
instruments and documents contemplated under Article V to be delivered by Seller
at or prior to the Closing; and
(b) The following deliveries will be made by Buyer to Seller:
(i) an amount equal to the Estimated Purchase Price, minus
$3,000,000, in immediately available funds by wire transfer to a bank account
designated by Seller in a written notice delivered to Buyer at least two (2)
business days prior to the Closing,
(ii) the Note, duly executed by Buyer (or a subsidiary of
Buyer, if required pursuant to Section 1.2) and, if the Note is executed by a
subsidiary of Buyer, a guarantee of Buyer in accordance with Section 1.2, and
(iii) all opinions, certificates and other instruments and
documents contemplated under Article VI to be delivered by Buyer at or prior to
the Closing.
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1.5 Closing Date Balance Sheet; Adjustment Amount.
(a) Seller shall deliver to Buyer at least two (2) business days
prior to the Closing Date a statement (the "Estimated Closing Statement")
setting forth its good faith estimate of the amount of Closing Working Capital
and a calculation of the Purchase Price as if Seller's estimate of Closing
Working Capital set forth on the Estimated Closing Statement were the actual
amounts of such items. The Purchase Price as so estimated is referred to as the
"Estimated Purchase Price".
(b) The parties shall jointly conduct a physical count of inventory
of the Companies as of the Closing Date within one business day of the Closing
Date or during such other period as Buyer and Seller shall reasonably agree. No
later than the date that is ninety (90) days after the Closing Date, Buyer will,
at Buyer's expense, cause Ernst & Young, LLP ("EY") to prepare and deliver to
Seller and Buyer a statement of its calculation of Closing Working Capital and
the Purchase Price in accordance with its audit of the books and records of the
Companies as of the Closing Date (the "Final Closing Statement") together with
an audited combined balance sheet of the Companies as of the Closing Date (the
"Preliminary EY Balance Sheet") and its calculation of the amount, if any, of
Excess Liabilities. The Preliminary EY Balance Sheet shall be prepared in
accordance with GAAP applied on a basis consistent with the application of
accounting principles in the preparation of the Audited Balance Sheet.
(c) Buyer shall make available to Seller and its representatives the
work papers used by it and EY in determining Closing Working Capital and
preparing the Final Closing Statement and Preliminary EY Balance Sheet, and
shall make available to Seller on a reasonable basis those employees and
representatives (including employees of EY) who
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participated in such determination and preparation to discuss and explain such
determination and preparation. Seller shall notify Buyer in writing within
thirty (30) days after Seller's receipt of the Final Closing Statement and
Preliminary EY Balance Sheet that it accepts the Final Closing Statement,
Preliminary EY Balance Sheet and EY's calculation of Closing Working Capital and
Excess Liabilities or that there is a dispute as to an item reflected thereon or
as to the calculation of Closing Working Capital or Excess Liabilities. Such
notice will set forth Seller's objections, if any, to the Final Closing
Statement, Preliminary EY Balance Sheet and calculation of Closing Working
Capital or Excess Liabilities in reasonable detail. The parties will use all
reasonable efforts to resolve any such dispute, but if such dispute cannot be
resolved by the parties within forty-five (45) days after Seller gives notice of
such dispute, it shall be referred to a big six accounting firm that is
reasonably acceptable to both Buyer and Seller (the "Selected Accountants") for
determination. The determination of the Selected Accountants shall be conclusive
and binding on each party. The Selected Accountants' determination of Closing
Working Capital shall be not greater than Seller's position and not less than
Buyer's position as to the correct amount of Closing Working Capital and shall
be made in accordance with the terms of this Agreement. At the time the Selected
Accountants are engaged, each of Seller and Buyer shall submit to the Selected
Accountants its position as to the correct amount of Closing Working Capital.
The fees and expenses of the Selected Accountants in respect of the
determination of Closing Working Capital shall be borne by the party whose
position submitted to the Selected Accountants at the time of their engagement
as to the correct amount of Closing Working Capital is further from the
determination of the Selected Accountants and the fees and expenses of the
Selected Accountants in respect of any dispute as to the Preliminary EY Balance
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Sheet and the calculation of Excess Liabilities shall be borne in equal shares
by Seller and Buyer. The Preliminary EY Balance Sheet, after giving effect to
such changes therein as are agreed upon by the parties in their sole discretion
and such changes as are determined by the Selected Accountants pursuant to this
paragraph (C) is referred to herein as the "EY Balance Sheet".
(d) If the parties are disputing the final calculation of the
Purchase Price, to the extent part of any payment that would be payable pursuant
to this paragraph (d) is not in dispute, the payor shall pay the amount not in
dispute on the date the payment would otherwise be due but for such dispute by
wire transfer of immediately available funds to an account designated by the
recipient at least two business days prior to the date of such payment. If the
Purchase Price as finally determined exceeds the Estimated Purchase Price, Buyer
shall pay to Seller an amount equal to the difference (reduced by payments on
account of such difference theretofore made by Buyer to Seller). If the Purchase
Price as finally determined is less than the Estimated Purchase Price, Seller
shall pay to Buyer an amount equal to the difference (reduced by payments on
account of such difference theretofore made by Seller to Buyer). Any such
payment pursuant to the preceding two sentences will be made by wire transfer of
immediately available funds, to an account designated by the recipient, on the
later of (i) the second business day after acceptance by Seller of the Final
Closing Statement or (ii) the second business day following resolution (as
contemplated by paragraph (C) above) of any dispute concerning the Final Closing
Statement.
(e) Following the Closing, Buyer will cause the Companies to
reasonably cooperate with Seller in the preparation for Seller of such financial
statements of the Companies as and for the period ending the Closing as Seller
shall reasonably request.
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1.6 Books and Records. Following the Closing, Seller will make available
to Buyer on a reasonable basis (whether by delivery of originals or copies)
books and records in its possession regarding the operations of the Companies
prior to Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
2.1 Seller hereby represents and warrants to Buyer as follows:
2.1.1 Organization and Good Standing. Seller is a corporation validly
existing and in good standing under the laws of the State of Delaware. LCCNA,
Mercer and Evode are corporations validly existing and in good standing under
the laws of the States of Illinois, New Jersey and New Hampshire, respectively.
Schedule 2.1.1 lists each state in which the Companies are qualified to do
business. Except as set forth on Schedule 2.1.1, each Company is duly qualified
to do business and in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except for such failures to be so qualified
and in good standing which individually or in the aggregate would not be
reasonably expected to have a Material Adverse Effect. Except as set forth on
Schedule 2.1.1, each Company has the corporate power and corporate authority to
own or lease the assets and properties owned or leased by it and to carry on its
business as now being conducted. Seller has made available to Buyer true and
complete copies of each Company's articles of incorporation and all amendments
thereto to the date of this Agreement and each Company's by-laws as in effect on
the date of this Agreement.
2.1.2 Subsidiaries. Except as set forth on Schedule 2.1.2, the Companies
do not own, directly or indirectly, any equity or voting interest in any other
Person, and have no
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agreement or commitment to purchase any such interest.
2.1.3 Capitalization. The authorized capital stock of each Company and the
number of shares of such stock that are issued and outstanding are set forth on
Schedule 2.1.3. The Shares have been validly authorized and issued, are fully
paid and nonassessable and have not been issued in violation of any preemptive
rights or of any federal or state securities laws. Except as contemplated by
this Agreement, there is no security, option, warrant, right, call, subscription
agreement, commitment or understanding of any nature whatsoever to which a
Company is a party, that directly or indirectly (i) calls for the issuance,
sale, pledge or other disposition of any shares of capital stock of a Company or
any securities convertible into, or other rights to acquire, any shares of
capital stock of a Company, (ii) obligates a Company to grant, offer or enter
into any of the foregoing or (iii) relates to the voting or control of such
capital stock, securities or rights. No Company has any outstanding or
authorized stock appreciation, phantom stock or similar rights in respect of its
capital stock. Rockwood has and will transfer to Buyer at the Closing, good and
valid title to the LCCNA Shares, and Evode U.S.A. has, and will transfer to
Buyer at the Closing, good and valid title to the Mercer Shares and Evode
Shares, in each case free and clear of any lien, mortgage, pledge, encumbrance
or other security interest ("Liens"), adverse claims, proxies and voting or
other agreements.
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2.1.4 Authority, Approvals and Consents.
(a) Seller has the corporate power and corporate authority to
execute, deliver and perform this Agreement, and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby shall at the
Closing have been duly authorized and approved by the Board of Directors of
Seller and no other corporate proceedings on the part of Seller or the
shareholders of Seller are necessary to authorize and approve this Agreement and
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by Seller, and the other instruments and documents required or
contemplated herein to be executed and delivered by Seller at the Closing will
be duly executed and so delivered. This Agreement constitutes, and at the
Closing each of such other instruments will constitute, a valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or similar laws affecting
creditors' rights generally or by the principles governing the availability of
equitable remedies.
(b) Except as otherwise set forth in Schedule 2.1.4, the execution,
delivery and performance of this Agreement by Seller and the consummation of the
transactions contemplated hereby do not and will not:
(i) contravene any provisions of the certificate of
incorporation or by-laws of Seller, Rockwood, Evode U.S.A. or any Company;
(ii) (after notice or lapse of time or both) conflict with,
result in a breach of any provision of, constitute a default under, result in
the modification or cancellation
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of, or give rise to any right of termination in respect of, any (x) material
Permit, (y) Lease or (z) contract, agreement, commitment, understanding or
arrangement of any kind to which (A) Seller, Rockwood or Evode U.S.A. is a party
or to which Seller, Rockwood or Evode U.S.A. or any of their property is subject
or (B) to which any Company is a party or to which any Company or any of the
property of the Companies is subject, except, in the case of clause (z), for
such conflicts, breaches, defaults, modifications, cancellations or terminations
as would not in the aggregate reasonably be expected to have a Material Adverse
Effect or have a material adverse effect on Seller's ability to consummate the
transactions contemplated hereby;
(iii) violate or conflict with any Legal Requirements
applicable to Seller, Rockwood, Evode U.S.A. or any Company or any of their
business or property (other than those applicable as a result of the status of
Buyer), except where such violations or conflicts would not in the aggregate
reasonably be expected to have a Material Adverse Effect or have a material
adverse effect on Seller's ability to consummate the transactions contemplated
hereby; or
(iv) require any authorization, consent, order or approval of,
or notice to, or filing, registration or qualification with, any Governmental
Authority (a "Government Filing"), except for (x) Government Filings in respect
of Permits, (y) the Government Filings set forth on Schedule 2.1.4 and (z)
Government Filings which may be required to be made or obtained pursuant to the
HSR Act.
2.1.5 Financial Statements. Attached as Schedule 2.1.5 are (i) the
combined balance sheet of the Companies as of December 31, 1995 and 1996; and
(ii) the related combined statement of operations for each of the years in the
two-year period ended December 31, 1996
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(the financial statements for 1994 are provided for information only). The
financial statements included in Schedule 2.1.5 (exclusive of the 1994 financial
statements) are collectively referred to as the "Company Financial Statements"
and the balance sheet as of December 31, 1996 included in Schedule 2.1.5 is
referred to as the "Balance Sheet". Such financial statements are unaudited as
of the date of this Agreement (the "Unaudited Financial Statements"), but shall
be replaced by audited financial statements as provided in Section 4.13. The
Company Financial Statements have been prepared in accordance with the books and
records of the Companies and fairly present in all material respects the
financial position of the Companies as at the dates indicated and the results of
operations of the Companies for the periods indicated, in conformity with GAAP
except (v) as set forth in the KPMG Letter attached to Schedule 2.1.5, (w) that
no representation or warranty is made herein as to the results of operations and
financial position (or the treatment or presentation thereof) of the Tamms
Division or the effect of the inclusion or omission thereof from the Company
Financial Statements, (x) as set forth on Schedule 2.1.5, (y) to the extent that
the Company Financial Statements do not contain footnotes and the disclosures
required therein, and (z) for such other exceptions as would apply as a result
of year-end adjustments.
2.1.6 Absence of Undisclosed Liabilities. As of the date of this
Agreement, the Companies do not have any liability of any nature whatsoever
(whether known or unknown, accrued, absolute, contingent or otherwise), except
(i) as and to the extent reflected or reserved against on the Balance Sheet,
(ii) liabilities incurred in the ordinary course of business after the date of
the Balance Sheet, (iii) those arising under Company Agreements, Leases,
Permits, the Cash Management Agreement, the Tamms Agreements and consent decrees
listed on Schedule
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2.1.14 and, in the ordinary course of business, under Benefit Plans, (iv) as
disclosed in the Schedules hereto, the Environmental Survey and the KPMG
Reports, (v) such other liabilities as are not required to be reflected on a
balance sheet of the Companies prepared in accordance with GAAP applied in a
manner consistent with the preparation of the Company Financial Statements and
(vi) liabilities for Taxes.
2.1.7 Absence of Material Adverse Change; Conduct of Business. Since the
date of the Balance Sheet, except as set forth on Schedule 2.1.7, there has been
no change, other than changes in the ordinary course of business, in the
financial position or results of operations of the Companies that could
reasonably be expected to have a Material Adverse Effect. Without limiting the
foregoing, except as set forth on Schedule 2.1.7, since the date of the Balance
Sheet there has not been, occurred or arisen:
(a) any sale or other disposition of any material assets or material
property of the Companies other than for arms-length consideration in the
ordinary course of business;
(b) any general increase in any compensation or benefits payable to
any class or group of employees of the Companies other than in the ordinary
course of business or pursuant to Benefit Plans or Company Agreements;
(c) any material change in the accounting practices followed by the
Companies, except as may be required by relevant accounting regulatory and rule
making bodies and except as contemplated by Section 4.13;
(d) any activity of the Companies which has resulted in the
acceleration or delay in any material respect of the collection of accounts or
notes receivable or
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any delay in the payment of accounts payable, in each case outside the ordinary
course of their business as conducted immediately prior to December 31, 1996;
(e) during the period between December 31, 1995 and the date of this
Agreement, any damage, destruction or casualty losses to any asset or property
of any Company used in the Business (which asset or property has not been
repaired or replaced) which exceed $200,000 individually, or which in the
aggregate exceed $500,000 (in each case, by book value and whether or not
covered by insurance);
(f) any grant of a license or sublicense of any rights under or with
respect to any Intellectual Property in any material respect outside of the
ordinary course of business; or
(g) any authorization, approval, agreement or commitment to do any
of the foregoing.
2.1.8 Taxes. Except as set forth on Schedule 2.1.8,
(a) Each Seller Group and the Companies have duly and timely filed
all Tax Returns with respect to Taxes for which the Companies may be liable
which are due (taking into account any permitted extensions) and required to be
filed by any applicable Tax law. All of such Tax Returns are true and correct,
except for any such failures which would not reasonably be expected to have a
Material Adverse Effect.
(b) The Companies do not have any liability for Taxes (other than
Income Taxes) except for Taxes (i) to the extent of the aggregate amount
reflected or reserved against on the Balance Sheet or (ii) incurred in the
ordinary course of business after the date of the Balance Sheet.
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(c) The Companies have withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder, or other third party.
(d) As of the date of this Agreement, neither any Company nor any
Seller Group (with respect to Taxes for which the Companies may be liable) has
in effect any waiver of a statute of limitations with respect to Taxes (and
Seller will notify Buyer of any such waiver filed after the date hereof and
prior to the Closing) and neither any Company nor any Seller Group (with respect
to Taxes for which the Companies may be liable) has agreed to any extension of
time with respect to a Tax assessment or deficiency.
(e) Seller has delivered to Buyer correct and complete copies of all
Income Tax Returns or, alternatively, pro forma Income Tax Returns, of the
Companies (including only those portions of Income Tax Returns of any Seller
Group relating to the Companies) with respect to all taxable years ending on or
after December 31, 1993.
(f) Seller is not a foreign person subject to withholding under
Section 1445 of the Code.
(g) There are no tax liens on any of the assets of the Companies
other than with respect to Taxes that are not yet due and payable or are being
contested in good faith by appropriate proceedings (and any such non-Income Tax
proceedings that are material are listed on Schedule 2.1.8).
(h) The Companies have not received any notice, written or oral,
that any authority proposes to or intends to impose any adjustment with respect
to Taxes for any period for which Tax Returns have been filed.
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(i) No election under Section 341(f) of the Code has been made with
respect to any Company.
(j) The Companies have not made any payments and are not obligated
to make any payments that will not be deductible under Code Section 280G.
(k) The Companies are currently included in the consolidated federal
Income Tax Returns filed by the group of which Seller is the common parent.
Except with respect to periods for which the statute of limitations has expired,
no Company has ever been a member of an affiliated group filing a consolidated
or combined federal or state Income Tax Return and has never incurred any
liability for the Taxes of any other Person under Treas. Reg. ss. 1.1502-6 (or
any similar provision of state, local or foreign law), as a transferee or
successor, by contract, or otherwise (except in its capacity as withholding
agent or as a party responsible for collecting and paying over sales, use and
similar taxes).
(l) No Company is a party to any Tax sharing agreement, other than
agreements that will terminate pursuant to Section 9.1(i).
(m) With respect to each asset owned by Mercer or Evode,
(i) The adjusted basis for Federal income tax purposes of each
member of the Seller Group in the LCCNA Shares will not reflect the
recognition of any gain with respect to such asset which is recognized by
Mercer or Evode as a result of the elections contemplated by Section
9.1(j), and
(ii) Neither LCCNA nor any subsidiary of LCCNA has recognized
gain upon any disposition (other than in the ordinary course of business)
of such asset during the one year period ending on the Closing Date, which
gain is reflected
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in the adjusted basis of any member of the Seller Group in LCCNA Shares,
except for any such failure which does not have a Material Adverse Effect.
2.1.9 Legal Matters. Except as set forth on Schedule 2.1.9, (i) there is
no material action, suit, litigation, formal investigation or proceeding pending
against any Company or any property of any Company before or by any court,
arbitrator, agency or other governmental administrative or judicial entity
(including, without limitation, in respect of products liability) and, to the
knowledge of Seller, there is no material action, suit, litigation, formal
investigation or proceeding threatened in writing against any Company or any
property of any Company before or by any court, arbitrator, agency or other
governmental, administrative or judicial entity (including, without limitation,
in respect of products liability) and (ii) no Company is subject to any material
judgment, decree, writ, injunction or order of any governmental, administrative
or judicial authority other than those of general applicability. Except as set
forth on Schedule 2.1.9, the business of the Companies is being conducted in
compliance in all material respects, with all foreign, federal, state or local
laws, statutes, ordinances, codes, rules and regulations of Governmental
Authorities (collectively "Legal Requirements"). Except as set forth on Schedule
2.1.9, as of the date of this Agreement the Companies have not received any
notice asserting any noncompliance with any Legal Requirement that is reasonably
likely to have a Material Adverse Effect. To the knowledge of Seller, the
pending litigation set forth on Schedule 2.1.9 would not reasonably be expected
to have a Material Adverse Effect.
2.1.10 Property.
(a) Attached as Schedule 2.1.10(a) is a list of each parcel of real
property owned by the Companies (the "Owned Property").
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(b) Attached as Schedule 2.1.10(b) is a list of all leases for real
property leased by the Companies (the "Leases") as of the date of this
Agreement.
(c) The Real Property constitutes all of the real property owned or
leased by the Company in connection with the Company's business (other than
commercial warehouse space, if any). Each Lease is in full force and effect and
is enforceable against the landlord which is a party thereto in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or similar laws
affecting creditors' rights generally or by the principles governing the
availability of equitable remedies and with such exceptions that would not
reasonably be expected to have a Material Adverse Effect, and neither any
Company nor, to the knowledge of Seller, any other party to any Lease, is in
breach of or default under any Lease, with such exceptions as would not
individually or in the aggregate reasonably be expected to have a Material
Adverse Effect.
(d) Except as set forth on Schedule 2.1.10(d) or disposed of in the
ordinary course of business, the Company has good and valid title to all
material tangible personal property reflected on the Balance Sheet or acquired
by it after the date thereof, and such property is held free and clear of all
material Liens.
(e) Except as set forth on Schedule 2.1.10(e) and after giving
effect to capital expenditures currently budgeted or being undertaken by the
Companies, all material improvements and fixtures on all the Real Property, and
all material machinery, equipment and other tangible property owned or leased to
the Companies ("Property"), are in good condition, except for ordinary wear and
tear and are, together with the Administrative Assets and after taking into
account goods and services purchased or leased by the Companies, sufficient for
the
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conduct of the Companies' business as currently conducted, in each case with
such exceptions as would not individually or in the aggregate reasonably be
expected to have a Material Adverse Effect.
(f) All Property conforms with all applicable building, zoning and
other land use laws, ordinances, rules and regulations and other Legal
Requirements, with such exceptions as would not individually or in the aggregate
reasonably be expected to have a Material Adverse Effect. All necessary
occupancy and other certificates and permits for the occupancy and lawful use
thereof have been issued and are in full force and effect, with such exceptions
as would not individually or in the aggregate reasonably be expected to have a
Material Adverse Effect.
2.1.11 Material Contracts. Seller has made available to Buyer for
inspection true and complete copies of all Material Agreements. As used in this
Agreement, the term "Company Agreement" means any mortgage, indenture, note,
agreement, contract, lease, license, franchise, obligation, instrument or other
commitment or arrangement, to which a Company is a party or by which a Company
or any of its property is bound (other than the Cash Management Agreement,
Benefit Plans, Leases, Permits and consent decrees listed on Schedule 2.1.14).
Schedule 2.1.11 sets forth a list of each Company Agreement as of the date of
this Agreement that is material to the business of the Companies taken as a
whole, including, without regard to materiality, each of the following Company
Agreements (collectively, the "Material Agreements" and each a "Material
Agreement"):
(a) any mortgage, indenture, note or other instrument or agreement
for or relating to the borrowing of money by the Companies (other than those in
respect of trade
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payables arising in the ordinary course of the Companies' business);
(b) any guaranty by the Companies of any obligation for borrowed
money (other than guaranties of credit cards of officers and employees of the
Companies), excluding endorsements made for collection in the ordinary course of
business;
(c) any obligation to make payments, contingent or otherwise,
arising out of the prior acquisition of the business of other Persons;
(d) any Company Agreement containing non-competition covenants
(other than confidentiality and similar agreements entered into in the ordinary
course of business) binding on any Company; and
(e) any agreement the performance of which involves consideration in
excess of $500,000 annually or $1,000,000 in the aggregate to be paid by a
Company to a third party or by a third party to a Company during the remaining
term of such agreement following the Closing.
Except as set forth on Schedule 2.1.11, (i) each of the Material Agreements is
in full force and effect and is enforceable against the relevant Company and, to
Seller's knowledge, against the other parties thereto, except in each case as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or similar laws affecting
creditors' rights generally or by principles governing the availability of
equitable remedies and with such exceptions that would not individually or in
the aggregate reasonably be expected to have a Material Adverse Effect, and (ii)
neither any Company nor, to the knowledge of Seller, any other party to any
Material Agreement is in breach of or default under any such Material Agreement,
with such exceptions that would not reasonably be expected to have a Material
<PAGE> 27
20
Adverse Effect.
2.1.12 Employees; Labor Relations. (a) Seller has heretofore made
available to Buyer a true and complete list of the names of all employees of the
Companies and the compensation of each such employee as of the date of such
list.
(b) There is no labor strike, organized work stoppage, or lockout in
effect or, to the knowledge of Seller, threatened against the Companies.
(c) To the knowledge of Seller on the date of this Agreement, there
is no union organization campaign relating to any of the Companies' employees.
(d) Schedule 2.1.12 lists any collective bargaining agreement
binding upon any of the Companies on the date of this Agreement.
(e) Except as disclosed on Schedule 2.1.12, each Company is in
compliance in all material respects with all Legal Requirements respecting
employment and employment practices, terms and conditions of employment, and
wages and hours.
2.1.13 Benefit Plans.
(a) Schedule 2.1.13 lists as of the date of this Agreement (i) each
"employee benefit plan" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) any other
employee benefit plan, policy or arrangement, including any stock option, stock
purchase, vacation pay, severance pay, sick pay, short-term disability, workers
compensation, educational assistance, flexible spending, fringe benefit or
incentive or bonus plan, policy or arrangement and (iii) any employment,
consulting or severance agreement maintained or contributed to by Seller or the
Companies on behalf of current or former employees of the Companies ("Benefit
Plans"). Seller has delivered or made
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21
available to Buyer copies of each Benefit Plan. Each Benefit Plan that is
maintained by one or more of the Companies solely for employees of the Companies
shall be referred to as a "Company Benefit Plan".
(b) The Companies do not maintain or contribute to or have any
liability with respect to a "single-employer plan", within the meaning of
Section 4001(a)(15) of ERISA, or a "multiemployer plan", within the meaning of
Section 4001(a)(3) of ERISA.
(c) Except as set forth on Schedule 2.1.13, each Benefit Plan is in
compliance in all material respects with all Legal Requirements, and has been
administered substantially in accordance with its terms. Each Benefit Plan
intended to be tax-qualified under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service as to its
tax-qualified status under the Code and, to Seller's knowledge, nothing has
occurred since the date of such favorable determination letter which would
adversely affect its validity. All contributions or premium payments required
under or with respect to any Benefit Plan have been timely paid when due. No
Benefit Plan has suffered a material "accumulated funding deficiency" as defined
in Section 412(a) of the Code. There are no material Liens on the assets of any
Company Benefit Plan. No Benefit Plan is on the date of this Agreement under
audit or investigation by the Internal Revenue Service or the Department of
Labor. There are no material actions, suits or claims (other than claims for
benefits in the ordinary course) pending, or to Seller's knowledge, threatened
in writing against a Benefit Plan. No Benefit Plan provides post-retirement
health or life insurance benefits to former employees of the Companies other
than as required by Section 4980B of the Code or other applicable law. No event
has occurred and no condition exists with respect to any Benefit Plan which
would subject
<PAGE> 29
22
Buyer or any Company to a material liability for a "prohibited transaction",
within the meaning of Section 406 of ERISA or Section 4975 of the Code.
2.1.14 Environmental Matters. Except as set forth on Schedule 2.1.14 and
as shall be set forth in the Environmental Survey:
(a) The Companies are in compliance with all Environmental
Requirements, with such exceptions that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(b) The Companies have not received any written notice prior to the
date of this Agreement from a governmental, administrative or judicial agency or
authority or third party regarding any liability of the Companies under
Environmental Requirements that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(c) No underground storage tanks are located at or beneath any Real
Property.
(d) The Companies have not undertaken any material liability,
including without limitation any investigatory, corrective or remedial
obligation, under Environmental Requirements (except that the Leases, Company
Agreements and Permits and consent decrees listed on Schedule 2.1.14 may contain
indemnities and agreements regarding such liabilities).
(e) The Companies are not subject to any material judicial or
administrative proceeding alleging the violation of or liability under any
Environmental Requirements.
(f) The Companies have not filed with any Governmental Authority
<PAGE> 30
23
any notice under or relating to any Environmental Requirements indicating or
reporting any past or present spillage, disposal or release into the environment
of any Hazardous Material, that individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(g) The Companies have obtained and have complied with all Permits
required under any Environmental Requirements in order to conduct their
operations or activities in connection with the Real Property and the Business
with such exceptions that, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect, which Permits are
listed on Schedule 2.1.14.
2.1.15 Transactions with Affiliates. Set forth on Schedule 2.1.15 hereto
is a true and complete list of all Company Agreements binding on the Companies
following the Closing (other than intercompany purchase orders incurred in the
ordinary course) to which any Affiliate of the Companies is a party.
2.1.16 Intellectual Property.
(a) Except as set forth on Schedule 2.1.16, the Companies either own
or by license or otherwise have the right to use all trade secrets, patents,
trademarks, trade names, copyrights and other protectible intellectual property
rights which are used by the Companies in connection with the conduct of their
business as of the date of this Agreement (other than the name and trademark
"Laporte", "Evode", "Evo" and names confusingly similar thereto) ("Intellectual
Property"), with such exceptions as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Schedule 2.1.16 sets
forth a list of all such Intellectual Property registered or patented on the
date of this Agreement in the name of any Company with the United States Patent
and Trademark Office or comparable offices in foreign
<PAGE> 31
24
jurisdictions, together with applications for the foregoing as of the date of
this Agreement.
(b) Except as set forth on Schedule 2.1.16, (x) no Company is on the
date of this Agreement, and during the preceding three years has not been, a
party to or the subject of any infringement, interference, opposition or similar
action, suit or proceeding challenging the right or title to or use by such
Company of any Intellectual Property that, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect, and (y) no such
action, suit or proceeding has, to the knowledge of Seller been threatened in
writing during such three-year period.
(c) The conduct by the Companies of their business on the date of
this Agreement does not infringe in any respect on any valid intellectual
property rights of any other Person, which infringement would, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
(d) Immediately following the Closing, the Companies shall own, or
by license or otherwise have the right to use, all Intellectual Property
required to conduct the business of the Companies in the manner in which it was
conducted on the date of this Agreement, with such exceptions as would not
reasonably be expected to have a Material Adverse Effect.
2.1.17 Brokers. Except for Lazard Freres & Co. LLC, neither Seller nor any
Company has employed or dealt with any broker or finder or has incurred or will
incur any broker's, finder's or similar fee, commission or expense, in
connection with the transactions contemplated by this Agreement.
2.1.18 Insurance. Attached hereto as Schedule 2.1.18 is a list of all
material
<PAGE> 32
25
policies of fire, liability, or other forms of insurance held by or applicable
to the Business during the period from January 1, 1997 through December 31,
1997.
<PAGE> 33
26
2.2 The parties hereby agree as follows:
2.2.1 NO OTHER REPRESENTATIONS OR WARRANTIES. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN SECTION 2.1, SELLER MAKES NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WRITTEN OR ORAL, AND SELLER
HEREBY DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTY (INCLUDING WITHOUT
LIMITATION ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR
PURPOSE), WHETHER BY SELLER, THE COMPANIES, THEIR AFFILIATES OR ANY OF THEIR
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES OR ANY OTHER PERSON,
WITH RESPECT TO THE COMPANIES OR THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE
TO BUYER, ANY AFFILIATE OF BUYER OR ANY OF THEIR OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS OR REPRESENTATIVES OR ANY OTHER PERSON OF ANY DOCUMENTATION OR OTHER
INFORMATION BY SELLER, THE COMPANIES OR ANY OF THEIR AFFILIATES, OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES OR ANY OTHER PERSON WITH RESPECT
TO ANY ONE OR MORE OF THE FOREGOING. BUYER ACKNOWLEDGES THAT IN ENTERING INTO
THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY IT IS NOT RELYING ON ANY
INFORMATION OTHER THAN THE REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION
2.1.
2.2.2 Environmental Matters. Except as set forth in Section 2.1.14 and
<PAGE> 34
27
notwithstanding any other provision of Article II, no representation or warranty
is made by Seller herein or otherwise as to matters arising under or with
respect to Environmental Requirements (for purposes of this Section 2.2.2 only,
as the same are in effect at, prior to or following the Closing) (including
without limitation as to the treatment, storage or disposal by the Companies of
Hazardous Materials or the contamination of any Real Property or any other real
property or any noncompliance by or liability of the Companies or their
stockholders, officers, managers, directors, employees or agents with or under
Environmental Requirements).
COVENANTS
4.1 Access; Confidentiality.
(a) Between the date hereof and the Closing, Seller will cause the
Companies, during normal business hours and upon reasonable prior notice, to (i)
provide to Buyer and its representatives full access to the premises, property,
books and records of the Companies, (ii) furnish to Buyer and its
representatives financial information, operating data and other information
pertaining to the business and property of the Companies and reasonably
requested by Buyer, (iii) make available for inspection and copying by Buyer
copies of any documents relating to the foregoing and (iv) permit Buyer and its
representatives to conduct reasonable interviews of the employees of the
Companies; provided, however, that (x) Buyer shall exercise its right under this
Section 4.1(a) in such a manner as to not unreasonably interfere with the
operation of the business of the Companies and (y) Seller may limit such access
described in clauses (i) through (iv) above to the extent such access could, in
the opinion of Seller's counsel, violate or give rise to liability under
applicable Legal Requirements.
(b) All information provided to Buyer or its representatives by or
on
<PAGE> 35
28
behalf of Seller, the Companies, their Affiliates or their representatives
(whether pursuant to this Section 4.1 or otherwise), and the provisions and
terms of this Agreement and the Schedules and Exhibits, will be governed and
protected by the Confidentiality Agreement between Laporte plc and Buyer dated
January 15, 1997 (the "Confidentiality Agreement").
(c) Buyer shall engage IT Corporation (the "Consultant") to perform
an environmental investigation of the Companies (the "Investigation"). The
Consultant shall be authorized only to perform those procedures and conduct the
investigation to the extent and as described, and on the timetable set forth, on
Schedule 4.1. Seller shall be supplied with all drafts of all reports prepared
by the Consultant in connection with the Investigation, and Buyer shall cause
the Consultant to render and deliver its final report of the Investigation (the
"Environmental Survey") to Buyer and Seller by July 7, 1997. In connection with
the Investigation, the Consultant shall enter into such confidentiality and
other agreements as Seller shall reasonably request, and the Consultant shall be
subject to the restrictions set forth in Section 4.1(a). Buyer shall pay all
fees, expenses and other amounts owing to the Consultant in connection with the
Investigation.
4.2 Announcements. No party hereto will issue any press release or
otherwise directly or indirectly make any public statement or furnish any
statement or make any announcement generally to its customers with respect to
the transactions contemplated hereby without the prior consent of Buyer and
Seller, except as may be required by applicable Legal Requirements, and except
that Buyer and Seller, upon prior notice to the other, may make such
announcements and disclosures as may be required by law or the rules of any
stock exchange on which their securities (or securities of any of their
Affiliates) are listed.
<PAGE> 36
29
4.3 Conduct of Business Prior to the Closing. During the period from the
date hereof to the Closing, except to the extent otherwise authorized by Buyer
in writing or by the provisions hereof, Seller will arrange that:
(a) the business of the Companies will be conducted only in the
ordinary course of business;
(b) no change will be made in the certificate of incorporation or
by-laws of the Companies;
(c) the Companies will not issue additional shares of capital stock;
(d) the Companies will not permit or allow any of their assets to be
sold, transferred, leased or otherwise disposed of, except in the ordinary
course of business or pursuant to Company Agreements;
(e) the Companies will not grant any increase in salaries or
commissions payable or to become payable to any executive of the Companies,
except normal increases in salaries and commissions in accordance with
Companies' existing compensation practice or pursuant to Benefit Plans or
Company Agreements;
(f) the Companies will not agree, whether in writing or otherwise,
to do any of the foregoing or to take any action described in clauses (a)
through (g) of the second sentence of Section 2.1.7; and
(g) the Companies will use their reasonable efforts to preserve the
business organization and management structure of the Companies intact.
Notwithstanding any other provision hereof, the Companies may distribute or
dividend all of their cash and equivalents to their stockholders and incur
intercompany indebtedness at or prior to the Closing and, prior
<PAGE> 37
30
to the Closing, Seller may continue to manage the Companies' cash through
intercompany accounts and cash management arrangements consistent with past
practices, and any such action shall not give rise to any breach of a
representation and warranty made herein.
4.4 Consents; Cooperation. Subject to the terms and conditions hereof,
Seller and Buyer will use their respective reasonable efforts:
(a) to obtain prior to the earlier of the date required (if so
required) or the Closing Date, authorizations, consents, orders, approvals of or
(subject to Section 4.11) permits, or notices to, or filings, registrations or
qualifications with, any Governmental Authority or any other Person that are
required on their respective parts, for the consummation of the transactions
contemplated by this Agreement.
(b) to defend, consistent with applicable Legal Requirements, any
lawsuit or other legal proceeding, whether judicial or administrative, whether
brought derivatively or on behalf of third Persons (including Governmental
Authorities) challenging this Agreement or the transactions contemplated hereby;
(c) to furnish to each other such information and assistance as may
reasonably be requested in connection with the foregoing; and
(d) to take, or cause to be taken, all action and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement.
4.5 Use of Name. (a) After the Closing, Buyer agrees that if any of the
assets of the Companies, including, without limitation, any promotional
materials or printed forms, bear
<PAGE> 38
31
the "Laporte" name, Buyer shall, prior to the use of such assets, delete or
cover the "Laporte" name and clearly indicate that the Companies are no longer
affiliated with Seller or any Affiliate thereof, except that it may, (i) for a
period of 180 days after the Closing Date, use the remaining inventory of
packaging materials and (ii) for a period of ninety (90) days after the Closing
Date, use the remaining inventory of literature, catalogs, forms, stationery,
brochures and similar materials (the items described in clauses (i) and (ii)
collectively, "Supplies") which contain the name "Laporte", provided such
Supplies are (x) used only in connection with the sale of the Companies'
products of the type sold prior to the Closing and (y) clearly indicate that the
Companies are not an Affiliate of Seller or any of Seller's Affiliates.
(b) Buyer agrees to cause Evode to change its name prior to December
24, 1997 such that Evode's name does not include (and continues to not include)
the name "Evode" and names confusingly similar thereto.
(c) Buyer agrees that on the Closing Date, Buyer and Seller
will cooperate in changing the name of LCCNA to a name designated by Buyer at
least ten business days prior to the Closing Date that does not contain the name
"Laporte", "LCCNA" or a name confusingly similar thereto. Thereafter, Buyer will
as promptly as practicable amend all qualifications and registrations of LCCNA
to conduct business as a foreign corporation to reflect such name change.
Following the Closing, except as provided in paragraph (a) above, Buyer shall
cause the Companies to not use the name or trademark "Laporte" or names
confusingly similar thereto.
(d) Prior to the Closing, Seller will procure from Laporte plc
a sublicense (x) in favor of Evode of the trademark "Evode" and "Evo" as
contemplated by and subject to the limitations and for the period set forth in
Section 3.1 of the US IP Agreement dated
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32
December 30, 1996 between ATO Findley S.A., Evode Limited and Laporte plc and
(y) in favor of the Companies of the Licensed Rights (as defined in such US IP
Agreement). Alternatively, at the election of Seller, Seller will procure the
assignment to the Companies of Laporte plc's rights under the US IP Agreement.
Such sublicense or assignment shall contain an indemnity from the Companies to
Laporte plc for breaches following the Closing of such sublicense or, in the
case of an assignment, the US IP Agreement. Except as permitted by such
sublicense or assignment, Buyer agrees to cause the Companies not to use the
"Evo Marks" and "Evode Marks" (as such terms are defined in such US IP
Agreement).
(e) Buyer consents to the execution and delivery by the Companies of
a binding undertaking in favor of ATO Findley S.A. providing that the Companies
(x) will not use the MS Technology outside the United States of America and
Canada for so long as it remains confidential and (y) will keep the MS
Technology confidential and will neither disclose nor, through any action or
omission, cause or enable the MS Technology to be disclosed to any party (for so
long as it remains confidential) including, in the event that any Company or
business thereof to which the MS Technology is relevant is sold or transferred,
ensuring (so far as they are reasonably able) that such Company or the purchaser
of such a business enters into binding undertakings with ATO Findley S.A. to
ensure their continued compliance with these restrictions. Seller shall procure
the sublicense or, at the election of Seller, the assignment in favor of Buyer
of the license granted Laporte plc pursuant to clause 13(D) of the Agreement
relating to the sale and purchase of part of the adhesives, sealants and
coatings division of Laporte plc between Laporte plc and ATO Findley S.A. Such
sublicense or assignment shall include an indemnity from Buyer to Laporte plc
for breaches following the Closing of such
<PAGE> 40
33
sublicense or, in the case of an assignment, said clause 13(D).
4.6 Notification of Certain Matters. Between the date hereof and the
Closing, Seller will give Buyer prompt notice in writing, including, in the case
of a notice by Seller pursuant to clause (i) below that is relevant to a
Schedule, a revised Schedule, of: (i) any information known to Seller that
indicates that any representation or warranty of Seller contained herein will
not be true and correct in a manner that would result in a failure of the
condition specified in the first sentence of Section 5.1; and (ii) the
occurrence of any event known to Seller which will result in the failure of a
condition specified in Article V hereof. Seller shall also, upon obtaining
knowledge prior to the Closing that any representation or warranty of Seller
contained herein is not true and correct (in a manner that would not result in a
failure of the condition specified in the first sentence of Section 5.1),
promptly deliver notice thereof to Buyer, which notice shall include, in the
case of notice of a matter that is relevant to a Schedule, a revised Schedule.
Between the date hereof and the Closing, Buyer will give Seller prompt notice in
writing of any information or event known to Buyer which will result in the
failure of a condition specified in Article VI hereof or which indicates that a
representation or warranty of Buyer contained herein is not true and correct.
In the case of a notice by Seller pursuant to clause (i) of the first
sentence of the preceding paragraph, or pursuant to the second sentence of the
preceding paragraph (other than in respect of a condition set forth in Sections
5.5 or 5.6), unless prior to the earlier of (x) the scheduled Closing or (y)
5:00 p.m. New York time, on the fifth business day following receipt of such
notice, Buyer has exercised its rights set forth in Section 7.1(g) to terminate
this Agreement based on such notice (and revised Schedule, if applicable),
Seller shall be deemed to have cured
<PAGE> 41
34
such breach of a representation or warranty that otherwise might have existed
and any such revised Schedules shall become the Schedules in effect for all
purposes hereof.
4.7 Covenant Not To Compete.
(a) In furtherance of the sale to Buyer of the Shares, for a period
of two years following the Closing Date, Seller (A) will not compete and will
cause Rockwood and Evode U.S.A. to not compete with the Companies anywhere in
the United States in the Business; provided, however, that nothing herein shall
be construed to prevent Seller, Rockwood or Evode U.S.A. from (x) acquiring any
entity or business, which is not primarily engaged in a business which competes
with the Business; provided, however, that if more than 10% of the revenues of
the acquired entity or business is attributed to a business which competes with
the Business, Seller will or will cause Rockwood or Evode U.S.A., as the case
may be, to use reasonable efforts to dispose of such competing portion of such
business within twelve months of the consummation of such acquisition by Seller,
Rockwood or Evode U.S.A.; (y) owning, directly or indirectly as an investment,
up to 5% of a class of equity securities issued by any Person that competes with
the Business that is publicly traded and registered under Section 12 of the
Securities Exchange Act of 1934; or (z) conducting any business conducted by
them on the Closing Date (other than those conducted through the Companies) and
(B) will not solicit for employment (other than through general solicitation)
any person employed by Buyer or the Companies (or their Affiliates) at the time
of the act of solicitation who was an executive officer of a Company on the
Closing Date.
(b) Seller acknowledges and agrees that the covenants set forth in
this Section 4.7 are reasonable in geographical and temporal scope and in all
other respects.
<PAGE> 42
35
(c) If, at the time of enforcement of this Section 4.7, a court
shall hold that the duration, scope, or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope, or area reasonable under such circumstances shall be
substituted for the stated duration, scope, or areas.
4.8 Hart-Scott-Rodino. Buyer and Seller will promptly (and in any event
within twenty-one days following the date hereof) prepare and file all documents
with the Federal Trade Commission ("FTC") and the United States Department of
Justice ("DOJ") that are required to make the initial filing under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder (the "HSR Act") in connection with the transactions
contemplated hereby. Seller and Buyer will cooperate in responding promptly to
any Second Request and will in good faith promptly furnish all materials
reasonably requested by the FTC or DOJ or any other governmental agency in
connection with such filing or Second Request. Seller and Buyer (i) will jointly
approve the content and manner of presentation of all information to be provided
to the FTC or DOJ in connection with such filing or any Second Request regarding
markets and the relevant industry and (ii) will consult with each other from
time to time regarding the status of such filings under the HSR Act and any
Second Request and all strategies and action taken in connection therewith.
Buyer will use all reasonable efforts to eliminate as promptly as practicable
any objection that the FTC or DOJ may have to the transactions contemplated
hereby.
4.9 Retention of Books and Records. Buyer will cause the Companies to
retain all books, records and other documents pertaining to the Companies in
existence on the Closing Date for a period of five (5) years and to make the
same available after the Closing Date
<PAGE> 43
36
for examination and copying by Seller or its representatives, at Seller's
expense, upon reasonable notice. Buyer agrees that no such books, records or
documents will be destroyed by Buyer or the Companies for five years following
the Closing without first advising Seller in writing and providing to Seller a
reasonable opportunity to obtain possession or make copies thereof at Seller's
expense.
4.10 Cash Management Agreement. The parties agree that except as set forth
in the next sentence, from and after the Closing the Companies will have no
rights or obligations under the Concentration Accounts and the Control
Disbursement Accounts maintained for the benefit of the Companies under the Cash
Management Agreement. Notwithstanding the foregoing, Seller shall permit checks
written on the Control Disbursement Accounts prior to the Closing to clear and
be paid to the extent that accounts payable of the Companies have been reduced
by the amount of such checks for purpose of calculating Closing Working Capital.
Except as set forth in the preceding sentence, Buyer shall cause the Companies
to not exercise any rights under or with respect to said Concentration Accounts
and Control Disbursement Accounts or under the Cash Management Agreement from
and after the Closing.
4.11 Permits. Buyer shall effect the updates and amendments and
reissuances of Permits required in connection with the transactions contemplated
hereby, effective as of the Closing. Seller will reasonably cooperate with Buyer
in identifying those Permits as to which updates, amendments and reissuances are
required in connection with the transactions contemplated hereby and in
effecting such updates, amendments and reissuances.
4.12 Tamms Agreements. Buyer covenants to cause the Companies (x) to
perform when due the Companies' obligations under the Tamms Agreements with
respect to
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37
periods following the Closing and (y) to cooperate with Seller in the collection
of any accounts receivable assigned to Seller pursuant to Section 1.12 of the
Tamms Purchase Agreement and to promptly remit to Seller any payment received by
the Companies or its Affiliates to which Seller and its Affiliates were entitled
pursuant to the terms of the Tamms Agreements (including without limitation
Sections 1.11 and 1.12 of the Tamms Purchase Agreement).
4.13 Audited Financial Statements. Seller shall use its reasonable efforts
to cause KPMG Audit plc to prepare (at Seller's expense) and deliver to Buyer by
June 6, 1997, audited combined financial statements of the Companies as of
December 31, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996, which financial statements shall meet the requirements
of Regulation S-X under the Securities Act of 1933, as amended, and shall be
prepared in a manner consistent with the principles set forth in the KPMG
Letter, except, with respect to the Tamms Division only, as Buyer may otherwise
request (provided that such request is made sufficiently promptly so that it
does not delay the delivery of such financial statements). Such audited
financial statements need not include information regarding the Darworth
division prior to its acquisition by LCCNA. Such audited financial statements
for the fiscal years 1995 and 1996 shall be deemed to amend and restate the
financial statements set forth on Schedule 2.1.5 (provided that Section 4.6
shall not apply to such amendment and restatement). The audited combined balance
sheet of the Companies as of December 31, 1996 included in such financial
statements shall be referred to herein as the "Audited Balance Sheet" and the
audited combined statement of operations of the Companies for the fiscal year
ended December 31, 1996 included in such financial statements is referred to
herein as the "Audited Statement of Operations". Any additional work by KPMG
Audit plc
<PAGE> 45
38
requested by Buyer or any incremental fees and expenses of KPMG Audit plc in
connection with the inclusion of such financial statements in any offering
circular or prospectus or the provision of such financial statements to any
other Person shall be paid by Buyer. Between the date hereof and the Closing,
Seller will cause the Companies to cooperate with Buyer, at Buyer's expense, on
a reasonable basis in the preparation of interim financial statements for the
Companies for the period between December 31, 1996 and the Closing to be used in
the offering material to be used by Buyer in obtaining financing of the Purchase
Price.
4.14 Stay-On Bonuses. Seller shall be responsible for all Stay-On Bonuses.
4.15 Intercompany Debt. Seller agrees that prior to Closing it will
contribute to the capital of the Companies, or cause the Companies to repay, all
intercompany debt (other than intercompany trade payables arising in the
ordinary course) owed by the Companies to Seller or its Affiliates, net of
intercompany receivables owed by Seller or its Affiliates to the Companies
(other than intercompany trade receivables arising in the ordinary course of
business).
4.16 Guarantees and Letters of Credit. Buyer will use its reasonable
efforts, and after the Closing will cause the Companies to use their reasonable
efforts, to obtain the release as promptly as practicable of all liabilities of
Seller and its Affiliates under guarantees, letters of credit and similar
instruments or undertakings in respect of liabilities and obligations of the
Companies, and Buyer will indemnify and hold Seller and its Affiliates harmless
against any Losses resulting from such liabilities and obligations.
4.17 Confidentiality. Seller agrees that for a period of two years
following the Closing, it and its subsidiaries will use their reasonable efforts
to preserve the confidentiality of all confidential information in their
possession regarding the operation of the business of the
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39
Companies prior to Closing, provided that the foregoing restriction shall not
apply to (i) information that is or becomes generally available to the public
other than as a result of a breach of this Section 4.17, (ii) information that
is available to Seller, its Affiliates or its advisors on a non-confidential
basis and (iii) information required to be disclosed by Seller and its
Affiliates pursuant to applicable Legal Requirements, financial reporting
requirements or stock exchange requirements.
4.18 Deferred Consideration. The Companies will be responsible for and pay
Excluded Items described in clause (i) of the definition thereof payable prior
to Closing. Seller will be responsible for and pay Excluded Items described in
clause (i) of the definition thereof payable after Closing. Buyer will be
responsible for and pay Excluded Items described in clause (ii) of the
definition thereof in respect of William and Leonard Longo payable after
Closing.
4.19 Further Assurances. Any time after the Closing, Seller and Buyer
will, and Buyer will cause the Companies to, promptly execute, acknowledge and
deliver any other assurances or documents reasonably requested by Buyer or
Seller, as the case may be, to satisfy or in connection with its obligations
hereunder or to consummate or implement the transactions and agreements
contemplated hereby.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF BUYER
The obligations of Buyer required to be performed by it at the
Closing are subject to the satisfaction, at or prior to the Closing, of each of
the following conditions, each of which may be waived by Buyer:
5.1 Representations and Warranties; Covenants; Material Adverse Change.
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Each representation and warranty of Seller contained in this Agreement will be
true and correct in all material respects as of the Closing (giving effect to
any modifications which become effective pursuant to the terms of Section 4.6
and except for changes that do not result in a breach of Section 4.3), except
that representations and warranties made as of a particular date shall be true
and correct in all material respects as of such date and that representations
and warranties qualified by materiality or Material Adverse Effect shall be true
and correct in all respects. Each obligation of Seller required by this
Agreement to be performed by it at or prior to the Closing will have been duly
performed and complied with in all material respects at the Closing, except that
Seller shall have performed in all respects its obligations under Section
1.4(a)(i). At the Closing, Buyer will have received a certificate, dated the
Closing Date and duly executed by an executive officer of Seller on behalf of
Seller, to the effect that the conditions set forth in the preceding sentences
have been satisfied. Since December 31, 1996, there shall have been no change,
other than in the ordinary course of business or as reflected in the Schedules
hereto (or the Environmental Survey), in the financial position or results of
operations of the Companies that would reasonably be expected to have a Material
Adverse Effect.
5.2 HSR Waiting Period; Consents. Any applicable waiting period under the
HSR Act and the rules and regulations promulgated thereunder will have expired
or been terminated. All consents designated with an asterisk on Schedule 2.1.4
shall have been obtained and remain in full force and effect at the Closing.
5.3 Opinion of Seller's Counsel. Buyer will have been furnished with the
opinion of Thomas J. Riordan, general counsel for Seller, or such other counsel
as is reasonably acceptable to Buyer, dated the Closing Date and addressed to
Buyer, in form and substance
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41
reasonably satisfactory to Buyer and containing customary qualifications and
exceptions, with respect to the first sentence of Section 2.1.1, Section
2.1.4(a) (other than the last sentence thereof), Section 2.1.4(b)(i) (as to
Seller only) and clause (z)(A) of Section 2.1.4(b)(ii) (as to Seller only). In
rendering such opinion, such counsel may rely as to factual matters upon
certificates or other documents furnished by officers of Seller or the Company
and by government officials and upon such other documents and data, including
opinions of local counsel, as such counsel deem appropriate as a basis for such
opinion. Such opinion will provide that lenders to Buyer financing the Purchase
Price may rely on such opinion.
5.4 Absence of Litigation. No order, stay, judgment or decree will be
pending or threatened in writing the result of which could restrain or prohibit
in any material respect the consummation of the transactions contemplated hereby
and no judgment, order, decree or injunction having any such effect will be in
effect.
5.5 Environmental Survey. The Environmental Survey shall not set forth
facts and circumstances that are not reflected in the Schedules hereto that
could, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect (after giving effect to rights of the Buyer Indemnitees
under Section 8.2.).
5.6 Audited Financial Statements. The audited financial
statements of the Companies referred to in Section 4.13 shall have been
delivered to Buyer. The financial position and results of operations of the
Companies presented in the Audited Balance Sheet and Audited Statement of
Operations, respectively, shall not differ from the financial position and
results of operations of the Companies set forth in the balance sheet and income
statement as of and for the fiscal year ended December 31, 1996 included in the
Unaudited Financial Statements, in a
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manner that constitutes a Material Adverse Effect, provided that in determining
whether such a Material Adverse Effect has resulted, matters set forth in the
KPMG Reports and Schedules hereto, changes of the type described in the KPMG
Letter, the treatment (and financial position and results of operations) of the
Tamms Division, cash (and equivalents), current assets and liabilities of the
type included in Closing Working Capital and matters for which indemnification
is available to Buyer Indemnitees pursuant to Section 8.2 (determined for this
purpose only without regard to Sections 8.1 and 8.4) shall be disregarded.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF SELLER
The obligations of Seller to be performed by it at the Closing are subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions, each of which may be waived by Seller:
6.1 Representations and Warranties; Covenants. Each representation and
warranty of Buyer contained in this Agreement will be true and correct in all
material respects as of the Closing, except that representations and warranties
qualified by materiality shall be true and correct in all respects. Each
obligation of Buyer required by this Agreement to be performed by it at or prior
to the Closing will have been duly performed and complied with in all material
respects as of the Closing, except that Buyer shall have performed in all
respects its obligations under Section 1.4(b)(i) and (ii). At the Closing,
Seller will have received a certificate, dated the Closing Date and duly
executed by an executive officer of Buyer to the effect that the conditions set
forth in the preceding sentences have been satisfied.
6.2 HSR Waiting Period; Consents. Any applicable waiting period under the
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HSR Act and the rules and regulations promulgated thereunder will have expired
or been terminated. All consents designated with an asterisk on Schedule 3.2 or
2.1.4 shall have been obtained and remain in full force and effect at the
Closing.
6.3 Opinion of Buyer's Counsel. Seller will have been furnished with the
opinion of Davis, Graham & Stubbs LLP, counsel to Buyer, dated the Closing Date
and addressed to Seller, in form and substance reasonably satisfactory to Seller
and containing customary qualifications and exceptions, with respect to Section
3.1 and Section 3.2(a) (other than the last sentence thereof) and clauses (i)
and (ii) of Section 3.2(b) (which opinion will also cover any subsidiary of
Buyer to which Shares are transferred as contemplated by Section 10.4). In
rendering their opinion, such counsel may rely as to factual matters upon
certificates or other documents furnished by officers and directors of Buyer and
by government officials, and upon such other documents and data, including
opinions of local counsel, as such counsel deem appropriate as a basis for their
opinion.
6.4 Absence of Litigation. No order, stay, judgment or decree will be
pending or threatened in writing the result of which could restrain or prohibit
in any material respect the consummation of the transactions contemplated hereby
and no judgment, order, decree or injunction having such effect will be in
effect.
6.5 Environmental Survey. The Environmental Survey shall not set forth
facts and circumstances that are not reflected in the Schedules hereto that
could, individually or in the aggregate, reasonably be expected to materially
increase Seller's indemnification obligations pursuant to Section 8.2 above the
indemnification obligations that, as of the date of this Agreement, would
reasonably be expected to arise from the facts and circumstances reflected in
<PAGE> 51
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the Schedules hereto as in effect on the date of this Agreement.
ARTICLE VII
TERMINATION
7.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual consent of Buyer and Seller;
(b) by Buyer or Seller, after the later of the dates referred to in
clauses (i) and (ii) of the first sentence of Section 1.3, if any condition
contained in Articles V or VI (other than those requiring the exchange of a
certificate or other document, or the taking of other action at the Closing),
has not been satisfied or waived (other than as a result of action or inaction
by the party seeking to terminate this Agreement (or its Affiliates) in
contravention of the provisions hereof);
(c) by Buyer or Seller, after the later of the dates referred to in
clauses (i) and (ii) of the first sentence of Section 1.3 if the Closing has not
occurred (other than as a result of action or inaction by the party seeking to
terminate this Agreement (or its Affiliates) in contravention of the provisions
hereof);
(d) by Buyer or Seller, if any court of competent jurisdiction or
other governmental body has issued an order, decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting in any material respect
the transactions contemplated by this Agreement, and such order, decree, ruling
or other action has become final and non-appealable;
(e) by Buyer, if any condition contained in Article V shall become
incapable of satisfaction (other than as a result of actions or inaction by
Buyer or its Affiliates in
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contravention of the provisions hereof), provided that in the case of the
condition set forth in Section 5.5, Buyer must exercise its rights pursuant to
this Section 7.1(e) within fifteen days following receipt of the Environmental
Survey, and in the case of the condition set forth in the first sentence of
Section 5.1 as it relates to the representations and warranties contained in
Sections 2.1.8(m) and the last sentence of Section 2.1.8(a), Buyer must exercise
its rights pursuant to this Section 7.1(e) on or prior to June 20, 1997, or it
shall be deemed to have waived its right to terminate this Agreement pursuant to
this Section 7.1 as a result of the failure of such conditions;
(f) by Seller, if any condition contained in Article VI shall become
incapable of satisfaction (other than as a result of actions or inaction by
Seller or its Affiliates in contravention of the provisions hereof), provided
that in the case of the condition set forth in Section 6.5, Seller must exercise
its rights pursuant to this Section 7.1(f) within fifteen days following receipt
of the Environmental Survey or it shall be deemed to have waived its right to
terminate this Agreement pursuant to this Section 7.1 as a result of the failure
of such condition;
(g) by Buyer, following receipt by Buyer of a notice from Seller
pursuant to clause (i) of the first sentence of the first paragraph of Section
4.6, prior to the earlier to occur of (x) the scheduled Closing or (y) 5:00 p.m.
New York time on the fifth business day following receipt of such notice;
(h) by Buyer, within ten days after becoming aware that the
condition set forth in the first sentence of Section 5.6 or in the last sentence
of Section 5.1 cannot be satisfied (and if Buyer fails to exercise such right
within such period it shall be deemed to have waived its right to terminate this
Agreement pursuant to this Section 7.1 as a result of the failure
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of each such condition); or
(i) by Buyer, if the condition set forth in the second sentence of
Section 5.6 cannot be satisfied, within ten days after delivery to Buyer of the
audited financial statements described in Section 4.13 (and if Buyer fails to
exercise such right within such period it shall be deemed to have waived its
right to terminate this Agreement pursuant to this Section 7.1 as a result of
the failure of such condition).
If Buyer or Seller terminates this Agreement pursuant to the provisions
hereof, such termination will be effected by written notice to the other party
specifying the provision hereof pursuant to which such termination is made.
7.2 Effect of Termination. Upon termination of this Agreement pursuant to
Section 7.1 hereof, (i) except for the provisions of this Section 7.2 and
Sections 10.1, 10.8, and Sections 4.1(b) and (c), and the obligations contained
in Article VIII (to the extent relating to such Sections), which will survive
any termination of this Agreement, this Agreement will forthwith become null and
void, (ii) such termination will be the sole remedy with respect to any breach
of any representation or warranty (other than those contained in Sections 2.1.1,
2.1.3, 2.1.4, 2.1.17, 3.1, 3.2, 3.3 or 3.5) contained in or made pursuant to
this Agreement and (iii) no party hereto or any of their respective officers,
directors, employees, agents, consultants, stockholders or principals will have
any liability or obligation hereunder or with respect hereto, except that (a) no
party will be relieved of liability for any breach of Sections 2.1.1, 2.1.3,
2.1.4, 2.1.17, 3.1, 3.2, 3.3 or 3.5 or for breach of any agreement or covenant
contained herein and (b) no party will be relieved of any obligation under this
Section 7.2 or Sections 4.1(b), 4.1(c) and 10.1.
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ARTICLE VIII
SURVIVAL AND INDEMNIFICATION
8.1 Survival. The representations and warranties contained in or made
pursuant to this Agreement will survive the Closing, but will terminate on, and
be of no further force after, the date that is twenty-one months after the
Closing Date, provided, however, that the representations and warranties set
forth in Sections 2.1.1, 2.1.3, 2.1.4(a), 2.1.8 (other than the representations
and warranties set forth in Section 2.1.8(m) and the last sentence of Section
2.1.8(a), which shall terminate on June 20, 1997 and as to which indemnification
will not be available), 2.1.13, 2.1.17, 3.1, 3.2(a) and 3.3 shall terminate on,
and be of no further effect after, the date that is ninety (90) days after
expiration of the applicable statute of limitations. The provisions of Sections
8.2(iii) and (iv) shall terminate on, and be of no further force after,
respectively, the fifth and fourth anniversaries of the Closing Date. The
provisions of Section 8.2(vi) shall terminate and be of no further force after
the date that is 30 days after the final determination of Excess Liabilities
pursuant to Section 1.5. All other provisions of this Agreement will survive the
Closing indefinitely in accordance with their terms.
8.2 Indemnification Obligations of Seller. If the Closing occurs, or as
otherwise provided in Section 7.2, Seller, subject to the limitations set forth
in this Article, will indemnify and hold harmless Buyer and its Affiliates,
stockholders, officers, directors and employees (in each case in such
capacities) (collectively, the "Buyer Indemnitees"), on a Net After-Tax Basis,
against and in respect of any and all Losses, which may be incurred by Buyer
Indemnitees during the relevant survival periods set forth in Section 8.1 by
reason of:
(i) the breach as of the date of this Agreement of any
representation or warranty made by Seller in this Agreement;
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(ii) the breach by Seller of or failure by Seller to perform
any of its covenants or agreements contained in this Agreement;
(iii) the matters disclosed on Schedule 8.2 and, subject to
Section 8.4(a)(xii), Specified Items;
(iv) Third-Party Claims arising out of or resulting from (A)
the violation by any Company of any Environmental Laws to the extent occurring
prior to the Closing; (B) any liability of the Companies to remediate Hazardous
Materials arising out of the operation of the Business prior to the Closing
Date; (C) any discharge, emission, disposal, deposit, release or discharge of
Hazardous Materials (whether on or off of the Real Property) covered or
regulated by Environmental Laws occurring in connection with the operation of
the Business or activities at the Real Property prior to the Closing Date; or
(D) the existence, storage or presence of Hazardous Materials in, on or under
the buildings, structures and all other improvements on any portion of the Real
Property prior to the Closing Date; in each case of clauses (A) through (D)
other than for such Losses disclosed or arising out of matters disclosed on
Schedule 8.2;
(v) any Tamms Claim; and
(vi) Excess Liabilities as finally determined pursuant to
Section 1.5 (for purposes of this clause (vi) only, indemnifiable Losses shall
be deemed to be an amount equal to such Excess Liabilities).
8.3 Indemnification Obligations of Buyer. If the Closing occurs, or as
otherwise provided in Section 7.2, Buyer, subject to the limitations set forth
in this Article, will indemnify Seller and its Affiliates, stockholders,
officers, directors and employees (in each case in such capacities)
(collectively, the "Seller Indemnitees"), on a Net After-Tax Basis, against and
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in respect of any and all Losses, which may be incurred by Seller Indemnitees
during the relevant survival periods set forth in Section 8.1 by reason of: (i)
the breach as of the date of this Agreement of any representation or warranty
made by Buyer in this Agreement; and (ii) the breach by the Buyer of or failure
by Buyer to perform any of its covenants or agreements contained in this
Agreement.
8.4 Limitations on Indemnification.
(a) Notwithstanding anything to the contrary in this Agreement:
(i) the aggregate liability of each of Seller and Buyer
pursuant to Section 8.2 or Section 8.3, as the case may be, will not exceed the
Purchase Price, except that the aggregate liability of Seller pursuant to
Sections 8.2(i) (other than in respect of a representation and warranty
contained in Sections 2.1.3, 2.1.4(a), 2.1.13 and the first two sentences of
Section 2.1.1), 8.2(iii), 8.2(iv) and 8.2(vi) shall not exceed an amount equal
to 25% of the Purchase Price.
(ii) no Indemnified Party will be entitled to recover
consequential damages (other than expenses and fees of counsel to which it is
entitled to indemnification pursuant to Section 8.2 or Section 8.3, as the case
may be), pursuant to Sections 8.2 or 8.3.
(iii) no claim for indemnification may be made by a Buyer
Indemnitee pursuant to Section 8.2 or by a Seller Indemnitee pursuant to Section
8.3 unless notice of such claim (describing the basic facts or events, the
existence or occurrence of which constitute or have resulted in the alleged
breach of a representation or warranty made in this Agreement or which otherwise
form the basis of the claim) has been given to the party from
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whom indemnification is sought (the "Indemnifying Party") during the relevant
survival period set forth in Section 8.1 (which, for purposes of Sections 8.2(i)
and 8.3(i), will be the survival period of the representation and warranty
alleged to have been breached).
(iv) Seller shall have no liability pursuant to Section 8.2
(x) arising from any single circumstance if the amount of the Loss does not
exceed $25,000 and (y) until the aggregate amount of all Losses which are
otherwise recoverable hereunder by Buyer Indemnitees but for this subclause (y)
(together with Excess Liabilities for which indemnification is not available
pursuant to Section 8.2(vi) as a result of the application of Section 8.4(a)(v))
exceed an amount equal to 1% of the Purchase Price, after which Seller will be
responsible pursuant to Section 8.2 for amounts in excess of $750,000, provided
that the limitations set forth in this clause (iv) shall not apply to Losses (A)
for which Seller is required to indemnify Buyer Indemnitees pursuant to Sections
8.2(ii), 8.2(iii), 8.2(v) and 8.2(vi) or (B) incurred by a Buyer Indemnitee by
reason of a breach of a representation or warranty contained in Sections 2.1.1,
2.1.3, 2.1.4(a), 2.1.13 or 2.1.17, and provided further, that solely for
purposes of determining whether amounts recoverable hereunder exceed the amounts
referred to in subparagraph (y) above of this clause (iv), amounts otherwise
recoverable pursuant to Section 8.2(i) shall be calculated without regard to
materiality and Material Adverse Effect qualifications contained in the
representations and warranties in Section 2.1 (other than to the extent such
qualifications relate to items or matters to be listed on a Schedule hereto).
(v) Seller shall have no liability under Section 8.2(vi) until
the aggregate amount of Losses which are otherwise recoverable under Section
8.2(vi) by Buyer Indemnitees exceed an amount equal to $500,000; after which
Seller will be responsible pursuant
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to Section 8.2(vi) for amounts in excess of such threshold.
(vi) Without limitation of the provisions of Sections 8.6 and
8.7 below, at the election of Seller, Buyer Indemnitees shall offset amounts
owing under Section 8.2 against the principal amount of and accrued interest on
the Note (as shall be specified by Seller) and upon any such election Buyer
Indemnitees will have no other recourse to Seller for such amounts that Seller
has elected to offset.
(vii) It is understood and agreed that Buyer and the Companies
shall, following the Closing, and subject to Sections 8.6 and 8.7, be permitted
to undertake any communication with or make any notice to any Person (including
Governmental Authorities) that is in Buyer's reasonable judgment required by
applicable Environmental Requirements (including for this purpose those enacted
after the Closing Date), and that such communications and notices shall not
limit or diminish Seller's obligations pursuant to Sections 8.2(iii) and (iv)
and Section 8.2(i) (in respect of a breach of a representation and warranty
contained in Section 2.1.14). Notwithstanding any other provision of this
Agreement, (x) in the event that Buyer, the Companies or their Affiliates
undertake any communication with or make any notice to any Person (including
Governmental Authorities) not reasonably required by applicable Environmental
Requirements that could reasonably be expected to result in or prompt Losses for
which indemnification would otherwise be available pursuant to Sections 8.2(iii)
and (iv) and Section 8.2(i) (in respect of a breach of a representation and
warranty contained in Section 2.1.14), Seller shall not be responsible (and
shall not indemnify Buyer Indemnitees for) any such Losses, provided that in the
event Buyer determines that the Companies have prior to Closing violated TSCA
and that Seller would be required to indemnify Buyer Indemnitees pursuant to
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52
Section 8.2(iv) for such violation, it will give Seller written notice of such
violation and at the election of Seller (A) Buyer will voluntarily report such
violation to appropriate Governmental Authorities or (B) Buyer will not so
report such violation, in which case (only upon an election pursuant to this
clause (B)) Seller's obligation to indemnify Buyer Indemnitees pursuant to
Section 8.2(iv) in respect of such violation will continue without regard to the
time limits provided in Section 8.1 and (y) Seller shall have no liability under
Section 8.2(iv) and Section 8.2(i) (in respect of a breach of a representation
and warranty contained in Section 2.1.14) for Losses to the extent occurring as
a result of or triggered by (A) the closure or demolition after the Closing of
any part of any facility of a Company, or (B) environmental testing conducted in
connection with or as a result of the sale or other disposition after the
Closing of such a facility or any Real Property or any Company.
(viii) Seller agrees that its obligations to Buyer Indemnitees
under Section 8.2 will survive a change in control of Buyer or the Companies or
the sale or other transfer by the Companies of any Real Property or facility of
the Companies (which facility was held by a Company on the Closing Date). Buyer
covenants that it and the Companies will not directly or indirectly sell or
otherwise transfer any interest in any Real Property or facility of a Company
(which facility was held by a Company on the Closing Date) unless the purchaser
or transferee agrees by instrument in form and substance satisfactory to Seller
(x) that notwithstanding any right or remedy such purchaser or transferee may
have under applicable Legal Requirements or otherwise, Seller and its Affiliates
shall have no liability to such purchaser or transferee (or its Affiliates) in
respect of any contamination of such Real Property or facility with Hazardous
Materials, the existence, storage or presence of Hazardous Materials in,
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on or under such facility or the buildings, structures and all other
improvements on any portion of such Real Property or the emission, disposal,
deposit, release or discharge of Hazardous Materials (whether on or off such
Real Property or facility) and (y) that such purchaser or transferee shall
comply with the requirements of this sentence as if it were Buyer, provided that
this sentence shall not limit the rights of the Buyer Indemnitees to make claims
for indemnification under Section 8.2 in respect of claims made against them by
any such purchaser or transferee. Buyer hereby consents to the execution by the
Companies of an instrument pursuant to which they agree to abide by the
provisions of the preceding sentence as if they were Buyer.
(ix) Any controversy or claim regarding Seller's obligations
under Section 8.2(iii), or the breach thereof, shall be settled by arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction hereof. The arbitration shall be
conducted in Washington, D.C. The judgment of the arbitrator(s) shall be binding
upon the Seller Indemnitees and Buyer Indemnitees. In the event of any dispute
as to the indemnification obligations of a party under Article VIII, the parties
shall in good faith endeavor to resolve such dispute without resort to
arbitration or litigation for a period of thirty days, after which they shall be
free to resort to arbitration or litigation, provided that (x) this sentence
shall not prohibit a party from taking any action (including the commencement of
arbitration or litigation) it in its sole discretion deems advisable to protect
or preserve its rights and (y) such 30 day period shall commence with the first
communication regarding such dispute and shall continue regardless of whether
the parties are actually communicating during such period.
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(x) Except as provided in Section 4.14, Seller will have no
responsibility for Losses resulting from the voluntary or involuntary
termination of employment of an officer or employee of the Companies at or
following the Closing.
(xi) Buyer agrees that in the event indemnification is
available under the Darworth Agreement or Magic Seal Agreement for Losses for
which indemnification would otherwise be available to Buyer Indemnitees from
Seller under Section 8.2, Buyer Indemnitees will first endeavor to obtain
indemnification under the Darworth Agreement or Magic Seal Agreement, as the
case may be, and Seller will be required to indemnify Buyer Indemnitees for such
Losses only if indemnification under the Darworth Agreement or Magic Seal
Agreement, as the case may be, cannot be obtained.
(xii) Seller's obligation to indemnify Buyer Indemnitees
pursuant to Section 8.2 for Specified Items shall not exceed $200,000.
(b) Buyer agrees that the rights of Buyer Indemnitees under Sections
8.2(iii) and (iv) and under Section 8.2(i) for breaches of representation and
warranties contained in Section 2.1.14 are the exclusive remedies of Buyer, the
Companies and their Affiliates against Seller and its Affiliates (and their
stockholders, officers, managers, directors, employees and agents) for or with
respect to Losses based upon, resulting from or arising out of (w) the
treatment, emission, deposit, release, discharge, storage or disposal by the
Company of Hazardous Materials prior to the Closing Date, (x) the contamination
of the Real Property or any other real property, (y) any noncompliance by or
liability of the Companies or its stockholders, officers, managers, directors,
employees and agents with or under Environmental Requirements (for purposes of
this paragraph (b) only, as the same are in effect at, prior to or following the
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Closing) and (z) the matters set forth on Schedules 2.1.14 and 8.2.
8.5 Payment; Insurance. Any payment pursuant to this Article VIII will be
deemed an adjustment in the Purchase Price. Each of Buyer and Seller agree that,
unless the other party shall otherwise direct in writing, it will (and cause its
Affiliates to) use commercially reasonable efforts to recover amounts under
insurance policies to the extent such recoveries would reduce amounts required
to be paid by the other party pursuant to Section 8.3 or 8.2, as the case may
be.
8.6 Procedure. Except as and to the extent provided in Section 8.7, any
claim for indemnification under Section 8.2 or Section 8.3 will be made in
accordance with this Section 8.6. In the case of any claim for indemnification
arising from a claim or demand of a third Person (a "Third-Party Claim"), an
Indemnified Party will give prompt written notice, in no event more than thirty
(30) days following such Indemnified Party's receipt of such claim or demand, or
such shorter period as is required to ensure that the Indemnifying Party has a
reasonable period of time to respond to such claim or demand, to the
Indemnifying Party describing in reasonable detail the basis of such claim or
demand as to which it may request indemnification hereunder, provided that the
failure to notify or delay in notifying an Indemnifying Party as provided in
this sentence or the next sentence will not relieve the Indemnifying Party of
its obligations pursuant to Sections 8.2 or 8.3 above, as applicable, except to
the extent that such failure materially harms the Indemnifying Party (it being
understood that any claim for indemnity pursuant to Sections 8.2 or 8.3 above
must be made by notice given as provided in this sentence or the next sentence
within the applicable survival period specified in Section 8.1 above). Any other
claim for indemnification will be made as promptly as practicable
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after the time the Indemnified Party becomes aware of the facts forming the
basis of such claim. The Indemnifying Party will have the right to defend and to
direct the defense against and management and settlement of any such claim or
demand, in its name or in the name of the Indemnified Party, as appropriate at
the expense of the Indemnifying Party and with counsel or other representatives
selected by the Indemnifying Party, provided that the Indemnifying Party may not
settle or compromise any such claim or demand without the consent of the
Indemnified Party (which consent may not be unreasonably withheld) if injunctive
or other equitable relief would be imposed against the Indemnified Party as a
result thereof. Notwithstanding the foregoing, the Indemnifying Party will not
be entitled to assume control of the defense of any such claim, and will pay the
reasonable fees and expenses of legal counsel retained by the Indemnified Party
in accordance with this Article VIII, if a court of competent jurisdiction rules
that the Indemnifying Party has failed or is failing to prosecute or defend
vigorously such claim. The Indemnified Party will cooperate with the
Indemnifying Party and make available its officers and employees and records
(and those of its Affiliates), and the Indemnifying Party agrees to promptly
provide the Indemnified Party with such information as to the defense of any
such claim or demand as the Indemnified Party shall reasonably request. The
Indemnified Party will have the right to participate in (but not control) the
defense of any claim or demand with counsel of its choice employed by it at the
expense of the Indemnified Party. The Indemnifying Party will have no
indemnification obligations with respect to any such claim or demand which is
settled by the Indemnified Party without the prior written consent of the
Indemnifying Party.
8.7 Special Indemnification Procedures for Environmental Matters.
(a) Notwithstanding anything in this Agreement to the contrary, the
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indemnification procedures in this Section 8.7 shall apply to any claim for
indemnification arising: (i) under Sections 8.2(iii) or 8.2(iv) of this
Agreement or (ii) with respect to any asserted breach of the representations and
warranties set forth in Section 2.1.14 of this Agreement.
(b) (i) Any claim for indemnification shall also be governed by the
procedures set forth in Section 8.6 hereof, it being understood that any
inconsistencies between Section 8.6 and this Section 8.7 shall be resolved in
favor on the provisions set forth in this Section 8.7.
(ii) (1) Upon assertion by a Buyer Indemnitee of a claim
hereunder, Seller shall be entitled to assume Principal Management of all or a
reasonably segregable portion of such claim. To assume Principal Management,
Seller must notify Buyer within forty-five (45) days of said notice that it
intends to assume Principal Management of all or part of such claim. In the
event Seller elects not to undertake Principal Management of all or a portion a
claim, Buyer shall assume Principal Management of such claim or the remaining
portion thereof. Notwithstanding the foregoing, Principal Management of the
matters set forth on Schedule 8.2 shall be as set forth on Schedule 8.2.
(2) The party not exercising Principal Management with
respect to a particular claim (or portion thereof) shall be entitled, at its
sole cost and expense, to reasonably participate in (but not control) the
management of such matter. Such participation shall include, without limitation:
(i) the right to receive copies of all reports, workplans and analytical data
submitted to governmental agencies, all notices or other letters or documents
received from governmental agencies, any other documentation and correspondence
materially bearing on the claim, and notices of material meetings; (ii) the
opportunity to attend
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such material meetings; and (iii) the right of reasonable consultation with the
party exercising Principal Management.
(3) In the event it undertakes Principal Management of
any matter, Seller shall, upon reasonable notice to Buyer, have reasonable
access to the relevant subject facility of Buyer (or the Companies). Seller
shall use reasonable efforts to undertake all activities that it conducts or
coordinates hereunder in a manner that does not unreasonably interfere with the
day-to-day operation of such facility of Buyer (or the Companies).
(4) The party undertaking Principal Management hereunder
for any matter shall manage the matter in good faith and in a responsible
manner, and any activities conducted in connection therewith shall be undertaken
using commercially reasonable efforts in accordance in all material respects
with all Legal Requirements (except as may be authorized by a Governmental
Authority with jurisdiction over the matter), subject to the schedules and
approvals required by the applicable Governmental Authority. The parties agree
to reasonably cooperate with one another in connection with addressing any
matter hereunder.
(5) Any Remedial Action covered hereunder shall be
deemed to have been adequately completed to the extent that it attains
compliance with Environmental Laws, including without limitation all action
levels or cleanup standards promulgated thereunder, and any lawful order or
directive of an appropriate judicial, administrative or governmental body,
except as may be authorized by a judicial, administrative or governmental body
or authority with jurisdiction over such matter.
8.8 Further Limitations on Indemnification.
(a) The rights of the parties under Sections 8.2 and 8.3 (and under
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Section 10.10 and Article IX) will be the exclusive remedy of the parties with
respect to breaches of representations, warranties, covenants or agreements
contained in or made pursuant to this Agreement. Buyer, on behalf of itself and
its Affiliates (and, from and after the Closing, the Companies) (and their
shareholders, managers, officers, directors, employees and agents), hereby (i)
waives and releases Seller and its Affiliates (and their shareholders, managers,
officers, directors, employees and agents) from any statutory or other rights of
contribution or indemnity (except as set forth in Section 8.2 and Section 9.1)
with respect to Seller's ownership of the Shares or operation of, or otherwise
relating to, the Companies and their business, and (ii) waives and releases all
rights of subrogation with respect to claims relating thereto. Buyer consents to
the execution by the Companies of an instrument by which they agree to be bound
by the provisions of (and waives and releases those matters specified in) this
Section 8.8(a) and releases all claims they may have against officers and
directors of the Companies with respect to periods prior to Closing.
(b) In the event that an Indemnifying Party is obligated to
indemnify an Indemnified Party pursuant to this Article VIII, the Indemnifying
Party will, upon payment of such indemnity, be subrogated to all rights of the
Indemnified Party with respect to claims to which such indemnification relates.
(c) Notwithstanding anything to the contrary herein, this Article
VIII shall have no application with respect to indemnification for Income Taxes,
which shall be covered exclusively by Section 9.1. This Article VIII shall,
however, apply to indemnification for liabilities for Taxes other than Income
Taxes.
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ARTICLE IX
TAX AND EMPLOYEE MATTERS
9.1 Certain Tax Matters.
(a) Seller will cause to be prepared and filed all consolidated,
unitary, or combined Income Tax Returns of any group in which Seller or any of
its Affiliates and the Companies are included (any such group being referred to
herein as a "Seller Group") for all taxable periods of the Companies ending on
or before the Closing Date. Seller will (i) cause the income of the Companies to
be included in the Seller Group's consolidated federal Income Tax Returns for
all taxable years of the Companies ending on or before the Closing Date and (ii)
pay, and indemnify and hold harmless Buyer and its Affiliates from and against,
on a Net After-Tax Basis, any Income Taxes imposed upon any Seller Group for any
such taxable year; except, that Buyer will pay, and will indemnify and hold
harmless Seller and its Affiliates from and against, any such Income Taxes
imposed as a result of any action outside the ordinary course of business
effected by Buyer or the Companies after the Closing on the Closing Date or as a
result of any election pursuant to Section 338 of the Code (or any similar
provision of foreign, state, or local law), other than any such election
contemplated by Section 9.1(j). The income, deductions, and other Tax items of
the Companies will be allocated between the period up to and including the
Closing Date and the period beginning after the Closing Date by closing the
Companies' books as of the end of the Closing Date.
(b) Seller will cause to be prepared and filed all Income Tax
Returns other than those subject to Section 9.1(a) required to be filed by the
Companies for periods ending on or prior to the Closing Date ("Separate
Returns"). Seller will pay, and will indemnify and hold harmless Buyer and its
Affiliates from and against, on a Net After-Tax Basis, any
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Income Taxes attributable to such Separate Returns; except, that Buyer will pay,
and will indemnify and hold harmless Seller and its Affiliates from and against,
any such Income Taxes imposed as a result of any action outside the ordinary
course of business effected by Buyer or the Companies after the Closing on the
Closing Date or as a result of any election pursuant to Section 338 of the Code
(or any similar provision of foreign, state or local law), other than any such
election contemplated by Section 9.1(j) for which Seller shall pay all such
Taxes incurred as a result thereof.
(c) Buyer will cause to be prepared and filed all Income Tax Returns
required to be filed by the Companies for periods beginning before and ending
after the Closing Date ("Straddle Periods"); provided, however, that drafts of
any such Income Tax Returns shall be provided to Seller at least 30 days prior
to filing, and such Income Tax Returns shall be subject to Seller's reasonable
review and approval. Except as otherwise consented to by Seller, which consent
shall not be unreasonably withheld, any such Income Tax Returns will be prepared
on a basis consistent with the last Income Tax Returns filed by the Companies.
Buyer will pay, and will indemnify and hold harmless Seller and its Affiliates
from and against, on a Net After-Tax Basis, any Income Taxes imposed upon Seller
or its Affiliates for any such taxable period; except that Seller will, within
fifteen (15) days after the date on which the Straddle Period Income Tax Return
is filed, cause to be computed and reimburse Buyer for, and will indemnify and
hold harmless Buyer and its Affiliates from and against, on a Net After-Tax
Basis, the amount of Income Taxes attributable to the portion of the Straddle
Period ending on the Closing Date, determined as if the books of the Companies
were closed as of the Closing Date, other than any such Income Taxes imposed as
a result of any action outside the ordinary course
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62
of business effected by Buyer or the Companies after the Closing on the Closing
Date or as a result of any election pursuant to Section 338 of the Code (or any
similar provision of foreign, state or local law), other than any such election
contemplated by Section 9.1(j) for which Seller shall pay all such Taxes
incurred as a result thereof. Any estimated Taxes paid by the Companies with
respect to any Straddle Period prior to the Closing shall be credited against
Seller's liability pursuant to this Section 9.1(C), and, to the extent such
estimated Taxes exceed such liability, Buyer shall cause the Companies to pay
the excess to Seller within fifteen (15) days after filing the Straddle Period
Income Tax Return.
(d) Buyer shall be responsible for, and shall indemnify and hold
harmless Seller and its Affiliates from and against, on a Net After-Tax Basis,
any Income Taxes of the Companies for periods beginning on or after the Closing
Date.
(e) Seller will be entitled to retain, or receive prompt payment
from Buyer or the Companies of, any refund or credit of Income Taxes for which
Seller is responsible pursuant to Section 9.1(a), (b) or (C), plus any interest
received with respect thereto from the relevant taxing authorities. Buyer will,
if Seller so requests and at Seller's expense, cause the Companies to promptly
file for and obtain any refunds or credits to which Seller is entitled under
this Section 9.1(e). Buyer will permit Seller to control (at Seller's expense)
the prosecution of any such claim for refund and, when deemed appropriate by
Seller, will cause the relevant entity to authorize by appropriate power of
attorney such person as Seller may designate to represent such entity with
respect to such refund claimed. For purposes of this Section 9.1(e), a party
will be deemed to have made prompt payment of a refund or credit if such payment
is made within ten (10) days of the receipt by such party of such refund or of
the use by such party of such
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credit.
(f) Buyer will promptly notify Seller in writing upon receipt by
Buyer or any of its Affiliates (including the Companies) of notice of any
pending or threatened audit or assessment with respect to Income Taxes for which
Seller would be required to pay or indemnify Buyer or any of its Affiliates
pursuant to Sections 9.1(a), 9.1(b) or 9.1(C). Seller will have the sole right,
at its own expense, to represent the Seller Group's and the Companies' interest
in any audit, administrative or court proceeding relating to such Income Taxes
for which Seller is solely responsible pursuant to Section 9.1(a) or (b),
including, without limitation, the right to control, compromise and settle any
such proceeding, and to decide whether any consents or waivers to extend
applicable statutes of limitations will be granted, and to employ counsel of its
choice at its expense. Seller will have the right to participate at its own
expense in any audit, administrative or court proceeding relating to Straddle
Periods, and neither Buyer nor the Companies will settle or compromise any such
audit, administrative or court proceeding, or grant any consent or waiver to
extend applicable statutes of limitations, without Seller's written consent
(such consent not to be unreasonably withheld).
(g) After the Closing Date, each of Buyer and Seller will provide
the other (subject to reimbursement by the other party for any out-of-pocket
expenses), with such assistance as may reasonably be requested by the other
party in connection with the preparation of any return, report, or form with
respect to Taxes or any administrative or judicial proceeding relating to
liability for Taxes of the Companies or any affiliated, consolidated, combined
or unitary group in which the Companies is included. Buyer further agrees to
retain and provide Seller with access to all books and records relevant to the
liability of the Company for Taxes for
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any periods prior to the Closing for at least five years after the Closing and
to give Seller notice and an opportunity to receive such books or records prior
to destroying or discarding any such books or records.
(h) Buyer will be responsible for payment of, and will indemnify and
hold the other party and its affiliates harmless from and against all
documentary, stamp, transfer, sales, use, excise and similar Taxes imposed upon
Seller, Buyer or the Companies by the United States or any jurisdiction or
taxing authority within the United States, as a result of the transactions
contemplated by this Agreement. Buyer will be responsible for preparing and
timely filing (and Seller will cooperate with Buyer at Buyer's expense in
preparing and filing) any forms required with respect to any such Taxes. Buyer
will provide to Seller a true copy of each such return as filed and evidence of
the timely filing thereof.
(i) Any Tax sharing agreement between Seller or any of its
Affiliates, on the one hand, and the Companies, on the other hand, is terminated
as of the Closing Date and will have no further effect for any taxable year
(whether the current year, a future year or a past year).
(j) Seller and Buyer shall, if permitted to do so pursuant to
applicable law and if Buyer so requests by written notice to Seller within
ninety (90) days after Closing, join in making a timely election under Section
338(h)(10) of the Code and any similar joint election under state law with
respect to the sale and purchase of the Mercer Shares and Evode Shares (but not
the LCCNA Shares) pursuant to this Agreement, and each party shall provide to
the other all necessary information to permit such elections to be made. Buyer
and Seller shall take all actions necessary and appropriate (including filing
such forms, returns, schedules and
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other documents as may be required) to effect and preserve such timely
elections. In connection with any election under Section 338(h)(10), within one
hundred eighty (180) days following the Closing Date, Buyer and Seller shall act
together in good faith to determine and agree upon the "deemed sale price" to be
allocated to each asset of Mercer and Evode (taking into account the allocation
of the Purchase Price pursuant to Section 1.2 hereof) in accordance with
Treasury Regulation Section 1.338(h)(10)-1(f) and the other regulations under
Section 338 of the Code. In the event that Buyer and Seller are unable to agree
as to such allocations, the allocation shall be determined by an appraisal firm
selected by Buyer and acceptable to Seller; the fees and expenses of such
appraisal firm shall be shared equally by Buyer and Seller. Both Buyer and
Seller shall report the tax consequences of the transactions contemplated by
this Agreement consistently with such allocations (as agreed upon or determined
by the appraisal firm) and shall not take any position inconsistent with such
allocations in any Tax Return or otherwise.
9.2 Employee Matters.
(a) Except as expressly provided otherwise in Sections 9.2(d) and
(e), effective as of the Closing, Seller and the Companies shall take all
appropriate action to cause each Company to withdraw from and cease to be a
participating employer in, and employees of the Companies to cease to be active
participants in, each Benefit Plan, other than Company Benefit Plans ("Seller
Benefit Plans"), and thereafter no additional benefits shall be accrued under
any Seller Benefit Plan for such employees.
(b) Buyer agrees (i) to continue the employment immediately after
the Closing of each person who is an employee of a Company as of the Closing,
whether or not then actively at work, ("Continuing Employee"), (ii) to provide
each Continuing Employee with
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compensation and employee benefits as of the Closing on substantially the same
terms as provided to such employees prior to the Closing (subject to the terms
of any applicable collective bargaining agreement), and (iii) to credit the
service of each Continuing Employee with the Companies or any affiliate of the
Companies before the Closing Date as service with Buyer and its affiliates for
all purposes, other than for benefit accrual under a defined benefit plan, as
defined in Section 3(35) of ERISA, under all compensation and benefit plans
maintained by Buyer (and/or any of its affiliates) for any Continuing Employee
after the Closing. Nothing in the preceding sentence shall require Buyer to
continue the employment of any employee or continue any level of compensation or
employee benefits for any period of time after the Closing. Buyer further agrees
to continue the Companies' bonus and incentive plans in effect through the end
of the calendar year in which the Closing occurs and to pay eligible
participants all amounts earned pursuant to such plans during the calendar year
in which the Closing occurs.
(c) Buyer agrees to honor the terms of any collective bargaining
agreement covering employees of any of the Companies and to continue to provide
any compensation or employee benefits required to be provided under the terms of
any such collective bargaining agreement.
(d) Seller shall continue to provide coverage under its group health
plan to Continuing Employees and their covered dependents from the Closing Date
until the earlier of (i) December 31, 1997, or (ii) the date as of which Buyer
establishes a group health plan for Continuing Employees and their covered
dependents (the "Coverage Termination Date"). Buyer agrees to reimburse Seller
for the cost of all benefit claims, insurance premiums and administrative
expenses (including, without limitation, (i) third party administrative charges
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and (ii) an amount equal to 5.0% of all benefit claims as reimbursement for
Seller's internal administrative expenses) attributable to such coverage. Such
reimbursement shall be made within 5 business days after demand by Seller, which
demand shall not be made more frequently than monthly. Buyer understands and
agrees that, unless agreed to in writing by Seller, such continued coverage
under Seller's group health plan shall be provided only with respect to benefit
claims properly submitted by Continuing Employees through the Coverage
Termination Date in accordance with the claims procedures under Seller's group
health plan and not with respect to any benefit claims submitted after the
Coverage Termination Date (whether or not such claims were incurred prior to the
Coverage Termination Date).
(e) Buyer agrees (i) to establish or maintain a group health plan
for Continuing Employees which shall be effective no later than January 1, 1998
and shall cover all Continuing Employees and dependents who immediately prior to
the Closing are covered under a group health plan maintained by Seller or any of
its affiliates ("Seller's Group Health Plan") (subject to the terms of any
applicable collective bargaining agreement), (ii) to waive any waiting period or
any limitation or exclusion regarding pre-existing conditions under Buyer's
group health plan to the extent a Continuing Employee or dependent had satisfied
any such waiting period or limitation or exclusion under Seller's Group Health
Plan, and (iii) to credit any covered expenses incurred by Continuing Employees
or their dependents under Seller's Group Health Plan during the plan year of
Buyer's group health plan which includes the Closing towards any deductibles and
limits under Buyer's group health plan.
(f) Effective as of the Closing Date, all Continuing Employees shall
be 100% vested in their account balances under the Laporte Inc. Money Purchase
Pension Plan
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and the Profit Sharing/401(k) Plan for Employees of Laporte Inc. (the "Laporte
Qualified Plans"). Effective as of the Closing Date, Buyer shall establish or
maintain one or more tax-qualified defined contribution plan(s) for Continuing
Employees ("Buyer's Qualified Plan"). With respect to each Buyer's Qualified
Plan, Buyer shall deliver to Seller as soon as practicable, but in no event
later than ninety (90) days after Closing (i) a copy of the plan document; (ii)
a copy of the trust agreement; and (iii) either (A) a copy of a favorable IRS
determination letter issued with respect to the plan, and an opinion from
Buyer's legal counsel reasonably acceptable to Seller that to its knowledge
nothing has changed since the date of such letter which would adversely affect
its validity, or (B) an opinion from Buyer's legal counsel reasonably acceptable
to Seller that the plan is intended to comply with the applicable qualification
requirements of Section 401(a) of the Code, that Seller will submit the plan to
the IRS for a determination letter within the remedial amendment period under
Section 401(b) of the Code and that Buyer will take all necessary action to
obtain a favorable determination letter from the IRS. Seller shall deliver to
Buyer as soon as practicable, but in no event later than ninety (90) days after
the Closing, copies of favorable IRS determination letters issued with respect
to the Laporte Qualified Plans. As soon as practicable after delivery of the
documents contemplated by the two preceding sentences, Seller shall cause the
trustee of the Laporte Qualified Plans to transfer the account balances of
Continuing Employees under the Laporte Qualified Plans to the trustee of Buyer's
Qualified Plan(s). Such transfer shall be made in cash, promissory notes
representing outstanding loans to participants and such other property as may be
acceptable to Seller and Buyer. The amount of such transfer shall be calculated
as of the most recent valuation date under the Laporte Qualified Plans (which
shall not be more than three (3) business days prior to the
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date of transfer). Both Seller and Buyer will file any IRS Form 5310A that is
required with respect to such transfer at least thirty (30) days prior to the
transfer. Following the transfer of such account balances, Buyer and Buyer's
Qualified Plans shall be responsible for all benefits attributable to such
account balances, and Seller and the Laporte Qualified Plans shall cease to have
any liability for such benefits.
(g) Seller shall be responsible for any continuation of group health
coverage required under Section 4980B of the Code or Sections 601 through 608 of
ERISA with respect to any employee of a Company or any "qualified beneficiary"
(as defined in Section 4980B of the Code) of any such employee who incurs a
"qualifying event" (as defined in Section 4980B of the Code) prior to the
Closing. Buyer shall be responsible for any continuation of group health
coverage required under Section 4980B of the Code or Sections 601 through 608 of
ERISA with respect to any employee of a Company or any "qualified beneficiary"
(as defined in Section 4980B of the Code) of any such employee who incurs a
"qualifying event" (as defined in Section 4980B of the Code) on or after the
Closing.
(h) Seller shall be responsible for all claims incurred prior to the
Closing under any Seller Benefit Plan, and Buyer shall be responsible for any
claim incurred (whether before or after the Closing) under any Company Benefit
Plan or any employee benefit plan maintained by Buyer. For this purpose, a
medical claim shall be deemed incurred when the services giving rise to the
claim are provided. Seller agrees that it will be responsible for any obligation
to provide long-term disability benefits to any Continuing Employee who is not
actively at work at the Closing due to an injury or illness incurred prior to
Closing but has not qualified for long-term disability benefits under Seller's
long-term disability plan as of the
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Closing because the employee has not satisfied the applicable elimination
period.
ARTICLE X
MISCELLANEOUS
10.1 Expenses. The fees and expenses (including the fees of any lawyers,
accountants, investment bankers or others engaged by such party) in connection
with this Agreement and the transactions contemplated hereby whether or not the
transactions contemplated hereby are consummated will be paid by Buyer with
respect to Buyer and will be paid by Seller with respect to Seller.
10.2 Headings. The section headings herein are for convenience of
reference only, do not constitute part of this Agreement and will not be deemed
to limit or otherwise affect any of the provisions hereof. References to
Sections, unless otherwise indicated, are references to Sections hereof.
10.3 Notices. Any notice or other communication required or permitted to
be given hereunder will be in writing and will be mailed by prepaid registered
or certified mail, timely deposited with an overnight courier such as Federal
Express, or delivered against receipt (including by facsimile transmission), as
follows:
(a) In the case of Seller, to:
Thomas Riordan, Esq.
Laporte Inc.
22 Chambers Street
Princeton, New Jersey 08542
Telecopy: (609) 430-1524
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with a copy (which shall not constitute notice to Seller) to:
James Modlin, Esq.
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
Telecopy: (212) 422-4726
(b) In the case of Buyer, to:
Robert Covalt
Sovereign Specialty Chemicals, L.P.
225 W. Washington Street, Suite 2200
Chicago, Illinois 60606
Telecopy: (312) 419-7151
with copies (which shall not constitute notice to Seller) to:
Carol Bramson and Eric Larson
First Chicago Equity Capital
Three First National Plaza, Suite 1210
Chicago, Illinois 60670-0610
Telecopy: (312) 732-7483
and
Christopher J. Hagan, Esq.
Davis, Graham & Stubbs LLP
1314 Nineteenth Street, N.W.
Washington, DC 20036
Telecopy: (202) 293-4794
or to such other address as the party may have furnished in writing in
accordance with the provisions of this Section. Any notice or other
communication shall be deemed to have been given, made and received upon
receipt; provided, that any notice or communication that is received other than
during regular business hours of the recipient shall be deemed to have been
given at the opening of business on the next business day of the recipient.
Either party may change the address to which notices are to be addressed by
giving the other party notice in the manner herein set forth.
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10.4 Assignment. This Agreement and all provisions hereof will be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, and the provisions of the second sentence of
Section 8.8(a) will inure to the benefit of the Persons referred to therein;
provided, however, that neither this Agreement nor any right, interest, or
obligation hereunder may be assigned by any party hereto without the prior
written consent of the other party, except that Buyer may assign any right
hereunder, in whole or in part, to any wholly-owned subsidiary or subsidiaries
of Buyer that agrees (without limitation of Buyer's obligations and liabilities
hereunder) pursuant to an instrument in form and substance reasonably
satisfactory to Seller to be bound by and responsible for Buyer's obligations
and liabilities hereunder jointly and severally with Buyer (which instrument
will also, among other things, contain representations and warranties as to such
subsidiary comparable to those made as to Buyer in Article III) and Buyer may
make an assignment of its rights hereunder as collateral pursuant to an
instrument in form and substance reasonably satisfactory to Seller to any lender
financing a portion of the Purchase Price; and provided, further that no party
hereto or successor or assignee has the ability to subrogate any other Person to
any right or obligation under this Agreement.
10.5 Entire Agreement. This Agreement (including the Schedules and
Exhibits hereto) embody the entire agreement and understanding of the parties
with respect to the transactions contemplated hereby and supersede all prior
written or oral commitments, arrangements or understandings with respect hereto
(other than the Confidentiality Agreement, which will terminate at the Closing
but survive any termination hereof).
10.6 Amendment; Waiver. (a) This Agreement may only be amended or
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modified in writing signed by the party against whom enforcement of any such
amendment or modification is sought.
(b) No breach of any covenant, agreement, representation or warranty
made herein shall be deemed waived unless expressly waived in writing by the
party who might assert such breach. The waiver by any party hereto of a breach
of any term or provision of this Agreement will not be construed as a waiver of
any subsequent breach.
10.7 Counterparts. This Agreement may be executed in two or more
counterparts, all of which will be considered one and the same agreement and
each of which will be deemed an original.
10.8 Governing Law. THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK (REGARDLESS OF THE LAWS THAT MIGHT BE APPLICABLE UNDER
PRINCIPLES OF CONFLICTS OF LAW) AS TO ALL MATTERS, INCLUDING BUT NOT LIMITED TO
MATTERS OF VALIDITY, CONSTRUCTION, EFFECT AND PERFORMANCE.
10.9 Severability. If any one or more of the provisions of this Agreement
is held to be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining provisions of this Agreement will not be
affected thereby, and Seller and Buyer will use their reasonable efforts to
substitute one or more valid, legal and enforceable provisions which insofar as
practicable implement the purposes and intent hereof. To the extent permitted by
applicable law, each party waives any provision of law which renders any
provision of this Agreement invalid, illegal or unenforceable in any respect.
10.10 Specific Performance. Buyer and Seller recognize that any breach of
the
<PAGE> 81
74
terms of this Agreement may give rise to irreparable harm for which money
damages would not be an adequate remedy, and accordingly agree that, in addition
to other remedies, any non-breaching party will be entitled to enforce the terms
of this Agreement by a decree of specific performance without the necessity of
proving the inadequacy as a remedy of money damages.
10.11 Consent to Jurisdiction. Buyer and Seller hereby submit to the
non-exclusive jurisdiction of the courts of general jurisdiction of the State of
New York and the federal courts of the United States of America, located in the
City of New York, solely in respect of the interpretation and enforcement of the
provisions of this Agreement and the Note and any related agreement and hereby
waive, and agree not to assert, as a defense in any action, suit or proceeding
for the interpretation or enforcement of this Agreement and the Note and any
related agreement, that they are not subject thereto or that such action, suit
or proceeding may not be brought or is not maintainable in such courts or that
this Agreement, the Note and any related agreement may not be enforced in or by
such courts or that their property is exempt or immune from execution, that the
suit, action or proceeding is brought in an inconvenient forum, or that the
venue of the suit, action or proceeding is improper. Service of process with
respect thereto may be made upon Buyer or Seller by mailing a copy thereof by
registered or certified mail, postage prepaid, to such party at its address as
provided in Section 10.3 hereof.
10.12 Third Person Beneficiaries. Except as set forth in the second
sentence of Section 8.8(a), this Agreement is not intended to confer upon any
other Person any rights or remedies hereunder. Each of Buyer and Seller may
assert the rights of Buyer Indemnitees and Seller Indemnitees, respectively,
pursuant to Article VIII hereof.
<PAGE> 82
75
10.13 Representations and Warranties; Schedules. Neither the specification
of any dollar amount in the representations and warranties set forth in Article
II nor the indemnification provisions of Article VIII or IX nor the inclusion of
any items in any Schedule to this Agreement will be deemed to constitute an
admission by Seller or Buyer, or otherwise imply, that any such amounts or the
items so included are material for the purposes of this Agreement or are
required to be set forth on any Schedule. All documents or information disclosed
in any Schedule to this Agreement are intended to be disclosed for all purposes
under this Agreement and will also be deemed to be incorporated by reference in
each of the other Schedules to this Agreement to which they may be relevant.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
LAPORTE INC.
By: /s/ Thomas J. Riordan
--------------------------------------
Name: Thomas J. Riordan
Title: Vice President
SOVEREIGN SPECIALTY CHEMICALS, L.P.
By: Sovereign Chemicals Corporation, its
general partner
By: /s/ Robert B. Covalt
--------------------------------------
Name: Robert B. Covalt
Title: Chairman, President and CEO
<PAGE> 83
EXHIBIT A
Certain Definitions
"Administrative Assets" shall mean assets and properties utilized by
Seller and its Affiliates (other than the Companies) in providing
administrative, accounting, book and record keeping, tax, financial, insurance
and other like services to the Companies.
"Affiliate" shall mean, with respect to a Person at any time, another
Person, now or hereafter, directly or indirectly, through one or more
intermediaries, controlled by, under common control with or which controls, the
Person specified at such time, provided that the Companies shall not be deemed
to be Affiliates of Seller.
"Agreement" shall mean this Stock Purchase Agreement.
"Approval" shall mean any franchise, license, certificate of compliance,
authorization, consent, order, permit, approval or other action of, or any
filing, registration or qualification with, any Governmental Authority.
"Audited Balance Sheet" shall have the meaning specified in Section 4.13.
"Audited Income Statement" shall have the meaning specified in Section
4.13.
"Balance Sheet" shall have the meaning specified in Section 2.1.5.
"Benefit Plans" shall have the meaning specified in Section 2.1.13.
<PAGE> 84
2
"Business" shall mean the business of the Companies as conducted
immediately prior to the Closing.
"Buyer" shall have the meaning specified in the Recitals.
"Buyer Indemnitee" shall have the meaning specified in Section 8.2.
"Buyer's Qualified Plans" shall have the meaning specified in Section
9.2(f).
"Cash Management Agreement" shall mean the Agreement dated June 1, 1995,
between Laporte Inc. and The Chase Manhattan Bank, N.A.
"Closing" shall have the meaning specified in Section 1.3.
"Closing Date" shall have the meaning specified in Section 1.3.
"Closing Working Capital" shall mean an amount equal to (i) current assets
(excluding cash and equivalents, intercompany indebtedness (other than trade
receivables), prepayments of any Taxes for which Seller is liable pursuant to
Section 9.1, and prepaid premiums for insurance maintained for the Companies by
Seller and its Affiliates), in each case, as of the Closing Date, minus (ii)
current liabilities (excluding intercompany indebtedness (other than
intercompany trade payables), premiums payable for insurance maintained for the
Companies by Seller and its Affiliates, accruals on account of Stay-On Bonuses,
and Taxes for which Seller is liable pursuant to Section 9.1), in each case, as
of the Closing Date, plus (iii) the amount of Retained Cash Balances, in each
case (x) calculated in accordance with GAAP applied on a basis consistent with
the application of accounting principles in the preparation of the Company
Financial Statements and (y) determined without regard to Excluded Items
(provided that the Excluded Item described in clause (viii) of the definition
thereof will not be disregarded to the extent that as a result thereof Closing
Working Capital would exceed $14,115,000).
<PAGE> 85
3
"COBRA" shall have the meaning specified in Section 2.1.13(C).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean LCCNA, Mercer and Evode, individually, and
"Companies" shall mean such corporations, collectively, in each case without
regard to the Tamms Division and all facts and circumstances relating to the
Tamms Division.
"Company Agreement" shall have the meaning specified in Section 2.1.11.
"Company Benefit Plan" shall have the meaning specified in Section
2.1.13(a).
"Company Financial Statements" shall have the meaning specified in Section
2.1.5.
"Concentration Accounts" shall mean the Concentration Accounts maintained
for the Companies under the Cash Management Agreement.
"Confidentiality Agreement" shall have the meaning specified in Section
4.1.
"Consent" shall mean any consent or approval of, or notice, declaration,
report or statement filed with or submitted to, any Person (other than an
Approval).
"Consultant" shall have the meaning specified in Section 4.1(C).
"Continuing Employees" shall have the meaning specified in Section 9.2(b).
"Control Disbursement Accounts" shall mean the Control Disbursement
Accounts maintained for the Companies under the Cash Management Account.
"Coverage Replacement Date" shall have the meaning specified in Section
9.2.
"Coverage Termination Date" shall have the meaning specified in Section
9.2(d).
"Darworth Agreement" shall mean the Asset Purchase Agreement dated as of
September 29, 1995 between LCCNA and Ensign-Bickford Industries, Inc.
<PAGE> 86
4
"DOJ" shall have the meaning specified in Section 4.8.
"Environmental Requirements" shall mean any Environmental Laws and all
Permits issued under Environmental Laws.
"Environmental Laws" shall mean any Legal Requirements in effect on the
date of this Agreement relating to the protection of the environment from
pollution or regulating or relating to the emission, discharge, disposal,
treatment, transportation, storage, release or threatened release of Hazardous
Materials into the environment, including ambient air, surface water, ground
water, land surface or subsurface strata.
"Environmental Survey" shall have the meaning specified in Section 4.1(C).
"ERISA" shall have the meaning specified in Section 2.1.13.
"Estimated Closing Statement" shall have the meaning specified in Section
1.5(a).
"Estimated Purchase Price" shall have the meaning specified in Section
1.5(a).
"Evode" shall have the meaning specified in the Recitals.
"Evode Shares" shall mean all outstanding shares of capital stock of
Evode, as set forth on Schedule 2.1.3.
"Evode U.S.A." shall mean Evode U.S.A. Inc., a Delaware corporation.
"Excess Liabilities" shall mean an amount (calculated without
consideration of Excluded Items described in clauses (vi) and (vii) of the
definition thereof) equal to (x) the stated amount of long-term liabilities (a)
that were incurred outside the ordinary course of business of the Companies
since December 31, 1996, (b) that are not reflected on and do not arise from
matters reflected on the Schedules hereto or the Environmental Survey, (c) that
are set forth on the EY Balance Sheet (without regard to the footnotes thereto),
(d) that are not set forth on the
<PAGE> 87
5
Audited Balance Sheet and (e) as to which indemnification is not available
pursuant to clauses (i) through (v) of Section 8.2 (determined for this purpose
only without regard to Sections 8.1 and 8.4), minus (y) the stated amount of
long-term liabilities that are set forth on the Audited Balance Sheet but are
not set forth on the EY Balance Sheet, minus (z) the stated amount of assets
(other than current assets) (a) that arose outside the ordinary course of
business of the Companies since December 31, 1996, (b) that are set forth on the
EY Balance Sheet (without regard to the footnotes thereto) and (C) that are not
set forth on the Audited Balance Sheet.
"Excluded Items" shall mean (i) deferred consideration (including payments
on account of non-competition covenants and agreements) payable in connection
with the acquisition of the Darworth Company Division of Ensign-Bickford
Industries, Inc. and the Magic Seal business, (ii) deferred compensation payable
to William and Leonard Longo and to John J. Kaziow, (iii) capital lease
obligations in respect of Evode's facility at Greenville, South Carolina, (iv)
amounts receivable from the lessor of Evode's Greenville facility in respect of
the lessor's outstanding contribution towards certain environmental liabilities,
(v) accruals and reserves in respect of litigation with James Glessner, (vi)
liabilities under or in respect of Environmental Requirements or otherwise
described in clauses (w) through (z) of Section 8.4(b), (vii) obligations and
liabilities under the Tamms Agreements and Tamms Charges and Specified Items and
(viii) reserves in respect of the price reduction granted Milliken in the letter
dated February 26, 1997 from Evode to Milliken.
"EY" shall have the meaning specified in Section 1.5(b).
"Final Closing Statement" shall have the meaning specified in Section
1.5(b).
"FTC" shall have the meaning specified in Section 4.8.
<PAGE> 88
6
"GAAP" shall mean United States generally accepted accounting principles
as in effect at the relevant time, or during the relevant period, specified
herein, applied on a consistent basis over the period indicated.
"Government Filing" shall have the meaning specified in Section
2.1.4(b)(iv).
"Governmental Authority" shall mean any foreign, Federal, State, county,
city, town, village, municipal or other governmental department, commission,
board, bureau, agency, authority or instrumentality.
"GP" shall have the meaning specified in Section 3.2(a).
"Hazardous Materials" means any pollutant, contaminant, toxic substance,
hazardous substance, hazardous material, hazardous chemical or hazardous waste
defined, listed, regulated or qualifying as such in (or for the purposes of) any
Environmental Law and shall include, but not be limited to, petroleum, including
crude oil or any fraction thereof which is liquid at standard conditions of
temperature or pressure (60 degrees Fahrenheit and 14.7 pounds per square inch
absolute), any radioactive material, including but not limited to any source,
special nuclear or any product material as defined at 42 U.S.C. Sections 2011,
et seq., as amended or hereafter amended, polychlorinated biphenyls and
asbestos.
"HSR Act" shall have the meaning specified in Section 4.8.
"Income Taxes" shall mean any Taxes in the nature of income or franchise
taxes.
"Income Tax Return" shall mean any Tax Return relating to Income Taxes.
"Indemnified Party" shall mean Buyer Indemnities or Seller Indemnitees, as
the case may be, seeking indemnification pursuant to Article VIII.
"Indemnifying Party" shall have the meaning specified in Section
8.4(a)(iii).
<PAGE> 89
7
"Intellectual Property" shall have the meaning specified in Section
2.1.16(a).
"Investigation" shall have the meaning specified in Section 4.1(C).
"knowledge" with respect to Buyer or Seller means actual knowledge of any
person who is a director or executive officer of such party on the date of this
Agreement.
"KPMG Letter" shall mean the letter from KPMG Audit plc to Laporte plc
(with its Appendix I) and the memo from Andy Savage to Jim Modlin attached to
Schedule 2.1.5.
"KPMG Reports" shall mean the reports of KPMG Audit plc dated March 26,
1997 in respect of LCCNA, Evode and Mercer.
"Laporte Qualified Plans" shall have the meaning specified in Section
9.2(f).
"LCCNA" shall have the meaning specified in the Recitals.
"LCCNA Shares" shall mean outstanding shares of capital stock of LCCNA, as
set forth on Schedule 2.1.3.
"Leased Property" means the real property leased by the Company pursuant
to the Leases.
"Legal Requirements" shall have the meaning specified in Section 2.1.9.
"Liens" shall have the meaning specified in Section 2.1.3.
"Losses" shall mean losses, liabilities, claims and reasonable expenses of
defense thereof (including, without limitation (but subject to the penultimate
sentence of Section 8.6), reasonable expenses of investigation and fees and
disbursements of counsel), reduced by Losses to the extent recovered by the
Buyer Indemnitee or Seller Indemnitee (or Affiliates thereof (including, in the
case of Buyer Indemnitees, the Companies)) making the relevant claim for
indemnification under insurance or otherwise.
<PAGE> 90
8
"Magic Seal Agreement" shall mean the Asset Purchase Agreement dated
November 1, 1994 by and among LCCNA, Magic Seal Corporation, Callaway Systems,
Inc., James F. Phelan and Richard E. Callaway.
"Material Adverse Effect" means any material adverse change in or effect
on the business or financial condition of the Companies taken as a whole.
"Material Agreement" shall have the meaning specified in Section 2.1.11.
"Mercer" shall have the meaning specified in the Recitals.
"Mercer Shares" shall mean all outstanding shares of Mercer, as set forth
on Schedule 2.1.3.
"MS Technology" means confidential know-how, manufacturing and processing
techniques and information (in whatever form stored or held) relating to the
modified silicone polymer, developed by the entities listed on Exhibit C.
"Net After-Tax Basis" means, with respect to the calculation of any
indemnification payment owed to any party pursuant to the Agreement, calculation
thereof in a manner taking into account any Taxes owing by the Indemnified Party
or its Affiliates as a result of receipt or accrual of the indemnity payment and
any savings in Taxes realized by the Indemnified Party or its Affiliates
(including, in the case of Buyer or a Buyer Indemnitee, the Companies) as a
result of the indemnified liability.
"Note" shall have the meaning specified in Section 1.2.
"Owned Property" shall have the meaning specified in Section 2.1.10(a).
"Permit" shall mean any permit or authorization of the Companies issued by
any Governmental Authority.
<PAGE> 91
9
"Person" means and includes an individual, corporation, partnership
(limited or general), joint venture, association, trust, any other
unincorporated organization or entity and a governmental entity or any
department or agency thereto.
"Preliminary EY Balance Sheet" shall have the meaning specified in Section
1.5(a).
"Principal Management" means with respect to a claim or a reasonably
segregable portion of a claim, the authority to direct the handing of such a
claim (or portion thereof) and the subject matter of such claim (or portion
thereof), including, without limitation, selection of consultants, contractors,
experts or advisors; evaluation, selection and implementation of remedial
measures; negotiations with or challenges to any governmental body and third
parties; and the defense, settlement and management of such claim (or portion
thereof) and all Third-Party Claims arising therefrom.
"Property" shall have the meaning specified in Section 2.1.10(e).
"Purchase Price" shall have the meaning specified in Section 1.2.
"Real Property" means the Owned Property and the Leased Property,
collectively.
"Retained Cash Balances" means the balances of all cash, deposit, money
market and the like accounts of the Companies (other than the Concentration
Accounts and Control Disbursement Accounts) immediately following the Closing.
"Remedial Action" shall mean any investigatory, remedial, cleanup,
corrective or compliance action taken pursuant to Environmental Laws.
"Rockwood" shall mean Rockwood Industries, Inc. a Delaware corporation.
"Second Request" means a request for additional information or documentary
<PAGE> 92
10
material pursuant to 16 C.F.R. ss. 803.20.
"Selected Accountants" shall have the meaning specified in Section 1.5(C).
"Seller" shall have the meaning specified in the Recitals.
"Seller Benefit Plans" shall have the meaning specified in Section 9.2(a).
"Seller Group" shall have the meaning specified in Section 9.1(a).
"Seller Group Health Plan" shall have the meaning specified in Section
9.2(e).
"Seller Indemnitee" shall have the meaning specified in Section 8.3.
"Separate Returns" shall have the meaning specified in Section 9.1(b).
"Shares" shall mean the LCCNA Shares, Mercer Shares and Evode Shares,
collectively.
"Specified Items" shall mean (i) any upgrade of electrical systems at any
of the Companies' sites and (ii) other than as set forth in item 1 under the
heading "LCCNA, Mentor, Ohio" on Schedule 8.2, bringing UST's at LCCNA's Mentor
site into compliance with present or future Legal Requirements.
"Stay-On Bonus" shall mean all of the Companies' obligations, if any,
under the agreements set forth on Exhibit D.
"Straddle Periods" shall have the meaning specified in Section 9.1(C).
"Supplies" shall have the meaning specified in Section 4.5.
"Tamms Agreements" shall mean the Tamms Purchase Agreement and the
agreements and instruments described in Section 5.2 thereof.
"Tamms Charges" charges and expenses in connection with the
discontinuation of operations conducted under the Tamms Agreements.
<PAGE> 93
11
"Tamms Claims" shall mean Third-Party Claims asserted against Buyer
Indemnitees arising out of the operation of the Tamms Division prior to the
Closing including without limitation those described on Exhibit E, but excluding
all Third-Party Claims made for breach by a Company of a provision of a Tamms
Agreement with respect to periods following the Closing.
"Tamms Division" shall mean the assets and business sold to Tamms
Acquisition Corporation pursuant to the Asset Purchase Agreement referred to in
the definition of Tamms Agreements.
"Tamms Purchase Agreement" shall mean the Asset Purchase Agreement dated
March 4, 1997, among Seller, LCCNA and Tamms Acquisition Corporation.
"Tax" or "Taxes" means all taxes, charges, fees, levies or other
assessments, and all estimated payments thereof, including but not limited to
income, excise, license, severance, stamp, occupation, premium, profits,
windfall, profits, customs duties, capital stock, employment, disability,
registration, alternative or add-on minimum, property, sales, use, value added,
environmental (including Taxes imposed under Section 59A of the Code),
franchise, payroll, transfer, gross receipts, withholding, social security or
similar unemployment taxes, and any other tax of any kind whatsoever, imposed by
any federal, state, local or foreign governmental authority, including any
interest, penalties and additions to tax relating to such taxes, charges, fees,
levies or other assessments.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
<PAGE> 94
12
"Third-Party Claim" shall have the meaning specified in Section 8.6.
"Unaudited Financial Statements" shall have the meaning specified in
Section 2.1.5.
<PAGE> 1
Exhibit 10.17
CLOSING AGREEMENT
THIS CLOSING AGREEMENT dated this 5th day of August, 1997 by and
between Laporte Inc., a Delaware corporation ("Seller"), Sovereign Specialty
Chemicals, L.P., a Delaware limited partnership ("Sovereign L.P."), and
Sovereign Specialty Chemicals, Inc., a Delaware corporation ("SSC"). In
connection with and in furtherance of the Closing under the Stock Purchase
Agreement dated May 22, 1997 by and between Seller and Sovereign L.P., (the
"Stock Purchase Agreement"), the parties agree as follows:
1. Capitalized terms used herein but not defined herein shall have the
meaning ascribed thereto in the Stock Purchase Agreement. To the extent a
provision hereof conflicts with a provision of the Stock Purchase Agreement,
this Closing Agreement shall govern. This Closing Agreement shall be deemed to
have been entered into and effective immediately prior to the Closing.
2. SSC is hereby made a party to the Stock Purchase Agreement,
entitled to the rights and jointly and severally responsible and liable for the
obligations of "Buyer" thereunder. Each reference to "Buyer in the Stock
Purchase Agreement (other than in Article III thereof) shall be deemed to be a
reference to Sovereign L.P. and SSC, jointly and severally. SSC and Sovereign
L.P. hereby represent and warrant to Seller as set forth on Schedule I hereto.
3. Sovereign L.P. shall purchase 21,685 shares of LCCNA at the Closing
in consideration of the issuance of the Note. The remainder of the LCCNA Shares
shall be purchased by SSC in consideration of the remaining $67,000,000 of the
Purchase Price allocable to the LCCNA Shares.
4. Amounts paid or payable in respect of the trade show booth
currently being constructed for LCCNA shall be disregarded in determining
Closing Working Capital. Sovereign L.P. and SSC shall at the Closing pay Seller
$79,244 representing amounts heretofore paid by LCCNA on account of said booth.
5. Sovereign L.P. and SSC shall at the Closing pay Seller $25,000,
representing amounts payable by Laporte people to KPMG in connection with the
review by Ernest & Young L.L.P. of KPMG's work papers in respect of the audited
financial statements referred to in Section 4.13 of the Stock Purchase
Agreement.
6. Accruals on account of free goods to be supplied by LCCNA to Lowes
and inventory to be repurchased by LCCNA from Lowes in connection with Lowes
proposal made in May, 1997 to expand LCCNA's sales to Lowes will be disregarded
in determining Closing Working Capital, except that Closing Working Capital will
be (x) decreased by an amount equal to 50% of amounts payable to repurchase such
inventory and such free goods required to be supplied after Closing, and (y)
increased by an amount equal to 50% of amounts paid to repurchase inventory
prior to Closing.
<PAGE> 2
7. The "Inventory Revaluation Adjustment" of $428,000 for Mercer
arising from the reappraisal of Mercer's inventory valuation policy in respect
of overhead absorption will be disregarded in determining Closing Working
Capital. In finally determining Closing Working Capital for the Companies, any
write-down or write-off or reserve taken in respect of assets included in
Closing Working Capital, which write-down, write-off or reserve was not
reflected in the calculation of Closing Working Capital set forth on the
Estimated Closing Statement, shall be reduced (but not to an amount less than
zero) by $428,000 in the aggregate (representing the amount of such Inventory
Revaluation Adjustment).
8. Amounts estimated to be payable by Sovereign L.P. pursuant to the
letter dated May 22, 1997 from Seller to Sovereign L.P. in respect of the
employment of John Kaziow will be paid by Sovereign L.P. and SSC to Seller at
the Closing. This amount will be finally determined (and adjustment payments
will be made) in the same manner as Closing Working Capital is finally
determined pursuant to Section 1.5 of the Stock Purchase Agreement.
9. Retained Cash Balances will not be included in Closing Working
Capital. Sovereign L.P. and SSC will cause the Companies to distribute Retained
Cash Balances as set forth in the memorandum dated July 31, 1997 from Jim Modlin
to Kelly Bost, Ken Fischer and Amy Harmon, except that Retained Cash Balances in
the three lockbox accounts of the Companies ("Lockbox Cash") will be retained by
the Companies to be applied against checks written on the Control Disbursement
Accounts on or prior to August 5, 1997 ("Outstanding Checks"). Following the
Closing, Seller and SSC will determine whether Lockbox Cash exceeds or is less
than the amount of Outstanding Checks. If there is an excess of Lockbox Cash
over the amount of Outstanding Checks, Sovereign L.P. and SSC will promptly
refund to Seller the difference, and if there is a shortfall of Lockbox Cash
below the amount of Outstanding Checks, Seller will promptly reimburse the
Companies for the amount of the shortfall. Accounts payable of the Companies
shall be reduced by the amount of Outstanding Checks for purposes of calculating
Closing Working Capital. Any Retained Cash Balances not so distributed to Seller
will be finally determined (and adjustment payments will be made) in the same
manner as Closing Working Capital is finally determined pursuant to Section 1.5
of the Stock Purchase Agreement.
10. Section 4.10 of the Stock Purchase Agreement is hereby amended to
delete the second sentence thereof and to insert the following sentence in its
place:
"Notwithstanding the foregoing, Seller shall permit checks written on
the Control Disbursement Accounts prior to the Closing which are
posted to the Control Disbursement Accounts on the Closing Date to
clear and be paid to the extent that accounts payable of the Companies
have been reduced by the amount of such checks for purposes of
calculating Closing Working Capital (and Buyer shall be responsible
for funding the Control Disbursement Accounts in respect of checks
written prior to the Closing but posted after the Closing Date).
- 2 -
<PAGE> 3
11. Section 4.11 of the Stock Purchase Agreement is hereby amended to
delete the last four words of the first sentence thereof and to insert the
following words: "within 60 days of the Closing. Buyer shall indemnify and hold
harmless the Seller Indemnitees from all Losses incurred by Seller Indemnitees
that would not have been incurred by Seller Indemnitees had such updates,
amendments and reissuances of Permits occurred effective the Closing."
12. For the avoidance of doubt, but without limitation of Article VIII
of the Stock Purchase Agreement, all obligations of Seller and Evode U.S.A.
under the Release, Settlement, and Guarantee Agreement dated June 14, 1995 and
the Guaranty Agreement dated April 5, 1984 referred to in item 2 under the
heading "Evode-Tanner Industries, Inc." on Schedule 2.1.15 of the Stock Purchase
Agreement shall be deemed to be guarantees of Seller and its Affiliates for
purposes of Section 4.16 of the Stock Purchase Agreement.
13. For the avoidance of doubt, a claim for indemnification made
pursuant to Article VIII of the Stock Purchase Agreement within the relevant
survival periods set forth in Section 8.1 (which, for purposes of Sections
8.2(i) and 8.3(i) will be the survival period of the representation and warranty
alleged to have been breached) that is not resolved at the expiration of such
survival period shall survive the expiration of such survival period until it is
resolved.
14. For the avoidance of doubt, Seller shall not be responsible for
monitoring costs associated with remediation of pollution at Evode's Greenville,
South Carolina site payable after the 5th anniversary of the Closing.
15. Prior to Closing, the employment of Thomas Stabitzski shall be
transferred from LCCNA to another Affiliate of Seller (that is not a Company).
Seller shall be responsible for all costs associated with such transfer of
employment.
16. All transactions occurring on the Closing Date (and all
instruments and agreements executed on the Closing Date) in respect of the
financing of the Purchase Price and obtaining title insurance on the Companies'
properties shall be deemed to have occurred (or been executed, as the case may
be) after the Closing and Sovereign L.P. and SSC shall indemnify and hold
harmless Seller Indemnitees from all Losses incurred by them in respect of or
arising from such transactions and actions.
17. Sovereign L.P. and SSC will cooperate with Seller in obtaining for
Seller a refund of amounts paid in respect of New York Stock Transfer Stamps
purchased in connection with the Closing.
18. Sovereign L.P. will cause the Companies to amend all of their
fictitious name filings as soon as practicable following the Closing to
eliminate all references to "Evode" and "Laporte", and will supply Seller and
confirmation that such filings have been made.
19. Section 9.2 of the Stock Purchase Agreement is hereby amended by
adding the following new paragraph (i) at the end thereof:
- 3 -
<PAGE> 4
"(i) Buyer agrees to, or to cause the Companies to, (i) adopt the
Healthcare Reimbursement and Dependent Care Reimbursement Accounts ("FSAs")
under the Laporte Flexible Benefit Plan as of Closing with respect to any
Continuing Employee, (ii) continue to maintain such FSAs through December 31,
1997, (iii) assume all liability for the reimbursement of claims incurred by
Continuing Employees in 1997 which are reimbursable under the FSAs but were not
reimbursed prior to Closing, and (iv) allow Continuing Employees to file claims
for reimbursement for such claims through a date which shall be no earlier than
March 31, 1998. On and after the Closing Date, Buyer shall be responsible for
all benefit claims under the FSAs which are incurred in calendar year 1997, and
Seller shall cease to have any liability for such benefits."
20. Section 9.2 of the Stock Purchase Agreement is hereby amended by
adding the following new paragraph (j) at the end thereof:
"(j) Buyer agrees to make a profit sharing contribution to Buyer's
Qualified Plan on behalf of Continuing Employees for the plan year of
Buyer's Qualified Plan which includes the Closing Date in an amount
not less than the amount accrued by the Companies for the 1997 profit
sharing and money purchase pension contributions and reflected in the
calculation of Closing Working Capital. Such amounts shall be
allocated to each Continuing Employee (whether or not still employed
by the Companies when the contribution is made) in proportion to such
employees compensation for 1997."
21. The provisions of Article X of the Stock Purchase Agreement will
apply to this Closing Agreement as if it were part of the Stock Purchase
Agreement.
IN WITNESS WHEREOF the parties have caused this Closing Agreement to
be duly executed as of the date and year first above written.
LAPORTE INC.
By: /s/ Thomas J. Riordan
----------------------------------
Thomas J. Riordan
Vice President
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<PAGE> 5
SOVEREIGN SPECIALTY CHEMICALS, L.P.
By: Sovereign Chemicals Corporation, its
general partner
By: /s/ Robert B. Covalt
Robert B. Covalt
Chairman, President and Chief
Executive Officer
SOVEREIGN SPECIALTY CHEMICALS, INC.
By: /s/ Robert B. Covalt
Robert B. Covalt
Chairman, President and Chief
Executive Officer
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<PAGE> 6
SCHEDULE I
1. Incorporation and Ownership of SSC. SSC is a corporation validly
existing and in good standing under the laws of the State of Delaware. All of
the outstanding capital and voting stock of SSC is owned of record and
beneficially by Sovereign L.P.
2. Power; Authorization; Consents.
(a) SSC has the corporate power and corporate authority to execute,
deliver and perform this Closing Agreement and the Stock Purchase Agreement and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Closing Agreement and the Stock Purchase
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly authorized and approved by the Board of Directors of SSC,
and neither any other corporate proceedings on the part of the SSC nor any
action by shareholders of SSC are necessary to authorize and approve this
Closing Agreement and the Stock Purchase Agreement and the transactions
contemplated hereby. This Closing Agreement has been duly executed and delivered
by SSC, and the other instruments and documents required or contemplated herein
to be executed and delivered by SSC at the Closing will be duly executed and so
delivered. This Closing Agreement and the Stock Purchase Agreement constitute,
and at the Closing each of such other instruments will constitute, a valid and
binding obligation of SSC, enforceable against SSC in accordance with their
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or similar laws
affecting creditors' rights generally or by the principles governing the
availability of equitable remedies.
(b) Except as otherwise set forth in Schedule 3.2 to the Stock
Purchase Agreement, the execution, delivery and performance of this Closing
Agreement and the Stock Purchase Agreement by SSC and the consummation of the
transactions contemplated hereby and thereby do not and will not:
(i) contravene any provisions of SSC's certificate of
incorporation or bylaws;
(ii) after notice or lapse of time or both) conflict with,
result in a breach of any provision of, constitute a default under, result in
the modification or cancellation of, or give rise to any right of termination in
respect of, any contract, agreement, commitment, understanding or arrangement of
any kind to which SSC or any Affiliate of SSC is a party or to which SSC or any
of SSC's property is subject, with such exceptions as would not in the aggregate
reasonably be expected to have a material adverse effect on SSC's ability to
consummate the transactions contemplated hereby and by the Stock Purchase
Agreement.
(iii) violate or conflict with any material Legal Requirements
applicable to SSC or any of it's business or property, except where such
violations or conflicts would not in
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<PAGE> 7
the aggregate reasonably be expected to have a material adverse effect on SSC's
ability to consummate the transactions contemplated hereby and by the Stock
Purchase Agreement; or
(iv) require any Government Filing on the part of SSC except
for filings under the HSR Act already made (and as to which the waiting period
has terminated).
3. Brokers. Neither SSC, nor any director, officer or employee
thereof, has employed any broker or finder or has incurred or will incur any
broker's, finder's or similar fees, commissions or expenses, in each case in
connection with the transactions contemplated by this Agreement and by the Stock
Purchase Agreement.
4. Investment Intent of SSC. SSC is receiving the Shares
delivered pursuant to the Stock Purchase Agreement for investment purposes for
its own account, and not with the view to or in connection with any distribution
thereof. SSC understands that the Shares may not be sold, assigned, offered for
sale, pledged or otherwise transferred unless such transaction is registered
under the Securities Act of 1933 and applicable state securities laws, or
exemptions from such registration requirements are available or such
requirements are not applicable.
5. Financing; Equity. SSC has sufficient funds and/or
commitments for any financing which may be necessary to enable SSC to complete
payment of the Purchase Price which commitments are in full force and effect. At
least $33,000,000 of the Purchase Price will be funded through cash capital
contributions to SSC through Sovereign L.P. by partners of Sovereign L.P.
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<PAGE> 1
Exhibit 10.18
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of January 5, 1998, by and between Sovereign
Specialty Chemicals, L.P., a Delaware limited partnership (the "Parent
Partnership"), Sovereign Chemicals Corporation, a Delaware corporation (the
"Company"), and the general partner of the Parent Partnership, and Lowell D.
Johnson ("Executive").
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company and the Parent Partnership shall employ
Executive, and Executive hereby accepts employment with the Company and the
Parent Partnership, upon the terms and conditions set forth in this Agreement
for the period beginning on the date hereof and ending as provided in paragraph
4 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the Chief
Financial Officer of the Company and the Parent Partnership and shall have the
normal duties, responsibilities and authority of the Chief Financial Officer,
subject to the power of the Chief Executive Officer (the "CEO") of the Company
and the Partnership and the Board of Directors of the Company (the "Board") to
expand or limit such executive duties, responsibilities and authority and to
override actions of the Chief Financial Officer. During the Employment Period,
Executive shall render such adminis trative, financial and other executive and
managerial services which are consistent with Executive's positions to the
Company, the Parent Partnership and their Subsidiaries as the CEO or the Board
may from time to time direct.
(b) Executive shall report to the CEO and the Board, and Executive
shall devote his best efforts and his full business time and attention (except
for permitted vacation periods and reasonable periods of illness or other
incapacity) to the business and affairs of the Company, the Parent Partnership
and their Subsidiaries. Executive shall perform his duties and responsibilities
to the best of his abilities in a diligent, trustworthy, businesslike and
efficient manner.
3. Base Salary and Benefits.
(a) During the Employment Period, the Parent Partnership shall pay to
Executive a base salary equal to $170,000 (the "Base
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<PAGE> 2
Salary"), subject to review by the CEO and the Board on an annual basis. The
Base Salary shall be payable in regular installments in accordance with the
Company's and the Parent Partnership's general payroll practices and shall be
subject to customary withholding. In addition, during the Employment Period,
Executive shall be entitled to participate in all of the Company's and the
Parent Partnership's employee benefit programs for which senior executive
employees of the Company and the Parent Partnership are generally eligible.
(b) The Company and the Parent Partnership shall reimburse Executive
for all reasonable expenses incurred by him in the course of performing his
duties under this Agreement which are consistent with the Company's policies in
effect from time to time with respect to travel, entertainment and other
business expenses, subject to the Company's and the Parent Partnership's
requirements with respect to reporting and documentation of such expenses.
(c) In addition to the Base Salary, Executive will be eligible to earn
a bonus (the "Bonus") of up to 60% of the Base Salary then in effect pursuant to
the Company's and the Parent Partnership's then existing bonus plan as adopted
by the Board from time to time. The Bonus with respect to each fiscal year
during the Employment Period shall be paid no later than the end of the first
fiscal quarter of the immediately following fiscal year.
(d) During the Employment Period, Executive shall be entitled to such
vacation time as the Company and the Parent Partnership customarily provide from
time to time to its senior executive employees (but in no event less than four
weeks per year), to be taken in accordance with the Company's and the Parent
Partnership's then current vacation policies.
(e) The Company and the Partnership shall reimburse Executive for all
reasonable expenses incurred by Executive resulting from his relocation to the
Chicago metropolitan area in connection with the commencement of his employment
with the Company and the Parent Partnership, including (i) any sales commissions
paid by Executive in connection with the sale of Executive's residence in
Holland, Ohio, (ii) all expenses associated with the physical movement of
Executive's family and Executive's possessions to the Chicago metropolitan area,
and (iii) the cost of temporary housing in the Chicago metropolitan area for a
period of time not to exceed three months. The payment of Executive's relocation
expenses pursuant to this paragraph (e) shall be subject to the Company and the
Parent Partnership receiving adequate documentation detailing such expenses and
shall in all events be subject to the Company's and the Parent Partnership's
approval.
4. Term.
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<PAGE> 3
(a) Except as otherwise provided in the following sentence, the
Employment Period shall end on the third anniversary of the date hereof;
provided that (i) the Employment Period shall terminate prior to such date upon
Executive's resignation, death or Disability and (ii) the Employment Period may
be terminated by the Company and the Parent Partnership at any time prior to
such date for Cause (as defined below) or without Cause. Executive shall notify
the Company and the Parent Partnership at least 90 days prior to the effective
date of Executive's resignation. The Employment Period shall be automatically
renewed and extended for successive one year terms beginning on the third
anniversary of the date hereof and on each anniversary date thereafter unless
the Company and the Parent Partnership or Executive receives within 60 days
prior to such anniversary date written notice of an election not to renew the
Employment Period as of such anniversary date.
(b) If the Employment Period is terminated as a result of a nonrenewal
pursuant to paragraph 4(a) above or by the Company and the Parent Partnership
without Cause or by Executive with Good Reason, Executive shall be entitled to
receive his Base Salary, payable in accordance with the Company's and the Parent
Partner ship's normal payroll practices, and to continue to participate in the
Company's and the Parent Partnership's health, insurance and disability plans
and programs during the one year period immediately following the termination of
the Employment Period (the "Severance Period"); provided that Executive shall be
entitled to receive such compensation and benefits during the Severance Period
if and only if Executive has complied with and continues to comply with the
provisions of paragraphs 5, 6 and 7 hereof. The amounts payable pursuant to this
paragraph 4(b) shall be reduced by the amount of any compensation Executive
earns with respect to any other employment during the Severance Period. Upon
reasonable request from time to time, Executive shall furnish the Company and
the Parent Partnership with a true and complete certificate specifying any such
compensation due to or received by him during the Severance Period.
(c) If the Employment Period is terminated by the Company and the
Parent Partnership for Cause or as a result of Executive's Disability, Executive
shall be entitled to receive the Base Salary through the date of termination and
accrued but unpaid vacation in accordance with the policy of the Company and the
Parent Partnership and to continue to participate in the Company's health,
insurance and disability plans and programs through the date of termination and
thereafter only to the extent permitted under the terms of such plans and
programs.
(d) If the Employment Period is terminated by the Company and the
Parent Partnership as a result of Executive's death, Executive (or Executive's
designated beneficiary) shall be
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<PAGE> 4
entitled to receive the Base Salary through the date of termination, a pro rata
portion of the Bonus (based on the number of days Executive was employed during
the applicable fiscal year), and accrued but unpaid vacation in accordance with
the policy of the Company and the Parent Partnership and to continue to
participate in the Company's health, insurance and disability plans and programs
through the date of termination and thereafter only to the extent permitted
under the terms of such plans and programs.
(e) Except as otherwise expressly provided herein, all of Executive's
rights to salary, employee benefits, fringe benefits and bonuses hereunder (if
any) which accrue after the termination of the Employment Period shall cease
upon such termination. The Company, the Parent Partnership and their
Subsidiaries may offset any loans, cash advances or fixed amounts which
Executive owes the Company, the Parent Partnership or their Subsidiaries against
any amounts it owes Executive.
5. Trade Secret Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
and the Parent Partnership concerning the business or affairs of the Company,
the Parent Partnership or any of their Subsidiaries which the Company, the
Parent Partnership or any such Subsidiary considers to be confidential and which
is proprietary to the Company, the Parent Partnership or any such Subsidiary
("Trade Secret Information") are the property of the Company, the Parent
Partnership or any such Subsidiary. Therefore, Executive agrees that he shall
not disclose to any unauthorized Person (except (i) to any entity which shall
succeed to the business of the Company, the Parent Partnership or any such
Subsidiary, (ii) as may be required in the regular course of business of the
Company, the Parent Partnership or any such Subsidiary or (iii) as required by
law) or use for his own purposes any Trade Secret Information without the prior
written consent of the Board, unless and to the extent that the aforementioned
matters become generally known to and available for use by the public or Persons
knowledgeable in the Company's industry other than as a result of Executive's
acts or omissions which constitute a breach hereof. Executive shall deliver to
the Company at the termination of the Employment Period, or at any other time
the Company may request, all memoranda, notes, plans, records, reports, computer
tapes, printouts and software and other documents and data (and copies thereof)
relating to the Trade Secret Information, Work Product (as defined below) or the
business of the Company, the Parent Partnership or any such Subsidiary which he
may then possess or have under his control.
6. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related
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<PAGE> 5
information (whether or not patentable) which (i) relate to the Company's, the
Parent Partnership's or any of their Subsidiaries' actual or anticipated
business, research and development or existing or future products or services or
(ii) result from any work performed by Executive for the Company, the Parent
Partnership and their Subsidiaries, and which are conceived, developed or made
by Executive while employed by the Company and the Parent Partnership ("Work
Product") belong to the Company, the Parent Partnership or such Subsidiaries;
provided that this Section of this Agreement regarding the Company's, the Parent
Partnership's and their Subsidiaries' ownership of Work Product does not apply
to any invention for which no equipment, supplies, facilities or trade secret
information of the Company, the Parent Partnership or any of their Subsidiaries
was used and which was developed entirely on Executive's own time, unless (i)
the invention relates to the business of the Company, the Parent Partnership or
any of their Subsidiaries or to the Company's, the Parent Partnership's or any
of their Subsidiaries' actual or demonstrably anticipated research or
development or (ii) the invention results from any work performed by Executive
for the Company, the Parent Partnership or any of their Subsidiaries. Executive
shall promptly disclose such Work Product to the Board and perform all actions
reasonably requested by the Board (whether during or after the Employment
Period) to establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder and his exposure to or involvement in the Trade Secret
Information, Executive acknowledges that in the course of his employment with
the Company and the Parent Partnership, he shall become familiar with trade
secrets and other Trade Secret Information concerning the Company, the Parent
Partnership and their Subsidiaries and that his services have been and shall be
of special, unique and extraordinary value to the Company, the Parent
Partnership and their Subsidiaries. Therefore, Executive agrees that, during the
Employment Period and for two years thereafter (the "Noncompete Period"), he
shall not directly or indirectly own any interest in, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business competing with the businesses of the Company, the Parent
Partnership or their Subsidiaries, as such businesses exist or are in process on
the date of the termination of Executive's employment, within any states or
geographical regions in which the Company, the Parent Partnership or their
Subsidiaries engage or plan to engage in such businesses on the date of the
termination of Executive's employment; provided that nothing herein shall
prohibit Executive from being a passive owner of not more than 2%
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<PAGE> 6
of the outstanding stock of any class of a corporation which is publicly traded,
so long as Executive has no active participation in the business of such
corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company, the Parent Partnership or any of their Subsidiaries to leave the
employ of the Company, the Parent Partnership or such Subsidiaries, or in any
way interfere with the relationship between the Company, the Parent Partnership
or any of their Subsidiaries and any employee thereof, (ii) hire any person who
was a management employee of the Company, the Parent Partnership or any of their
Subsidiaries at any time during the one year period prior to the termination of
the Employment Period or (iii) induce or attempt to induce any customer,
supplier, licensee, licensor, franchisee or other business relation of the
Company, the Parent Partnership or any of their Subsidiaries to cease doing
business with the Company, the Parent Partnership or such Subsidiaries, or in
any way materially interfere with the relationship between any such customer,
supplier, licensee or business relation and the Company, the Parent Partnership
or any of their Subsidiaries (including, without limitation, making any negative
statements or communications about the Company, the Parent Partnership or their
Subsidiaries).
(c) If, at the time of enforcement of this paragraph 7, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law. Executive agrees that the restrictions
contained in this paragraph 7 are reasonable.
(d) In the event of any breach or threatened breach by Executive of
any of the provisions of this paragraph 7, the Company, the Parent Partnership
and their Subsidiaries, in addition and supplementary to other rights and
remedies existing in its favor, may apply to any court of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce
or prevent any violations of the provisions hereof (without posting a bond or
other security). In addition, in the event of an alleged breach or violation by
Executive of this paragraph 7, the Noncompete Period shall be tolled until such
breach or violation has been duly cured.
8. Executive's Representations. Executive hereby represents and
warrants to the Company and the Parent Partnership that (i) the execution,
delivery and performance by Executive of
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<PAGE> 7
this Agreement, the Investors Agreement and all other agreements contemplated
hereby and thereby to which Executive is a party do not and shall not conflict
with, breach, violate or cause a default under any contract, agreement,
instrument, order, judgment or decree to which Executive is a party or by which
he is bound, (ii) Executive is not a party to or bound by any employment
agreement, noncompete agreement or confidentiality agreement with any other
person or entity (or if a party to such an agreement, Executive has disclosed
the material terms thereof to the Board prior to the execution hereof and
promptly after the date hereof shall deliver a copy of such agreement to the
Board), and (iii) upon the execution and delivery of this Agreement by the
Company and the Parent Partnership, this Agreement shall be the valid and
binding obligation of Executive, enforceable in accordance with its terms.
Executive hereby acknowledges and represents that (i) he has consulted with
independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein and (ii) subject to change by the Board at any time, the Company's and
the Parent Partnership's headquarters are in, and substantially all of the
services to be performed by Executive for the Company, the Parent Partnership
and their Subsidiaries shall be performed in, the State of Illinois.
9. Definitions.
"Cause" means (i) the commission of a felony or a crime involving
moral turpitude or the commission of any other act or omission involving
dishonesty, disloyalty or fraud with respect to the Company, the Parent
Partnership or any of their Subsidiaries, (ii) conduct which brings the Company,
the Parent Partnership or any of their Subsidiaries into substantial public
disgrace or disrepute (including abuse of drugs or alcohol), (iii) substantial
and repeated failure to perform duties as reasonably directed by the Board, (iv)
gross negligence or willful misconduct with respect to the Company, the Parent
Partnership or any of their Subsidiaries, (v) any other material breach of this
Agreement which is not cured within 15 days after written notice thereof to
Executive; provided that a termination of Executive's employment by the Company
and the Parent Partnership shall not be deemed a termination for Cause unless
and until there shall have been delivered to Executive a copy of a resolution
duly adopted by the affirmative vote of not less than a majority of the entire
membership of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to and an opportunity for Executive to be heard
before the Board) finding that in the good faith opinion of the Board, Executive
was guilty of the conduct set forth in any one or more of such clauses.
"Common Units" has the meaning set forth in the Partnership Agreement.
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<PAGE> 8
"Disability" means Executive's inability, because of injury, illness
or other incapacity to perform the services to the Company, the Parent
Partnership or their Subsidiaries contemplated hereby (as determined by the
Board in its good faith judgment) for a continuous period of 90 days or for 120
days out of a continuous period of 360 days. Such Disability shall be deemed to
have occurred on the 90th consecutive day or the 120th day within the specified
period, as applicable.
"First Chicago Investors" has the meaning set forth in the Investors
Agreement.
"Good Reason" means (i) a Qualified Sale of the Parent Partnership (as
defined in the Investors Agreement), (ii) a Qualified Sale of the Company (as
defined in the Investors Agreement), (iii) the time at which the First Chicago
Investors and their Permitted Transferees own less than 20% of the outstanding
Common Units, (iv) the removal without Cause of Executive as the Chief Financial
Officer of the Company or the Parent Partnership, or its imposition upon him of
substantial additional or different duties which are inconsistent with such
position, (v) either the reduction of Executive's salary or a material reduction
of other benefits under any employee benefit plan, program or arrangement of the
Company and the Parent Partnership (other than a change that affects all senior
executives of the Company and the Parent Partnership) from the level in effect
upon Executive's commencement of participation therein or (vi) the relocation of
the executive offices of the Company or the Parent Partnership from the Chicago,
Illinois metropolitan area.
"Investors Agreement" means that certain Investors Agreement, dated as
of the date hereof, by and among the Parent Partnership, the Company and certain
partners and stockholders thereof, as amended or modified from time to time.
"Partnership Agreement" means that certain Agreement of Limited
Partnership of Sovereign Specialty Chemicals, L.P., dated as of March 31, 1996,
by and among the Company, as general partner, and the limited partners listed on
Schedule I attached thereto, as amended and modified from time to time.
"Permitted Transferees" has the meaning set forth in the Investors
Agreement.
"Subsidiaries" means, with respect to any person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
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<PAGE> 9
controlled, directly or indirectly, by such person or entity or one or more of
the other Subsidiaries of such person or entity or a combination thereof, or
(ii) if a limited liability company, partnership, association or other business
entity, a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by any
person or entity or one or more Subsidiaries of such person or entity or a
combination thereof. For purposes hereof, a person or persons shall be deemed to
have a majority ownership interest in a limited liability company, partnership,
association or other business entity if such person or persons shall be
allocated a majority of limited liability company, partnership, association or
other business entity gains or losses or shall be or control any managing
director or general partner of such limited liability company, partnership,
association or other business entity.
10. Survival. Paragraphs 4 through 18 shall survive and continue in
full force in accordance with their terms notwithstanding any termination of the
Employment Period.
11. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, sent by first class mail,
return receipt requested, or sent by reputable overnight courier service
(charges prepaid) to the recipient at the address indicated below:
Notices to Executive:
Lowell D. Johnson
749 Lost Lakes Drive
Holland, Ohio 43528
with copies to:
Notices to the Company and the Parent Partnership:
Sovereign Chemicals Corporation
Suite 2200
225 West Washington Street
Chicago, Illinois 60606
Attn: Chief Executive Officer
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<PAGE> 10
with copies to:
First Capital Corporation of Chicago
Three First National Plaza, Suite 1210
Chicago, IL 60670
Attn: Carol E. Bramson
and
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attn: Edward T. Swan
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or, if mailed, three days after deposit in the U.S. mail and one day after
deposit with a reputable overnight courier service.
12. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Complete Agreement. This Agreement embodies the complete agreement
and understanding among the parties and supersedes and preempts any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way.
14. No Strict Construction. The language used in this Agreement shall
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
16. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Execu-
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<PAGE> 11
tive, the Company, the Parent Partnership and their respective heirs,
successors and assigns, except that Executive may not assign his rights or
delegate his obligations hereunder without the prior written consent of the
Company and the Parent Partnership.
17. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by, and construed in accordance with, the laws of the State of
Illinois, without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of Illinois or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of Illinois.
18. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company, the Parent
Partnership and Executive, and no course of conduct or failure or delay in
enforcing the provisions of this Agreement shall affect the validity, binding
effect or enforceability of this Agreement.
* * * *
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
SOVEREIGN CHEMICALS CORPORATION
By /s/ Robert B. Covalt
-------------------------------------
Robert B. Covalt
Its: Chief Executive Officer
SOVEREIGN SPECIALTY CHEMICALS, L.P.
By Sovereign Chemicals Corporation
Its General Partner
By /s/ Robert B. Covalt
-------------------------------------
Robert B. Covalt
Its: Chief Executive Officer
/s/ Lowell D. Johnson
-----------------------------------------
LOWELL D. JOHNSON
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<PAGE> 1
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of February 16, 1998, by and between
Pierce & Stevens Corp., a New York corporation (the "Company"), and Michael J.
Prude ("Executive").
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Employment. The Company shall employ Executive, and
Executive hereby accepts employment with the Company, upon the terms and
conditions set forth in this Agreement for the period beginning on the date
hereof and ending as provided in paragraph 4 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as
the President of the Company and shall have the normal duties, responsibilities
and authority of the President, subject to the power of the Board of Directors
of the Company (the "Board") to expand or limit such executive duties,
responsibilities and authority and to override actions of the President. During
the Employment Period, Executive shall render such administrative, financial and
other executive and managerial services which are consistent with Executive's
position to the Company and its Subsidiaries as the Board may from time to time
direct.
(b) Executive shall report to the Board, and Executive shall
devote his best efforts and his full business time and attention (except for
permitted vacation periods and reasonable periods of illness or other
incapacity) to the business and affairs of the Company and its Subsidiaries.
Executive shall perform his duties and responsibilities to the best of his
abilities in a diligent, trustworthy, businesslike and efficient manner.
3. Base Salary and Benefits.
(a) During the Employment Period, the Parent Partnership
shall pay to Executive a base salary equal to $150,000 (the "Base Salary"),
subject to review by the Board on an annual basis. The Base Salary shall be
payable in regular installments in accordance with the Company's general payroll
practices and shall be subject to customary withholding. In addition, during the
Employment Period, Executive shall be entitled to participate in all of the
Company's employee benefit programs for which senior executive employees of the
Company are generally eligible.
(b) The Company shall reimburse Executive for all reasonable
expenses incurred by him in the course of performing his duties under this
Agreement which are consistent with the Company's policies in effect from time
to time with respect to travel, entertainment and other business expenses
(including fuel, insurance and maintenance for the automobile referenced in (e)
<PAGE> 2
below), subject to the Company's requirements with respect to reporting and
documentation of such expenses.
(c) In addition to the Base Salary, Executive will be
eligible to earn an annual bonus (the "Bonus") of up to 35% of the Base Salary
then in effect pursuant to the Company's then existing bonus plan as adopted by
the Board from time to time. The Bonus with respect to each fiscal year during
the Employment Period shall be paid no later than the end of the first fiscal
quarter of the immediately following fiscal year.
(d) During the Employment Period, Executive shall be entitled
to such vacation time as the Company customarily provide from time to time to
its senior executive employees (but in no event less than four weeks per year),
to be taken in accordance with the Company's then current vacation policies.
(e) During the Employment Agreement, Executive shall be
entitled to receive an automobile allowance of $1,024.25 per month (as adjusted
to give effect to any variances in the lease cost) to cover the existing lease
cost for a BMW 528 or equivalent automobile.
4. Term.
(a) Except as otherwise provided in the following sentence,
the Employment Period shall end on the third anniversary of the date hereof;
provided that (i) the Employment Period shall terminate prior to such date upon
Executive's resignation, death or Disability and (ii) the Employment Period may
be terminated by the Company at any time prior to such date for Cause (as
defined below) or without Cause. Executive shall notify the Company at least 90
days prior to the effective date of Executive's resignation. The Employment
Period shall be automatically renewed and extended for successive one year terms
beginning on the third anniversary of the date hereof and on each anniversary
date thereafter unless the Company or Executive receives within 60 days prior to
such anniversary date written notice of an election not to renew the Employment
Period as of such anniversary date.
(b) If the Employment Period is terminated as a result of a
nonrenewal pursuant to paragraph 4(a) above or by the Company without Cause or
by Executive with Good Reason, Executive shall be entitled to receive his Base
Salary, payable in accordance with the Company's normal payroll practices, and
to continue to participate in the Company's health, insurance and disability
plans and programs during the one-year period immediately following the
termination of the Employment Period (the "Severance Period"); provided that
Executive shall be entitled to receive such compensation and benefits during the
Severance Period if and only if Executive has complied with and continues to
comply with the provisions of paragraphs 5, 6 and 7 hereof. The amounts payable
pursuant to this paragraph 4(b) shall be reduced by the amount of any
compensation or benefits Executive earns with respect to any other employment
during the Severance Period. Upon reasonable request from time to time,
Executive shall furnish the Company
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<PAGE> 3
with a true and complete certificate specifying any such compensation due to or
received by him during the Severance Period.
(c) If the Employment Period is terminated by the Company
for Cause or as a result of Executive's Disability or by Executive without Good
Reason, Executive shall be entitled to receive the Base Salary through the date
of termination and accrued but unpaid vacation in accordance with the policy of
the Company and to continue to participate in the Company's health, insurance
and disability plans and programs through the date of termination and thereafter
only to the extent permitted under the terms of such plans and programs.
(d) If the Employment Period is terminated by the Company
and the Parent Partnership as a result of Executive's death, Executive (or
Executive's designated beneficiary) shall be entitled to receive the Base Salary
through the date of termination, a pro rata portion of the Bonus (based on the
number of days Executive was employed during the applicable fiscal year), and
accrued but unpaid vacation in accordance with the policy of the Company and to
continue to participate in the Company's health, insurance and disability plans
and programs through the date of termination and thereafter only to the extent
permitted under the terms of such plans and programs.
(e) Except as otherwise expressly provided herein, all of
Executive's rights to salary, employee benefits, fringe benefits and bonuses
hereunder (if any) which accrue after the termination of the Employment Period
shall cease upon such termination. The Company and its Subsidiaries may offset
any loans, cash advances or fixed amounts which Executive owes the Company or
its Subsidiaries against any amounts it owes Executive.
5. Trade Secret Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
concerning the business or affairs of the Company or any of its Subsidiaries or
Affiliates which the Company or any such Subsidiary or Affiliate considers to be
confidential and which is proprietary to the Company or any such Subsidiary or
Affiliate ("Trade Secret Information") are the property of the Company or any
such Subsidiary or Affiliate. Therefore, Executive agrees that he shall not
disclose to any unauthorized Person (except (i) to any entity which shall
succeed to the business of the Company or any such Subsidiary or Affiliate, (ii)
as may be required in the regular course of business of the Company or any such
Subsidiary or Affiliate or (iii) as required by law) or use for his own purposes
any Trade Secret Information without the prior written consent of the Board,
unless and to the extent that the aforementioned matters become generally known
to and available for use by the public or Persons knowledgeable in the Company's
industry other than as a result of Executive's acts or omissions which
constitute a breach hereof. Executive shall deliver to the Company at the
termination of the Employment Period, or at any other time the Company may
request, all memoranda, notes, plans, records, reports, computer tapes,
printouts and software and other documents and data (and copies thereof)
relating to the Trade Secret Information, Work Product (as
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<PAGE> 4
defined below) or the business of the Company or any such Subsidiary or
Affiliate which he may then possess or have under his control.
6. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which (i) relate to the Company's or any of its Subsidiaries' or
Affiliates' actual or anticipated business, research and development or existing
or future products or services or (ii) result from any work performed by
Executive for the Company and its Subsidiaries and Affiliates, and which are
conceived, developed or made by Executive while employed by the Company ("Work
Product") belong to the Company or such Subsidiaries or Affiliate; provided that
this Section 6 of this Agreement regarding the Company's and its Subsidiaries'
and Affiliates' ownership of Work Product does not apply to any invention for
which no equipment, supplies, facilities or trade secret information of the
Company or any of its Subsidiaries or Affiliates was used and which was
developed entirely on Executive's own time, unless (i) the invention relates to
the business of the Company or any of its Subsidiaries or Affiliates or to the
Company's or any of its Subsidiaries' or Affiliate' actual or demonstrably
anticipated research or development or (ii) the invention results from any work
performed by Executive for the Company or any of its Subsidiaries or Affiliates.
Executive shall promptly disclose such Work Product to the Board and perform all
actions reasonably requested by the Board (whether during or after the
Employment Period) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid
to Executive hereunder and his exposure to or involvement in the Trade Secret
Information, Executive acknowledges that in the course of his employment with
the Company, he shall become familiar with trade secrets and other Trade Secret
Information concerning the Company and its Subsidiaries and Affiliated and that
his services have been and shall be of special, unique and extraordinary value
to the Company and its Subsidiaries and Affiliates. Therefore, Executive agrees
that, during the Employment Period and for two years thereafter (the "Noncompete
Period"), he shall not directly or indirectly own any interest in, manage,
control, participate in, consult with, render services for, or in any manner
engage in any business competing with the businesses of the Company or its
Subsidiaries or Affiliates, as such businesses exist or are in process on the
date of the termination of Executive's employment, within any states or
geographical regions in which the Company or its Subsidiaries or Affiliates
engage or plan to engage in such businesses on the date of the termination of
Executive's employment; provided that nothing herein shall prohibit Executive
from being a passive owner of not more than 2% of the outstanding stock of any
class of a corporation which is publicly traded, so long as Executive has no
active participation in the business of such corporation.
(b) During the Noncompete Period, Executive shall not
directly or indirectly through another entity (i) induce or attempt to induce
any employee of the Company or any of its
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<PAGE> 5
Subsidiaries or Affiliates to leave the employ of the Company or such
Subsidiaries or Affiliates, or in any way interfere with the relationship
between the Company or any of its Subsidiaries or Affiliates and any employee
thereof, (ii) hire any person who was a management employee of the Company or
any of its Subsidiaries or Affiliates at any time during the one-year period
prior to the termination of the Employment Period or (iii) induce or attempt to
induce any customer, supplier, licensee, licensor, franchisee or other business
relation of the Company or any of its Subsidiaries or Affiliates to cease doing
business with the Company or such Subsidiaries or Affiliates, or in any way
materially interfere with the relationship between any such customer, supplier,
licensee or business relation and the Company or any of its Subsidiaries or
Affiliates (including, without limitation, making any negative statements or
communications about the Company or its Subsidiaries or Affiliates).
(c) If, at the time of enforcement of this paragraph 7, a
court shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law. Executive agrees that the restrictions
contained in this paragraph 7 are reasonable.
(d) In the event of any breach or threatened breach by
Executive of any of the provisions of this paragraph 7, the Company and its
Subsidiaries, in addition and supplementary to other rights and remedies
existing in its favor, may apply to any court of competent jurisdiction for
specific performance and/or injunctive or other relief in order to enforce or
prevent any violations of the provisions hereof (without posting a bond or other
security). In addition, in the event of an alleged breach or violation by
Executive of this paragraph 7, the Noncompete Period shall be tolled until such
breach or violation has been duly cured.
8. Executive's Representations. Executive hereby represents
and warrants to the Company that (i) the execution, delivery and performance by
Executive of this Agreement and all other agreements contemplated hereby and
thereby to which Executive is a party do not and shall not conflict with,
breach, violate or cause a default under any contract, agreement, instrument,
order, judgment or decree to which Executive is a party or by which he is bound,
(ii) Executive is not a party to or bound by any employment agreement,
noncompete agreement or confidentiality agreement with any other person or
entity (or if a party to such an agreement, Executive has disclosed the material
terms thereof to the Board prior to the execution hereof and promptly after the
date hereof shall deliver a copy of such agreement to the Board), and (iii) upon
the execution and delivery of this Agreement by the Company, this Agreement
shall be the valid and binding obligation of Executive, enforceable in
accordance with its terms. Executive hereby acknowledges and represents that (i)
he has consulted with independent legal counsel regarding his rights and
obligations under this Agreement and that he fully understands the terms and
conditions contained herein and (ii) subject to change by the Board at any time,
the Company's headquarters are in, and
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<PAGE> 6
substantially all of the services to be performed by Executive for the Company
and its Subsidiaries shall be performed in, the State of New York.
9. Definitions.
"Affiliate" means Sovereign Specialty Chemicals, Inc. and each
of its Subsidiaries.
"Cause" means (i) the commission of a felony or a crime
involving moral turpitude or the commission of any other act or omission
involving dishonesty, disloyalty or fraud with respect to the Company or any of
its Subsidiaries or Affiliates, (ii) conduct which brings the Company or any of
its Subsidiaries or Affiliates into substantial public disgrace or disrepute
(including abuse of drugs or alcohol), (iii) substantial and repeated failure to
perform duties as reasonably directed by the Board, (iv) gross negligence or
willful misconduct with respect to the Company or any of its Subsidiaries or
Affiliates, (v) any other material breach of this Agreement which is not cured
within 15 days after written notice thereof to Executive; provided that a
termination of Executive's employment by the Company shall not be deemed a
termination for Cause unless and until there shall have been delivered to
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board at a meeting of the
Board called and held for that purpose (after reasonable notice to and an
opportunity for Executive to be heard before the Board) finding that in the good
faith opinion of the Board, Executive was guilty of the conduct set forth in any
one or more of such clauses.
"Disability" means Executive's inability, because of injury,
illness or other incapacity to perform the services to the Company or its
Subsidiaries contemplated hereby (as determined by the Board in its good faith
judgment) for a continuous period of 90 days or for 120 days out of a continuous
period of 360 days. Such Disability shall be deemed to have occurred on the 90th
consecutive day or the 120th day within the specified period, as applicable.
"Good Reason" means (i) the removal without Cause of Executive
as the President of the Company or its imposition upon him of substantial
additional or different duties which are inconsistent with such position, (ii)
either the reduction of Executive's salary or a material reduction of other
benefits under any employee benefit plan, program or arrangement of the Company
(other than a change that affects all senior executives of the Company) from the
level in effect upon Executive's commencement of participation therein or (iii)
the relocation of the executive offices of the Company from the Albany, New York
metropolitan area.
"Subsidiaries" means, with respect to any person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such person or
entity or one or more of the other Subsidiaries of such person or entity or a
combination thereof, or (ii) if a limited liability company, partnership,
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<PAGE> 7
association or other business entity, a majority of the partnership or other
similar ownership interest thereof is at the time owned or controlled, directly
or indirectly, by any person or entity or one or more Subsidiaries of such
person or entity or a combination thereof. For purposes hereof, a person or
persons shall be deemed to have a majority ownership interest in a limited
liability company, partnership, association or other business entity if such
person or persons shall be allocated a majority of limited liability company,
partnership, association or other business entity gains or losses or shall be
or control any managing director or general partner of such limited liability
company, partnership, association or other business entity.
10. Survival. Paragraphs 4 through 18 shall survive and
continue in full force in accordance with their terms notwithstanding any
termination of the Employment Period.
11. Notices. Any notice provided for in this Agreement must
be in writing and must be either personally delivered, sent by first class mail,
return receipt requested, or sent by reputable overnight courier service
(charges prepaid) to the recipient at the address indicated below:
Notices to Executive:
Michael J. Prude
710 Ohio Street
Buffalo, NY 14203
Notices to the Company and the Parent Partnership:
Pierce & Stevens Corp.
c/o Sovereign Specialty Chemicals, Inc.
Suite 2200
225 West Washington Street
Chicago, Illinois 60606
Attn: Chief Executive Officer
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<PAGE> 8
with copies to:
First Capital Corporation of Chicago
Three First National Plaza, Suite 1210
Chicago, IL 60670
Attn: Carol E. Bramson
and
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attn: Edward T. Swan
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or, if mailed, three days after deposit in the U.S. mail and one day after
deposit with a reputable overnight courier service.
12. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way
(including the Employment Agreement, dated as of August 5, 1997, between
Executive and Tanner Chemicals, Inc.).
14. No Strict Construction. The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction shall be applied
against any party.
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
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<PAGE> 9
16. Successors and Assigns. This Agreement is intended to
bind and inure to the benefit of and be enforceable by Executive, the Company
and their respective heirs, successors and assigns, except that Executive may
not assign his rights or delegate his obligations hereunder without the prior
written consent of the Company.
17. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by, and construed in accordance with, the laws of the State of New
York, without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of New York or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of New York.
18. Amendment and Waiver. The provisions of this Agreement
may be amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
* * * *
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
PIERCE & STEVENS CORP.
By
-----------------------------------------
Robert B. Covalt
Its: Chairman
--------------------------------------------
MICHAEL J. PRUDE
<PAGE> 1
EXHIBIT 10.20
STOCK PURCHASE AGREEMENT
BY AND AMONG
BURKE INDUSTRIES, INC.,
("BUYER")
MERCER PRODUCTS COMPANY, INC.
("MERCER")
AND
SOVEREIGN SPECIALTY CHEMICALS, INC.
("SELLER")
DATED AS OF MARCH 5, 1998
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Purchase and Sale of the Mercer Shares . . . . . . . . . . . . . . 6
(a) Basic Transaction . . . . . . . . . . . . . . . . . . . . . . 6
(b) Purchase Price . . . . . . . . . . . . . . . . . . . . . . . 6
(c) Working Capital Adjustment. . . . . . . . . . . . . . . . . . 6
(d) The Closing . . . . . . . . . . . . . . . . . . . . . . . . . 6
(e) Deliveries at the Closing . . . . . . . . . . . . . . . . . . 6
(f) Closing Review. . . . . . . . . . . . . . . . . . . . . . . . 7
(g) Post-Closing Purchase Price Adjustment. . . . . . . . . . . . 7
3. Representations and Warranties Concerning the Transaction . . . . . 8
(a) Representations and Warranties of Seller. . . . . . . . . . . 8
(i) Organization of the Seller . . . . . . . . . . . . . . . 8
(ii) Authorization of Transaction. . . . . . . . . . . . . . 8
(iii) Noncontravention . . . . . . . . . . . . . . . . . . . 8
(iv) Broker's Fees . . . . . . . . . . . . . . . . . . . . . 8
(v) Mercer Shares. . . . . . . . . . . . . . . . . . . . . . 9
(b) Representations and Warranties of the Buyer . . . . . . . . . 9
(i) Organization of the Buyer. . . . . . . . . . . . . . . . 9
(ii) Authorization of Transaction. . . . . . . . . . . . . . 9
(iii) Noncontravention . . . . . . . . . . . . . . . . . . . 9
(iv) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . 10
(v) Investment . . . . . . . . . . . . . . . . . . . . . . . 10
4. Representations and Warranties Concerning Mercer. . . . . . . . . . 10
(a) Organization, Qualification and Corporate Power . . . . . . . 10
(b) Capitalization . . . . . . . . . . . . . . . . . . . . . . . 10
(c) Noncontravention. . . . . . . . . . . . . . . . . . . . . . . 11
(d) Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 11
(e) Financial Statements. . . . . . . . . . . . . . . . . . . . . 11
(f) Events Subsequent to the Most Recent Financial Statements . . 11
(g) Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . 13
(h) Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . 13
(i) Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . 14
(j) Real Property . . . . . . . . . . . . . . . . . . . . . . . . 15
(k) Intellectual Property . . . . . . . . . . . . . . . . . . . . 15
(l) Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . 16
(m) Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(n) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(o) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C>
(p) Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(q) Employee Benefits . . . . . . . . . . . . . . . . . . . . . . 18
(r) Environment, Health and Safety. . . . . . . . . . . . . . . . 19
(s) Legal Compliance. . . . . . . . . . . . . . . . . . . . . . . 20
(t) Certain Business Relationships with Mercer. . . . . . . . . . 21
(u) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . 21
(v) Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . 21
(w) Accounts Receivable . . . . . . . . . . . . . . . . . . . . . 21
(x) Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(y) Customers and Suppliers . . . . . . . . . . . . . . . . . . . 21
(z) Certain Business Practices. . . . . . . . . . . . . . . . . . 22
5. Pre-Closing Covenants . . . . . . . . . . . . . . . . . . . . . . . 22
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) Notices and Consents. . . . . . . . . . . . . . . . . . . . . 22
(c) Operation of Business . . . . . . . . . . . . . . . . . . . . 22
(d) Preservation of Business. . . . . . . . . . . . . . . . . . . 23
(e) Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(f) Notice of Developments. . . . . . . . . . . . . . . . . . . . 23
(g) Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . 23
(h) HSR Act Filing. . . . . . . . . . . . . . . . . . . . . . . . 23
(i) Plant Closing Notification. . . . . . . . . . . . . . . . . . 24
(j) Intercompany Items. . . . . . . . . . . . . . . . . . . . . . 24
(k) 1996 Audit. . . . . . . . . . . . . . . . . . . . . . . . . . 24
(l) Transitional Services . . . . . . . . . . . . . . . . . . . . 24
6. Additional Covenants. . . . . . . . . . . . . . . . . . . . . . . . 25
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(b) Litigation Support. . . . . . . . . . . . . . . . . . . . . . 25
(c) Transition. . . . . . . . . . . . . . . . . . . . . . . . . . 25
(d) Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 25
(e) Additional Tax Matters. . . . . . . . . . . . . . . . . . . . 26
(f) Covenant Not to Compete . . . . . . . . . . . . . . . . . . . 28
(g) Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . 28
(i) Pension Benefits Provided by the Seller. . . . . . . . . 28
(ii) Welfare Benefits Provided by the Seller . . . . . . . . 29
(iii) Back Service Credit. . . . . . . . . . . . . . . . . . 29
(h) Disability Workers' Compensation. . . . . . . . . . . . . . . 29
(i) Severance Policy. . . . . . . . . . . . . . . . . . . . . . . 29
(j) Collective Bargaining Agreement . . . . . . . . . . . . . . . 30
7. Conditions to Obligations to Closing. . . . . . . . . . . . . . . . 30
(a) Conditions to Obligation of the Buyer . . . . . . . . . . . . 30
(b) Conditions to Obligations of the Seller . . . . . . . . . . . 31
8. Remedies for Breach of This Agreement . . . . . . . . . . . . . . . 32
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
<S> <C>
(a) Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(b) Indemnification Provisions for Benefit of the Buyer . . . . . 33
(c) Indemnification Provisions for Benefit of the Seller. . . . . 34
(d) Matters Involving Third Parties . . . . . . . . . . . . . . . 35
(e) Determination of Loss . . . . . . . . . . . . . . . . . . . . 36
(f) Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . 36
(g) Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(h) Reservation and Nonwaiver of Rights and Remedies. . . . . . . 36
(i) Arbitration with Respect to Certain Indemnification Matters . 36
(j) Adjustment to Purchase Price. . . . . . . . . . . . . . . . . 37
9. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(a) Termination of Agreement. . . . . . . . . . . . . . . . . . . 37
(b) Effect of Termination . . . . . . . . . . . . . . . . . . . . 38
10. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(a) Press Releases and Announcements. . . . . . . . . . . . . . . 38
(b) No Third-Party Beneficiaries. . . . . . . . . . . . . . . . . 38
(c) Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . 38
(d) Succession and Assignment . . . . . . . . . . . . . . . . . . 38
(e) Facsimile/Counterparts. . . . . . . . . . . . . . . . . . . . 38
(f) Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(g) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(h) Submission to Jurisdiction. . . . . . . . . . . . . . . . . . 40
(i) Amendments and Waivers. . . . . . . . . . . . . . . . . . . . 41
(j) Severability. . . . . . . . . . . . . . . . . . . . . . . . . 41
(k) Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(1) Construction. . . . . . . . . . . . . . . . . . . . . . . . . 41
(m) Incorporation of Exhibits, Annexes and Schedules. . . . . . . 42
(n) Specific Performance. . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
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<PAGE> 5
LIST OF EXHIBITS, ANNEXES AND SCHEDULES
EXHIBITS
Exhibit A Financial Statements
Exhibit B Form of Opinion of Buyer's Legal Counsel
Exhibit C Form of Opinion of Seller's Legal Counsel
ANNEXES
Annex I List of Stay-on Bonuses
SCHEDULES
Disclosure Schedule
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<PAGE> 6
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "AGREEMENT") is entered into as of the
5th day of March, 1998, by and among BURKE INDUSTRIES, INC., a California
corporation (the "BUYER"), MERCER PRODUCTS COMPANY, INC., a New Jersey
corporation ("MERCER"), and SOVEREIGN SPECIALTY CHEMICALS, INC., a Delaware
corporation (the "SELLER"). The Buyer and the Seller are referred to herein
individually as a "PARTY" and collectively as the "PARTIES."
RECITALS
WHEREAS, the Seller owns all of the outstanding capital stock of Mercer;
and,
WHEREAS, this Agreement contemplates a transaction in which the Buyer will
purchase from the Seller, and the Seller will sell to the Buyer, all of the
outstanding capital stock of Mercer.
AGREEMENT
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows:
1. DEFINITIONS.
"ADVERSE CONSEQUENCES" means all actual damages from complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, damages, dues, penalties, fines,
costs, amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, expenses and fees, including all reasonable attorneys' fees and court
costs.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act or transaction that forms the basis for any specified
consequence.
"BUSINESS" means the business of manufacturing extruded PVC into flooring
profiles sold to the construction industry.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day in
which commercial banks in the State of New York are authorized by law to close.
"BUYER" has the meaning set forth in the preface above.
"CLOSING" has the meaning set forth in SECTION 2(d) below.
<PAGE> 7
"CLOSING DATE" has the meaning set forth in SECTION 2(d) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means all confidential information and trade
secrets of Mercer including, without limitation, the identity, lists or
descriptions of any customers, referral sources or organizations, Financial
Statements, cost reports or other Financial Information, contract proposals, or
bidding information, business plans and training and operations methods and
manuals, personnel records, fee structure and management systems, policies or
procedures, including related forms and manuals.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code Sec.
1563.
"CURRENT EMPLOYEES" has the meaning set forth in SECTION 4(p)(i) below.
"DISCLOSURE SCHEDULE" has the meaning set forth in SECTION 4 below.
"DOJ" means the Antitrust Division of the United States Department of
Justice or any successor Governmental Body.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan,
(b) qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan) or (d) Employee Welfare Benefit Plan or Material fringe
benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA Sec.
3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA Sec.
3(1).
"EQUITABLE EXCEPTIONS" has the meaning set forth in SECTION 3(a)(i) below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in Sec. 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"FIDUCIARY" has the meaning set forth in ERISA Sec. 3(21).
"FINANCIAL STATEMENTS" has the meaning set forth in SECTION 4(e) below.
"FTC" means the United States Federal Trade Commission or any successor
Governmental Body.
"GAAP" means generally accepted accounting principles as in effect from
time to time.
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<PAGE> 8
"GOVERNMENTAL BODY" means any federal, state, county, city, town, village,
municipal or other governmental department, commission, board, bureau, agency,
authority, court or related judicial authority or instrumentality of any of the
foregoing.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"INDEMNIFIED PARTY" has the meaning set forth in SECTION 8(d) below.
"INDEMNIFYING PARTY" has the meaning set forth in SECTION 8(d) below.
"INDEPENDENT ACCOUNTANTS" has the meaning set forth in Section 2(f) below.
"INTELLECTUAL PROPERTY" means all (a) trademarks, service marks, trade
dress, logos, trade names and corporate names and registrations and
applications for registration thereof, (b) copyrights and registrations and
applications for registration thereof, (c) computer software, data and
documentation and (d) trade secrets and confidential business information
(including formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information).
"IRS" has the meaning set forth in SECTION 4(q).
"KNOWLEDGE" means, with respect to Mercer or the Seller, actual knowledge
after reasonable investigation and inquiry by the Seller, which inquiry shall
an inquiry of the following persons: Michael Prude, Robert Covalt, Louis Pace,
Stephen Zavodny, Kevin Johnston, William Celentano, Thomas Keup, Kelly Bost and
Phil Riggins.
"LAWS" means all laws, including the common law, statutes, codes, rules,
regulations, ordinances or Orders of any Governmental Body.
"LIABILITY" means any liability, debt, obligation, amount or sum due
(whether known or unknown, whether absolute or contingent, whether liquidated
or unliquidated, and whether due or to become due) including any liability for
Taxes.
"MATERIAL," "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means a
material adverse effect on the assets, financial condition or results of
operations of Mercer.
"MERCER" has the meaning set forth in the preface above.
"MERCER'S BUSINESS" means the manufacture and distribution of extruded
plastic and vinyl products.
"MERCER SHARES" means all outstanding shares of the Common Stock, $.10 par
value per share, of Mercer.
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<PAGE> 9
"MOST RECENT BALANCE SHEET" means the balance sheet contained within the
Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in
SECTION 4(e) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in SECTION (e)
below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Sec. 3(37).
"NET WORKING CAPITAL OF MERCER" means an amount equal to (a) total current
assets of Mercer (other than cash and cash equivalents, intercompany
indebtedness (other than trade receivables), prepayments of any Taxes for which
Seller is liable pursuant to SECTION 6(e) and prepaid premiums for insurance
maintained for Mercer by Seller and/or its Affiliates), MINUS (b) total current
liabilities of Mercer (excluding intercompany indebtedness (other than
intercompany trade payables), premiums payable for insurance maintained for
Mercer by Seller and/or its Affiliates, accruals on account of stay-on bonuses
listed on ANNEX I hereto and Taxes for which Seller is liable pursuant to
SECTION 6(e), PLUS (c) the amount of Retained Cash Balances, in each case
calculated in accordance with GAAP, consistently applied on a basis consistent
with the application of accounting principles utilized in the preparation of
the Financial Statements.
"ORDER" means any order, writ, injunction, decree, judgment, award,
determination or written direction of any court, arbitrator or Governmental
Body.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMITTED LIEN" means (a) mechanic's, materialmen's and similar liens,
(b) liens for Taxes not yet due and payable (or for Taxes that the taxpayer is
contesting in good faith through appropriate proceedings), (c) liens arising
under workers' compensation, unemployment insurance, social security,
retirement and similar legislation, (d) liens arising in connection with sales
of foreign receivables, (e) liens on goods in transit incurred pursuant to
documentary letters of credit and (f) purchase money liens and liens securing
rental payments under capital lease arrangements.
"PERSON" means an individual, corporation, partnership, association, trust
or other entity or organization, including a Governmental Body or an agency or
instrumentality thereof.
"POST-CLOSING TAX PERIOD" means any Tax period that commences after the
Closing Date.
"PRE-CLOSING TAX PERIOD" means any Tax period that ends prior to the
Closing Date.
"PRELIMINARY CLOSING BALANCE SHEET" has the meaning set forth in
SECTION 2(c) below.
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<PAGE> 10
"PRODUCTS" means that group of products which has been designed, developed
and/or produced or which is presently sold or offered for sale by the Business.
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA Sec. 406 and
Code Sec. 4975.
"PURCHASE PRICE" has the meaning set forth in SECTION 2(b) below.
"REAL PROPERTY" has the meaning set forth in SECTION 4(j) below.
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec. 4043.
"RETAINED CASH BALANCES" means the balances of all cash, deposit, money
market and the like accounts of Mercer immediately following the Closing.
"SECTION 338 DELTA" has the meaning set forth in Section 6(e)(xi).
"SECTION 338 ELECTIONS" has the meaning set forth in Section 6(e)(ix).
"SECTION 338 TAXES" has the meaning set forth in Section 6(e)(xi).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) mechanic's, materialmen's
and similar liens, (b) liens for Taxes not yet due and payable (or for Taxes
that the taxpayer is contesting in good faith through appropriate proceedings),
(c) liens arising under workers' compensation, unemployment insurance, social
security, retirement and similar legislation, (d) liens arising in connection
with sales of foreign receivables, (e) liens on goods in transit incurred
pursuant to documentary letters of credit, (f) purchase money liens and liens
securing rental payments under capital lease arrangements and (g) other liens
arising in the Ordinary Course of Business and not incurred in connection with
the borrowing of money.
"SELLER" has the meaning set forth in the preface above.
"STRADDLE PERIOD" shall mean any Tax period that begins before and ends
after the Closing Date.
"SUBSIDIARY" means any corporation with respect to which another specified
corporation has the power to vote or direct the voting of sufficient securities
to elect a majority of the directors.
"TAX" means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
5
<PAGE> 11
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty or addition thereto.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"WORKING CAPITAL TARGET" means $3,500,000.
2. PURCHASE AND SALE OF THE MERCER SHARES.
(A) BASIC TRANSACTION. On and subject to the terms and conditions
of this Agreement, the Buyer agrees to purchase from the Seller, and the Seller
agrees to sell to the Buyer, all of the Mercer Shares for the consideration
specified below in this SECTION 2.
(B) PURCHASE PRICE. The purchase price for the Mercer Shares to be
purchased by the Buyer from the Seller pursuant to the terms hereof shall be
the sum of $35,750,000, subject to adjustments as provided in Section 2(g)
herein, which shall be paid in cash (the "PURCHASE PRICE"). The Purchase Price
shall be paid by the Buyer to the Seller at the Closing by wire transfer or
delivery of other immediately available funds to an account or accounts
designated by the Seller not less than three (3) business days prior to the
Closing Date.
(C) WORKING CAPITAL ADJUSTMENT. At the Closing, the Purchase Price
shall be adjusted upward on a dollar-for-dollar basis by the amount by which
the Net Working Capital of Mercer at Closing is more than $3,600,000, and the
Purchase Price shall be adjusted downward on a dollar-for-dollar basis by the
amount by which the Net Working Capital of Mercer at Closing is less than
$3,400,000. The Net Working Capital of Mercer at Closing shall be
preliminarily determined by the Seller not less than five (5) days prior to the
Closing Date in good faith by preparation of an estimated balance sheet of
Mercer as of the Closing Date (the "PRELIMINARY CLOSING BALANCE SHEET").
(D) THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "CLOSING") shall take place at the offices of Gibson, Dunn
& Crutcher LLP, 200 Park Avenue, in New York, New York, commencing at 8:00 a.m.
local time on a Business Day to be designated by the Buyer (the "CLOSING
DATE"); PROVIDED, HOWEVER, that the Closing Date shall be no earlier than the
third Business Day following the satisfaction or waiver of all conditions to
the obligations of the Parties to consummate the transactions contemplated
hereby and no later than April 30, 1998, and PROVIDED, FURTHER, that the Buyer
shall give the Seller at least two Business Days advance notice of the Closing.
(E) DELIVERIES AT THE CLOSING. At the Closing, (i) the Seller will
deliver to the Buyer the various certificates, instruments, and documents
referred to in SECTION 7(a) below, (ii) the Buyer will deliver to the Seller
the various certificates, instruments and documents referred to in
SECTION 7(b) below, (iii) the Seller will deliver to the Buyer stock
certificates representing all of the Mercer Shares, endorsed in blank or
accompanied by duly executed assignment documents and (iv) the Buyer will
deliver to the Seller the consideration specified in SECTION 2(b) above as
6
<PAGE> 12
may be adjusted at the Closing pursuant to SECTION 2(c) above and subject to
further adjustment after the Closing pursuant to SECTION 2(g).
(F) CLOSING AUDIT. Within 120 days following the Closing Date,
Ernst & Young LLP shall prepare and deliver to the Seller and Buyer an audit of
the balance sheet of the Company (the "AUDITED CLOSING BALANCE SHEET") at and
as of the Closing Date. The cost to prepare the Audited Closing Balance Sheet
shall be borne by Buyer. In the event that either Buyer or Seller disputes any
item(s) on the Audited Closing Balance Sheet within ten days after such party's
receipt thereof, the parties agree that another "Big Five" accounting firm
acceptable to Buyer and Seller (the "INDEPENDENT ACCOUNTANTS") will review the
disputed item(s) on the Audited Closing Balance Sheet. In conducting such
review, the Independent Accountants shall be given access to the workpapers of
Ernst & Young, LLP and Buyer shall make available on a reasonable basis those
employees and representatives (including employees of Ernst & Young, LLP) who
participated in the preparation of the Audited Closing Balance Sheet and the
determination of Net Working Capital of Mercer contained therein. The final
determination of such disputed item(s) by the Independent Accountants shall be
reflected on the Audited Closing Balance Sheet and shall be final and binding
on the parties for all purposes and all references to "Audited Closing Balance
Sheet" elsewhere in this Agreement shall be deemed to refer to the Audited
Closing Balance Sheet as modified by the Independent Accountants. The cost of
retaining the Independent Accountants shall be borne by the disputing party;
provided however, that the non-disputing party shall reimburse the disputing
party for 50% of the cost of the Independent Accountants in the event that such
review results in an increase (if Seller is the disputing party) or decrease
(if Buyer is the disputing party) of more than $25,000 in the Net Working
Capital of Mercer as reflected on the Audited Closing Balance Sheet audited by
Ernst & Young LLP.
(G) POST-CLOSING PURCHASE PRICE ADJUSTMENT. In the event that the
Net Working Capital of Mercer as reflected on the Audited Closing Balance Sheet
as finally determined ("FINAL WORKING CAPITAL") is less than the Net Working
Capital of Mercer as reflected on the Preliminary Closing Balance Sheet
("PRELIMINARY WORKING CAPITAL"), then the Purchase Price will be adjusted
downward, on a dollar-for-dollar basis, to reflect the lesser of (i) the
decrease in Final Working Capital from Preliminary Working Capital and (ii) the
sum of (A) the amount, if any, by which Final Working Capital is less than
$3,400,000 and (B) the amount, if any, by which Preliminary Working Capital
exceeded $3,600,000. Conversely, in the event that the Final Working Capital
is more than the Preliminary Working Capital, then the Purchase Price will be
adjusted upward, on a dollar-for-dollar basis, to reflect the lesser of (i) the
increase, if any, in Final Working Capital from Preliminary Working Capital and
(ii) the sum of (A) the amount, if any, by which Final Working Capital exceeds
$3,600,000 and (B) the amount, if any, by which Preliminary Working Capital was
less than $3,400,000. The post-closing adjustment to the Purchase Price, if
any, shall be paid by Seller to Buyer or by Buyer to Seller, as the case may
be, in immediately available funds within fifteen (15) days of delivery of the
Audited Closing Balance Sheet as finally determined.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
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<PAGE> 13
(A) REPRESENTATIONS AND WARRANTIES OF SELLER. The Seller represents
and Warrants to the Buyer that, subject to the specific qualifications and
limitations set forth below, the statements contained in this SECTION 3(a) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this
SECTION 3(a) with respect to itself.
(I) ORGANIZATION OF THE SELLER. The Seller is a corporation
duly organized, validly existing, and in good standing under the laws of
the State of Delaware.
(II) AUTHORIZATION OF TRANSACTION. The Seller has full
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and this Agreement has been duly
executed and delivered by the Seller. This Agreement constitutes the
valid and legally binding obligation of the Seller, enforceable in
accordance with its terms and conditions, except that (A) such
enforceability may be subject to bankruptcy, insolvency, reorganization,
moratorium or other laws, decisions or equitable principles now or
hereafter in effect relating to or affecting the enforcement of creditors'
rights or debtors' obligations generally, and to general equity principles
and (B) the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefore may be
brought (the terms of clause (A) and (B) are sometimes collectively
referred to as the "EQUITABLE EXCEPTIONS"). Except for filings required
by the HSR Act, the Seller need not give any notice to, make any filing
with, or obtain any authorization, consent or approval of any Governmental
Body in order to consummate the transactions contemplated by this
Agreement.
(III) NONCONTRAVENTION. Except for approvals required under
the HSR Act, neither the execution and the delivery of this Agreement by
the Seller, nor the consummation of the transactions contemplated hereby
by the Seller, will (A) violate any Law or Order or other restriction of
any Governmental Body to which the Seller is subject or (B) conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, create in any part the right to accelerate, terminate,
modify or cancel, or require any notice under any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest
or other arrangement to which the Seller is a party or by which it is
bound or to which any of its assets is subject.
(IV) BROKER'S FEES. The Seller has no Liability or obligation
to pay any fees or commissions to any broker, finder or agent with respect
to the transactions contemplated by this Agreement for which the Buyer
could become liable or obligated.
(V) MERCER SHARES. The Seller holds of record and owns
beneficially all of the Mercer Shares, free and clear of any restrictions
on transfer (other than any restrictions under the Securities Act and
state securities laws), claims, Taxes, Security Interests (other than
those to be removed prior to or concurrently with the Closing pursuant to
SECTION 7(a)(xi)), options, warrants, rights, contracts, calls,
commitments,
8
<PAGE> 14
equities, preemptive rights and demands. The Seller is not a party to
any option, warrant, right, contract, call, put or other agreement or
commitment providing for the disposition by the Seller of any capital
stock of Mercer (other than this Agreement). The Seller is not a party
to any voting trust, proxy agreement, stockholders' agreement or other
understanding (written or oral) with respect to the voting of any capital
stock of Mercer.
(B) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
represents and warrants to the Seller that the statements contained in this
SECTION 3(b) are correct and complete In all material respects as of the date
of this agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this SECTION 3(b).
(I) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of California.
(II) AUTHORIZATION OF TRANSACTION. The Buyer has full corporate
power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations
hereunder and this Agreement has been duly executed and delivered by the
Buyer. This Agreement constitutes the valid and legally binding
obligation of the Buyer, enforceable in accordance with its terms and
conditions except for the Equitable Exceptions. Except for filings made
under the HSR Act, the Buyer need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any
Governmental Body in order to consummate the transactions contemplated by
this Agreement.
(III) NONCONTRAVENTION. Except for approvals required under
the HSR Act and as set forth on Schedule 3(a)(iii), neither the execution
and the delivery of this Agreement by the Buyer, nor the consummation of
the transactions contemplated hereby by the Buyer, will (A) violate any
Law or Order or other restriction of any Governmental Body to which the
Buyer is subject or any provision of its charter or bylaws or (B) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify or cancel, or require any notice under any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest
or other arrangement to which the Buyer is a party or by which it is bound
or to which any of its assets is subject and which has a Material Adverse
Effect on the Buyer.
(IV) BROKERS' FEES. The Buyer has no Liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement for which the Seller could
become liable or obligated.
(V) INVESTMENT. The Buyer is not acquiring the Mercer Shares
with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act.
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<PAGE> 15
4. REPRESENTATIONS AND WARRANTIES CONCERNING MERCER. The Seller
represents and warrants to the Buyer that, subject to the specific
qualifications and limitations set forth herein, the statements contained in
this SECTION 4 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this SECTION 4), except to the extent that such representations
and warranties are expressed, made as of another specified date, and as to
such representation, the same shall be true as of such date and except as set
forth in the Disclosure Schedule delivered by the Seller to the Buyer on the
date hereof (the "DISCLOSURE SCHEDULE"). The Disclosure Schedule may be
updated one or more times prior to the Closing Date; provided that except as
otherwise provided in Section 4(p)(i) any such updated Disclosure Schedule
containing any material changes must be delivered to the Buyer not less than
two business days prior to the date on which the filings required under the
HSR Act are to be made pursuant to SECTION 5(h).
(a) ORGANIZATION, QUALIFICATION AND CORPORATE POWER. Mercer is a
corporation duly organized, validly existing and in good standing under the
laws of the State of New Jersey. Mercer is duly authorized to conduct
business and is in good standing under the laws of the State of Florida and
each other jurisdiction listed on SCHEDULE 4(a) of the Disclosure Schedule,
which jurisdictions constitute all of the jurisdictions in which the nature
of its businesses or the ownership or leasing of its properties requires such
qualification, except where any such failure would not have a Material
Adverse Effect. Mercer has full corporate power and authority to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it.
(b) CAPITALIZATION. The entire authorized capital stock of Mercer
consists of 1,000 shares of common stock, 10 of which are issued and
outstanding and held by the Seller. None of the Mercer Shares is held in
treasury. The Mercer Shares have been duly authorized, are validly issued,
fully paid, and nonassessable, and are held of record by the Seller. There
are no outstanding or authorized options, warrants, rights, contracts, calls,
puts, rights to subscribe, conversion rights or other agreements or
commitments to which Mercer is a party or which are binding upon Mercer
providing for the issuance, disposition or acquisition of any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom
stock, or similar rights with respect to Mercer.
(c) NONCONTRAVENTION. Except as set forth on SCHEDULE 4(c) of the
Disclosure Schedule, neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any Law or Order or other restriction of any Governmental Body to
which Mercer is subject or any provision of the charter or bylaws of Mercer
or (ii) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify or cancel, or require any notice under any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest or
other arrangement to which Mercer is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets). Except for the filing under the
HSR Act, Mercer does not need to give any notice to, make any filing with, or
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obtain any authorization, consent or approval of any Governmental Body in
order for the Parties to consummate the transactions contemplated by this
Agreement.
(d) SUBSIDIARIES. Except as disclosed on SCHEDULE 4(D) of the
Disclosure Schedule, Mercer has no Subsidiaries and does not control,
directly or indirectly, or have any direct or indirect equity participation
in any Person.
(e) FINANCIAL STATEMENTS. Attached hereto as EXHIBIT A are the
following financial statements (collectively, the "FINANCIAL STATEMENTS") of
Mercer: (i) unaudited statement of operations and cash flows for the fiscal
years ended December 3l, 1995 and 1996, (ii) unaudited balance sheet as of
December 31, 1994, 1995 and 1996 (collectively, the Financial Statements
contained in (i) and (ii) are collectively referred to herein as the
"UNAUDITED FINANCIAL STATEMENTS"), (iii) an audited balance sheet and
statement of operations, changes in stockholders' equity and cash flows as of
and for the period commencing January 1, 1997 and ending August 4, 1997
(prior to the acquisition by Seller) and (iv) a draft audited balance sheet
and statement of operations, changes in stockholders' equity and cash flows
as of and for the period commencing August 5, 1997 and ending December 31,
1997 (the "Draft Statements," and collectively with the financial statements
set forth in part (iii), the "MOST RECENT FINANCIAL STATEMENTS"). Except as
set forth on Schedule 4(e) of the Disclosure Schedule, the Most Recent
Financial Statements have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, are correct and
complete in all material respects, fairly present the financial condition of
Mercer as of such dates, and are consistent with the books and records of
Mercer (which books and records are correct and complete in all material
respects). Except as set forth on Schedule 4(e) of the Disclosure Schedule,
the Financial Statements for the fiscal years ended December 31, 1995 and
1996 fairly present the financial condition of Mercer as of such dates, and
are consistent with the books and records of Mercer (which books and records
are correct and complete in all material respects).
(f) EVENTS SUBSEQUENT TO THE MOST RECENT FINANCIAL STATEMENTS.
Except as set forth on SCHEDULE 4(F) of the Disclosure Schedule, since
December 31, 1997, there has not been any adverse change in the assets,
Liabilities, business, financial condition, operations or results of
operations of Mercer. Without limiting the generality of the foregoing since
that date:
(i) Mercer has not sold, leased, transferred or assigned any of
its assets, tangible or intangible, other than for a fair consideration in
the Ordinary Course of Business;
(ii) Mercer has not entered into any contract, lease, sublease,
license or sublicense (or series or related contracts, leases, subleases,
licenses and sublicenses) either involving more than $100,000 or outside
the Ordinary Course of Business;
(iii) Mercer has not accelerated, terminated, modified or
canceled any contract, lease, sublease, license or sublicense (or series
of related contracts, leases, subleases, licenses and sublicenses)
involving more than $100,000 to which Mercer is a party or by which it is
bound;
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(iv) no party has notified Mercer of any acceleration,
termination, modification or cancellation of any Material customer
contract or any contract, agreement, lease, sublease, license or
sublicense (or series of related contracts, leases, subleases, licenses
and sublicenses), involving more than $100,000 to which Mercer is a party
or by which it is bound;
(v) Mercer has not made any capital expenditure (or series
of related capital expenditures) either involving more than $62,500
individually or $162,500 in the aggregate, or outside the Ordinary Course
of Business;
(vi) Mercer has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of any other person (or
series of related capital investments, loans, and acquisitions) either
involving more than $50,000 individually or $162,500 in the aggregate;
(vii) Mercer has not delayed or postponed (beyond its normal
practice) the payment of accounts payable and other Liabilities;
(viii) there has been no change made or authorized in the
charter or bylaws of Mercer;
(ix) Mercer has not experienced any damage, destruction or
loss involving more than $100,000 (whether or not covered by insurance) to
its Property;
(x) Mercer has not made any loan to, or entered into any
other transaction with, any of its directors, officers and employees
outside the Ordinary Course of Business or involving more than $50,000,
giving rise to any claim or right on its part against the person or on
the part of the person against it;
(xi) Mercer has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement with any of its full-time staff
employees;
(xii) Mercer has not granted an increase in the base
compensation of any of its directors, officers and employees outside the
Ordinary Course of Business and as set forth on SCHEDULE 4(F) of the
Disclosure Schedule;
(xiii) Mercer has not adopted any (A) bonus, (B) profit-
sharing, (C) incentive compensation, (D) pension, (E) retirement,
(F) medical, hospitalization, life, or other insurance, (G) severance or
(H) other plan, contract or commitment for any of its directors, officers
and employees, or modified or terminated any existing such plan, contract
or commitment;
(xiv) Mercer has not lost and does not have notice of any
potential loss of any significant customer or supplier;
(xv) Mercer has not changed its accounting, methods or
principles;
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(xvi) Mercer has not suffered any material shortages of raw
materials used in the production of the Products;
(xvii) Mercer has not made any material provisions for
inventory markdowns or inventory shrinkage;
(xviii) Mercer has not made or paid any non-cash dividends or
distributions to Seller whether or not upon or in respect of its capital
stock;
(xix) Mercer has not redeemed or otherwise acquired any
shares of its capital stock or issued any capital stock or any option,
warrant or right relating thereto or any securities convertible or
exchangeable for any shares of its capital stock; and
(xx) Mercer has not agreed to do any of the foregoing.
(g) UNDISCLOSED LIABILITIES. Mercer does not have any Liability
which is individually in excess of $100,000, except for (i) Liabilities set
forth on the face of the Most Recent Financial Statements and (ii) Liabilities
which have arisen after the Most Recent Financial Statements in the Ordinary
Course of Business.
(h) TAX MATTERS. Except as set forth on Schedule 4(h) of the
Disclosure Schedule:
(i) Mercer has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all material
respects. All Taxes owed by Mercer (whether or not shown on any Tax
Return) have been paid. Mercer currently is not the beneficiary of any
extension of time within which to file any Tax Return. To Seller's
Knowledge, no claim is currently pending by an authority in a jurisdiction
where Mercer does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no Security Interests on any of
the assets of Mercer that arose in connection with any failure (or alleged
failure) to pay any Tax.
(ii) Neither the Seller nor any of the officers (or employees
responsible for Tax matters) of Mercer has received any notice that any
authority intends to assess any additional Taxes for any period for which
Tax Returns have been filed. There is no dispute or claim concerning any
Tax Liability of Mercer either (A) claimed or raised by any authority in
writing or (B) as to which the Seller or Mercer has Knowledge based upon
personal contact with any agent of such authority. SCHEDULE 4(H) of the
Disclosure Schedule lists all federal, state and local income Tax Returns
filed with respect to Mercer for taxable periods ended on or after
December 31, 1993 that currently are the subject of an audit.
(iii) Mercer has not filed a consent under Code Sec. 341(f)
concerning collapsible corporations. Mercer has not made any payments, is
not obligated to make any payments, nor is a party to any agreement that
under certain circumstances could obligate it to make any payments that
will not be deductible to Mercer under Code Sec. 280G. Mercer has not
been a United States real property holding corporation within the meaning
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of Code Sec. 897(c)(2) during the applicable period specified in Code Sec.
897(c)(1)(A)(ii). Mercer has disclosed on its federal income Tax Returns
all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code Sec. 6662.
Mercer is not a party to any Tax allocation or sharing agreement.
(iv) Mercer has no liability for Taxes for any Tax period ending
prior to the Closing Date other than Taxes for which there is an accrual
for current taxes reflected on the Most Recent Balance Sheet.
(v) Mercer has no liability for Taxes of any other person or
entity, has no Tax liability as a successor or transferee, and has no Tax
liability pursuant to Section 1.1502-6 of the Treasury Regulations or
similar provisions of state, local or foreign Tax laws.
(vi) Mercer has no liability pursuant to any agreement to share,
allocate or reimburse Taxes or Tax benefits.
(vii) There are no "excess loss accounts" or "intercompany
items," within the meaning of Section 1-1502 of the Treasury Regulations,
between Mercer and any member of the Seller affiliated group.
(i) TANGIBLE ASSETS. SCHEDULE 4(I) of the Disclosure Schedule
includes a true and correct copy of the appraisal of the fixed assets of Mercer
obtained by the Seller at the time it acquired Mercer, which covers all of the
significant fixed assets of Mercer owned at such time. Mercer owns or leases
all tangible assets necessary for the conduct of its businesses as presently
conducted. To the Knowledge of the Seller, each such tangible asset is free
from Security Interests (other than Permitted Liens or the Security Interests
to be removed prior to or concurrently with the Closing pursuant to Section
7(a)(xi)) free from material defects (patent and latent), has been maintained
in accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear), and is suitable for the purposes for
which it presently is used.
(j) REAL PROPERTY. SCHEDULE 4(J) of the Disclosure Schedule sets
forth all real property owned or leased by Mercer (the "REAL PROPERTY").
Subject to the Permitted Liens and any Security Interests disclosed on
SCHEDULE 4(J), Mercer has good and marketable title to, or in the case of
leased Real Property has a valid leasehold interest in, the Real Property. All
leases of Real Property are valid, binding and enforceable in accordance with
their respective terms. Mercer is not in material default under any such
leases, and to the Seller's Knowledge, there does not exist under any such
lease any material default of any other party or any event which with notice or
lapse of time or both would constitute a material default. To the Seller's
Knowledge, the Real Property is in good operating condition and repair, normal
wear and tear excepted, and is free from any defects that have, or reasonably
could have, a Material Adverse Effect. Except as set forth on SCHEDULE 4(J) of
the Disclosure Schedule, to the Seller's Knowledge, there are no existing
structural defects in any of the Real Property.
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(k) INTELLECTUAL PROPERTY.
(i) Except as set forth on Schedule 4(k) of the Disclosure
Schedule, Mercer owns or has the right to use pursuant to license,
sublicense, agreement or permission all Intellectual Property necessary
for the operation of the business of Mercer as presently conducted. Each
item of Intellectual Property owned or used by Mercer immediately prior to
the Closing hereunder will be owned or available for use by Mercer on
identical terms and conditions immediately subsequent to the Closing
hereunder.
(ii) To the Knowledge of the Seller, Mercer has not interfered
with, infringed upon, misappropriated or otherwise come into conflict with
any Intellectual Property rights of third parties, and neither the Seller
nor any of the officers (or employees with responsibility for Intellectual
Property matters) of Mercer has received within the past year any charge,
complaint, claim or notice alleging any such interference, infringement,
misappropriation or violation.
(iii) SCHEDULE 4(K) of the Disclosure Schedule identifies
each patent or trademark, tradename or copyright registration which has
been issued to Mercer with respect to any of its Intellectual Property,
identifies each pending patent application or application for trademark,
tradename or copyright registration which Mercer has made with respect to
any of its Intellectual Property, and identifies each license, agreement
or other permission which Mercer has granted to any third party with
respect to any of its Intellectual Property (together with any
exceptions). Except as identified in Schedule 4(k) of the Disclosure
Schedule, with respect to each item of Intellectual Property that Mercer
owns:
(A) the identified owner possesses all right, title and
interest in and to the item;
(B) the item is not subject to any outstanding Order; and
(C) no charge, complaint, action, suit, proceedings,
hearing, investigation, claim or demand is pending or, to the
Knowledge of the Seller and the officers (and employees with
responsibility for Intellectual Property matters) of Mercer, is
threatened which challenges the legality, validity, enforceability,
use or ownership of the item.
(iv) SCHEDULE 4(K) of the Disclosure Schedule also identifies
each item of Intellectual Property that any third party owns and that
Mercer uses pursuant to license, sublicense, agreement or permission
(other than general commercial software). Except as identified in
SCHEDULE 4(K) of the Disclosure Schedule, with respect to each such item
of used Intellectual Property:
(A) to the Knowledge of Seller, the license, sublicense,
agreement or permission covering the item is legal, valid, binding,
enforceable and in full force and effect, subject to the Equitable
Exceptions;
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(B) to the Knowledge of Seller, the license, sublicense,
agreement or permission will continue to be legal, valid, binding,
enforceable and in full force and effect on identical terms following
the Closing;
(C) Mercer is not, and to the Knowledge of the Seller and
officers (and employees with responsibility for Intellectual Property
matters) of Mercer, no other party to the license, sublicense,
agreement, or permission is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a breach
or default or permit termination, modification or acceleration
thereunder; and
(D) to the Knowledge of the Seller and officers (and
employees with responsibility for Intellectual Property matters) of
Mercer, no charge, complaint, action, suit, proceedings, hearing,
investigation, claim or demand is pending or is threatened which
challenges the legality, validity or enforceability of the underling
item of Intellectual Property.
(l) WARRANTIES. Except as disclosed on SCHEDULE 4(L) of the
Disclosure Schedule, there is no outstanding action, suit, arbitration or
other proceeding, or claim, demand, demand letter, lien or notice of
noncompliance or violation has been asserted in writing against Mercer and,
to the Knowledge of the Seller and Mercer, no event or circumstance has
occurred that could reasonably be expected to constitute the basis of any
claim against Mercer for injury to any person or any property suffered as a
result of the manufacture, distribution or sale of any product or material by
Mercer, including any claim arising out of the defective or unsafe nature, or
allegedly defective or unsafe nature, of any such product or material, which
individually or in the aggregate exceeds $162,500. Due to the historically
low warranty claims against the Business, Mercer has expensed such claims and
has not set aside reserves on its balance sheet included as part of the Most
Recent Financial Statements for all warranty and product liability claims.
(m) CONTRACTS. SCHEDULE 4(M) of the Disclosure Schedule lists the
following contracts, agreements, customer contracts or agreements and other
arrangements (oral or written) to which Mercer is a party:
(i) any arrangement (or group of related written arrangements)
for the lease of personal property from or to third parties providing
lease payments in excess of $100,000 per annum;
(ii) any arrangement (or group of related written arrangements)
for the purchase or sale of Products, raw materials, commodities, supplies
or other personal property or for the furnishing or receipt of services
which either calls for performance over a period of more than one year
after the Closing Date or involves more than the sum of $100,000;
(iii) any arrangement concerning a partnership or joint
venture;
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(iv) any arrangement requiring noncompetition;
(v) any arrangement involving the Seller and its Affiliates; or
(vi) any other arrangement (or group of related written
arrangements) either involving or remaining outstanding one year after the
Closing Date of more than $100,000 or not entered into in the Ordinary
Course of Business.
The Seller has delivered to the Buyer a correct and complete copy
of each written arrangement (as amended to date) listed in SCHEDULE 4(M) of
the Disclosure Schedule. With respect to each arrangement so listed: (A)
the arrangement is legal, valid, binding, enforceable and in full force and
effect, subject to the Equitable Exceptions; (B) to the Seller's Knowledge,
the arrangement will continue to be legal, valid, binding, enforceable and in
full force and effect, subject to Equitable Exceptions, on identical terms
following the Closing; (C) Mercer is not, nor to the Knowledge of the Seller,
any other party in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration, under the arrangements; and (D)
Mercer has not, nor to the Knowledge of the Seller, has any other party,
repudiated any provision of any arrangement.
(n) INSURANCE. SCHEDULE 4(N) of the Disclosure Schedule sets forth
an accurate and complete list of all policies of fire, liability, keyman life
insurance, worker's compensation, products liability and other forms of
insurance owned or held by or beneficially for Mercer. All such policies are
in full force and effect, no premiums with respect thereto are past due and no
notice of cancellation or termination has been received by the Seller or Mercer
with respect to any such policy. Neither the Seller nor Mercer has received
any notification that material changes are required in the conduct of the
Business as a condition to the continuation of coverage under or renewal of any
such policy. True, correct and complete copies of such insurance policies have
been made available to the Buyer.
(o) LITIGATION. SCHEDULE 4(O) of the Disclosure Schedule sets forth
each instance in which Mercer (i) is subject to any unsatisfied judgment,
order, decree, stipulation, injunction or charge or (ii) is a party or, to the
Knowledge of the Seller and Mercer, is threatened to be made a party, to any
charge, complaint, action, suit, proceeding, hearing or investigation of or in
any court or quasi-judicial or administrative agency of any federal, state,
local or foreign jurisdiction or before any arbitrator.
(p) EMPLOYEES.
(i) SCHEDULE 4(P)(I) of the Disclosure Schedule lists all of
the employees of Mercer currently on the Mercer payroll as of the date of
this Agreement (including those on leaves of absence), which schedule will
be updated at and as of the Closing Date to reflect any employees hired or
terminated prior to the Closing Date ("CURRENT EMPLOYEES").
(ii) To the Knowledge of the Seller, no key employee or full-
time group of employees has any plans to terminate employment with Mercer
(other than
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Michael Prude). Except as set forth on SCHEDULE 4(P)(II) of
the Disclosure Schedule, Mercer is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strikes,
grievances, claims of unfair labor practices or other collective
bargaining disputes. To the Knowledge of the Seller, Mercer has not
committed any unfair labor practice.
(q) EMPLOYEE BENEFITS. SCHEDULE 4(Q) of the Disclosure Schedule
lists all Employee Benefit Plans in which any current or former employee of
Mercer participates, whether sponsored by Mercer or an affiliate of Mercer.
Copies of each such plan and related trust agreements, service agreements and
insurance policies and the three (3) most recent annual reports on Internal
Revenue Service ("IRS") Form 5500 for each plan shall be provided to Buyer.
(i) Each Employee Benefit Plan (and each related trust or
insurance contract) substantially complies in form and in operation with
its terms and the applicable requirements of ERISA and the Code.
(ii) To the Knowledge of Seller, all contributions (including
all employer contributions and employee salary reduction contributions)
which are due have been paid to each Employee Pension Benefit Plan and all
contributions for any period ending on or before the Closing Date which
are not yet due have been paid to each Employee Pension Benefit Plan or
accrued in accordance with the past custom and practice of Mercer. All
premiums or other payments which are due for all periods ending on or
before the Closing Date have been paid with respect to each Employee
Welfare Benefit Plan.
(iii) Each Employee Benefit Plan which is an Employee
Pension Benefit Plan intended to be a qualified plan in fact meets the
requirements of a "qualified plan" under Code Sec. 401(a), and Seller
shall provide to Buyer a copy of the most recent IRS determination letter
respecting such plan's qualification.
(iv) No Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been completely or partially terminated or been
the subject of a Reportable Event as to which notices would be required to
be filed with the PBGC. No proceeding by the PBGC to terminate any
Employee Pension Benefit Plan (other than any Multiemployer Plan) has been
instituted or, to the Knowledge of the Seller and officers (and employees
with responsibility for employee benefits matters) of Mercer, threatened.
(v) There have been no Prohibited Transactions with respect to
any Employee Benefit Plan. No Fiduciary has any Liability for breach of
fiduciary duty or any other failure to act or comply in connection with
the administration or investment of the assets of any Employee Benefit
Plans. No charge, complaint, action, suit, proceeding, hearing,
investigation, claim or demand with respect to the administration or the
investment of the assets of any Employee Benefit Plan (other than routine
claims for benefits) is pending or, to the Knowledge of the Seller and the
officers (and employees with responsibility for employee benefits matters)
of Mercer, threatened. Neither the Seller nor any of the officers (or
employees with responsibility for litigation matters) of
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Mercer has any Knowledge of any Basis for any such charge, complaint,
action, suit, proceeding, hearing, investigation, claim or demand.
Mercer has not incurred, and neither the Seller nor any of the
officers (or employees with responsibility for litigation matters) of Mercer
has any reason to expect that Mercer will incur, any Liability to the PBGC
(other than PBGC premium payments) or otherwise under Title IV of ERISA
(including any withdrawal Liability) or under the Code with respect to any
Employee Pension Benefit Plan that Mercer and the Controlled Group of
Corporations which includes Mercer maintains or ever has maintained or to
which any of them contributes, ever has contributed, or ever has been
required to contribute. Mercer does not maintain, nor has it ever maintained
or contributed to, or ever has been required to contribute to any Employee
Welfare Benefit Plan providing health, accident, or life insurance benefits
to former employees, their spouses or their dependents (other than in
accordance with Code Sec. 4980B).
(r) ENVIRONMENT, HEALTH AND SAFETY. Except as disclosed on
SCHEDULE 4(R) of the Disclosure Schedule:
(i) Mercer has been and is in compliance with all Laws
concerning the environment, public health and safety, and employee health
and safety, and no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, demand or notice has been filed or commenced against
it or, to the Knowledge of the Seller, is threatened alleging any failure
to comply with any such Laws.
(ii) Mercer has no Liability (and there is no Basis related to
the past or present operations, properties or facilities of Mercer and its
respective predecessors and Affiliates for any present or future charge,
complaint, action, suit, proceeding, hearing, investigation, claim or
demand against Mercer giving rise to any Liability) under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Resource Conservation and Recovery Act of 1976, the Federal
Water Pollution Control Act of 1972, the Clean Air Act of 1970, the Safe
Drinking Water Act of 1974, the Toxic Substances Control Act of 1976, the
Refuse Act of 1899, or the Emergency Planning and Community Right-to-Know
Act of 1986 (each as amended), or any other Law or Order of any
Governmental Body, concerning release or threatened release of hazardous
substances, public health and safety, or pollution or protection of the
environment.
(iii) Mercer has no Liability (and Mercer and its
predecessors have not handled or disposed of any substance, arranged for
the disposal of any substance, or owned or operated any property or
facility in any manner that could form the Basis for any present or future
charge, complaint, action, suit, proceeding, hearing, investigation,
claim, or demand (under any Law) against Mercer giving rise to any
Liability) for damage to any site (including the Real Property), location,
or body of water (surface or subsurface) or for illness or personal
injury.
(iv) Mercer has no Liability under the Occupational Safety and
Health Act, as amended, or any other Law concerning employee health and
safety.
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(v) Mercer has obtained and been in compliance with all of the
terms and conditions of all permits, licenses and other authorizations
which are required under, and has complied with all other, Laws and Orders
of any Governmental Body relating to public health and safety, worker
health and safety, and pollution or protection of the environment,
including laws relating to emissions, discharge, releases or threatened
releases of pollutants, contaminants or chemical, industrial, hazardous or
toxic materials or wastes into ambient air, surface water, ground water or
lands or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of pollutants,
contaminants or chemical, industrial, hazardous or toxic materials or
wastes.
(vi) Mercer has delivered or caused to be delivered to the Buyer
all environmental assessments, reports, audits and other documents in its
possession or under its control that relate to Real Property that Mercer
or any predecessor entity currently occupies or has occupied at any time
in the past in connection with the Business.
(s) LEGAL COMPLIANCE. Mercer has:
(i) complied with all non-environmental Laws. No charge,
complaint, action, suit, proceeding, hearing, investigation, claim, demand
or notice has been filed or commenced against Mercer which is currently
pending and alleges any failure to comply with any such non-environmental
Law.
(ii) not violated in any respect or received a notice or charge
asserting any violation of the Sherman Act, the Clayton Act, the Robinson-
Patman Act or the Federal Trade Act, each as amended.
(iii) filed in a timely manner all reports, documents, and
other materials it was required to file (and the information contained
therein was correct and complete in all material respects) under all
applicable Laws.
(t) CERTAIN BUSINESS RELATIONSHIPS WITH MERCER. Except as set forth
on SCHEDULE 4(T) of the Disclosure Schedule, neither the Seller nor its
Affiliates has been involved in any business arrangement or relationship with
Mercer within the past twelve (12) months, and neither the Seller nor
Affiliates owns any property or right, tangible or intangible, which is used in
Mercer's Business.
(u) BROKERS' FEES. Mercer does not have any Liability or obligation
to pay any fees or commissions to any broker, finder or similar representative
with respect to the transactions contemplated by this Agreement.
(v) DISCLOSURE. To the Knowledge of the Seller and the directors
and officers of Mercer, the representations and warranties contained in this
SECTION 4 as amended, modified and/or supplemented by the Disclosure Schedules
do not contain any untrue statement of a Material fact or omit to state any
Material fact necessary in order to make the statements and information
contained in this SECTION 4 not misleading.
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(w) ACCOUNTS RECEIVABLE. The accounts receivable of Mercer
reflected in the Most Recent Balance Sheet represent sales actually made in the
Ordinary Course of Business, represent valid and enforceable claims, and have
been properly accrued in accordance with GAAP, net of any reserves reflected in
the Most Recent Balance Sheet. Schedule 4(w) of the Disclosure Schedule sets
forth an accurate aging schedule of all accounts receivable reflected in the
Most Recent Balance Sheet.
(x) INVENTORY. As of the date of the Most Recent Financial
Statements, all inventory of Mercer consisted of a quality and quantity
consistent with the past practices of Mercer, net of any reserves reflected in
the Most Recent Balance Sheet. The values reflected on the Most Recent Balance
Sheet of obsolete or substandard items of inventory, as determined by Mercer in
consultation with their accountants, have been written down to realizable
market values or written off, or adequate reserves therefor have been
established, all in accordance with GAAP. There are no claims against Mercer
to return in excess of an aggregate of $50,000 of merchandise by reason of
alleged overshipments, defective merchandise or otherwise, or of merchandise in
the possession of customers under an understanding that such merchandise would
be returnable.
(y) CUSTOMERS AND SUPPLIERS. Schedule 4(y) lists the ten largest
customers of Mercer and the ten largest suppliers of Mercer for the most recent
fiscal year. To the Knowledge of Seller and Mercer, since January 1, 1997,
there has been no material adverse change in the business relationship of
Mercer with any customer or supplier named on Schedule 4(y). To the Knowledge
of Seller and Mercer and other than in the Ordinary Course of Business, no
customer or supplier named on Schedule 4(y) has threatened or expressed an
intention to reduce materially the volume of its purchases from or sales to
Mercer or otherwise materially modify its business relationship with Mercer.
Notwithstanding the foregoing, no representation or warranty is made by Seller
that Mercer's relationship with any customer or supplier will not be affected
by the purchase of Mercer by Buyer.
(z) CERTAIN BUSINESS PRACTICES. To Seller's Knowledge, neither
Mercer nor any of its directors, officers, agents or employees has (i) used any
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended, or (iii) made any other unlawful payment.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use its reasonable best
efforts to take all action and to do all things necessary, proper or advisable
to consummate and make effective the transactions contemplated by this
Agreement (including satisfying the closing conditions set forth in SECTION 7
below). In the event that the Buyer notifies the Seller of its desire to
acquire Mercer by means of a reverse triangular merger of Mercer with and into
a wholly-owned Subsidiary of Buyer no less than five (5) business days prior to
the Closing Date, the Parties will cooperate with each other to amend this
Agreement to provide for, and to facilitate, such merger.
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(b) NOTICES AND CONSENTS. The Seller will cause Mercer to give any
notices to third parties, and will cause Mercer to use its reasonable best
efforts to obtain third-party consents, that the Buyer may reasonably request
in connection with the matters pertaining to Mercer disclosed or required to be
disclosed in the Disclosure Schedule. Each of the Parties will take any
additional action (and the Seller will cause Mercer to take any additional
action) that may be necessary, proper or advisable in connection with any other
notices to, filings with, and authorizations, consents, and approvals of
Governmental Bodies, and third parties that he, she or it may be required to
give, make or obtain.
(c) OPERATION OF BUSINESS. Except as contemplated hereby or as may
be incidental to or in furtherance of the transactions contemplated hereby or
as may have been set forth herein or in the Disclosure Schedule, the Seller
will not cause or permit Mercer to engage in any practice, take any action,
embark on any course of inaction or enter into any transaction outside the
Ordinary Course of Business or that would constitute a breach of the
representation and warranty contained in SECTION 4(F) if such action, inaction
or transaction occurred after December 31, 1997 and prior to the date of this
Agreement.
(d) PRESERVATION OF BUSINESS. Except as contemplated hereby or as
may be incidental to or in furtherance of the transactions contemplated hereby
or as may have been set forth herein or in the Disclosure Schedule, the Seller
will cause Mercer to use its best efforts to keep its business and properties
substantially intact, including its present operations, physical facilities,
working conditions, and relationships with lessors, licensors, suppliers,
customers and employees.
(e) ACCESS. Only in the event that neither the Buyer nor the
Seller exercised its right to terminate this Agreement as provided in SECTION
9 herein, the Seller will permit, and the Seller will cause Mercer to permit,
representatives of the Buyer to have access at reasonable times, and in a
manner so as not to interfere with the normal business operations of Mercer,
to the headquarters and all other facilities of Mercer, to all books,
records, contracts, Tax records and documents of or pertaining to Mercer and
to all employees, customers and suppliers of Mercer. During the Buyer's
on-site investigation of Mercer, except as otherwise provided herein, the
Buyer shall not discuss any aspects of the operation of Mercer with any
employee of Mercer, and the Buyer shall direct all requests for information
and material only through the Robert W. Baird & Co., unless otherwise agreed
to by the Buyer and the Seller in writing. Robert W. Baird & Co. shall
proceed to arrange with the Seller a mutually agreeable time and place at
which the Buyer may conduct interviews with key employees and/or customers of
Mercer mutually agreed to by Robert W. Baird & Co. and the Seller. Such
interviews shall be in strict conformity with the format mutually agreed to
by Robert W. Baird & Co. and the Seller.
(f) NOTICE OF DEVELOPMENTS. The Seller will give prompt written
notice to the Buyer of any Material development affecting the assets,
Liabilities, business, financial condition, operations, results of operations
or future prospects of Mercer. Each Party will give prompt written notice to
the others of any Material development affecting the ability of the Parties
to consummate the transactions contemplated by this Agreement.
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(g) EXCLUSIVITY. The Seller will not (and the Seller will not
cause or permit Mercer to) (i) solicit, initiate or encourage the submission
of any proposal or offer from any person relating to any (A) liquidation,
dissolution or recapitalization, (B) merger or consolidation, (C) acquisition
or purchase of securities or assets or (D) similar transaction or business
combination involving Mercer or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in or facilitate in any other manner any effort or attempt by an,
person to do or seek any of the foregoing. The Seller will notify the Buyer
immediately if any person makes any proposal, offer, inquiry or contact with
respect to any of the foregoing.
(h) HSR ACT FILING. The Buyer and the Seller will use
commercially reasonable efforts to file or cause to be filed with the FTC and
the DOJ (it being understood that the Buyer will bear the expense of the
filing fee to be paid by the acquiring person), as promptly as practicable
but in no event later than ten (10) Business Days after the execution of this
Agreement, the Notification and Report Form and related material required to
be filed in connection with the transactions contemplated in this Agreement
pursuant to the HSR Act, and to promptly file any additional information
requested by the FTC or the DOJ as soon as practicable after receipt of a
request therefor. In addition, the Buyer shall use its commercially
reasonable efforts to take or cause to be taken all actions necessary, proper
or advisable to obtain any consent, waiver, approval or authorizations
relating to the HSR Act that is required for the consummation of the
transactions contemplated by this Agreement; PROVIDED, HOWEVER, that the
Buyer shall not be obligated hereby to accept any order providing for the
divestiture by the Buyer of such of the assets relating to the Business (or,
in lieu thereof, assets and businesses of the Buyer having an approximate
equivalent value) as are necessary to fully consummate the transactions
contemplated by this Agreement or an order to hold separate such assets and
businesses pending such divestiture.
(i) PLANT CLOSING NOTIFICATION. The Buyer shall be responsible
for providing any notice of layoff or plant closing required with respect to
any manufacturing facility of Mercer pursuant to the Federal Worker
Adjustment and Retraining Notification Act of 1988, any successor federal law
and any applicable state or local plant closing notification statute, for any
such layoffs or plant closings which will commence effective on or subsequent
to the Closing Date.
(j) INTERCOMPANY ITEMS. The Seller shall, as of the date
immediately preceding the Closing Date, by appropriate documentation and
accounting entries, contribute to the paid in capital of Mercer, any
intercompany payables, receivables and/or indebtedness to the Seller arising
prior to the Closing Date.
(k) 1996 AUDIT. Seller shall cause Mercer to cooperate with Buyer
in connection with the audit by KPMG Peat Marwick of Mercer's financial
statements for the year ended (which audit shall be paid for by Buyer), and
as of, December 31, 1996, including causing Mercer to provide Buyer with
access to all related work papers and other documents of Mercer relating to
such audit.
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(l) TRANSITIONAL SERVICES. Prior to the Closing, Buyer and Seller
shall use their best efforts to identify and make appropriate arrangements
for dealing with any transitional issues which may arise as a result of the
purchase of Mercer by Buyer and shall negotiate in good faith to enter into a
Transitional Services Agreement reasonably acceptable to both parties, which
Agreement shall contemplate the provision to Buyer of certain computer,
accounting and similar services and other services relating to the
maintenance of Mercer's Employee Benefit Plans and related arrangements
through December 31, 1998 or accommodations reasonably necessary for the
conduct of Mercer's business for a period of up to six months after the
Closing Date. Buyer shall cause Mercer to reimburse Seller for all actual
costs for such services in accordance with past practices.
(m) FINAL AUDITED FINANCIAL STATEMENTS. On or before March 13,
1998, Seller shall deliver to the Buyer the final audited financial
statements ("FINAL AUDITED FINANCIAL STATEMENTS") covering the period shown
in the Draft Statements.
6. ADDITIONAL COVENANTS. The Parties further covenant and agree as
follows:
(a) GENERAL. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution
and delivery of such further instruments and documents) as any other Party
reasonable, may request, all at the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to indemnification therefor
under SECTION 8 below). The Seller acknowledges and agrees that, from and
after the Closing, the Buyer will be entitled to possession of all documents,
books, records, agreements, and financial data of any sort relating to
Mercer; provided that the Seller may retain any copies of the foregoing as
shall be necessary to comply with applicable tax and other laws, regulations
and ordinances.
(b) LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any charge, complaint, action,
suit, proceeding, hearing, investigation, claim or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act or transaction on or
prior to the Closing Date involving Mercer, each of the other Parties will
cooperate with him, her or it and his, her or its counsel in the contest or
defense, make available their personnel, and provide such testimony and
access to their books and records as shall be necessary in connection with
the contest or defense, all at the sole cost and expense of the contesting or
defending Party (unless the contesting or defending Party is entitled to
indemnification therefor under SECTION 8 below).
(c) TRANSITION. The Seller will not take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier or other business associate of Mercer from maintaining the
same business relationships with Mercer after the Closing for a period of 12
months thereafter as it maintained with Mercer prior to the Closing. The
Seller will refer all customer inquiries relating to Mercer's Business to the
Buyer and/or Mercer from and after the Closing for a period of 12 months
thereafter.
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(d) CONFIDENTIALITY. The Seller will treat and hold as such all
of the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement for a period of two (2)
years from the Closing, and deliver promptly to the Buyer or destroy, at the
request and option of the Buyer, all tangible embodiments (and all copies) of
the Confidential Information which are in its possession. In the event that
the Seller is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena,
civil investigative demand or similar process) to disclose any Confidential
Information, the Seller will notify the Buyer promptly of the request or
requirement so that the Buyer may seek an appropriate protective order or
waive compliance with the provisions of this SECTION 6(D). If, in the
absence of a protective order or the receipt of a waiver hereunder, the
Seller is, on the advice of counsel, compelled to disclose any Confidential
Information to any tribunal or else stand liable for contempt, the Seller may
disclose the Confidential Information to the tribunal; PROVIDED, HOWEVER,
that the Seller shall use its reasonable best efforts to obtain, at the
reasonable request of the Buyer, an order or other assurance that
confidential treatment will be accorded to such Portion of the Confidential
Information required to be disclosed as the Buyer shall designate. The
foregoing provisions shall not apply to any Confidential Information which is
generally available to the public immediately prior to the time of disclosure.
(e) ADDITIONAL TAX MATTERS.
(i) Seller shall be responsible for the preparation and filing of
all Seller's federal consolidated income Tax Returns with respect to all
Pre-Closing Periods, which shall include Mercer, and for the payment of all
federal income Taxes with respect to such returns.
(ii) Seller shall be responsible for the preparation and filing of
all state and local Tax Returns of Mercer that are required to be filed on or
before the Closing Date, and for the payment of all Taxes with respect to
such Tax Returns (less the portion of such Taxes that are specifically
accrued as current taxes on Most Recent Financial Statements.) Such Tax
Returns shall be prepared in a manner consistent with prior practice, and
shall utilize accounting methods, elections and conventions that do not have
the effect of distorting the allocation of income or expense between
Pre-Closing Tax Periods and Post-Closing Tax Periods.
(iii) Buyer shall be responsible for the preparation and filing of
all state and local Tax Returns of Mercer that relate to a Pre-Closing Tax
Period and that are required to be filed after the Closing Date. Seller
shall pay Buyer, in immediately available funds, any Taxes that are required
to be paid with such Tax Returns (less the portion of such Taxes that are
specifically accrued as current taxes on Most Recent Financial Statements.)
(iv) Buyer shall be responsible for the preparation and filing of
all Straddle Period Tax Returns with respect to Mercer, and for the payment
of all Taxes with respect to such returns. Seller shall reimburse Buyer, in
immediately available funds, for the portion of any Tax relating to a
Straddle Period that is allocable, in accordance with paragraph (vii) below,
to the pre-Closing portion of such Straddle Period (less the portion of such
Taxes that are specifically accrued as current taxes on Most Recent Financial
Statements.)
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(v) Buyer shall be responsible for the preparation and filing of
all Tax Returns and the payment of all Taxes with respect to Mercer for all
Post-Closing Tax Periods
(vi) To the extent permitted by law, Seller and Buyer shall use
their best efforts to cause any Tax period to close on the Closing Date.
(vii) Taxes payable with respect to a Straddle Period shall be
allocated to the pre-Closing and post-Closing portions of a Straddle Period on
the basis of a closing of the books as of the Closing Date or any other method
agreed upon by Buyer and Seller, except that Taxes imposed on a periodic basis,
such as real and personal property Taxes, shall be prorated based on the number
of days before and after the Closing Date.
(viii) Seller shall pay any stock transfer taxes due as a result
of the sale of the Shares to Buyer pursuant to the transactions contemplated by
this Agreement.
(ix) At Buyer's request, Seller shall join Buyer in making
elections under Section 338(g) and Section 338(h)(10) of the Code and any
state, local and foreign counterparts with respect to Mercer (the "SECTION
338 ELECTIONS"). Seller shall provide to Buyer such information as may be
reasonably requested by Buyer for purposes of determining whether Buyer should
make a Section 338 Election under any state or local law. Seller and Buyer
shall jointly complete and make the Section 338 Elections on the applicable
forms and in accordance with applicable law. Seller shall deliver such forms
and related documents to Buyer at least ninety (90) days prior to the due date
for filing such elections or forms. Buyer shall deliver to Seller at least
forty-five (45) days prior to the due date for filing, such completed forms as
are required to be filed with respect to the Section 338 Elections. Buyer and
Seller shall timely file the Section 338 Elections and any required forms and
documents.
(x) Buyer and Seller shall act reasonably and in good faith to
reach an agreement promptly, but in no event later than ninety (90) days after
the Closing Date, on the allocation of the Purchase Price among the assets of
Mercer for purposes of the Section 338 Elections. If Buyer and Seller are
unable to reach an agreement within such ninety (90) day period, they shall
submit the issue to arbitration by a nationally recognized accounting firm
mutually acceptable to Buyer and Seller, whose determination shall be final and
binding on both parties, and whose expenses shall be shared equally by Buyer
and Seller.
(xi) Seller shall be responsible for the payment of any Taxes of
Seller's affiliated group or Mercer that result from the Section 338 Elections
(the "SECTION 338 TAXES"). However, to the extent the state and local Taxes
payable by Seller as a result of making Section 338 Elections exceed the state
and local taxes payable by Seller in the absence of Section 338 Elections (such
excess hereinafter referred to as the "Section 338 Delta"), Buyer shall
reimburse Seller for the Section 338 Delta.
(xii) Seller, Buyer and Mercer shall cooperate in good faith in
(a) preparing and filing all Tax Returns, (b) maintaining and making available
to each other all records necessary in connection with the preparation and
filing of all Tax Returns and the payment of all Taxes and (c) resolving all
disputes and audits with respect to any Tax Returns and Taxes. Buyer
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and Seller recognize that each may need access, from time to time, after the
Closing Date, to certain accounting and Tax records and information held by
the other; therefore, Buyer and Seller agree (A) to retain and maintain Tax
records relating to Mercer for a period of five (5) years after the Closing
Date, (B) to allow each other and their agents and representatives, at times
and dates mutually acceptable to the parties, to inspect, review and make
copies of such records, such activities to be conducted during normal
business hours and at the requesting party's expense and (C) and to offer the
other parties such records before destroying such records.
(f) COVENANT NOT TO COMPETE. For a period of two (2) years from and
after the Closing Date, the Seller will not, directly or indirectly, as
principal, agent, trustee or through the agency of any corporation,
partnership, association or agent or agency, (i) participate or engage in the
Business existing as of the Closing Date, (ii) service or solicit any of
Mercer's business from any customer of Mercer, (iii) request or advise any
customer of Mercer to withdraw, curtail or cancel such customer's business with
Mercer or (iv) solicit for employment any person employed by Mercer on the
Closing Date (other than Michael Prude); PROVIDED HOWEVER, that (A) no owner of
less than five percent (5%) of the outstanding stock of any publicly traded
corporation shall, for purposes of this SECTION 6(f), be deemed to engage
solely by reason thereof in any of its businesses and (B) the future
acquisition by the Seller or its Affiliates of any Person or entity engaged in
the business of manufacturing floor coverings or related accessories (other
than specialty chemicals) (herein, a "Competitive Business") shall not be
deemed to violate this SECTION 6(F) if (x) less than thirty percent (30%) of
the total revenues of such acquired entity or Person are derived from the
Competitive Business and (y) Mercer is given (aa) an option to purchase the
Competitive Business on terms and conditions to be negotiated in good faith by
the parties at a purchase price reasonably related to the portion of the
purchase price of the acquired entity that is related to the Competitive
Business and (bb) a right of first refusal to acquire the Competitive Business
also on terms and conditions to be negotiated in good faith by the parties.
(g) EMPLOYEE BENEFIT PLANS. From and after the Closing Date, the
Buyer shall be the plan sponsor for each and every Employee Benefit Plan which
is not a Welfare Benefit Plan and such other plans, programs, policies and
arrangements of Mercer and shall assume or retain all related trusts, insurance
contracts, other assets and documents that have been maintained by Mercer or
the Seller for the benefit of employees or former employees of Mercer (all of
which plans, trusts, policies, insurance contracts and other assets are set
forth on SCHEDULE 4(Q) of the Disclosure Schedule); PROVIDED, HOWEVER, that
with respect to:
(i) PENSION BENEFITS PROVIDED BY THE SELLER. Prior to the
Closing Date, the Buyer shall have established or designated a defined
retirement plan of Buyer or Mercer with a Code Section 401(k) arrangement
(the "BUYER'S 401(K) PLAN") and, as soon as practicable after the Closing
Date, the Seller shall transfer to the Buyer's 401(k) Plan all of the
assets and liabilities pertaining to employees and former employees of
Mercer from the Sovereign 401(k) Plan (the "SOVEREIGN 401(K) PLAN"). The
Buyer shall establish the Buyer's 401(k) Plan on terms substantially
equivalent to the Sovereign 401(k) Plan. With respect to notes evidencing
plan loans, the Sovereign 401(k) Plan will assign such notes to the
Buyer's 401(k) Plan. The interests transferred to the Buyer's 401(k) Plan
shall be fully vested effective for periods after the Closing Date or as
otherwise provided pursuant to
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the applicable plan. Current Employees shall cease to make contributions
or have contributions made on their behalf under the Sovereign 401(k)
Plan. The Seller will cause the Sovereign 401(k) Plan to vest fully all
Current Employees in their benefits under such plan, determined as of the
Closing Date.
(ii) WELFARE BENEFITS PROVIDED BY THE SELLER. Effective as of
the Closing Date and through December 31, 1998, Seller shall maintain the
Current Employees of Mercer who are retained as employees of Mercer after
the Closing Date on the Welfare Benefits Plans of Seller (as set forth on
Schedule 4(q) of the Disclosure Schedule) without any change in terms of
such Plans. Seller shall bill Buyer for the Mercer employees' share of
premium costs and expenses from the Closing Date through December 31, 1998
pursuant to Seller's normal procedures. Effective as of January 1, 1999,
the Buyer shall establish or designate a plan or plans to provide welfare
benefits (but not retiree medical or life insurance) for Mercer's
employees as of that date (collectively, the "BUYER'S WELFARE BENEFITS
PLANS"). The Buyer's Welfare Benefits Plans shall provide benefits that
are reasonably similar to the benefits provided under the Welfare Benefits
Plans of Seller. The Buyer shall cause the Buyer's Welfare Benefits Plans
to waive any waiting period and restrictions or limitations for
preexisting conditions with respect to Mercer employees. In addition,
effective as of the Closing Date and through December 31, 1998, Seller
shall be responsible for the administration of "COBRA" for any Current
Employee eligible for such benefits on or after the Closing Date and
through December 31, 1998. Effective as of January 1, 1999, the Buyer
shall be responsible for the administration of "COBRA" for any Mercer
employee eligible for such benefits on or after January 1, 1999.
(iii) BACK SERVICE CREDIT. Service of each Current Employee
shall be recognized by the Buyer's pension plans, the Buyer's 401(k) Plan
and the Buyer's Welfare Benefit Plans for all purposes, including, without
limitation, vesting, eligibility for benefits and level of benefits but
not benefit accrual or optional forms of payment.
(h) DISABILITY WORKERS' COMPENSATION. To the extent commercially
feasible, the Buyer and its plans shall assume all responsibility for unpaid
workers' compensation, short-term disability and long-term disability incurred
by a Current Employee after the Closing Date. Any Current Employee on short-
term disability on the Closing Date shall continue short-term disability
coverage under Seller's Plan for the duration of the coverage period.
(i) SEVERANCE POLICY. The Buyer shall establish and maintain, for
the period commencing on the Closing Date and terminating not less than one (1)
year following the Closing Date, a severance policy for Mercer which provides
severance benefits to the Current Employees who are retained by Mercer
following the Closing Date which are substantially similar to the severance
benefits described on SCHEDULE 6(I) of the Disclosure Schedule; PROVIDED THAT
nothing in this Agreement shall require the Buyer to retain any Current
Employee or prevent the Buyer from terminating any Current Employee at any time
to the extent not inconsistent with applicable Law. The Buyer shall indemnify
the Seller against any and all Adverse Consequences the Seller may suffer after
the Closing Date as a result of Buyer's termination after the Closing Date of
any Current Employee who was retained by Mercer following the Closing Date.
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(j) COLLECTIVE BARGAINING AGREEMENT. The Buyer agrees to be bound
by the terms and conditions of the collective bargaining agreement covering
employees of Mercer described on SCHEDULE 4(p)(ii) of the Disclosure Schedule
and to continue to provide any compensation or employee benefits required to be
provided under the terms of Mercer's collective bargaining agreement.
7. CONDITIONS TO OBLIGATIONS TO CLOSING.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the
Buyer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction or waiver of the following conditions:
(i) the representations and warranties set forth in
Section 3(a) and Section 4 above shall be true and correct in all Material
respects at and as of the Closing Date;
(ii) the Seller shall have performed and complied with all of
its covenants hereunder in all Material respects through the Closing;
(iii) Mercer shall have procured all necessary third party
consents specified in SECTION 5(B) above;
(iv) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local or foreign jurisdiction wherein an unfavorable
judgment order, decree, stipulation, injunction or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation or (C) affect adversely
the right of the Buyer to own, operate or control the Mercer Shares or
Mercer (and no such judgment order, decree, stipulation, injunction or
charge shall be in effect);
(v) the Seller shall have delivered to the Buyer a certificate
(without qualification as to knowledge or Materiality or otherwise) to the
effect that each of the conditions specified above in SECTION 7(a)(i)-
(iv) is satisfied in all respects;
(vi) the acquisition by the Buyer of the Mercer Shares shall
represent one hundred percent (100%) of the issued and outstanding capital
stock of Mercer and all of the Mercer Shares shall be free and clear of
any Security Interests or other liens, claims or encumbrances of any
nature whatsoever;
(vii) the Parties and Mercer shall have received all other
authorizations, consents and approvals of Governmental Bodies including
such authorizations, consents or approvals required under the HSR Act and
set forth in the Disclosure Schedule;
(viii) the Buyer shall have received from counsel to the
Seller an opinion with respect to the matters set forth in EXHIBIT B
attached hereto, addressed to the Buyer and Buyer's financing sources and
dated as of the Closing Date;
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(ix) the Buyer shall have received the resignations, effective
as of the Closing, of (A) each director of Mercer and (B) each officer of
Mercer designated by the Buyer, in each case prior to the Closing;
(x) no Material Adverse Change shall have occurred in Mercer's
Business or its future prospects;
(xi) all funded indebtedness of Mercer shall have been paid in
full prior to or at the Closing and all Security Interests in the Shares
and in any assets of Mercer except Permitted Liens shall have been fully
released of record to the satisfaction of the Buyer and all mortgages and
Uniform Commercial Code financing statements covering such funded
indebtedness shall have been terminated or the Buyer shall be reasonably
satisfied that all such Security Interests will be fully released of
record within three (3) days thereafter;
(xii) all appropriate corporate and shareholder authorizations
of Mercer shall have been obtained;
(xiii) except as set forth on the Disclosure Schedule, since
August 5, 1997, Mercer shall not have transferred, conveyed, disposed of
and/or sold any of Material assets, except in the Ordinary Course of
Business; and
(xiv) On or before March 13, 1998, Seller shall have
delivered to Buyer the Final Audited Financial Statements, which shall not
change from the Draft Statements except for the allocation of goodwill
amortization and the tax implications related thereto.
The Buyer may waive any condition specified in this SECTION 7(A) if
it executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATIONS OF THE SELLER. Obligations of the
Seller to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction or waiver of the following conditions:
(i) the representations and warranties set forth in
Section 3(b) above shall be true and correct in all Material respects at
and as of the Closing Date;
(ii) the Buyer shall have performed and complied with all of
its covenants hereunder in all Material respects through the Closing;
(iii) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local or foreign jurisdiction wherein an unfavorable
judgment order, decree, stipulation, injunction or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such judgment
order, decree, stipulation, injunction or charge shall be in effect);
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(iv) the Buyer shall have delivered to the Seller a certificate
(without qualification as to knowledge or Materiality or otherwise) to the
effect that each of the conditions specified above in SECTION 702)(i)-(iii)
is satisfied in all respects;
(v) the Parties and Mercer shall have received all other
authorizations, consents, and approvals of Governmental Bodies including
such authorizations, consents and approvals required under the HSR Act and
set forth in the Disclosure Schedule;
(vi) the Seller shall have received from counsel to the Buyer
an opinion with respect to the matters set forth in EXHIBIT C attached
hereto, addressed to the Seller and dated as of the Closing Date;
(vii) the Buyer shall have delivered to the Seller a
certificate of Buyer addressed to Laporte Inc. pursuant to which Buyer
agrees to be bound by the provisions of Section 8.4(a)(viii) of that
certain Stock Purchase Agreement dated May 22, 1997, as amended, among
Laporte Inc., Seller and Sovereign Specialty Chemicals, L.P.; and
(viii) all actions to be taken by the Buyer in connection
with the consummation of the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the Seller.
The Seller may waive any condition specified in this SECTION 7(b) if
it executes a writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACH OF THIS AGREEMENT.
(a) SURVIVAL. All of the representations and warranties of the
Seller contained in SECTION 4 above (other than the representations and
warranties of the Seller contained in SECTIONS 4(b), (h), (r), (u) and (z)
above) shall survive the Closing hereunder (even if the Buyer knew or had
reason to know of any misrepresentation or breach of warranty at the time of
the Closing) and continue in full force and effect until the 90th day after
receipt by the Buyer of audited financial statements of Mercer for the fiscal
year ending December 31, 1998, but in no event later than June 30, 1999. The
representation and warranty of the Seller contained in SECTION 4(r) shall
survive the Closing hereunder (even if the Buyer knew or had reason to know
of any misrepresentation or breach of warranty at the time of the Closing)
and continue in full force and effect until the 90th day after receipt by the
Buyer of audited financial statements of Mercer for the fiscal year ending
December 31, 1999, but in no event later than June 30, 2000. The other
representations, warranties, and covenants of the Parties contained in this
Agreement (including the representations and warranties of the Seller
contained in SECTION 3(a) and SECTIONS 4(b), (h), (u) and (z) above and the
representations and warranties of the Buyer contained in SECTION 3(b) above)
shall survive the Closing (even if the damaged Party knew or had reason to
know of any misrepresentation or breach of warranty or covenant at the time
of the Closing) and continue in full force and effect until the expiration of
the applicable statute of limitations.
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(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(i) In the event the Seller breaches any of its
representations, warranties, agreements and covenants contained herein
(other than those contained in SECTION 3(A) above), and provided that the
particular representation, warranty, agreement or covenant survives the
Closing and that the Buyer makes a written claim for indemnification
against the Seller pursuant to SECTION 10(G) below within the applicable
survival period, then the Seller agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Buyer may suffer after the end of the applicable
survival period; PROVIDED THAT the Buyer asserted its claim for
indemnification prior to the end of the applicable survival period)
resulting from, arising out of, relating to, in the nature of or caused by
the breach; PROVIDED, HOWEVER, that the Seller shall not have any
obligation to indemnify the Buyer from and against any Adverse
Consequences resulting from, arising out of, relating to, in the nature of
or caused by the breach of any representation or warranty of the Seller
contained in SECTION 4 above (A) until the Buyer has suffered by reason of
any breaches aggregate losses in excess of a $250,000 threshold (at which
point the Seller will be obligated to indemnify the Buyer from and against
all aggregate losses in excess of $25,000) and (B) if the Seller has
already paid any claims for indemnification pursuant to this
Section 8(b)(i) in excess of $5,000,000 (or the Purchase Price, as
adjusted, in the case of Sections 4(b), (h), and (u)) individually or in
the aggregate (after which point the Seller shall have no obligation to
indemnify the Buyer from and against further such Adverse Consequences).
Notwithstanding anything herein to the contrary, it is understood and
agreed that the disclosures relating to environmental matters on
Schedule 4(r) are included herein for informational purposes only and
shall not be deemed to qualify or otherwise alter, affect or limit the
representations and warranties made by the Seller in Section 4(r) hereof
(and any purported breach of the representation and warranty contained in
Section 4(r) shall be tested without regard to such disclosures relating
to environmental matters on Schedule 4(r) for purposes of Section 8(b)).
Notwithstanding anything herein to the contrary, it is understood and
agreed that Seller will not be liable to Buyer for any breach of the
representations and warranties contained in Sections 4(w) and 4(x) above
to the extent that an appropriate adjustment to Mercer's accounts
receivables or inventory entries to the Net Working Capital of Mercer at
Closing has been made.
(ii) In the event any Seller breaches any of its representations
and warranties contained in SECTION 3(A) herein and provided that the
Buyer makes a written claim for indemnification against such Seller
pursuant to SECTION 10(G) below within the applicable survival period,
then the Seller agrees to indemnify the Buyer from and against the
entirety of any Adverse Consequences the Buyer may suffer through and
after the date of the claim for indemnification (including any Adverse
Consequences the Buyer may suffer after the end of the applicable survival
period; PROVIDED THAT the Buyer asserted its claim for indemnification
prior to the end of the applicable survival period) resulting from,
arising out of, relating to, in the nature of or caused by the breach;
PROVIDED, HOWEVER, that the Seller shall not have any obligation to
indemnify the Buyer from and against any Adverse Consequences resulting
from, arising out of, relating to or caused by the breach
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<PAGE> 38
of any representation or warranty of the Seller contained in SECTION 3(a)
if the Seller has already paid any claims for indemnification pursuant to
this SECTION 8(b)(ii) in excess of the Purchase Price, as adjusted.
(iii) The Seller agrees to indemnify the Buyer from and
against the entirety of any brokerage fees or investment banking
commissions due by the Seller or Mercer by reason of the transactions
contemplated by this Agreement.
(iv) Seller shall indemnify Buyer and Mercer for (A) breaches
of any representations and warranties in Section 4(h)(iv), (v) and (vi),
(B) all liability for Taxes of the Seller and its subsidiaries, including
Mercer, for all Pre-Closing Tax Periods and for the portion of all
Straddle Periods that ends on the Closing Date, (C) all Section 338 Taxes
other than Section 338 Delta and (D) all liability for reasonable legal
and accounting fees and expenses incurred with respect to any item
indemnified pursuant to clauses (A), (B) and (C) above. The
indemnification obligations of the parties set forth in this subsection
(iv) shall survive until the expiration of the applicable statute of
limitations relating to the Taxes that are the subject of the
indemnification obligation.
(v) The Seller shall be liable for, and hereby agrees to
indemnify, the Buyer for and all liability associated, directly or
indirectly, with the stay-on bonuses.
(vi) Seller shall be liable for, and hereby agrees to indemnify,
subject to the dollar limitations of Section 8(b)(i), the Buyer, its
successors, and successors in interest, from and against the entirety of
any Adverse Consequences the Buyer, its successors, and successors in
interest may suffer resulting from, arising out of, or relating to
liability attributable to Laporte Inc. or any of its affiliates in respect
to any contamination of the Real Property or facility thereon with
hazardous materials, the existence, storage or presence of hazardous
materials in, on or under the facility or the buildings, structures and
all other improvements on any portion of such Real Property or the
emission, disposal, deposit, release or discharge of hazardous materials
(whether on or off such Real Property or facility).
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLER. In the
event the Buyer breaches any of its representations, warranties and covenants
contained herein, and provided that the particular representation, warranty or
covenant survives the Closing and that the Seller make a written claim for
indemnification against the Buyer pursuant to SECTION 10(g) below within the
applicable survival period, then the Buyer agrees to indemnify the Seller from
and against the entirety of any Adverse Consequences the Seller may suffer
through and after the date of the claim for indemnification, (including any
Adverse Consequences the Seller may suffer after the end of the applicable
survival period) resulting from, arising out of, relating to, in the nature of
or caused by the breach; PROVIDED, HOWEVER, that the Buyer shall not have any
obligation to indemnify the Seller from and against any Adverse Consequences
resulting from, arising out of, relating to or caused by the breach of any
representation or warranty of the Buyer contained in SECTION 3(b) if the Buyer
has already paid any claims for indemnification pursuant to this SECTION 8(c)
in excess of the Purchase Price, as adjusted. In addition, Buyer shall
indemnify Seller for (A) all liability for Taxes of the Buyer and its
subsidiaries, including Mercer, for all Post-
33
<PAGE> 39
Closing Tax Periods and for the portion of all Straddle Periods after the
Closing Date, (B) all Section 338 Delta and (C) all liability for reasonable
legal and accounting fees and expenses incurred with respect to any item
indemnified pursuant to clauses (A) and (B) above. The indemnification
obligation of Buyer set forth in the previous sentence shall survive until
the expiration of the applicable statute of limitations relating to the Taxes
that are the subject of the indemnification obligation.
(d) MATTERS INVOLVING THIRD PARTIES. If any third party shall
notify any Party (the "INDEMNIFIED PARTY") with respect to any matter which
may give rise to a claim for indemnification against any other Party (the
"INDEMNIFYING PARTY") under this SECTION 8, then the Indemnified Party shall
notify in writing each Indemnifying Party thereof promptly; PROVIDED,
HOWEVER, that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any liability or
obligation hereunder unless (and then solely to the extent) the Indemnifying
Party thereby is damaged and prejudiced from adequately defending such claim.
In the event any Indemnifying Party notifies the Indemnified Party within 30
days after the Indemnified Party has given notice of the matter that the
Indemnifying Party is assuming the defense thereof, (i) the Indemnifying
Party will defend the Indemnified Party against the matter with counsel of
its choice reasonably satisfactory to the Indemnified Party, (ii) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and (iii) the Indemnified Party will not consent to the entry of any judgment
or enter into any settlement with respect to the matter without the written
consent of the Indemnifying Party (not to be withheld unreasonably). In the
event no Indemnifying Party notifies in writing the Indemnified Party within
thirty (30) days after the Indemnified Party has given notice of the matter
that the Indemnifying Party is assuming the defense thereof, however, the
Indemnified Party may defend against or enter into any settlement with
respect to, the matter in any manner it reasonably may deem appropriate. At
any time after commencement of any such action, any Indemnifying Party may
request an Indemnified Party to accept a bona fide offer from the other
Party(ies) to the action for a monetary settlement payable solely by such
Indemnifying Party (which does not burden or restrict the Indemnified Party
nor otherwise prejudice him or her) whereupon such action shall be taken
unless the Indemnified Party determines that the dispute should be continued,
the Indemnifying Party shall be liable for indemnity hereunder only to the
extent of the lesser of (A) the amount of the settlement offer or (B) the
amount for which the Indemnified Party may be liable with respect to such
action. In addition, the Party controlling the defense of any third party
claim shall deliver or cause to be delivered, to the other Party copies of
all correspondence, pleadings, motions, briefs, appeals or other written
statements relating to or submitted in connection with the defense of the
third party claim, and timely notices of, and the right to participate in (as
an observer) any hearing or other court proceeding relating to the third
party claim.
(e) DETERMINATION OF LOSS. The Parties shall make appropriate
adjustments for Tax benefits and insurance proceeds (reasonably certain of
receipt and utility in each case) in determining the amount of any Adverse
Consequence or loss for purposes of this SECTION 8.
(f) EXCLUSIVE REMEDY. Except as set forth in SECTION 8(h), the
Parties acknowledge and agree that the foregoing indemnification provisions
in this SECTION 8 shall be the exclusive remedy of the Parties for any breach
of the representations and warranties of the Parties contained in SECTION 3
or SECTION 4 of this Agreement.
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<PAGE> 40
(g) PAYMENT. The Indemnifying Parties shall promptly pay to the
Indemnified Party as may be entitled to indemnity hereunder in cash the
amount of any Adverse Consequences to which such Indemnified Party may become
entitled to by reason of the provisions of this Agreement.
(h) RESERVATION AND NONWAIVER OF RIGHTS AND REMEDIES.
Notwithstanding any other provision of this Agreement, the Parties reserve,
and this Agreement is without prejudice to, any rights or remedies the
Parties have or may have against each other under any state or federal
statutory or common law.
(i) ARBITRATION WITH RESPECT TO CERTAIN INDEMNIFICATION MATTERS.
The Parties agree to submit to arbitration, in accordance with these
provisions, any disputed claim or controversy arising from or related to the
alleged breach of this Agreement or any disputed indemnification claim made
pursuant to this SECTION 8. The Parties further agree that the arbitration
process agreed upon herein shall be the exclusive means for resolving all
disputes made subject to arbitration herein, but that no arbitrator shall
have authority to expand the scope of these arbitration provisions. Any
arbitration hereunder shall be conducted under the procedures of the American
Arbitration Association (AAA). Either Party may invoke arbitration
procedures herein by written notice for arbitration containing a statement of
the matter to be arbitrated. The Parties shall then have fourteen (14) days
in which they may identify a mutually agreeable, neutral arbitrator who, in
the case of any arbitration the subject matter of which is related to
accounting matters, shall have extensive knowledge of accounting matters.
After the fourteen (14) day period has expired, the Parties shall prepare and
submit to the AAA a joint submission, with each Party to contribute half of
the appropriate administrative fee. In the event the Parties cannot agree
upon a neutral arbitrator within fourteen (14) days after written notice for
arbitration is received, their joint submission to the AAA shall request a
panel of three arbitrators who are practicing attorneys with professional
experience in the field of corporate law, and the Parties shall attempt to
select an arbitrator from the panel according to AAA procedures. Unless
otherwise agreed by the Parties, the arbitration hearing shall take place in
Chicago, Illinois, at a place designated by the AAA. All procedures
hereunder shall be confidential. Each Party shall be responsible for its
costs incurred in any arbitration, and the arbitrator shall not have
authority to include all or any portion of said costs in an award, regardless
of' which Party prevails. The arbitrator may include equitable relief. Any
arbitration awarded shall be accompanied by a written statement containing a
summary of the issues in controversy, a description of the award, and an
explanation of the reasons for the award. The arbitration will be subject to
the following conditions:
(i) that each party shall be entitled to discovery pursuant to
the Federal Rules of Civil Procedure and Federal Rules of Evidence;
(ii) that evidence shall be competent only if it is admissible
in evidence, under the Federal Rules of Civil Procedure and Federal Rules
of Evidence; and
(iii) that the losing Party shall pay the reasonable legal
fees and costs of the prevailing Party, as shall be determined by the
arbitrator.
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<PAGE> 41
(j) ADJUSTMENT TO PURCHASE PRICE. Any payment under this Section 8
shall be treated for tax purposes as an adjustment of the Purchase Price to the
extent such characterization is proper and permissible under relevant Tax
authorities, including court decisions, statutes, regulations and
administrative promulgations.
9. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing in the event the
Seller is in breach of any representation, warranty or covenant contained
in this Agreement and such breach has not been cured within fifteen (15)
days of written notice thereof, and the Seller may terminate this
Agreement by giving written notice to the Buyer at any time prior to the
Closing in the event the Buyer is in breach of any representation,
warranty or covenant contained in this Agreement and such breach has not
been cured within fifteen (15) days of written notice thereof;
(iii) the Buyer may terminate this Agreement by giving
written notice to the Seller at any time prior to the Closing if the
Closing shall not have occurred on or before April 30, 1998 by reason of
the failure of any condition precedent under SECTION 7(a) hereof (unless
the failure results primarily from the Buyer itself breaching any
representation, warranty or covenant contained in this Agreement); or
(iv) the Seller may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing if the Closing shall
not have occurred on or before April 30, 1998 by reason of the failure of
any condition precedent under SECTION 7(b) hereof (unless the failure
results primarily from the Seller itself breaching any representation,
warranty or covenant contained in this Agreement).
Nothing contained in this SECTION 9(a) shall alter, affect, modify or
restrict either Parties' rights to rely on and/or seek indemnification for a
breach of any of the representations and warranties and/or conditions or
covenants of any of the Parties contained in this Agreement.
(b) EFFECT OF TERMINATION. If either the Buyer or the Seller
terminates this Agreement pursuant to SECTION 9(a) above, all obligations of
the Parties hereunder shall terminate without any Liability of any Party to any
other Party.
10. MISCELLANEOUS.
(a) PRESS RELEASES AND ANNOUNCEMENTS. Except as may be required by
applicable securities laws or stock exchange requirements, no Party shall issue
any press release or announcement relating to the subject matter of this
Agreement prior to, at or about the Closing
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<PAGE> 42
without the prior written approval of the Buyer and the Seller, which
written approval will not be unreasonably withheld; PROVIDED, HOWEVER, that
any Party may make any public disclosure it believes in good faith is
required by law or regulation (in which case the disclosing Party will advise
the other Parties prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements or representations by or among
the Parties, written or oral, that may have related in any way to the subject
matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his, her or its rights, interests or obligations hereunder without the
prior written approval of the Buyer and the Seller; PROVIDED, HOWEVER, that the
Buyer may (i) assign any or all of its rights and interests hereunder to a
wholly-owned Subsidiary and (ii) assign its rights to indemnity hereunder as
additional collateral to its lenders.
(e) FACSIMILE/COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument. A facsimile,
telecopy or other reproduction of this Agreement may be executed by one or more
parties hereto, and an executed copy of this Agreement may be delivered by one
or more parties hereto by facsimile or similar instantaneous electronic
transmission device pursuant to which the signature of or on behalf of such
party can be seen, and such execution and delivery shall be considered valid,
binding and effective for all purposes. At the request of any Party hereto,
all parties hereto agree to execute an original of this Agreement as well as
any facsimile, telecopy or other reproduction hereof.
(f) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim or other communication hereunder shall be deemed duly given if (and then
two Business Days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
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<PAGE> 43
If to Mercer or the Seller:
C/O Sovereign Specialty Chemicals, Inc.
W. Washington Street
Suite 2200
Chicago, Illinois 60606
Attn: Lowell Johnson
Chief Financial Officer
Tel: (312) 419-7100
Fax: (312) 419-7151
with a copy to:
Christopher J. Hagan, Esq.
Hogan & Hartson, L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Tel: (202) 637-5771
Fax: (202) 637-5910
If to the Buyer:
Burke Industries, Inc.
2250 South Tenth Street
San Jose, California 95112
Attn: Rocco C. Genovese
President and Chief Executive Officer
Tel: (408) 297-3500
Fax: (408) 995-5163
with a copy to:
Kenneth M. Doran, Esq.
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Tel: (213) 229-7537
Fax: (213) 229-7520
J.F. Lehman & Company
450 Park Avenue, Sixth Floor
New York, New York 10022
Attn: Donald P. Glickman
Partner
Tel: (212) 634-0100
Fax: (212) 634-1155
38
<PAGE> 44
Any Party may give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, facsimile, ordinary mail or electronic
mail), but no such notice, request, demand, claim or other communication
shall be deemed to have been duly given unless and until it actually is
received by the individual for whom it is intended. Any Party may change the
address to which notices, requests, demands, claims and other communications
hereunder are to be delivered by giving the other parties notice in the
manner herein set forth.
(h) SUBMISSION TO JURISDICTION. This Agreement and the rights and
obligations of the Seller and the Buyer hereunder shall be construed in
accordance with and be governed by the laws (and not the conflict of laws) of
the State of Delaware. Except as provided in SECTION 8(i), any legal action
or proceeding against the Seller with respect to this Agreement may be
brought and enforced in a federal or state court located in the Northern
District of Illinois, and by execution and delivery of this Agreement, each
of the Seller and the Buyer hereby irrevocably accepts for itself and in
respect of its property, generally, irrevocably and unconditionally, the
jurisdiction of the aforesaid courts. Each of the Seller and the Buyer agree
that a judgment, after exhaustion of all available appeals, in any such
action or proceedings shall be conclusive and binding upon them, and may be
enforced in any other jurisdiction by a suit upon such judgment, a certified
copy of which shall be conclusive evidenced of this judgment. The Seller
hereby irrevocably designates, appoints and empowers CT Corporation System,
with offices on the date hereof at 208 S. La Salle Street, Chicago, Illinois
60604, so long as this Agreement is outstanding, as its designee, appointee
and Agent with respect to any action or proceeding to receive, accept and
acknowledge for and on its behalf, and in respect of its property, service of
any mid all legal process, summons, notices and documents which may be served
in any such action or proceeding and agree that the failure of any such agent
to give any advice or any service of process to the Seller shall not impair
or affect the validity of such service or of any judgment based thereon. If
for any reason such designee, appointee and agent shall cease to be available
to act as such, the Seller agree to designate a new designee, appointee and
agent in the State of Illinois on the terms and for the purposes of this
provision satisfactory to the Buyer. Each of the Seller and the Buyer
further irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the
Seller or Buyer, as the case may be, at its address set forth in SECTION
10(g) hereof, such service to become effective 30 days after such mailing.
Nothing herein shall affect the right of the Buyer to serve process or to
commence legal proceedings or otherwise proceed against the Seller in any
other manner permitted by law. Each of the Seller and the Buyer hereby
waives irrevocably, to the fullest extent permitted by law, any objection to
the laying of venue in Chicago, Illinois or any claim of inconvenient forum
in respect of any such action in Chicago, Illinois to which it might
otherwise now or hereafter be entitled in any actions arising out of or based
on this Agreement.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation or
breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
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<PAGE> 45
(j) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction. If the final judgment
of a court of competent jurisdiction declares that any term or provision
hereof is invalid or unenforceable, the Parties agree that the court making
the determination of invalidity or unenforceability shall have the power to
reduce the scope, duration or area of the term or provision, to delete
specific words or phrases or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified
after the expiration of the time within which the judgment may be appealed.
(k) EXPENSES. Each of the Parties and Mercer will bear his, her
or its own costs and expenses (including legal fees and expenses and
investment banking fees) incurred in connection with this Agreement and the
transactions contemplated hereby. Except as paid out of cash of Mercer prior
to the Closing Date, the Seller acknowledges and agrees that Mercer has not
borne or will bear any of the Seller's costs and expenses (including any of
its legal fees and expenses and investment banking fees or liability for (or
otherwise associated with) stay-on bonuses) in connection with this Agreement
or any of the transactions contemplated hereby.
(l) CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the Parties to express their mutual
intent, and no rule of strict construction shall be applied against any
Party. Any reference to any federal, state, local or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The Parties intend that
each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty or covenant relating to the same subject matter as any other
representation, warranty or covenant (regardless of the relative levels of
specificity) which the Party has not breached, it shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty or covenant.
(m) INCORPORATION OF EXHIBITS, ANNEXES AND SCHEDULES. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and
agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of the
Parties agrees that the other Parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in
any action instituted in any court of the United States or any state thereof
having jurisdiction over the Parties and the matter, in addition to any other
remedy to which they may be entitled, at law or in equity.
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<PAGE> 46
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
BUYER:
BURKE INDUSTRIES, INC.
By: /S/ ROCCO C. GENOVESE
------------------------------
Name: ROCCO C. GENOVESE
------------------------
Title: PRESIDENT & CEO
------------------------
MERCER:
MERCER PRODUCTS COMPANY, INC.
By: /S/ ROBERT B. COVALT
------------------------------
Name: ROBERT B. COVALT
------------------------
Title: CHAIRMAN
------------------------
SELLER:
SOVEREIGN SPECIALTY CHEMICALS, INC.
By: /S/ ROBERT B. COVALT
------------------------------
Name: ROBERT B. COVALT
------------------------
Title: CHAIRMAN, PRESIDENT AND CEO
------------------------
41
<PAGE> 47
SCHEDULE 4(c)
AUTHORITY, APPROVALS AND CONSENTS
1. Consent of RTC Properties, Inc. under the Agreement of Lease dated
December 1, 1988 between RTC Properties, Inc. and Mercer.*
- Extension and First Amendment of Lease dated January 13, 1994 between
RTC Properties, Inc. and Mercer.
- Extension and Second Amendment of Lease dated January 23, 1995 between
RTC Properties, Inc. and Mercer.
- Extension and Third Amendment of Lease dated March 26, 1997 between
RTC Properties, Inc. and Mercer.
2. Consent of the Childs Family Trust u/t/a and A.G. Gardner Family Trust
u/t/a under the Standard Industrial/Commercial Single-Tenant Lease-Gross
dated June 22, 1994 between The Childs Family Trust u/t/a of April 30, 1981
and The A.G. Gardner Family Trust u/t/a of March 3, 1981 dba LANDCO and
Mercer.*
3. Consent of Chase Manhattan Bank pursuant to that certain Amended and
Restated Credit Agreement dated August 5, 1997 pursuant to which Mercer is
a party.
GENERAL
Amendments to or filings with respect to permits may have to be made as a
result of consummation of the Closing.
<PAGE> 48
SCHEDULE 4(d)
SUBSIDIARIES
Mercer Products Company, Inc. owns one (1) share of Pine Meadows Golf Estates,
Inc./Stock Certificate NO. 1445 issued April 29, 1986. This share is owned in
connection with a country club membership.
<PAGE> 49
SCHEDULE 4(e)
EXCEPTIONS TO FINANCIAL STATEMENTS
The Financial Statements fairly present the financial condition of Mercer
except as set forth below:
1. The Most Recent Financial Statements (the period from August 5,
1997 thorough December 31, 1997) which have been prepared in accordance with
GAAP may not be consistent with prior periods.
2. The Most Recent Financial Statements have been prepared on
Sovereign's basis of accounting in accordance with GAAP. However, the Financial
Statements prior to August 5, 1997 (i.e., during the ownership by Laporte PLC)
(the "Laporte Financial Statements"), were accounted for on Laporte PLC's basis
of accounting (i.e., based on Laporte PLC's cost of its acquisition) and
reflecting Laporte PLC's accounting policies and procedures.
3. The information contained in the Laporte Financial Statements was
prepared based on Mercer's internal accounting records and do not include (i)
United States/United Kingdom GAAP adjustments and (ii) push-down accounting for
goodwill, debt and income taxes.
4. Certain of the expenses recognized by Mercer as allocated by
Laporte PLC in the Laporte Financial Statements may or may not reflect the
true operating expenses that Mercer would have incurred had it operated as a
stand-alone entity during such time periods.
<PAGE> 50
SCHEDULE 4(f)
CERTAIN EVENTS
4(e)(ii) Bayshore Vinyl Compounds Inc. supply contract for vinyl dated
January 1, 1998.
4(e)(iii) Termination of contract with AlphaGary Corporation pursuant to
settlement letter dated February 4, 1998.
<PAGE> 51
SCHEDULE 4(h)
TAX MATTERS
1. Prior to August 5, 1997, Mercer was included in the consolidated federal
income tax returns filed by the group of Laporte Inc. Prior to January 1,
1996, Mercer was included in an affiliated group filing consolidated
federal income tax returns of which Evode U.S.A., Inc. was the common
parent (the "EVODE GROUP").
2. The Evode Group's federal income tax returns have been audited through the
period ending December 31, 1993. Amended California, Florida, New Jersey,
and North Carolina state income tax returns reflecting those adjustments
are being prepared for Mercer for the year ended October 31, 1992.
3. The statute of limitations for Laporte Inc.'s consolidated federal tax
return for the year ended December 31, 1993 has been extended to
December 31, 1997.
<PAGE> 52
SCHEDULE 4(j)
REAL PROPERTY
OWNED BY MERCER
1. 37235 State Road 19, Umatilla, Florida 32784
LEASED BY MERCER
1. Standard Industrial/Commercial Single-Tenant Lease-Gross dated June
22, 1994 between The Childs Family Trust u/t/a of 4/30/81 and The A.G.
Gardner Family Trust u/t/a of 3/5/81 dba LANDCO and Mercer.
2. Agreement of Lease dated December 1, 1988 between RTC Properties, Inc.
and Mercer.
- Extension and First Amendment of Lease dated January 13, 1994
between RTC Properties, Inc. and Mercer.
- Extension and Second Amendment of Lease dated January 23, 1995
between RTC Properties, Inc. and Mercer.
- Extension and Third Amendment of Lease dated March 27, 1997
between RTC Properties, Inc. and Mercer.
<PAGE> 53
SCHEDULE 4(k)
INTELLECTUAL PROPERTY
PATENTS:
None.
TRADEMARKS
- - DOCKSIDERS & DESIGN
US Trademark Registration No. 1,372,591
Registered November 26, 1985
Expires November 26, 2005
- - MAXXI-TREAD
US Trademark Registration No. 1,355,586
Registered August 20, 1985
Expires August 20, 2005
- - MERCER FRICTION GRIP
US Trademark Registration No. 861,475
Registered December 3, 1968
Renewed September 19, 1989
- - MERCER & DESIGN
US Trademark Registration No. 1,810,789
Registered December 14, 1993
Expires December 14, 2003
- - MERCER
US Trademark Registration No. 1,851,484
Registered August 30, 1994
Expires August 30, 2004
- - MIRROR-FINISH
US Trademark Registration No. 1,782,795
Registered July 20, 1993
Expires July 20, 2003
<PAGE> 54
- - RUBBERLYTE
US Trademark Registration No. 1,524,506
Registered February 14, 1989
Expires February 14, 2009
- - RUBBERMYTE
US Trademark Registration No. 1,641,500
Registered July 23, 1991
Expires July 23, 2001
- - UNICOLOR
US Trademark Registration No. 1,829,424
Registered April 5, 1994
Expires April 5, 2004
LICENSES
- - Pursuant to the Tamms Supply Agreement dated March 4, 1997, Mercer granted
Tamms Acquisition Corporation a royalty-free license to use the polymer and
know-how to manufacture certain waterstop products.
- - Pursuant to the Segue Manufacturing, Distribution and Sales Sublicensing
Agreement dated November 5, 1997, Segue, Inc. granted Mercer a sublicense
to manufacture, distribute, sell and export the Step Loc II carpet base.
- - Pursuant to the License Agreement dated December 5, 1997 with Future
Industries Corporation, Future licensed to Mercer the right to manufacturer
and sell flexible transition mouldings.
<PAGE> 55
SCHEDULE 4(l)
WARRANTIES
None. See attached for a description of warranty
claims against Mercer in the aggregate amount of $34,460.
<PAGE> 56
SCHEDULE 4(m)
MATERIAL CONTRACTS
1. Supply Agreement dated March 4, 1997 between Mercer and Tamms Acquisition
Corporation.
2. In connection with finding a buyer for Mercer, Laporte plc and Seller
entered into various confidentiality agreements with potential buyers.
Although these agreements are not in the name of Mercer, Seller has the
right and will cause Laporte plc to reasonably cooperate with Mercer at
Mercer's expense in enforcing such agreements for the benefit of Mercer.
3. The Biltrite Corporation Contract dated December 14, 1994 for the supply to
Mercer of Private-label rubber stamp stair treads products.
4. Master Truck Leases with Clark Rental Systems and Rollins Leasing Corp.
5. Bayshore Vinyl Compounds Inc. supply contract to Mercer for PVC Compound.
6. Purchase Order with OSI Sealants, Inc., an affiliate of Mercer.
7 Undertaking dated August 5, 1997 by Mercer, Evode-Tanner Industries, Inc.
and Laporte Construction Chemicals North America, Inc. in favor of ATO
Findley S.A.
8. Segue Manufacturing, Distribution and Sales Sublicensing Agreement dated
November 5, 1997, between Segue, Inc. and Mercer.
9. Supply Agreement dated April 21, 1997 between American Biltrite (Canada)
Ltd. and Mercer.
10 Non-Firm Electric Service Agreement dated May 20, 1996, between Florida
Power Corporation and Mercer.
11. StarNet Sales Agreement dated December 5, 1996, between StarNet Commercial
Flooring, Inc. and Mercer.
12. Non-Disclosure Agreement dated July 21, 1995, between Layman Plastics
Corporation and Mercer.
13 Non-Disclosure Agreement dated July 21, 1995, between Polymer Recovery
Corporation and Mercer.
14 Non-Disclosure Agreement with Benny Wood and Martin Anderson dated
January 29, 1991.
SEE ALSO SCHEDULES 4(c) AND 4(p).
<PAGE> 57
SCHEDULE 4(n)
INSURANCE
Insurance provided by Laporte Inc. prior to August 5, 1997:
CLASS INSURER POLICY NO.
----- ------- ----------
All Risks Royal & Sun Alliance 0741/89
Global Primary Liability Royal Insurance As applicable
Global DIC/DIL Royal & Sun Alliance YMM 817193
Excess Layers AIG Europe & Others 3200799696
Zurich Ins. & Others 16/50962896
XL Europe XLEXS-1
Fidelity Guarantee AIG Europe 3171007393
Directors & Officers AIG Europe 33001182
Liability
The All Risks and Primary Liability policies are part of Global programs with
local policies being issued by Royal & Sun Alliance, an affiliate of Laporte
plc. Master policies in the UK provide DIC/DIL cover above the local policies
Insurance provided by Seller on and after August 5, 1997 is listed on the
attached Summary of Insurance.
<PAGE> 58
MERCER PRODUCTS COMPANY, INC.
PROPERTY
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: National Union Fire Insurance Company of Pittsburgh, PA
POLICY NO.: ST2604484
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Property
LIMIT: $29,246,701 Limit on:
Real and Personal Property,
Business Interruption,
Extra Expense,
Contingent Business Interruption,
Contingent Extra Expense for Chemical Manufacturers
$29,246,701 Boiler & Machinery Limit of Liability
BOILER & MACHINERY SUBLIMITS:
-----------------------------
$ 50,000 Expediting Expenses Per Occurrence
$ 50,000 Hazardous Substances Per Occurrence
$ 50,000 Ammonia Contamination Per Occurrence
$ 50,000 Water Damage Per Occurrence
DEDUCTIBLES
(PER OCCURRENCE): $ 15,000 Property EXCEPT
$ 25,000 Earthquake
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE> 59
MERCER PRODUCTS COMPANY, INC.
PROPERTY
<TABLE>
<S> <C>
DEDUCTIBLES
(PER OCCURRENCE)
CONT.: $ 25,000 @ Locations:
- Mercer Products, 9070 Bridgeport, Rancho Cucamonga
California Earthquake - Business Interruption - 360 Hours
$ 25,000 Flood (Property Damage)
FLOOD ZONE A (PROPERTY DAMAGE):
-------------------------------
2% of TIV at risk, but not less than $500,000
Contents/$500,000 Bldgs.
FLOOD ZONE B (BUSINESS INTERRUPTION): - 360 Hours
-------------------------------------
Windstorm:
2% of TIV at risk, but not less than $25,000
120 Hours Business Interruption
120 Hours Contingent Business Interruption
120 Hours Extra Expense
120 Hours Contingent Extra Expense
$ 5,000 Transit
$ 5,000 Fine Arts
$ 5,000 EDP Equipment/Media
BOILER & MACHINERY DEDUCTIBLES:
-------------------------------
$ 15,000 Property Damage
120 Hours Business Interruption/Extra Expense
SUBLIMTS: $15,000,000 Annual Aggregate - Earthquake
$ 1,000,000 Annual Aggregate - California Earthquake
Excluding Unnamed or Newly Acquired Property
$15,000,000 Annual Aggregate - Flood
$10,000,000 Annual Aggregate - Flood Zone A
25% Annual Aggregate - Debris Removal - The greater
of or $1,000,000
$ 25,000 Annual Aggregate - Pollution - Real & Personal
Property
$ 25,000 Annual Aggregate - Business Interruption -
Pollution
$ 1,000,000 Per Occurrence - EDP Equipment/Media
$ 1,000,000 Per Occurrence - Transit
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE> 60
MERCER PRODUCTS COMPANY, INC.
PROPERTY
<TABLE>
<S> <C>
SUBLIMITS CONT.: $ 1,000,000 Per Occurrence - Newly Acquired Real &
Personal Property with One Hundred and Eighty
(180) day reporting excluding Flood and
Earthquake
$ 1,000,000 Per Occurrence - Valuable Papers
$ 500,000 Per Occurrence - Personal Property at Unnamed
Locations excluding Flood and Earthquake
$ 1,000,000 Per Occurrence - Demolition
$ 1,000,000 Per Occurrence - Increased Cost of
Construction
$ 1,000,000 Per Occurrence - Contingent Liability from the
operation of building laws combined property
damage/business Interruption
$ 5,000,000 Per Occurrence - Off Premises Power
Directly Supplying (Combined Property Damage/
Business Interruption)
$ 5,000,000 Extra Expense
COVERAGE
EXTENSIONS: $ 500,000 Newly Acquired EDP Equipment with One Hundred
(100) Day Reporting Excluding Flood and
Earthquake
$ 250,000 Exhibition Floater
$ 10,000 Trees, Shrubs and Plants
$ 1,000,000 Unscheduled Contingent Business Interruption
$ 25,000 Fire Department Service Charges
$ 1,000,000 Expediting Expense Property
$ 1,000,000 Temporary Removal
$ 100,000 Inventory and Appraisals
14 Days Interruption by Civil Authority
$ 1,000,000 Rents and Rental Values/Lease Hold Interest
$ 1,000,000 Fine Arts
VALUATION: Property - Replacement Cost
Business Interruption - Actual Loss Sustained
Stock - Manufacturer's Selling Price
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE> 61
MERCER PRODUCTS COMPANY, INC.
STATEMENT OF VALUES
<TABLE>
<CAPTION>
MERCER PRODUCTS COMPANY
<C> <S>
$ 12,702,990 Buildings, Machinery, Plant, Equipment and
other Contents
$ 3,050,000 Stock/Inventory
$ 13,493,711 Business Interruption
-----------
$ 29,246,701
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE> 62
MERCER PRODUCTS COMPANY, INC.
MOTOR TRUCK CARGO
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: Hartford Fire Insurance Company
POLICY NO.: 57MS FI6500
TERM: October 14, 1997 to October 14, 1998
COVERAGE: Motor Truck Cargo
Risks of direct physical loss subject to policy terms, conditions
and exclusions
LIMIT: $ 100,000 Limit - Any One Truck
DEDUCTIBLE: $ 2,500
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE> 63
MERCER PRODUCTS COMPANY, INC.
GENERAL LIABILITY/POLLUTION LIABILITY
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: American Int'l Specialty Lines Ins. Co. (Non-Admitted)
AIG Group
POLICY NO.: 819 06 56
TERM: August 4, 1997 to August 4, 1998
COVERAGE: General Liability/Pollution Liability
LIMIT: $ 2,000,000 General Aggregate Limit (Other than Prods/Comp. Ops)
$ 2,000,000 Products/Completed Operations Aggregate Limit
$ 1,000,000 Personal & Advertising Injury Limit
$ 1,000,000 Pollution Legal Liability
$ 1,000,000 Each Occurrence Limit (Coverages A, B, & C only)
$ 100,000 Fire Damage Limit
$ 10,000 Medical Expense
DEDUCTIBLE: $ 50,000 Deductible per loss applies to Coverage D
(Pollution Legal Liability)
SPECIAL
CONDITIONS: Applicable to Coverages A, B, C:
- Total Pollution Exclusion
- Exclusion - Waste Disposal Sites
- Testing E&O Exclusion
- Radioactive Matter Exclusion
- Lead Exclusion
- Asbestos Exclusion
- Nuclear Energy Liability Exclusion
- Professional Liability Exclusion - All Professional Services
- Owned Underground Storage Tank Removal
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE> 64
SOVEREIGN SPECIALTY CHEMICAL, INC.
GENERAL LIABILITY/POLLUTION LIABILITY
SPECIAL
CONDITIONS: - Owned Disposal Site Exclusion
- Employment Related Practice Exclusion
- Employee Bodily Injury Exclusion
- Blanket Additional Insured Endorsement
- Cancellation notice - 60 days except for non-pay
- Knowledge of Occurrence/Notice of Occurrence/Unintentional
E&O
- Cross Suits Exclusion
- Amendment to Pollution Exclusion with Products Exception
APPLICABLE TO COVERAGE D (POLLUTION):
------------------------------------
- Third party claims for off-site cleanup of new conditions,
bodily injury and property damage.
- Retroactive Date: 8/1/97
- Covered manufacturing locations:
- Eutis, FL
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE> 65
MERCER PRODUCTS COMPANY, INC.
COMMERCIAL AUTOMOBILE
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: AIG Environmental (AIG Group)
POLICY NO.: CA2772058
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Commercial Automobile
LIMIT: $ 1,000,000 Combined Bodily Injury and Property Damage
$ 1,000,000 Uninsured/Underinsured Motorists
Statutory Personal Injury Protection
$ 10,000 Medical Payments
$ 1,000 Ded. Comprehensive and Collision on Private
Passenger Types
$ 1,000 Ded. Comprehensive and Collision on XHvy
Trucks
SPECIAL
CONDITIONS: Automobile Endorsements:
- Applicable State Forms
- Drive Other Car Coverage
- MCS-90
- Composite Rate Endorsement
- Broad Form Named Insured
- Knowledge/Notice/Unintentional E&O/Cross Liability
Endorsement
- Independent Counsel Endorsement
- Misdelivery of Liquid Products
VEHICLES: 9 Private Passenger
5 Heavy Tractors
8 Trailers
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE> 66
MERCER PRODUCTS COMPANY, INC.
UMBRELLA LIABILITY
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: National Union Fire Insurance Company of Pittsburgh, PA
POLICY NO.: BE3570117
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Umbrella Liability
LIMIT: $ 50,000,000 Each Occurrence for Bodily Injury and
Property Damage
$ 50,000,000 General Aggregate
$ 50,000,000 Products/Completed Operations Aggregate
DEDUCTIBLE: $ 25,000 Self-Insured Retention each occurrence that
is not covered by Underlying Insurance
SPECIAL
CONDITIONS: - Named Peril & Time Element (7/21) Pollution excess of a
$1,000,000 indemnity payments only retention each occurrence
without aggregate
- Follow form Incidental Medical Malpractice Liability
Endorsement
- Follow form Employee Benefits Liability
- Uninsured Motorists Coverage Option
- Follow form Foreign Liability
- Notice of Occurrence
- Knowledge of Occurrence
- Unintentional Errors & Omissions
- MCS 90 as required
It is also agreed that with respects to pollution liability
coverage provided in the primary General Liability policy,
defense expense is in addition to the limit of liability, subject
to a sublimit of $250,000 annual aggregate. This policy will
recognize this fact and drop down over the possible reduced
limit in the event of a loss(es) that would be covered under
Named Peril and Time Element Pollution Endorsement.
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE> 67
MERCER PRODUCTS COMPANY, INC.
EXCESS LIABILITY
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: Zurich American Insurance Group
POLICY NO.: EUO 2809339-N
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Excess Liability
LIMIT: $50,000,000 Per Occurrence
$50,000,000 Products/Completed Operations Aggregate
$50,000,000 General Aggregate except for Auto
Excess of
$50,000,000 Underlying Umbrella Policy
ADDITIONAL
ENDORSEMENTS: - Form - Pay on Behalf of
- Delete Non-Concurrency wording in Section III (a) (ii) and
VII.2
- Delete Item 7 of Declaration Page
- 90 Days Notice of Cancellation
- Lead Exclusion
General Aggregate applies separately in excess of each
aggregate limit provided by the policy of policies listed in the
schedule of underlying insurances, but Zurich will not provide
unaggregated limits except for auto.
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE> 68
MERCER PRODUCTS COMPANY, INC.
POLLUTION LEGAL LIABILITY
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: American International Specialty Lines Insurance Company
POLICY NO.: PLS-8193264
TERM: August 4, 1997 to August 4, 2002
COVERAGE: Pollution Legal Liability
LIMIT: $ 5,000,000 Each Incident Limit
$ 5,000,000 Coverage Section Aggregate
$ 5,000,000 Policy Aggregate Limit
DEDUCTIBLE: $ 500,000
SPECIAL
CONDITIONS: Coverage Sections:
C - 3rd Party Claims for On-Site Cleanup of Pre-Existing
Conditions
G - 3rd Party Claims for Off-Site Cleanup of Pre-Existing
Conditions
I - 3rd Party Claims for Off-Site Property Damage
J - 3rd Party Claims for Off-Site Bodily Injury
Covered Location Only:
37236 State Road 19, Eustis, FL
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE> 69
MERCER PRODUCTS COMPANY, INC.
POLLUTION LEGAL LIABILITY
SUDDEN AND GRADUAL POLLUTION WILL BE COVERED USING AMERICAN INTERNATIONAL
SPECIALTY LINES INSURANCE COMPANY (AISLIC) FORM #67852 (5/97) MODIFIED AS
FOLLOWS:
1. No coverage will be provided for any underground storage tank(s) until
satisfactory integrity testing results (AISLIC acceptable method)
certifying that the tanks are tight to the NFPA standard of plus/minus 0.05
gph, are received, approved and on file with the underwriter. Coverage will
only be provided for those underground storage tanks specifically scheduled
onto the policy by endorsement.
2. No coverage will be provided for loss arising out of pollution conditions
at or emanating from the covered locations occurring after August 4, 1997
(inception of the EAGLE policy bound by AIG Environmental's NYC
underwriting office).
3. No coverage will be provided for loss arising out of pollution conditions
at the 37235 State Road 19, Eustis, FL site as identified in the October
1996 Environmental Review performed by Delta Environmental:
- lead contamination of soil and groundwater associated with the
former cooling water discharge
- lead and cadmium contamination of soil and groundwater related to
baghouse operations
- soil and groundwater contamination arising out of the former
practice of using waste oil for on-site dust control
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE> 70
MERCER PRODUCTS COMPANY, INC.
COMMERCIAL CRIME COVERAGE
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: National Union Fire Insurance Company of Pittsburgh, PA
POLICY NO.: 486 09 92
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Commercial Crime Coverage
LIMIT: $ 1,000,000 Limit of Liability (Insuring Agreements I-V)
DEDUCTIBLE: $ 25,000 Retention
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE> 71
MERCER PRODUCTS COMPANY, INC.
PENSION TRUST LIABILITY
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: National Union Fire Insurance Company of Pittsburgh, PA
POLICY NO.: 486 09 94
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Pension Trust Liability
LIMIT: $ 1,000,000 Limit of Liability
DEDUCTIBLE: $ 10,000 Retention
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE> 72
MERCER PRODUCTS COMPANY, INC.
DIRECTORS' & OFFICERS' LIABILITY
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: National Union Fire Insurance Company of Pittsburgh, PA
POLICY NO.: 486-09-15
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Directors' & Officers' Liability
LIMIT: $ 5,000,000 Limit of Liability
DEDUCTIBLE: $ 100,000 Retention
SPECIAL
CONDITIONS: - Coinsurance (Security Claims): 00%
- Continuity Dates: Coverage A&B : 7/10/97
Coverage B(i): 7/10/97
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE> 73
MERCER PRODUCTS COMPANY, INC.
CORPORATE KIDNAP & RANSOM/EXTORTION INSURANCE
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: National Union Fire Insurance Company of Pittsburgh, PA
POLICY NO.: 646-6294
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Corporate Kidnap & Ransom/Extortion Insurance
LIMIT: $ 1,000,000 Each Loss
$ Unlimited Each Policy Year Aggregate
DEDUCTIBLE: Nil
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE> 74
MERCER PRODUCTS COMPANY, INC.
WORKERS' COMPENSATION/EMPLOYERS LIABILITY
<TABLE>
<S> <C>
NAMED
INSURED: Mercer Products Company, Inc., A New Jersey Corporation
COMPANY: American Home Assurance Co. (AIG Group)
POLICY NO.: WC5715890
TERM: August 4, 1997 to August 4, 1998
COVERAGE: Workers' Compensation/Employers Liability
LIMIT: Statutory Benefits in State of Hire
Employers Liability:
$ 1,000,000 Each Accident
$ 1,000,000 Disease - Policy Limit
$ 1,000,000 Disease - Each Employee
(Stop Gap Employers Liability applies in Monopolistic States)
SPECIAL
CONDITIONS: Terms & Conditions:
- Voluntary Compensation
- Foreign Voluntary Compensation
- Bodily Injury from Endemic Disease
- $100,000 limit per employee Repatriation Expense
- Federal Employers Liability Act Coverage included
- Longshore & Harbor Workers Compensation Coverage
- Defense Base Act Coverage
- Maritime Employers Liability
- Federal Acts
- All Executive Officers covered for Bodily Injury
- 60 Day Notice of Cancellation except for non-pay
</TABLE>
THE ABOVE SUMMARY IS PRESENTED AS A GENERAL COMMENTARY ON THE POLICY BUT IN NO
WAY AMENDS OR REPLACES THE WORDING OF THIS POLICY. IN THE EVENT OF ANY
DISCREPANCY BETWEEN THIS SUMMARY AND THE POLICY, THE POLICY WORDING WILL
PREVAIL.
- -------------------------------------------------------------------------------
<PAGE> 75
SCHEDULE 4(o)
LITIGATION
PENDING LITIGATION:
- JOHN J. IRWIN V. MERCER PRODUCTS COMPANY, INC., ET AL.
- BADALIANS V. ALEKNA CONSTRUCTION, INC., ET AL. V. UNITED STATES
MINERAL PRODUCTS COMPANY V. ENJEM'S, INC. V. MERCER PRODUCTS COMPANY,
INC. ET. AL.
- HAMMOND V. ALEKNA CONSTRUCTION, INC., ET. AL. V. UNITED STATES MINERAL
PRODUCTS COMPANY V. ENJEM'S, INC. V. MERCER PRODUCTS COMPANY, INC. ET.
AL.
- JONES V. ALEKNA CONSTRUCTION, INC., ET. AL. V. UNITED STATES MINERAL
PRODUCTS COMPANY V. ENJEM'S, INC. V. MERCER PRODUCTS COMPANY, INC. ET.
AL.
- O'SHEA V. ALEKNA CONSTRUCTION, INC, ET AL. V. UNITED STATES MINERAL
PRODUCTS COMPANY V. ENJEM'S, INC. V. MERCER PRODUCTS COMPANY, INC. ET.
AL..
- SISTI V. ALEKNA CONSTRUCTION, INC, ET AL. V. UNITED STATES MINERAL
PRODUCTS COMPANY V. ENJEM'S, INC. V. MERCER PRODUCTS COMPANY, INC. ET.
AL..
THREATENED LITIGATION:
None.
<PAGE> 76
SCHEDULE 4(p)
EMPLOYEES; LABOR RELATIONS
Agreement dated November 16, 1995 between Mercer and the Glass, Molders,
Pottery, Plastics and Allied Workers International Union (AFL-CIO, CLC) and its
Local Union No. 211 Eustis, Florida
Effective Date: December 1, 1995 through December 31, 1998.
Mercer has approximately 120 employees.
<PAGE> 77
SCHEDULE 4(q)
EMPLOYEE BENEFIT PLANS
A. BENEFIT PLANS
SOVEREIGN
1. Sovereign 401(k) Plan
2. Healthcare
- Medical (pre-tax employee contributions)
- Dental (pre-tax employee contributions)
- Prescription Drug
3. Flexible Spending Plans (pre-tax)
- Healthcare
- Dependent Care
4. Life Insurance
- Company provided (2x annual salary up to $50,000 maximum)
- Matching ADD
- Optional Life
- Optional Dependent Life
- Optional ADD
- Optional Dependent ADD
5. Long-Term Disability
6. Employee Assistance Plan
7. Workers Compensation
8. Tuition Assistance
9. Business Travel Accident Insurance
MERCER
1. Bonus and Sales Incentive Plans
<PAGE> 78
2. Short-Term Disability Income (Salary Continuance)
3. Company cars
4. Severance
5. Vacation/Holidays
6. Leave of Absence (jury duty, bereavement, personal days)
B. COMPLIANCE
Mercer has a severance policy. There is neither a written plan document
nor a summary plan description for these policies. These policies have
been reported on the annual Form 5500 filed by Laporte Inc. Generally, the
policy is one week of severance per year of service with Mercer.
<PAGE> 79
SCHEDULE 4(r)
ENVIRONMENTAL MATTERS
All matters disclosed in or arising out of facts and circumstances discussed in
the following environmental reports:
- Environmental Review
Mercer Products Company, Inc.
Eustis, Florida
Delta Project No. E096-068
Prepared by Delta Environmental Consultants, Inc.
October 1996
- Environmental Review
Mercer Products Company, Inc. &
Laporte Construction Chemicals North America, Inc.
Leased Warehouses/Richmond, Washington/
South Kearny, New Jersey/Rancho Cucamonga, California
Delta Project No. E096-068
Prepared by Delta Environmental Consultants, Inc.
October 1996
- Environmental Review
Mercer Products Company, Inc.
37235 State Road 19
Bustis, Florida
Project No. 771463.0204
Prepared by IT Corporation
Submitted to Sovereign Specialty Chemicals, L.P.
July 1997
MERCER PERMITS
- Lake County (Florida) Occupational License No. 501-0000033
- See letter from the Florida Department of Environmental Regulation
dated February 5, 1992 re: Plastic Extruding Baghouse (no air permit
required).
- See letter from the Florida Department of Environmental Regulation
dated April 7, 1992 re: Lake County - IW/Mercer Products Company/
Closed Loop Cooling System/Request for Exemption (no water permit
required).
<PAGE> 80
OSHA
The following issues are being addressed at the Mercer facility:
- - The use of flexible electrical cable will be replaced with fixed conduit or
other compliant device to the extent required by OSHA regulations.
<PAGE> 81
SCHEDULE 4(t)
TRANSACTIONS WITH AFFILIATES
Mercer has an arrangement with the AlphaGary Corporation, an affiliate of
Laporte Inc. pursuant to which Mercer purchases plastic from AlphaGary on a
purchase order basis. There is no obligation on the part of either party to
continue this arrangement. AlphaGary had tried to require Mercer to buy its
plastic requirements for 1998 from AlphaGary based on an alleged oral
agreement. This arrangement is now being settled by Mercer's purchase of up to
$81,415.81 worth of inventory from AlphaGary pursuant to a letter agreement
dated February 4, 1998.
OSI Sealants, Inc. is a customer of Mercer.
<PAGE> 82
SCHEDULE 6(g)
LIST OF EMPLOYEES
[PREVIOUSLY PROVIDED]
<PAGE> 83
SCHEDULE 6(i)
SEVERANCE POLICY
One week of severance pay is provided for each year of service with Mercer.
<PAGE> 1
EXHIBIT 12. COMPUTATION OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THE COMPANY
PREDECESSOR -----------------------------
----------------------------------------------- PERIOD ENDED
YEAR ENDED DECEMBER 31, PERIOD ENDED DECEMBER 31, YEAR ENDED
1993 1994 1995 MARCH 31,1996 1996 1997
--------- --------- --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense - - - - 1,666 9,080
Portion of rental expense representative
of interest 13 15 13 4 39 351
--------- --------- --------- -------------- -------------- -------------
Total fixed charges 13 15 13 4 1,705 9,431
========= ========= ========= ============== ============== =============
Earnings:
Income (loss) before income taxes and
extraordinary item $ (696) $ 240 $ 1,762 $ 227 $ (124) $ 2,508
Fixed charges 13 15 13 4 1,705 9,431
--------- --------- --------- -------------- -------------- -------------
Total earnings (683) 255 1,775 231 1,581 11,939
========= ========= ========= ============== ============== =============
Ratio of earnings to fixed charges * 17.0 136.5 57.8 * 1.3
Excess of fixed charges over earnings $ 696 $ - $ - $ - $ 124 $ -
</TABLE>
* Earnings are inadequate to cover fixed charges
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Company and the Guarantors
The Company
Pierce & Stevens Corp., a New York corporation
SIA Adhesives, Inc., a Delaware corporation
OSI Sealants, Inc., an Illinois corporation
Mercer Products Company, Inc., a New Jersey Corporation
Tanner Chemicals, Inc., a New Hampshire corporation
Pierce & Stevens
None
SIA Adhesives
None
OSI Sealants
None
Mercer
None
Tanner
None
<PAGE> 1
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports on Sovereign Specialty Chemicals, Inc. dated March 27, 1998,
the combined reports on Laporte Construction Chemicals North America, Inc.;
Evode-Tanner Industries, Inc.; and Mercer Products Company, Inc. dated November
21, 1997, and the reports on the Adhesives Systems Division of The BFGoodrich
Company and Pierce & Stevens Corp. dated June 19, 1997, in Amendment No. 1 to
the Registration Statement (Form S-4 No. 333-39373) of Sovereign Specialty
Chemicals, Inc. for the Registration of $125,000,000 of 9 1/2% Senior
Subordinated Notes due 2007.
ERNST & YOUNG LLP
Chicago, Illinois
April 3, 1998
<PAGE> 1
EXHIBIT 23.2
[KPMG LETTERHEAD]
The Board of Directors
Laporte plc
Nations House
103 Wigmore Street
London Our ref clr/568/jad/2393
W1H9AB
3 April 1998
Dear Sirs
We consent to the inclusion in the registration statement on Form S-4 of
Sovereign Specialty Chemicals, Inc. of our report dated June 16, 1997, with
respect to the combined balance sheets of Laporte Construction Chemicals North
America, Inc., Evode Tanner Industries, Inc. and Mercer Products Company, Inc.
as of December 31, 1996 and 1995, and the related combined statements of
earnings, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996, which report appears herein and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Audit Plc
KPMG Audit Plc
London, England
cc L. Pace
Sovereign Specialty Chemicals, Inc.
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
OF
SOVEREIGN SPECIALTY CHEMICALS, INC.
Pursuant to the Prospectus dated _______, 1998
- ------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON __________, 1998 UNLESS EXTENDED (THE "EXPIRATION DATE").
- ------------------------------------------------------------------------------
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer,
this Letter of Transmittal should be
completed, signed, and submitted to the
Exchange Agent:
THE BANK OF NEW YORK
By Registered or Certified Mail: By Overnight Courier:
By Hand: By Facsimile Transmission:
(for Eligible Institutions Only)
Confirm by Telephone:
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION
VIA FACSIMILE TO A NUMBER, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY
ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT.
The undersigned hereby acknowledges receipt of the Prospectus dated
________, 1998 (as it may be supplemented and amended from time to time, the
"Prospectus") of Sovereign Specialty Chemicals, Inc., a Delaware corporation
("Company"), and this Letter of Transmittal (the "Letter of Transmittal"), that
together constitute the Company's offer (the "Exchange Offer") to exchange
$1,000 in principal amount of its 9 1/2% Senior Subordinated Notes due 2007,
Series B (the "Exchange Notes"), which have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to a Registration
Statement, for each $1,000 in principal amount of its outstanding 9 1/2% Senior
Subordinated Notes due 2007 (the "Notes"), of which $125,000,000 aggregate
principal amount is outstanding. Capitalized terms used but not defined herein
have the meanings ascribed to them in the Prospectus.
The undersigned hereby tenders the Notes described in Box 1 below (the
"Tendered Notes") pursuant to the terms and conditions described in the
Prospectus and this Letter of Transmittal. The undersigned is the registered
owner of all the Tendered Notes and the undersigned represents that it has
received from each beneficial owner of the Tendered Notes ("Beneficial Owners")
a duly completed and executed form of "Instruction to Registered Holder and/or
Book-Entry Transfer Facility Participant from Beneficial Owner" accompanying
this Letter of Transmittal, instructing the undersigned to take the action
described in this Letter of Transmittal.
Subject to, and effective upon, the acceptance for exchange of the
Tendered Notes, the undersigned hereby exchanges, assigns and transfers to, or
upon the order of, the Company all right, title, and interest in, to and under
the Tendered Notes.
<PAGE> 2
Please issue the Exchange Notes exchanged for Tendered Notes in the
name(s) of the undersigned. Similarly, unless otherwise indicated under "SPECIAL
DELIVERY INSTRUCTIONS" below (see Box 3), please send or cause to be sent the
certificates for the Exchange Notes (and accompanying documents, as appropriate)
to the undersigned at the address shown below in Box 1.
The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as the true and lawful agent and attorney in fact of the
undersigned with respect to the Tendered Notes, with full power of substitution
(such power of attorney being deemed to be an irrevocable power coupled with an
interest), to (i) deliver the Tendered Notes to the Company or cause ownership
of the Tendered Notes to be transferred to, or upon the order of, the Company,
on the books of the registrar for the Notes and deliver all accompanying
evidences of transfer and authenticity to, or upon the order of, the Company
upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange
Notes to which the undersigned is entitled upon acceptance by the Company of the
Tendered Notes pursuant to the Exchange Offer, and (ii) receive all benefits and
otherwise exercise all rights of beneficial ownership of the Tendered Notes, all
in accordance with the terms of the Exchange Offer.
The undersigned understands that tenders of Notes pursuant to the
procedures described under the caption "The Exchange Offer" in the Prospectus
and in the instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Exchange Offer, subject only to withdrawal of such tenders on the terms set
forth in the Prospectus under the caption "The Exchange Offer-- Withdrawal of
Tenders." All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and any Beneficial Owner(s), and
every obligation of the undersigned or any Beneficial Owner(s) hereunder shall
be binding upon the heirs, representatives, successors, and assigns of the
undersigned and such Beneficial Owner(s).
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign, and transfer the Tendered
Notes and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges, encumbrances, and adverse
claims when the Tendered Notes are acquired by the Company as contemplated
herein. The undersigned and each Beneficial Owner will, upon request, execute
and deliver any additional documents reasonably requested by the Company or the
Exchange Agent as necessary or desirable to complete and give effect to the
transactions contemplated hereby.
The undersigned hereby represents and warrants that the information set
forth in Box 2 is true and correct.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) the Exchange Notes to be acquired by the undersigned and any
Beneficial Owner(s) in connection with the Exchange Offer are being acquired by
the undersigned and any Beneficial Owner(s) in the ordinary course of business
of the undersigned and any Beneficial Owner(s), (ii) the undersigned and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, (iii) except as otherwise disclosed in
writing herewith, neither the undersigned nor any Beneficial Owner is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company,
and (iv) the undersigned and each Beneficial Owner acknowledge and agree that
any person participating in the Exchange Offer with the intention or for the
purpose of distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended
(together with the rules and regulations promulgated thereunder, the "Securities
Act"), in connection with a secondary resale of the Exchange Notes acquired by
such person and cannot rely on the position of the Staff of the Securities and
Exchange Commission (the "Commission") set forth in the no-action letters that
are discussed in the section of the Prospectus entitled "The Exchange Offer." In
addition, by accepting the Exchange Offer, the undersigned hereby (i) represents
and warrants that, if the undersigned or any Beneficial Owner of the Notes is a
Participating Broker-Dealer, such Participating Broker-Dealer acquired the Notes
for its own account as a result of market-making activities or other trading
activities and has not entered into any arrangement or understanding with the
Company or any "affiliate" of the Company (within the meaning of Rule 405 under
the Securities Act) to distribute the Exchange Notes to be received in the
Exchange Offer, and (ii) acknowledges that, by receiving Exchange Notes for its
own account in exchange for Notes, where such Notes were acquired as a result of
market-making activities or other trading activities, such Participating
Broker-Dealer will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes.
-2-
<PAGE> 3
Holders of Notes that are tendering by book-entry transfer to the
Exchange Agent's account at DTC can execute the tender through the DTC Automated
Tender Offer Program ("ATOP"), for which the transaction will be eligible. DTC
participants that are accepting the Exchange Offer must transmit their
acceptance to DTC, which will verify the acceptance and execute a book-entry
delivery to the Exchange Agent's DTC account. DTC will then send an Agent's
Message to the Exchange Agent for its acceptance. DTC participants may also
accept the Exchange Offer prior to the Expiration Date by submitting a Notice of
Guaranteed Delivery or Agent's Message relating thereto as described herein
under Instruction 2, "Guaranteed Delivery Procedures."
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED HEREWITH.
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND
COMPLETE "USE OF GUARANTEED DELIVERY" BELOW (Box 4).
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE "USE OF BOOK-ENTRY TRANSFER"
BELOW (Box 5).
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF NOTES TENDERED
(Attach additional signed pages, if necessary)
- ----------------------------------------------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Name(s) and Address(es) of Registered Note Holder(s), Certificate Aggregate Aggregate
exactly as name(s) appear(s) on Note Certificate(s) Number(s) of Principal Amount Principal Amount
(Please fill in, if blank) Notes* Represented by Tendered**
Certificate(s)
- ----------------------------------------------------------- ------------------ ------------------ ------------------
- ----------------------------------------------------------- ------------------ ------------------ ------------------
- ----------------------------------------------------------- ------------------ ------------------ ------------------
- ----------------------------------------------------------- ------------------ ------------------ ------------------
- ----------------------------------------------------------- ------------------ ------------------ ------------------
TOTAL
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by persons tendering by book-entry transfer.
** The minimum permitted tender is $1,000 in principal amount of Notes.
All other tenders must be in integral multiples of $1,000 of principal
amount. Unless otherwise indicated in this column, the principal amount
of all Note Certificates identified in this Box 1 or delivered to the
Exchange Agent herewith shall be deemed tendered. See Instruction 4.
-3-
<PAGE> 4
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
BOX 2
BENEFICIAL OWNER(S)
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
STATE OF PRINCIPAL RESIDENCE OF EACH PRINCIPAL AMOUNT OF TENDERED NOTES
BENEFICIAL OWNER OF TENDERED NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
BOX 3
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
TO BE COMPLETED ONLY IF EXCHANGE NOTES EXCHANGED FOR NOTES AND UNTENDERED NOTES
ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE UNDERSIGNED AT
AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail Exchange Note(s) and any untendered Notes to:
Name(s):
- -------------------------------------------------------------------------------
(please print)
- -------------------------------------------------------------------------------
Address:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(include Zip Code)
Tax Identification or
Social Security No.:
- -------------------------------------------------------------------------------
-4-
<PAGE> 5
- -------------------------------------------------------------------------------
BOX 4
USE OF GUARANTEED DELIVERY
(SEE INSTRUCTION 2)
TO BE COMPLETED ONLY IF NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF
GUARANTEED DELIVERY.
Name(s) of Registered(s):
-----------------------------------------------------
Window Ticket No. (if any):
-----------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
----------------------------
Name of Institution that Guaranteed:
------------------------------------------
If Delivered by Book-Entry Transfer:
Account Number with DTC:
-------------------------------------------------------
Transaction Code Number:
-------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BOX 5
USE OF BOOK-ENTRY TRANSFER
(SEE INSTRUCTION 1)
TO BE COMPLETED ONLY IF DELIVERY OF TENDERED NOTES IS TO BE MADE BY BOOK-ENTRY
TRANSFER.
Name of Tendering Institution:
-------------------------------------------------
Account Number:
----------------------------------------------------------------
Transaction Code Number:
-------------------------------------------------------
- -------------------------------------------------------------------------------
-5-
<PAGE> 6
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
BOX 6
TENDERING HOLDER SIGNATURE
(SEE INSTRUCTIONS 1 AND 5)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Signature Guarantee
X (If required by Instruction 5)
--------------------------------------------------------
X Authorized Signature
--------------------------------------------------------
(Signature of Registered Holder(s)
or Authorized Signatory)
X
---------------------------------------------------
Note: The above lines must be signed by the registered
holder(s) of Notes as their name(s) appear(s) on the Name:
Notes or by persons(s) authorized to become registered ---------------------------------------------
holder(s) (evidence of such authorization must be (please print)
transmitted with this Letter of Transmittal). If
signature is by a trustee, executor, administrator, Title:
guardian, attorney-in-fact, officer, or other person ---------------------------------------------
acting in a fiduciary or representative capacity, such
person must set forth his or her full title below. See Name of Firm:
Instruction 5. ---------------------------------------
(Must be an Eligible Institution as
Name(s): defined in Instruction 2)
--------------------------------------------------
Capacity:
-------------------------------------------------- Address:
----------------------------------------------
Street Address:
-------------------------------------------
----------------------------------------------
-------------------------------------------
(Zip Code) ----------------------------------------------
(Zip Code)
Area Code and Telephone Number:
Area Code and Telephone Number:
-------------------------------------------
-----------------------------------------------
Tax Identification or Social Security Number: Dated:
------------------------------------------------
-------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
BOX 7
BROKER-DEALER STATUS
- -------------------------------------------------------------------------------
[ ] Check this box if the Beneficial Owner of the Notes is a
Participating Broker-Dealer and such Participating Broker-Dealer
acquired the Notes for its own account as a result of
market-making activities or other trading activities. IF THIS BOX
IS CHECKED, REGARDLESS OF WHETHER YOU ARE TENDERING BY BOOK-ENTRY
TRANSFER THROUGH ATOP, AN EXECUTED COPY OF THIS LETTER OF
TRANSMITTAL MUST BE RECEIVED WITHIN THREE NYSE TRADING DAYS AFTER
THE EXPIRATION DATE BY SOVEREIGN SPECIALTY CHEMICALS, INC.,
ATTENTION ROBERT B. COVALT, FACSIMILE (312) 419-7145.
- -------------------------------------------------------------------------------
-6-
<PAGE> 7
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PAYORS' NAME: THE BANK OF NEW YORK
- ---------------------------- --------------------------------------------------------------------------------------
<S> <C>
Name (if joint names, list first and circle the
name of the person or entity whose number you enter
in Part 1 below. See instructions if your name has
changed.)
SUBSTITUTE --------------------------------------------------------------------------------------
Address
FORM W-9 --------------------------------------------------------------------------------------
City, State and ZIP Code
Department of the Treasury --------------------------------------------------------------------------------------
List account number(s) here (optional)
Internal Revenue Service ------------------------------------------------------------------- ------------------
PART 1--PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION NUMBER SOCIAL SECURITY
("TIN") IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING NUMBER OR TIN
BELOW
------------------------------------------------------------------- -------------------
PART 2--Check the box if you are NOT subject to
backup withholding under the provisions of section
3406(a)(1)(C) of the Internal Revenue Code because
(1) you have not been notified that you are subject
to backup withholding as a result of failure to
report all interest or dividends or (2) the
Internal Revenue Service has notified you that you
are no longer subject to backup withholding. [ ]
------------------------------------------------------------------- ------------------
CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT PART 3--
THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND Awaiting TIN [ ]
COMPLETE.
SIGNATURE DATE
------------------- ---------------------
- ---------------------------- ------------------------------------------------------------------- -------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
-7-
<PAGE> 8
SOVEREIGN SPECIALTY CHEMICALS, INC.
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NOTES. This Letter of
Transmittal is to be completed by registered Holders of Notes if certificates
representing such Notes are to be forwarded herewith pursuant to the procedures
set forth in the Prospectus under "The Exchange Offer -- Procedures for
Tendering," unless delivery of such certificates is to be made by book-entry
transfer to the Exchange Agent's account maintained by DTC through ATOP. For a
holder to properly tender Notes pursuant to the Exchange Offer, a properly
completed and duly executed copy of this Letter of Transmittal, including
Substitute Form W-9, and any other documents required by this Letter of
Transmittal must be received by the Exchange Agent at its address set forth
herein, and either (i) certificates for Tendered Notes must be received by the
Exchange Agent at its address set forth herein, or (ii) such Tendered Notes must
be transferred pursuant to the procedures for book-entry transfer described in
the Prospectus under the caption "The Exchange Offer--Procedures for Tendering"
(and a confirmation of such transfer received by the Exchange Agent), in each
case prior to 5:00 p.m., New York City time, on the Expiration Date. The method
of delivery of certificates for Tendered Notes, this Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the tendering holder and the delivery will be deemed made only when actually
received by the Exchange Agent. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. Instead of delivery
by mail, it is recommended that the Holder use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery. No Letter of Transmittal or Tendered Notes should be sent to the
Company. Neither the Company nor the Exchange Agent is under any obligation to
notify any tendering holder of the Company's acceptance of tendered Notes prior
to the closing of the Exchange Offer.
2. GUARANTEED DELIVERY PROCEDURES. If a registered Holder desires to
tender Notes pursuant to the Exchange Offer and (a) certificates representing
such tendered Notes are not immediately available, (b) time will not permit such
Holder's Letter of Transmittal, certificates representing such tendered Notes
and all other required documents to reach the Exchange Agent on or prior to the
Expiration Date, or (c) the procedures for book-entry transfer cannot be
completed on or prior to the Expiration Date, such Holder may nevertheless
tender such tendered Notes with the effect that such tender will be deemed to
have been received on or prior to the Expiration Date if the procedures set
forth below and in the Statement under "The Exchange Offer -- Guaranteed
Delivery Procedure" (including the completion of Box 4 above) are followed.
Pursuant to such procedures, (i) the tender must be made by or through an
Eligible Institution (as defined), (ii) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form provided by the Company
herewith, or an Agent's Message with respect to a guaranteed delivery that is
accepted by the Company, must be received by the Exchange Agent on or prior to
the Expiration Date, and (iii) the certificates for the tendered Notes, in
proper form for transfer (or a Book-Entry Confirmation of the transfer of such
tendered Notes to the Exchange Agent's account at DTC as described in the
Prospectus), together with a Letter of Transmittal (or manually signed facsimile
thereof) properly completed and duly executed, with any required signature
guarantees and any other documents required by the Letter of Transmittal or a
properly transmitted Agent's Message, must be received by the Exchange Agent
within three New York Stock Exchange trading days after the date of execution of
the Notice of Guaranteed Delivery. Any holder who wishes to tender Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery relating to such
tendered Notes prior to 5:00 p.m., New York City time, on the Expiration Date.
Failure to complete the guaranteed delivery procedures outlined above will not,
of itself, affect the validity or effect a revocation of any Letter of
Transmittal form properly completed and executed by an Eligible Holder who
attempted to use the guaranteed delivery process.
3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder
in whose name Tendered Notes are registered on the books of the registrar (or
the legal representative or attorney-in-fact of such registered holder) may
execute and deliver this Letter of Transmittal. Any Beneficial Owner of Tendered
Notes who is not the registered holder must arrange promptly with the registered
holder to execute and deliver this Letter of Transmittal on his or her behalf
through the execution and delivery to the registered holder of the "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" form accompanying this Letter of Transmittal.
-8-
<PAGE> 9
4. PARTIAL TENDERS. Tenders of Notes will be accepted only in integral
multiples of $1,000 in principal amount. If less than the entire principal
amount of Notes held by the holder is tendered, the tendering holder should fill
in the principal amount tendered in the column labeled "Aggregate Principal
Amount Tendered" of the box entitled "Description of Notes Tendered" (see Box 1)
above. The entire principal amount of Notes delivered to the Exchange Agent will
be deemed to have been tendered unless otherwise indicated. If the entire
principal amount of all Notes held by the holder is not tendered, then Notes for
the principal amount of Notes not tendered and Exchange Notes issued in exchange
for any Notes tendered and accepted will be sent to the Holder at his or her
registered address, unless a different address is provided in the appropriate
box on this Letter of Transmittal, as soon as practicable following the
Expiration Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered holder(s) of the Tendered Notes, the signature must correspond
with the name(s) as written on the face of the Tendered Notes without
alteration, enlargement or any change whatsoever.
If any of the Tendered Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Notes are held in different names, it will be necessary to complete, sign and
submit as many separate copies of the Letter of Transmittal as there are
different names in which Tendered Notes are held.
If this Letter of Transmittal is signed by the registered holder(s) of
Tendered Notes, and Exchange Notes issued in exchange therefor are to be issued
(and any untendered principal amount of Notes is to be reissued) in the name of
the registered holder(s), then such registered holder(s) need not and should not
endorse any Tendered Notes, nor provide a separate bond power. In any other
case, such registered holder(s) must either properly endorse the Tendered Notes
or transmit a properly completed separate bond power with this Letter of
Transmittal, with the signature(s) on the endorsement or bond power guaranteed
by a Medallion Signature Guarantor (as defined below).
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any Tendered Notes, such Tendered Notes must be endorsed
or accompanied by appropriate bond powers, in each case, signed as the name(s)
of the registered holder(s) appear(s) on the Tendered Notes, with the
signature(s) on the endorsement or bond power guaranteed by a Medallion
Signature Guarantor.
If this Letter of Transmittal or any Tendered Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with this Letter of Transmittal.
Signatures on this Letter of Transmittal must be guaranteed by a
recognized participant in the Securities Transfer Agents Medallion Program, the
New York Stock Exchange Medallion Signature Program or the Stock Exchange
Medallion Program (each a "Medallion Signature Guarantor"), unless the Tendered
Notes are tendered (i) by a registered Holder of Tendered Notes (or by a
participant in DTC whose name appears on a security position listing as the
owner of such Tendered Notes) who has not completed Box 3 ("Special Delivery
Instructions") on this Letter of Transmittal, or (ii) for the account of a
member firm of a registered national securities exchange, a member of the
National Association of Securities Dealers, Inc. ("NASD") or a commercial bank
or trust company having an office or correspondent in the United States (each of
the foregoing being referred to as an "Eligible Institution"). If the Tendered
Notes are registered in the name of a person other than the signor of the Letter
of Transmittal or if Notes not tendered are to be returned to a person other
than the registered Holder, then the signature on this Letter of Transmittal
accompanying the Tendered Notes must be guaranteed by a Medallion Signature
Guarantor as described above. Beneficial owners whose Notes are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
must contact such broker, dealer, commercial bank, trust company or other
nominee if they desire to tender such Notes.
6. SPECIAL DELIVERY INSTRUCTIONS. Tendering holders should indicate in
Box 3 the name and address to which the Exchange Notes and/or substitute Notes
for principal amounts not tendered or not accepted for exchange are to be sent,
if different from the name and address of the person signing this Letter of
Transmittal. In the case of issuance in a different name, the taxpayer
identification or social security number of the person named must also be
indicated.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Tendered Notes pursuant to the Exchange Offer. If,
however, a transfer tax is imposed for any reason other tha the transfer and
-9-
<PAGE> 10
exchange of Tendered Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or on any
other person) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with this
Letter of Transmittal, the amount of such transfer taxes will be billed directly
to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Tendered Notes listed in this Letter of
Transmittal.
8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that the
holder(s) of any Tendered Notes which are accepted for exchange must provide the
Exchange Agent (as payor) with its correct taxpayer identification number
("TIN"), which, in the case of a holder who is an individual, is his or her
social security number. If the Exchange Agent is not provided with the correct
TIN, the Holder may be subject to backup withholding and a $50 penalty imposed
by the Internal Revenue Service. (If withholding results in an over-payment of
taxes, a refund may be obtained.) Certain holders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
To prevent backup withholding, each holder of Tendered Notes must
provide such holder's correct TIN by completing the Substitute Form W-9 set
forth herein, certifying that the TIN provided is correct (or that such holder
is awaiting a TIN), and that (i) the holder has not been notified by the
Internal Revenue Service that such holder is subject to backup withholding as a
result of failure to report all interest or dividends or (ii) if previously so
notified, the Internal Revenue Service has notified the holder that such holder
is no longer subject to backup withholding. If the Tendered Notes are registered
in more than one name or are not in the name of the actual owner, consult the
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for information on which TIN to report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of Tendered
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the right to
reject any and all Notes not validly tendered or any Notes the Company's
acceptance of which would, in the opinion of the Company or its counsel, be
unlawful. The Company also reserves the right to waive any conditions of the
Exchange Offer or defects or irregularities in tenders of Notes as to any
ineligibility of any holder who seeks to tender Notes in the Exchange Offer. The
interpretation of the terms and conditions of the Exchange Offer (including this
Letter of Transmittal and the instructions hereto) by the Company shall be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Notes must be cured within such time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of defects or irregularities with
respect to tenders of Notes, nor shall any of them incur any liability for
failure to give such notification. Tenders of Notes will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in this Letter of Transmittal, as soon as practicable following the
Expiration Date.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to
amend, waive or modify any of the conditions in the Exchange Offer in the case
of any Tendered Notes.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or
contingent tender of Notes or transmittal of this Letter of Transmittal will be
accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any tendering Holder
whose Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated herein for further instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and
requests for assistance and requests for additional copies of the Prospectus or
this Letter of Transmittal may be directed to the Exchange Agent at the address
indicated herein. Holders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
-10-
<PAGE> 11
14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF EXCHANGE NOTES; RETURN
OF NOTES. Subject to the terms and conditions of the Exchange Offer, the Company
will accept for exchange all validly tendered Notes as soon as practicable after
the Expiration Date and will issue Exchange Notes therefor as soon as
practicable thereafter. For purposes of the Exchange Offer, the Company shall be
deemed to have accepted Tendered Notes when, as and if the Company has given
written or oral notice (immediately followed in writing) thereof to the Exchange
Agent. If any Tendered Notes are not exchanged pursuant to the Exchange Offer
for any reason, such unexchanged Notes will be returned, without expense, to the
undersigned at the address shown in Box 1 or at a different address as may be
indicated herein under "Special Delivery Instructions" (Box 3).
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the
procedures set forth in the Prospectus under the caption "The Exchange
Offer--Withdrawal of Tenders."
-11-
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
IN RESPECT OF
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
OF
SOVEREIGN SPECIALTY CHEMICALS, INC.
PURSUANT TO THE PROSPECTUS DATED ______, 1998
The Exchange Agent for the Exchange Offer is:
THE BANK OF NEW YORK
By Registered or Certified Mail: By Overnight Courier:
By Hand: By Facsimile Transmission:
(for Eligible Institutions Only)
Confirm by Telephone:
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR
TRANSMISSION VIA FACSIMILE TO A NUMBER, OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE VALID DELIVERY.
As set forth in the Prospectus dated _______, 1998 (as it may be
supplemented and amended from time to time, the "Prospectus") of Sovereign
Specialty Chemicals, Inc. (the "Company") under "The Exchange Offer --
Guaranteed Delivery Procedure," and in the Instructions to the related Letter of
Transmittal (the "Letter of Transmittal"), this form, or one substantially
equivalent hereto, or an Agent's Message relating to the guaranteed delivery
procedures, must be used to accept the Company's offer (the "Exchange Offer") to
exchange any and all of its outstanding 9 1/2% Senior Subordinated Notes due
2007 (the "Notes"), for new 9 1/2% Senior Subordinated Notes due 2007, Series B
(the "Exchange Notes"), if time will not permit the Letter of Transmittal,
certificates representing such Notes and other required documents to reach the
Exchange Agent, or the procedures for book-entry transfer cannot be completed,
on or prior to the Expiration Date (as defined).
This form must be delivered by an Eligible Institution (as defined
herein) by mail or hand delivery or transmitted via facsimile to the Exchange
Agent as set forth above. If a signature on the Letter of Transmittal is
required to be guaranteed by a Medallion Signature Guarantor under the
instructions thereto, such signature guarantee must appear in the applicable
space provided in the Letter of Transmittal. This form is not to be used to
guarantee signatures.
Questions and requests for assistance and requests for additional
copies of the Prospectus may be directed to the Exchange Agent at the address
above. Holders may also contact their broker, dealer, commercial bank, trust
company, or other nominee for assistance concerning the Exchange Offer.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON __________, 1998, UNLESS EXTENDED ("THE EXPIRATION DATE").
- --------------------------------------------------------------------------------
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tender(s) to the Company, upon the terms and
subject to the conditions set forth in the Prospectus and the related Letter of
Transmittal (receipt of which is hereby acknowledged), the principal amount of
the Notes specified below pursuant to the guaranteed delivery procedures set
forth in the Prospectus under "The Exchange Offer -- Guaranteed Delivery
Procedure" and in Instruction 2 to the Letter of Transmittal. The undersigned
hereby authorizes the Exchange Agent to deliver this Notice of Guaranteed
Delivery to the Company with respect to the Notes tendered pursuant to the
Exchange Offer.
The undersigned understands that Notes will be exchanged only after
timely receipt by the Exchange Agent of (i) such Notes, or a Book-Entry
Confirmation, and (ii) a Letter of Transmittal (or a manually signed facsimile
thereof), including by means of an Agent's Message, of the transfer of such
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility,
with respect to such Notes, properly completed and duly executed, with any
signature guarantees and any other documents required by the Letter of
Transmittal within three New York Stock Exchange, Inc. trading days after the
execution hereof. The undersigned also understands that the method of delivery
of this Notice of Guaranteed Delivery and any other required documents to the
Exchange Agent is at the election and sole risk of the holder, and the delivery
will be deemed made only when actually received by the Exchange Agent.
The undersigned understands that tenders of Notes will be accepted only
in principal amounts equal to $1,000 or integral multiples thereof. The
undersigned also understands that tenders of Notes may be withdrawn at any time
prior to the Expiration Date.
All authority conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and every obligation of the undersigned under
this Notice of Guaranteed Delivery shall be binding upon the heirs, executors,
administrators, trustees in bankruptcy, personal and legal representatives,
successors and assigns of the undersigned.
All capitalized terms used herein but not defined herein shall have the
meanings ascribed to them in the Prospectus.
-2-
<PAGE> 3
<TABLE>
<CAPTION>
PLEASE SIGN AND COMPLETE
______________________________________________________________________________________________________________
<S> <C>
Signature(s) of Registered Holder(s) or Date:____________________________________________
Authorized Signatory:_______________________________
Address:_________________________________________
____________________________________________________
_________________________________________________
____________________________________________________
Area Code and Telephone No.______________________
Name(s) of Registered Holder(s):____________________
If Notes will be delivered by book-entry transfer, check book-
____________________________________________________ entry transfer facility below:
____________________________________________________ [ ] The Depository Trust Company
Principal Amount of Notes Tendered:_________________
____________________________________________________
Certificate No.(s) of Notes Depository
(if available)______________________________________ Account No.______________________________________
==============================================================================================================
</TABLE>
================================================================================
This Notice of Guaranteed Delivery must be signed by the holder(s) exactly as
their name(s) appear(s) on certificate(s) for Notes or on a security position
listing as the owner of Notes, or by person(s) authorized to become Holder(s) by
endorsements and documents transmitted with this Notice of Guaranteed Delivery
without alteration, enlargement or any change whatsoever. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must
provide the following information.
Please print name(s) and address(es)
Name(s):________________________________________________________________________
________________________________________________________________________________
Capacity:_______________________________________________________________________
Address(es):____________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
================================================================================
DO NOT SEND NOTES WITH THIS FORM. NOTES SHOULD BE SENT TO THE EXCHANGE
AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL.
-3-
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of the Securities Transfer Agents Medallion
Program, the Stock Exchange Medallion Program or the New York Stock Exchange,
Inc. Medallion Signature Program (each, an "Eligible Institution"), hereby (i)
represents that the above-named persons are deemed to own the Notes tendered
hereby within the meaning of Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended ("Rule 14e-4"), (ii) represents that such
tender of Notes complies with Rule 14e-4 and (iii) guarantees that the Notes
tendered hereby are in proper form for transfer (pursuant to the procedures set
forth in the Prospectus under "The Exchange Offer -- Guaranteed Delivery
Procedures"), and that the Exchange Agent will receive (a) such Notes, or a
Book-Entry Confirmation of the transfer of such Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility and (b) a properly completed and
duly executed Letter of Transmittal or facsimile thereof (or Agent's message)
with any required signature guarantees and any other documents required by the
Letter of Transmittal within three New York Stock Exchange, Inc. trading days
after the date of execution hereof.
The Eligible Institution that completes this form must communicate the
guarantee to the Exchange Agent and must deliver the Letter of Transmittal and
Notes to the Exchange Agent within the time period shown herein. Failure to do
so could result in a financial loss to such Eligible Institution.
Name of Firm:___________________________________________________________________
Authorized Signature:___________________________________________________________
Title:__________________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
(Zip Code)
Area Code and Telephone Number:_________________________________________________
Dated: _____________________________, 1998
-4-
<PAGE> 1
EXHIBIT 99.3
INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
SOVEREIGN SPECIALTY CHEMICALS, INC.
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
To Registered Holder and/or Participant of the Book-Entry Transfer
Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated______,
1998 (as the same may be amended or supplemented from time to time, the
"Prospectus") of Sovereign Specialty Chemicals, Inc., a Delaware corporation
(the "Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer"). Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to action to be taken by you relating to the Exchange
Offer with respect to the 9 1/2% Senior Subordinated Notes due 2007 (the
"Notes") held by you for the account of the undersigned.
The aggregate face amount of the Notes held by you for the account of the
undersigned is (FILL IN AMOUNT):
$ of the 9 1/2% Senior Subordinated Notes due 2007
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[ ] TO TENDER the following Notes held by you for the account of the
undersigned (INSERT PRINCIPAL AMOUNT OF NOTES TO BE TENDERED, IF
ANY):$
[ ] NOT TO TENDER any Notes held by you for the account of the
undersigned.
If the undersigned instruct you to tender the Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representation and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations that (i) the
undersigned's principal residence is in the state of (FILL IN STATE) , (ii) the
undersigned is acquiring the Exchange Notes in the ordinary course of business
of the undersigned, (iii) the undersigned is not participating, does not
participate, and has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes, (iv) the undersigned
acknowledges that any person participating in the Exchange Offer for the purpose
of distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
"Act"), in connection with a secondary resale transaction of the Exchange Notes
acquired by such person and cannot rely on the position of the Staff of the
Securities and Exchange Commission set forth in no-action letters that are
discussed in the section of the Prospectus entitled "The Exchange Offer--Resale
of the Exchange Notes," and (v) the undersigned is not an "affiliate," as
defined in Rule 405 under the Act, of the Company or any Guarantor; (b) to
agree, on behalf of the undersigned, as set forth in the Letter of Transmittal;
and (c) to take such other action as necessary under the Prospectus or the
Letter of Transmittal to effect the valid tender of such Notes.
Check this box if the Beneficial Owner of the Notes is a
Participating Broker-Dealer and such Participating Broker-Dealer
acquired the Notes for its own account as a result of market-making
[ ] activities or other trading activities. IF THIS BOX IS CHECKED, A
COPY OF THESE INSTRUCTIONS MUST BE RECEIVED WITHIN THREE NEW YORK
STOCK EXCHANGE TRADING DAYS AFTER THE EXPIRATION DATE BY SOVEREIGN
SPECIALTY CHEMICALS, INC., ATTENTION ROBERT B. COVALT, FACSIMILE
(312) 419-7145.
SIGN HERE
Name of beneficial owner(s):____________________________________________________
Signature(s):___________________________________________________________________
Name (please print):____________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Telephone number:_______________________________________________________________
Taxpayer Identification or Social Security Number:______________________________
Date:___________________________________________________________________________
