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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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SOVEREIGN SPECIALTY CHEMICALS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 36-4176637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
225 WEST WASHINGTON STREET, CHICAGO, IL 60606
(Address of principal executive offices) (Zip Code)
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(Registrant's telephone number, including area code): (312) 419-7100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Approximately 75% of the voting stock of the registrant is held by an
affiliate of the registrant.
On March 24, 2000, the registrant had 1,436,239 shares of voting common
stock outstanding and 730,182 shares of non-voting common stock outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated herein by reference
into the part of the Form 10-K indicated:
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PART OF FORM 10-K INTO
DOCUMENT WHICH INCORPORATED
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None
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PART I
ITEM 1. BUSINESS
We are a leading developer, producer and distributor of adhesives, sealants
and coatings for use in four primary markets: industrial; flexible packaging;
overprint coatings; and housing repair, remodeling and new construction. We
focus on select value-added market niches in which we have established
leadership positions and competitive advantages in product development,
manufacturing and distribution. We believe that approximately 45% of our 1999
pro forma net sales were from applications in which we have the number one or
two position in the United States. We frequently design our products in
cooperation with our customers to meet unique specifications and to provide
critical performance attributes to their products, resulting in a significant
number of long-lived primary supplier relationships.
We are headquartered in Chicago, Illinois, and were formed by Robert B.
Covalt and other investors to acquire and consolidate specialty chemicals
businesses in the highly fragmented adhesives, sealants and coatings segment of
the specialty chemicals industry. We have successfully expanded our business
through six strategic acquisitions which we have integrated into our three
business units: SIA Tanner, Pierce & Stevens and OSI Sealants. SIA Tanner
manufactures high-performance specialty adhesives and coatings for automotive,
aerospace, recreational vehicle, manufactured housing, air handling and
transportation textile applications. Pierce & Stevens manufactures coating and
adhesive products for overprint coating, flexible packaging and industrial
applications. OSI Sealants manufactures branded caulks, sealants and adhesives
for professional contractors and do-it-yourself applications. We plan to
continue our growth through a combination of new product development, continued
market penetration, strategic acquisitions and international expansion.
The chart below depicts our organizational structure and principal
applications of each business unit.
SOVEREIGN SPECIALTY CHEMICALS GRAPH
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DEVELOPMENTS
On December 30, 1999, SSCI Investors LLC, an entity owned by an investor
group led by AEA Investors Inc., acquired approximately 75% of our capital
stock, with the balance owned by other investors, including our current
management team. The aggregate purchase price for the transaction was $360.0
million, including the retained equity interest, assuming a balance sheet free
of cash and indebtedness. AEA Investors Inc. is an international private equity
firm supported by industrial families and chief executives of major corporations
from around the world.
INDUSTRY OVERVIEW
We operate in one business segment, the production, manufacture and
distribution of adhesives, sealants and coatings. The adhesives, sealants and
coatings segment of the specialty chemicals industry is a large and growing
global segment, which has exhibited strong stable growth. Total sales for the
adhesives, sealants and coatings segment in the United States were approximately
$30.1 billion in 1998. Adhesives are replacing mechanical fasteners in many
manufacturing processes, and adhesives and sealants can reduce weight and parts
requirements and provide superior performance characteristics such as protection
against corrosion and vibration. In addition, we expect international sales of
adhesives, sealants and coatings to grow due to increased use in developing
markets.
Adhesives, sealants and coatings are used in a wide range of products with
applications in numerous categories, including
- Industrial. Typical industrial applications include corrosion
resistant industrial coatings, general assembly adhesives,
fire-retardant textile coatings, coatings for electronic components
and industrial lamination adhesives.
- Consumer. 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. Automotive applications include primers and top coats,
body sealants, structural adhesives and interior and exterior trim
adhesives.
- Construction. Typical construction applications include
contractor-applied architectural coatings, joint sealants and
flooring and roofing adhesives.
- Packaging. Packaging applications include portion packaging and
flexible consumer packaging films and foils, seam sealers and
container coatings.
- Aerospace. Aerospace applications include commercial, military and
general aviation coatings, composite bonding adhesives and structural
epoxies.
The U.S. adhesives, sealants and coatings segment is highly fragmented with
over 500 companies, a significant majority of which we believe are small and
regional. While smaller companies have successfully competed in market niches,
the industry is expected to consolidate as companies seek to enhance operating
efficiencies in new product development, sales and marketing, distribution,
production and administrative overhead. Larger specialty chemicals companies
also benefit through a greater diversification of end-use applications,
customers, technologies and geography, reducing the impact of industry or
regional cyclicality.
Total sales for the U.S. adhesives, sealants and coatings segment grew from
approximately $13.8 billion in 1986 to approximately $30.1 billion in 1998,
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
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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 including 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.
International Sales. International sales of adhesives, sealants and
coatings are also to grow due to increased use of these products
internationally. Total worldwide sales for adhesives, sealants and coatings were
approximately $83.7 billion in 1998. In 1998, the United States accounted for
approximately 36% of worldwide sales, while Europe accounted for approximately
40% of worldwide sales and Japan accounted for approximately 11% of worldwide
sales. Sales to the remainder of the world accounted for approximately 13% of
total segment sales. Strong growth is expected in developing markets,
particularly in the Far East, Eastern Europe and Latin America.
COMPETITIVE STRENGTHS
We believe we have the following competitive strengths:
Leadership Positions in Attractive Market Niches. We enjoy leadership
positions in growing, value-added market niches as a result of our
customer-driven product development, reputation for quality, high levels of
customer service and brand name recognition. Our brand and trade names are
particularly well recognized among our customers, and include Pierce &
Stevens(TM), OSI(R), Pro-Series(R), PL(R), Polyseamseal(R), Miracure(R),
Plastilock(R), Latiseal(TM), Dualite(R), Hybond(R), Proxseal(TM), Magic Seal(R)
and Glaze'N Seal(R). We believe our leadership positions, technological
expertise and strong customer relationships provide us with significant
advantages in the development of new products and the penetration of new market
niches.
Technological Expertise. We are a technology leader within the markets we
serve. Our current technology portfolio, comprising numerous customized and
proprietary formulations with unique performance characteristics, provides us
with a broad technological base to satisfy our customers' requirements. We
continually leverage our technological expertise to develop new products and
additional applications for existing product formulations. In addition, we have
enhanced our technological expertise both through cooperative research and
development efforts and joint technological alliances with world-class
suppliers, customers and universities.
Strong Customer Relationships. Our business teams work hand-in-hand with
our customers to develop innovative, high-performance solutions to satisfy
current and future needs. By directly involving customers in the product
development process, we strengthen our relationships with them and are better
able to develop products that will add value to their businesses. We sell our
products to some of the world's largest companies, including Airbus Industries,
Baxter International Inc., The Boeing Company, General Motors Corporation, The
Home Depot, Inc., Johns Manville Corporation, Lowe's Companies, Inc., Milliken &
Company and The Stanley Works. Many of our industrial, overprint coatings and
flexible packaging products have been certified through rigorous,
customer-specific technical and regulatory approval processes. Once our products
have been approved, our customers are often unwilling to switch to another
supplier because of the significant costs involved. Our relationships with
retailers and professional distributors of our housing repair, remodeling and
construction products are strengthened by our broad product line, strong brands
and reputation for quality. We have been doing business with 14 of our top 20
customers for over 10 years.
Broad Product Offerings and Diverse Customer Base. We manufacture over
5,000 products that are sold through multiple distribution channels to over
5,000 customers for a wide variety of applications. In 1999, no single customer
accounted for over 5% of our pro forma net sales, and our top 20 customers
accounted for less than 30% of our pro forma net sales. This diversity of
customers, products and distribution channels provides us with a broad base from
which to increase sales and expand customer relationships, and reduces exposure
to any particular customer, end market or geographic region.
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Proven Management Team. Our strong management team, led by Robert B.
Covalt, averages over 22 years of experience in the specialty chemicals
industry. Current members of management hold approximately 16% of our equity on
a fully diluted basis. As part of our philosophy, management seeks to foster an
entrepreneurial environment, which empowers employees and encourages and rewards
individual initiative. This philosophy has been successful in generating
top-line growth and improving profitability. Since inception, our management
team has successfully executed and integrated six strategic acquisitions. From
1996 to 1999 we increased our annual net sales from $43.2 million to $237.4
million through acquisitions and internal growth.
BUSINESS STRATEGY
Continued Focus on Niche Products in Attractive Markets. We will continue
to develop product offerings for value-added, end-use applications with
attractive growth prospects, including
- structural adhesives
- flame-retardant adhesives and coatings
- food and medical packaging adhesives and coatings
- environmentally friendly products
Pursue Strategic Acquisitions. We have successfully grown through
acquisitions and intend to pursue additional strategic acquisitions that will
allow us to further increase sales in targeted markets. We believe that the high
degree of fragmentation in the U.S. adhesives, sealants and coatings segment
will continue to provide suitable acquisition candidates. Potential acquisition
candidates will be evaluated based upon our ability to
- expand our product line and customer relationships
- enhance our product development capabilities
- market products through new or expanded distribution channels
- increase utilization of our available manufacturing capacity
- generate cost savings
- add to our technology portfolio
- open new market opportunities
Achieve Significant Operating Efficiencies. We believe we can continue to
achieve operating efficiencies resulting in enhanced revenue opportunities, cost
savings and improved cash flow through
- cross-selling our products across the broader distribution and
customer network that we have developed through our acquisitions
- consolidating raw material and freight purchases to increase
purchasing economies of scale
- improving manufacturing and distribution operations
- lowering working capital levels by optimizing SKU counts and inventory
management
Increase International Presence. We believe we have significant
opportunities in international markets to increase sales to existing
multinational customers, enter developing markets and establish new customer
relationships. While sales of adhesives, sealants and coatings outside the
United States in 1999 represented approximately $57.1 billion or 64% of the
worldwide market, our sales outside the United States represented less than 11%
of our total revenues for 1999 with most of those sales consisting of export
shipments. In addition, international sales are expected to benefit from the
increased use of adhesives, sealants and coatings
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in developing markets. We intend to expand our global sales, particularly in
Europe, Southeast Asia and Latin America, by
- increasing sales and marketing activities in targeted regions
- entering into strategic alliances
- pursuing targeted acquisitions
We have sales and technical offices in Singapore and the United Kingdom. We
manage our sales and marketing activities in Latin America through our existing
operations in Mexico.
APPLICATIONS
The table below sets forth selected applications in each of our four
primary categories.
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CATEGORY SELECTED APPLICATIONS
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Industrial................................... Aerospace structural adhesives
Automotive structural, friction and trim
adhesives
Commercial insulation adhesives and coatings
Flame-retardant textile adhesives and
coatings
Panel lamination adhesives for recreational
vehicles
Power staple and nail gun cartridge adhesives
Flexible Packaging........................... Blister packaging adhesives and coatings
Food and product packaging adhesives and
coatings
Food packaging laminating adhesives
Overprint Coatings........................... High gloss, scratch and abrasion resistant
coatings
Housing Repair, Remodeling and Aluminum and vinyl siding sealants
Construction............................... Drywall and subflooring adhesives
Tub and tile sealants
Window and door sealants
</TABLE>
Industrial. Our industrial products consist primarily of high-performance,
specialty adhesives and coatings for automotive, aerospace, manufactured housing
and textile applications. We often develop structural adhesives in conjunction
with the technical staff of our customers and they are used in many demanding
automotive applications which include brake bonding and body panel assembly. Our
aerospace bonding films are used to bond the composite tail structures in
commercial aircraft and meet rigid performance requirements. In addition, we
manufacture and market microspheres, including Dualite(R), a lightweight inert
filler that can both reduce the weight and enhance the strength of products to
which it is added. Our industrial customers include Airbus Industrie, Baxter
International Inc., The Boeing Company, General Motors Corporation, Johns
Manville Corporation, Milliken & Company and The Stanley Works.
Flexible Packaging. We produce flexible packaging adhesives including:
heat-activated lidding adhesives used to apply flexible paper or foil lids to
plastic tubs used in the food industry, including individually packaged
condiments, creamers and cream cheese tubs; film-to-film adhesives used to bond
different types of plastic film, such as metalized and moisture barrier films
used in snack food bags; foil or paper blister packaging for products such as
pharmaceuticals, batteries, toys and tool accessories; and medical packaging
adhesives.
Overprint Coatings. We produce a variety of high quality, high gloss,
scratch and abrasion resistant coatings used on paperback book and magazine
covers, decorative packaging, annual reports, catalog covers, and playing and
trading cards. We are a leading manufacturer of coatings for paperback book
covers and trading cards. Overprint coatings customers include printers, custom
coaters and magazine manufacturers.
Housing Repair, Remodeling and Construction. Our housing repair, remodeling
and construction products are primarily sealants and adhesives used in exterior
and interior applications. We are a leader in aluminum and vinyl siding sealants
as well as kitchen and bath sealants, offering ease of use, durability and
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color match capabilities. These products are marketed for do-it-yourself retail
and professional applications. We offer a broad range of well-established
branded products including PL(R) and Polyseamseal(R) for retail do-it-yourself
applications and Pro-Series(R) and PL(R) for professional applications.
SALES AND MARKETING
We operate an extensive sales and marketing network for our customers. This
network consists of a direct sales force of over 50 professionals, as well as
independent agents and distributors. This network works closely with customers
to satisfy existing product needs and to identify new applications and product
improvement opportunities. Our sales efforts are complemented by our product
development and technical support staff, who work together with the sales force
to develop new products based on customer needs. We augment our direct sales and
marketing coverage through a network of distributors and independent agents who
specialize in particular areas. This specialization allows our applications to
gain access to a broader range of distribution channels and end users and
further strengthens our brand names.
Our sales and marketing efforts and customer relationships are enhanced by
the numerous customer-specific technical approvals we have 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 us and our
customers and can lead to additional sales and marketing opportunities.
RAW MATERIALS
We use a variety of specialty and commodity chemicals in our manufacturing
processes. These raw materials are generally available from numerous independent
suppliers. We typically purchase strategic raw materials on a contract basis.
Some of our raw materials are derived from propylene, crude oil derivatives and
ethylene. There have been historical periods of rapid and significant movements
in the price of propylene, crude oil derivatives and ethylene both upward and
downward. We have historically been successful in passing on price increases to
our customers over a period of time, but may not be able to do so in the future.
TECHNOLOGY
We maintain a strong commitment to technology, with over 75 chemists and
chemical engineers focused on the development of new products and processes. We
work hand-in-hand with our business teams and customers to develop innovative,
high-performance solutions to satisfy current and future needs. This methodology
of involving the customer throughout the product development process enhances
the creation of products that will add value to our customers' businesses.
Over recent years we have focused our research and development efforts on
the development of high performance, environmentally safe products. This effort
has led to a broad range of technologies and applications, including
- high temperature resistant, reactive hot melt used in industrial
construction applications reactive epoxy liquid used as structural
bonding adhesive in truck bed assembly
- acrylated epoxy ultraviolet/electron-beam curable systems used as
coatings for multi-wall bags that allow bags to be stacked without
slipping while greatly enhancing their appearance
- pre-formulated dispersions that function as medical packaging adhesives,
fiber locking binders, and food packaging lidding adhesives
- advanced toughened epoxy systems used to bond composites and as surface
films for composites in aircraft construction
Our technical activities are further enhanced through alliances with key
industry suppliers and large multi-national customers. These include BASF AG,
Baxter International Inc., The Boeing Company, The
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Dow Chemical Company, E.I. du Pont de Nemours and Company, and Johns Manville
Corporation, among others.
Our patents and qualified formulations, in combination with our customer
integrated approach to product and application design, should enhance our
ability to create a sustainable, competitive advantage in the next several
years.
COMPETITION
The adhesives, sealants and coatings segment of the specialty chemicals
industry is highly competitive. This 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 our product line. Our competitors include Ciba
Specialty Chemicals, Cytec Industries Inc., GE Sealants and Adhesives (a unit of
General Electric Company), H.B. Fuller Company, Imperial Chemical Industries
PLC, Rohm & Haas Co. and RPM Incorporated. 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. Some of
our competitors are larger, have greater financial resources and are less
leveraged than we are. As a result, these competitors may be better able to
withstand a change in market conditions within the specialty chemical industry
and throughout the economy as a whole. These competitors may also be able to
maintain significantly greater operating and financial flexibility than we can.
EMPLOYEES
As of December 31, 1999, we had 686 employees, of whom 100 were members of
unions under contracts which expire between 2001 and 2002. In April 1999,
employees at our Akron facility conducted a two-day strike. This dispute was
satisfactorily resolved. We believe that our relations with our employees are
good.
ENVIRONMENTAL MATTERS
We are subject to extensive laws and regulations pertaining to air
emissions, waste water discharges, the handling and disposal of solid and
hazardous wastes, the remediation of contamination, and otherwise relating to
health, safety and protection of the environment. Our operations and the
environmental condition of our real property could give rise to liabilities
under these laws, which could result in material costs.
In connection with our acquisitions, we have performed substantial due
diligence to assess the environmental liabilities associated with acquired
businesses and have negotiated contractual indemnifications, which, supplemented
by commercial environmental insurance coverage designed for each acquisition, is
currently expected to adequately address a substantial portion of known and
foreseeable environmental liabilities. We do not currently believe that
environmental liabilities will have a material adverse effect on our business,
financial condition or results of operations. We cannot be certain, 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 a material adverse effect.
In connection with soil and groundwater contamination resulting from
historic operations under prior ownership of our Greenville, South Carolina
facility, in November 1994, the former owner of the business entered into a
consent agreement with the South Carolina Department of Health and Environmental
Control that requires the facility to complete investigation and remediation of
soil and groundwater contamination at the site. These activities are currently
projected to cost between approximately $3.0 million and $8.0 million. We are
indemnified by the former owner with respect to this matter, excluding
groundwater monitoring costs incurred after August 5, 2002, as well as certain
other known and unknown pre-closing environmental liabilities, subject to an
overall limit well in excess of the currently estimated cost of cleanup. The
former owner has agreed to conduct and finance the investigation and remediation
of this matter.
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Our facility located in Akron, Ohio is part of a larger industrial complex
formerly operated by The B.F. Goodrich Company, the prior owner of SIA
Adhesives, Inc. The B.F. Goodrich Company, as part of a voluntary cleanup
agreement with the Ohio Environmental Protection Agency, is conducting an
assessment of soil and groundwater contamination throughout the entire complex.
In connection with our 1996 acquisition of SIA Adhesives, Inc., The B.F.
Goodrich Company agreed to indemnify us with respect to this matter (as well as
other known and unknown pre-closing environmental liabilities).
In connection with the 1996 acquisition of Pierce & Stevens, our
environmental due diligence detected conditions of subsurface contamination
primarily associated with storage tank farms and at various other areas of the
Pierce & Stevens facilities. Our current estimate of the total cost of
investigation and remediation is approximately $1.5 million, but this amount
could be significantly higher, depending upon the extent of contamination. In
connection with the acquisition, The Sherwin-Williams Company agreed to
indemnify us with respect to this and other environmental and non-environmental
pre-closing liabilities, subject to a $9.0 million overall limit. In June 1998,
The Sherwin-Williams Company paid us $2.7 million as indemnification for the
tank farm replacement as well as a number of other environmental issues. Upon
receipt of the funds, we recorded an environmental reserve in other long term
liabilities and other current liabilities. To date, approximately $2.3 million
has been spent to address these issues, and we currently maintain an
environmental reserve of approximately $0.4 million. The June 1998 settlement
expressly acknowledged that the settlement does not affect our right to
indemnification for matters not addressed in the settlement.
As is the case with manufacturers in general, if a release of hazardous
materials occurs at real property owned or operated by us or our predecessors or
at any off-site disposal location utilized by us or our predecessors, we 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 and similar environmental laws. We have been
named potentially responsible parties under these laws for cleanup of
approximately fifteen multi-party waste disposal sites, the liability for
several of which has been resolved, subject to standard terms, including the
ability to reopen the matter, found in these kinds of settlements. Due to what
we currently believe is our relatively minor contribution of waste to these
sites, we do not believe that our liability with respect to these sites will
have a material adverse effect on our business, financial condition or results
of operations. In addition, the agreements with former owners of our business
include indemnification for these issues.
The U.S. Environmental Protection Agency issued a notice of violation to
our Carol Stream, Illinois facility alleging that the facility stored hazardous
waste onsite for greater than 90 days during a 13-day period in 1997. Under a
consent agreement finalized in September 1999, the facility agreed to pay a
penalty of $50,000 and to install a cooling water tower, which is expected to
cost approximately $145,000. The penalty has been paid and construction of the
cooling tower began in December 1999. In addition, the consent agreement
requires the facility to close its main hazardous waste accumulation area at an
estimated cost between approximately $15,000 and $100,000.
Some of our facilities may be subject to maximum achievable control
technology requirements that are anticipated to become effective in 2003 for
surface coating manufacturing processes under Title III of the Clean Air Act
Amendments of 1990. We do not currently believe that capital expenditures
relating to achieving compliance with these requirements or other environmental
regulations will have a material adverse effect on our business, financial
condition or results of operations. However, environmental laws are constantly
evolving and we cannot predict accurately the effect they may have upon our
capital expenditures, cash flow or competitive position in the future. Should
these laws become more stringent, the cost of compliance would increase. If we
cannot pass on future costs to our customers, such increases may have an adverse
effect on our business, financial condition or results of operations.
BACKLOG
Most orders for our products are received and shipped in the same month.
Total backlog orders at December 31, 1999 were approximately $11.3 million. All
1999 backlog orders are expected to be filled within the current year. Backlog
orders at December 31, 1998 were $2.2 million.
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PRODUCTION
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. Our 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
our manufacturing processes can be performed at more than one of our facilities.
ITEM 2. PROPERTIES
We operate the manufacturing plants and facilities described in the table
below. Management believes that our plants and facilities are maintained in good
condition and are adequate for its present and estimated future needs.
Listed below are the principal manufacturing facilities that we operate.
<TABLE>
<CAPTION>
OWNED/ SQUARE
LOCATION LEASED(1) FOOTAGE APPLICATION SERVED
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<S> <C> <C> <C>
Akron, Ohio................ Owned 214,300 Industrial
Mentor, Ohio............... Owned 175,000 Home Repair, Remodeling and Construction
Buffalo, New York.......... Owned 165,000 Industrial, Overprint Coatings, Flexible Packaging
Greenville, South
Carolina................. Leased(2) 104,500 Industrial
Carol Stream, Illinois..... Owned 81,800 Industrial, Overprint Coatings, Flexible Packaging
LaGrange, Georgia.......... Owned 80,500 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
Seabrook, New Hampshire/
Salisbury,
Massachusetts............ Owned 21,800 Industrial, Flexible Packaging
</TABLE>
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(1) All of our owned facilities are subject to mortgages pursuant to the credit
facility. In addition, the Seabrook, New Hampshire/Salisbury, Massachusetts
property is subject to mortgages relating to the financing of the
acquisition of the property.
(2) Lease expires December 31, 2008.
(3) Lease expires December 31, 2004.
Our executive offices are located in Chicago, Illinois. We also have sales
and technical offices in Singapore and the United Kingdom.
ITEM 3. LEGAL PROCEEDINGS
We are a party to various litigation matters incidental to the conduct of
our business. We do not believe that the outcome of any of the matters in which
we are currently involved will have a material adverse effect on our financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 28, 1999, our former sole stockholder approved, by written
consent, the amendment and restatement of our certificate of incorporation.
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On December 29, 1999 our stockholders approved, by written consent, (i) the
adoption, and granting of options under, the Employee Stock Option Plan, (ii)
the execution of certain employment and option agreements, (iii) the payment of
certain amounts, including the accelerated vesting of the stock options, under
certain circumstances, and (iv) the taking of all action by the company
necessary to effectuate the foregoing in compliance with the stockholder
approval requirements of Internal Revenue Code sec. 280G and the proposed
Treasury Regulations issued thereunder.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of March 24, 2000, we had approximately forty holders of record of
voting common stock and 3 holders of record of non-voting common stock. There is
no public trading market for our equity securities. We have not declared
dividends since January 1, 1998 and do not anticipate paying cash dividends on
common stock in the forseeable future. Any future determination as to the
payment of dividends will be made at the discretion of the Board of Directors
and will depend upon our operating results, financial condition, capital
requirements, general business conditions and such other factors as the Board of
Directors deems relevant. Our debt instruments include certain restrictions on
the payment of cash dividends on our common stock.
10
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL DATA
The following table presents our selected historical financial data and
that of our predecessors at the dates and for the periods indicated. The data
for the years ended December 31, 1995 and the three months ended March 31, 1996
are derived from the audited financial statements of our predecessor, Sovereign
Engineered Adhesives L.L.C. The data for the nine months ended December 31, 1996
are derived from the financial statements of Sovereign Specialty Chemicals,
L.P., our former parent. The data for the years ended December 31, 1997, 1998
and 1999 are derived from our audited financial statements. The information set
forth below should be read in conjunction with our consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
included elsewhere herein.
<TABLE>
<CAPTION>
PREDECESSOR SOVEREIGN SPECIALTY CHEMICALS, INC.
--------------------------- ---------------------------------------------------------
THREE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1996(1) 1997 1998 1999
------------ ------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................... $21,129 $ 5,410 $37,792 $134,771 $211,335 $237,408
Cost of goods sold...................... 13,734 3,580 26,637 92,889 144,039 162,550
------- ------- ------- -------- -------- --------
Gross profit............................ 7,395 1,830 11,155 41,882 67,296 74,858
Selling, general and administrative
expenses.............................. 5,633 1,603 9,613 30,294 46,418 48,350
Special charges......................... -- -- -- -- -- 14,153
------- ------- ------- -------- -------- --------
Operating income........................ 1,762 227 1,542 11,588 20,878 12,355
Interest expense, net................... -- -- 1,666 9,080 14,712 15,076
Loss on sale of business................ -- -- -- -- 1,025 --
------- ------- ------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item.................... 1,762 227 (124) 2,508 5,141 (2,721)
Income taxes(2)......................... 705 91 (99) 1,315 3,494 4,218
------- ------- ------- -------- -------- --------
Income (loss) before extraordinary
item.................................. 1,057 136 (25) 1,193 1,647 (6,939)
Extraordinary losses, net(3)............ -- -- (281) 1,409 176 1,055
------- ------- ------- -------- -------- --------
Net income (loss)....................... $ 1,057 $ 136 $ (306) $ (216) $ 1,471 $ (7,994)
======= ======= ======= ======== ======== ========
BALANCE SHEET DATA
(END OF PERIOD):
Cash.................................... $ 1 $ 1 $ 104 $ 6,413 $ 5,863 $ 17,005
Working capital (deficit)............... 1,786 (5,019) 11,936 29,618 29,739 17,311
Total assets............................ 9,394 9,612 69,960 242,759 225,567 257,839
Total indebtedness...................... -- -- 41,652 159,277 132,264 158,582
Stockholders' equity.................... 7,013 7,149 17,444 52,053 54,194 56,616
OTHER FINANCIAL DATA:
Capital expenditures.................... $ 106 $ 131 $ 688 $ 1,834 $ 4,472 $ 6,280
</TABLE>
- ------------------------------
(1) Period from March 31, 1996, date of inception, through December 31, 1996.
(2) Prior to our restructuring on July 31, 1997, we were composed of entities
including a limited partnership and a limited liability company for which
income taxes are "passed through" to their owners and, as a result, no
income taxes are reflected prior to July 31, 1997. Effective July 31, 1997,
our predecessor was merged with and into SIA Adhesives, Inc., a subchapter C
corporation, and its business became subject to income taxes. As a result,
income taxes have been reflected for the year ended December 31, 1997 for
taxable earnings subsequent to the merger.
(3) Extraordinary loss relates to the write-off of deferred financing costs
associated with the early extinguishment of debt.
11
<PAGE> 13
NOTES TO SELECTED HISTORICAL FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis is provided to increase the
understanding of, and should be read in conjunction with, the consolidated
financial statements and accompanying notes included herein.
GENERAL
We exist to acquire and consolidate adhesives, sealants and coatings
businesses in the highly fragmented adhesives, sealants and coatings business
segment of the specialty chemical industry. We have grown through the
acquisition and integration of businesses in the highly fragmented U.S.
adhesives, sealants and coatings segment of the specialty chemicals industry.
From 1996 to 1999, we increased its annual net sales through acquisitions and
internal growth from $43.2 million to $237.4 million. Approximately $27.4
million of this net sales increase is attributable to internal growth. We plan
to continue its growth through a combination of new product development,
continued market penetration, strategic acquisitions and international
expansion.
This table describes the acquisitions since inception in March 1996.
<TABLE>
<CAPTION>
DATE OF
ACQUISITION ACQUISITION APPLICATION
- ----------- ----------- -----------
<S> <C> <C>
Adhesives Systems Division of B.F. March 1996 Specialty adhesives used primarily for
Goodrich (renamed SIA Adhesives, automotive, aerospace and general
Inc.) industrial applications
Pierce & Stevens Corp. August 1996 Specialty coatings and adhesives for
performance-oriented niche
applications
U.S. Adhesives, Sealants and Coatings August 1997 Adhesives and sealants primarily
Division of Laporte PLC(1) utilized for housing repair,
remodeling and construction and
industrial applications
Coatings and Adhesives Division of June 1998 Specialty polyurethane formulations
K.J. Quinn & Co., Inc. for adhesives and coatings
PL Adhesives & Sealants brand and August 1998 Adhesives and sealants for consumer
product line from ChemRex Inc. applications
Flexible packaging coating business of April 1999 Radiation curable, water and solvent
The Valspar Corporation products
</TABLE>
- ---------------
(1) The companies acquired from Laporte PLC comprised Laporte Construction
Chemicals North America, Inc., which was renamed OSI Sealants, Inc.,
Evode-Tanner Industries, Inc., which was renamed Tanner Chemicals, Inc., and
Mercer Products Company, Inc., which was sold to Burke Industries, Inc. in
April 1998. Mercer is a manufacturer of extruded vinyl flooring profiles and
related products for the commercial and residential construction and
renovation markets. We sold Mercer due to our strategy of focusing on
adhesives, sealants and coatings.
The operating results of acquired businesses have been included in the
consolidated operating results of the Company for all periods after their
respective dates of acquisition.
On December 30, 1999, SSCI Investors LLC, an entity owned by an investor
group led by AEA Investors Inc., acquired approximately 75% of our outstanding
capital stock directly from the former majority stockholder with the balance
owned by other investors, including our current management team. Funding for the
purchased stock was provided by equity financing from the investor group owning
SSCI Investors LLC. Concurrently with the completion of the acquisition, we
entered into a new credit agreement and repaid all outstanding amounts under our
former credit facility. Amounts drawn under the new credit agreement were used
to repay existing debt and not to finance the acquisition. The transactions
resulting in the acquisition by SSCI Investors LLC of its approximately 75%
stake in the Company was accounted for as a recapitalization.
12
<PAGE> 14
The transaction resulted in a change of controlling stockholder of the Company;
however, generally accepted accounting principles do not require a change in
carrying value of assets and liabilities and, as such, we continue to carry
assets and liabilities at their historical carrying value.
SSCI Investors LLC's acquisition of 75% of the Company's capital stock
constituted a change of control under the terms of the indenture relating to our
9 1/2% Senior Subordinated Notes due 2007 and, as a result, we were required to
make an offer to purchase for cash any and all of the outstanding $125.0 million
principal amount of 9 1/2% notes for 101% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase. The repurchase was
completed on March 6, 2000 with the repurchase of the entire $125.0 million
principal amount of 9 1/2% notes for an aggregate purchase price of
approximately $127.4 million which was financed with borrowings under the credit
facilities. On March 10, 2000 we issued a press release announcing that we were
proposing to issue $150.0 million in aggregate principal amount of senior
subordinated notes due 2010 in a private placement to qualified institutional
investors in accordance with Securities Exchange Commission Rule 144A and
outside of the United States in accordance with Regulation S under the
Securities Act of 1933. We intend to use proceeds from this offering, if
consumated, to repay amounts drawn under our credit facilities for the
repurchase of the 9 1/2% notes.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
Net Sales. Net sales were $237.4 million for 1999, an increase of $26.1
million, or 12.3% over 1998 net sales. The 1998 results include four months of
sales from Mercer Products ($7.2 million), a business sold in April 1998.
Excluding Mercer sales from 1998, net sales increased by 16.3% in 1999 due to
organic growth (approximately 5.7%) and growth through acquisitions
(approximately 10.6%). Each of our business units achieved organic sales growth
in 1999. Strong contributors to this organic growth were increased sales of
insulation coatings by SIA Tanner, adhesives for housing and construction
applications sold through the do-it-yourself channel by OSI Sealants and
flexible packaging and overprint coatings by Pierce & Stevens.
Cost of Goods Sold. Cost of goods sold was $162.6 million for 1999, an
increase of $18.5 million, or 12.9% over 1998. As a percentage of net sales,
cost of goods sold increased slightly to 68.5% for 1999 from 68.2% in 1998
primarily as a result of the lower margins associated with the phase-in of
production of the PL(R) brand of adhesives and sealants and Valspar
applications, partially offset by improvements in raw material costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, were $48.4 million for 1999, an increase of $1.9
million, or 4.2% over 1998. As a percentage of net sales, selling, general and
administrative expenses decreased to 20.4% for 1999 from 22.0% in 1998. This
decrease was due primarily to maintaining corporate overhead costs relatively
constant despite expanding net sales. Special charges of $14.2 million,
comprised principally of equity-based incentive compensation, were incurred in
1999 in connection with the December 30, 1999 sale of a controlling equity
interest in our company.
Interest Expense. Net interest expense was $0.4 million higher in 1999
primarily due to higher average borrowings in 1999 as compared to 1998.
Income Taxes. Income tax expense increased by $0.7 million or 20.7%
despite the $2.7 million loss before income taxes and extraordinary item. This
is due primarily to the increase in nondeductible stock compensation expense
recognized in 1999.
Income (loss) before extraordinary loss. Loss before extraordinary loss
for the year ended December 31, 1999 was $6.9 million. This was primarily the
result of sale related expenses of $14.2 million.
Extraordinary Loss (net of tax benefit). The extraordinary loss of $1.1
million net of the income tax benefit of $0.7 million, relates to the write off
of unamortized deferred financing costs due to the refinancing of our credit
facility.
Net Income (loss). As a result of the change in controlling shareholder of
the Company and resultant special charges and the extraordinary loss associated
with writing off unamortized deferred financing costs due
13
<PAGE> 15
to the refinancing of the former credit facility, a net loss of $8.0 million was
incurred for 1999 compared to net income of $1.5 million in 1998.
1998 COMPARED TO HISTORICAL 1997
Net Sales. Net sales in 1998 were $211.3 million, an increase of $76.6
million, or 56.8%, over the comparable period in 1997, primarily due the
acquisition of the OSI Sealants and Tanner Chemicals in August, 1997, the C&A
Division of KJ Quinn & Co. (C&A Division) in June, 1998 and the PL brand in
August, 1998, offset somewhat by the sale of Mercer in April, 1998. Excluding
acquisitions, net sales increased $5.6 million or 6.4%. The sales increase was
the result of increased sales for industrial and flexible packaging applications
partially offset by declines in overprint coatings sales. Industrial sales
increases were driven by increased share in recreation vehicle adhesives
applications and continued strong levels of commercial aircraft production,
offset by lower sales to automotive OEM's due to design-outs. Sales for flexible
packaging applications increased due to the combined effects of market share
gains in the United States and increased international sales.
Cost of Goods Sold. Cost of goods sold was $144.0 million for 1998, an
increase of $51.2 million, or 55.1%, over 1997. Gross margin improved to 31.8%
from 31.1% in 1997. Net of acquisitions, gross margin improved to 29.3% from
28.7% in 1997. The improved margin in 1998 was primarily the result of an
improvement in the product mix due to increased sales of construction adhesives
and raw material savings from consolidation of purchasing.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1998 were $46.4 million, representing a $16.2
million, or 53.6%, increase from 1997. As a percentage of net sales, selling,
general and administrative expenses decreased slightly to 22.0% for 1998 from
22.4% in 1997. This decrease is due primarily to lower corporate overhead
charges as a percentage of rapidly expanding net sales and other efficiencies
offset partially by the full year impact of increased goodwill amortization
associated with the purchase of the OSI Sealants and Tanner Chemicals,
non-recurring management severance expenses recorded in 1998 and the non cash
compensation expense on management incentive plans.
Interest Expense, net. Interest expense, net was $14.7 million in 1998
representing a $5.6 million, or 62.0% increase over the comparable period in
1997. This increase was the full year impact of increased debt incurred as a
result of the purchase of the OSI Sealants, Tanner Chemicals in August 1997
partially offset by impact of repayment of $30.0 million Term Loan in April
1998.
Loss on Sale of Business. On April 21, 1998, we sold our Mercer Products
Company, Inc. subsidiary to Burke Industries, Inc. Net proceeds from the sale
were approximately $35.3 million. We recognized a book loss on the sale of
approximately $1.0 million.
Income Taxes. Income tax expense increased by $2.2 million to $3.5 million
in 1998 over 1997 primarily due to the growth in pretax earnings resulting from
acquisitions and the fact that 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 generally "pass through" to their owners. After the restructuring,
the Company and subsidiaries have filed consolidated federal tax returns. The
Consolidated financial statements for the year ended December 31, 1997 include
pro forma income taxes as if the Company had been subject to income taxes for
all of 1997.
Income before extraordinary loss. Income before extraordinary loss for
1998 was $1.6 million representing a $0.5 million increase from 1997. This
increase was primarily the result of the factors discussed above. Excluding the
loss on the sale of Mercer, net income before extraordinary loss for 1998 was
approximately $2.6 million.
Extraordinary Loss (net of tax benefit). The extraordinary loss of $0.2
million, net of the income tax benefit of $0.1 million, resulting from the early
termination of a $30.0 million term loan in April 1998, relates to the write-off
of deferred financing costs.
14
<PAGE> 16
Net Income. Net income was $1.5 million, representing a $1.7 million
increase over 1997. This increase was primarily the result of the factors
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $11.0 million in 1999. Net
loss adjusted for non-cash charges, such as depreciation and amortization, stock
compensation expense, amortization of deferred financing costs and extraordinary
loss was approximately $19.0 million. Accounts payable and accrued expenses
increased by $1.2 million in 1999. These increases in cash flow from operations
were offset by increases in accounts receivable of $4.8 million, and a net
buildup of inventory levels of $5.3 million. The increases in accounts
receivable are consistent with the percentage sales increases year over year
from 1998, excluding Mercer which was sold in April 1998.
Net cash provided by operating activities in 1998 totaled $13.6 million,
which represented a $7.2 million increase over 1997. Net income adjusted for
non-cash charges, such as depreciation, amortization, deferred income taxes and
the loss on the sale of Mercer was approximately $15.2 million. Net of 1998
acquisitions and the disposition of Mercer, accounts payable and other
liabilities increased by $5.9 million in 1998. These increases to net cash from
operating activities were partially offset by increases in accounts receivable
and inventories of $7.4 million and $1.3 million. The increase in accounts
receivable was due primarily to increased sales volume primarily due to 1998
acquisitions.
Net cash used in investing activities was $22.0 million in 1999 and
resulted from capital additions to property, plant and equipment of $6.3 million
and the acquisition in April 1999 of the flexible packaging coatings business of
The Valspar Corporation.
Net cash provided by investing activities in 1998 was $15.7 million.
Capital additions to property, plant and equipment totaled $4.5 million in 1998.
The sale of Mercer in April 1998 provided cash of $35.3 million and the
acquisitions of the K.J. Quinn & Co. coatings and adhesives business in June
1998 and the PL(R) adhesives and sealants product line in August 1998 required
cash of $15.1 million.
We sold Mercer in April 1998 due to our strategy of focusing on adhesives,
sealants and coatings. Mercer, a manufacturer of extruded vinyl flooring
profiles and related products for the commercial and residential construction
and renovation markets, was acquired in August 1997 as part of our purchase of
OSI Sealants and Tanner Chemicals.
In the June 1998 acquisition of the coatings and adhesives business of K.J.
Quinn & Co., we paid cash and issued $2.8 million in notes payable to the
previous owners.
In August 1998, we acquired ChemRex Inc.'s PL(R) adhesives and sealants
product line. PL(R) consists of solvent-based and polyurethane adhesives and
sealants. We borrowed $6.2 million under a former credit facility to finance the
acquisition which was subsequently repaid in full prior to December 31, 1998.
Most of the production of the PL(R) applications was transferred to the Mentor,
Ohio production facility in the first quarter of 1999.
Net cash provided by financing activities was $22.1 million in 1999. Net
cash used in financing activities was $29.9 million in 1998. We used proceeds
from the Mercer sale to repay its $30.0 million term loan in April 1998.
Debt at December 31, 1999 consisted of $125.0 million principal amount of
9 1/2% notes, $21.0 million drawn under Term Loan Facility B, $6.0 drawn under
the Credit Facility and $1.1 million drawn under a $1.5 million sub-facility
obtained by our Singapore-based sales office. In addition, we had approximately
$75.0 million available under Term Loan A Facility, $54.0 million available
under Term Loan B Facility and $42.9 million available under the Credit
Facility. We also had approximately $5.5 million outstanding of other
indebtedness, including capital leases.
On December 28, 1999, we redeemed a portion of outstanding shares of common
stock held by our former parent for an aggregate price of approximately $3.3
million.
15
<PAGE> 17
As of December 29, 1999, we entered into a management agreement with AEA
Investors Inc. pursuant to which AEA Investors Inc. will provide us with
advisory and consulting services. The management agreement provides for an
annual aggregate fee of $999,999 plus reasonable out-of-pocket costs and
expenses.
On December 30, 1999, we repaid all outstanding amounts under our former
credit facility and entered into a new credit agreement (Credit Agreement) which
provides for aggregate borrowings of $200 million, including a (1) $50.0 million
revolving credit facility (Credit Facility), (2) a $75.0 million term loan (Term
Loan A) (3) a $75.0 million term loan (Term Loan B). Borrowings under the Credit
Facility are available on a fully revolving basis and may be used for general
corporate purposes, including to a limited extent acquisitions. The Credit
Facility will mature on December 30, 2005. Borrowings under Term Loan A may be
used for general corporate purposes, including acquisitions, and commitments to
lend under this facility terminate after 18 months to the extent not then drawn.
Borrowings under the Term Loan B may be used for general corporate purposes and
were fully drawn on March 6, 2000. On March 23, 2000, after giving effect to the
$127.4 million which was used to repurchase $125.0 million principal amount of
9 1/2% notes, we had outstanding $60.0 million principal amount under Term Loan
A, $75.0 million principal amount under the Term Loan B and $20.0 million
principal amount under the Credit Facility. In addition to this amount, as of
March 23, 2000, we had approximately $6.6 million outstanding of other
indebtedness. On March 10, 2000 we issued a press release announcing approval to
issue $150.0 million in aggregate principal amount of senior subordinated notes
due 2010 in a private placement to qualified institutional investors in
accordance with Securities Exchange Commission Rule 144A and outside of the
United States in accordance with Regulation S under the Securities Act of 1933.
The proceeds from this proposed offering, if consummated, will be used to repay
all amounts outstanding under Term Loan A and Term Loan B and approximately $8.8
million outstanding under the Credit Facility. Upon repayment, Term Loan B would
be terminated. As of March 24, after giving effect to this proposed offering and
the application of the net proceeds we would have $75.0 million of borrowing
availability under Term Loan A and $37.7 million of borrowing availability under
our $50.0 million Credit Facility. We may incur additional indebtedness to the
extent that it completes any acquisitions.
Interest payments on the amounts drawn under the credit facilities, as well
as other indebtedness and obligations, represent significant obligations for the
Company. Our remaining liquidity demands relate to capital expenditures and
working capital needs. Our capital expenditures were approximately $6.5 million
in 1999 and management currently anticipate capital expenditures will be
approximately $8.1 million in 2000 and approximately $8.6 million in 2001. While
we are engaged in ongoing evaluations of, and discussions with, third parties
regarding possible acquisitions, as of the date of this offering memorandum, we
have no binding agreements or commitments with respect to any acquisitions.
Exclusive of the impact of any future acquisitions, joint venture arrangements
or similar transactions, Management does not expect capital expenditure
requirements to increase materially in the foreseeable future.
Our primary sources of liquidity are cash flows from operations and
borrowings under the credit facilities. Based on current and anticipated
financial performance, we expect cash flow from operations and borrowings under
the credit facilities will be adequate to meet anticipated requirements for
capital expenditures, working capital and scheduled interest payments, including
interest payments on the amounts outstanding under the notes, the credit
facilities and other indebtedness. However, capital requirements may change,
particularly if we should complete any additional material acquisition. Our
ability to satisfy capital requirements will be dependent upon its future
financial performance and ability to repay or refinance its debt obligations
which in turn will be subject to economic conditions and to financial, business
and other factors, many of which are beyond our control.
INFLATION
We do 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 our business will not be affected by inflation in the future.
16
<PAGE> 18
YEAR 2000 DISCLOSURE
Many computer systems and other equipment with embedded technology use only
two digits to define the applicable year and may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in failures or
miscalculations causing disruptions of normal business activities and
operations. We have actively addressed the Year 2000 issue. Our total cost of
addressing all Year 2000 issues was less than $0.5 million, substantially all of
which was incurred as of December 31, 1999 and has been expensed or capitalized,
as appropriate. To date, as a result of these efforts, we have not experienced
any significant functional problems related to the Year 2000 issue. In addition,
to date, the Company has not experienced any significant Year 2000 issue with
respect to vendors and/or third parties with whom the Company conducts business.
We believe that the identification of significant Year 2000 issues is unlikely
at this time, there is an ongoing risk that Year 2000 related problems could
still occur and we will continue to monitor the situation. In the event any Year
2000 issues arise, we have developed contingency plans to address them.
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
Some of the information presented in, or connection with, this report may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 that involve potential risks and
uncertainties. Our future results could differ materially from those discussed
here. Some of the factors that could cause or contribute to such differences
include:
Changes in economic and market conditions that impact the
demand for our products and services;
Risks inherent in international operations, including possible
economic, political or monetary instability;
Uncertainties relating to our ability to consummate our
business strategy, including realizing synergies and cost
savings from the integration of acquired businesses.
The impact of new technologies and the potential effect of
delays in the development or deployment of such technologies;
and,
The potential impact of issues related to Year 2000 software
compliance.
You should not place undue reliance on these forward-looking statements,
which are applicable only as of March 24, 2000. All written and oral
forward-looking statements attributable to the Company are expressly qualified
in their entirety by the foregoing factors and those identified in Exhibit 99.1
to this report. We have no obligation to revise or update these forward-looking
statements to reflect events or circumstances that arise after March 24, 2000 or
to reflect the occurrence of unanticipated events.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have not historically engaged in hedging or other derivative trading
activities since our debt obligations have been primarily fixed rate in nature
and, as such, were not sensitive to changes in interest rates. However, we
repurchased the 9 1/2% notes on March 6, 2000 with variable rate borrowings
under its credit facilities which are sensitive to interest rates and,
accordingly, could have a material adverse effect on future operations or cash
flows. The credit facilities require that, by June 30, 2000, at least 45% of our
funded indebtedness be fixed-rate or subject to interest rate hedging agreements
to reduce the risk associated with variable rate debt. We do not currently
anticipate, assuming the completion of the proposed offering of the notes and
the application of the proceeds to repay indebtedness under our credit facility,
that the events that would give rise to the requirement that we enter into
interest rate hedging agreements will occur. In addition, we may enter into
foreign exchange currency hedging agreements in connection with foreign
acquisitions, if any.
17
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company are submitted as a
separate section of this report. For a list of financial statements and
schedules filed as part of this report, see the "Index to Financial Statements"
beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to: (1)
each member of the Sovereign's Board of Directors; (2) each executive officer of
Sovereign; and (3) certain key managers of Sovereign and its subsidiaries.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert B. Covalt............... 68 Chairman, President, Chief Executive Officer and Director
of Sovereign and Chairman and Director of OSI Sealants,
Pierce & Stevens, SIA Adhesives and Tanner Chemicals
John R. Mellett................ 50 Vice President, Chief Financial Officer, Chief Accounting
Officer and Treasurer of Sovereign, Pierce & Stevens, SIA
Adhesives, OSI Sealants and Tanner Chemicals
Martyn Howell-Jones............ 62 Vice President -- International
Richard W. Johnston............ 53 Vice President -- Technology of Sovereign and Executive
Vice President of Pierce & Stevens
Paul Gavlinski................. 53 Vice President -- Manufacturing and Engineering of
Sovereign, Pierce & Stevens, SIA Adhesives, OSI Sealants
and Tanner Chemicals
Karen K. Seeberg............... 47 Vice President -- Human Resources of Sovereign, Pierce &
Stevens, SIA Adhesives, OSI Sealants and Tanner Chemicals
Frederick A. Quinn............. 54 President of Pierce & Stevens
Gerald A. Loftus............... 45 President of SIA Adhesives and Tanner Chemicals
Peter Longo.................... 40 President of OSI Sealants
Louis M. Pace.................. 28 Vice President -- Mergers & Acquisitions, Assistant
Secretary and Assistant Treasurer
Patrick W. Stanton............. 32 Principal Accounting Officer
John Garcia.................... 43 Director
Karl D. Loos................... 49 Director
John D. Macomber............... 72 Director
Robert H. Malott............... 73 Director
Thomas P. Salice............... 40 Director
Norman E. Wells, Jr. .......... 51 Director
</TABLE>
Robert B. Covalt has served as our Chairman, President and Chief Executive
Officer and as a director of our company since its inception in 1996. Mr. Covalt
is Chairman and a director of each of our domestic subsidiaries. From 1979 to
1990, Mr. Covalt served as President of the Specialty Chemicals Group of Morton
International, Inc. During this period, Mr. Covalt grew Morton's specialty
chemicals group from $175.0 million to $1.3 billion in sales and he completed 13
acquisitions ranging in size from $3.0 million to $170. 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 joined in 1956. Mr. Covalt serves on the board of directors of CFC
International, Inc., a specialty chemical coating manufacturer.
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<PAGE> 20
Mr. Covalt has a B.S. in Chemical Engineering, an honorary doctorate from Purdue
University, and an M.B.A. from the University of Chicago.
John R. Mellett has served as Vice President since March 1, 1999. Prior to
joining our company, Mr. Mellett was Senior Vice President & Chief Financial
Officer of USI Bath and Plumbing Products and its Zurn Industries, Inc.
operations, a diversified supplier of bath, plumbing and HVAC products and
services from 1995 to 1999. From 1992 to 1995, Mr. Mellett served as Senior Vice
President & Chief Financial Officer of LeFebure Corporation, a supplier of
equipment and services to financial institutions. Mr. Mellett is a Certified
Public Accountant and holds a B.S. in Accounting from Miami University.
Martyn Howell-Jones has served as our Vice President -- International since
October 1996 pursuant to a consulting arrangement. Mr. Howell-Jones is
responsible for our international sales and marketing efforts. Prior to joining
our 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 our Vice President -- Technology 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.
Paul Gavlinski has served as our Vice President -- Manufacturing and
Engineering 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.
Karen K. Seeberg has been our Vice President -- Human Resources since
February 1998. From January 1997 to February 1998, Ms. Seeberg was Director of
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.
Frederick A. Quinn has been President of Pierce & Stevens since March 1999.
Mr. Quinn has been responsible for the identification and development of new
strategic business opportunities within our company's business units. From
September 1992 until June 1999, Mr. Quinn served first as Executive Vice
President and from 1993 as President, Chief Operating Officer of K.J. Quinn &
Co., Inc. From July 1988 until September 1992, Mr. Quinn was the North American
Business Manager for the Thermoplastic Polyurethane Division of Morton
International. From 1973 to July 1988, Mr. Quinn held various sales and
marketing positions within K.J. Quinn & Co., Inc. Mr. Quinn holds a B.S. degree
in International Relations and an M.B.A. from the University of Southern
California.
Gerard A. Loftus has served as President of Tanner Chemicals 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 B.F. Goodrich Company, the predecessor of SIA Adhesives. In 1994, Mr. Loftus
served as the division business manager of the Adhesives Systems Division with
responsibility for all sales, marketing and technical activities. From 1990 to
1994, Mr. Loftus was business manager of the aerospace products group of the
Adhesives Systems Division. Upon joining the Adhesives Systems Division in 1986,
Mr. Loftus served in a variety of capacities, including materials manager and
controller. Mr. Loftus, who
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<PAGE> 21
is a Certified Public Accountant., and holds a B.B.A. in Accounting from Ohio
University and a Masters of Accountancy from Cleveland State University.
Peter Longo has been President 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 been our Vice President -- Mergers & Acquisitions since
March 1999 and has served as our Director of Mergers & Acquisitions since
January 1998. From August 1996 to December 1997, he served as our Director of
Corporate Development and Assistant Secretary. From 1995 to August 1996, Mr.
Pace was an associate with First Chicago Equity Capital. 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.
Patrick W. Stanton has served as our Principal Accounting Officer since
September, 1998. From April 1998 to August 1998, he served as our Manager of
Financial Planning and Control. From 1990 to March 1998, Mr. Stanton was with
Arthur Andersen LLP. Mr. Stanton is a Certified Public Accountant and holds a
B.S. in Accounting from Marquette University.
John L. Garcia has been a Director since December 1999. For administrative
purposes, Mr. Garcia has also served as Vice President, Assistant Treasurer, and
Assistant Secretary since December 1999. Mr. Garcia is currently a Managing
Director of AEA Investors Inc. From 1994 to 1999, Mr. Garcia was associated with
Credit Suisse First Boston, where he served as Global Head of the Chemicals
Group, a member of the European Investment Bankers Management Committee and Head
of the European Acquisition and Leveraged Finance and Financial Sponsors Group.
Mr. Garcia is a Director of Acetex Corporation and Sterling Chemicals, Inc.
Karl D. Loos has been a director since February 2000. Mr. Loos also served
as a director from August 1996 until December 1999. 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.
John D. Macomber has been a Director since December 1999. Mr. Macomber has
been a principal of JDM Investment Group since 1992 and is a Director of IRI
International, Lehman Brothers Holdings Inc., Mettler-Toledo International Inc.,
Rand McNally & Company and Textron Inc. Mr. Macomber is the former Chairman and
President of the Export-Import Bank of the United States, Chairman and Chief
Executive Officer of Celanese Corporation and Senior Partner of McKinsey & Co.
Robert H. Malott has been a director since December 1999. Prior to his
retirement in 1997, Mr. Malott was Chairman of the Executive Committee of FMC
Corporation from November 1991 through May 1997. Mr. Malott served as Chairman
of the Board and Chief Executive Officer of FMC Corporation from 1973 to 1991.
Mr. Malott is a former Director of FMC Corporation, Amoco Corporation and United
Technologies Corporation.
Thomas P. Salice has been a Director since December 1999. For
administrative purposes, Mr. Salice has also served as Vice President, Assistant
Treasurer, and Assistant Secretary since December 1999. He is President, Chief
Executive Officer and a Director of AEA Investors Inc. and has been associated
with AEA Investors Inc. since June 1989. Mr. Salice is also a Director of Waters
Corporation and Mettler-Toledo International Inc.
Norman E. Wells, Jr., has been a Director since December 1999. Prior to his
retirement in 1999, Mr. Wells served as President and Chief Executive Officer of
Easco Aluminum Inc. from November 1996 to
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<PAGE> 22
December 1999. Mr. Wells was a Director of CasTech Aluminum Group Inc. from June
1992 to September 1996 and served as CasTech's President and Chief Executive
Officer from March 1993 to September 1996.
BOARD COMMITTEE MEMBERSHIP
Our board of directors has two standing committees: a compensation
committee and an audit committee. The compensation committee of our board of
directors is comprised of Messrs. Macomber, Salice and Wells. The audit
committee is comprised of Messrs. Malott, Garcia and Wells.
ITEM 11. EXECUTIVE COMPENSATION
The table below summarizes compensation information for our Chief Executive
Officer and each of the four other most highly compensated executive officers of
our company and/or our domestic subsidiaries for services rendered during the
years ended December 31, 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------- OTHER SECURITIES ALL OTHER
FISCAL ANNUAL UNDERLYING COMPENSATION
YEAR SALARY($) BONUS($) COMPENSATION(1) OPTIONS(#) ($)(2)
------ --------- -------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Covalt................. 1999 $291,644 $215,880 -- 48,000 $16,756,469
Chairman, President 1998 259,500 154,470 -- -- 335,022
and Chief Executive Officer -- 1997 250,000 140,158 -- -- 17,512
Sovereign, and Chairman of
OSI Sealants, Pierce & Stevens,
SIA Adhesives and Tanner
Chemicals
John R. Mellett(3)............... 1999 $166,677 $ 59,997 $30,000(4) 15,000 $ 2,250,862
Vice President and Chief
Financial 1998 -- -- -- -- --
Officer -- Sovereign, and Chief 1997 -- -- -- -- --
Accounting Officer and
Treasurer of OSI Sealants,
Pierce & Stevens, SIA Adhesives
and Tanner Chemicals
Peter Longo(5)................... 1999 $193,428 $ 69,080 -- 9,200 $ 359,599
President and Chief Executive 1998 185,658 68,028 -- -- 3,333
Officer of OSI Sealants 1997 77,358 64,980 -- -- 2,577
Frederick A. Quinn(6)............ 1999 $148,936 $ 56,908 -- 9,500 $ 443,958
President and Chief 1998 67,209 12,918 -- -- 5,342
Executive Officer of 1997 -- -- -- -- --
Pierce & Stevens
Gerard A. Loftus................. 1999 $147,843 $ 56,175 -- 9,500 $ 264,728
President and Chief Executive 1998 139,167 41,404 -- -- 8,549
Officer of SIA Adhesives 1997 133,024 41,863 -- -- 3,763
and Tanner Chemicals
</TABLE>
- ------------------------------
(1) Except as set forth below, the aggregate amount of perquisites and other
personal benefits for any of the executives named in the above table was
less than the lesser of $50,000 or 10% of the total annual salary and bonus
reported for the named executive officer.
(2) For fiscal year 1999, represents matching and profit sharing contributions
under our 401(k) plans in the amount of $3,200, $7,486, $8,200, $6,970 and
$6,338 for Messrs. Covalt, Mellett, Longo, Quinn and Loftus, respectively,
and payments made by our former parent partnership, Sovereign Specialty
Chemicals, L.P., under its 1997 Stock Incentive Pool upon the sale of
approximately 75% of Sovereign's equity to SSCI Investors LLC in the amount
of $16,753,269, $2,243,376, $351,399, $436,988 and $258,390 to Messrs.
Covalt, Mellett, Longo, Quinn and Loftus, respectively.
(3) Mr. Mellett became an employee of Sovereign in March 1999.
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<PAGE> 23
(4) Reflects payments made to Mr. Mellett in fiscal 1999 for temporary living
accommodations and travel expenses.
(5) Mr. Longo became an employee of Sovereign in August 1997 upon Sovereign's
acquisition of OSI Sealants.
(6) Mr. Quinn became an employee of Sovereign in June 1998 upon Sovereign's
acquisition of Pierce & Stevens.
DIRECTOR COMPENSATION
Members of our board of directors are reimbursed for traveling costs and
other out-of-pocket expenses incurred in attending board of directors and
committee meetings. Members of the board of directors who are also our officers
or employees of AEA Investors Inc. do not receive additional compensation for
being on the board of directors or its committees. Mr. Loos will receive a fee
of $2,500 per meeting. Messrs. Macomber, Malott and Wells were given a one-time
opportunity to purchase units in a partnership which owns all of the equity in
SSCI Investors LLC upon their election to the board of directors but receive no
compensation for their services as directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following former directors served on the compensation committee of our
board of directors prior to SSCI Investors LLC's purchase of approximately 75%
of our capital stock: Charles A. Aldag, Karl D. Loos, Reeve B. Waud and Carol E.
Bramson. All of these persons resigned from the board of directors in December
1999. In connection with SSCI Investors LLC's purchase of our stock, our board
of directors was initially reconstituted to be comprised of Robert B. Covalt,
John L. Garcia and Thomas P. Salice. These directors approved various actions
with respect to the current compensation arrangements of our executive officers.
Mr. Covalt is one of our officers. Messrs. Garcia and Salice are officers of
Sovereign for administrative purposes only and are officers of AEA Investors
Inc. Approximately 75% of our capital stock is owned by SSCI Investors LLC,
which is owned by an investor group led by AEA Investors Inc. For a more
detailed discussion of relationships between AEA Investors Inc. and Sovereign
see "Certain Relationships and Related Transactions." As of February 2000, the
compensation committee of our board of directors is comprised of John D.
Macomber, Thomas P. Salice and Norman E. Wells.
STOCK OPTIONS
The table below sets forth information with respect to grants of options to
purchase shares of our common stock during the year ended December 31, 1999 to
the executives listed in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(1)
OPTIONS IN PRICE EXPIRATION ----------------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ---- ---------- ----------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Covalt.......... 48,000(2) 31.20% $129.50 12/29/09 1,608,000 6,216,000
John R. Mellett........... 15,000(3) 9.75% $129.50 12/29/09 502,500 1,942,500
Peter Longo............... 9,200(3) 5.98% $129.50 12/29/09 308,200 1,191,400
Frederick A. Quinn........ 9,500(3) 6.18% $129.50 12/29/09 318,250 1,230,250
Gerard A. Loftus.......... 9,500(3) 6.18% $129.50 12/29/09 318,250 1,230,250
</TABLE>
- ------------------------------
(1) Values are based on assumed rates of annual compounded appreciation of 5%
and 10% from the date the option was granted over the full option term.
These assumed rates of appreciation are established by the
22
<PAGE> 24
Securities and Exchange Commission and do not represent our estimate or
projection of future stock price.
(2) Mr. Covalt's options become exercisable with respect to 1/16th of the shares
covered by these options on each March 31, June 30, September 30 and
December 31, beginning March 31, 2000 and ending December 31, 2003. The
options will become immediately exercisable in full in the event of a change
in control of our company.
(3) The options become exercisable with respect to 1/5th of the shares covered
by these options on December 30th in each of 2000, 2001, 2002, 2003 and
2004. The options will become immediately exercisable in full in the event
of a change in control of our company.
The following table sets forth information concerning the value of
unexercised in-the-money options held for each of the executives listed in the
Summary Compensation Table as of December 31, 1999.
AGGREGATE OPTION EXERCISES IN FISCAL 1999
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER
OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT
SHARES YEAR-END(#) YEAR-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
---- ----------- ----------- ----------------- ----------------
<S> <C> <C> <C> <C>
Robert B. Covalt......................... 0 0 0/48,000 0/0
John R. Mellett.......................... 0 0 0/15,000 0/0
Peter Longo.............................. 0 0 0/9,200 0/0
Frederick A. Quinn....................... 0 0 0/9,500 0/0
Gerard A. Loftus......................... 0 0 0/9,500 0/0
</TABLE>
- ------------------------------
(1) There was no public trading market for our common stock at December 31,
1999. Accordingly, these values of exercisable and unexercisable
in-the-money options are based on the fair market value of our common stock
at December 31, 1999, $100 per share, as determined by our board of
directors, and the applicable exercise price per share.
MANAGEMENT INCENTIVE COMPENSATION PLAN AND EMPLOYMENT AGREEMENTS
We believe 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. We have instituted the
following plans and programs for this purpose.
Management Incentive Compensation Plan
We adopted our management incentive compensation plan effective January 1,
2000. Selected members of our management and corporate staff judged to have the
greatest impact on our economic results are eligible to participate in this
plan. Participants are eligible for cash bonus awards based on our financial
performance, measured in terms of revenues and earnings before interest, taxes,
depreciation and amortization (EBITDA), and on individual role-specific goals.
Participants in this program are assigned a percentage of their base salary as
their bonus target for the then current fiscal year. Awards may be higher or
lower than the target bonus as our financial performance and/or the individual's
performance is above or below the level expected to achieve the target bonus.
Target bonuses range from 25% to 75% of base salary dependent upon position.
However, no participant may earn a bonus for a specific year unless at least 90%
of both the target EBITDA and revenue thresholds for that year have been
attained. In addition, our chief executive officer may award participants
bonuses supplemental to those earned under the plan for producing extraordinary
results. The management incentive compensation plan is administered by our chief
executive officer and vice president-human resources, under the general
direction of the compensation committee of our board of directors.
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<PAGE> 25
Employment Agreements
We have entered into employment agreements with Messrs. Covalt, Mellett,
Longo, Quinn and Loftus, effective December 29, 1999, providing for their
employment in their current capacities. Pursuant to the agreements, Messrs.
Covalt, Mellett, Longo, Quinn and Loftus are entitled to annual base salaries of
$300,000, $200,000, $196,000, $155,000 and $150,000, respectively, and are
eligible to receive an annual performance-based bonus of up to 75% in the case
of Mr. Covalt, and 40% for the four other named executives, of the applicable
executive's base salary determined in accordance with the terms of the bonus
plan adopted by our board of directors for the calendar year. Additionally, each
executive is eligible for a discretionary bonus as determined by the board of
directors. Under their respective employment agreements, the executives received
non-qualified stock options as described in the Option Grants in Last Fiscal
Year Table above, and are entitled to participate in all health, welfare and
other benefit plans we provide to our executives.
The employment agreements for Messrs. Covalt and Mellett each provide for a
term expiring on December 31, 2003 and for Messrs. Longo, Quinn and Loftus each
provide for a term expiring December 31, 2002, in each case subject to automatic
one-year renewal terms. If we terminate an executive's employment without cause
(as defined in the employment agreements), or an executive resigns with good
grounds (as defined in the employment agreements), we are required to
(1) pay the executive any unpaid portion of his base salary earned
through the date of termination or resignation,
(2) continue to pay the executive his then current annual base salary
during the one-year period following termination or resignation,
(3) continue the executive's participation in employee benefit plans
during the one-year period following termination or resignation, and
(4) pay the executive a pro rata portion of his potential target
annual bonus for the calendar year of termination if the executive resigns
for good grounds. However, if we terminate the executive's employment
without cause, the pro rata potential target annual bonus will be paid,
in the case of Mr. Covalt, at the discretion of the compensation
committee of the board of directors, or
in the case of all other executives, at the discretion of the chief
executive officer.
All severance benefits and payments are conditioned on the executive's
execution of a general release and his compliance with certain non-competition,
non-solicitation and non-disclosure covenants.
1999 Stock Option Plan
In 1999, we adopted the Sovereign Specialty Chemicals, Inc. Stock Option
Plan to provide for the grant of nonqualified stock options to our, and our
affiliates', key employees and directors. The maximum number of shares of common
stock underlying the options available for award under the stock option plan is
240,713 shares. Of these shares, 48,000, 15,000, 9,200, 9,500 and 9,500 were
granted to Messrs. Covalt, Mellett, Longo, Quinn and Loftus, respectively. If
any options terminate, or expire unexercised, the shares subject to such
unexercised options are again available for grant under the stock option plan.
The stock option plan will be administered by the compensation committee of
the board of directors. Generally, the committee interprets and implements the
stock option plan, grants options, exercises all powers, authority, and
discretion of the board under the stock option plan, and determines the terms
and conditions of option agreements, including the vesting provisions, exercise
price, and termination date of options.
Each option is evidenced by an agreement between us and an optionee. Unless
determined otherwise by the committee, 20% of the shares subject to the option
vest on each of the first five anniversaries of the grant date. Additionally,
the committee may accelerate the vesting of any option grant. The option price
is specified
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<PAGE> 26
in each option agreement at an amount not less than the fair market value on the
grant date, unless determined otherwise by the committee. All optionees are
required to become parties to the management shareholders agreement, which are
described under "Certain Relationships and Related Transactions," upon the grant
of all options.
In the event of a transaction that constitutes a change in control of
Sovereign, as described in the stock option plan, unless determined otherwise by
the compensation committee, all options become fully exercisable immediately
prior to the date of the transaction, and we may cancel any options unexercised
as of the change in control upon our payment to the holders of options the
difference between the fair market value of the underlying stock and the option
exercise price. In the event of specified transactions that result in holders of
common stock receiving payments or securities in respect of, or in exchange for,
their common stock that do not result in a change in control of our company, as
described in the stock option plan, unless determined otherwise by the
compensation committee, options remain subject to the terms of the stock option
plan and the applicable option agreement, and thereafter upon exercise,
optionees will be entitled to receive in respect of any option the same per
share consideration received by holders of common stock at the time of the
transaction. Options will in no event entitle the holder of the option to
ordinary cash dividends payable upon the common stock issuable upon exercise of
the options.
In order to prevent dilution or enlargement of the rights of participants,
the stock option plan provides that the aggregate number of shares subject to
the stock option plan, any option, the purchase price to be paid upon exercise
of an option and the amount to be received in connection with the exercise of
any option will be automatically adjusted to reflect any stock splits, reverse
stock splits or dividends paid in the form of common stock, and equitably
adjusted as determined by the committee for any other increase or decrease in
the number of issued shares of common stock resulting from the subdivision or
combination of shares or other capital adjustments.
Our board of directors may amend, alter, or terminate the stock option
plan. Any board action may not adversely alter outstanding options without the
consent of the optionee. The stock option plan will terminate ten years from its
effective date, but all outstanding options will remain effective until
satisfied or terminated under the terms of the stock option plan.
Employee Stock Purchase Plan
On January 26, 2000, we adopted the Sovereign Specialty Chemicals, Inc.
Employee Stock Purchase Plan. Under the stock purchase plan eligible employees
have the opportunity to purchase up to 20,000 shares of our voting common stock.
As of March 24, our employees have subscribed to purchase 7,245 shares at
$100.00 per share.
The compensation committee will administer the stock purchase plan.
Generally, the compensation committee will determine which employees are
eligible to participate in the stock purchase plan, interpret the plan,
determine the number of shares and purchase price for common stock sold under
the plan and make all other determinations under the plan.
If the number of outstanding shares of common stock has increased,
decreased, changed into, or been exchanged for a different number or kind of
shares or securities of our company through any reorganization, merger,
recapitalization, reclassification, stock split, stock consolidation or similar
transaction, appropriate and proportionate adjustments will be made in the
number and/or kind of shares which are subject to stock purchase rights awarded
under the stock purchase plan and in the purchase price applicable to such
outstanding rights and in the number and kind of shares which may be sold under
the stock purchase plan.
We may, at any time, suspend, amend or terminate the stock purchase plan.
No amendment or termination may, however, amend, alter or impair the rights of
any participant with respect to shares of common stock previously purchased
under the stock purchase plan. Unless terminated earlier, the stock purchase
plan will terminate on April 30, 2000.
Common stock acquired under the stock purchase plan will be purchased
pursuant to subscription agreements which define the rights and limitations of
holders of the shares. A management subscription
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<PAGE> 27
agreement will be used for grants to employees who have entered into the
management shareholders agreement, which are described in "Certain Relationships
and Related Transactions," and are governed by the terms of the management
shareholders agreement. An employee subscription agreement will be used for
grants to other employees. A summary of the employee subscription agreement is
provided below.
The employee subscription agreement provides for (1) restrictions on
transfer, (2) the right of SSCI Investors LLC, in a sale of 50% or more of its
ownership interest in the company to compel holders of shares of common stock
acquired under the stock purchase plan to sell a proportionate number of shares
and (3) rights for holders of shares of common stock acquired under the stock
purchase plan to participate in certain sales by SSCI Investors LLC.
The agreement provides further that, if we terminate for cause the
employment of a holder of shares purchased under the stock purchase plan, then
we will have the opportunity to purchase all of the holder's shares of common
stock purchased under the stock purchase plan at the lower of (1) the price paid
for the shares and (2) the then current fair market value of the shares. If the
holder's employment is terminated other than by us for cause, then we will have
the opportunity to purchase all of his or her shares at 100% of their then
current fair market value.
ITEM 12. SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information as of March 24, 2000 regarding the
beneficial ownership of our voting common stock by each person known by us to
beneficially own more than five percent of our voting common stock and by our
directors, certain executive officers and key managers, individually, and as a
group.
As used in this table, beneficial ownership means the sole or shared power
to vote or direct the voting or to dispose or direct the disposition of any
security. A person is deemed to be the beneficial owner of securities that can
be acquired within 60 days from March 24, 2000 through the exercise of any
option, warrant or right. Shares of common stock subject to options, warrants or
rights that are currently exercisable or exercisable within 60 days are deemed
outstanding for the computation of the ownership percentage of the person
holding such options, warrants or rights, but are not deemed outstanding for the
computation of the ownership percentage of any other person. Our non-voting
common stock is convertible into voting common stock, unless the holder or its
affiliate is prohibited by law or regulation from holding our voting common
stock. As a result, certain holders of our non-voting common stock are deemed to
hold the voting common stock into which their non-voting common stock may be
converted.
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<PAGE> 28
In the table below, unless otherwise noted, the address of the person is
care of our company.
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
OF SHARES OF SHARES
------------ ----------
<S> <C> <C>
FIVE PERCENT SECURITY HOLDERS
SSCI Investors LLC(1)....................................... 1,624,815.75 81.9%
AEA Investors Inc.(2)....................................... 1,644,815.75 82.9%
Robert B. Covalt(3)......................................... 133,837.25 9.3%
OFFICERS AND DIRECTORS
Robert B. Covalt(3)......................................... 133,837.25 9.3%
John R. Mellett............................................. 13,322.04 *
Martyn Howell-Jones......................................... 8,495.02 *
Richard W. Johnston......................................... 5,200.23 *
Paul Gavlinski.............................................. 4,126.46 *
Karen K. Seeberg............................................ 2,347.57 *
Frederick A. Quinn.......................................... 5,000.00 *
Gerard A. Loftus............................................ 5,136.23 *
Peter Longo................................................. 10,651.63 *
Louis M. Pace............................................... 2,169.65 *
Patrick W. Stanton.......................................... 349.61 *
John L. Garcia(4)........................................... -- *
Karl D. Loos................................................ 1,801.16 *
John D. Macomber............................................ -- *
Robert H. Malott............................................ -- *
Thomas P. Salice(4)......................................... -- *
Norman E. Wells, Jr. ....................................... -- *
All executive officers, key managers and directors as a
group (18 persons)........................................ 192,436.85 13.4%
</TABLE>
- ------------------------------
* Represents beneficial ownership of less than one percent.
(1) Includes 547,636.50 shares of non-voting common stock. The address for SSCI
Investors LLC is c/o AEA Investors Inc., Park Avenue Tower, 65 East 55th
Street, New York, New York 10022.
(2) Includes 1,624,815.75 shares in the aggregate of common stock and non-voting
common stock held by SSCI Investors LLC which may be deemed to be
beneficially owned by AEA Investors Inc. Also includes 20,000 shares of
common stock owned by AEA Investors Inc. which may be purchased in
connection with the employee stock purchase plan. The general partner of a
partnership that wholly owns SSCI Investors LLC is a wholly owned subsidiary
of AEA Investors Inc. AEA Investors Inc. disclaims beneficial ownership of
the shares owned by SSCI Investors LLC, except to the extent of its
pecuniary interest therein. The address for AEA Investors Inc. is Park
Avenue Tower, 65 East 55th Street, New York, New York 10022.
(3) Includes 47,544.61, 642.76, and 642.76 shares of common stock held by
Tregooden Partners, L.P., Nautical Partners, L.P. and Serendipity Partners,
L.P., respectively, which may be deemed to be beneficially owned by Mr.
Covalt. Includes 3,000 shares of common stock issuable upon exercise of
options granted to Mr. Covalt that are exercisable as of March 31, 2000.
(4) Does not include shares beneficially owned by AEA Investors Inc. or SSCI
Investors LLC. Messrs. Garcia and Salice are each limited partners in SSCI
Investors L.P., the partnership which owns SSCI Investors LLC and are
officers and directors of AEA SSC Investors Inc., the general partner of
SSCI Investors LP. Mr. Salice is also president, chief executive officer and
a director of AEA Investors Inc. Mr. Garcia is also a managing director of
AEA Investors Inc.
27
<PAGE> 29
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1998, Sovereign Specialty Chemicals, L.P., our former parent, accrued
approximately $2.8 million notes receivable from management. The notes
receivable represented a portion of management's purchase price of its equity in
our former parent. These loans were repaid in 1999.
On December 28, 1999, we redeemed shares of outstanding common stock held
by our former parent for an aggregate price of approximately $3.3 million.
In connection with the acquisition of approximately 75% of our common stock
by SSCI Investors LLC, we entered into an arrangement with our former parent
pursuant to which it agreed to indemnify us for any liability in excess of $2.5
million in the aggregate that is determined to be payable under an outstanding
note we issued in connection with an acquisition. Our obligations under this
note have been settled, subject to execution of definitive settlement
documentation, for an amount less than this indemnification threshold. In
addition, our former parent has agreed to provide indemnification to us in
respect of various tax matters pursuant to an agreement with SSCI Investors LLC.
In connection with the acquisition of approximately 75% of our common stock
by SSCI Investors LLC, our former parent repaid to us approximately $970,000 in
intercompany receivables.
Affiliates of J.P. Morgan Securities Inc. currently own 50,375.71 shares of
our voting common stock and 182,545.5 shares of our non-voting common stock.
These J.P. Morgan affiliates are subject to an agreement pursuant to which they
may be required to purchase additional shares of our voting common stock from
AEA Investors Inc., to the extent AEA Investors Inc. retains any of its 20,000
shares of voting common stock upon completion of our employee stock purchase
plan offering. J.P. Morgan Securities Inc. acted as our financial advisor in
connection with SSCI Investors LLC's acquisition of our capital stock. J.P.
Morgan Securities Inc. is also the joint lead arranger, a joint book-running
manager and documentation agent for our credit facility.
See also "Executive Compensation" for a description of the arrangements
between us and our stockholders who are employees.
In connection with SSCI Investors LLC's acquisition of approximately 75% of
our common stock, we, SSCI Investors LLC and several members of our management
entered into a shareholders agreement under which SSCI Investors LLC has agreed
that, prior to the completion of an underwritten public offering of our common
stock, SSCI Investors LLC will vote all shares of common stock owned or
controlled by it, and will take all necessary or desirable actions within its
control to (1) elect Robert B. Covalt, a director of our company and to cause
Mr. Covalt to hold the position of Chairman of the Board and Chief Executive
Officer of our company and Chairman of the Board of each domestic subsidiary for
so long as the Covalt Family Group, as defined in the shareholders agreement,
owns at least 5% of the outstanding shares of our common stock and (2) cause at
least two members of the board of directors to be members of the investor group
led by AEA Investors Inc. who are not also officers or employees of AEA
Investors Inc. The obligation to elect Mr. Covalt to be a director and have the
titles described above will terminate in specified instances when Mr. Covalt is
no longer employed by the company. The management shareholders agreement also
(1) imposes certain transfer restrictions on the management parties, (2)
subjects employee parties to the right of SSCI Investors LLC, in a sale of 50%
or more of its ownership interest in our company, to compel other shareholders
to sell a proportionate number of shares, (3) provides rights to management to
participate in sales by SSCI Investors LLC, (4) provides for a call option on
employees' shares in specified termination events, (5) provides put rights to
employee parties in specified events, and (6) provides employee parties with
piggyback registration rights under specified circumstances.
We have also entered into a shareholders agreement with SSCI Investors LLC
and our remaining (non-employee) shareholders. This shareholders agreement
provides for (1) board observer rights for 10% shareholders, (2) restrictions on
transfer, (3) the right of SSCI Investors LLC, in a sale of 50% or more of its
ownership interest in our company to compel other shareholders to sell a
proportionate number of shares, (4) rights for other shareholders to participate
in sales by SSCI Investors LLC, (5) preemptive rights to 5% shareholders to
purchase new issuances, (6) information rights, and (7) piggyback registration
rights.
28
<PAGE> 30
We entered into a management agreement with AEA Investors Inc. pursuant to
which AEA Investors Inc. will provide us with advisory and consulting services.
The management agreement provides for an annual aggregate fee of $999,999 plus
reasonable out-of-pocket costs and expenses.
In connection with our employee stock purchase plan, we will repurchase up
to 20,000 shares of voting common stock from AEA Investors Inc. at $100.00 per
share. All shares repurchased will be sold to our employees pursuant to the
stock purchase plan at the same price per share.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. The financial statements listed in the "Index to Financial
Statements."
2. Financial statement schedule. Financial Data Schedule filed as
Exhibit 27 to this report and Valuation and Qualifying Accounts included on
page S-1 of this report.
3. The exhibits listed in the "Exhibit Index."
(b) Reports on Form 8-K. We filed a Current Report on Form 8-K/A, dated
January 13, 2000 under Item 1, Changes in Control of Registrant, to report the
sale of approximately 75% of our outstanding stock by Sovereign Specialty
Chemicals, L.P. We filed a Current Report on Form 8-K, dated March 13, 2000
under Item 5, Other Information, to report our proposal to issue $150.0 million
in aggregate principal amount of senior subordinated notes due 2010 in a private
placement.
(c) Exhibits. The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Data Schedule (Exhibit 27).
29
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 24, 2000.
SOVEREIGN SPECIALTY CHEMICALS, INC.
By: /s/ ROBERT B. COVALT
------------------------------------
Robert B. Covalt
Chairman, Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 24, 2000.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ ROBERT B. COVALT Chairman, Chief Executive Officer, President
- ----------------------------------------------------- and Director (Principal Executive Officer)
Robert B. Covalt
/s/ JOHN R. MELLETT Vice President, Chief Financial Officer,
- ----------------------------------------------------- Chief Accounting Officer and Treasurer,
John R. Mellett (Principal Financial Officer)
/s/ JOHN L. GARCIA Director
- -----------------------------------------------------
John L. Garcia
/s/ KARL D. LOOS Director
- -----------------------------------------------------
Karl D. Loos
/s/ JOHN D. MACOMBER Director
- -----------------------------------------------------
John D. Macomber
/s/ ROBERT H. MALOTT Director
- -----------------------------------------------------
Robert H. Malott
/s/ THOMAS P. SALICE Director
- -----------------------------------------------------
Thomas P. Salice
</TABLE>
30
<PAGE> 32
ANNUAL REPORT ON FORM 10-K
ITEMS 8 AND 14(A)
INDEX TO FINANCIAL STATEMENTS
F-1
<PAGE> 33
SOVEREIGN SPECIALTY CHEMICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors.............................. F-3
Consolidated Financial Statements
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Operations....................... F-5
Consolidated Statements of Stockholders' Equity............. F-6
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-2
<PAGE> 34
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, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. Our audits also included the financial statement schedule listed in
the index at Item 14(d). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 1999 and 1998, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Chicago, Illinois
February 25, 2000,
(Except for Note 18, as to which the date is March 23, 2000)
F-3
<PAGE> 35
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 17,005 $ 5,863
Accounts receivable, less allowance of $730 and $528...... 38,756 32,710
Inventories............................................... 26,028 19,822
Deferred income taxes..................................... 1,177 1,560
Other current assets...................................... 3,206 3,799
-------- --------
Total current assets........................................ 86,172 63,754
Property, plant, and equipment, net......................... 51,525 49,497
Goodwill, net............................................... 106,157 101,205
Deferred financing costs, net............................... 11,011 9,913
Other assets................................................ 2,974 1,198
-------- --------
Total assets................................................ $257,839 $225,567
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 18,591 $ 16,400
Accrued expenses.......................................... 19,814 13,452
Other current liabilities................................. 924 2,200
Current portion of long-term debt......................... 29,303 1,802
Current portion of capital lease obligations.............. 229 161
-------- --------
Total current liabilities................................... 68,861 34,015
Long-term debt, less current portion........................ 125,700 126,900
Capital lease obligations, less current portion............. 3,350 3,401
Deferred income taxes....................................... 2,676 2,849
Other long-term liabilities................................. 636 4,208
Stockholders' equity:
Common stock, $0.01 par value, 2,700,000 shares authorized,
1,436,239 issued and outstanding.......................... 15 --
Common stock, non-voting, $0.01 par value, 2,100,000 shares
authorized, 730,182 issued and outstanding................ 7 --
Additional paid-in capital.................................. 63,578 55,652
Retained earnings (accumulated deficit)..................... (7,045) 949
Management notes receivable................................. -- (2,535)
Cumulative translation adjustment........................... 61 128
-------- --------
Total stockholders' equity.................................. 56,616 54,194
-------- --------
Total liabilities and stockholders' equity.................. $257,839 $225,567
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 36
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $237,408 $211,335 $134,771
Cost of goods sold.......................................... 162,550 144,039 92,889
-------- -------- --------
Gross profit................................................ 74,858 67,296 41,882
Selling, general, and administrative expenses............... 48,350 46,418 30,294
Special charges............................................. 14,153 -- --
-------- -------- --------
Operating income............................................ 12,355 20,878 11,588
Interest expense............................................ (15,276) (14,979) (9,080)
Interest income............................................. 200 267 --
Loss on sale of business.................................... -- (1,025) --
-------- -------- --------
Income (loss) before income taxes and extraordinary loss.... (2,721) 5,141 2,508
Income taxes................................................ 4,218 3,494 1,315
-------- -------- --------
Income (loss) before extraordinary loss..................... (6,939) 1,647 1,193
Extraordinary losses, net of income tax benefits............ 1,055 176 1,409
-------- -------- --------
Net income (loss)........................................... $ (7,994) $ 1,471 $ (216)
======== ======== ========
Pro forma (See Note 3, "Income Taxes"):
Net income before income taxes and extraordinary loss, as
stated.................................................... $ 2,508
Income taxes:
As stated................................................. 1,315
Additional pro forma income taxes......................... 657
--------
1,972
--------
Net income before extraordinary loss........................ 536
Extraordinary loss.......................................... 1,409
--------
Net loss.................................................... $ (873)
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 37
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED ACCUMULATED
COMMON ADDITIONAL EARNINGS MANAGEMENT OTHER
COMMON STOCK, PAID-IN (ACCUMULATED NOTES COMPREHENSIVE
STOCK NON-VOTING CAPITAL DEFICIT) RECEIVABLE INCOME TOTAL
------ ---------- ---------- ------------ ---------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997..... $-- $-- $17,689 $ (306) $ -- $ 61 $17,444
Comprehensive loss:
Net loss..................... -- -- -- (216) -- -- (216)
Translation adjustment....... -- -- -- -- -- 35 35
-------
Total comprehensive
loss.................... (181)
Capital contributions.......... -- -- 33,800 -- -- -- 33,800
Issuance of equity to purchase
minority interests........... -- -- 990 -- -- -- 990
--- --- ------- ------- ------- ---- -------
Balance at December 31, 1997... -- -- 52,479 (522) -- 96 52,053
Comprehensive income:
Net income................... -- -- -- 1,471 -- -- 1,471
Translation adjustment....... -- -- -- -- -- 32 32
-------
Total comprehensive
income.................. 1,503
Contribution of management
notes receivable............. -- -- 2,765 -- (2,765) -- --
Payments received on management
notes receivable............. -- -- -- -- 230 -- 230
Compensation expense under
management incentive plans... -- -- 408 -- -- -- 408
--- --- ------- ------- ------- ---- -------
Balance at December 31, 1998... -- -- 55,652 949 (2,535) 128 54,194
Comprehensive loss:
Net loss..................... -- -- -- (7,994) -- -- (7,994)
Translation adjustment....... -- -- -- -- -- (67) (67)
-------
Total comprehensive
loss.................... (8,061)
Recapitalization of capital
stock........................ 15 7 (22) -- -- -- --
Payments received on management
notes receivable............. -- -- (2,480) -- 2,535 -- 55
Repurchase of common stock..... -- -- (3,318) -- -- -- (3,318)
Compensation expense under
management incentive plans... -- -- 13,746 -- -- -- 13,746
--- --- ------- ------- ------- ---- -------
Balance at December 31, 1999... $15 $ 7 $63,578 $(7,045) $ -- $ 61 $56,616
=== === ======= ======= ======= ==== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 38
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................... $ (7,994) $ 1,471 $ (216)
Adjustments to reconcile net income (loss)to net cash
provided by operating activities:
Depreciation and amortization.......................... 10,965 9,477 6,049
Loss on sale of business............................... -- 1,025 --
Compensation expense under management incentive
plans................................................ 13,746 408 --
Deferred income taxes.................................. 200 2,025 238
Amortization of deferred financing costs............... 1,185 1,213 651
Extraordinary losses................................... 1,055 176 1,409
Changes in operating assets and liabilities (net of
acquisitions and disposition):
Accounts receivable.................................. (4,751) (7,371) 642
Inventories.......................................... (5,350) (1,293) (114)
Prepaid expenses and other assets.................... 747 567 (1,889)
Accounts payable and other liabilities............... 1,148 5,920 (384)
-------- -------- --------
Net cash provided by operating activities................... 10,951 13,618 6,386
INVESTING ACTIVITIES
Proceeds from sale of business.............................. -- 35,308 --
Acquisition of businesses, net of acquired cash............. (15,769) (15,089) (133,338)
Purchase of property, plant, and equipment.................. (6,280) (4,472) (1,834)
-------- -------- --------
Net cash provided by (used in) investing activities......... (22,049) 15,747 (135,172)
FINANCING ACTIVITIES
Capital contributions....................................... -- -- 33,800
Payments on management notes receivable..................... 55 230 --
Proceeds from credit facilities............................. 69,861 6,524 593
Payments on credit facilities............................... (42,660) (6,215) --
Proceeds from issuance of long term debt.................... -- -- 155,000
Deferred financing costs.................................... (4,041) (282) (12,672)
Payments on acquisition notes payable....................... (900) -- --
Payments on long-term debt.................................. -- (30,081) (41,360)
Payments on capital lease obligations....................... (194) (122) (270)
-------- -------- --------
Net cash provided by (used in) financing activities......... 22,121 (29,946) 135,091
Effect of exchange rate changes on cash..................... 119 31 4
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 11,142 (550) 6,309
Cash and cash equivalents at beginning of year.............. 5,863 6,413 104
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 17,005 $ 5,863 $ 6,413
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 39
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
1. RECAPITALIZATION AND BASIS OF PRESENTATION
On December 28, 1999, Sovereign Specialty Chemicals, Inc. (the Company)
amended and restated its certificate and articles of incorporation in order to
reclassify, change and convert its Capital Stock which was wholly owned by
Sovereign Specialty Chemicals L.P. (the Parent Partnership). This
recapitalization converted 1,000 shares of common stock, par value $0.01 per
share into 2,700,000 authorized shares of common stock, par value $0.01 per
share (common stock) and 2,100,000 authorized shares of non-voting common stock,
par value $0.01 per share (non-voting common stock). Immediately upon the
effectiveness of the amended and restated certificate of incorporation, the
Company had outstanding 1,469,418 shares of common stock and 730,182 share of
non-voting common stock.
On December 28, 1999, the Company repurchased 33,179 shares of outstanding
common stock held by the Parent Partnership for an aggregate price of
approximately $3.3 million. The repurchase price of $2.3 million, net of $1.0
million in receivables due from the Parent Partnership, is a current liability
at December 31, 1999.
On December 30, 1999, SSCI Investors LLC, a newly formed entity owned by an
investor group acquired approximately 75% of the Company's outstanding common
stock directly from the Company's Parent Partnership, which represented all of
their remaining shares owned by the Parent Partnership (Former Parent
Partnership). The balance of the common stock is owned by other investors and
members of the Company's management. The transaction resulted in a change of
controlling stockholder of the Company; however, generally accepted accounting
principles do not require a change in carrying value of assets and liabilities
and, as such, the Company continues to carry its assets and liabilities at their
historical carrying value.
Effective July 31, 1997, the Parent Partnership reorganized its corporate
structure. The Parent Partnership purchased the outstanding minority interests
in its majority-owned subsidiaries through the exchange of partnership units for
the outstanding membership interests in Sovereign Engineered Adhesives, L.L.C.
(SEA) and common stock in P&S Holdings, Inc. which were 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. Additionally 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 pooling of interests. Upon the
consummation of the transactions, SIA and P&S became wholly owned subsidiaries
of Sovereign. The financial statements 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.
Unless otherwise noted, all references to "the Company" herein refer to
Sovereign and its wholly owned subsidiaries.
2. NATURE OF BUSINESS
The Company develops, produces and distributes adhesives, sealants and
coatings utilized in numerous industrial and commercial applications. Commercial
applications of the Company's products include housing
F-8
<PAGE> 40
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 accompanying consolidated financial statements include the accounts and
transactions of the Company and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
primarily using the first-in first-out (FIFO) method.
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; five to
seven years for furniture and fixtures, and 39 years for buildings and
improvements. Accelerated depreciation methods are used for income tax purposes.
Depreciation expense was $4,591, $4,237 and $2,979 for the periods ended
December 31, 1999, 1998 and 1997, respectively.
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
$13,533 and $7,926 at December 31, 1999 and 1998, respectively.
DEFERRED FINANCING COSTS
The costs of obtaining financing are capitalized and are being amortized
over the life of the related debt using a method which approximates the interest
method. Accumulated amortization was $2,645 and $1,877 at December 31, 1999 and
1998, respectively.
LONG-LIVED ASSETS
The Company evaluates its long-lived assets (including related goodwill) on
an ongoing basis. Long-lived assets are reviewed for impairment wherever 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.
F-9
<PAGE> 41
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
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.
Prior to its restructuring on July 31, 1997 (see also Note 1), 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 have filed a consolidated
federal tax return. The statement of operations 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.
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 $4.7 million, $4.2 million and $3.0 million for
the periods ended December 31, 1999, 1998 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 balance sheets are
translated using the current exchange rates as of the reporting dates and the
statement of operations accounts are translated using a weighted-average
exchange rate during the period. Adjustments resulting from such translation are
included in cumulative translation adjustment, a separate component of
stockholder's equity. Mexico was classified as a hyperinflationary economy
through December 31, 1998 and, as a result, the Company's Mexican subsidiary was
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 and gains and losses on such remeasurement were included
in the statement of operations for the two years ended December 31, 1998.
Effective January 1, 1999, Mexico was no longer classified as a
hyper-inflationary economy and as a result the Company's Mexican subsidiary used
its local currency as its functional currency for the year ended December 31,
1999.
SEGMENT INFORMATION
Management and the Company's chief operating decision maker assess
performance and make decisions about resource allocation on a consolidated basis
as the Company operates in one business segment, the adhesive sealants and
coatings segment of the specialty chemicals industry. Products are sold and
distributed primarily throughout the United States. No customer accounted for
more than 10.0% of the Company's accounts receivable or net sales for the years
ended December 31, 1999, 1998 and 1997.
F-10
<PAGE> 42
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 at December 31, 1999
and 1998, 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. 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 allowance for
doubtful accounts.
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.
RECLASSIFICATIONS
Certain prior years' amounts have been reclassified to conform to the 1999
presentation.
4. BUSINESS COMBINATIONS AND SALE OF BUSINESS
Effective June 12, 1998, the Company acquired the net assets of the C&A
Division of KJ Quinn (C&A Division) a Seabrook, New Hampshire developer and
manufacturer of specialty polyurethane formulations for adhesives and coatings.
The Company paid cash and issued $2.8 million in notes payable to former owners.
Goodwill of $1.2 million was recognized in the acquisition and is being
amortized over a period of 15 years.
Effective August 3, 1998, the Company acquired the PL Adhesives and
Sealants brand and product line ("PL") from ChemRex Inc. in Shakopee, Minnesota.
PL consists of solvent-based and polyurethane adhesives and sealants. The
purchase price was approximately $9.8 million. Goodwill of $9.1 million was
recognized in the acquisition and is being amortized over a period of 15 years.
Effective April 21, 1998, the Company sold Mercer to Burke Industries, Inc.
Net proceeds from the sale were approximately $35.3 million. The book value of
the net assets sold, including goodwill of approximately $25.0 million, was
approximately $36.3 million and the Company recognized a book loss on the sale
of approximately $1.0 million.
Effective April 19, 1999, the Company acquired the net assets of the
flexible packaging coatings business from The Valspar Corporation. The purchase
price was approximately $15.8 million. Goodwill of approxi-
F-11
<PAGE> 43
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. BUSINESS COMBINATIONS AND SALE OF BUSINESS (CONTINUED)
mately $10.5 million and a covenant not to compete of $3.0 million were
recognized in the acquisition and are being amortized over a period of 15 and
three years, respectively.
These acquisitions have been accounted for under the purchase method of
accounting. Accordingly, the allocation of the cost of the acquired assets and
liabilities have been made on the basis of the estimated fair value. The
consolidated financial statements include the operating results of each business
from the date of acquisition.
5. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1999 1998
---- ----
<S> <C> <C>
Raw materials............................................ $ 9,920 $ 8,515
Work in process.......................................... 386 326
Finished goods........................................... 15,722 10,981
------- -------
$26,028 $19,822
======= =======
</TABLE>
6. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1999 1998
---- ----
<S> <C> <C>
Land..................................................... $ 5,148 $ 4,891
Building and improvements................................ 22,956 19,677
Machinery and equipment.................................. 32,018 28,017
Furniture and fixtures................................... 1,121 936
Construction-in-progress................................. 2,618 3,742
------- -------
63,861 57,263
Less: Accumulated depreciation........................... 12,336 7,766
------- -------
$51,525 $49,497
======= =======
</TABLE>
7. OTHER ASSETS
Other assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1999 1998
---- ----
<S> <C> <C>
Covenants not to compete.................................... $2,483 $ 250
Other....................................................... 491 948
------ ------
$2,974 $1,198
====== ======
</TABLE>
The Company recorded covenants not to compete of $3.0 million and $0.3
million from certain acquisitions. These covenants are being amortized over a
three year period, the lives of the agreements. Accumulated amortization related
to the covenants was $817 and $50, at December 31, 1999 and 1998, respectively.
F-12
<PAGE> 44
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1999 1998
---- ----
<S> <C> <C>
Interest................................................... $ 5,212 $ 5,121
Compensations and benefits................................. 5,816 4,118
Rebates and warranty....................................... 2,352 1,173
Stock repurchase........................................... 2,348 --
Long Term Incentive Plan payable........................... 1,536 --
Other...................................................... 2,550 3,040
------- -------
$19,814 $13,452
======= =======
</TABLE>
9. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
---- ----
<S> <C> <C>
Senior subordinated notes................................ $125,000 $125,000
Credit facilities........................................ 28,103 902
Acquisition notes payable................................ 1,900 2,800
-------- --------
155,003 128,702
Less: Current maturities................................. 29,303 1,802
-------- --------
$125,700 $126,900
======== ========
</TABLE>
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 Notes) which were subsequently registered with the Securities and Exchange
Commission. As a result of the change in control of the controlling stockholder
on December 30, 1999, the Company was required under the provisions of the
indenture, to offer to repurchase the Notes at a price equal to 101% of the
principal amount plus accrued and unpaid interest. See Note 18, "Subsequent
Events".
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 domestic subsidiaries -- SIA, P&S, OSI and Tanner (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 credit facilities, subject to certain limitations. See also Note 19
"Other Financial Information" for financial information as of December 31, 1999,
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, incurring liens, making certain
restricted payments (including dividends), and making certain asset sales.
F-13
<PAGE> 45
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
Credit Facilities
On December 30, 1999, the Company repaid all outstanding amounts under its
former credit facility and entered into a new credit agreement (Credit
Agreement) providing for aggregate borrowings of $200.0 million. The Credit
Agreement includes (1) a $50.0 million revolving credit facility (Credit
Facility) (including letters of credit of up to $1.5 million, $1.1 million
balance at December 31, 1999), (2) a $75.0 million term loan (Term Loan A) and
(3) a $75.0 million term loan (Term Loan B) for, among other uses, working
capital purposes and to fund acquisitions.
The Credit Facility matures December 30, 2005. Commitment fees on the
unused portion of the Credit Facility of 0.375% to 0.050% are payable quarterly
in arrears. At December 31, 1999, the Company had $6.0 million outstanding and
$42.9 million in available borrowings under the Credit Facility.
Term Loan A and Term Loan B are payable in quarterly principal installments
based on a percentage of the aggregate principal balance outstanding, as defined
in the Credit Agreement, beginning March 31, 2001 through December 30, 2005 and
December 30, 2006, respectively. At December 31, 1999, the Company had $75.0
million available under Term Loan A and had $21.0 million outstanding and $54.0
million available under Term Loan B.
At the Company's election, amounts outstanding under the Credit Facility,
Term Loan A and Term Loan B will bear interest, payable quarterly, at either the
higher of the bank's prime rate (8.50% at December 31, 1999) or the Federal
Funds rate plus 1/2 to 1%, plus 0.75% to 2.00%, or LIBOR (6.00% at December 31,
1999) plus 1.75% to 3.00%. The variable spread to the prime rate or LIBOR is
determined by the Company's ratios of total debt to earnings before income
taxes, interest, depreciation and amortization expense (EBITDA) and senior debt,
as defined in the Agreement, to EBITDA after June 30, 2000.
The Credit Agreement contains covenants that, among other things, restrict
the ability to incur additional indebtedness, dispose of assets, repay or amend
other indebtedness, pay dividends, or make other changes in the business
conducted by the Company or its subsidiaries. In addition the Credit Agreement
requires compliance with specific financial ratios and tests, as defined in the
Credit Agreement. All covenants were met at December 31, 1999. The Credit
Facility and term loans are collateralized by substantially all assets of the
Company and pledged by the common stock of the Company's subsidiaries.
The Company's Singapore-based sales office has a facility providing for
borrowings up to SG $1.9 million and secured by a SG $1.9 million letter of
credit. Interest is payable at United States prime plus 1.0%. At December 31,
1999, approximately $1.1 million was drawn on the facility.
Acquisition Notes Payable
In connection with its acquisition of the C&A Division in June 1998, the
Company issued notes payable to the former owners aggregating $2.8 million, of
which $1.8 million is payable in two annual installments, and a $1.0 million
note payable that has a maturity date of June 30, 2003. Both notes accrue
interest at a rate of 8.5% payable on each June 30.
F-14
<PAGE> 46
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, 1999:
<TABLE>
<S> <C>
2000........................................................ $ 29,303
2001........................................................ 200
2002........................................................ 200
2003........................................................ 300
2004........................................................ --
2005 and thereafter......................................... 125,000
--------
$155,003
========
</TABLE>
10. INCOME TAXES
The components of the provision for income taxes, are as follows for the
years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current income taxes:
Federal............................................. $3,417 $ 979 $ 801
State............................................... 601 205 245
Foreign............................................. -- 207 31
------ ------ ------
4,018 1,391 1,077
Deferred income taxes................................. 200 2,103 238
------ ------ ------
4,218 3,494 1,315
Extraordinary items................................... (703) (118) (948)
------ ------ ------
Income taxes.......................................... $3,515 $3,376 $ 367
====== ====== ======
</TABLE>
The reconciliation of income tax expense computed at the U.S. federal
statutory tax rates to income tax expense (benefit), inclusive of tax benefits
on extraordinary items, is as follows for the years ended December 31, 1999,
1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income taxes at federal statutory rate............... $(1,523) $1,663 $ 47
Income not subject to income taxes................... -- -- (558)
State taxes, net of federal benefit.................. 359 358 181
Foreign income taxes................................. -- 207 31
Increase (decrease) in valuation allowance........... -- (400) 400
Non-deductible amortization of goodwill.............. 487 596 281
Non-deductible stock compensation expense............ 4,151 124 --
Other................................................ 41 828 (15)
------- ------ -----
Income taxes at the effective rate................... $ 3,515 $3,376 $ 367
======= ====== =====
</TABLE>
Income not subject to income taxes represents income from the Parent
Partnership and SEA which, prior to the reorganization (see also 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. In 1998, the Company reversed the
valuation allowance it had established relative to the deferred tax asset
associated with its net operating loss carryforwards as it was able to utilize
those
F-15
<PAGE> 47
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
carryforwards in 1998. Stock compensation expense represents the tax impact of
non-deductible stock compensation expense recognized by the Company. This
significant increase in 1999 is due primarily to the accelerated vesting of
incentive units as a result of the sale of equity by the Parent Partnership.
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
------------------
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.......................... $ 366 $ 292
Inventory obsolescence reserve........................... 372 218
Inventory capitalization................................. -- 197
Accrued liabilities...................................... 421 531
Deferred financing costs................................. 310 334
Other.................................................... 262 553
------- -------
Deferred tax assets........................................ 1,731 2,125
Deferred tax liabilities:
Accelerated depreciation................................. (2,562) (2,244)
Inventory capitalization................................. (42) --
Amortization of goodwill................................. (623) (1,051)
Refundable investment tax credits........................ -- (126)
------- -------
Deferred tax liabilities................................... (3,227) (3,421)
------- -------
Net deferred tax liability................................. $(1,496) $(1,296)
======= =======
</TABLE>
11. RETIREMENT PLANS
The Company sponsors a defined benefit pension plan covering certain
salaried employees of one 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.
The Company has a pension plan covering all union employees of a different
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.
F-16
<PAGE> 48
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RETIREMENT PLANS (CONTINUED)
The following tables set forth the Company's two defined benefit plans:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Change in projected benefit obligations
Projected benefit obligation at beginning of year......... $1,965 $1,752
Service cost.............................................. 88 121
Interest cost............................................. 129 123
Actuarial (gains) losses.................................. (181) 75
Benefits paid............................................. (109) (106)
------ ------
Projected benefit obligation at end of year............... $1,892 $1,965
====== ======
Change in plan assets
Fair value of plan assets at beginning of year............ $1,621 $1,742
Actual return on plan assets.............................. 443 (114)
Company contributions..................................... 75 99
Benefits paid............................................. (108) (106)
------ ------
Fair value of plan assets at end of year.................. $2,031 $1,621
====== ======
Funded status
Funded status............................................. $ 139 $ (344)
Unrecognized net actuarial (gain) loss.................... 243 (223)
------ ------
Accrued benefit cost...................................... $ 104 $ 121
====== ======
Amounts recognized in the consolidated balance sheets
consist of:
Accrued benefit liability................................. $ 104 $ 121
====== ======
Weighted-average assumptions as of December 31
Discount rate............................................. 7.5% 6.75%
Expected return on plan assets............................ 10% 10%
Rate of compensation increase............................. 4.5% 4.5%
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Components of net periodic benefit cost:
Service cost......................................... $ 88 $ 121 $ 104
Interest cost........................................ 129 123 117
Expected return on plan assets....................... (160) (174) (316)
----- ----- -----
Net periodic benefit cost............................ $ 57 $ 70 $ (95)
===== ===== =====
</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 $1,042, $1,020 and $600 for the periods ended December 31,
1999, 1998 and 1997, respectively.
12. MANAGEMENT INCENTIVE PLANS AND NOTES RECEIVABLE
The Company has implemented certain management incentive plans.
F-17
<PAGE> 49
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. MANAGEMENT INCENTIVE PLANS AND NOTES RECEIVABLE (CONTINUED)
Stock Incentive Pool
The Former Parent Partnership established a Stock Incentive Pool in order
to provide incentives to employees and directors (including nonemployee
directors) of 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 were allocated by the Compensation Committee of
the Board of Directors of the Company. An award granted from the Stock Incentive
Pool was subject to five year time and performance vesting. The participant is
awarded units in the Parent Partnership and common stock in its general partner.
The Company recognized stock compensation expense for the excess of the fair
market value of the units and common stock over the purchase price in the amount
of $864, $408 and $22 for the years ended December 31, 1999, 1998 and 1997. The
change in controlling stockholder on December 30, 1999, constituted a change in
control under the securities agreements governing the Stock Incentive Pool. As a
result all units and stock issued under the plan immediately vested on December
30, 1999. The Company recognized stock 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 $11.3 million. This expense has been classified in
special charges in our statement of operations. The Stock Incentive Pool was
terminated on December 30, 1999.
Long-Term Incentive Plan
The Former Parent Partnership established a Long-Term Incentive Plan to
provide long-term incentive awards to nonunion employees (excluding most
executives who participated directly in the Stock Incentive Pool). In connection
with the December 30, 1999 sale of the Company's common stock by the Parent
Partnership, the Board of directors determined that $1.5 million of cash should
be distributed to eligible employees. This value was contributed to the Company
from the Parent Partnership's net proceeds on December 30, 1999. The Company
recognized stock compensation expense for the value of the pool at December 30,
1999 of $1.5 million and has been classified in special changes in our statement
of operations.
Management Notes Receivable
Certain members of management borrowed from the Parent Partnership a
portion of the purchase price for their units in the Parent Partnership. In
1998, the Parent Partnership contributed those notes receivable to the Company
as an equity contribution. The amount contributed was approximately $2.8
million. The notes receivable were collateralized by the Parent Partnership
units, and as such, the balance had been reflected as a reduction of the
Company's stockholder's equity. The balance of the management loans at December
30, 1999 was approximately $2.5 million. Upon the change of controlling
stockholder of the Company on December 30, 1999, the balance of management loans
were repaid by certain members of management from their net sale proceeds.
1999 Stock Option Plan
On December 29, 1999, the Company adopted its Sovereign Specialty
Chemicals, Inc. Stock Option Plan (the Plan), which provides incentives to key
employees and directors (including nonemployee directors) of the Company by
granting them nonqualified stock options of up to 240,713 shares of the
Company's common stock. The Plan is administered by a committee of the Board of
Directors which has the authority to determine the employees to whom options
will be granted, the number of options, and other terms and conditions of the
options. Options are granted at not less than the fair value on the date of
grant. Options granted from the Plan are subject to a five year vesting period
and expire ten years from the date of grant. Options available for grant are
87,663 at December 31, 1999.
F-18
<PAGE> 50
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. MANAGEMENT INCENTIVE PLANS AND NOTES RECEIVABLE (CONTINUED)
As allowed under the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company will continue to apply APB Opinion No. 25
and related interpretations in accounting for the options under the Company's
Plan. Accordingly, compensation expense has only been recognized for options
with an exercise price below the market value at the date of grant. Had
compensation cost for the Company's Plan been determined in accordance with SFAS
No. 123, it would have resulted in net income that approximate the amounts
reported.
The fair value of each award is estimated on the date of award using the
Minimum Value award-pricing model with risk free interest rates of 6.50% and
expected award lives of 5 years for 1999. The Company has not paid and does not
anticipate paying dividends; therefore, the expected dividend yield is assumed
to be zero.
Because the Company's options have characteristics significantly different
from those of traded stock options, and because changes in subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its awards.
13. CAPITAL LEASES
Property under capital leases included within property, plant, and
equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
---- ----
<S> <C> <C>
Buildings.................................................. $1,912 $1,912
Machinery and equipment.................................... 298 105
------ ------
2,210 2,017
Less: Accumulated depreciation............................. 539 324
------ ------
$1,671 $1,693
====== ======
</TABLE>
Future minimum lease payments under capital leases at December 31, 1999,
together with the present value of the minimum lease payments are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 692
2001........................................................ 688
2002........................................................ 708
2003........................................................ 684
2004........................................................ 676
2005 and thereafter......................................... 2,611
-------
Total minimum payments...................................... 6,059
Less: Amounts representing interest......................... 2,480
-------
Present value of minimum payments........................... 3,579
Less: Current portion....................................... 229
-------
Total long-term portion..................................... $ 3,350
=======
</TABLE>
14. 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 relating to health, safety, and
protection of the environment. These laws and regulations provide for
substantial fines and criminal sanctions for violations and
F-19
<PAGE> 51
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. ENVIRONMENTAL MATTERS (CONTINUED)
impose liability for the costs of clean up, and for certain damages resulting
from past spills, disposals, or other releases of hazardous substances. In
connection with its acquisitions 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 require or may require remediation. In addition, 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 has negotiated contractual indemnifications from previous
owners of acquired businesses, 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, 1999, the Company had accrued reserves relating to
environmental matters of approximately $0.4 million. The liabilities are
included in the balance sheet as "other current liabilities" and represent known
environmental liabilities for which the Company have been indemnified.
Management estimates that it will incur approximately $0.4 million of these
indemnified liabilities in 2000. 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.
15. 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 years
ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash paid for:
Interest..................................... $13,427 $13,675 $3,536
Income taxes................................. 3,544 2,223 302
Supplemental disclosure of non-cash activity:
Debt issued for capital leased assets........ 193 -- --
</TABLE>
16. SPECIAL CHARGES
As a result of the change of controlling stockholder of the Company on
December 30, 1999, the Company incurred incremental expenses totalling $14.2
million, consisting of $11.3 million in stock compensation expense related to
accelerated vesting of incentive equity awards previously issued to certain
members of management, $1.5 million in compensation expense related to a
disbursement made to employees under the Long-Term Incentive Plan, $0.8 million
in cash bonuses related to the transaction and $0.6 million in legal, accounting
and other fees.
17. EXTRAORDINARY LOSSES
During 1997, the Company repaid its outstanding debt obligations under
certain credit agreements and recognized an extraordinary loss related to the
write-off of unamortized deferred financing costs of $1,409, net of tax benefit
of $948.
During 1998, the Company repaid its outstanding debt obligations under its
$30.0 million term loan and recognized an extraordinary loss related to the
write-off of unamortized deferred financing costs of $176, net of tax benefit of
$118.
F-20
<PAGE> 52
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. EXTRAORDINARY LOSSES -- (CONTINUED)
During 1999, the Company refinanced its prior credit facility and
recognized an extraordinary loss related to the write-off of unamortized
deferred financing costs of $1,055, net of tax benefit of $703.
18. SUBSEQUENT EVENTS
Employee Stock Purchase Plan
On January 26, 2000, the Company adopted its Sovereign Specialty Chemicals,
Inc. Employee Stock Purchase Plan in order to provide incentives to salaried
employees (excluding executives who participate directly in the Sovereign
Specialty Chemicals, Inc. Stock Option Plan) by providing them the opportunity
to purchase up to 20,000 shares of common stock of the Company. The compensation
committee of the Board of Directors will administer the plan. As of March 23,
2000, the Company's employees have subscribed to purchase 7,245 Class A common
shares.
Senior Subordinated Notes
The change of controlling stockholder of the Company constituted a change
of control under the terms of the indenture relating to the Company's 9 1/2%
Senior Subordinated Notes due 2007 and, as a result, the Company was required to
make an offer to purchase for cash any and all of its outstanding $125.0 million
principal amount of 9 1/2% notes for 101% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase. The repurchase of 100% of
the outstanding Notes was completed on March 6, 2000 with the repurchase of the
entire $125.0 million principal amount of 9 1/2% notes for an aggregate purchase
price of approximately $127.4 million which was financed with borrowings under
the Credit Agreement.
The Company is proposing to issue $150.0 million in aggregate principal
amount of senior subordinated notes due 2010 in a private placement to qualified
institutional investors in accordance with Securities Exchange Commission Rule
144A and outside of the United States in accordance with Regulation S under the
Securities Act of 1933. The Company intends to use proceeds from this offering,
if consummated, to repay amounts drawn under the Credit Agreement for the
repurchase of the 9 1/2% notes.
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.
Management does not believe that inclusion of such financial statements would be
material to investors. The financial statement data as of December 31, 1999,
1998 and 1997, respectively of
F-21
<PAGE> 53
19. OTHER FINANCIAL INFORMATION (CONTINUED)
the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries are below. The
financial statement data of the Guarantor Subsidiaries include SIA, P&S, OSI,
and Tanner under the caption "the Company."
<TABLE>
<CAPTION>
GUARANTOR
SUBSIDIARIES
------------ NON-GUARANTOR
THE COMPANY SUBSIDIARIES TOTAL
------------ ------------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................................. $227,794 $ 9,614 $237,408
Cost of goods sold......................................... 155,803 6,747 162,550
-------- ------- --------
Gross profit............................................... 71,991 2,867 74,858
Selling, general, and administrative expenses.............. 60,293 2,210 62,503
-------- ------- --------
Operating income........................................... 11,698 657 12,355
Interest expense, net...................................... 14,927 149 15,076
-------- ------- --------
Income (loss) before income taxes and extraordinary loss... $ (3,229) $ 508 $ (2,721)
======== ======= ========
BALANCE SHEET DATA:
Assets:
Current assets............................................. $ 80,156 $ 6,016 $ 86,172
Property, plant and equipment, net......................... 50,462 1,063 51,525
Goodwill, net.............................................. 106,157 -- 106,157
Deferred financing costs, net.............................. 11,011 -- 11,011
Other assets............................................... 2,878 96 2,974
-------- ------- --------
Total assets............................................... $250,664 $ 7,175 $257,839
======== ======= ========
Liabilities and stockholders' equity:
Current liabilities........................................ $ 62,799 $ 6,062 $ 68,861
Long-term liabilities...................................... 132,362 -- 132,362
Total stockholders' equity................................. 55,503 1,113 56,616
-------- ------- --------
Total liabilities and stockholders' equity................. $250,664 $ 7,175 $257,839
======== ======= ========
</TABLE>
F-22
<PAGE> 54
<TABLE>
<CAPTION>
GUARANTOR
SUBSIDIARIES
------------ NON-GUARANTOR
THE COMPANY SUBSIDIARIES TOTAL
------------ ------------- --------
<S> <C> <C> <C>
STATEMENT OF CASH FLOWS DATA
OPERATING ACTIVITIES
Net income (loss).......................................... $ (8,457) $ 463 $ (7,994)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................ 10,836 129 10,965
Deferred income taxes.................................... 200 -- 200
Compensation expense on management incentive plan........ 13,746 -- 13,746
Amortization of deferred financing costs................. 1,185 -- 1,185
Extraordinary losses..................................... 1,055 -- 1,055
Changes in operating assets and liabilities (net of
effect of acquired companies)......................... (7,883) (323) (8,206)
-------- ------- --------
Net cash provided by operating activities.................. 10,682 269 10,951
INVESTING ACTIVITIES
Acquisition of business, net of acquired cash.............. (15,769) -- (15,769)
Purchase of property, plant, and equipment................. (5,908) (372) (6,280)
-------- ------- --------
Net cash used in investing activities...................... (21,677) (372) (22,049)
FINANCING ACTIVITIES
Capital contributions...................................... $ 55 $ -- $ 55
Net proceeds from revolving credit facilities.............. 27,000 201 27,201
Deferred financing costs................................... (4,041) -- (4,041)
Payments on acquisition notes payable...................... (900) -- (900)
Payments on capital lease obligations...................... (194) -- (194)
-------- ------- --------
Net cash provided by financing activities.................. 21,920 201 22,121
Effect of exchange rate changes on cash.................... 221 (102) 119
-------- ------- --------
Net increase (decrease) in cash and cash equivalents....... 11,146 (4) 11,142
Cash and cash equivalents at beginning of year............. 5,523 340 5,863
-------- ------- --------
Cash and cash equivalents at end of year................... $ 16,595 $ 336 $ 17,005
======== ======= ========
</TABLE>
F-23
<PAGE> 55
The following sets forth the financial data at December 31, 1998 and for
the year then ended. For purposes of this disclosure, the results of operations
for Mercer for the period ended April 21, 1998 (date of disposition) are
separately reported.
<TABLE>
<CAPTION>
GUARANTOR SUBSIDIARIES
----------------------- NON-GUARANTOR
THE COMPANY MERCER SUBSIDIARIES TOTAL
------------ -------- ------------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................................... $196,989 $ 7,218 $ 7,128 $211,335
Cost of goods sold.............................. 133,997 4,700 5,342 144,039
-------- ------- ------- --------
Gross profit.................................... 62,992 2,518 1,786 67,296
Selling, general, and administrative expenses... 43,094 1,439 1,885 46,418
-------- ------- ------- --------
Operating income (loss)......................... 19,898 1,079 (99) 20,878
Interest expense, net........................... 13,718 840 154 14,712
Loss on sale of business........................ 1,025 -- -- 1,025
-------- ------- ------- --------
Income (loss) before income taxes and
extraordinary losses.......................... $ 5,155 $ 239 $ (253) $ 5,141
======== ======= ======= ========
BALANCE SHEET DATA:
Assets:
Current assets.................................. $ 60,379 $ 3,375 $ 63,754
Property, plant and equipment, net.............. 48,702 795 49,497
Goodwill, net................................... 101,205 -- 101,205
Deferred financing costs, net................... 9,913 -- 9,913
Other assets.................................... 1,016 182 1,198
-------- ------- --------
Total assets.................................... $221,215 $ 4,352 $225,567
======== ======= ========
Liabilities and stockholder's equity (deficit):
Current liabilities............................. $ 30,665 $ 3,350 $ 34,015
Long-term liabilities........................... 135,130 2,228 137,358
Total stockholder's equity (deficit)............ 55,420 (1,226) 54,194
-------- ------- --------
Total liabilities and stockholder's equity...... $221,215 $ 4,352 $225,567
======== ======= ========
</TABLE>
F-24
<PAGE> 56
<TABLE>
<CAPTION>
GUARANTOR SUBSIDIARIES
----------------------- NON-GUARANTOR
THE COMPANY MERCER SUBSIDIARIES TOTAL
------------ -------- ------------- --------
<S> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS DATA
OPERATING ACTIVITIES
Net income (loss)............................... $ 1,486 $ 238 $ (253) $ 1,471
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................. 8,699 422 356 9,477
Deferred income taxes......................... 2,025 -- -- 2,025
Loss on sale of business...................... 1,025 -- -- 1,025
Compensation expense on management incentive
plan....................................... 408 -- -- 408
Amortization of deferred financing costs...... 1,129 84 -- 1,213
Extraordinary losses.......................... 176 -- -- 176
Changes in operating assets and liabilities
(net of effect of acquired companies)...... (1,189) (1,021) 33 (2,177)
-------- ------- ------- --------
Net cash provided by (used in) operating
activities.................................... 13,759 (277) 136 13,618
INVESTING ACTIVITIES
Acquisition, disposition of businesses, net (net
of acquired cash)............................. 20,255 (36) -- 20,219
Purchase of property, plant, and equipment...... (3,960) (188) (324) (4,472)
-------- ------- ------- --------
Net cash provided by (used in) investing
activities.................................... 16,295 (224) (324) 15,747
FINANCING ACTIVITIES
Capital contributions........................... 230 -- -- 230
Net proceeds from revolving credit facilities... (29) -- 338 309
Proceeds from issuance of long-term debt........ -- -- -- --
Deferred financing costs........................ (282) -- -- (282)
Payments on long-term debt...................... (30,081) -- -- (30,081)
Payments on capital lease obligations........... (122) -- -- (122)
-------- ------- ------- --------
Net cash used in provided by financings
activities.................................... (30,284) -- 338 (29,946)
Effect of exchange rate changes on cash......... 31 -- -- 31
-------- ------- ------- --------
Net increase decrease in cash and cash
equivalents................................... (199) (501) 150 (550)
Cash and cash equivalents at beginning of
year.......................................... 5,722 501 190 6,413
-------- ------- ------- --------
Cash and cash equivalents at end of year........ $ 5,523 $ -- $ 340 $ 5,863
======== ======= ======= ========
</TABLE>
F-25
<PAGE> 57
The following sets forth the financial data at December 31, 1997 and for
the year then ended:
<TABLE>
<CAPTION>
GUARANTOR SUBSIDIARIES
----------------------- NON-GUARANTOR
THE COMPANY MERCER SUBSIDIARIES TOTAL
------------ -------- ------------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $119,951 $ 9,945 $ 4,875 $134,771
Cost of goods sold............................. 82,608 6,921 3,360 92,889
-------- ------- ------- --------
Gross profit................................... 37,343 3,024 1,515 41,882
Selling, general, and administrative
expenses..................................... 26,692 1,899 1,703 30,294
-------- ------- ------- --------
Operating income (loss)........................ 10,651 1,125 (188) 11,588
Interest expense............................... 7,858 1,117 105 9,080
-------- ------- ------- --------
Income (loss) before income taxes and
extraordinary losses......................... $ 2,793 $ 8 $ (293) $ 2,508
======== ======= ======= ========
STATEMENT OF CASH FLOWS DATA
OPERATING ACTIVITIES
Net income (loss).............................. $ 75 $ 2 $ (293) $ (216)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................ 5,323 699 27 6,049
Deferred income taxes........................ 72 166 -- 238
Amortization of deferred financing costs..... 651 -- -- 651
Extraordinary losses......................... 1,409 -- -- 1,409
Changes in operating assets and liabilities
(net of effect of acquired companies)..... (1,301) (391) (103) (1,745)
-------- ------- ------- --------
Net cash provided by (used in) operating
activities................................... 6,279 476 (369) 6,386
INVESTING ACTIVITIES
Acquisition of businesses, net (net of acquired
cash)........................................ (133,338) -- -- (133,338)
Purchase of property, plant, and equipment..... (1,429) (37) (368) (1,834)
-------- ------- ------- --------
Net cash used in investing activities.......... (134,767) (37) (368) (135,172)
FINANCING ACTIVITIES
Capital contributions.......................... 33,800 -- -- 33,800
Proceeds from revolving credit facility........ -- -- 593 593
Payments on revolving credit facility.......... -- -- -- --
Proceeds from issuance of long-term debt....... 155,000 -- -- 155,000
Deferred financing costs....................... (12,672) -- -- (12,672)
Payments on long-term debt..................... (41,360) -- -- (41,360)
Payments on capital lease obligations.......... (270) -- -- (270)
Distributions.................................. -- -- -- --
-------- ------- ------- --------
Net cash provided by financings activities..... 134,498 -- 593 135,091
Effect of exchange rate changes on cash........ -- -- 4 4
-------- ------- ------- --------
Net increase (decrease) in cash and cash
equivalents.................................. 6,010 439 (140) 6,309
Cash and cash equivalents at beginning of
year......................................... (288) 62 330 104
-------- ------- ------- --------
Cash and cash equivalents at end of year....... $ 5,722 $ 501 $ 190 $ 6,413
======== ======= ======= ========
</TABLE>
F-26
<PAGE> 58
ANNUAL REPORT ON FORM 10-K
ITEMS 14(A) AND 14(C)
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Certificate of Incorporation Sovereign Specialty Chemicals,
Inc., incorporated by reference to the Company's
Registration Statement on Form S-8 as filed on January 28,
2000*
3.2 By-Laws of Sovereign Specialty Chemicals, Inc., incorporated
by reference to the Company's Registration Statement on Form
S-8 as filed on January 28, 2000*
4.1 Credit Agreement, dated December 29, 1999 among Sovereign
Specialty Chemicals, Inc., the Guarantors and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities
Inc. and the Chase Manhattan Bank
4.1A Letter amendment, dated February 16, 2000, among Sovereign
Specialty Chemicals, Inc., the Guarantors and the Initial
Lenders
4.1B Amendment and waiver letter, dated February 29, 2000, among
Sovereign Specialty Chemicals, Inc., the Guarantors and the
Initial Lenders
4.2 Shareholders Agreement, dated December 29, 1999 between and
among Sovereign Specialty Chemicals, Inc., SSCI Investors
LLC and the Shareholders listed on Schedule I thereto,
incorporated by reference to the Company's Current Report on
Form 8-K/A as filed on January 13, 2000*
4.3 Amended and Restated Shareholders Agreement, dated December
14, 1999, by and among Sovereign Specialty Chemicals, Inc.
SSCI Investors LLC, and Sovereign Specialty Chemicals L.P.
4.3A Amendment No. 1 to Amended and Restated Shareholders
Agreement dated December 14, 1999, by and among Sovereign
Specialty Chemicals, Inc., SSCI Investors LLC, and Sovereign
Specialty Chemicals, L.P.
10.1 Employment Agreement, dated December 29, 1999 between
Sovereign Specialty Chemicals, Inc. and Robert B. Covalt
10.1A First Amendment to Employment Agreement between Sovereign
Specialty Chemicals, Inc. and Robert B. Covalt, dated
January 2, 2000
10.2 Employment Agreement, dated December 29, 1999 between
Sovereign Specialty Chemicals, Inc. and Gerard A. Loftus
10.3 Employment Agreement, dated December 29, 1999 between
Sovereign Specialty Chemicals, Inc. and Peter Longo
10.4 Employment Agreement, dated December 29, 1999 between the
Sovereign Specialty Chemicals, Inc. and Frederick Quinn
10.5 Employment Agreement, dated December 29, 1999 between
Sovereign Specialty Chemicals, Inc. and John Mellett
10.6 Sovereign Specialty Chemicals, Inc. Management Incentive
Compensation Plan dated January 1, 2000
10.7 Sovereign Specialty Chemicals, Inc. Stock Option Plan, dated
December 29, 1999
10.8 Non-qualified Stock Option Agreement between Sovereign
Specialty Chemicals, Inc. and Robert B. Covalt, dated
December 31, 1999
10.8A First Amendment to Non-qualified Stock Option Agreement
between Sovereign Specialty Chemicals, Inc. and Robert B.
Covalt, dated January 4, 2000
</TABLE>
E-1
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.9 Sovereign Specialty Chemicals, Inc. Employee Stock Purchase
Plan, incorporated by reference to the Company's
Registration Statement on Form S-8 as filed on January 28,
2000*
10.10 Non-qualified stock option Agreement between Sovereign
Specialty Chemicals, Inc. and the individuals listed in
Schedule 1 thereto, dated December 29, 1999
10.14 Asset Purchase Agreement dated March 31, 1996 among The
BFGoodrich 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*+
10.20 Stock Purchase Agreement, dated March 5, 1998, by among
Burke Industries, Inc., Mercer and the Company+*
21.1 Subsidiaries of the Company and the Guarantors
23.2 Consent of Ernst & Young LLP (independent auditors)
27 Financial Data Schedule
99.1 Cautionary Statements For Purposes of "Safe Harbor"
Provisions of Securities Reform Act of 1995
</TABLE>
- -------------------------
+ Incorporated by reference to the Company's Registration Statement on Form S-4,
as amended (Registration No. 333-39373)
* The Company agrees to furnish 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.
E-2
<PAGE> 60
SOVEREIGN SPECIALTY CHEMICALS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT -----------------------
BEGINNING CHARGED TO CHARGED TO
OF COSTS AND OTHER BALANCE AT END
PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Reserve and allowances deducted from
asset accounts:
Allowance for uncollectible
accounts....................... 324 857 526(1) 655
Reserve for inventory
obsolescence................... 293 244 732(2) 110(1) 1,159
Year ended December 31, 1998
Reserve and allowances deducted from
asset accounts:
Allowance for uncollectible
accounts....................... 655 376 -- 503(1) 528
Reserve for inventory
obsolescence................... 1,159 203 -- 624(1) 738
Year ended December 31, 1999
Reserve and allowances deducted from
asset accounts:
Allowance for uncollectible
accounts....................... 528 556 -- 354 730
Reserve for inventory
obsolescence................... 730 223 -- 252 709
</TABLE>
- -------------------------
(1) Accounts written off, net of recoveries.
(2) Balances added through new acquisitions.
S-1
<PAGE> 1
Exhibit 4.1
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of December 29, 1999, among SOVEREIGN
SPECIALTY CHEMICALS, INC., a Delaware corporation (the "BORROWER"), the banks,
financial institutions and other institutional lenders listed on the signature
pages hereof as the Initial Lenders (the "INITIAL LENDERS"), the bank listed on
the signature pages hereof as the Initial Issuing Bank (the "INITIAL ISSUING
BANK" and, together with the Initial Lenders, the "INITIAL LENDER PARTIES") and
the Swing Line Bank (as hereinafter defined), MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED ("ML&CO.") and J.P. MORGAN SECURITIES INC. ("J.P. MORGAN"),
each as a joint lead arranger and a joint book-running manager (each a "JOINT
LEAD ARRANGER" and a "JOINT BOOK MANAGER", as the case may be) for the
Facilities (as hereinafter defined), ML&Co., as syndication agent for the
Facilities (the "SYNDICATION AGENT"), J.P. Morgan, as documentation agent for
the Facilities (the "DOCUMENTATION AGENT"), and THE CHASE MANHATTAN BANK
("CHASE"), as administrative agent (together with any successor administrative
agent appointed pursuant to Article VII, the "ADMINISTRATIVE AGENT") for the
Lender Parties (as hereinafter defined).
PRELIMINARY STATEMENTS:
(1) SSCI Investors LLC, a Delaware limited liability company ("SSCI
INVESTORS"), was organized by AEA Investors Inc., a Delaware corporation (the
"SPONSOR"), to acquire control of the Borrower.
(2) Pursuant to that certain Stock Purchase Agreement dated as of
November 24, 1999 (as such agreement may be amended from time to time in
accordance with the provisions thereof and of this Agreement, the "ACQUISITION
AGREEMENT"), between SSCI Investors and Sovereign Specialty Chemicals, L.P., a
Delaware limited partnership (the "SELLER"), SSCI Investors has agreed to
purchase at least seventy-five percent of the outstanding capital stock of the
Borrower from the Seller (the "ACQUISITION").
(3) Pursuant to that certain Indenture dated as of August 1, 1997
(as such indenture may be amended from time to time in accordance with the
provisions thereof and of this Agreement, the "SENIOR SUBORDINATED NOTE
INDENTURE"), among the Borrower, certain Subsidiaries of the Borrower and The
Bank of New York, a New York banking corporation, as trustee (the "SENIOR
SUBORDINATED NOTE TRUSTEE"), the Borrower proposes to make an offer to purchase
its 9 1/2% Senior Subordinated Notes due 2007 issued thereunder (thE "SENior
SUBORDINATED NOTES"), following the consummation of the Acquisition in
accordance with the Indenture (the "OFFER TO PURCHASE").
<PAGE> 2
2
(4) The Borrower has requested that, immediately upon the
consummation of the Acquisition, the Lender Parties lend to the Borrower funds
to pay fees and expenses incurred in connection with the Acquisition and to
refinance certain Existing Debt (as hereinafter defined) of the Borrower and its
Subsidiaries, the Lender Parties lend to the Borrower funds to finance the
Borrower's purchase of the Senior Subordinated Notes tendered pursuant to the
Offer to Purchase, the Lender Parties lend the Borrower funds to finance the
purchase by the Borrower or its Subsidiaries of Permitted Acquisitions (as
hereinafter defined) and from time to time, the Lender Parties lend to the
Borrower and issue Letters of Credit for the account of the Borrower to provide
working capital for the Borrower and its Subsidiaries. The Lender Parties have
indicated their willingness to agree to lend such amounts on the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"ACQUISITION" has the meaning specified in the
Preliminary Statements.
"ACQUISITION AGREEMENT " has the meaning specified in
the Preliminary Statements.
"ACQUISITION DILIGENCE REPORT" means, with respect to
the Equity Interests in, or the properties and assets of, any Person
that have been or are to be purchased or otherwise acquired by the
Borrower or any of its Subsidiaries, a due diligence report on such
Person and its Subsidiaries (or the properties and assets thereof),
prepared in good faith and certified by the Chief Financial Officer
of the Borrower and approved by the Joint Lead Arrangers, which
report shall include, (i) a Consolidated pro forma closing balance
sheet of such Person and its Subsidiaries as of the date of
consummation of the related purchase or acquisition, (ii) a
Consolidated pro forma income statement of such Person and its
Subsidiaries for the most recently completed four consecutive fiscal
quarters of such Person prior to the date of consummation of the
related purchase or acquisition, (iii) an itemized schedule of the
add back adjustments (reflecting cost saving realized by such Person
(or the Borrower and its Subsidiaries) upon the date of consummation
of such transaction or which management intends to implement within
six months of such date
<PAGE> 3
3
made to the consolidated pro forma income statement of such Person
and its Subsidiaries referred to in clause (ii) of this definition,
(iv) a calculation of the Pro Forma Consolidated EBITDA of such
Person and its Subsidiaries for the most recently completed four
consecutive fiscal quarters of such Person prior to the date of
consummation of the related purchase or acquisition and (v) a
schedule of the computations used by the Borrower in determining pro
forma compliance with the covenants contained in Section 5.04
calculated based on the financial statements most recently delivered
to the Lender Parties pursuant to Section 5.03 and as though such
acquisition had occurred at the beginning of the four quarter period
covered thereby.
"ADMINISTRATIVE AGENT" has the meaning specified in the
recital of parties to this Agreement.
"ADMINISTRATIVE AGENT'S ACCOUNT" means the account of
the Administrative Agent maintained by the Administrative Agent with
Chase at its office at One Chase Manhattan Plaza, New York, New York
10081, Account No. 323-142-362, Attention: Michael Cerniglia (fax
number: 212-552-5777), or such other account as the Administrative
Agent shall specify in writing to the Lender Parties.
"ADVANCE" means a Term Advance, a Revolving Credit
Advance, a Swing Line Advance or a Letter of Credit Advance.
"AFFILIATE" means, as to any Person, any other Person
that, directly or indirectly, controls, is controlled by or is under
common control with such Person or is a director or officer of such
Person. For purposes of this definition, the term "control"
(including the terms "controlling", "controlled by" and "under
common control with") of a Person means the possession, direct or
indirect, of the power to direct or cause the direction of the
management and policies of such Person, whether through the
ownership of Voting Interests, by contract or otherwise.
"AGENTS" means, collectively, the Administrative Agent,
the Joint Lead Arrangers, the Joint Book Managers, the Documentation
Agent and the Syndication Agent.
"AGREEMENT VALUE" means, for each Hedge Agreement, on
any date of determination, an amount determined by the
Administrative Agent equal to: (a) in the case of a Hedge Agreement
documented pursuant to the Master Agreement (Multicurrency-Cross
Border) published by the International Swap and Derivatives
Association, Inc. (the "MASTER AGREEMENT"), the amount, if any, that
would be payable by any Loan Party or any of its Subsidiaries to its
counterparty to such Hedge Agreement, as if (i) such Hedge Agreement
was being terminated early on such date of determination, (ii) such
Loan Party or Subsidiary was the sole "Affected Party", and (iii)
the
<PAGE> 4
4
Administrative Agent was the sole party determining such payment
amount (with the Administrative Agent making such determination
pursuant to the provisions of the form of Master Agreement); or (b)
in the case of a Hedge Agreement traded on an exchange, the
mark-to-market value of such Hedge Agreement, which will be the
unrealized loss on such Hedge Agreement to the Loan Party or
Subsidiary of a Loan Party party to such Hedge Agreement determined
by the Administrative Agent based on the settlement price of such
Hedge Agreement on such date of determination, or (c) in all other
cases, the mark-to-market value of such Hedge Agreement, which will
be the unrealized loss on such Hedge Agreement to the Loan Party or
Subsidiary of a Loan Party party to such Hedge Agreement determined
by the Administrative Agent as the amount, if any, by which (i) the
present value of the future cash flows to be paid by such Loan Party
or Subsidiary exceeds (ii) the present value of the future cash
flows to be received by such Loan Party or Subsidiary pursuant to
such Hedge Agreement; capitalized terms used and not otherwise
defined in this definition shall have the respective meanings set
forth in the above described Master Agreement.
"APPLICABLE LENDING OFFICE" means, with respect to each
Lender Party, such Lender Party's Domestic Lending Office in the
case of a Base Rate Advance and such Lender Party's Eurodollar
Lending Office in the case of a Eurodollar Rate Advance.
"APPLICABLE MARGIN" means (i) during the period from the
Effective Date until the six-month anniversary of the Effective
Date, (A) in respect of the Term A Facility or the Revolving Credit
Facility, 1.50% per annum for Base Rate Advances and 2.50% per annum
for Eurodollar Rate Advances, and (B) in respect of the Term B
Facility, 2.00% per annum for Base Rate Advances and 3.00% per annum
for Eurodollar Rate Advances; and (ii) after the six month
anniversary of the Effective Date, a percentage per annum determined
by reference to both the Total Debt/EBITDA Ratio and the Senior
Debt/EBITDA Ratio to be the higher per annum percentage indicated by
either such ratio as set forth below:
<TABLE>
<CAPTION>
TERM A FACILITY AND REVOLVING CREDIT FACILITY
---------------------------------------------
TOTAL DEBT/EBITDA SENIOR DEBT/EBITDA EURODOLLAR MARGIN BASE RATE MARGIN
RATIO RATIO
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GREATER THAN OR EQUAL GREATER THAN OR EQUAL 2.50% 1.50%
TO 4.50:1 TO 3.50:1
GREATER THAN OR EQUAL GREATER THAN OR EQUAL 2.25% 1.25%
TO 4.25:1, BUT LESS TO 3.00:1, BUT LESS THAN
THAN 4.50:1 3.50:1
GREATER THAN OR EQUAL GREATER THAN OR EQUAL 2.00% 1.00%
TO 3.75:1, BUT LESS TO 2.50:1, BUT LESS THAN
THAN 4.25:1 3.00:1
LESS THAN 3.75:1 LESS THAN 2.50:1 1.75% 0.75%
</TABLE>
<PAGE> 5
5
<TABLE>
<CAPTION>
TERM B FACILITY
--------------------------------------------
TOTAL DEBT/EBITDA SENIOR DEBT/EBITDA EURODOLLAR MARGIN BASE RATE MARGIN
RATIO RATIO
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GREATER THAN OR EQUAL GREATER THAN OR EQUAL 3.00% 2.00%
TO 4.50:1 TO 3.50:1
LESS THAN 4.50:1 LESS THAN 3.50:1 2.50% 1.50%
</TABLE>
The Applicable Margin for each Base Rate Advance shall be determined
by reference to the Total Debt/EBITDA Ratio and the Senior
Debt/EBITDA Ratio in effect from time to time and the Applicable
Margin for each Eurodollar Rate Advance shall be determined by
reference to the Total Debt/EBITDA Ratio and the Senior Debt/EBITDA
Ratio in effect on the first day of each Interest Period for such
Advance; provided, however, that (A) no change in the Applicable
Margin shall be effective until one Business Day after the date on
which the Administrative Agent receives the financial statements
required to be delivered pursuant to Section 5.03(b) or (c) or an
Acquisition Diligence Report, as the case may be, and a certificate
of the Chief Financial Officer of the Borrower demonstrating such
ratios, and (B) the Applicable Margin shall be at the percentage in
effect when the Total Debt/EBITDA Ratio is greater than or equal to
4.50:1 for so long as the Borrower has not submitted to the
Administrative Agent the information described in Clause (A) of this
proviso as and when required under Section 5.03(b) or (c), as the
case may be.
"APPLICABLE PERCENTAGE" means (i) during the period from
the Effective Date until the six-month anniversary of the Effective
Date, 0.50% and (ii) thereafter, a percentage per annum determined
by reference to both the Total Debt/EBITDA Ratio and the Senior
Debt/EBITDA Ratio to be the higher per annum percentage indicated by
either such ratio as set forth below:
<TABLE>
<CAPTION>
TOTAL DEBT/EBITDA RATIO SENIOR DEBT/EBITDA RATIO COMMITMENT FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
GREATER THAN OR EQUAL TO 4.25:1 GREATER THAN OR EQUAL TO 3.00:1 0.50%
LESS THAN 4.25:1 LESS THAN 3.00:1 0.375%
</TABLE>
The Applicable Percentage shall be determined by reference to the
Total Debt/EBITDA Ratio and the Senior Debt/EBITDA Ratio in effect
from time to time; provided, however, that (A) no change in the
Applicable Percentage shall be effective until one Business Day
after the date on which the Administrative Agent receives the
financial statements required to be delivered pursuant to Section
5.03(b) or (c) or an Acquisition Diligence Report, as the case may
be, and a certificate of the Chief Financial Officer of the Borrower
demonstrating such ratios, and (B) the Applicable Percentage shall
be at the percentage in effect when the Total Debt/EBITDA Ratio is
greater than or equal to 4.25:1 for so long as the Borrower has not
submitted to the Administrative Agent the
<PAGE> 6
6
information described in Clause (A) of this proviso as and when
required under Section 5.03(b) or (c), as the case may be.
"APPROPRIATE LENDER" means, at any time, with respect to
(a) any of the Term or Revolving Credit Facilities, a Lender that
has a Commitment with respect to such Facility at such time, (b) the
Letter of Credit Facility, (i) the Issuing Bank and (ii) if the
other Revolving Credit Lenders have made Letter of Credit Advances
pursuant to Section 2.03(c) that are outstanding at such time, each
such other Revolving Credit Lender and (c) the Swing Line Facility,
(i) the Swing Line Bank and (ii) if the other Revolving Credit
Lenders have made Swing Line Advances pursuant to Section 2.02(b)
that are outstanding at such time, each such other Revolving Credit
Lender.
"APPROVED FUND" means, with respect to any Lender that
is a fund that invests in bank loans, any other fund that invests in
bank loans and is advised or managed by the same investment advisor
as such Lender or by an Affiliate of such investment advisor.
"ASSET SALE" means the sale, lease, transfer or other
disposition of any assets of the Borrower or any of its Subsidiaries
(other than any sale, lease, transfer or other disposition of assets
pursuant to clause (i), (ii), (iii), (v) and (ix) of Section
5.02(f)) which yields to the Borrower or any of its Subsidiaries (a)
at any time that any Senior Subordinated Notes remain outstanding
and contain a covenant to prepay such notes with the proceeds of
asset sales, any gross proceeds, and (b) thereafter, gross proceeds
in excess of $250,000. Any sale, lease, transfer or other
disposition of assets pursuant to clause (ix) of Section 5.02(f)
shall only be treated as an Asset Sales at the time and to the
extent such sale or other transaction closes and yields gross
proceeds to the Borrower as provided in clause (viii) of Section
5.02(f).
"ASSIGNMENT AND ACCEPTANCE" means an assignment and
acceptance entered into by a Lender Party and an Eligible Assignee,
and accepted by the Administrative Agent, in accordance with Section
8.07 and in substantially the form of Exhibit C hereto.
"AVAILABLE AMOUNT" of any Letter of Credit means, at any
time, the maximum amount available to be drawn under such Letter of
Credit at such time (assuming compliance at such time with all
conditions to drawing).
"BASE RATE" means a fluctuating interest rate per annum
in effect from time to time, which rate per annum shall at all times
be equal to the higher of:
(a) the rate of interest announced publicly by Chase
in New York, New York, from time to time, as such bank's base
rate, with the understanding
<PAGE> 7
7
that such base rate is not necessarily the lowest rate charge
by such bank to its customers; and
(b) 1/2 of 1% per annum above the Federal Funds Rate.
"BASE RATE ADVANCE" means an Advance that bears interest
as provided in Section 2.07(a)(i).
"BORROWER" has the meaning specified in the recital of
parties to this Agreement.
"BORROWER'S ACCOUNT" means the account of the Borrower
maintained by the Borrower with Chase at its office at One Chase
Manhattan Plaza, New York, New York 10081, Account No. 9102788529,
or such other account as the Borrower shall specify in writing to
the Administrative Agent.
"BORROWING" means a Term Borrowing, a Revolving Credit
Borrowing or a Swing Line Borrowing.
"BUSINESS DAY" means a day of the year on which banks
are not required or authorized by law to close in New York City or
Illinois and, if the applicable Business Day relates to any
Eurodollar Rate Advances, on which dealings are carried on in the
London interbank market.
"CAPITAL EXPENDITURES" means, for any Person for any
period, the sum of, without duplication, (a) all expenditures made,
directly or indirectly, by such Person or any of its Subsidiaries
during such period (net of any credit granted by the seller of such
assets for any assets being traded-in at the same time) for
equipment, fixed assets, real property or improvements, or for
replacements or substitutions therefor or additions thereto, that
have been or should be, in accordance with GAAP, capitalized and
reflected as additions to property, plant or equipment on a
Consolidated balance sheet of such Person or have a useful life of
more than one year plus (b), without duplication, the aggregate
principal amount of all Debt (including Obligations under
Capitalized Leases) assumed or incurred in connection with any such
expenditures, but excluding, to the extent included under clause (a)
or (b) above, the following, without duplication, (i) expenditures
made in connection with the replacement, substitution or restoration
of assets to the extent financed (x) from insurance proceeds,
indemnification payments (or similar recoveries) paid on account of
the loss of or damage to the assets being replaced or restored or
(y) with awards or compensation arising from the taking by eminent
domain, expropriation or condemnation of the assets being replaced,
(ii) any Permitted Acquisition and (iii) any other Investment
permitted under Section 5.02(g).
<PAGE> 8
8
"CAPITALIZED LEASES" means all leases that have been or
should be capitalized in accordance with GAAP.
"CASH EQUIVALENTS" means any of the following, to the
extent owned by the Borrower or any of its Subsidiaries free and
clear of all Liens other than Liens created under the Collateral
Documents and having a maturity of not greater than one year from
the date of acquisition thereof: (a) readily marketable direct
obligations of the Government of the United States or any agency or
instrumentality thereof or obligations unconditionally guaranteed by
the full faith and credit of the Government of the United States,
(b) insured certificates of deposit of or time deposits with any
commercial bank that is a Lender Party or a member of the Federal
Reserve System or a commercial banking institution organized in a
country recognized by the United States of America, in each case,
that issues (or the parent of which issues) commercial paper rated
as described in clause (c) below, and has combined capital and
surplus of at least $500 million (or the foreign currency equivalent
thereof), (c) commercial paper issued by any corporation organized
under the laws of any State of the United States and rated at least
"Prime-1" (or the then equivalent grade) by Moody's Investors
Service, Inc. or "A-1" (or the then equivalent grade) by Standard &
Poor's, a division of The McGraw-Hill Companies, Inc., (d) any money
market deposit accounts issued or offered by any Lender Party or a
commercial banking institution described under clause (b) above and
(e) other short-term investments utilized by Foreign Subsidiaries in
accordance with normal investment practices for cash management not
exceeding a dollar equivalent amount of $1,000,000 in the aggregate
principal amount outstanding at any time.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to
time.
"CERCLIS" means the Comprehensive Environmental
Response, Compensation and Liability Information System maintained
by the U.S. Environmental Protection Agency.
"CHANGE OF CONTROL" means the occurrence of any of the
following: (a) prior to an initial public offering of Equity
Interests in SSCI Investors or the Borrower, (i) the Equity
Investors shall cease to own on a fully diluted basis in the
aggregate at least a majority of the Equity Interests and Voting
Interests in SSCI Investors or (ii) SSCI Investors shall cease to
own on a fully diluted basis in the aggregate at least a majority of
the Equity Interests and Voting Interests in the Borrower; or (b)
after such an initial public offering, any Person or two or more
Persons acting in concert other than the Equity Investors shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission under the Securities Exchange
Act of 1934), directly or indirectly, on a fully diluted basis of
Voting Interests of SSCI Investors or the
<PAGE> 9
9
Borrower, as the case may be, (or other securities convertible into
such Voting Interests) representing 30% or more of the combined
voting power of all Voting Interests of SSCI Investors or the
Borrower; or (c) after such an initial public offering, during any
period of up to 24 consecutive months, commencing after the date of
this Agreement, individuals who at the beginning of such 24-month
period were directors of the Borrower (together with any new
directors whose election or nomination for election was approved by
a vote of 2/3 or more of the directors still in office who were
either directors at the beginning of such period or whose election
or nomination for election was previously so approved) shall cease
for any reason to constitute a majority of the board of directors of
the Borrower.
"CHASE" has the meaning specified in the recitals of
parties to this Agreement.
"COLLATERAL" means all "Collateral" referred to in the
Collateral Documents and all other property that is or is intended
to be subject to any Lien in favor of the Collateral Agent for the
benefit of the Secured Parties.
"COLLATERAL ACCOUNT" has the meaning specified in the
Security Agreement.
"COLLATERAL DOCUMENTS" means the Security Agreement, the
Mortgages and any other agreement that creates or purports to create
a Lien in favor of the Administrative Agent for the benefit of the
Secured Parties.
"COMMITMENT" means a Term Commitment, a Revolving Credit
Commitment or a Letter of Credit Commitment.
"CONFIDENTIAL INFORMATION" means information that any
Loan Party furnishes to any Agent or any Lender Party on a
confidential basis, including such information furnished pursuant to
Section 5.01(f), but does not include any such information that is
or becomes generally available to the public or that is or becomes
available to such Agent or such Lender Party from a source other
than the Loan Parties and not in breach of Section 8.10 of this
Agreement.
"CONSOLIDATED" refers to the consolidation of accounts
in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, the net
income (or net loss) of any Person and its Subsidiaries for such
period, determined on a Consolidated basis but excluding for each
such period (without duplication):
(a) the income (or loss) of any other Person accrued
prior to the date on which it became a Subsidiary of such
Person or was merged into or
<PAGE> 10
10
consolidated with such Person or any of its Subsidiaries or
all or substantially all of the property and assets of such
other Person were acquired by such Person or any of its
Subsidiaries;
(b) the income (or loss) of any other Person in which
a Person other than such Person or any of its Subsidiaries
owns or otherwise holds an Equity Interest, except to the
extent such income (or loss) shall have been received in the
form of Cash Distributions actually paid to such Person or any
of its Subsidiaries by such other Person during such period;
(c) the income of any Subsidiary of such Person to
the extent that the declaration or payment of any dividends or
other distributions of such income by such Subsidiary is not
permitted to be made or paid (whether by contract or
otherwise) on the last day of such period;
(d) any gains or losses on Hedge Agreements; and
(e) any gains or losses on foreign currency
translation adjustments;
"CONSOLIDATED NET TANGIBLE ASSETS" of any Person means,
as of any date of determination, the total assets, less goodwill and
other intangibles and less deferred tax assets, in each case as
shown on the Consolidated balance sheet of such Person and its
Subsidiaries for the most recently ended fiscal quarter for which
financial statements are available, determined on a Consolidated
basis in accordance with GAAP.
"CONTINGENT OBLIGATION" means, with respect to any
Person, any Obligation or arrangement of such Person to guarantee or
intended to guarantee any Debt, leases, dividends or other payment
Obligations ("PRIMARY OBLIGATIONS") of any other Person (the
"PRIMARY OBLIGOR") in any manner, whether directly or indirectly,
including, without limitation, (a) the direct or indirect guarantee,
endorsement (other than for collection or deposit in the ordinary
course of business), co-making, discounting with recourse or sale
with recourse by such Person of the Obligation of a primary obligor,
(b) the Obligation to make take-or-pay or similar payments, if
required, regardless of nonperformance by any other party or parties
to an agreement or (c) any Obligation of such Person, whether or not
contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to
advance or supply funds (A) for the purchase or payment of any such
primary obligation or (B) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net
worth or solvency of the primary obligor, (iii) to purchase
property, assets, securities or services primarily for the purpose
of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold
<PAGE> 11
11
harmless the holder of such primary obligation against loss in
respect thereof. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determinable amount of
the primary obligation in respect of which such Contingent
Obligation is made (or, if less, the maximum amount of such primary
obligation for which such Person may be liable pursuant to the terms
of the instrument evidencing such Contingent Obligation) or, if not
stated or determinable, the maximum reasonably anticipated liability
in respect thereof (assuming such Person is required to perform
thereunder), as determined by such Person in good faith.
"CONVERSION", "CONVERT" and "CONVERTED" each refer to a
conversion of Advances of one Type into Advances of the other Type
pursuant to Section 2.09 or 2.10.
"CURRENT ASSETS" of any Person means all assets of such
Person that would, in accordance with GAAP, be classified as current
assets of a company conducting a business the same as or similar to
that of such Person, after deducting adequate reserves in each case
in which a reserve is proper in accordance with GAAP.
"CURRENT LIABILITIES" of any Person means (a) all Debt
of such Person except Funded Debt, (b) all amounts of Funded Debt of
such Person required to be paid or prepaid within one year after
such date and (c) all other items (including taxes accrued as
estimated) that in accordance with GAAP would be classified as
current liabilities of such Person.
"DEBT" of any Person means, without duplication for
purposes of calculating financial ratios, (a) all indebtedness of
such Person for borrowed money, (b) all Obligations of such Person
for the deferred purchase price of property or services (other than
trade payables not overdue by more than 60 days incurred in the
ordinary course of such Person's business), (c) all Obligations of
such Person evidenced by notes, bonds, debentures or other similar
instruments, (d) all Obligations of such Person created or arising
under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights
and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such
property), (e) all Obligations of such Person as lessee under
Capitalized Leases, (f) all Obligations of such Person under
acceptance, letter of credit or similar facilities, (g) all
Obligations of such Person to purchase, redeem, retire, defease or
otherwise make any payment in respect of any Equity Interests in
such Person or any other Person or any warrants, rights or options
to acquire such capital stock, valued, in the case of Redeemable
Preferred Interests, at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends (excluding
any such Obligations arising after the eighth anniversary of the
Effective Date or conditioned on compliance with this Agreement),
(h) all Obligations of such Person in respect of Hedge Agreements,
valued at
<PAGE> 12
12
the Agreement Value thereof, and (i) all indebtedness and other
payment Obligations referred to in clauses (a) through (h) above and
all Contingent Obligations of another Person secured by (or for
which the holder of such Debt has an existing right, contingent or
otherwise, to be secured by) any Lien on property (including,
without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for
the payment of such indebtedness or other payment Obligations. Debt
shall not include (x) accounts extended by suppliers in the ordinary
course of business on normal trade terms not overdue by more than 60
days in connection with the purchase of goods and services and (y)
notes payable with stated maturities of no more than one year from
the date of issuance in respect of the deferred payment of insurance
policy premiums in an amount not in excess of $3 million at any time
outstanding.
"DEBT FOR BORROWED MONEY" of any Person means all items
that, in accordance with GAAP, would be classified as indebtedness
on a Consolidated balance sheet of such Person.
"DECLINING LENDER" has the meaning specified in Section
2.06(b)(v).
"DEFAULT" means any Event of Default or any event that
would constitute an Event of Default but for the requirement that
notice be given or time elapse or both.
"DEFAULTED ADVANCE" means, with respect to any Lender
Party at any time, the portion of any Advance required to be made by
such Lender Party to the Borrower pursuant to Section 2.01 or 2.02
at or prior to such time that has not been made by such Lender Party
or by the Administrative Agent for the account of such Lender Party
pursuant to Section 2.02(e) as of such time. In the event that a
portion of a Defaulted Advance shall be deemed made pursuant to
Section 2.15(a), the remaining portion of such Defaulted Advance
shall be considered a Defaulted Advance originally required to be
made pursuant to Section 2.01 on the same date as the Defaulted
Advance so deemed made in part.
"DEFAULTED AMOUNT" means, with respect to any Lender
Party at any time, any amount required to be paid by such Lender
Party to any Agent or any other Lender Party hereunder or under any
other Loan Document at or prior to such time that has not been so
paid as of such time, including, without limitation, any amount
required to be paid by such Lender Party to (a) the Swing Line Bank
pursuant to Section 2.02(b) to purchase a portion of a Swing Line
Advance made by the Swing Line Bank, (b) the Issuing Bank pursuant
to Section 2.03(c) to purchase a portion of a Letter of Credit
Advance made by the Issuing Bank, (c) the Administrative Agent
pursuant to Section 2.02(e) to reimburse the Administrative
<PAGE> 13
13
Agent for the amount of any Advance made by the Administrative Agent
for the account of such Lender Party, (d) any other Lender Party
pursuant to Section 2.13 to purchase any participation in Advances
owing to such other Lender Party and (e) any Agent or the Issuing
Bank pursuant to Section 7.05 to reimburse such Agent or the Issuing
Bank for such Lender Party's ratable share of any amount required to
be paid by the Lender Parties to such Agent or the Issuing Bank as
provided therein. In the event that a portion of a Defaulted Amount
shall be deemed paid pursuant to Section 2.15(b), the remaining
portion of such Defaulted Amount shall be considered a Defaulted
Amount originally required to be paid hereunder or under any other
Loan Document on the same date as the Defaulted Amount so deemed
paid in part.
"DEFAULTING LENDER" means, at any time, any Lender Party
that, at such time, (a) owes a Defaulted Advance or a Defaulted
Amount or (b) shall take any action or be the subject of any action
or proceeding of a type described in Section 6.01(f).
"DEFAULT TERMINATION NOTICE" has the meaning specified
in Section 2.01(e).
"DESIGNATED MATERIAL CONTRACTS" means those contracts
more specifically identified on Schedule IV hereto.
"DOCUMENTATION AGENT" has the meaning specified in the
recitals of parties to this Agreement.
"DOMESTIC LENDING OFFICE" means, with respect to any
Lender Party, the office of such Lender Party specified as its
"Domestic Lending Office" opposite its name on Schedule I hereto or
in the Assignment and Acceptance pursuant to which it became a
Lender Party, as the case may be, or such other office of such
Lender Party as such Lender Party may from time to time specify to
the Borrower and the Administrative Agent.
"DOMESTIC SUBSIDIARY" means any Subsidiary other than a
Foreign Subsidiary.
"EBITDA" means, for any period, the sum, determined on a
Consolidated basis without duplication, of (a) Consolidated Net
Income (but excluding, to the extent reflected in determining such
Consolidated Net Income (i) extraordinary gains and losses for such
period, (ii) any gain or loss associated with the sale or write-down
of assets not in the ordinary course of business, (iii) any deferred
financing costs for such period written off in connection with the
early extinguishment of Debt hereunder or under the Senior
Subordinated Notes, and (iv) any other non-cash or non-recurring
items of income or expense (other than any non-cash item of expense
requiring an accrual or reserve for future cash expense)), (b)
interest expense, (c) income tax expense, (d) depreciation expense,
(e) amortization expense, (f) expenses for which Borrower receives
payments
<PAGE> 14
14
under indemnification agreements, (g) prepayment penalties on early
retirement of Debt, (h) consent payments with respect to Debt, (i)
management compensation expenses associated with the Transactions to
the extent paid for by Seller, (j) non-cash expenses for the
granting of stock options, (k) all management and consulting fees
(including reimbursement of expenses) paid or payable by Borrower
and its Subsidiaries to Sponsor and (l) any non-recurring charges
related to the Acquisition, any non-recurring, cash charges related
to any Permitted Acquisition in an aggregate amount during the term
of this Agreement not to exceed $5,000,000 and any non-recurring
non-cash charges related to any Permitted Acquisition by Borrower or
any Subsidiary occurring after the Closing Date in each case of the
Borrower and its Subsidiaries, determined in accordance with GAAP
for such period.
"EFFECTIVE DATE" means the first date on which the
conditions set forth in Article III shall have been satisfied.
"ELIGIBLE ASSIGNEE" means (a) with respect to any
Facility (other than the Letter of Credit Facility), (i) a Lender;
(ii) an Affiliate of a Lender; (iii) a commercial bank organized
under the laws of the United States, or any State thereof, and
having total assets in excess of $250,000,000; (iv) a savings and
loan association or savings bank organized under the laws of the
United States, or any State thereof, and having total assets in
excess of $250,000,000; (v) a commercial bank organized under the
laws of any other country that is a member of the OECD, or a
political subdivision of any such country, and having total assets
in excess of $250,000,000, so long as such bank is acting through a
branch or agency located in the United States; (vi) a finance
company, insurance company or other financial institution or fund
(whether a corporation, partnership, trust or other entity)
organized under the laws of the United States, any state thereof or
any other country that is a member of the OECD that is engaged in
making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business and having total assets in excess of
$250,000,000; and (vii) any other Person approved by the
Administrative Agent and, unless a Default has occurred and is
continuing at the time any assignment is effected pursuant to
Section 8.07, the Borrower, such approval not to be unreasonably
withheld or delayed, and (b) with respect to the Letter of Credit
Facility, a Person that is an Eligible Assignee under subclause
(iii) or (v) of clause (a) of this definition and is approved by the
Administrative Agent and, unless a Default has occurred and is
continuing at the time any assignment is effected pursuant to
Section 8.07, the Borrower, such approval not to be unreasonably
withheld or delayed; provided, however, that neither any Loan Party
nor any Affiliate of a Loan Party shall qualify as an Eligible
Assignee under this definition.
"ENVIRONMENTAL ACTION" means any action, suit, demand,
demand letter, claim, notice of non-compliance or violation, notice
of liability or potential liability,
<PAGE> 15
15
investigation, proceeding, consent order or consent agreement
relating to any Environmental Law, any Environmental Permit or
Hazardous Material or arising from alleged injury or threat to
health, safety or the environment, including, without limitation,
(a) by any governmental or regulatory authority for enforcement,
cleanup, removal, response, remedial or other actions or damages and
(b) by any governmental or regulatory authority or third party for
damages, contribution, indemnification, cost recovery, compensation
or injunctive relief.
"ENVIRONMENTAL LAW" means any Federal, state, local or
foreign statute, law, ordinance, rule, regulation, code, order,
writ, judgment, injunction or decree, or judicial or agency
interpretation, policy or guidance having the force or effect of
law, relating to pollution or protection of the environment, health,
safety or natural resources, including, without limitation, those
relating to the use, handling, transportation, treatment, storage,
disposal, release or discharge of Hazardous Materials.
"ENVIRONMENTAL PERMIT" means any permit, approval,
identification number, license or other authorization required under
any Environmental Law.
"EQUIPMENT" means all Equipment referred to in Section
1(a) of the Security Agreement.
"EQUITY INTERESTS" means, with respect to any Person,
shares of capital stock of (or other ownership or profit interests
in) such Person, warrants, options or other rights for the purchase
or other acquisition from such Person of shares of capital stock of
(or other ownership or profit interests in) such Person, securities
convertible into or exchangeable for shares of capital stock of (or
other ownership or profit interests in) such Person or warrants,
rights or options for the purchase or other acquisition from such
Person of such shares (or such other interests), and other ownership
or profit interests in such Person (including, without limitation,
partnership, member or trust interests therein), whether voting or
nonvoting, and whether or not such shares, warrants, options, rights
or other interests are authorized or otherwise existing on any date
of determination.
"EQUITY INVESTOR" means the Sponsor and its current,
former and future employees, stockholders, directors and officers
and the employees and officers of SSCI Investors and the Borrower
and its Subsidiaries, and (i) trusts for the benefit of such Persons
or the spouses, issue (including adopted issue), parents and
grandparents of such Person, (ii) entities controlled by such
Persons and (iii) in the event of the death of any such individual
Person, heirs or testamentary legatees of such Person.
<PAGE> 16
16
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
"ERISA AFFILIATE" means any Person that for purposes of
Title IV of ERISA is a member of the controlled group of any Loan
Party, or under common control with any Loan Party, within the
meaning of Section 414 of the Internal Revenue Code.
"ERISA EVENT" means (a)(i) the occurrence of a
reportable event, within the meaning of Section 4043 of ERISA, with
respect to any Plan unless the 30-day notice requirement with
respect to such event has been waived by the PBGC or (ii) the
requirements of Section 4043(b) of ERISA apply with respect to a
contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of
a Plan, and an event described in paragraph (9), (10), (11), (12) or
(13) of Section 4043(c) of ERISA is reasonably expected to occur
with respect to such Plan within the following 30 days; (b) the
application for a minimum funding waiver with respect to a Plan; (c)
the provision by the administrator of any Plan of a notice of intent
to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA
(including any such notice with respect to a plan amendment referred
to in Section 4041(e) of ERISA); (d) the cessation of operations at
a facility of any Loan Party or any ERISA Affiliate in the
circumstances described in Section 4062(e) of ERISA; (e) the
withdrawal by any Loan Party or any ERISA Affiliate from a Multiple
Employer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; (f) the
conditions for imposition of a lien under Section 302(f) of ERISA
shall have been met with respect to any Plan; (g) the adoption of an
amendment to a Plan requiring the provision of security to such Plan
pursuant to Section 307 of ERISA; or (h) the institution by the PBGC
of proceedings to terminate a Plan pursuant to Section 4042 of
ERISA, or the occurrence of any event or condition described in
Section 4042 of ERISA that constitutes grounds for the termination
of, or the appointment of a trustee to administer, such Plan.
"EUROCURRENCY LIABILITIES" has the meaning specified in
Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
"EURODOLLAR LENDING OFFICE" means, with respect to any
Lender Party, the office of such Lender Party specified as its
"Eurodollar Lending Office" opposite its name on Schedule I hereto
or in the Assignment and Acceptance pursuant to which it became a
Lender Party (or, if no such office is specified, its Domestic
Lending Office), or such other office of such Lender Party as such
Lender Party may from time to time specify to the Borrower and the
Administrative Agent.
<PAGE> 17
17
"EURODOLLAR RATE" means, for any Interest Period for all
Eurodollar Rate Advances comprising part of the same Borrowing, an
interest rate per annum equal to the rate per annum obtained by
dividing (a) the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any
successor page) as the London interbank offered rate for deposits in
U.S. dollars at 11:00 A.M. (London time) two Business Days before
the first day of such Interest Period for a period equal to such
Interest Period (provided that, if for any reason such rate is not
available, the term "Eurodollar Rate" shall mean, for any Interest
Period for all Eurodollar Rate Advances comprising part of the same
Borrowing, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the
London interbank offered rate for deposits in Dollars at
approximately 11:00 A.M. (London time) two Business Days prior to
the first day of such Interest Period for a term comparable to such
Interest Period; provided, however, if more than one rate is
specified on Reuters Screen LIBO Page, the applicable rate shall be
the arithmetic mean of all such rates) by (b) a percentage equal to
100% minus the Eurodollar Rate Reserve Percentage for such Interest
Period.
"EURODOLLAR RATE ADVANCE" means an Advance that bears
interest as provided in Section 2.07(a)(ii).
"EURODOLLAR RATE RESERVE PERCENTAGE" for any Interest
Period for all Eurodollar Rate Advances comprising part of the same
Borrowing means the reserve percentage applicable two Business Days
before the first day of such Interest Period under regulations
issued from time to time by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for a member
bank of the Federal Reserve System in New York City with respect to
liabilities or assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of liabilities
that includes deposits by reference to which the interest rate on
Eurodollar Rate Advances is determined) having a term equal to such
Interest Period.
"EVENTS OF DEFAULT" has the meaning specified in Section
6.01.
"EXCESS CASH FLOW" means, for any period,
(a) Consolidated Net Income of the Borrower and its
Subsidiaries for such period, but excluding, to the extent
reflected in determining such Consolidated Net Income (x)
depreciation expense and amortization expense, (y) all
non-cash credits and charges which are extraordinary or
non-recurring and (z) gains or losses on the sale or other
disposition of assets (other than sales of
<PAGE> 18
18
Inventory and licenses of patents, trademarks, copyrights of
know-how, in each case, in the ordinary course of business),
to the extent added or deducted in arriving at such
Consolidated Net Income; less
(b) the sum of:
(i) scheduled payment and permanent
prepayments of the principal amount of Term Advances,
to the extent actually made, during such period
pursuant to Section 2.04(a) or (b) or Section 2.06
plus
(ii) prepayments of Revolving Credit
Borrowings to the extent of any concurrent permanent
reduction in the Revolving Credit Commitments plus
(iii) the portion of any regularly scheduled
payments with respect to Capitalized Leases allocable
to principal plus
(iv) Capital Expenditures plus
(v) cash paid in connection with any
Permitted Acquisition during such period plus
(vi) the net increase, if greater than zero,
of Current Assets over Current Liabilities of the
Borrower and its Subsidiaries from the last day of
the immediately preceding fiscal year.
"EXCLUDED TAXES" has the meaning specified in Section
2.12(a).
"EXISTING CREDIT AGREEMENT" means that certain Amended
and Restated Credit Agreement dated as of August 15, 1997, among the
Borrower and certain of the other Loan Parties, as borrowers, the
lenders party thereto and Chase, as administrative agent for such
lenders, as amended and in effect on the date hereof.
"EXISTING DEBT" means Debt of each Loan Party and its
Subsidiaries outstanding immediately before giving effect to the
consummation of the Transaction.
"EXISTING LETTERS OF CREDIT" means the standby letters
of credit issued by Chase or one or more of its affiliates under the
terms of the Existing Credit Agreement and outstanding on the
Effective Date, in each case, as more fully described on Schedule
III hereto.
<PAGE> 19
19
"EXTRAORDINARY RECEIPT" means any cash received by or
paid to or for the account of any Person not in the ordinary course
of business, including, without limitation, tax refunds, pension
plan reversions, proceeds of insurance (including, without
limitation, any key man life insurance but excluding proceeds of
business interruption insurance to the extent such proceeds
constitute compensation for lost earnings), condemnation awards (and
payments in lieu thereof), indemnity payments and any purchase price
adjustment received in connection with any purchase agreement;
provided, however, that an Extraordinary Receipt shall not include
cash receipts received from proceeds of insurance, condemnation
awards (or payments in lieu thereof) or indemnity payments to the
extent that such proceeds, awards or payments (A) in respect of loss
or damage to equipment, fixed assets or real property are applied
(or in respect of which expenditures were previously incurred) to
replace or repair the equipment, fixed assets or real property in
respect of which such proceeds were received in accordance with the
terms of the Loan Documents, so long as such application is made
within (x) so long as any of the Senior Subordinated Notes remain
outstanding and contain a covenant to prepay such notes with the
proceeds of asset sales, 265 days and (y) thereafter, one year, in
each case, after the occurrence of such damage or loss or (B) are
received by any Person in respect of any third party claim against
such Person and applied to pay (or to reimburse such Person for its
prior payment of) such claim and the costs and expenses of such
Person with respect thereto.
"FACILITY" means the Term A Facility, the Term B
Facility, the Revolving Credit Facility, the Swing Line Facility or
the Letter of Credit Facility.
"FEDERAL FUNDS RATE" means, for any period, a
fluctuating interest rate per annum equal for each day during such
period to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published for such day (or, if
such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average of the
quotations for such day for such transactions received by the
Administrative Agent from three Federal funds brokers of recognized
standing selected by it.
"FEE LETTER" means the fee letter dated as of the date
hereof between the Borrower and the Administrative Agent, as
amended.
"FISCAL YEAR" means a fiscal year of the Borrower and
its Consolidated Subsidiaries ending on December 31 in any calendar
year.
"FIXED CHARGE COVERAGE RATIO" means, at any date of
determination, the ratio of (a) Pro Forma Consolidated EBITDA to (b)
the sum of (i) Pro Forma Interest Expense
<PAGE> 20
20
plus (ii) principal amounts of all Debt for Borrowed Money payable
plus (iii) the aggregate amount of all Capital Expenditures made in
cash of or by the Borrower and its Subsidiaries during the four
consecutive fiscal quarters most recently ended for which financial
statements are required to be delivered to the Lender Parties
pursuant to Section 5.03(b) or (c), as the case may be.
"FOREIGN SUBSIDIARY" means a Subsidiary organized under
the laws of a jurisdiction other than the United States or any State
thereof or the District of Columbia.
"FUNDED DEBT" of any Person means Debt in respect of the
Advances, in the case of the Borrower, and all other Debt of such
Person that by its terms matures more than one year after the date
of determination or matures within one year from such date but is
renewable or extendible, at the option of such Person, to a date
more than one year after such date or arises under a revolving
credit or similar agreement that obligates the lender or lenders to
extend credit during a period of more than one year after such date,
including, without limitation, all amounts of Funded Debt of such
Person required to be paid or prepaid within one year after the date
of determination.
"GAAP" has the meaning specified in Section 1.03.
"GUARANTIES" means the Subsidiary Guaranties.
"GUARANTORS" means the Subsidiary Guarantors.
"HAZARDOUS MATERIALS" means (a) petroleum or petroleum
products, by-products or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon
gas and (b) any other chemicals, materials or substances designated,
classified or regulated as hazardous or toxic or as a pollutant or
contaminant under any Environmental Law.
"HEDGE AGREEMENTS" means interest rate swap, cap or
collar agreements, interest rate future or option contracts,
currency swap agreements, currency future or commodity or option
contracts and other hedging agreements.
"HEDGE BANK" means any Lender Party or an Affiliate of a
Lender Party in its capacity as a party to a Secured Hedge
Agreement.
"INDEMNIFIED PARTY" has the meaning specified in Section
8.04(b).
<PAGE> 21
21
"INFORMATION MEMORANDUM" means the information
memorandum dated December 1999 used by the Joint Lead Arrangers in
connection with the initial syndication of the Commitments.
"INITIAL EXTENSION OF CREDIT" means the earlier to occur
of the initial Borrowing and the initial issuance of a Letter of
Credit hereunder.
"INITIAL ISSUING BANK", "INITIAL LENDER PARTIES" and
"INITIAL LENDERS" each has the meaning specified in the recital of
parties to this Agreement.
"INSUFFICIENCY" means, with respect to any Plan, the
amount, if any, of its unfunded benefit liabilities, as defined in
Section 4001(a)(18) of ERISA.
"INTELLECTUAL PROPERTY" has the meaning specified in the
Security Agreement.
"INTELLECTUAL PROPERTY SECURITY AGREEMENT" has the
meaning specified in the Security Agreement.
"INTEREST COVERAGE RATIO" means, at any date of
determination, the ratio of (a) Pro Forma Consolidated EBITDA to (b)
Pro Forma Interest Expense during the four consecutive fiscal
quarters most recently ended for which financial statements are
required to be delivered to the Lender Parties pursuant to Section
5.03(b) or (c), as the case may be.
"INTEREST EXPENSE" means for any period the Consolidated
interest expense (net of interest income) of Borrower and its
Subsidiaries for such period (including all imputed interest on
Capitalized Leases, but excluding (i) amortization of fees and
expenses in connection with the Acquisition, (ii) amortization in
connection with Hedge Agreements, (iii) interest expense on deferred
compensation or customer deposits and (iv) for purposes of
calculating the Fixed Charge Coverage Ratio and the Interest
Coverage Ratio, amortization of deferred financing costs, discounts
and other non-cash interest expense).
"INTEREST PERIOD" means, for each Eurodollar Rate
Advance comprising part of the same Borrowing, the period commencing
on the date of such Eurodollar Rate Advance or the date of the
Conversion of any Base Rate Advance into such Eurodollar Rate
Advance, and ending on the last day of the period selected by the
Borrower pursuant to the provisions below and, thereafter, each
subsequent period commencing on the last day of the immediately
preceding Interest Period and ending on the last day of the period
selected by the Borrower pursuant to the provisions below. The
duration of each such Interest Period shall be, in the case of the
period until 90 days following the Effective Date, one month, and
thereafter, one, two, three or six months, as the Borrower may,
<PAGE> 22
22
upon notice received by the Administrative Agent not later than
11:00 A.M. (New York City time) on the third Business Day prior to
the first day of such Interest Period, select; provided, however,
that:
(a) the Borrower may not select any Interest Period
with respect to any Eurodollar Rate Advance under a Facility
that ends after any principal repayment installment date for
such Facility unless, after giving effect to such selection,
the aggregate principal amount of Base Rate Advances and of
Eurodollar Rate Advances having Interest Periods that end on
or prior to such principal repayment installment date for such
Facility shall be at least equal to the aggregate principal
amount of Advances under such Facility due and payable on or
prior to such date;
(b) Interest Periods commencing on the same date for
Eurodollar Rate Advances comprising part of the same Borrowing
shall be of the same duration;
(c) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, provided, however, that, if
such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the last
day of such Interest Period shall occur on the next preceding
Business Day; and
(d) whenever the first day of any Interest Period
occurs on a day of an initial calendar month for which there
is no numerically corresponding day in the calendar month that
succeeds such initial calendar month by the number of months
equal to the number of months in such Interest Period, such
Interest Period shall end on the last Business Day of such
succeeding calendar month.
"INTERNAL REVENUE CODE" means the Internal Revenue Code
of 1986, as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
"INVENTORY" means all Inventory referred to in Section
1(b) of the Security Agreement.
"INVESTMENT" in any Person means any loan or advance to
such Person, any purchase or other acquisition of any Equity
Interests or Debt or the assets comprising a division or business
unit or a substantial part or all of the business of such Person,
any capital contribution to such Person or any other direct or
indirect investment in such Person, including, without limitation,
any acquisition by way of a merger or consolidation and any
Contingent Obligation or any arrangement pursuant to which the
<PAGE> 23
23
investor incurs Debt of the types referred to in clause (i) of the
definition of "DEBT" in respect of such Person.
"ISSUING BANK" means Chase, in respect of the Existing
Letters of Credit, the Initial Issuing Bank and any Eligible
Assignee to which a Letter of Credit Commitment hereunder has been
assigned pursuant to Section 8.07 so long as each such Eligible
Assignee expressly agrees to perform in accordance with their terms
all of the obligations that by the terms of this Agreement are
required to be performed by it as an Issuing Bank and notifies the
Administrative Agent of its Applicable Lending Office and the amount
of its Letter of Credit Commitment (which information shall be
recorded by the Administrative Agent in the Register), for so long
as such Initial Issuing Bank or Eligible Assignee, as the case may
be, shall have a Letter of Credit Commitment.
"JOINT BOOK MANAGER" has the meaning specified in the
recitals of parties to this Agreement.
"JOINT LEAD ARRANGER" has the meaning specified in the
recitals of parties to this Agreement.
"L/C CASH COLLATERAL ACCOUNT" has the meaning specified
in the Security Agreement.
"L/C RELATED DOCUMENTS" has the meaning specified in
Section 2.04(e)(ii).
"LENDER PARTY" means any Lender, the Issuing Bank or the
Swing Line Bank.
"LENDERS" means the Initial Lenders and each Person that
shall become a Lender hereunder pursuant to Section 8.07 for so long
as such Initial Lender or Person, as the case may be, shall be a
party to this Agreement.
"LETTER OF CREDIT ADVANCE" means an advance made by the
Issuing Bank or any Revolving Credit Lender pursuant to Section
2.03(c).
"LETTER OF CREDIT AGREEMENT" has the meaning specified
in Section 2.03(a).
"LETTER OF CREDIT COMMITMENT" means, with respect to the
Issuing Bank at any time, the amount set forth opposite the Issuing
Bank's name on Schedule I hereto under the caption "Letter of Credit
Commitment" or, if the Issuing Bank has entered into one or more
Assignment and Acceptances, set forth for the Issuing Bank in the
Register maintained by the Administrative Agent pursuant to Section
8.07(d) as the Issuing Bank's "Letter of Credit Commitment", as such
amount may be reduced at or prior to such time pursuant to Section
2.05.
<PAGE> 24
24
"LETTER OF CREDIT FACILITY" means, at any time, an
amount equal to the amount of the Issuing Bank's Letter of Credit
Commitment at such time, as such amount may be reduced at or prior
to such time pursuant to Section 2.05.
"LETTERS OF CREDIT" has the meaning specified in Section
2.01(e).
"LIEN" means any lien, security interest or other charge
or encumbrance of any kind, or any other type of preferential
arrangement, including, without limitation, the lien or retained
security title of a conditional vendor and any easement, right of
way or other encumbrance on title to real property.
"LOAN DOCUMENTS" means (a) for purposes of this
Agreement and the Notes and any amendment, supplement or
modification hereof or thereof, (i) this Agreement, (ii) the Notes,
(iii) the Guaranties, (iv) the Collateral Documents, (v) the Fee
Letter and (vi) each Letter of Credit Agreement and (b) for purposes
of the Guaranties and the Collateral Documents and for all other
purposes other than for purposes of this Agreement and the Notes,
(i) this Agreement, (ii) the Notes, (iii) the Guaranties, (iv) the
Collateral Documents, (v) the Fee Letter, (vi) each Letter of Credit
Agreement and (vii) each Secured Hedge Agreement, in each case as
amended.
"LOAN PARTIES" means the Borrower and the Guarantors.
"MANAGEMENT AGREEMENT" means the Management Agreement
dated as of December 29, 1999, among the Sponsor and the Borrower,
as amended or renewed, to the extent permitted under the Loan
Documents.
"MARGIN STOCK" has the meaning specified in Regulation
U.
"MATERIAL ADVERSE CHANGE" means any material adverse
change in the business, assets, operations, properties, financial
condition or liabilities (contingent or otherwise) of the Borrower
and its Subsidiaries taken as a whole since September 30, 1999;
provided, however, that in no event shall the Transactions,
individually or in the aggregate, be deemed a Material Adverse
Change.
"MATERIAL ADVERSE EFFECT" means a material adverse
effect on (a) the business, assets, operations, properties,
financial condition or liabilities (contingent or otherwise) of the
Borrower and its Subsidiaries taken as a whole, or (b) the rights
and remedies of any Agent or any Lender Party under any Transaction
Document; provided, however, that in no event shall the
Transactions, individually or in the aggregate, be deemed a Material
Adverse Effect.
<PAGE> 25
25
"MATERIAL CONTRACT" means, with respect to any Person,
each contract (or group of related contracts with the same party) to
which such Person is a party involving (i) the lease under which
such Person is lessee of, or holds or operates any personal property
owned by any other party, for which the annual rental exceeds
$1,000,000, (ii) the lease under which such Person is lessor of or
permits any third party to hold or operate any property, real or
personal, for which the annual rental exceeds $1,000,000, (iii) any
joint venture or partnership agreement, (iv) the acquisition of or
disposition of stock, assets or business with a value in excess of
$1,000,000, other than in the ordinary course of business, (v) the
license, as licensee or licensor, of any patent, trademark,
copyright or know-how for which the annual license fees and other
payments thereunder exceed $1,000,000, or (vi) the Designated
Material Contracts.
"MEASUREMENT PERIOD" means, at any date of
determination, the most recently completed four consecutive Fiscal
Quarters on or immediately prior to such date.
"MORTGAGE POLICIES" has the meaning specified in Section
5.01(q).
"MORTGAGES" has the meaning specified in Section
5.01(q).
"MULTIEMPLOYER PLAN" means a multiemployer plan, as
defined in Section 4001(a)(3) of ERISA, to which any Loan Party or
any ERISA Affiliate is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years
made or accrued an obligation to make contributions.
"MULTIPLE EMPLOYER PLAN" means a single employer plan,
as defined in Section 4001(a)(15) of ERISA, that (a) is maintained
for employees of any Loan Party or any ERISA Affiliate and at least
one Person other than the Loan Parties and the ERISA Affiliates or
(b) was so maintained and in respect of which any Loan Party or any
ERISA Affiliate could have liability under Section 4064 or 4069 of
ERISA in the event such plan has been or were to be terminated.
"NET CASH PROCEEDS" means, with respect to any sale,
lease, transfer or other disposition of any asset or the incurrence
or issuance of any Debt or the sale or issuance of any Equity
Interests (including, without limitation, any capital contribution)
by any Person, or any Extraordinary Receipt received by or paid to
or for the account of any Person, the aggregate amount of cash
received from time to time (whether as initial consideration or
through payment or disposition of deferred consideration) by or on
behalf of such Person in connection with such transaction after
deducting therefrom only (without duplication), the following: (a)
with respect to any asset sale, (i) the direct and indirect costs
relating to such asset sale (including sales commissions and legal,
accounting and investment banking fees) which are incurred by the
Borrower or any of its Subsidiaries, (ii) amounts applied to the
repayment of any Debt secured by a Lien on the
<PAGE> 26
26
asset subject to such asset sale, (iii) amounts required to be paid
to any Person (other than Borrower or any Subsidiary) owning a
beneficial interest in the assets subject to the asset sale; (iv)
liabilities of the entity, or relating to the business or assets,
sold, transferred or otherwise disposed of which are retained by
Borrower or the applicable Subsidiary, (v) appropriate amounts to be
provided by Borrower or any Subsidiary, as the case may be, as a
reserve in accordance with GAAP against any liabilities specifically
associated with such asset sale and retained by Borrower or any
Subsidiary, as the case may be, after such asset sale (but upon
reversal of such reserve, any amount so reversed shall thereupon
become Net Cash Proceeds); and (vi) the amount of taxes payable in
connection with or as a result of such transaction, in each case to
the extent, but only to the extent, that the amounts so deducted
are, at the time of receipt of such cash, actually paid to a Person
that is not an Affiliate of such Person or any Loan Party or any
Affiliate of any Loan Party and are properly attributable to such
transaction or to the asset that is the subject thereof; provided,
however, that in the case of taxes that are deductible under clause
(vi) above but for the fact that, at the time of receipt of such
cash, such taxes have not been actually paid or are not then
payable, such Loan Party or such Subsidiary may deduct an amount
(the "RESERVED AMOUNT") equal to the amount reserved in accordance
with GAAP for such Loan Party's or such Subsidiary's reasonable
estimate of such taxes, other than taxes for which such Loan Party
or such Subsidiary is indemnified, provided, further, however, that,
at the time such taxes are paid, an amount equal to the amount, if
any, by which the Reserved Amount for such taxes exceeds the amount
of such taxes actually paid shall constitute "Net Cash Proceeds" of
the type for which such taxes were reserved for all purposes
hereunder; (b) with respect to any issuance of Equity Interests or
Debt, the direct costs relating to such issuance (including sale and
underwriter's commissions and legal, accounting and investment
banking fees) incurred by the Borrower or any of its Subsidiaries;
and (c) with respect to any Extraordinary Receipt, the reasonable
costs incurred by the Borrower or any of its Subsidiaries to adjust
and/or recover such Extraordinary Receipt.
"NONRATABLE ASSIGNMENT" means an assignment by a Lender
Party pursuant to Section 8.07(a) of a portion of its rights and
obligations under this Agreement, other than an assignment of a
uniform, and not a varying, percentage of all of the rights and
obligations of such Lender Party under and in respect of all of the
Facilities (other than the Letter of Credit Facility and the Swing
Line Facility).
"NOTE" means a Term Note or a Revolving Credit Note.
"NOTE PURCHASE DATE" means the date which is (a) the
earlier of (i) the date on which the Borrower pays the purchase
price for all of the Senior Subordinated Notes which are tendered
pursuant to the Offer to Purchase and (ii) the date that is 60 days
following the Effective Date or (b) such later date prior to the
date that is 90 days
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27
following the Effective Date, as the Joint Lead Arrangers, the
Administrative Agent and the Borrower may agree.
"NOTICE OF BORROWING" has the meaning specified in
Section 2.02(a).
"NOTICE OF ISSUANCE" has the meaning specified in
Section 2.03(a).
"NOTICE OF RENEWAL" has the meaning specified in Section
2.01(e).
"NOTICE OF SWING LINE BORROWING" has the meaning
specified in Section 2.02(b).
"NOTICE OF TERMINATION" has the meaning specified in
Section 2.01(e).
"NPL" means the National Priorities List under CERCLA.
"OBLIGATION" means, with respect to any Person, any
payment, performance or other obligation of such Person of any kind,
including, without limitation, any liability of such Person on any
claim, whether or not the right of any creditor to payment in
respect of such claim is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, disputed, undisputed,
legal, equitable, secured or unsecured, and whether or not such
claim is discharged, stayed or otherwise affected by any proceeding
referred to in Section 6.01(f). Without limiting the generality of
the foregoing, the Obligations of any Loan Party under the Loan
Documents include (a) the obligation to pay principal, interest,
Letter of Credit commissions, charges, expenses, fees, attorneys'
fees and disbursements, indemnities and other amounts payable by
such Loan Party under any Loan Document and (b) the obligation of
such Loan Party to reimburse any amount in respect of any of the
foregoing that any Lender Party, in its sole discretion, may elect
to pay or advance on behalf of such Loan Party.
"OECD" means the Organization for Economic Cooperation
and Development.
"OFFER TO PURCHASE" has the meaning specified in the
Preliminary Statements.
"OFF-SITE GOODS" has the meaning specified in the
Security Agreement.
"OPEN YEAR" has the meaning specified in Section
4.01(r)(ii).
"OTHER TAXES" has the meaning specified in Section
2.12(b).
"PBGC" means the Pension Benefit Guaranty Corporation
(or any successor).
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28
"PERMITTED ACQUISITION" means (a) any purchase or other
acquisition by the Borrower or any of its Domestic Subsidiaries of
all the Equity Interests in any other Person in a transaction
effected pursuant to, and satisfying the requirements of, Section
5.02(g)(xiii), or (b) the purchase or acquisition by an existing
Domestic Subsidiary of the Borrower, or the organization of a new
Domestic Subsidiary by the Borrower or any of its existing Domestic
Subsidiaries for the purpose of purchasing or acquiring,
substantially all the assets of any Person or division or line of
business of any Person in a transaction effected pursuant to, and
satisfying the requirements of, Section 5.02(g)(xiii).
"PERMITTED ENCUMBRANCES" means with respect to any real
property of the Borrower or any of its Subsidiaries, easements,
rights-of-way, servitudes, covenants, restrictive covenants,
encumbrances, minor defects or irregularities in title and other
similar restrictions which (a) individually or in the aggregate, do
not materially interfere with the ordinary conduct of the businesses
of Borrower or its Subsidiary at the real estate to which they
relate, (b) do not materially impair for its intended purpose the
real property to which they relate, (c) in the case of any real
property subject to a Mortgage, shall be as set forth on a schedule
to such Mortgage and (d) shall encumber only the real property to
which they relate and no other material Collateral.
"PERMITTED LIENS" means such of the following as to
which no enforcement, collection, execution, levy or foreclosure
proceeding shall have been commenced: (a) Liens for taxes,
assessments and governmental charges or levies to the extent not
required to be paid under Section 5.01(b); (b) Liens imposed by law,
such as landlord's, materialmen's, mechanics', carriers', workmen's
and repairmen's Liens and other similar Liens arising in the
ordinary course of business securing obligations that (i) either are
not overdue for a period of more than 60 days or are being contested
in good faith by appropriate proceedings and (ii) individually or
together with all other Permitted Liens outstanding on any date of
determination do not materially adversely affect the use of the
property to which they relate; (c) pledges or deposits to secure
obligations under workers' compensation laws or similar legislation
or to secure public or statutory obligations; and (d) Permitted
Encumbrances.
"PERSON" means an individual, partnership, corporation
(including a business trust), limited liability company, joint stock
company, trust, unincorporated association, joint venture or other
entity, or a government or any political subdivision or agency
thereof.
"PLAN" means a Single Employer Plan or a Multiple
Employer Plan.
"PLEDGE AGREEMENT" has the meaning specified in Section
3.01(a)(iv).
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29
"PLEDGED DEBT" has the meaning specified in the Security
Agreement.
"POST-CLOSING PERFECTION DATE" has the meaning specified
in Section 5.01(q).
"PREFERRED INTERESTS" means, with respect to any Person,
Equity Interests issued by such Person that are entitled to a
preference or priority over any other Equity Interests issued by
such Person upon any distribution of such Person's property and
assets, whether by dividend or upon liquidation.
"PRO FORMA CONSOLIDATED EBITDA" means (a) with respect
to the Borrower at any date of determination, an amount equal to the
Consolidated EBITDA of the Borrower and its Subsidiaries for the
most recently completed Measurement Period for which the Borrower
has delivered financial statements pursuant to Section 5.03 and (b)
with respect to any other Person at any date of determination, an
amount equal to the Consolidated EBITDA of such Person and its
Subsidiaries for the most recently completed Measurement Period of
such Person prior to such date for which such Person has delivered
Consolidated financial statements for itself and its Subsidiaries in
form and scope reasonably satisfactory to the Joint Lead Arrangers;
provided that, with respect to any Permitted Acquisition or any
purchase or other acquisition of any property or assets of any
Person by the Borrower or any of its Subsidiaries pursuant to
Section 5.02(g) or any sale, lease, transfer or other disposition of
property or assets by the Borrower or any of its Subsidiaries
pursuant to Section 5.02(f) or otherwise, if the Borrower or any of
its Subsidiaries shall have purchased or otherwise acquired or shall
have sold, leased, transferred or otherwise disposed of any property
or assets at any time on or after the first day of any Measurement
Period, the Consolidated EBITDA of the Borrower and its Subsidiaries
for such Measurement Period shall be increased (in the case of each
such purchase or other acquisition) or reduced (in the case of each
such sale, lease, transfer or other disposition) by the Consolidated
EBITDA thereof that would have been contributed thereto by such
property or assets during such Measurement Period, as determined in
good faith by the Chief Financial Officer of the Borrower on a pro
forma basis as though the Borrower or the Subsidiary of the Borrower
that is effecting such transaction had purchased or otherwise
acquired or had sold, transferred or otherwise disposed of such
property or assets on the first day of such Measurement Period and
after giving effect to all of the pro forma cost savings to the
Borrower and its Subsidiaries that are to be recognized as a result
of such transaction during such Measurement Period (which, in the
case of any Permitted Acquisition, shall be those pro forma cost
savings to such Person (or the Borrower and its Subsidiaries)
realized upon the date of consummation of such transaction or which
management intends to implement within six months of the
consummation of such transaction, and which are reflected on the
itemized schedule of add-back adjustments to the Consolidated pro
forma income statement of the acquired
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30
Person and its Subsidiaries comprising part of the Acquisition
Diligence Report on such Person and its Subsidiaries).
"PRO FORMA INCREMENTAL INTEREST EXPENSE" means, with
respect to each Permitted Acquisition, for the first three
Measurement Periods ending after the date on which such Permitted
Acquisition is consummated, the product of (A)(B)(C) where:
(A)= total cash paid plus assumed Debt in such
Permitted Acquisition;
(B)= the per annum cost of Debt used for such
Permitted Acquisition; and
(C)= a fraction, the numerator of which is 360
minus the number of days since the date of
the consummation of such Permitted
Acquisition and the denominator of which is
equal to 360.
"PRO FORMA INTEREST EXPENSE" means with respect to the
Borrower and its Subsidiaries for any Measurement Period the sum of
(a) Interest Expense for such Measurement Period plus (b) Pro Forma
Incremental Interest Expense for each Permitted Acquisition which
was consummated by the Borrower or one of its Subsidiaries during
such Measurement Period.
"PRO RATA SHARE" of any amount means, with respect to
any Lender under any Facility at any time, the product of any
applicable amount times a fraction the numerator of which is the
amount of such Lender's Commitment under such Facility at such time
(or, if the Commitments under such Facility shall have been
terminated pursuant to Section 2.05 or 6.01, such Lender's
Commitment under such Facility as in effect immediately prior to
such termination) and the denominator of which is the aggregate
Commitments under such Facility at such time (or, if the Commitments
under such Facility shall have been terminated pursuant to Section
2.05 or 6.01, the aggregate Commitments under such Facility as in
effect immediately prior to such termination).
"RECEIVABLES" means all Receivables referred to in
Section 1(c) of the Security Agreement.
"REDEEMABLE" means, with respect to any Equity Interest,
any Debt or any other right or Obligation, any such Equity Interest,
Debt, right or Obligation that (a) the issuer has undertaken to
redeem at a fixed or determinable date or dates, whether by
operation of a sinking fund or otherwise, or upon the occurrence of
a condition not solely within the control of the issuer or (b) is
redeemable at the option of the holder.
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31
"REDEMPTION" means the Redemption as such term is
defined and used in Section 1.04 of the Acquisition Agreement.
"REGISTER" has the meaning specified in Section 8.07(d).
"REGULATION U" means Regulation U of the Board of
Governors of the Federal Reserve System, as in effect from time to
time.
"REINVESTMENT DEFERRED AMOUNT" with respect to any
Reinvestment Event, the aggregate Net Cash Proceeds received by the
Borrower or any of its Subsidiaries in connection therewith that are
not applied to prepay the Term Advances or the Revolving Credit
Advances pursuant to Section 2.06(b)(ii)(A) as a result of the
delivery of a Reinvestment Notice.
"REINVESTMENT EVENT" any Asset Sale in respect of which
the Borrower has delivered a Reinvestment Notice.
"REINVESTMENT NOTICE" a written notice executed by an
officer of the Borrower stating that no Default or Event of Default
has occurred and is continuing and that the Borrower (directly or
indirectly through a Subsidiary) intends and expects to use all or a
specified portion of the Net Cash Proceeds of an Asset Sale to
acquire assets useful in its business.
"REINVESTMENT PREPAYMENT AMOUNT" with respect to any
Reinvestment Event, the Reinvestment Deferred Amount relating
thereto less any amount expended prior to the relevant Reinvestment
Prepayment Date to acquire asset useful in the Borrower's business.
"REINVESTMENT PREPAYMENT DATE" with respect to any
Reinvestment Event, the earlier of (a) the date occurring 265 days
after such Reinvestment Event and (b) the date on which the Borrower
shall have determined not to, or shall have otherwise ceased to,
acquire assets useful in the Borrower's business with all or any
portion of the relevant Reinvestment Deferred Amount.
"RELATED DOCUMENTS" means the Acquisition Agreement, the
Shareholders Agreements, the Management Agreement, the Subordinated
Debt Documents, the documents setting forth the terms of, and
effecting, the Offer to Purchase, and any intercompany notes issued
pursuant to Section 5.02(b)(i)(B).
"REQUIRED LENDERS" means, at any time, Lenders owed or
holding at least a majority in interest of the sum of (a) the
aggregate principal amount of the Advances
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32
outstanding at such time, (b) the aggregate Available Amount of all
Letters of Credit outstanding at such time, (c) the aggregate unused
Commitments under the Term Facilities at such time and (d) the
aggregate Unused Revolving Credit Commitments at such time;
provided, however, that if any Lender shall be a Defaulting Lender
at such time, there shall be excluded from the determination of
Required Lenders at such time (A) the aggregate principal amount of
the Advances owing to such Lender (in its capacity as a Lender) and
outstanding at such time, (B) such Lender's Pro Rata Share of the
aggregate Available Amount of all Letters of Credit outstanding at
such time, (C) the aggregate unused Term Commitments of such Lender
at such time and (D) the Unused Revolving Credit Commitment of such
Lender at such time. For purposes of this definition, the aggregate
principal amount of Swing Line Advances owing to the Swing Line Bank
and of Letter of Credit Advances owing to the Issuing Bank and the
Available Amount of each Letter of Credit shall be considered to be
owed to the Revolving Credit Lenders ratably in accordance with
their respective Revolving Credit Commitments.
"RESPONSIBLE OFFICER" means the Chairman or any officer
of any Loan Party or any of its Subsidiaries.
"REVOLVING CREDIT ADVANCE" has the meaning specified in
Section 2.01(c).
"REVOLVING CREDIT BORROWING" means a borrowing
consisting of simultaneous Revolving Credit Advances of the same
Type made by the Revolving Credit Lenders.
"REVOLVING CREDIT COMMITMENT" means, with respect to any
Revolving Credit Lender at any time, the amount set forth opposite
such Lender's name on Schedule I hereto under the caption "Revolving
Credit Commitment" or, if such Lender has entered into one or more
Assignment and Acceptances, set forth for such Lender in the
Register maintained by the Administrative Agent pursuant to Section
8.07(d) as such Lender's "Revolving Credit Commitment", as such
amount may be reduced at or prior to such time pursuant to Section
2.05.
"REVOLVING CREDIT FACILITY" means, at any time, the
aggregate amount of the Revolving Credit Lenders' Revolving Credit
Commitments at such time.
"REVOLVING CREDIT LENDER" means any Lender that has a
Revolving Credit Commitment.
"REVOLVING CREDIT NOTE" means a promissory note of the
Borrower payable to the order of any Revolving Credit Lender, in
substantially the form of Exhibit A-1 hereto, evidencing the
aggregate indebtedness of the Borrower to such Lender resulting from
the
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33
Revolving Credit Advances, Letter of Credit Advances and Swing Line
Advances made by such Lender, as amended.
"SECURED HEDGE AGREEMENT" means any Hedge Agreement
required or permitted under Article V that is entered into by and
between the Borrower and any Hedge Bank.
"SECURED OBLIGATIONS" has the meaning specified in
Section 2 of the Security Agreement.
"SECURED PARTIES" means the Agents, the Lender Parties
and the Hedge Banks.
"SECURITY AGREEMENT" has the meaning specified in
Section 3.01(a)(ii).
"SELLER" has the meaning specified in the Preliminary
Statements.
"SENIOR DEBT/EBITDA RATIO" means, at any date of
determination, the ratio of (a) the sum of (i) Consolidated total
Debt for Borrowed Money of the Borrower and its Subsidiaries less
(ii) Subordinated Debt, in each case, as at the end of the most
recently ended fiscal quarter of the Borrower for which financial
statements are required to be delivered to the Lender Parties
pursuant to Section 5.03(b) or (c), as the case may be, to (b) Pro
Forma Consolidated EBITDA of the Borrower and its Subsidiaries for
such fiscal quarter and the immediately preceding three fiscal
quarters.
"SENIOR SUBORDINATED NOTE INDENTURE" has the meaning
specified in the Preliminary Statements.
"SENIOR SUBORDINATED NOTES" has the meaning specified in
the Preliminary Statements.
"SENIOR SUBORDINATED NOTE TRUSTEE" has the meaning
specified in the Preliminary Statements.
"SHAREHOLDERS AGREEMENTS" means (a) the Amended and
Restated Shareholders Agreement dated as of December 14, 1999, as
amended through the Effective Date, among SSCI Investors, the
Seller, the Borrower and the other shareholders of the Borrower
immediately prior to the Acquisition and (b) the Shareholders
Agreement dated as of December 29, 1999, among the SSCI Investors,
certain members of the management of the Borrower and its
Subsidiaries and the Borrower, in each case, as amended, to the
extent permitted under the Loan Documents.
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34
"SINGLE EMPLOYER PLAN" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of any Loan Party or any ERISA Affiliate and no Person
other than the Loan Parties and the ERISA Affiliates or (b) was so
maintained and in respect of which any Loan Party or any ERISA
Affiliate could have liability under Section 4069 of ERISA in the
event such plan has been or were to be terminated.
"SOLVENT" and "SOLVENCY" mean, with respect to any
Person on a particular date, that on such date (a) the fair value of
the property of such Person is greater than the total amount of
liabilities, including, without limitation, contingent liabilities,
of such Person, (b) the present fair salable value of the assets of
such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become
absolute and matured, (c) such Person does not intend to, and does
not believe that it will, incur debts or liabilities beyond such
Person's ability to pay such debts and liabilities as they mature
and (d) such Person is not engaged in business or a transaction, and
is not about to engage in business or a transaction, for which such
Person's property would constitute an unreasonably small capital.
The amount of contingent liabilities at any time shall be computed
as the amount that, in the light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be
expected to become an actual or matured liability.
"SPONSOR" has the meaning specified in the Preliminary
Statements.
"SSCI INVESTORS" has the meaning specified in the
Preliminary Statements.
"STANDBY LETTER OF CREDIT" means any Letter of Credit
issued under the Letter of Credit Facility, other than a Trade
Letter of Credit.
"SUBORDINATED DEBT" means the Senior Subordinated Notes
and any other Debt of any Loan Party that is subordinated to the
Obligations of such Loan Party under the Loan Documents on, and that
otherwise contains, terms and conditions satisfactory to the
Required Lenders.
"SUBORDINATED DEBT DOCUMENTS" means the Indenture, the
Senior Subordinated Notes and all other agreements, indentures and
instruments pursuant to which Subordinated Debt is issued, in each
case as amended, to the extent permitted under the Loan Documents.
"SUBSIDIARY" of any Person means any corporation,
partnership, joint venture, limited liability company, trust or
estate of which (or in which) more than 50% of the issued and
outstanding capital stock or other ownership interests having
ordinary voting
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35
power to elect a majority of the Board of Directors or other
managers of such corporation or other entity (irrespective of
whether at the time interests of any other class or classes of such
entity shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its
other Subsidiaries or by one or more of such Person's other
Subsidiaries.
"SUBSIDIARY GUARANTORS" means the Subsidiaries of the
Borrower listed on Schedule II hereto and each other Subsidiary of
the Borrower that shall be required to execute and deliver a
guaranty pursuant to Section 5.01(j).
"SUBSIDIARY GUARANTY" has the meaning specified in
Section 3.01(a)(iii).
"SURVIVING DEBT" means Debt of each Loan Party and its
Subsidiaries outstanding immediately before and after giving effect
to the Transaction.
"SWING LINE ADVANCE" means an advance made by (a) the
Swing Line Bank pursuant to Section 2.01(d) or (b) any Revolving
Credit Lender pursuant to Section 2.02(b).
"SWING LINE BANK" means Chase.
"SWING LINE BORROWING" means a borrowing consisting of a
Swing Line Advance made by the Swing Line Bank pursuant to Section
2.01(d) or the Revolving Credit Lenders pursuant to Section 2.02(b).
"SWING LINE FACILITY" has the meaning specified in
Section 2.01(d).
"TAXES" has the meaning specified in Section 2.12(a).
"TERM A ADVANCE" has the meaning specified in Section
2.01(a).
"TERM A BORROWING" means a borrowing consisting of
simultaneous Term A Advances of the same Type made by the Term A
Lenders.
"TERM A COMMITMENT" means, with respect to any Term A
Lender at any time, the amount set forth opposite such Lender's name
on Schedule I hereto under the caption "Term A Commitment" or, if
such Lender has entered into one or more Assignment and Acceptances,
set forth for such Lender in the Register maintained by the
Administrative Agent pursuant to Section 9.07(d) as such Lender's
"Term A Commitment", as such amount may be reduced at or prior to
such time pursuant to Section 2.05.
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"TERM ADVANCE" means a Term A Advance or a Term B
Advance.
"TERM A FACILITY" means, at any time, the aggregate
amount of the Term A Lenders' Term A Commitments at such time.
"TERM A LENDER" means any Lender that has a Term A
Commitment.
"TERM A NOTE" means a promissory note of the Borrower
payable to the order of any Term A Lender, in substantially the form
of Exhibit A-2 hereto, evidencing the indebtedness of the Borrower
to such Lender resulting from the Term A Advances made by such
Lender, as amended.
"TERM B ADVANCE" has the meaning specified in Section
2.01(b).
"TERM B BORROWING" means a borrowing consisting of
simultaneous Term B Advances of the same Type made by the Term B
Lenders.
"TERM B COMMITMENT" means, with respect to any Term B
Lender at any time, the amount set forth opposite such Lender's name
on Schedule I hereto under the caption "Term B Commitment" or, if
such Lender has entered into one or more Assignment and Acceptances,
set forth for such Lender in the Register maintained by the
Administrative Agent pursuant to Section 9.07(d) as such Lender's
"Term B Commitment", as such amount may be reduced at or prior to
such time pursuant to Section 2.05.
"TERM B FACILITY" means, at any time, the aggregate
amount of the Term B Lenders' Term B Commitments at such time.
"TERM B LENDER" means any Lender that has a Term B
Commitment.
"TERM B NOTE" means a promissory note of the Borrower
payable to the order of any Term B Lender, in substantially the form
of Exhibit A-3 hereto, evidencing the indebtedness of the Borrower
to such Lender resulting from the Term B Advances made by such
Lender, as amended.
"TERM BORROWING" means any Term A Borrowing or Term B
Borrowing.
"TERM COMMITMENT" means any Term A Commitment or Term B
Commitment.
"TERM FACILITY" means the Term A Facility or Term B
Facility.
"TERMINATION DATE" means the earlier of (a) the date of
termination in whole of the Revolving Credit Commitments, the Letter
of Credit Commitment and the Term
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37
Commitments pursuant to Section 2.05 or 6.01 and (b) (i) for
purposes of the Revolving Credit Facility and the Letter of Credit
Facility, the sixth anniversary of the Effective Date, (ii) for
purposes of the Term A Facility, the sixth anniversary of the
Effective Date and (iii) for purposes of the Term B Facility and for
all other purposes, the seventh anniversary of the Effective Date.
"TERM LENDER" means any Term A Lender or Term B Lender.
"TERM NOTE" means any Term A Note or Term B Note.
"TOTAL DEBT/EBITDA RATIO" means, at any date of
determination, the ratio of (a) Consolidated total Debt for Borrowed
Money of the Borrower and its Subsidiaries as at the end of the most
recently ended fiscal quarter of the Borrower for which financial
statements are required to be delivered to the Lender Parties
pursuant to Section 5.03(b) or (c), as the case may be, to (b) Pro
Forma Consolidated EBITDA of the Borrower and its Subsidiaries for
such fiscal quarter and the immediately preceding three fiscal
quarters.
"TRADE LETTER OF CREDIT" means any Letter of Credit that
is issued under the Letter of Credit Facility for the benefit of a
supplier of Inventory to the Borrower or any of its Subsidiaries to
effect payment for such Inventory, the conditions to drawing under
which include the presentation to the Issuing Bank of negotiable
bills of lading, invoices and related documents sufficient, in the
judgment of the Issuing Bank, to create a valid and perfected lien
on or security interest in such Inventory, bills of lading, invoices
and related documents in favor of the Issuing Bank.
"TRANSACTION" means the Redemption, the Acquisition, the
Offer to Purchase and the other transactions contemplated by the
Transaction Documents.
"TRANSACTION DOCUMENTS" means, collectively, the Loan
Documents and the Related Documents.
"TYPE" refers to the distinction between Advances
bearing interest at the Base Rate and Advances bearing interest at
the Eurodollar Rate.
"UNUSED REVOLVING CREDIT COMMITMENT" means, with respect
to any Revolving Credit Lender at any time, (a) such Lender's
Revolving Credit Commitment at such time minus (b) the sum of (i)
the aggregate principal amount of all Revolving Credit Advances,
Swing Line Advances and Letter of Credit Advances made by such
Lender (in its capacity as a Lender) and outstanding at such time
plus (ii) such Lender's Pro Rata Share of (A) the aggregate
Available Amount of all Letters of Credit outstanding at such
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38
time, (B) the aggregate principal amount of all Letter of Credit
Advances made by the Issuing Bank pursuant to Section 2.03(c) and
outstanding at such time and (C) the aggregate principal amount of
all Swing Line Advances made by the Swing Line Bank pursuant to
Section 2.01(d) and outstanding at such time.
"VOTING INTERESTS" means shares of capital stock issued
by a corporation, or equivalent Equity Interests in any other
Person, the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for the election of directors (or
persons performing similar functions) of such Person, even if the
right so to vote has been suspended by the happening of such a
contingency.
"WELFARE PLAN" means a welfare plan, as defined in
Section 3(1) of ERISA, that is maintained for employees of any Loan
Party or in respect of which any Loan Party could have liability.
"WITHDRAWAL LIABILITY" has the meaning specified in Part
I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Computation of Time Periods; Other Definitional
Provisions. In this Agreement and the other Loan Documents in the computation of
periods of time from a specified date to a later specified date, the word "FROM"
means "from and including" and the words "TO" and "UNTIL" each mean "to but
excluding". References in the Loan Documents to any agreement or contract "AS
AMENDED" shall mean and be a reference to such agreement or contract as amended,
amended and restated, supplemented or otherwise modified from time to time in
accordance with its terms.
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of the financial statements referred to in Section 4.01(g) ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT
SECTION 2.01. Advances and Letters of Credit. (a) Term A Advances.
Each Term A Lender severally agrees, on the terms and conditions hereinafter set
forth, to make advances (each a "TERM A ADVANCE") to the Borrower on any
Business Day during the period from the date on which all the Term B Commitments
shall have been fully drawn or terminated
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39
until the date that occurs eighteen (18) month after the Effective Date, in an
amount not to exceed such Lender's Term A Commitment at such time. Each Term A
Borrowing shall consist of Term A Advances made simultaneously by the Term A
Lenders ratably according to their Term A Commitments. Amounts borrowed under
this Section 2.01(a) and repaid or prepaid may not be reborrowed.
(b) Term B Advances. Each Term B Lender severally agrees, on
the terms and conditions hereinafter set forth, to make advances (each a "TERM B
ADVANCE") to the Borrower on any Business Day during the period from the
Effective Date until the Note Purchase Date, in an amount not to exceed such
Lender's Term B Commitment at such time. Each Term B Borrowing shall consist of
Term B Advances made simultaneously by the Term B Lenders ratably according to
their Term B Commitments. Amounts borrowed under this Section 2.01(b) and repaid
or prepaid may not be reborrowed.
(c) Revolving Credit Advances. Each Revolving Credit Lender
severally agrees, on the terms and conditions hereinafter set forth, to make
advances (each a "REVOLVING CREDIT ADVANCE") to the Borrower from time to time
on any Business Day during the period from the Effective Date until the
Termination Date in an amount for each such Advance not to exceed such Lender's
Unused Revolving Credit Commitment at such time. Each Revolving Credit Borrowing
shall be in an aggregate amount of $1,000,000 or an integral multiple of
$1,000,000 in excess thereof (other than a Borrowing the proceeds of which shall
be used solely to repay or prepay in full outstanding Swing Line Advances or
outstanding Letter of Credit Advances) and shall consist of Revolving Credit
Advances made simultaneously by the Revolving Credit Lenders ratably according
to their Revolving Credit Commitments. Within the limits of each Revolving
Credit Lender's Unused Revolving Credit Commitment in effect from time to time,
the Borrower may borrow under this Section 2.01(c), prepay pursuant to Section
2.06(a) and reborrow under this Section 2.01(c). Revolving Credit Borrowings
shall also be subject to the following additional limitations: (i) a Revolving
Credit Borrowing of not more than $15 million may be requested to be made
available on the Effective Date; (ii) no Revolving Credit Borrowing may be
requested to fund any portion of the purchase price to be paid by the Borrower
or any of its Subsidiaries in connection with a Permitted Acquisition on any
date that any Term A Commitments remain undrawn; and (iii) during the period
until the Termination Date, not more than an aggregate of $25 million of
Revolving Credit Borrowings may be requested to fund the purchase price of
Permitted Acquisitions.
(d) Swing Line Advances. The Swing Line Bank agrees to make,
on the terms and conditions hereinafter set forth, Swing Line Advances to the
Borrower from time to time on any Business Day during the period from the
Effective Date until the Termination Date (i) in an aggregate amount not to
exceed at any time outstanding $10,000,000 (the "SWING LINE FACILITY") and (ii)
in an amount for each such Swing Line Borrowing not to exceed the aggregate of
the Unused Revolving Credit Commitments of the Revolving Credit Lenders at such
time. No
<PAGE> 40
40
Swing Line Advance shall be used for the purpose of funding the payment of
principal of any other Swing Line Advance. Each Swing Line Borrowing shall be in
an amount of $1,000,000 or an integral multiple of $500,000 in excess thereof
and shall be made as a Base Rate Advance. Within the limits of the Swing Line
Facility and within the limits referred to in clause (ii) above, so long as the
Swing Line Bank, in its sole discretion, elects to make Swing Line Advances, the
Borrower may borrow under this Section 2.01(d), repay pursuant to Section
2.04(d) or prepay pursuant to Section 2.06(a) and reborrow under this Section
2.01(d).
(e) Letters of Credit. The Borrower, the Issuing Bank and each
of the Revolving Credit Lenders hereby agree that each of the Existing Letters
of Credit shall, on and after the Effective Date, continue as and be deemed for
all purposes of this Agreement to be a Letter of Credit issued and outstanding
under the terms of this Agreement. The Issuing Bank agrees, on the terms and
conditions hereinafter set forth, to issue (or cause its Affiliate that is a
commercial bank to issue on its behalf) letters of credit (the "LETTERS OF
CREDIT") for the account of the Borrower from time to time on any Business Day
during the period from the date hereof until 60 days before the Termination Date
in an aggregate Available Amount (i) for all Letters of Credit not to exceed at
any time the lesser of (x) the Letter of Credit Facility at such time and (y)
the Issuing Bank's Letter of Credit Commitment at such time and (ii) for each
such Letter of Credit not to exceed an amount equal to the Unused Revolving
Credit Commitments of the Revolving Credit Lenders at such time. No Letter of
Credit shall have an expiration date (including all rights of the Borrower or
the beneficiary to require renewal) later than the earlier of 20 days before the
Termination Date and (A) in the case of a Standby Letter of Credit, one year
after the date of issuance thereof, but may by its terms be renewable annually
upon notice (a "NOTICE OF RENEWAL") given to the Issuing Bank and the
Administrative Agent on or prior to any date for notice of renewal set forth in
such Letter of Credit but in any event at least three Business Days prior to the
date of the proposed renewal of such Standby Letter of Credit and upon
fulfillment of the applicable conditions set forth in Article III unless the
Issuing Bank has notified the Borrower (with a copy to the Administrative Agent)
on or prior to the date for notice of termination set forth in such Letter of
Credit but in any event at least 10 Business Days prior to the date of automatic
renewal of its election not to renew such Standby Letter of Credit (a "NOTICE OF
TERMINATION") and (B) in the case of a Trade Letter of Credit, 180 days after
the date of issuance thereof; provided that the terms of each Standby Letter of
Credit that is automatically renewable annually shall (x) require the Issuing
Bank to give the beneficiary named in such Standby Letter of Credit notice of
any Notice of Termination, (y) permit such beneficiary, upon receipt of such
notice, to draw under such Standby Letter of Credit prior to the date such
Standby Letter of Credit otherwise would have been automatically renewed and (z)
not permit the expiration date (after giving effect to any renewal) of such
Standby Letter of Credit in any event to be extended to a date later than 20
days before the Termination Date. If either a Notice of Renewal is not given by
the Borrower or a Notice of Termination is given by the Issuing Bank pursuant to
the immediately preceding sentence, such Standby Letter of Credit shall expire
on the date on which it otherwise would have been automatically renewed;
provided, however, that even
<PAGE> 41
41
in the absence of receipt of a Notice of Renewal the Issuing Bank may in its
discretion, unless instructed to the contrary by the Administrative Agent or the
Borrower, deem that a Notice of Renewal had been timely delivered and in such
case, a Notice of Renewal shall be deemed to have been so delivered for all
purposes under this Agreement. Each Standby Letter of Credit shall contain a
provision authorizing the Issuing Bank to deliver to the beneficiary of such
Letter of Credit, upon the occurrence and during the continuance of an Event of
Default, a notice (a "DEFAULT TERMINATION NOTICE") terminating such Letter of
Credit and giving such beneficiary 15 days to draw such Letter of Credit. Within
the limits of the Letter of Credit Facility, and subject to the limits referred
to above, the Borrower may request the issuance of Letters of Credit under this
Section 2.01(e), repay any Letter of Credit Advances resulting from drawings
thereunder pursuant to Section 2.03(c) and request the issuance of additional
Letters of Credit under this Section 2.01(e).
SECTION 2.02. Making the Advances. (a) Except as otherwise provided
in Section 2.02(b) or 2.03, each Borrowing shall be made on notice, given not
later than 11:00 A.M. (New York City time) on the third Business Day prior to
the date of the proposed Borrowing in the case of a Borrowing consisting of
Eurodollar Rate Advances, or the first Business Day prior to the date of the
proposed Borrowing in the case of a Borrowing consisting of Base Rate Advances,
by the Borrower to the Administrative Agent, which shall give to each
Appropriate Lender prompt notice thereof by telex or telecopier. Each such
notice of a Borrowing (a "NOTICE OF BORROWING") shall be by telephone, confirmed
immediately in writing, or telex or telecopier, in substantially the form of
Exhibit B hereto, specifying therein the requested (i) date of such Borrowing,
(ii) Facility under which such Borrowing is to be made, (iii) Type of Advances
comprising such Borrowing, (iv) aggregate amount of such Borrowing, (v) in the
case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest
Period for each such Advance and (vi) if any portion of such Borrowing is
proposed to be used to pay the purchase price of any Permitted Acquisitions, the
portion of such Borrowing, and the cash and Cash Equivalent of the Borrower and
its Subsidiaries on the date of such Notice of Borrowing, proposed to be used to
pay such purchase price of such Permitted Acquisition. Each Appropriate Lender
shall, before 11:00 A.M. (New York City time) on the date of such Borrowing,
make available for the account of its Applicable Lending Office to the
Administrative Agent at the Administrative Agent's Account, in same day funds,
such Lender's ratable portion of such Borrowing in accordance with the
respective Commitments under the applicable Facility of such Lender and the
other Appropriate Lenders. After the Administrative Agent's receipt of such
funds and upon fulfillment of the applicable conditions set forth in Article
III, the Administrative Agent will make such funds available to the Borrower by
crediting the Borrower's Account; provided, however, that, in the case of any
Revolving Credit Borrowing, the Administrative Agent shall first make a portion
of such funds equal to the aggregate principal amount of any Swing Line Advances
and Letter of Credit Advances made by the Swing Line Bank or the Issuing Bank,
as the case may be, and by any other Revolving Credit Lender and outstanding on
the date of such Revolving Credit Borrowing, plus interest accrued and unpaid
thereon to and as of such date,
<PAGE> 42
42
available to the Swing Line Bank or the Issuing Bank, as the case may be, and
such other Revolving Credit Lenders for repayment of such Swing Line Advances
and Letter of Credit Advances.
(b) Each Swing Line Borrowing shall be made on notice, given
not later than 11:00 A.M. (New York City time) on the date of the proposed Swing
Line Borrowing, by the Borrower to the Swing Line Bank and the Administrative
Agent. Each such notice of a Swing Line Borrowing (a "NOTICE OF SWING LINE
BORROWING") shall be by telephone, confirmed immediately in writing, or telex or
telecopier, specifying therein the requested (i) date of such Borrowing, (ii)
amount of such Borrowing and (iii) maturity of such Borrowing (which maturity
shall be no later than the seventh day after the requested date of such
Borrowing). The Swing Line Bank will make the amount thereof available to the
Administrative Agent at the Administrative Agent's Account, in same day funds.
After the Administrative Agent's receipt of such funds and upon fulfillment of
the applicable conditions set forth in Article III, the Administrative Agent
will make such funds available to the Borrower by crediting the Borrower's
Account. Upon written demand by the Swing Line Bank, with a copy of such demand
to the Administrative Agent, each other Revolving Credit Lender shall purchase
from the Swing Line Bank, and the Swing Line Bank shall sell and assign to each
such other Revolving Credit Lender, such other Lender's Pro Rata Share of such
outstanding Swing Line Advance as of the date of such demand, by making
available for the account of its Applicable Lending Office to the Administrative
Agent for the account of the Swing Line Bank, by deposit to the Administrative
Agent's Account, in same day funds, an amount equal to the portion of the
outstanding principal amount of such Swing Line Advance to be purchased by such
Lender. The Borrower hereby agrees to each such sale and assignment. Each
Revolving Credit Lender agrees to purchase its Pro Rata Share of an outstanding
Swing Line Advance on (i) the Business Day on which demand therefor is made by
the Swing Line Bank, provided that notice of such demand is given not later than
11:00 A.M. (New York City time) on such Business Day or (ii) the first Business
Day next succeeding such demand if notice of such demand is given after such
time. Upon any such assignment by the Swing Line Bank to any other Revolving
Credit Lender of a portion of a Swing Line Advance, the Swing Line Bank
represents and warrants to such other Lender that the Swing Line Bank is the
legal and beneficial owner of such interest being assigned by it, but makes no
other representation or warranty and assumes no responsibility with respect to
such Swing Line Advance, the Loan Documents or any Loan Party. If and to the
extent that any Revolving Credit Lender shall not have so made the amount of
such Swing Line Advance available to the Administrative Agent, such Revolving
Credit Lender agrees to pay to the Administrative Agent forthwith on demand such
amount together with interest thereon, for each day from the date of demand by
the Swing Line Bank until the date such amount is paid to the Administrative
Agent, at the Federal Funds Rate. If such Lender shall pay to the Administrative
Agent such amount for the account of the Swing Line Bank on any Business Day,
such amount so paid in respect of principal shall constitute a Swing Line
Advance made by such Lender on such Business Day for purposes of this Agreement,
and the outstanding principal amount of the
<PAGE> 43
43
Swing Line Advance made by the Swing Line Bank shall be reduced by such amount
on such Business Day.
(c) Anything in subsection (a) above to the contrary
notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for
the initial Borrowing hereunder and for the period from the date hereof to
January 6, 2000 (or such earlier date as shall be specified in its sole
discretion by the Administrative Agent in a written notice to the Borrower and
the Lenders) or for any Borrowing if the aggregate amount of such Borrowing is
less than $1,000,000 or if the obligation of the Appropriate Lenders to make
Eurodollar Rate Advances shall then be suspended pursuant to Section 2.09 or
2.10 and (ii) the Advances may not be outstanding as part of more than 10
separate Borrowings.
(d) Each Notice of Borrowing and Notice of Swing Line
Borrowing shall be irrevocable and binding on the Borrower. In the case of any
Borrowing that the related Notice of Borrowing specifies is to be comprised of
Eurodollar Rate Advances, the Borrower shall indemnify each Appropriate Lender
against any loss, cost or expense incurred by such Lender as a result of any
failure to fulfill on or before the date specified in such Notice of Borrowing
for such Borrowing the applicable conditions set forth in Article III,
including, without limitation, any loss (including loss of anticipated profits),
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Lender to fund the Advance to be made
by such Lender as part of such Borrowing when such Advance, as a result of such
failure, is not made on such date.
(e) Unless the Administrative Agent shall have received notice
from an Appropriate Lender prior to the date of any Borrowing under a Facility
under which such Lender has a Commitment that such Lender will not make
available to the Administrative Agent such Lender's ratable portion of such
Borrowing, the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the date of such Borrowing in
accordance with subsection (a) of this Section 2.02 and the Administrative Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Lender shall not
have so made such ratable portion available to the Administrative Agent, such
Lender and the Borrower severally agree to repay or pay to the Administrative
Agent forthwith on demand such corresponding amount and to pay interest thereon,
for each day from the date such amount is made available to the Borrower until
the date such amount is repaid or paid to the Administrative Agent, at (i) in
the case of the Borrower, the interest rate applicable at such time under
Section 2.07 to Advances comprising such Borrowing and (ii) in the case of such
Lender, the Federal Funds Rate. If such Lender shall pay to the Administrative
Agent such corresponding amount, such amount so paid shall constitute such
Lender's Advance as part of such Borrowing for all purposes.
<PAGE> 44
44
(f) The failure of any Lender to make the Advance to be made by it
as part of any Borrowing shall not relieve any other Lender of its obligation,
if any, hereunder to make its Advance on the date of such Borrowing, but no
Lender shall be responsible for the failure of any other Lender to make the
Advance to be made by such other Lender on the date of any Borrowing.
SECTION 2.03. Issuance of and Drawings and Reimbursement Under
Letters of Credit. (a) Request for Issuance. Each Letter of Credit shall be
issued upon notice, given not later than 11:00 A.M. (New York City time) on the
fifth Business Day prior to the date of the proposed issuance of such Letter of
Credit, by the Borrower to the Issuing Bank, which shall give to the
Administrative Agent and each Revolving Credit Lender prompt notice thereof by
telex or telecopier. Each such notice of issuance of a Letter of Credit (a
"NOTICE OF ISSUANCE") shall be by telephone, confirmed immediately in writing,
or telex or telecopier, specifying therein the requested (A) date of such
issuance (which shall be a Business Day), (B) Available Amount of such Letter of
Credit, (C) expiration date of such Letter of Credit, (D) name and address of
the beneficiary of such Letter of Credit and (E) form of such Letter of Credit,
and shall be accompanied by such application and agreement for letter of credit
as the Issuing Bank may specify to the Borrower for use in connection with such
requested Letter of Credit (a "LETTER OF CREDIT AGREEMENT"). If the requested
form of such Letter of Credit is acceptable to the Issuing Bank in its sole
discretion, the Issuing Bank will, upon fulfillment of the applicable conditions
set forth in Article III, make such Letter of Credit available to the Borrower
at its office referred to in Section 8.02 or as otherwise agreed with the
Borrower in connection with such issuance. In the event and to the extent that
the provisions of any Letter of Credit Agreement shall conflict with this
Agreement, the provisions of this Agreement shall govern.
(b) Letter of Credit Reports. The Issuing Bank shall furnish (A) to
the Administrative Agent on the first Business Day of each week a written report
summarizing issuance and expiration dates of Letters of Credit issued during the
previous week and drawings during such week under all Letters of Credit, (B) to
each Revolving Credit Lender on the first Business Day of each month a written
report summarizing issuance and expiration dates of Letters of Credit issued
during the preceding month and drawings during such month under all Letters of
Credit and (C) to the Administrative Agent and each Revolving Credit Lender on
the first Business Day of each calendar quarter a written report setting forth
the average daily aggregate Available Amount during the preceding calendar
quarter of all Letters of Credit.
(c) Drawing and Reimbursement. The payment by the Issuing Bank of a
draft drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by the Issuing Bank of a Letter of Credit Advance, which
shall be a Base Rate Advance, in the amount of such draft. Upon written demand
by the Issuing Bank, with a copy of such demand to the Administrative Agent,
each Revolving Credit Lender shall purchase from the Issuing Bank, and the
Issuing Bank shall sell and assign to each such Revolving Credit Lender, such
Lender's
<PAGE> 45
45
Pro Rata Share of such outstanding Letter of Credit Advance as of the date of
such purchase, by making available for the account of its Applicable Lending
Office to the Administrative Agent for the account of the Issuing Bank, by
deposit to the Administrative Agent's Account, in same day funds, an amount
equal to the portion of the outstanding principal amount of such Letter of
Credit Advance to be purchased by such Lender. Promptly after receipt thereof,
the Administrative Agent shall transfer such funds to the Issuing Bank. The
Borrower hereby agrees to each such sale and assignment. Each Revolving Credit
Lender agrees to purchase its Pro Rata Share of an outstanding Letter of Credit
Advance on (i) the Business Day on which demand therefor is made by the Issuing
Bank, provided that notice of such demand is given not later than 11:00 A.M.
(New York City time) on such Business Day, or (ii) the first Business Day next
succeeding such demand if notice of such demand is given after such time. Upon
any such assignment by the Issuing Bank to any Revolving Credit Lender of a
portion of a Letter of Credit Advance, the Issuing Bank represents and warrants
to such other Lender that the Issuing Bank is the legal and beneficial owner of
such interest being assigned by it, free and clear of any liens, but makes no
other representation or warranty and assumes no responsibility with respect to
such Letter of Credit Advance, the Loan Documents or any Loan Party. If and to
the extent that any Revolving Credit Lender shall not have so made the amount of
such Letter of Credit Advance available to the Administrative Agent, such
Revolving Credit Lender agrees to pay to the Administrative Agent forthwith on
demand such amount together with interest thereon, for each day from the date of
demand by the Issuing Bank until the date such amount is paid to the
Administrative Agent, at the Federal Funds Rate for its account or the account
of the Issuing Bank, as applicable. If such Lender shall pay to the
Administrative Agent such amount for the account of the Issuing Bank on any
Business Day, such amount so paid in respect of principal shall constitute a
Letter of Credit Advance made by such Lender on such Business Day for purposes
of this Agreement, and the outstanding principal amount of the Letter of Credit
Advance made by the Issuing Bank shall be reduced by such amount on such
Business Day.
(d) Failure to Make Letter of Credit Advances. The failure of any
Lender to make the Letter of Credit Advance to be made by it on the date
specified in Section 2.03(c) shall not relieve any other Lender of its
obligation hereunder to make its Letter of Credit Advance on such date, but no
Lender shall be responsible for the failure of any other Lender to make the
Letter of Credit Advance to be made by such other Lender on such date.
SECTION 2.04. Repayment of Advances. (a) Term A Advances. The
Borrower shall repay to the Administrative Agent for the ratable account of the
Term A Lenders the aggregate outstanding principal amount of the Term A Advances
in an amount on each of the following dates equal to the percentage indicated
for such date of the aggregate principal amount of Term A Advances which are
outstanding on the eighteen (18) month anniversary of the Effective Date (which
installment amounts shall be reduced as a result of the application of
prepayments in accordance with Section 2.06):
<PAGE> 46
46
<TABLE>
<CAPTION>
Date Percentage
---- ----------
<S> <C>
March 31, 2001 0%
June 30, 2001 0%
September 30, 2001 5%
December 31, 2001 5%
March 31, 2002 5%
June 30, 2002 5%
September 30, 2002 5%
December 31, 2002 5%
March 31, 2003 5%
June 30, 2003 5%
September 30, 2003 5%
December 31, 2003 5%
March 31, 2004 6.25%
June 30, 2004 6.25%
September 30, 2004 6.25%
December 31, 2004 6.25%
March 31, 2005 6.25%
June 30, 2005 6.25%
September 30, 2005 6.25%
Termination Date 6.25%
</TABLE>
provided, however, that the final principal installment shall be repaid on the
Termination Date and in any event shall be in an amount equal to the aggregate
principal amount of the Term A Advances outstanding on such date.
(b) Term B Advances. The Borrower shall repay to the Administrative
Agent for the ratable account of the Term B Lenders the aggregate outstanding
principal amount of the Term B Advances in an amount on each of the following
dates equal to the percentage indicated for such date of the aggregate principal
amount of the Term B Advances which are outstanding on the Note Purchase Date
(which installment amounts shall be reduced as a result of the application of
prepayments in accordance with the order of priority set forth in Section 2.06):
<TABLE>
<CAPTION>
Date Percentage
---- ----------
<S> <C>
March 31, 2001 0.25%
June 30, 2001 0.25%
</TABLE>
<PAGE> 47
47
<TABLE>
<CAPTION>
Date Percentage
---- ----------
<S> <C>
September 30, 2001 0.25%
December 31, 2001 0.25%
March 31, 2002 0.25%
June 30, 2002 0.25%
September 30, 2002 0.25%
December 31, 2002 0.25%
March 31, 2003 0.25%
June 30, 2003 0.25%
September 30, 2003 0.25%
December 31, 2003 0.25%
March 31, 2004 0.25%
June 30, 2004 0.25%
September 30, 2004 0.25%
December 31, 2004 0.25%
March 31, 2005 0.25%
June 30, 2005 0.25%
September 30, 2005 0.25%
December 31, 2005 0.25%
March 31, 2006 23.75%
June 30, 2006 23.75%
September 30, 2006 23.75%
Termination Date 23.75%
</TABLE>
provided, however, that the final principal installment shall be repaid on the
Termination Date and in any event shall be in an amount equal to the aggregate
principal amount of the Term B Advances outstanding on such date.
(c) Revolving Credit Advances. The Borrower shall repay to the
Administrative Agent for the ratable account of the Revolving Credit Lenders on
the Termination Date the aggregate principal amount of the Revolving Credit
Advances then outstanding.
(d) Swing Line Advances. The Borrower shall repay to the
Administrative Agent for the account of the Swing Line Bank and each other
Revolving Credit Lender that has made a Swing Line Advance the outstanding
principal amount of each Swing Line Advance made by each of them on the earlier
of the maturity date specified in the applicable Notice of Swing Line Borrowing
(which maturity shall be no later than the seventh day after the requested date
of such Borrowing) and the Termination Date.
<PAGE> 48
48
(e) Letter of Credit Advances. (i) The Borrower shall repay to the
Administrative Agent for the account of the Issuing Bank and each other
Revolving Credit Lender that has made a Letter of Credit Advance on the earlier
of demand and the Termination Date the outstanding principal amount of each
Letter of Credit Advance made by each of them.
(ii) The Obligations of the Borrower under this Agreement, any
Letter of Credit Agreement and any other agreement or instrument relating to any
Letter of Credit shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement, such Letter of Credit
Agreement and such other agreement or instrument under all circumstances,
including, without limitation, the following circumstances(it being understood
that any such payment by the Borrower is without prejudice to, and does not
constitute a waiver of, any rights the Borrower might have or might acquire as a
result of the payment by the Issuing Bank of any draft or the reimbursement by
the Borrower thereof):
(A) any lack of validity or enforceability of any Loan
Document, any Letter of Credit Agreement, any Letter of Credit or any
other agreement or instrument relating thereto (all of the foregoing
being, collectively, the "L/C RELATED DOCUMENTS");
(B) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations of the Borrower in
respect of any L/C Related Document or any other amendment or waiver of
or any consent to departure from all or any of the L/C Related
Documents;
(C) the existence of any claim, set-off, defense or other
right that the Borrower may have at any time against any beneficiary or
any transferee of a Letter of Credit (or any Persons for which any such
beneficiary or any such transferee may be acting), the Issuing Bank or
any other Person, whether in connection with the transactions
contemplated by the L/C Related Documents or any unrelated transaction;
(D) any statement or any other document presented under a
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(E) payment by the Issuing Bank under a Letter of Credit
against presentation of a draft or certificate that does not strictly
comply with the terms of such Letter of Credit;
(F) any exchange, release or non-perfection of any Collateral
or other collateral, or any release or amendment or waiver of or
consent to departure from the
<PAGE> 49
49
Guaranties or any other guarantee, for all or any of the Obligations
of the Borrower in respect of the L/C Related Documents; or
(G) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing, including, without limitation, any
other circumstance that might otherwise constitute a defense available
to, or a discharge of, the Borrower or a guarantor.
SECTION 2.05. Termination or Reduction of the Commitments. (a)
Optional. The Borrower may, upon at least three Business Days' notice to the
Administrative Agent, terminate in whole or reduce in part the unused portions
of the Term A Commitments, the Term B Commitments and the Letter of Credit
Facility and the Unused Revolving Credit Commitments; provided, however, that
each partial reduction of a Facility (i) shall be in an aggregate amount of
$5,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii)
shall be made ratably among the Appropriate Lenders in accordance with their
Commitments with respect to such Facility.
(b) Mandatory. (i) On the date that occurs eighteen months after the
Effective Date, after giving effect to any Term A Borrowing on such date, and
from time to time thereafter upon each repayment or prepayment of the Term A
Advances, the aggregate Term A Commitments of the Term A Lenders shall be
automatically and permanently reduced, on a pro rata basis, by an amount equal
to the amount by which the aggregate Term A Commitments immediately prior to
such reduction exceed the aggregate unpaid principal amount of the Term A
Advances then outstanding.
(ii) On the Note Purchase Date, after giving effect to any Term B
Borrowing on such date, and from time to time thereafter upon each repayment or
prepayment of the Term B Advances, the aggregate Term B Commitments of the Term
B Lenders shall be automatically and permanently reduced, on a pro rata basis,
by an amount equal to the amount by which the aggregate Term B Commitments
immediately prior to such reduction exceed the aggregate unpaid principal amount
of the Term B Advances then outstanding.
(iii) The Letter of Credit Facility shall be permanently reduced
from time to time on the date of each reduction in the Revolving Credit Facility
by the amount, if any, by which the amount of the Letter of Credit Facility
exceeds the Revolving Credit Facility after giving effect to such reduction of
the Revolving Credit Facility.
(iv) The Swing Line Facility shall be permanently reduced from time
to time on the date of each reduction in the Revolving Credit Facility by the
amount, if any, by which the amount of the Swing Line Facility exceeds the
Revolving Credit Facility after giving effect to such reduction of the Revolving
Credit Facility.
<PAGE> 50
50
SECTION 2.06. Prepayments. (a) Optional. The Borrower may, upon at
least three Business Day's notice to the Administrative Agent stating the
proposed date and aggregate principal amount of the prepayment, and if such
notice is given the Borrower shall, prepay the outstanding aggregate principal
amount of the Advances comprising part of the same Borrowing in whole or ratably
in part, together with accrued interest to the date of such prepayment on the
aggregate principal amount prepaid; provided, however, that (x) each partial
prepayment of Revolving Credit Advances shall be in an aggregate principal
amount of $2,000,000, each partial prepayment of Term Advances shall be in an
aggregate principal amount of $5,000,000, or, in each case, an integral multiple
of $1,000,000 in excess thereof and (y) if any prepayment of a Eurodollar Rate
Advance is made on a date other than the last day of an Interest Period for such
Advance, the Borrower shall also pay any amounts owing pursuant to Section
8.04(c); and provided, further, that a notice of prepayment may state that it is
conditioned upon the effectiveness of the closing of a credit facility, debt
financing or disposition of assets, in which case such notice may be revoked by
the Borrower by notice to the Administrative Agent prior to the date of the
proposed prepayment if such condition is not satisfied. Each such optional
prepayment of Term Advances shall be applied in the same manner as is provided
for mandatory prepayments of Term Advances in Section 2.06(b)(v).
(b) Mandatory. (i) Excess Cash Flow. The Borrower shall, on the
100th day following the end of each Fiscal Year (commencing following the
Borrower's Fiscal Year ending on December 31, 2000), prepay an aggregate
principal amount of the Advances comprising part of the same Borrowings in an
amount equal to fifty percent (50%) of the amount of Excess Cash Flow for such
Fiscal Year; provided, however, the aggregate amount of any prepayment of
Advances otherwise required under this subsection (i) shall not exceed the
amount which is $1 greater than the smallest aggregate prepayment of Advances
that would be required in order to reduce the Total Debt/EBITDA Ratio to 3.0:1
(after giving effect to such prepayment); and provided, further, that if the
Total Debt/EBITDA Ratio as of such day is less than 3.0:1, then no such
prepayment shall be required.
(ii) Net Cash Proceeds. The Borrower shall, on the date which is
three Business Days following the date of receipt of the Net Cash Proceeds by
the Borrower or any of its Subsidiaries from the following sources (or at any
time that a Default has occurred and is continuing, on such date of receipt),
prepay Advances as follows:
(A) Asset Dispositions. On the date of receipt of the Net Cash
Proceeds by the Borrower or any of its Subsidiaries from any Asset
Sale, unless a Reinvestment Notice shall have been delivered in respect
of such Asset Sale on or prior to the date which is three Business Days
following the date of receipt of such Net Cash Proceeds, the Borrower
shall prepay an aggregate principal amount of the Advances comprising
part of the same Borrowings in an amount equal to 100% of such Net Cash
Proceeds; provided, however, that, notwithstanding the foregoing (i)
the aggregate Net Cash Proceeds of
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Asset Sales that may be excluded from the foregoing requirement
pursuant to a Reinvestment Notice shall not exceed $5,000,000 in any
Fiscal Year of the Borrower, or $10,000,000 in the aggregate during the
term of this Agreement and (ii) on each Reinvestment Prepayment Date
the Advances shall be prepaid, by an amount equal to the Reinvestment
Prepayment Amount with respect to the relevant Reinvestment Event, as
set forth in Section 2.06(b)(v);
(B) Debt. On the date of receipt of the Net Cash Proceeds by
the Borrower or any of its Subsidiaries from the incurrence or issuance
by the Borrower or any of its Subsidiaries of any Debt (other than Debt
incurred or issued pursuant to clauses (i ) to (ix) and clause (xi) of
Section 5.02(b)), the Borrower shall prepay an aggregate principal
amount of the Advances comprising part of the same Borrowings in an
amount equal to 100% of such Net Cash Proceeds; provided, however, that
the amount of any prepayment of Advances otherwise required under this
clause (B) shall not exceed the amount which is $1 greater than the
smallest aggregate prepayment of Advances that would be required on the
date of such prepayment to reduce the Senior Debt/EBITDA to 2.5:1
(after giving effect to such prepayment); and provided, further, that,
if the Senior Debt/EBITDA Ratio as of such date is less than 2.5:1,
then no amount of such Net Cash Proceeds need be prepaid;
(C) Equity Interests. On the date of receipt of the Net Cash
Proceeds by the Borrower or any of its Subsidiaries from the sale or
issuance by the Borrower or any of its Subsidiaries of any Equity
Interests (including, without limitation, receipt of any capital
contribution but excluding sales and issuances to employees of the
Borrower and its Subsidiaries (x) pursuant to the granting or exercise
of stock options or (y) to the extent of the Net Cash Proceeds from
such issuance or sale to employees is applied by the Borrower to
purchase the Equity Interests so issued as contemplated by Section
5.02(h)(i)(D)), the Borrower shall prepay an aggregate principal amount
of the Advances comprising part of the same Borrowings in an amount
equal to 50% of such Net Cash Proceeds; provided, however, that if the
Total Debt/EBITDA Ratio as of such date is less than 3.0:1, then the
Borrower shall repay such Advances in an amount equal to 25% of such
Net Cash Proceeds; and
(D) Extraordinary Receipts. On the date of receipt of the Net
Cash Proceeds by the Borrower or any of its Subsidiaries from any
Extraordinary Receipt (x) at any time that any Senior Subordinated
Notes are outstanding, in any amount and (y) thereafter, in excess of
$250,000, in each case, received by or paid to or for the account of
the Borrower or any of its Subsidiaries and not otherwise included in
clause (A), (B) or (C) above, the Borrower shall prepay an aggregate
principal amount of the Advances comprising part of the same Borrowings
in an amount equal to 100% of such Net Cash Proceeds.
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(iii) Revolving Credit Facility. The Borrower shall, on each Business
Day, prepay an aggregate principal amount of the Revolving Credit Advances
comprising part of the same Borrowings, the Letter of Credit Advances and the
Swing Line Advances in an amount equal to the amount by which (A) the sum of the
aggregate principal amount of (x) the Revolving Credit Advances, (y) the Letter
of Credit Advances and (z) the Swing Line Advances then outstanding plus the
aggregate Available Amount of all Letters of Credit then outstanding exceeds (B)
the Revolving Credit Facility on such Business Day.
(iv) Letter of Credit Facility. The Borrower shall, on each Business
Day, pay to the Administrative Agent for deposit in the L/C Cash Collateral
Account an amount sufficient to cause the aggregate amount on deposit in the L/C
Cash Collateral Account to equal the amount by which the aggregate Available
Amount of all Letters of Credit then outstanding exceeds the Letter of Credit
Facility on such Business Day.
(v) Application of Prepayments; Application of Prepayments of Term
Advances; Term B Lenders' Option. (A) Each prepayment of Advances pursuant to
subsections (i) and (ii) of this Section 2.06(b) (and optional prepayments of
Term Advances pursuant to Section 2.06(a)) shall be applied (1) first, subject
to clause (C) below, pro rata between the Term Facilities until the Term
Advances are prepaid in full, and (2) second, to the Revolving Credit Facility
as set forth in clause (vi) below.
(B) Amounts applied to each Term Facility pursuant to subsection (A)
above, shall be applied (1) first, to any scheduled amortization installments of
such Term Facility which are due within twelve (12) months after the date of
such prepayment in the order of their maturity until such installments are
prepaid in full, and (2) second, pro rata to the remaining scheduled
amortization installments of such Term Facility until such installments are
prepaid in full.
(C) Notwithstanding anything to the contrary contained in the preceding
clause (A), any Term B Lender may elect not to accept its ratable share of any
prepayment of Term Loans which would otherwise be applied to the outstanding
Term B Advances of such Term B Lender pursuant to subsection (A) above by notice
given to the Administrative Agent not later than 11:00 A.M. (New York City time)
on the first Business Day prior to any date on which Term Loans are to be
prepaid pursuant to this Section 2.06 (such Term B Lender being a "DECLINING
LENDER"); provided, however, that in no event shall (x) the aggregate amount of
prepayments requested to be waived by Declining Lenders exceed the aggregate
principal amount of outstanding Term A Advances (before giving effect to any
prepayment of Term A Advances pursuant to the following sentence) or (y) the
amount of prepayments requested to be waived by any Declining Lender exceed such
Declining Lender's Pro Rata Share (calculated by reference to the Term B
Facility) of an amount equal to the aggregate principal amount of outstanding
Term A Advances (before giving effect to any prepayment of Term A Advances
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pursuant to the following sentence). The amount of any prepayments waived by
Declining Lenders shall be applied to prepay outstanding Term A Advances in the
manner provided pursuant to subsection (B) above.
(vi) Revolving Credit Facility. Prepayments of the Revolving Credit
Facility made pursuant to clause (i), (ii) or (iii) above shall be first applied
to prepay Letter of Credit Advances then outstanding until such Advances are
paid in full, second applied to prepay Swing Line Advances then outstanding
until such Advances are paid in full, third applied to prepay Revolving Credit
Advances then outstanding comprising part of the same Borrowings until such
Advances are paid in full and fourth deposited in the L/C Cash Collateral
Account to cash collateralize 100% of the Available Amount of the Letters of
Credit then outstanding; and, in the case of prepayments of the Revolving Credit
Facility required pursuant to clause (i) or (ii) above, the amount remaining (if
any) after the prepayment in full of the Advances then outstanding and the 100%
cash collateralization of the aggregate Available Amount of Letters of Credit
then outstanding may be retained by the Borrower. Upon the drawing of any Letter
of Credit for which funds are on deposit in the L/C Cash Collateral Account,
such funds shall be applied to reimburse the Issuing Bank or Revolving Credit
Lenders, as applicable.
(vii) Deferred Prepayments. Notwithstanding anything to the contrary
contained in subsection (b)(ii) of this Section 2.06 or in Section 5.02(f), so
long as no Default shall have occurred and be continuing, if, on any date on
which a prepayment of Advances would otherwise be required pursuant to
subsection (b)(ii) of this Section 2.06 and the applicable subsections of
Section 5.02(e), the aggregate amount of Net Cash Proceeds or other amounts
otherwise required by such subsections to be applied to prepay Advances on such
date are less than or equal to $5,000,000, the Borrower may defer such
prepayment until the earlier of (x) the date on which the aggregate amount of
Net Cash Proceeds or other amounts otherwise required by such subsections to be
applied to prepay Advances exceeds $5,000,000 and (y) so long as any Senior
Subordinated Notes remain outstanding, the date which is 265 days following the
first date on which the Borrower or any of its Subsidiaries has received any
such Net Cash Proceeds. During such deferral period the Borrower may apply all
or any part of such aggregate amount to prepay Revolving Credit Advances and
may, subject to the fulfillment of the conditions set forth in Section 3.02,
reborrow such amounts (which amounts, to the extent originally constituting Net
Cash Proceeds, shall be deemed to retain their original character as Net Cash
Proceeds when so reborrowed for application as required by this Section 2.06).
Upon the occurrence of a Default, the Borrower shall immediately prepay Advances
in the amount of all Net Cash Proceeds received by the Borrower and other
amounts, as applicable, that are required to be applied to prepay Advances by
this Section 2.06 (without giving effect to the first and second sentences of
this subsection (b)(vii)) and Section 5.02(f) but which have not previously been
so applied.
(viii) Repatriation of Net Cash Proceeds. To the extent any or all of
the Net Cash Proceeds subject to Section 2.06(b)(i) or (ii) attributable to
non-U.S. Subsidiaries are
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prohibited or delayed by applicable local law from being repatriated to the
United States, the portion of such Net Cash Proceeds so affected shall not be
required to be applied at the time provided above, and may be (but shall not be
required), at the election of the Borrower, deposited in an escrow account
maintained with a Lender and under the sole dominion and control of the
Administrative Agent pursuant to the terms of an escrow agreement satisfactory
in form and substance to the Administrative Agent, until such time as the
applicable local law will permit repatriation to the United States (and the
Borrower hereby agrees that it will, and will cause the applicable Subsidiary
to, promptly take all action required by the applicable local law to permit such
repatriation). If and when repatriation of any of such affected Net Cash
Proceeds is permitted under the applicable local law, such repatriation shall be
immediately effected and such repatriated Net Cash Proceeds will be applied in
the manner set forth in this Agreement.
(ix) Accrued Interest, Etc. All prepayments under this subsection (b)
shall be made together with accrued interest to the date of such prepayment on
the principal amount prepaid. If any payment of Eurodollar Rate Advances
otherwise required to be made under this Section 2.06(b) would be made on a day
other than the last day of the applicable Interest Period therefor, the Borrower
may direct the Administrative Agent to (and if so directed, the Administrative
Agent shall) deposit such payment in the Collateral Account until the last day
of the applicable Interest Period at which time the Administrative Agent shall
apply the amount of such payment to the prepayment of such Advances; provided,
however, that such Advances shall continue to bear interest as set forth in
Section 2.07 until the last day of the applicable Interest Period therefor.
SECTION 2.07. Interest. (a) Scheduled Interest. The Borrower shall pay
interest on the unpaid principal amount of each Advance owing to each Lender
from the date of such Advance until such principal amount shall be paid in full,
at the following rates per annum:
(i) Base Rate Advances. During such periods as such Advance is
a Base Rate Advance, a rate per annum equal at all times to the sum of
(A) the Base Rate in effect from time to time plus (B) the Applicable
Margin in effect from time to time, payable in arrears quarterly on the
last Business Day of each March, June, September and December during
such periods and on the date such Base Rate Advance shall be Converted
or paid in full.
(ii) Eurodollar Rate Advances. During such periods as such
Advance is a Eurodollar Rate Advance, a rate per annum equal at all
times during each Interest Period for such Advance to the sum of (A)
the Eurodollar Rate for such Interest Period for such Advance plus (B)
the Applicable Margin in effect on the first day of such Interest
Period, payable in arrears on the last day of such Interest Period and,
if such Interest Period has a duration of more than three months, on
each day that occurs during such Interest Period
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every three months from the first day of such Interest Period and on
the date such Eurodollar Rate Advance shall be Converted or paid in
full.
(b) Default Interest. Upon the occurrence and during the continuance of
a Default, the Borrower shall pay interest on (i) the unpaid principal amount of
each Advance owing to each Lender, payable in arrears on the dates referred to
in clause (a)(i) or (a)(ii) above and on demand, at a rate per annum equal at
all times to 2% per annum above the rate per annum required to be paid on such
Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest
extent permitted by law, the amount of any interest, fee or other amount payable
under the Loan Documents that is not paid when due, from the date such amount
shall be due until such amount shall be paid in full, payable in arrears on the
date such amount shall be paid in full and on demand, at a rate per annum equal
at all times to 2% per annum above the rate per annum required to be paid, in
the case of interest, on the Type of Advance on which such interest has accrued
pursuant to clause (a)(i) or (a)(ii) above and, in all other cases, on Base Rate
Advances pursuant to clause (a)(i) above.
(c) Notice of Interest Period and Interest Rate. Promptly after receipt
of a Notice of Borrowing pursuant to Section 2.02(a), a notice of Conversion
pursuant to Section 2.09 or a notice of selection of an Interest Period pursuant
to the terms of the definition of "INTEREST PERIOD", the Administrative Agent
shall give notice to the Borrower and each Appropriate Lender of the applicable
Interest Period and the applicable interest rate determined by the
Administrative Agent for purposes of clause (a)(i) or (a)(ii) above.
SECTION 2.08. Fees. (a) Commitment Fee. The Borrower shall pay to the
Administrative Agent for the account of the Lenders a commitment fee, from the
date hereof in the case of each Initial Lender and from the effective date
specified in the Assignment and Acceptance pursuant to which it became a Lender
in the case of each other Lender until the Termination Date, payable in arrears
quarterly on the last Business Day of each March, June, September and December,
commencing March 31, 2000, and on the Termination Date, at the rate per annum
equal to the Applicable Percentage then in effect on the average daily unused
portion of each Appropriate Lender's Term A Commitment and Term B Commitment and
on the sum of the average daily Unused Revolving Credit Commitment of such
Lender plus its Pro Rata Share of the average daily outstanding Swing Line
Advances during such quarter; provided, however, that no commitment fee shall
accrue on any of the Commitments of a Defaulting Lender so long as such Lender
shall be a Defaulting Lender.
(b) Letter of Credit Fees, Etc. (i) The Borrower shall pay to the
Administrative Agent for the account of each Revolving Credit Lender a
commission, payable in arrears quarterly on the last Business Day of each March,
June, September and December, commencing March 31, 2000, and on the earliest to
occur of the full drawing, expiration, termination or cancellation of any Letter
of Credit and on the Termination Date, on such Lender's
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Pro Rata Share of the average daily aggregate Available Amount during such
quarter of (A) all Standby Letters of Credit outstanding from time to time at a
rate per annum equal to the Applicable Margin then in effect for Eurodollar Rate
Advances under the Revolving Credit Facility and (B) all Trade Letters of Credit
then outstanding at a rate per annum equal to the Applicable Margin then in
effect for Eurodollar Rate Advances under the Revolving Credit Facility;
provided, however, that if the aggregate such commission for all Revolving
Credit Lenders for any Standby Letter of Credit or Trade Letter of Credit is
less than $500, then such commission shall instead be calculated for such Letter
of Credit as such Revolving Credit Lender's Pro Rata Share of $500.
(ii) The Borrower shall pay to the Issuing Bank, for its own account,
(A) an issuance fee, payable in arrears quarterly on the last Business Day of
each March, June, September and December, commencing March 31, 2000, and on the
Termination Date, on the average daily amount of its Letter of Credit Commitment
during such quarter, from the date hereof until the Termination Date, at the
rate of 0.25% per annum; provided, however, that if such commission for any
Letter of Credit is less than $100, then such issuance fee for such Letter of
Credit shall be $100 and (B) such other commissions, fronting fees, transfer
fees and other fees and charges in connection with the issuance or
administration of each Letter of Credit as the Borrower and the Issuing Bank
shall agree.
(c) Agents' Fees. The Borrower shall pay to each Agent for its own
account such fees as may from time to time be agreed between the Borrower and
such Agent.
SECTION 2.09. Conversion of Advances. (a) Optional. The Borrower may on
any Business Day, upon notice given to the Administrative Agent not later than
11:00 A.M. (New York City time) on the third Business Day prior to the date of
the proposed Conversion and subject to the provisions of Sections 2.07 and 2.10,
Convert all or any portion of the Advances of one Type comprising the same
Borrowing into Advances of the other Type; provided, however, that any
Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made
only on the last day of an Interest Period for such Eurodollar Rate Advances,
any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in
an amount not less than the minimum amount specified in Section 2.02(c), no
Conversion of any Advances shall result in more separate Borrowings than
permitted under Section 2.02(c) and each Conversion of Advances comprising part
of the same Borrowing under any Facility shall be made ratably among the
Appropriate Lenders in accordance with their Commitments under such Facility.
Each such notice of Conversion shall, within the restrictions specified above,
specify (i) the date of such Conversion, (ii) the Advances to be Converted and
(iii) if such Conversion is into Eurodollar Rate Advances, the duration of the
initial Interest Period for such Advances. Each notice of Conversion shall be
irrevocable and binding on the Borrower.
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(b) Mandatory. (i) On the date on which the aggregate unpaid principal
amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by
payment or prepayment or otherwise, to less than $1,000,000, such Advances shall
automatically Convert into Base Rate Advances.
(ii) If the Borrower shall fail to select the duration of any Interest
Period for any Eurodollar Rate Advances in accordance with the provisions
contained in the definition of "INTEREST PERIOD" in Section 1.01, the
Administrative Agent will forthwith so notify the Borrower and the Appropriate
Lenders, whereupon each such Eurodollar Rate Advance will automatically, on the
last day of the then existing Interest Period therefor, Convert into a Base Rate
Advance.
(iii) Upon the occurrence and during the continuance of any Default,
(x) each Eurodollar Rate Advance will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Advance and (y) the
obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended.
SECTION 2.10. Increased Costs, Etc. (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law),
there shall be any increase in the cost to any Lender Party of agreeing to make
or of making, funding or maintaining Eurodollar Rate Advances or of agreeing to
issue or of issuing or maintaining or participating in Letters of Credit or of
agreeing to make or of making or maintaining Letter of Credit Advances
(excluding, for purposes of this Section 2.10, any such increased costs
resulting from Taxes, Other Taxes or Excluded Taxes, as to which Section 2.12
shall govern), then the Borrower shall from time to time, upon demand by such
Lender Party (with a copy of such demand to the Administrative Agent), pay to
the Administrative Agent for the account of such Lender Party additional amounts
sufficient to compensate such Lender Party for such increased cost; provided,
however, that a Lender Party claiming additional amounts under this Section
2.10(a) agrees to use reasonable efforts (consistent with its internal policy
and legal and regulatory restrictions) to designate a different Applicable
Lending Office if the making of such a designation would avoid the need for, or
reduce the amount of, such increased cost that may thereafter accrue and would
not, in the reasonable judgment of such Lender Party, be otherwise
disadvantageous to such Lender Party. A certificate as to the amount of such
increased cost, submitted to the Borrower by such Lender Party, shall be
conclusive and binding for all purposes, absent manifest error.
(b) If, due to either (i) the introduction of or any change in or in
the interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
amount of capital required or expected to be maintained by any Lender Party or
any corporation controlling such Lender Party as a result of or based upon the
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existence of such Lender Party's commitment to lend or to issue or participate
in Letters of Credit hereunder and other commitments of such type or the
issuance or maintenance of or participation in the Letters of Credit (or similar
contingent obligations), then, upon demand by such Lender Party or such
corporation (with a copy of such demand to the Administrative Agent), the
Borrower shall pay to the Administrative Agent for the account of such Lender
Party, from time to time as specified by such Lender Party, additional amounts
sufficient to compensate such Lender Party in the light of such circumstances,
to the extent that such Lender Party reasonably determines such increase in
capital to be allocable to the existence of such Lender Party's commitment to
lend or to issue or participate in Letters of Credit hereunder or to the
issuance or maintenance of or participation in any Letters of Credit. A
certificate as to such amounts submitted to the Borrower by such Lender Party
shall be conclusive and binding for all purposes, absent manifest error.
(c) If, with respect to any Eurodollar Rate Advances under any
Facility, Lenders owed at least 50.1% of the then aggregate unpaid principal
amount thereof notify the Administrative Agent that the Eurodollar Rate for any
Interest Period for such Advances will not adequately reflect the cost to such
Lenders of making, funding or maintaining their Eurodollar Rate Advances for
such Interest Period, the Administrative Agent shall forthwith so notify the
Borrower and the Appropriate Lenders, whereupon (i) each such Eurodollar Rate
Advance under such Facility will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the
obligation of the Appropriate Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended until the Administrative Agent shall
notify the Borrower that such Lenders have determined that the circumstances
causing such suspension no longer exist.
(d) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for any Lender or its Eurodollar
Lending Office to perform its obligations hereunder to make Eurodollar Rate
Advances or to continue to fund or maintain Eurodollar Rate Advances hereunder,
then, on notice thereof and demand therefor by such Lender to the Borrower
through the Administrative Agent, (i) each Eurodollar Rate Advance under each
Facility under which such Lender has a Commitment will automatically, upon such
demand, Convert into a Base Rate Advance and (ii) the obligation of the
Appropriate Lenders to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended until the Administrative Agent shall notify the
Borrower that such Lender has determined that the circumstances causing such
suspension no longer exist; provided, however, that, before making any such
demand, such Lender agrees to use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to designate a different
Eurodollar Lending Office if the making of such a designation would allow such
Lender or its Eurodollar Lending Office to continue to perform its obligations
to make Eurodollar Rate
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Advances or to continue to fund or maintain Eurodollar Rate Advances and would
not, in the judgment of such Lender, be otherwise disadvantageous to such
Lender.
SECTION 2.11. Payments and Computations. (a) The Borrower shall make
each payment hereunder and under the Notes, irrespective of any right of
counterclaim or set-off (except as otherwise provided in Section 2.15), not
later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars
to the Administrative Agent at the Administrative Agent's Account in same day
funds, with payments being received by the Administrative Agent after such time
being deemed to have been received on the next succeeding Business Day. The
Administrative Agent will promptly thereafter cause like funds to be distributed
(i) if such payment by the Borrower is in respect of principal, interest,
commitment fees or any other Obligation then payable hereunder and under the
Notes to more than one Lender Party, to such Lender Parties for the account of
their respective Applicable Lending Offices ratably in accordance with the
amounts of such respective Obligations then payable to such Lender Parties and
(ii) if such payment by the Borrower is in respect of any Obligation then
payable hereunder to one Lender Party, to such Lender Party for the account of
its Applicable Lending Office, in each case to be applied in accordance with the
terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and
recording of the information contained therein in the Register pursuant to
Section 8.07(d), from and after the effective date of such Assignment and
Acceptance, the Administrative Agent shall make all payments hereunder and under
the Notes in respect of the interest assigned thereby to the Lender Party
assignee thereunder, and the parties to such Assignment and Acceptance shall
make all appropriate adjustments in such payments for periods prior to such
effective date directly between themselves.
(b) The Borrower hereby authorizes each Lender Party and each of its
Affiliates, if and to the extent payment owed to such Lender Party is not made
when due hereunder or, in the case of a Lender, under the Note held by such
Lender, to charge from time to time, to the fullest extent permitted by law,
against any or all of the Borrower's accounts with such Lender Party or such
Affiliate any amount so due.
(c) All computations of interest based on the Base Rate shall be made
by the Administrative Agent on the basis of a year of 365 or 366 days, as the
case may be, and all computations of interest based on the Eurodollar Rate or
the Federal Funds Rate and of fees and Letter of Credit commissions shall be
made by the Administrative Agent on the basis of a year of 360 days, in each
case for the actual number of days (including the first day but excluding the
last day) occurring in the period for which such interest, fees or commissions
are payable. Each determination by the Administrative Agent of an interest rate,
fee or commission hereunder shall be conclusive and binding for all purposes,
absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding
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Business Day, and such extension of time shall in such case be included in the
computation of payment of interest or commitment fee, as the case may be;
provided, however, that, if such extension would cause payment of interest on or
principal of Eurodollar Rate Advances to be made in the next following calendar
month, such payment shall be made on the next preceding Business Day.
(e) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to any Lender Party
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each such Lender Party
on such due date an amount equal to the amount then due such Lender Party. If
and to the extent the Borrower shall not have so made such payment in full to
the Administrative Agent, each such Lender Party shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Lender
Party together with interest thereon, for each day from the date such amount is
distributed to such Lender Party until the date such Lender Party repays such
amount to the Administrative Agent, at the Federal Funds Rate.
(f) If the Administrative Agent receives funds for application to the
Obligations under the Loan Documents under circumstances for which the Loan
Documents do not specify the Advances or the Facility to which, or the manner in
which, such funds are to be applied, the Administrative Agent may, but shall not
be obligated to, elect to distribute such funds to each Lender Party ratably in
accordance with such Lender Party's proportionate share of the principal amount
of all outstanding Advances and the Available Amount of all Letters of Credit
then outstanding, in repayment or prepayment of such of the outstanding Advances
or other Obligations owed to such Lender Party, and for application to such
principal installments, as the Administrative Agent shall direct.
SECTION 2.12. Taxes. (a) Except as set forth in this Section 2.12, any
and all payments by the Borrower hereunder or under the Notes shall be made, in
accordance with Section 2.11, and free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, in the case
of each Lender Party and each Agent, taxes that are imposed on overall net
income, net profits or capital (and franchise or similar taxes imposed as a
result of doing business in lieu thereof, whether measured by income, profits,
receipts or capital) by the country, state or any political subdivision thereof
(x) under the laws of which such Lender Party or such Agent, as the case may be,
is organized or is a citizen or resident, or (y) in which such Lender Party or
such Agent, as the case may be, is doing business or has a permanent
establishment (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities in respect of payments hereunder or under
the Notes being hereinafter referred to as "TAXES" and all such excluded taxes
being referred to herein as "EXCLUDED TAXES"). If the Borrower shall be required
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by law to deduct any Taxes from or in respect of any sum payable hereunder or
under any Note to any Lender Party or any Agent, (i) subject to Section 2.12(g),
the sum payable by the Borrower shall be increased as may be necessary so that
after the Borrower and the Administrative Agent have made all required
deductions (including deductions applicable to additional sums payable under
this Section 2.12) such Lender Party or such Agent, as the case may be, receives
an amount equal to the sum it would have received had no such deductions been
made, (ii) the Borrower shall make all such deductions and (iii) the Borrower
shall pay the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any present or future stamp,
documentary, excise, property or similar taxes, charges or levies that arise
from any payment made hereunder or under the Notes or from the execution,
delivery or registration of, performance under, or otherwise with respect to,
this Agreement or the Notes (hereinafter referred to as "OTHER TAXES").
(c) Subject to Section 2.12(g), the Borrower shall indemnify each
Lender Party and each Agent for and hold them harmless against the full amount
of Taxes and Other Taxes, imposed on or paid by such Lender Party or such Agent
(as the case may be) and any liability (including penalties, additions to tax,
interest and expenses) arising therefrom or with respect thereto. This
indemnification shall be made within 30 days from the date such Lender Party or
such Agent (as the case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the Borrower
shall furnish to the Administrative Agent, at its address referred to in Section
8.02, the original or a certified copy of a receipt (or other evidence of
payment reasonably satisfactory to the Administrative Agent) evidencing such
payment. In the case of any payment hereunder or under the Notes by or on behalf
of the Borrower through an account or branch outside the United States or by or
on behalf of the Borrower by a payor that is not a United States person, if the
Borrower determines that no Taxes are payable in respect thereof, the Borrower
shall furnish, or shall cause such payor to furnish, to the Administrative
Agent, at such address, an opinion of counsel acceptable to the Administrative
Agent stating that such payment is exempt from Taxes. For purposes of this
Section 2.12, the terms "UNITED STATES" and "UNITED STATES PERSON" shall have
the meanings specified in Section 7701 of the Internal Revenue Code.
(e) Each Lender Party organized under the laws of a jurisdiction
outside the United States shall, on or prior to the date of its execution and
delivery of this Agreement in the case of each Initial Lender Party and on the
date of the Assignment and Acceptance pursuant to which it becomes a Lender
Party in the case of each other Lender Party, provide each of the Administrative
Agent and the Borrower with (i) two original Internal Revenue Service forms
W-8BEN or W-8ECI, as applicable (or any successor or other applicable form
prescribed
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by the Internal Revenue Service), or (ii) in the case of a Lender Party claiming
exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of
the Code with respect to payments of "portfolio interest," a statement
substantially in the form of Exhibit H and two copies of Internal Revenue
Service Form W-8BEN (or any successor or other applicable form prescribed by the
Internal Revenue Service), certifying that such Lender Party is exempt from or
entitled to a reduced rate of United States withholding tax on payments pursuant
to this Agreement or the Notes. Upon request in writing by the Borrower, each
such Lender Party shall deliver to the Borrower and Administrative Agent
(provided that such Lender Party remains lawfully able to do so), two further
duly executed forms and statements, properly completed in all material respects,
at or before the time any such form or statement expires or becomes obsolete, or
as otherwise reasonably requested in writing by the Borrower. Each such Lender
Party shall promptly notify the Borrower at any time it determines that it is no
longer in a position to provide any previously delivered certificate to the
Borrower (or any other form or certification adopted by the U.S. taxing
authorities for such purpose). If the forms provided by a Lender Party at the
time such Lender Party first becomes a party to this Agreement indicate a United
States interest withholding tax rate in excess of zero, withholding tax at such
rate shall be considered excluded from Taxes unless and until such Lender Party
provides the appropriate forms certifying that a lesser rate applies, whereupon
withholding tax at such lesser rate only shall be considered excluded from Taxes
for periods governed by such forms; provided, however, that if, at the effective
date of the Assignment and Acceptance pursuant to which a Lender Party becomes a
party to this Agreement, the Lender Party assignor was entitled to payments
under subsection (a) of this Section 2.12 in respect of United States
withholding tax with respect to interest paid at such date, then, to such
extent, the term Taxes shall include (in addition to withholding taxes that may
be imposed in the future or other amounts otherwise includable in Taxes) United
States withholding tax, if any, applicable with respect to the Lender Party
assignee on such date. If any form or document referred to in this subsection
(e) requires the disclosure of information, other than information necessary to
compute the tax payable and information required on the date hereof by Internal
Revenue Service forms W-8BEN or W-8ECI (or the related certificate described
above), that the applicable Lender Party reasonably considers to be
confidential, such Lender Party shall give notice thereof to the Borrower and
shall not be obligated to include in such form or document such confidential
information.
(f) Each Lender Party which is a United States person shall, on or
prior to the date of its execution and delivery of this Agreement in the case of
each Initial Lender Party and on the date of the Assignment and Acceptance
pursuant to which it becomes a Lender Party in the case of each other Lender
Party, deliver to the Borrower and the Administrative Agent two duly completed
copies of United States Internal Revenue Service Form W-9 (or any successor or
other applicable form prescribed by the Internal Revenue Service) unless it
establishes to the reasonable satisfaction of the Borrower that it is otherwise
eligible for an exemption from backup withholding tax or other applicable
withholding tax. Upon request in writing by the Borrower, each such Lender Party
shall deliver to the Borrower and Administrative Agent (provided that
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such Lender Party remains lawfully able to do so), two further duly executed
forms and statements, properly completed in all material respects, at or before
the time any such form or statement expires or becomes obsolete, or otherwise as
reasonably requested by the Borrower. Each such Lender Party shall promptly
notify the Borrower at any time it determines that it is no longer in a position
to provide any previously delivered certificate to the Borrower (or any other
form or certification adopted by the U.S. taxing authorities for such purpose).
(g) For any period with respect to which a Lender Party has failed to
provide the Borrower with the appropriate form described in subsection (e) or
(f) above (other than if such failure is due to a change in law occurring after
the date on which a form originally was required to be provided), such Lender
Party shall not be entitled to indemnification under subsection (a) or (c) of
this Section 2.12 with respect to Taxes imposed by the United States by reason
of such failure; provided, however, that should a Lender Party become subject to
Taxes because of its failure to deliver a form required hereunder, the Borrower
shall take such steps as such Lender Party shall reasonably request to assist
such Lender Party to recover such Taxes.
(h) Each Lender Party which is not a United States person, agrees to
indemnify and hold harmless the Borrower from and against any and all taxes,
related penalties and interest, and reasonable out-of-pocket costs incurred by
the Borrower as a result of a failure by the Borrower to comply with its
obligations to deduct or withhold any Taxes from any payment made pursuant to
this Agreement, which failure resulted solely from the Borrower's reasonable
reliance on information provided by such Lender Party on a form referred to in
Section 2.12(e) or (f).
(i) If any Lender Party determines, in its sole discretion, that it has
finally and irrevocably received a refund of any Taxes that have been paid or
reimbursed by the Borrower pursuant to Section 2.12(a) or (c) in respect of
payments hereunder or under the Notes that it would otherwise not have obtained
and that would result in total payments made under this Section 2.12 exceeding
that amount needed to make such Lender Party whole, such Lender Party shall, to
the extent that it determines in its sole discretion that it can do so without
prejudice to the retention of the amount of such refund, pay to the Borrower
following actual receipt of such refund and without any interest thereon, the
amount of such refund after deducting therefrom all out-of-pocket expenses
incurred by or on behalf of such Lender Party in securing such refund; provided
that the Borrower agrees, upon request of such Lender Party, to return the
amount of such refund to such Lender Party, together with the amount of all
additional out-of-pocket expenses, penalties, interest or other charges in
respect thereof, if such Lender Party is required to repay or otherwise loses
the benefit of such refund. Nothing in this Section 2.12 shall be construed to
interfere with the right of a Lender Party to arrange its tax affairs in
whatever manner it thinks fit or require any Lender Party to claim any refund,
or to require any Lender
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Party to make available to the Borrower or Administrative Agent any of its tax
returns or any other information relating to Taxes that it deems to be
confidential.
SECTION 2.13. Sharing of Payments, Etc. If any Lender Party shall
obtain at any time any payment (whether voluntary, involuntary, through the
exercise of any right of set-off, or otherwise, other than as a result of an
assignment pursuant to Section 8.07) (a) on account of Obligations due and
payable to such Lender Party hereunder and under the Notes at such time in
excess of its ratable share (according to the proportion of (i) the amount of
such Obligations due and payable to such Lender Party at such time to (ii) the
aggregate amount of the Obligations due and payable to all Lender Parties
hereunder and under the Notes at such time) of payments on account of the
Obligations due and payable to all Lender Parties hereunder and under the Notes
at such time obtained by all the Lender Parties at such time or (b) on account
of Obligations owing (but not due and payable) to such Lender Party hereunder
and under the Notes at such time in excess of its ratable share (according to
the proportion of (i) the amount of such Obligations owing to such Lender Party
at such time to (ii) the aggregate amount of the Obligations owing (but not due
and payable) to all Lender Parties hereunder and under the Notes at such time)
of payments on account of the Obligations owing (but not due and payable) to all
Lender Parties hereunder and under the Notes at such time obtained by all of the
Lender Parties at such time, such Lender Party shall forthwith purchase from the
other Lender Parties such interests or participating interests in the
Obligations due and payable or owing to them, as the case may be, as shall be
necessary to cause such purchasing Lender Party to share the excess payment
ratably with each of them; provided, however, that if all or any portion of such
excess payment is thereafter recovered from such purchasing Lender Party, such
purchase from each other Lender Party shall be rescinded and such other Lender
Party shall repay to the purchasing Lender Party the purchase price to the
extent of such Lender Party's ratable share (according to the proportion of (i)
the purchase price paid to such Lender Party to (ii) the aggregate purchase
price paid to all Lender Parties) of such recovery together with an amount equal
to such Lender Party's ratable share (according to the proportion of (i) the
amount of such other Lender Party's required repayment to (ii) the total amount
so recovered from the purchasing Lender Party) of any interest or other amount
paid or payable by the purchasing Lender Party in respect of the total amount so
recovered; provided, further that, so long as the Obligations under the Loan
Documents shall not have been accelerated, any excess payment received by any
Appropriate Lender shall be shared on a pro rata basis only with other
Appropriate Lenders. The Borrower agrees that any Lender Party so purchasing an
interest or participating interest from another Lender Party pursuant to this
Section 2.13 may, to the fullest extent permitted by law, exercise all its
rights of payment (including the right of set-off) with respect to such interest
or participating interest, as the case may be, as fully as if such Lender Party
were the direct creditor of the Borrower in the amount of such interest or
participating interest, as the case may be.
SECTION 2.14. Use of Proceeds. The proceeds of the Advances and
issuances of Letters of Credit shall be available (and the Borrower agrees that
it shall use such proceeds
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and Letters of Credit) solely to fund fees and expenses in connection with the
Acquisition, to refinance certain Existing Debt, to finance the Borrower's
purchase of the Senior Subordinated Notes which are tendered pursuant to the
Offer to Purchase, to finance the purchase by the Borrower and its Subsidiaries
of Permitted Acquisitions and to provide working capital for the Borrower and
its Subsidiaries.
SECTION 2.15. Defaulting Lenders. (a) In the event that, at any one
time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting
Lender shall owe a Defaulted Advance to the Borrower and (iii) the Borrower
shall be required to make any payment hereunder or under any other Loan Document
to or for the account of such Defaulting Lender, then the Borrower may, so long
as no Default shall occur or be continuing at such time and to the fullest
extent permitted by applicable law, set off and otherwise apply the Obligation
of the Borrower to make such payment to or for the account of such Defaulting
Lender against the obligation of such Defaulting Lender to make such Defaulted
Advance. In the event that, on any date, the Borrower shall so set off and
otherwise apply its obligation to make any such payment against the obligation
of such Defaulting Lender to make any such Defaulted Advance on or prior to such
date, the amount so set off and otherwise applied by the Borrower shall
constitute for all purposes of this Agreement and the other Loan Documents an
Advance by such Defaulting Lender made on the date of such setoff under the
Facility pursuant to which such Defaulted Advance was originally required to
have been made pursuant to Section 2.01. Such Advance shall be considered, for
all purposes of this Agreement, to comprise part of the Borrowing in connection
with which such Defaulted Advance was originally required to have been made
pursuant to Section 2.01, even if the other Advances comprising such Borrowing
shall be Eurodollar Rate Advances on the date such Advance is deemed to be made
pursuant to this subsection (a). The Borrower shall notify the Administrative
Agent at any time the Borrower exercises its right of set-off pursuant to this
subsection (a) and shall set forth in such notice (A) the name of the Defaulting
Lender and the Defaulted Advance required to be made by such Defaulting Lender
and (B) the amount set off and otherwise applied in respect of such Defaulted
Advance pursuant to this subsection (a). Any portion of such payment otherwise
required to be made by the Borrower to or for the account of such Defaulting
Lender which is paid by the Borrower, after giving effect to the amount set off
and otherwise applied by the Borrower pursuant to this subsection (a), shall be
applied by the Administrative Agent as specified in subsection (b) or (c) of
this Section 2.15.
(b) In the event that, at any one time, (i) any Lender Party shall be a
Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to
any Agent or any of the other Lender Parties and (iii) the Borrower shall make
any payment hereunder or under any other Loan Document to the Administrative
Agent for the account of such Defaulting Lender, then the Administrative Agent
may, on its behalf or on behalf of such other Agents or such other Lender
Parties and to the fullest extent permitted by applicable law, apply at such
time the amount so paid by the Borrower to or for the account of such Defaulting
Lender to the
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payment of each such Defaulted Amount to the extent required to pay such
Defaulted Amount. In the event that the Administrative Agent shall so apply any
such amount to the payment of any such Defaulted Amount on any date, the amount
so applied by the Administrative Agent shall constitute for all purposes of this
Agreement and the other Loan Documents payment, to such extent, of such
Defaulted Amount on such date. Any such amount so applied by the Administrative
Agent shall be retained by the Administrative Agent or distributed by the
Administrative Agent to such other Agents or such other Lender Parties, ratably
in accordance with the respective portions of such Defaulted Amounts payable at
such time to the Administrative Agent, such other Agents and such other Lender
Parties and, if the amount of such payment made by the Borrower shall at such
time be insufficient to pay all Defaulted Amounts owing at such time to the
Administrative Agent, such other Agents and such other Lender Parties, in the
following order of priority:
(i) first, to the Agents for any Defaulted Amounts then owing
to them, in their capacities as such, ratably in accordance with such
respective Defaulted Amounts then owing to the Agents;
(ii) second, to the Issuing Bank and the Swing Line Bank for
any Defaulted Amounts then owing to them, in their capacities as such,
ratably in accordance with such respective Defaulted Amounts then owing
to the Issuing Bank and the Swing Line Bank; and
(iii) third, to any other Lender Parties for any Defaulted
Amounts then owing to such other Lender Parties, ratably in accordance
with such respective Defaulted Amounts then owing to such other Lender
Parties.
Any portion of such amount paid by the Borrower for the account of such
Defaulting Lender remaining, after giving effect to the amount applied by the
Administrative Agent pursuant to this subsection (b), shall be applied by the
Administrative Agent as specified in subsection (c) of this Section 2.15.
(c) In the event that, at any one time, (i) any Lender Party shall be
a Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted
Advance or a Defaulted Amount and (iii) the Borrower, any Agent or any other
Lender Party shall be required to pay or distribute any amount hereunder or
under any other Loan Document to or for the account of such Defaulting Lender,
then the Borrower or such Agent or such other Lender Party shall pay such amount
to the Administrative Agent to be held by the Administrative Agent, to the
fullest extent permitted by applicable law, in escrow or the Administrative
Agent shall, to the fullest extent permitted by applicable law, hold in escrow
such amount otherwise held by it. Any funds held by the Administrative Agent in
escrow under this subsection (c) shall be deposited by the Administrative Agent
in an account with an institution designated by the Administrative Agent, in the
name and under the control of the Administrative Agent, but subject to the
provisions of
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this subsection (c). The terms applicable to such account, including the rate of
interest payable with respect to the credit balance of such account from time to
time, shall be such designated institution's standard terms applicable to escrow
accounts maintained with it. Any interest credited to such account from time to
time shall be held by the Administrative Agent in escrow under, and applied by
the Administrative Agent from time to time in accordance with the provisions of,
this subsection (c). The Administrative Agent shall, to the fullest extent
permitted by applicable law, apply all funds so held in escrow from time to time
to the extent necessary to make any Advances required to be made by such
Defaulting Lender and to pay any amount payable by such Defaulting Lender
hereunder and under the other Loan Documents to the Administrative Agent or any
other Lender Party, as and when such Advances or amounts are required to be made
or paid and, if the amount so held in escrow shall at any time be insufficient
to make and pay all such Advances and amounts required to be made or paid at
such time, in the following order of priority:
(i) first, to the Agents for any amounts then due and payable
by such Defaulting Lender to them hereunder, in their capacities as
such, ratably in accordance with such respective amounts then due and
payable to the Agents;
(ii) second, to the Issuing Bank and the Swing Line Bank for
any amounts then due and payable to them hereunder, in their capacities
as such, by such Defaulting Lender, ratably in accordance with such
respective amounts then due and payable to the Issuing Bank and the
Swing Line Bank;
(iii) third, to any other Lender Parties for any amount then
due and payable by such Defaulting Lender to such other Lender Parties
hereunder, ratably in accordance with such respective amounts then due
and payable to such other Lender Parties; and
(iv) fourth, to the Borrower for any Advance then required to
be made by such Defaulting Lender pursuant to a Commitment of such
Defaulting Lender.
In the event that any Lender Party that is a Defaulting Lender shall, at any
time, cease to be a Defaulting Lender, any funds held by the Administrative
Agent in escrow at such time with respect to such Lender Party shall be
distributed by the Administrative Agent to such Lender Party and applied by such
Lender Party to the Obligations owing to such Lender Party at such time under
this Agreement and the other Loan Documents ratably in accordance with the
respective amounts of such Obligations outstanding at such time.
(d) The rights and remedies against a Defaulting Lender under this
Section 2.15 are in addition to other rights and remedies that the Borrower may
have against such Defaulting Lender with respect to any Defaulted Advance and
that any Agent or any Lender Party may have against such Defaulting Lender with
respect to any Defaulted Amount.
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ARTICLE III
CONDITIONS OF LENDING AND
ISSUANCES OF LETTERS OF CREDIT
SECTION 3.01. Conditions Precedent to Initial Extension of
Credit. The obligation of each Lender to make an Advance or of the Issuing Bank
to issue a Letter of Credit on the occasion of the Initial Extension of Credit
hereunder is subject to the satisfaction of the following conditions precedent
before or concurrently with the Initial Extension of Credit:
(a) The Administrative Agent shall have received on or before
the day of the Initial Extension of Credit the following, each dated
such day (unless otherwise specified), in form and substance
satisfactory to the Joint Lead Arrangers (unless otherwise specified)
and (except for the Notes) in sufficient copies for each Lender Party:
(i) The Notes payable to the order of the Lenders.
(ii) A security agreement in substantially the form
of Exhibit D hereto (together with each other security
agreement and security agreement supplement delivered pursuant
to Section 5.01(j), in each case as amended, the "SECURITY
AGREEMENT"), duly executed by each Loan Party, together with:
(A) certificates representing the Pledged
Shares referred to therein accompanied by undated
stock powers executed in blank and instruments
evidencing the Pledged Debt indorsed in blank, if
any,
(B) proper financing statements, duly
executed and in form for filing under the Uniform
Commercial Code of all jurisdictions that the Joint
Lead Arrangers may deem necessary or desirable in
order to perfect and protect the first priority liens
and security interests created under the Security
Agreement, covering the Collateral described in the
Security Agreement,
(C) completed requests for information,
dated on or before the date hereof, listing all
effective financing statements filed in the
jurisdictions referred to in clause (B) above that
name any Loan Party as debtor, together with copies
of such financing statements,
(D) proper other documents, duly executed
and in form for recording and filing that the Joint
Lead Arrangers and the Administrative
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Agent may deem necessary or desirable in order to
perfect and protect the Liens created by the Security
Agreement, including any Intellectual Property
Security Agreements required thereunder (but
excluding any such filings, recordings or other
actions which are specifically described in Section
5.01(q)), and
(E) evidence that all other action that the
Joint Lead Arrangers may deem necessary or desirable
in order to perfect and protect the first priority
liens and security interests created under the
Security Agreement has been taken, including,
without limitation, receipt of duly executed payoff
letters and UCC-3 termination statements from the
holders of Existing Debt (other than Surviving Debt),
and landlords' and bailees' waiver and consent
agreements.
(iii) A guaranty in substantially the form of Exhibit
E hereto (together with each other guaranty and guaranty
supplement delivered pursuant to Section 5.01(j), in each case
as amended, the "SUBSIDIARY GUARANTY"), duly executed by each
Subsidiary Guarantor.
(iv) Certified copies of the resolutions of the Board
of Directors of each Loan Party approving the Transaction
(other than the Offer to Purchase) and each Transaction
Document to which it is or is to be a party, and of all
documents evidencing other necessary corporate action and
governmental and other third party approvals and consents, if
any, with respect to the Transaction and each Transaction
Document to which it is or is to be a party.
(v) A copy of a certificate of the Secretary of State
of the jurisdiction of incorporation of each Loan Party, dated
reasonably near the date of the Initial Extension of Credit,
certifying (A) as to a true and correct copy of the charter of
such Loan Party and each amendment thereto on file in such
Secretary's office and (B) that (1) such amendments are the
only amendments to such Loan Party's charter on file in such
Secretary's office, (2) such Loan Party has paid all franchise
taxes to the date of such certificate and (C) such Loan Party
is duly incorporated and in good standing or presently
subsisting under the laws of the State of the jurisdiction of
its incorporation.
(vi) A copy of a certificate of the Secretary of
State of each state where each Loan Party owns or leases any
material real property, dated reasonably near the date of the
Initial Extension of Credit, stating that such Loan Party is
duly qualified and in good standing as a foreign corporation
in such State and has filed all annual reports required to be
filed to the date of such certificate.
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(vii) A certificate of each Loan Party, signed on
behalf of such Loan Party by a Responsible Officer, dated the
date of the Initial Extension of Credit (the statements made
in which certificate shall be true on and as of the date of
the Initial Extension of Credit), certifying as to (A) the
absence of any amendments to the charter of such Loan Party
since the date of the Secretary of State's certificate
referred to in Section 3.01(a)(vi), (B) a true and correct
copy of the bylaws of such Loan Party as in effect on the date
on which the resolutions referred to in Section 3.01(a)(v)
were adopted and on the date of the Initial Extension of
Credit, (C) the due incorporation and good standing or valid
existence of such Loan Party as a corporation organized under
the laws of the jurisdiction of its incorporation, and the
absence of any proceeding for the dissolution or liquidation
of such Loan Party, (D) the names and true signatures of the
officers of such Loan Party authorized to sign any Transaction
Document to which it is or is to be a party, (E) the truth in
all material respects of the representations and warranties
contained in the Loan Documents as though made on and as of
the date of the Initial Extension of Credit and (F) the
absence of any event occurring and continuing, or resulting
from the Initial Extension of Credit, that constitutes a
Default.
(viii) Certified copies of each of the Related
Documents which the Borrower or any of its Subsidiaries has
entered into on or prior to the date of the Initial Extension
of Credit, duly executed by the parties thereto, together with
all agreements, instruments and other documents delivered in
connection therewith as the Joint Lead Arrangers and the
Administrative Agent shall request.
(ix) Certificate, in substantially the form of
Exhibit F hereto, attesting to the Solvency of the Borrower
(and of each other Loan Party) before and after giving effect
to the Transaction, from the Chief Financial Officer of the
Borrower.
(x) Such financial, business and other information
regarding each Loan Party and its Subsidiaries as the Lender
Parties shall have reasonably requested, including, without
limitation, information as to possible contingent liabilities,
tax matters, environmental matters, obligations under Plans,
Multiemployer Plans and Welfare Plans, collective bargaining
agreements and other arrangements with employees, audited
annual financial statements dated December 31, 1998, interim
financial statements dated the end of the most recent fiscal
quarter for which financial statements are available (or, in
the event the Lender Parties' due diligence review reveals
material changes since such financial statements, as of a
later date within 45 days of the day of the Initial Extension
of Credit), pro forma financial statements as to the Borrower
and forecasts prepared
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by management of the Company, in form and substance
satisfactory to the Lender Parties, of balance sheets, income
statements and cash flow statements on an annual basis for
each year thereafter until the Termination Date.
(xi) Evidence of insurance naming the Administrative
Agent as additional insured and loss payee with such
responsible and reputable insurance companies or associations,
and in such amounts and covering such risks, as is
satisfactory to the Joint Lead Arrangers.
(xii) Certified copies of the employment agreements
with Robert B. Covalt and John R. Mellett and any other
written compensation arrangements between such executive
officer and any Loan Party or any of its Subsidiaries.
(xiii) Certified copies of all Material Contracts of
the type described under clause (iv) of the definition of such
term of each Loan Party and its Subsidiaries.
(xiv) A Notice of Borrowing or Notice of Issuance, as
applicable, relating to the Initial Extension of Credit.
(xv) A favorable opinion of Fried, Frank, Harris,
Shriver & Jacobson, counsel for the Loan Parties, in
substantially the form of Exhibit G hereto and as to such
other matters as any Lender Party through the Administrative
Agent may reasonably request.
(xvi) A favorable opinion of each local counsel to
the Lender Parties in the States of Illinois and New
Hampshire, which counsel shall be reasonable satisfactory to
the Joint Lead Arrangers, as to such matters as the Lender
Parties through the Administrative Agent may reasonably
request.
(b) The Joint Lead Arrangers shall have received satisfactory
evidence that the Acquisition has been consummated in all material
respects in accordance with the Acquisition Agreement and that each of
the Equity Investors has complied in all material respects with all of
its covenants and obligations under the Acquisition Agreement required
to be performed by it on or prior to the date of the Acquisition.
(c) The Lender Parties shall be satisfied with the corporate
and legal structure and capitalization of each Loan Party and each of
its Subsidiaries the Equity Interests in which Subsidiaries is being
pledged pursuant to the Loan Documents, including the terms and
conditions of the charter, bylaws and each class of Equity Interest in
each Loan Party
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and each such Subsidiary and of each agreement or instrument relating
to such structure or capitalization.
(d) All Existing Debt, other than Surviving Debt, shall have
been prepaid, redeemed or defeased in full or otherwise satisfied and
extinguished.
(e) Before giving effect to the Transaction, there shall not
have occurred or become known any condition or event that would
reasonably be expected to result in a Material Adverse Change.
(f) There shall exist no action, suit, investigation,
litigation or proceeding affecting any Loan Party or any of its
Subsidiaries pending or threatened before any court, governmental
agency or arbitrator that (i) would reasonably be expected to have a
Material Adverse Effect or (ii) purports to affect the legality,
validity or enforceability of any Transaction Document or the
consummation of the Transaction, and there shall have been no adverse
change in the status, or financial effect on any Loan Party or any of
its Subsidiaries, of the Disclosed Litigation from that described on
Schedule 4.01(f) hereto.
(g) All governmental and third party consents and approvals
necessary in connection with the Transaction shall have been obtained
(without the imposition of any conditions that are not acceptable to
the Lender Parties), and shall remain in effect; all applicable waiting
periods in connection with the Transaction shall have expired without
any action being taken by any competent authority, and no law or
regulation shall be applicable in the judgment of the Lender Parties,
in each case that restrains, prevents or imposes materially adverse
conditions upon the Transaction or the rights of the Loan Parties or
their Subsidiaries freely to transfer or otherwise dispose of, or to
create any Lien on, any properties now owned or hereafter acquired by
any of them.
(h) The Borrower shall have paid all accrued fees of the
Agents and the Lender Parties and all accrued expenses of the Agents
(including the accrued fees and expenses of counsel to the Syndication
Agent).
(i) There shall not have occurred any material disruption or
material adverse change in or affecting the United States financial,
banking, or capital market conditions generally from those in effect on
November 24, 1999, that, individually or in the aggregate, have
adversely affected the consummation of the Transactions; and no banking
moratorium shall have been declared by United States federal or New
York state banking authorities which shall be continuing.
SECTION 3.02. Conditions Precedent to Each Borrowing and Issuance and
Renewal. The obligation of each Appropriate Lender to make an Advance (other
than a Letter of
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73
Credit Advance made by the Issuing Bank or a Revolving Credit Lender pursuant to
Section 2.03(c) and a Swing Line Advance made by a Revolving Credit Lender
pursuant to Section 2.02(b)) on the occasion of each Borrowing (including the
initial Borrowing), and the obligation of the Issuing Bank to issue a Letter of
Credit (including the initial issuance) or renew a Letter of Credit and the
right of the Borrower to request a Swing Line Borrowing, shall be subject to the
further conditions precedent that on the date of such Borrowing or issuance or
renewal (a) the following statements shall be true (and each of the giving of
the applicable Notice of Borrowing, Notice of Swing Line Borrowing, Notice of
Issuance or Notice of Renewal and the acceptance by the Borrower of the proceeds
of such Borrowing or of such Letter of Credit or the renewal of such Letter of
Credit shall constitute a representation and warranty by the Borrower that both
on the date of such notice and on the date of such Borrowing or issuance or
renewal such statements are true):
(i) the representations and warranties contained in each Loan
Document are correct on and as of such date, before and after giving
effect to such Borrowing or issuance or renewal and to the application
of the proceeds therefrom, as though made on and as of such date, other
than any such representations or warranties that, by their terms, refer
to a specific date other than the date of such Borrowing or issuance or
renewal, in which case as of such specific date; and
(ii) no Default has occurred and is continuing, or would
result from such Borrowing or issuance or renewal or from the
application of the proceeds therefrom;
(b) the obligations of each Revolving Credit Lender to make Revolving
Credit Advances, shall be subject to the further condition precedent that:
(i) on the Effective Date, the aggregate amount of such
Revolving Credit Borrowing shall not exceed $15,000,000; and
(ii) on any date on which any Revolving Credit Borrowing has
been requested to fund any portion of the purchase price to be paid by
the Borrower or any of its Subsidiaries in connection with a Permitted
Acquisition, (A) no amount of the Term A Commitments shall remain
undrawn (after giving effect to any Term A Advances made on such date);
and (B) after giving effect to such Revolving Credit Borrowing, the
aggregate amount of all Revolving Credit Borrowing utilized for such
purchase since the Effective Date shall not exceed $25,000,000;
and (c) the Administrative Agent shall have received such other
approvals, opinions or documents as are otherwise required to be delivered under
this Agreement and any Appropriate Lender Party through the Administrative Agent
may reasonably request.
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SECTION 3.03. Determinations Under Section 3.01. For purposes of
determining compliance with the conditions specified in Section 3.01, each
Lender Party shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lender Parties unless an
officer of the Joint Lead Arranger responsible for the transactions contemplated
by the Loan Documents shall have received notice from such Lender Party prior to
the Initial Extension of Credit specifying its objection thereto and, if the
Initial Extension of Credit consists of a Borrowing, such Lender Party shall not
have made available to the Administrative Agent such Lender Party's ratable
portion of such Borrowing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a) Each Loan Party and each of its Subsidiaries (i) is a
corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, (ii) is duly
qualified and in good standing as a foreign corporation in each other
jurisdiction in which it owns or leases property or in which the
conduct of its business requires it to so qualify or be licensed except
where the failure to so qualify or be licensed would not be reasonably
likely to have a Material Adverse Effect and (iii) has all requisite
corporate power and authority (including, without limitation, all
governmental licenses, permits and other approvals) to own or lease and
operate its properties and to carry on its business as now conducted
and as proposed to be conducted. All of the outstanding Equity
Interests in the Borrower have been validly issued, and, as of the
Effective Date, are fully paid and non-assessable are owned by the
Equity Investors and the other Persons identified on Schedule 4.01(a)
in the amounts specified on Schedule 4.01(a) hereto free and clear of
all Liens.
(b) Set forth on Schedule 4.01(b) hereto is a complete and
accurate list of all direct and indirect Subsidiaries of each Loan
Party as of the date hereof, showing (as to each such Subsidiary) the
jurisdiction of its incorporation, the number of shares of each class
of its Equity Interests authorized, and the number outstanding, on the
date hereof and the percentage of each such class of its Equity
Interests owned (directly or indirectly) by such Loan Party (or
Subsidiary of such Loan Party, as applicable) and the number of shares
covered by all outstanding options, warrants, rights of conversion or
purchase and similar rights at the date hereof. All of the outstanding
Equity Interests in each Loan Party's Subsidiaries have been validly
issued, are fully paid and non-assessable and are
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75
owned by such Loan Party or one or more of its Subsidiaries free and
clear of all Liens, except those created under the Collateral
Documents.
(c) The execution, delivery and performance by each Loan Party
of each Transaction Document to which it is or is to be a party, and
the consummation of the Transaction, are within such Loan Party's
corporate powers, have been duly authorized by all necessary corporate
action, and do not (i) contravene such Loan Party's charter or bylaws,
(ii) violate any law, rule, regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System),
order, writ, judgment, injunction, decree, determination or award,
(iii) except as set forth on Schedule 4.01(c), conflict with or result
in the breach of, or constitute a default or, other than the Offer to
Purchase, require any payment to be made under, any material contract,
loan agreement, indenture, mortgage, deed of trust, lease or other
instrument binding on or affecting any Loan Party, any of its
Subsidiaries or any of their properties or (iv) except for the Liens
created under the Loan Documents, result in or require the creation or
imposition of any Lien upon or with respect to any of the properties of
any Loan Party or any of its Subsidiaries. No Loan Party or any of its
Subsidiaries is in violation of any such law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award or in breach
of any such contract, loan agreement, indenture, mortgage, deed of
trust, lease or other instrument, the violation or breach of which
would be reasonably likely to have a Material Adverse Effect.
(d) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
or any other third party is required for (i) the due execution,
delivery, recordation, filing or performance by any Loan Party of any
Transaction Document to which it is or is to be a party, or for the
consummation of the Transaction, (ii) the grant by any Loan Party of
the Liens granted by it pursuant to the Collateral Documents, (iii) the
perfection or maintenance of the Liens created under the Collateral
Documents (including the first priority nature thereof) or (iv) the
exercise by any Agent or any Lender Party of its rights under the Loan
Documents or the remedies in respect of the Collateral pursuant to the
Collateral Documents, except for (A) the filing of the financing
statements and the Intellectual Property Security Agreement delivered
to the Administrative Agent pursuant to Section 3.01(a)(ii) in the
applicable filing offices, (B) the authorizations, approvals, actions,
notices and filings listed on Schedule 4.01(d) hereto, all of which
have been duly obtained, taken, given or made and are in full force and
(C) those authorizations or approvals or other actions by, or notices
to or filings with, any governmental authority or regulatory body or
any third party which are specifically described in Section 5.01(q)
which have not been provided, taken or made on or prior to the
Post-Closing Perfection Date. All applicable waiting periods in
connection with the Transaction have expired without any action having
been taken by any competent authority restraining, preventing or
imposing materially adverse conditions upon the
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76
Transaction or the rights of the Loan Parties or their Subsidiaries
freely to transfer or otherwise dispose of, or to create any Lien on,
any properties now owned or hereafter acquired by any of them. The
Acquisition has been consummated in accordance with the Acquisition
Agreement and applicable law.
(e) This Agreement has been, and each other Transaction
Document when delivered hereunder will have been, duly executed and
delivered by each Loan Party party thereto. This Agreement is, and each
other Transaction Document when delivered hereunder will be (assuming
this Agreement has been duly authorized, executed and delivered by the
Lenders), the legal, valid and binding obligation of each Loan Party
party thereto, enforceable against such Loan Party in accordance with
its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer
or similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (whether enforcement is
sought by proceedings in equity or at law).
(f) Except as set forth on Schedule 4.01, there is no action,
suit, investigation, litigation or proceeding affecting any Loan Party
or any of its Subsidiaries, including any Environmental Action, pending
or, to any Loan Party's knowledge, threatened before any court,
governmental agency or arbitrator that (i) would be reasonably likely
to have a Material Adverse Effect or (ii) purports to affect the
legality, validity or enforceability of any Transaction Document or the
consummation of the Transaction, and there has been no change in the
status, or financial effect on any Loan Party or any of its
Subsidiaries, of the Disclosed Litigation from that described on
Schedule 4.01(f) hereto except for such changes as would not reasonably
be expected, either individually or in the aggregate, to have a
Material Adverse Effect.
(g) The audited Consolidated balance sheets of the Borrower
and its Subsidiaries as at December 31, 1998, and the related audited
Consolidated statements of income and Consolidated statement of cash
flows of the Borrower and its Subsidiaries for the fiscal year then
ended, accompanied by an unqualified opinion of Ernst & Young LLP,
independent public accountants, and the unaudited Consolidated balance
sheets of the Borrower and its Subsidiaries as at September 30, 1999,
and the related unaudited Consolidated statements of income and
Consolidated statement of cash flows of the Borrower and its
Subsidiaries for the nine months then ended, duly certified by the
Chief Financial Officer of the Borrower, copies of which have been
furnished to each Lender Party, fairly present, subject, in the case of
said balance sheet as at September 30, 1999, and said statements of
income and cash flows for the nine months then ended, to year-end audit
adjustments, the Consolidated financial condition of the Borrower and
its Subsidiaries as at such dates and the Consolidated results of
operations of the Borrower and its Subsidiaries for the periods ended
on such dates, all in accordance with generally
<PAGE> 77
77
accepted accounting principles applied on a consistent basis, and since
December 31, 1998, there has been no Material Adverse Change.
(h) The Consolidated pro forma balance sheets of the Borrower
and its Subsidiaries as at September 30, 1999, certified by the Chief
Financial Officer of the Borrower, copies of which have been furnished
to each Lender Party, fairly present the Consolidated pro forma
financial condition of the Borrower and its Subsidiaries as at such
date giving effect to the Acquisition and the Initial Extension of
Credit hereunder. The financial statements on which such pro forma
financial statements were based and the adjustments made thereto are in
accordance with GAAP.
(i) The Consolidated forecasted balance sheets, statements of
income and statements of cash flows of the Borrower and its
Subsidiaries delivered to the Lender Parties pursuant to Section
3.01(a)(xi) or 5.03 were prepared in good faith on the basis of the
assumptions stated therein, which assumptions were fair in light of the
conditions existing at the time of delivery of such forecasts, and
represented, at the time of delivery, the Borrower's best estimate of
its future financial performance.
(j) Neither the Information Memorandum nor any other
information, exhibit or report prepared by or on behalf of any Loan
Party and furnished to any Agent or any Lender Party in connection with
the negotiation and syndication of the Loan Documents or pursuant to
the terms of the Loan Documents contained, as of the date such
Information Memorandum, exhibit or report was prepared or furnished,
any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements made therein not misleading. The
projections and pro forma financial information contained in the
materials referenced above are based upon good faith estimates and
assumptions believed by management of the Borrower to be reasonable at
the time made, it being recognized by the Lenders that such financial
information as it relates to future events is not to be viewed as fact
and that actual results during the period or periods covered by such
financial information may differ from the projected results set forth
therein by a material amount.
(k) The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying Margin Stock, and no
proceeds of any Advance or drawings under any Letter of Credit will be
used to purchase or carry any Margin Stock or to extend credit to
others for the purpose of purchasing or carrying any Margin Stock.
(l) Neither any Loan Party nor any of its Subsidiaries is an
"investment company", or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended. Neither any
Loan Party nor any of its Subsidiaries is a "holding
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78
company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company", as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended. Neither the making of any
Advances, nor the issuance of any Letters of Credit, nor the
application of the proceeds or repayment thereof by the Borrower, nor
the consummation of the other transactions contemplated by the
Transaction Documents, will violate any provision of any such Act or
any rule, regulation or order of the Securities and Exchange Commission
thereunder.
(m) Neither any Loan Party nor any of its Subsidiaries is a
party to any indenture, loan or credit agreement or any lease or other
agreement or instrument or subject to any charter or corporate
restriction that would be reasonably likely to have a Material Adverse
Effect.
(n) Except for the filings and the other necessary actions(i)
specified in Section 5.01(q) to occur on or prior to the Post-Closing
Perfection Date, (ii) required in connection with perfecting the Lien
of the Security Agreement in (A) any Intellectual Property which is
registered in any jurisdiction outside the United States of America,
(B) Off-site Goods or (C) any motor vehicles, (iii) to file the
financing statements and the Intellectual Property Security Agreement
delivered to the Administrative Agent pursuant to Section 3.01(a)(ii)
in the applicable filing officers, or (iv) related to perfecting the
Lien of the Collateral Documents in Collateral described in Section
5.01(j)(iv)(B), from and after the Closing Date all filings and other
actions necessary or desirable to perfect and protect the security
interest in the Collateral created under the Collateral Documents will
have been duly made or taken and be in full force and effect, and from
and after such date the Collateral Documents will create in favor of
the Administrative Agent for the benefit of the Secured Parties a valid
and, together with such filings and other actions, perfected first
priority security interest in the Collateral subject only to the prior
Liens and security interests permitted hereunder and under the other
Loan Documents, securing the payment of the Secured Obligations. The
Loan Parties are the legal and beneficial owners of the Collateral free
and clear of any Lien, except for the liens and security interests
created or permitted under the Loan Documents.
(o) Each Loan Party is, individually and together with its
Subsidiaries, Solvent.
(p) (i) Set forth on Schedule 4.01(p) hereto is a complete and
accurate list of all Plans, Multiemployer Plans and Welfare Plans of
the Borrower as of the date hereof.
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79
(ii) No ERISA Event has occurred or is reasonably expected to
occur with respect to any Plan that has resulted in or is reasonably
expected to result in a Material Adverse Effect.
(iii) Schedule B (Actuarial Information) to the most recent
annual report (Form 5500 Series) for each Plan, copies of which have
been filed with the Internal Revenue Service and furnished to the
Lender Parties, is complete and accurate and fairly presents the
funding status of such Plan, and since the date of such Schedule B
there has been no material adverse change in such funding status.
(iv) Neither any Loan Party nor any ERISA Affiliate has
incurred or is reasonably expected to incur any Withdrawal Liability to
any Multiemployer Plan that could have a Material Adverse Effect.
(v) Neither any Loan Party nor any ERISA Affiliate has been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or has been terminated, within the meaning of
Title IV of ERISA, and no such Multiemployer Plan is reasonably
expected to be in reorganization or to be terminated, within the
meaning of Title IV of ERISA in either case, that has resulted, or is
reasonably likely to result in a Material Adverse Effect.
(vi) With respect to each scheme or arrangement mandated by a
government other than the United States (a "FOREIGN GOVERNMENT SCHEME
OR ARRANGEMENT") and with respect to each employee benefit plan
maintained or contributed to by any Loan Party or any Subsidiary of any
Loan Party that is not subject to United States law (a "FOREIGN PLAN"),
except for instances where the failure do so would not be reasonably
likely to result in a Material Adverse Effect, either individually or
in the aggregate:
(A) Any employer and employee contributions required
by law or by the terms of any Foreign Government Scheme or
Arrangement or any Foreign Plan have been made, or, if
applicable, accrued, in accordance with normal accounting
practices.
(B) The fair market value of the assets of each
funded Foreign Plan, the liability of each insurer for any
Foreign Plan funded through insurance or the book reserve
established for any Foreign Plan, together with any accrued
contributions, is sufficient to procure or provide for the
accrued benefit obligations, as of the date hereof, with
respect to all current and former participants in such Foreign
Plan according to the actuarial assumptions and valuations
most recently used to account for such obligations in
accordance with applicable generally accepted accounting
principles.
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(C) Each Foreign Plan required to be registered has
been registered and has been maintained in good standing with
applicable regulatory authorities.
(q) Except as set forth in Schedule 4.01(q) or as would not,
individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect:
(i) the operations and properties of each Loan Party and each
of its Subsidiaries comply in all respects with all applicable
Environmental Laws and Environmental Permits, all past non-compliance
with such Environmental Laws and Environmental Permits has been
resolved, and, to the knowledge of Borrower, no circumstances exist
that would be reasonably likely to (A) form the basis of an
Environmental Action against any Loan Party or any of its Subsidiaries
or any of their properties or (B) cause any such property to be subject
to any restrictions on ownership, occupancy, use or transferability
under any Environmental Law.
(ii) None of the properties currently or, to the knowledge of
the Borrower, formerly owned or operated by any Loan Party or any of
its Subsidiaries is listed or, to the knowledge of Borrower, proposed
for listing, on the NPL or on the CERCLIS or any analogous foreign,
state or local list or, to the knowledge of Borrower, is adjacent to
any such property; there is no asbestos or asbestos-containing material
requiring abatement or any other action under applicable Environmental
Law on any property currently owned or operated by any Loan Party or
any of its Subsidiaries; and Hazardous Materials have not been
released, discharged or disposed of on any property currently or, to
the knowledge of the Borrower, formerly owned or operated by any Loan
Party or any of its Subsidiaries.
(iii) Neither any Loan Party nor any of its Subsidiaries is
undertaking either individually or together with other potentially
responsible parties, any investigation or assessment or remedial or
response action relating to any actual or threatened release, discharge
or disposal of Hazardous Materials at any site, location or operation,
either voluntarily or pursuant to the order of any governmental or
regulatory authority or the requirements of any Environmental Law; and,
to the knowledge of Borrower, all Hazardous Materials generated, used,
treated, handled or stored at, or transported to or from, any property
currently or formerly owned or operated by any Loan Party or any of its
Subsidiaries have been disposed of in a manner not reasonably expected
to result in material liability to any Loan Party or any of its
Subsidiaries.
(r) (i) Neither any Loan Party nor any of its Subsidiaries is
party to any tax sharing agreement, except for tax sharing agreements
among only the Borrower and its Subsidiaries, or only among
Subsidiaries of the Borrower.
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(ii) The Borrower and each of its Subsidiaries has filed, has caused
to be filed or has been included in all Federal and all material state,
local and foreign tax returns required to be filed and has paid all taxes
shown thereon to be due, together with applicable interest and penalties.
(iii) Set forth on Schedule 4.01(r) hereto is a complete and
accurate list, as of the date hereof, of each taxable year of the Borrower
and each of its Subsidiaries and Affiliates for which Federal income tax
returns have been filed and for which the expiration of the applicable
statute of limitations for assessment or collection of Federal income
taxes has not occurred by reason of extension or otherwise (an "OPEN
YEAR").
(iv) The aggregate unpaid amount, as of the date hereof, of
adjustments to the Federal income tax liability of the Borrower and its
Subsidiaries proposed by the Internal Revenue Service with respect to Open
Years does not exceed $5,000,000. No claims have been asserted by the
Internal Revenue Service in respect of Open Years that, in the aggregate,
would be reasonably likely to have a Material Adverse Effect.
(v) The aggregate unpaid amount, as of the date hereof, of
adjustments to the state, local and foreign tax liability of the Borrower
and its Subsidiaries proposed by all state, local and foreign taxing
authorities (other than amounts arising from adjustments to Federal income
tax returns) does not exceed $5,000,000. No claims have been asserted by
such taxing authorities that, in the aggregate, would be reasonably likely
to have a Material Adverse Effect.
(vi) The Acquisition will not be taxable to the Borrower or any of
its Subsidiaries.
(s) Neither the business nor the properties of any Loan Party or any
of its Subsidiaries have been and continue to be affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or
other casualty (whether or not covered by insurance) that would be
reasonably likely to have a Material Adverse Effect.
(t) Set forth on Schedule 4.01(t) hereto is a complete and accurate
list of all Existing Debt (other than Surviving Debt) as of the date
hereof , showing the obligor and the principal amount outstanding
thereunder.
(u) Set forth on Schedule 4.01(u) hereto is a complete and accurate
list of all Surviving Debt as of the date hereof, showing the obligor and
the principal amount outstanding thereunder, the maturity date thereof and
the amortization schedule therefor. The Obligations of each Loan Party
under the Loan Documents constitute Senior
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Indebtedness as such term is used and defined in the Indenture and in each
note set forth on Schedule 4.01(u).
(v) Set forth on Schedule 4.01(v) hereto is a complete and accurate
list of all Liens on the property or assets of any Loan Party or any of
its Subsidiaries as of the date hereof, showing the lienholder thereof,
the principal amount of the obligations secured thereby and the property
or assets of such Loan Party or such Subsidiary subject thereto.
(w) Set forth on Schedule 4.01(w) hereto is a complete and accurate
list of all real property owned by any Loan Party or any of its
Subsidiaries as of the date hereof, showing the street address, county or
other relevant jurisdiction, state, record owner and book and estimated
fair value thereof. Each Loan Party or such Subsidiary has good,
marketable and insurable fee simple title to such real property, free and
clear of all Liens, other than Liens created or permitted by the Loan
Documents.
(x) Set forth on Schedule 4.01(x) hereto is a complete and accurate
list of all leases of real property under which any Loan Party or any of
its Subsidiaries is the lessee as of the date hereof, showing the street
address, county or other relevant jurisdiction, state, lessor, lessee,
expiration date and annual rental cost thereof. Each such lease is the
legal, valid and binding obligation of the lessor thereof, enforceable in
accordance with its terms.
(y) Set forth on Schedule 4.01(y) hereto is a complete and accurate
list of all Investments held by any Loan Party or any of its Subsidiaries
on the date hereof, showing as of the date hereof the amount, obligor or
issuer and maturity, if any, thereof.
(z) Set forth on Schedule 4.01(z) hereto is a complete and accurate
list of all registered patents, trademarks, trade names, service marks and
copyrights, and all applications therefor and licenses thereof, of each
Loan Party or any of its Subsidiaries on the date hereof, showing as of
the date hereof the jurisdiction in which registered, the registration
number, the date of registration and the expiration date.
(aa) Set forth on Schedule 4.01(aa) hereto is a complete and
accurate list of all Material Contracts of each Loan Party and its
Subsidiaries as of the date hereof, showing the parties, subject matter
and term thereof. As of the date hereof, each such Material Contract has
been duly authorized, executed and delivered by all parties thereto is in
full force and effect and is binding upon and enforceable against all
parties thereto in accordance with its terms, and there exists no default
under any Material Contract by any party thereto.
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(bb) The Borrower has (i) initiated a review and assessment of all
areas within its and each of its Subsidiaries' business and operations
(including those affected by suppliers, vendors and customers) that could
be adversely affected by the risk that computer applications used by the
Borrower or any of its Subsidiaries (or suppliers, vendors and customers)
may be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December 31, 1999 (the
"YEAR 2000 PROBLEM"), (ii) developed a plan and timetable for addressing
the Year 2000 Problem on a timely basis and (iii) to date, implemented
that plan in accordance with such timetable. Based on the foregoing, the
Borrower believes that all computer applications that are material to its
or any of its Subsidiaries' business and operations are reasonably
expected on a timely basis to be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000 ("YEAR 2000
COMPLIANT"), except to the extent that a failure to do so could not
reasonably be expected to have a Material Adverse Effect.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Advance or any
other Obligation of any Loan Party under any Loan Document shall remain unpaid,
any Letter of Credit shall be outstanding or any Lender Party shall have any
Commitment hereunder, the Borrower will:
(a) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with all applicable
laws, rules, regulations and orders, such compliance to include, without
limitation, compliance with ERISA and the Racketeer Influenced and Corrupt
Organizations Chapter of the Organized Crime Control Act of 1970, unless
any such non-compliance would not reasonably be expected to have a
Material Adverse Effect.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its
Subsidiaries to pay and discharge, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges or levies
imposed upon it or upon its property and (ii) all lawful claims that, if
unpaid, might by law become a Lien upon its property; provided, however,
that neither the Borrower nor any of its Subsidiaries shall be required to
pay or discharge any such tax, assessment, charge or claim that is being
contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained, unless and until any Lien
resulting therefrom attaches to its property and becomes enforceable
against its other creditors.
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(c) Compliance with Environmental Laws. Comply, and cause each of
its Subsidiaries to comply, and use commercially reasonable efforts to
cause all lessees and other Persons operating or occupying its properties
to comply, in all material respects, with all applicable Environmental
Laws and Environmental Permits; obtain and renew and cause each of its
Subsidiaries to obtain and renew all material Environmental Permits
necessary for its operations and properties; and conduct, and cause each
of its Subsidiaries to conduct, any investigation, study, sampling and
testing (collectively referred to as "INVESTIGATION"), and undertake any
cleanup, removal, remedial or other action necessary to remove and clean
up all Hazardous Materials (collectively referred to as "REMEDIAL ACTION")
from any of its properties, to the extent required by Environmental Laws
unless the failure to conduct such Investigation or undertake such
Remedial Action would not, individually or in the aggregate, be reasonably
likely to have a Material Adverse Effect ; provided, however, that neither
the Borrower nor any of its Subsidiaries shall be required to undertake
any such Remedial Action to the extent that its obligation to do so is
being contested in good faith and by proper proceedings and appropriate
reserves are being maintained with respect to such circumstances.
(d) Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and covering such
risks as is usually carried by companies engaged in similar businesses and
owning similar properties in the same general areas in which the Borrower
or such Subsidiary operates.
(e) Preservation of Corporate Existence, Etc. Preserve and maintain,
and cause each of its Subsidiaries to preserve and maintain, its
existence, legal structure, legal name, rights (charter and statutory),
permits, licenses, approvals, privileges and franchises, except to the
extent any failure to preserve and maintain any of the foregoing could not
reasonably be expected to have a Material Adverse Effect; provided,
however, that the Borrower and its Subsidiaries may consummate any merger
or consolidation permitted under Section 5.02(d); and provided, further,
that neither the Borrower nor any of its Subsidiaries shall be required to
preserve any right, permit, license, approval, privilege or franchise if
the Board of Directors of the Borrower or such Subsidiary shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Borrower or such Subsidiary, as the case may be, and that
the loss thereof is not disadvantageous in any material respect to the
Borrower, such Subsidiary or the Lender Parties.
(f) Visitation Rights. At any reasonable time and from time to time
upon reasonable notice, permit the Administrative Agent or any of the
Lender Parties, or any agents or representatives thereof, to examine and
make copies of and abstracts from the records and books of account of, and
visit the properties of, the Borrower and any of its
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Subsidiaries, and to discuss the affairs, finances and accounts of the
Borrower and any of its Subsidiaries with any of their officers or
directors and with their independent certified public accountants.
(g) Keeping of Books. Keep, and cause each of its Subsidiaries to
keep, proper books of record and account, in which full and correct
entries shall be made of all financial transactions and the assets and
business of the Borrower and each such Subsidiary in accordance with
generally accepted accounting principles in effect from time to time.
(h) Maintenance of Properties, Etc. Maintain and preserve, and cause
each of its Subsidiaries to maintain and preserve, all of its properties
that are used or useful in the conduct of its business in good working
order and condition, ordinary wear and tear excepted.
(i) Transactions with Affiliates. Conduct, and cause each of its
Subsidiaries to conduct, all transactions otherwise permitted under the
Loan Documents with any of their Affiliates on terms that are fair and
reasonable and no less favorable to the Borrower or such Subsidiary than
it would obtain in a comparable arm's-length transaction with a Person not
an Affiliate. The following transactions shall in any event be deemed to
comply with this Section 5.01(i): (i) the Borrower's execution and
delivery of the Management Agreement and the payment of management fees to
the Sponsor in an aggregate amount of up to $1.6 million per year pursuant
to the Management Agreement, (ii) reimbursements of Sponsor for reasonable
out-of-pocket expenses incurred by it in connection with performing
management services for the Borrower and payments to Sponsor in respect of
indemnification obligations under the Management Agreement; (iii) any
transaction between the Borrower or any Subsidiary and an officer or
member of the board of directors of, the Borrower or any Subsidiary in the
ordinary course involving compensation, indemnity or employee benefit
arrangements; (iv) the Transactions and (v) the Borrower's execution,
delivery and performance of the Shareholder Agreements and a registration
rights agreement with SSCI Investors containing customary terms and
provisions for such agreements.
(j) Covenant to Guarantee Obligations and Give Security. Upon (x)
the request of the Administrative Agent following the occurrence and
during the continuance of a Default, (y) the formation or acquisition of
any new direct or indirect Domestic Subsidiaries by any Loan Party or (z)
the acquisition of any property by any Loan Party, and such property, in
the judgment of the Collateral Agent, shall not already be subject to a
perfected first priority security interest in favor of the Administrative
Agent for the benefit of the Secured Parties, then the Borrower shall, in
each case at the Borrower's expense:
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(i) in connection with the formation or acquisition of a
Domestic Subsidiary, within 20 days after such formation or
acquisition, cause each such Subsidiary, and cause each direct and
indirect parent of such Subsidiary (if it has not already done so),
to duly execute and deliver to the Administrative Agent a guaranty
or guaranty supplement, in form and substance satisfactory to the
Administrative Agent, guaranteeing the other Loan Parties'
obligations under the Loan Documents,
(ii) within 20 days after such request, formation or
acquisition, furnish to the Administrative Agent a description of
the real and personal properties of the Loan Parties and their
respective Subsidiaries in detail satisfactory to the Administrative
Agent,
(iii) within 45 days after such request, formation or
acquisition, duly execute and deliver, and cause each such
Subsidiary and each direct and indirect parent of such Subsidiary
(if it has not already done so) to duly execute and deliver, to the
Administrative Agent mortgages, pledges, assignments, security
agreement supplements and other security agreements, similar to the
Mortgage and Security Agreement attached hereto and otherwise in
form and substance satisfactory to the Administrative Agent,
securing payment of all the Obligations of the applicable Loan
Party, such Subsidiary or such parent, as the case may be, under the
Loan Documents and constituting Liens on all such properties,
(iv) within 30 days after such request, formation or
acquisition, take, and cause such Subsidiary or such parent to take,
whatever action (including, without limitation, the filing of
Uniform Commercial Code financing statements, the giving of notices
and the endorsement of notices on title documents) may be necessary
or advisable in the opinion of the Administrative Agent to vest in
the Administrative Agent (or in any representative of the
Administrative Agent designated by it) valid and subsisting Liens on
the properties purported to be subject to the pledges, assignments,
security agreement supplements and security agreements delivered
pursuant to this Section 5.01(j), enforceable against all third
parties in accordance with their terms; provided, however, that the
Borrower and its Subsidiaries shall not be required to comply with
the requirements of this Section 5.01(j)(iv) with respect to (A) any
actions relating to Intellectual Property that would otherwise be
required to be taken outside of the United States, (B) Collateral
for which the Administrative Agent, in its reasonable discretion
determines that the cost of perfecting the lien of the Security
Agreement therein is excessive in relation to the security afforded
thereby or (C) any actions in respect of any Equity Interests in any
Foreign Corporation (as defined in the Security
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Agreement) other than as provided in Sections 1(d)(iv) and 18(8) of
the Security Agreement,
(v) within 60 days after the request of the Administrative
Agent, deliver to the Administrative Agent, a signed copy of a
favorable opinion, addressed to the Administrative Agent and the
other Secured Parties, of counsel for the Loan Parties acceptable to
the Administrative Agent as to the matters contained in clauses (i),
(iii) and (iv) above, as to such guaranties, guaranty supplements,
mortgages, pledges, assignments, security agreement supplements and
security agreements being legal, valid and binding obligations of
each Loan Party party thereto enforceable in accordance with their
terms, as to the matters contained in clause (iv) above, as to such
recordings, filings, notices, endorsements and other actions being
sufficient to create valid perfected Liens on such personal
property, and as to such other matters as the Administrative Agent
may reasonably request,
(vi) as promptly as reasonably practicable and in any case not
later than 60 days after the request of the Administrative Agent in
its sole discretion, deliver to the Administrative Agent with
respect to each parcel of real property owned or held by the entity
that is the subject of such request, formation or acquisition title
reports, surveys and engineering, soils and other reports, and Phase
I environmental assessment reports, each in scope, form and
substance satisfactory to the Administrative Agent, provided,
however, that to the extent that any Loan Party or any of its
Subsidiaries shall have otherwise received any of the foregoing
items with respect to such real property, such items shall, promptly
after the receipt thereof, be delivered to the Administrative Agent,
and take whatsoever action, including the recording of mortgages,
may be necessary or advisable in the opinion of the Administrative
Agent to vest in the Administrative Agent valid and subsisting Liens
on such real estate, enforceable against all third parties in
accordance with their terms,
(vii) upon the occurrence and during the continuance of a
Default, at the request of the Administrative Agent, promptly cause
to be deposited any and all cash dividends paid or payable to it or
any of its Subsidiaries from any of its Subsidiaries from time to
time into the Collateral Account, and with respect to all other
dividends paid or payable to it or any of its Subsidiaries from time
to time, promptly execute and deliver, or cause such Subsidiary to
promptly execute and deliver, as the case may be, any and all
further instruments and take or cause such Subsidiary to take, as
the case may be, all such other action as the Administrative Agent
may deem necessary or desirable in order to obtain and maintain from
and
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after the time such dividend is paid or payable a perfected, first
priority lien on and security interest in such dividends, and
(viii) at any time and from time to time, promptly execute and
deliver any and all further instruments and documents and take all
such other action as the Administrative Agent may reasonably deem
necessary or desirable in obtaining the full benefits of, or in
perfecting and preserving the Liens of, such guaranties, mortgages,
pledges, assignments, security agreement supplements and security
agreements.
(k) Further Assurances. (i) Promptly upon request by any Agent, or
any Lender Party through the Administrative Agent, correct, and cause each
of its Subsidiaries promptly to correct, any material defect or error that
may be discovered in any Loan Document or in the execution,
acknowledgment, filing or recordation thereof, and
(ii) Promptly upon request by any Agent, or any Lender Party through
the Administrative Agent, do, execute, acknowledge, deliver, record,
re-record, file, re-file, register and re-register any and all such
further acts, deeds, conveyances, pledge agreements, mortgages, deeds of
trust, trust deeds, assignments, financing statements and continuations
thereof, termination statements, notices of assignment, transfers,
certificates, assurances and other instruments as any Agent, or any Lender
Party through the Administrative Agent, may reasonably require from time
to time in order to (A) carry out more effectively the purposes of the
Loan Documents, (B) to the fullest extent permitted by applicable law,
subject any Loan Party's or any of its Subsidiaries' properties, assets,
rights or interests to the Liens now or hereafter intended to be covered
by any of the Collateral Documents, (C) perfect and maintain the validity,
effectiveness and priority of any of the Collateral Documents and any of
the Liens intended to be created thereunder and (D) assure, convey, grant,
assign, transfer, preserve, protect and confirm more effectively unto the
Secured Parties the rights granted or now or hereafter intended to be
granted to the Secured Parties under any Loan Document or under any other
instrument executed in connection with any Loan Document to which any Loan
Party or any of its Subsidiaries is or is to be a party, and cause each of
its Subsidiaries to do so.
(l) Performance of Indenture. Perform and observe, and cause each of
its Subsidiaries to perform and observe, all of the terms and provisions
of the Indenture to be performed or observed by it in connection with the
Offer to Purchase and take all reasonable action to such end as may be
from time to time requested by the Administrative Agent.
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(m) Preparation of Environmental Reports. At the reasonable request
of the Required Lenders from time to time upon a violation by any Loan
Party or any of its Subsidiaries of Environmental Law, or the occurrence
or discovery (including, without limitation, from a report delivered
pursuant to Section 5.01(j)(vi)) of any other fact, circumstance, event,
act or condition that could result in the liability of any Loan Party or
any of its Subsidiaries under Environmental Law, that, individually or in
the aggregate, would be reasonably likely to have a Material Adverse
Effect, provide to the Lender Parties within 90 days after such request,
at the expense of the Borrower, an environmental site assessment report
for any of its or its Subsidiaries' properties described in such request,
prepared by an environmental consulting firm reasonably acceptable to the
Required Lenders, indicating the presence or absence of Hazardous
Materials and the estimated cost of any compliance or Remedial Action in
connection with any Hazardous Materials on such properties; without
limiting the generality of the foregoing, if any such report is not be
provided within the time referred to above, the Required Lenders may
retain an environmental consulting firm reasonably acceptable to Borrower
to prepare such report at the expense of the Borrower, and the Borrower
hereby grants and agrees to cause any Subsidiary that owns any property
described in such request to grant at the time of such request to the
Agents, the Lender Parties, such firm and any agents or representatives
thereof an irrevocable non-exclusive license, subject to the rights of
tenants, to enter onto their respective properties to undertake such an
assessment during reasonable business hours (after giving reasonable prior
notice to Borrower).
(n) Compliance with Terms of Leaseholds. Make all payments and
otherwise perform all obligations in respect of each leases of real
property to which the Borrower or any of its Subsidiaries is a party which
provides for annual base lease rent thereunder of $250,000 or more, keep
such leases in full force and effect and not allow such leases to lapse or
be terminated or any rights to renew such leases to be forfeited or
cancelled, notify the Administrative Agent of any default by any party
with respect to such leases and cooperate with the Administrative Agent in
all respects to cure any such default, and cause each of its Subsidiaries
to do so, except, in any case, where the failure to do so, either
individually or in the aggregate, would not be reasonably likely to have a
Material Adverse Effect.
(o) Interest Rate Hedging. After the completion of the Offer to
Purchase and prior to the 6 month anniversary of the Initial Borrowing,
enter into interest rate hedge agreements such that, after giving effect
to such Hedge Agreements, at least 45% of the Borrower's Funded Debt
(including the Senior Subordinated Notes) either by its terms accrues
interest at a fixed rate until maturity or is subject to an interest rate
Hedge Agreement. While the Borrower will have no obligation to exceed such
45% level,
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Borrower agrees to a target level of 50% of its Funded Debt being subject
to interest rate Hedge Agreements.
(p) Performance of Material Contracts. Perform and observe all the
terms and provisions of each Material Contract to be performed or observed
by it, maintain each such Material Contract in full force and effect,
enforce each such Material Contract in accordance with its terms, take all
such action to such end as may be from time to time requested by the
Administrative Agent and, upon request of the Administrative Agent, make
to each other party to each such Material Contract such demands and
requests for information and reports or for action as any Loan Party or
any of its Subsidiaries is entitled to make under such Material Contract,
and cause each of its Subsidiaries to do so, except, in any case, where
the failure to do so, either individually or in the aggregate, would not
be reasonably likely to have a Material Adverse Effect. The Borrower will
use all reasonable efforts, and will cause the applicable Loan Party to
use all reasonable efforts to obtain, on or prior to the Post-Closing
Perfection Date, the written consent of any necessary party to each
Designated Material Contract which by its terms prohibits the applicable
Loan Party party thereto from assigning a security interest in its rights
thereunder pursuant to the Security Agreement, which consent shall permit
the applicable Loan Party to grant such a security interest in such
Designated Material Contract.
(q) Post-Closing Date Deliveries. On or before the date (the
"POST-CLOSING PERFECTION DATE")which is the earliest of (x) 60 days
following the Effective Date, or (y) any other date on which a Borrowing
is requested, if after giving effect to such Borrowing, the Senior
Debt/EBITDA Ratio would be greater than 2.25:1, the Administrative Agent
shall have received the following, each dated on or before such date
(unless otherwise specified), in form and substance satisfactory to the
Joint Lead Arrangers (unless otherwise specified) and in sufficient copies
for each Lender Party:
(i) Deeds of trust, trust deeds and mortgages in form and
substance reasonably satisfactory to the Administrative Agent and
the Joint Lead Arrangers, and covering the properties listed on
Schedules 4.01(w) hereto (together with any Assignments of Leases
and Rents referred to therein and each other mortgage delivered
pursuant to Section 5.01(j), in each case as amended, the
"MORTGAGES"), duly executed by the appropriate Loan Party, together
with:
(A) evidence that counterparts of the Mortgages have
been or will be duly recorded on or before the day of the
Post-Closing Perfection Date in all filing or recording
offices that the Administrative Agent may deem necessary or
desirable in order to create a valid first and subsisting Lien
on the property described therein in favor of the
Administrative
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Agent for the benefit of the Secured Parties and that all
filing and recording taxes and fees have been paid,
(B) fully paid American Land Title Association Lender's
Extended Coverage title insurance policies (the "MORTGAGE
POLICIES") in form and substance, with endorsements and in
amount acceptable to the Administrative Agent and the Joint
Lead Arrangers, issued, coinsured and reinsured by title
insurers acceptable to the Administrative Agent and the Joint
Lead Arrangers, insuring the Mortgages to be valid first and
subsisting Liens on the property described therein, free and
clear of all defects (including, but not limited to,
mechanics' and materialmen's Liens) and encumbrances,
excepting only Permitted Encumbrances (which shall include for
all purposes of this Section 5.01(q), in the case of the
property of Pierce & Stevens, Corp. located in Seabrook, New
Hampshire, the existing mortgage on that property in favor of
Morton International, Inc.), and providing for such other
affirmative insurance (including endorsements for future
advances under the Loan Documents and for mechanics' and
materialmen's Liens) and such coinsurance and direct access
reinsurance as the Administrative Agent and the Joint Lead
Arrangers may reasonably deem necessary or desirable,
(C) American Land Title Association form surveys, dated
no more than 30 days before the day of the Initial Extension
of Credit, certified to the Administrative Agent and the
issuer of the Mortgage Policies in a manner satisfactory to
the Administrative Agent and the Joint Lead Arrangers by a
land surveyor duly registered and licensed in the States in
which the property described in such surveys is located and
acceptable to the Administrative Agent and the Joint Lead
Arrangers, showing all buildings and other improvements, any
off-site improvements, the location of any easements, parking
spaces, rights of way, building set-back lines and other
dimensional regulations and the absence of encroachments,
either by such improvements or on to such property, and other
defects, other than encroachments and other defects reasonably
acceptable to the Administrative Agent and the Joint Lead
Arrangers,
(D) any Assignments of Leases and Rents referred to in
the applicable Mortgages, duly executed by the appropriate
Loan Party,
(E) such consents and agreements of lessors and other
third parties, and such estoppel letters and other
confirmations, as the
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Administrative Agent and the Joint Lead Arrangers may
reasonably deem necessary or desirable,
(F) evidence of the insurance required by the terms of
the Mortgages, and
(G) evidence that all other action that the
Administrative Agent and the Joint Lead Arrangers may deem
necessary or desirable in order to create valid first and
subsisting Liens on the property described in the Mortgages
has been taken, subject only to Permitted Encumbrances.
(ii) the Pledged Account Letters referred to in the Security
Agreement, duly executed by each Pledged Account Bank referred to in
the Security Agreement.
(iii) the Control Agreements referred to in the Security
Agreement, duly executed by the applicable securities intermediary
or commodities intermediary with respect to each securities account
or commodities account of each Loan Party, if any.
(iv) favorable opinions addressed to the Agents and the Lender
Parties from counsel to the Loan Parties and local counsel as to
matters contained in the foregoing clauses (i), (ii) and (iii) as
the Joint Lead Arrangers may reasonably request.
(v) certified copies of each Designated Material Contract,
together with the written consents of the other parties thereto
which the Borrower is required to seek as provided pursuant to
Section 5.01(p).
(vi) evidence satisfactory to the Administrative Agent and the
Joint Lead Arrangers that all necessary and customary recordations
and filings have been made in the appropriate recordation or filing
location in the jurisdiction in which any Foreign Subsidiary is
organized in order to perfect the Lien of the Security Agreement in
the Equity Interests of such Foreign Subsidiary which are pledged by
the applicable Loan Party thereunder.
(r) Certain Effective Date Deliveries. (i) Each Lender Party
hereby waives the following conditions to the Initial Extension of
Credit in Section 3.01:
(A) pursuant to Section 3.01(a)(ii)(A), the requirement that
the Administrative Agent shall have received certificates
representing the Initial
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Pledged Shares in Foreign Subsidiaries organized under the laws of
Mexico, together with undated stock powers, duly executed in blank;
and
(B) pursuant to Section 3.01(a)(vi), the requirement that the
Administrative Agent shall have received (x) a good standing
certificate from the Illinois Secretary of State stating that Pierce
& Stevens Corp. is duly qualified and in good standing as a foreign
corporation in Illinois and (y) a good standing certificate from the
Massachusetts Secretary of the Commonwealth stating that Pierce &
Stevens Corp. is duly qualified and in good standing as a foreign
corporation in Massachusetts.
(ii) On or prior to the date which is 90 days following the
Effective Date, the Borrower shall deliver to the Administrative Agent
each of the share certificates representing the Pledged Shares and related
stock power described in clause (i)(A) above; provided however that, at
the reasonable request of the Borrower, the Administrative Agent may
extend the period for the delivery of such certificates for an additional
90 days.
(iii) On or prior to the date which is 90 days following the
Effective Date, the Borrower shall deliver to the Administrative Agent the
Massachusetts good standing certificate described in clause (i)(B)(y)
above; provided however that, at the reasonable request of the Borrower,
the Administrative Agent may extend the period for the delivery of such
certificate for an additional 90 days.
(iv) On or prior to the first anniversary of the Effective Date the
Borrower shall deliver to the Administrative Agent the Illinois good
standing certificate described in clause (i)(B)(x) above.
SECTION 5.02. Negative Covenants. So long as any Advance or any
other Obligation of any Loan Party under any Loan Document shall remain unpaid,
any Letter of Credit shall be outstanding or any Lender Party shall have any
Commitment hereunder, the Borrower will not, at any time:
(a) Liens, Etc. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any
Lien on or with respect to any of its properties of any character
(including, without limitation, accounts) whether now owned or hereafter
acquired, or sign or file or suffer to exist, or permit any of its
Subsidiaries to sign or file or suffer to exist, under the Uniform
Commercial Code of any jurisdiction, a financing statement that names the
Borrower or any of its Subsidiaries as debtor, or sign or suffer to exist,
or permit any of its Subsidiaries to sign or suffer to exist, any security
agreement authorizing any secured party thereunder to file such financing
<PAGE> 94
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statement, or assign, or permit any of its Subsidiaries to assign, any
accounts or other right to receive income, except:
(i) Liens created under the Loan Documents;
(ii) Permitted Liens;
(iii) Liens existing on the date hereof and described on
Schedule 4.01(v) hereto;
(iv) purchase money Liens upon or in real property or
equipment acquired or held by the Borrower or any of its
Subsidiaries in the ordinary course of business to secure the
purchase price of such property or equipment or to secure Debt
incurred solely for the purpose of financing the acquisition of any
such property or equipment to be subject to such Liens, or Liens
existing on any such property or equipment at the time of
acquisition (other than any such Liens created in contemplation of
such acquisition that do not secure the purchase price), or
extensions, renewals or replacements of any of the foregoing for the
same or a lesser amount; provided, however, that no such Lien shall
extend to or cover any property other than the property or equipment
being acquired, and no such extension, renewal or replacement shall
extend to or cover any property not theretofore subject to the Lien
being extended, renewed or replaced; and provided, further, that the
aggregate principal amount of the Debt secured by Liens permitted by
this clause (iv) shall not exceed the amount permitted under Section
5.02(b)(ii) at any time outstanding;
(v) Liens arising in connection with Capitalized Leases
permitted under Section 5.02(b)(iii); provided that no such Lien
shall extend to or cover any Collateral or assets other than the
assets subject to such Capitalized Leases;
(vi) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Borrower or any
Subsidiary of the Borrower or becomes a Subsidiary of the Borrower
after the Effective Date securing Debt permitted by Section
5.02(b)(v); provided that such Liens were not created in
contemplation of such merger, consolidation or investment and do not
extend to any assets other than those of the Person merged into or
consolidated with the Borrower or such Subsidiary or acquired by the
Borrower or such Subsidiary;
(vii) other Liens securing Debt and Contingent Obligations
outstanding in an aggregate principal amount not to exceed
$10,000,000, provided that no such Lien shall extend to or cover any
Collateral;
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95
(viii) Liens arising solely by virtue of any statutory or
common law provision relating to banker's liens, rights of set-off
or similar rights and remedies as to deposit amounts or other funds
maintained with a credit or depository institution; provided that
(A) such deposit account is not a dedicated cash collateral account
and is not subject to restrictions against access by Borrower or any
Subsidiary in excess of those set forth by regulations promulgated
by the Federal Reserve Board, and (B) such deposit account is not
intended by Borrower or any Subsidiary to provide collateral to the
depository institution;
(ix) Liens evidenced by UCC financing statements regarding
operating leases permitted by this Agreement or in respect of
consigned goods;
(x) Liens consisting of judgment or judicial attachment liens
(including prejudgment attachment); provided that the enforcement of
such Liens is effectively stayed or payment of which is covered in
full (subject to customary deductibles) by insurance or which do not
otherwise result in an Event of Default;
(xi) Liens securing debt of Foreign and non-wholly owned
Subsidiaries to the extent such Debt is permitted pursuant to
Section 5.02(b);
(xii) Liens on documents of title and the property covered
thereby securing Debt in respect of letters of credit which are
commercial letters of credit;
(xiii) Liens solely in favor of the Borrower or a Subsidiary
of the Borrower; provided that such Liens shall have been assigned
as collateral under the Security Agreement;
(xiv) any encumbrances or restriction (including any put and
call arrangements) with respect to the Equity Interests of any joint
venture agreement to which the Borrower or any of its Subsidiaries
is a party; and
(xv) the replacement, extension or renewal of any Lien
permitted by clause (iii) above upon or in the same property
theretofore subject thereto or the replacement, extension or renewal
(without increase in the amount or change in any direct or
contingent obligor) of the Debt secured thereby.
(b) Debt. Create, incur, assume or suffer to exist, or permit any of
its Subsidiaries to create, incur, assume or suffer to exist, any Debt,
except:
(i) Debt under the Loan Documents,
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96
(ii) (x) Capitalized Leases and Debt secured by Liens
permitted by Section 5.02(a)(iv) and 5.02(a)(vi) not to exceed in
the aggregate $15,000,000 at any time outstanding,
(iii) the Surviving Debt,
(iv) unsecured Debt of the Borrower and its Subsidiaries
incurred in the ordinary course of business for the deferred
purchase price of property or services and aggregating, on a
Consolidated basis, not more than $20,000,000 at any one time
outstanding,
(v) Debt of any Person that becomes a Subsidiary of the
Borrower after the date hereof in accordance with the terms of
Section 5.02(f) which Debt is existing at the time such Person
becomes a Subsidiary of the Borrower (other than Debt incurred
solely in contemplation of such Person becoming a Subsidiary of the
Borrower),
(vi) Debt in respect of Hedge Agreements designed to hedge
against fluctuations in interest rates or foreign exchange rates
incurred in the ordinary course of business and consistent with
prudent business practice with the aggregate Agreement Value thereof
not to exceed $5,000,000 at any time outstanding,
(vii) Debt owed to the Borrower by a Subsidiary of the
Borrower and Debt owed by the Borrower to a wholly owned Subsidiary
of the Borrower, which Debt (x) shall constitute Pledged Debt, and
(y) shall be evidenced by promissory notes in substantially the form
attached as Exhibit I or such other form satisfactory to the
Administrative Agent;
(viii) Debt arising from honoring a check, draft or similar
instrument against insufficient funds; provided that such Debt is
extinguished within five Business days of its incurrence;
(ix) unsecured Debt incurred by Borrower to former employees
in connection with the purchase or redemption of stock of Borrower
not to exceed in the aggregate $2,000,000;
(x) one additional issue of Subordinated Debt in addition to
any refinancing of the Senior Subordinated Notes pursuant to clause
(xi) of this Section 5.02(b); provided that (A) such single issue of
additional Subordinated
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97
Debt (1) has a stated maturity occurring at least 90 days after the
final maturity of the Term B Facility and (2) is issued pursuant to
an indenture or other documentation containing terms and conditions
no less favorable to the Lender Parties than the terms set forth in
the Senior Subordinated Note Indenture; and (B) after giving effect
to the issuance of such Debt (1) no Default shall have occurred and
be continuing and (2) Borrower shall be in pro forma compliance with
the covenants contained in Section 5.04; and
(xi) any renewals, extensions, substitutions, refinancings or
replacements (each a "refinancing") of any Debt permitted by this
Section 5.02(b), including any successive refinancings, so long as
any such refinancing Debt shall (A) not be on financial or other
terms, in the reasonable judgment of Borrower, that are more onerous
that the Debt being refinanced, (B) not have a stated maturity or
average life that is shorter than the Debt being refinanced, (C) be
at least as subordinate to the Obligations under the Loan Documents
as the Debt being refinanced (and unsecured if the refinanced Debt
is unsecured) and (D) be in a principal amount that does not exceed
the principal amount so refinanced, plus the lesser of (1) the
stated amount of any premium or other payment required to be paid in
connection with such refinancing pursuant to the terms of the Debt
being refinanced and (2) the amount of premium or other payment
actually paid at such time to refinance the Debt, plus, in either
case, the amount of reasonable expenses of Borrower or any
Subsidiary incurred in connection with such refinancing.
(c) Contingent Obligations. Create, incur, assume or suffer to
exist, or permit any of its Subsidiaries to create, incur or suffer to
exist any Contingent Obligations, except Contingent Obligations not to
exceed $15,000,000 at any time outstanding.
(d) Change in Nature of Business. Make, or permit any of its
Subsidiaries to make, any material change in the nature of its business as
carried on at the date hereof.
(e) Mergers, Etc. Merge into or consolidate with any Person or
permit any Person to merge into it, or permit any of its Subsidiaries to
do so, except that:
(i) any Subsidiary of the Borrower may merge into or
consolidate with any other Subsidiary of the Borrower, provided
that, in the case of any such merger or consolidation, the Person
formed by such merger or consolidation shall be a wholly owned
Domestic Subsidiary of the Borrower, provided, further that, in the
case of any such merger or consolidation to which a Subsidiary
Guarantor is a party, the Person formed by such merger or
consolidation shall be a Subsidiary Guarantor;
<PAGE> 98
98
(ii) in connection with any Permitted Acquisition under
Section 5.02(g)(vii), any Subsidiary of the Borrower may merge into
or consolidate with any other Person or permit any other Person to
merge into or consolidate with it; provided that the Person
surviving such merger shall be a wholly owned Subsidiary of the
Borrower; and
(iii) in connection with any sale or other disposition
permitted under Section 5.02(f) (other than clause (ii) thereof),
any Subsidiary of the Borrower may merge into or consolidate with
any other Person or permit any other Person to merge into or
consolidate with it;
provided, however, that in each case, immediately after giving effect
thereto, no event shall occur and be continuing that constitutes a
Default.
(f) Sales, Etc., of Assets. Sell, lease, transfer or otherwise
dispose of, or permit any of its Subsidiaries to sell, lease, transfer or
otherwise dispose of, any assets, or grant any option or other right to
purchase, lease or otherwise acquire any assets other than Inventory to be
sold in the ordinary course of its business, except:
(i) sales of Inventory in the ordinary course of its
business;
(ii) in a transaction authorized by Section 5.02(e) (other
than subsection (iii) thereof);
(iii) the sale of equipment to the extent that such equipment
is exchanged for credit against the purchase price of similar
replacement equipment, or the proceeds of such sale are reasonably
promptly applied to the purchase price of similar replacement
equipment;
(iv) the limited recourse sale of Receivables in connection
with the securitization thereof, which sale is non-recourse to the
extent customary in securitizations and consistent with past
practice;
(v) in the ordinary course of business, the license of
patents, trademarks, copyrights and know-how to third Persons, so
long as each such license is subject to the Lien of the Security
Agreement and does not otherwise prohibit the granting of a Lien
therein by Borrower or any Subsidiary pursuant to the Security
Agreement;
<PAGE> 99
99
(vi) the sale of worn out or obsolete equipment not utilized
in the business of Borrower or any Subsidiary;
(vii) the abandonment or other disposition for no
consideration of patents, trademarks or other intellectual property
that is, in the reasonable judgment of Borrower, no longer
economically practicable to maintain or useful in the conduct of the
business of Borrower and its Subsidiaries taken as a whole;
(viii) the sale of any asset by the Borrower or any Subsidiary
(other than a bulk sale of Inventory and a sale of Receivables other
than delinquent accounts for collection purposes only) so long as
(A) the purchase price paid to the Borrower or such Subsidiary for
such asset shall be no less than the fair market value of such asset
at the time of such sale; (B) the purchase price for such asset
shall be paid to the Borrower or such Subsidiary solely in cash; (C)
the aggregate purchase price paid to the Borrower and all of its
Subsidiaries for such asset and all other assets sold by the
Borrower and its Subsidiaries during the same Fiscal Year pursuant
to this clause (viii) shall not exceed $25,000,000 ; provided,
however, that the Borrower and it Subsidiaries may sell Equity
Interests in, or the properties and assets of, any Person, for an
aggregate amount in any Fiscal Year of the Borrower which is greater
than $25,000,000 on the condition that the Borrower shall have
delivered to the Administrative Agent not later than five days prior
to such sale a report prepared in good faith and certified by the
Chief Financial Officer of the Borrower and approved by the Joint
Lead Arrangers, which report shall include an analysis demonstrating
in reasonable detail that the pro forma EBITDA of such Person (or
such properties and assets) for the most recently completed four
consecutive fiscal quarters, together with the pro forma EBITDA of
each other Person, the Equity Interests in, or the properties or
assets of which, were previously sold by the Borrower and its
Subsidiaries pursuant to this subsection (viii) during such Fiscal
Year, for the most recently completed four fiscal quarters as of the
date such Person (or such properties or assets) were sold, and does
not, in the aggregate, exceed 7.5% of the EBITDA of the Borrower and
its Subsidiaries for the most recently completed four fiscal
quarters of the Borrower; and (D) the aggregate purchase price paid
to the Borrower and its Subsidiaries for all assets sold pursuant to
this clause (viii) during the term of this Agreement shall not
exceed $50,000,000; and
(ix) so long as no Default shall occur and be continuing, the
grant of any option or other right to purchase any asset in a
transaction that would be permitted under the provisions of clause
(viii) above.
<PAGE> 100
100
(g) Investments in Other Persons. Make or hold, or permit any of its
Subsidiaries to make or hold, any Investment in any Person, except:
(i) (A) equity Investments by the Borrower and its
Subsidiaries in their Subsidiaries outstanding on the date hereof,
(B) additional equity Investments in wholly owned
Domestic Subsidiaries of the Borrower existing on the date
hereof or the Equity Interest of which are acquired by the
Borrower or one of its Domestic Subsidiaries pursuant to
clause (xiii) below, including, without limitation,
Investments in newly formed, wholly owned Domestic
Subsidiaries of the Borrower or one of its Domestic
Subsidiaries which are to fund the purchase by such newly
formed Domestic Subsidiary of the assets comprising a division
or business unit or a substantial part of the business of any
other Person if such Investment by such new Subsidiary is made
in accordance with clause (xiii) below, or
(C) additional Investments of the Borrower and its
Domestic Subsidiaries in any of their Foreign Subsidiaries in
an aggregate amount for the Borrower and all its Domestic
Subsidiaries not to exceed $10,000,000 in any Fiscal Year or
(D) additional Investments of the Borrower and any of
its wholly-owned Subsidiaries in Subsidiaries and other
Persons (including joint-ventures) which are not wholly-owned
by the Borrower or its wholly-owned Subsidiaries, but are
controlled by the Borrower or one of its wholly-owned
Subsidiaries, (including, without limitation, Contingent
Obligations incurred by the Borrower or any of its
wholly-owned Subsidiaries in respect of the Debt of any such
Subsidiary or other Person which are not wholly-owned) not at
any time exceeding in the aggregate $5,000,000;
(ii) loans and advances to employees in the ordinary course of
the business of the Borrower and its Subsidiaries as presently
conducted in an aggregate principal amount not to exceed $3,000,000
at any time outstanding;
(iii) Investments by the Borrower and its Subsidiaries in Cash
Equivalents;
(iv) Investments existing on the date hereof and described on
Schedule 4.01(y) hereto;
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101
(v) Investments in Hedge Agreements permitted under Section
5.02(b);
(vi) Investments consisting of intercompany Debt permitted
under Section 5.02(b);
(vii) Investments consisting of non-cash consideration
received in the form of securities, notes or similar obligations in
connection with dispositions of obsolete or worn out assets
permitted pursuant to Section 5.02(e)(vi) not at any time exceeding,
in the case of all such notes and similar obligations, the amount of
$5,000,000;
(viii) pledges or deposits required in the ordinary course of
business in connection with workmen's compensation, unemployment
insurance and other social security or similar legislation;
(ix) pledges or deposits in connection with (A) non-delinquent
performance of bids, trade contracts (other than for borrowed
money), leases or statutory obligations, (B) contingent obligations
on surety or appeal bonds and (C) other non-delinquent obligations
of a like nature, in each case incurred in the ordinary course of
business;
(x) advances, loans or extensions of credit to suppliers in
the ordinary course of business by Borrower or any Subsidiary
consistent with past practice as of the Effective Date not at any
time exceeding in the aggregate $2,000,000;
(xi) other advances, loans or extensions of credit in the
ordinary course of business by Borrower or any Subsidiary not at any
time exceeding in the aggregate $3,000,000;
(xii) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of suppliers and
customers and in settlement of delinquent obligations of, and other
disputes with, customers and suppliers arising in the ordinary
course of business; and
(xiii) other Investments; provided that with respect to
Investments made under this clause (xiii): (1) any newly acquired or
organized Subsidiary of the Borrower or any of its Subsidiaries
shall be a wholly owned Domestic Subsidiary thereof; (2) immediately
before and after giving effect thereto, no Default shall have
occurred and be continuing or would result therefrom; (3) any
company or
<PAGE> 102
102
business acquired or invested in pursuant to this clause (xiii)
shall be in the specialty chemicals business or in a substantially
similar line of business; (4) immediately after giving effect to the
acquisition of a company or business pursuant to this clause (xiii),
the Borrower shall be in pro forma compliance with the covenants
contained in Section 5.04, calculated based on the financial
statements most recently delivered to the Lender Parties pursuant to
Section 5.03 and as though such acquisition had occurred at the
beginning of the four-quarter period covered thereby, as evidenced
by a certificate of the Chief Financial Officer of the Borrower
delivered to the Lender Parties demonstrating such compliance; (5)
the Borrower shall have delivered to the Administrative Agent and
the Lender Parties an Acquisition Diligence Report for such company
or business which has been approved by the Joint Lead Arrangers; and
(6) any such newly formed Subsidiary shall be in compliance with
Section 5.01(j).
(h) Restricted Payments. Declare or pay any dividends, purchase,
redeem, retire, defease or otherwise acquire for value any of its Equity
Interests now or hereafter outstanding, return any capital to its
stockholders, partners or members (or the equivalent Persons thereof) as
such, make any distribution of assets, Equity Interests, obligations or
securities to its stockholders, partners or members (or the equivalent
Persons thereof) as such or issue or sell any Equity Interests or accept
any capital contributions, or permit any of its Subsidiaries to do any of
the foregoing, or permit any of its Subsidiaries to purchase, redeem,
retire, defease or otherwise acquire for value any Equity Interests in the
Borrower or to issue or sell any Equity Interests therein, except that, so
long as no Default shall have occurred and be continuing at the time of
any action described in clause (i) or (ii) below or would result
therefrom:
(i) the Borrower may (A) declare and pay dividends and
distributions payable only in common stock of the Borrower, (B)
issue and sell shares of its capital stock to (x) the Equity
Investors, or (y) so long as no Default has occurred and is
continuing or would result from such issuance and sale, any other
Persons (C) except to the extent the Net Cash Proceeds thereof are
required to be applied to the prepayment of the Advances pursuant to
Section 2.06(b), purchase, redeem, retire, defease or otherwise
acquire shares of its capital stock with the proceeds received
contemporaneously from the issue of new shares of its capital stock
with equal or inferior voting powers, designations, preferences and
rights, (D) redeem or purchase Equity Interests from the Sponsor or
other shareholders of the Borrower who are not officers, directors
or employees of the Borrower, substantially concurrently with the
issuance and sale of such Equity Interests to employees of the
Borrower and its Subsidiaries; provided, however, that the
redemption or purchase price paid to the Sponsor for such Equity
Interests shall not exceed either (1) the Net Cash Proceeds received
by the Borrower from the
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issuance of such Equity Interests to such employees, or (2)
$5,000,000 in the aggregate for all such redemptions and purchases
during the term of this agreement, (E) accept capital contributions
from the Equity Investors, (F) so long as no Default has occurred
and is continuing or would result from such payment, make payments
in accordance with the Management Agreement and pay fees and
indemnification payments to directors and officers of the Borrower
in the ordinary course of business; provided, however, that the
aggregate amount of all such payments shall not exceed the sum of
$1,600,000 plus the actual out-of-pocket expenses of the Sponsor in
connection with providing management services to Borrower plus such
actual fees, expenses and indemnity payments incurred by such
officers and directors in any Fiscal Year of the Borrower (beginning
with the Fiscal Year ending December 31, 2000), (G) so long as no
Default has occurred and is continuing or would result from such
payment, the Borrower may repurchase, redeem or otherwise acquire or
retire for value any Equity Interests of the Borrower held by
current or former employees of the Borrower or any of its
Subsidiaries pursuant to any employee equity subscription agreement,
stock option agreement or stock ownership arrangement; provided,
however, that the aggregate price paid (including the principal
amount of Debt issued pursuant to Section 5.02(b)(ix)) for all such
repurchased, redeemed, acquired or retired Equity Interests shall
not exceed an aggregate of $2,000,000 over the term of this
Agreement, and (H) issue new shares of its capital stock to the
seller (or its affiliates) of any Equity Interests or assets
purchased by the Borrower or any of its Subsidiaries, as all or a
portion of the purchase price for such Equity Interests or assets
issue in connection with a Permitted Acquisition; and
(ii) any Subsidiary of the Borrower may (A) declare and pay
cash dividends to the Borrower, (B) declare and pay cash dividends
to any other wholly owned Subsidiary of the Borrower of which it is
a Subsidiary and (C) accept capital contributions from its parent to
the extent permitted under Section 5.02(g)(i).
(i) Lease Obligations. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to
exist, any obligations as lessee under any operating leases (i) for the
rental or hire of real or personal property in connection with any sale
and leaseback transaction, or (ii) for the rental or hire of other real or
personal property of any kind under leases or agreements to lease having
an original term of one year or more that would cause the direct and
contingent liabilities of the Borrower and its Subsidiaries, on a
Consolidated basis, in respect of all such obligations to exceed
$4,000,000 payable in the period of 12 consecutive months ending on
December 31, 2000 and increasing by $250,000 for each 12 month period
thereafter.
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104
(j) Amendments of Constitutive Documents. Amend, or permit any of
its Subsidiaries to amend, its certificate of incorporation or bylaws or
other constitutive documents in any manner which would have a material
adverse effect on any rights of the Secured Parties under the Loan
Documents.
(k) Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in any material respect in
accounting policies or reporting practices, except as required by
generally accepted accounting principles, or any change in Fiscal Year.
(l) Prepayments, Etc., of Debt. Prepay, redeem, purchase, defease or
otherwise satisfy prior to the scheduled maturity thereof in any manner,
or make any payment in violation of any subordination terms of, any Debt,
except (i) the prepayment of the Advances in accordance with the terms of
this Agreement, (ii) the prepayment of Debt permitted pursuant to
5.02(b)(ix) to the extent also permitted pursuant to Section
5.02(h)(i)(G), and (iii) regularly scheduled or required repayments or
redemptions of Surviving Debt, or amend, modify or change in any manner
any term or condition of any Surviving Debt or Subordinated Debt, or
permit any of its Subsidiaries to do any of the foregoing other than to
prepay any Debt payable to the Borrower.
(m) Amendment, Etc., of Related Documents. Cancel or terminate any
Related Document or consent to or accept any cancellation or termination
thereof, amend, modify or change in any material manner any term or
condition of any Related Document or give any consent, waiver or approval
thereunder, waive any default under or any breach of any material term or
condition of any Related Document, agree in any manner to any other
amendment, modification or change of any term or condition of any Related
Document or take any other action in connection with any Related Document
that would impair the value of the interest or rights of any Loan Party
thereunder or that would impair the rights or interests of any Agent or
any Lender Party, or permit any of its Subsidiaries to do any of the
foregoing.
(n) Negative Pledge. Enter into or suffer to exist, or permit any of
its Subsidiaries to enter into or suffer to exist, any agreement
prohibiting or conditioning the creation or assumption of any Lien upon
any of its property or assets except (i) in favor of the Secured Parties
or (ii) in connection with (A) any Surviving Debt, (B) any purchase money
Debt permitted by Section 5.02(b) solely to the extent that the agreement
or instrument governing such Debt prohibits a Lien on the property
acquired with the proceeds of such Debt, (C) any Capitalized Lease
permitted by Section 5.02(b) solely to the extent that such Capitalized
Lease prohibits a Lien on the property subject thereto or (D) any Debt
outstanding on the date any Subsidiary of the Borrower becomes such a
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Subsidiary (so long as such agreement was not entered into solely in
contemplation of such Subsidiary becoming a Subsidiary of the Borrower).
(o) Partnerships, Etc. Become a general partner in any general or
limited partnership or joint venture, or permit any of its Subsidiaries to
do so, other than a Domestic, wholly-owned Subsidiary of the Borrower the
sole assets of which consist of such Subsidiary's interest in one or more
of such partnerships or joint ventures.
(p) Speculative Transactions. Engage, or permit any of its
Subsidiaries to engage, in any transaction involving commodity options or
futures contracts or any similar speculative transactions other than Hedge
Agreements entered into in the ordinary course of business and permitted
by Section 5.02(b).
(q) Capital Expenditures. Make, or permit any of its Subsidiaries to
make, any Capital Expenditures that would cause the aggregate of all such
Capital Expenditures made by the Borrower and its Subsidiaries in any
Fiscal Year of the Borrower to exceed an amount equal to the greatest of
(i) $13,000,000, (ii) 5% of the Consolidated net sales of the Borrower and
its Subsidiaries for the immediately preceding Fiscal Year of the
Borrower, calculated in accordance with GAAP or (iii) at any time after
the Chief Financial Officer of the Borrower shall have delivered a
certificate to the Lender Parties identifying the Permitted Acquisitions
and permitted sales of assets of the Borrower and its Subsidiaries for any
Fiscal Year of the Borrower, together with a calculation of the pro forma
Consolidated net sales of the Borrower and its Subsidiaries for the
preceding Fiscal Year and as though all such Permitted Acquisitions and
dispositions had occurred at the beginning of such preceding Fiscal Year,
5% of such pro forma Consolidated net sales.
(r) Formation of Subsidiaries. Organize or invest, or permit any
Subsidiary to organize or invest, in any new Subsidiary, except as
permitted under Section 5.02(g)(xiii).
(s) Payment Restrictions Affecting Subsidiaries. Directly or
indirectly, enter into or suffer to exist, or permit any of its
Subsidiaries to enter into or suffer to exist, any agreement or
arrangement limiting the ability of any of its Subsidiaries to declare or
pay dividends or other distributions in respect of its Equity Interests or
repay or prepay any Debt owed to, make loans or advances to, or otherwise
transfer assets to or invest in, the Borrower or any Subsidiary of the
Borrower (whether through a covenant restricting dividends, loans, asset
transfers or investments, a financial covenant or otherwise), except (i)
the Loan Documents , (ii) any agreement or instrument evidencing Surviving
Debt and (iii) any agreement in effect at the time such Subsidiary becomes
a Subsidiary of the Borrower, so long as such agreement was not entered
into solely in contemplation of such Person becoming a Subsidiary of the
Borrower.
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106
(t) Amendment, Etc., of Material Contracts. Cancel or terminate any
Material Contract or consent to or accept any cancellation or termination
thereof, amend or otherwise modify any Material Contract or give any
consent, waiver or approval thereunder, waive any default under or breach
of any Material Contract, agree in any manner to any other amendment,
modification or change of any term or condition of any Material Contract
or take any other action in connection with any Material Contract except
for any such action as would not be reasonably likely to result in a
Material Adverse Effect. The Borrower will use all reasonable efforts, and
will cause its Subsidiaries to use all reasonable efforts to cause any
Material Contract of the type referred to in clauses (iv) of the
definition of such term entered into by the Borrower or such Subsidiary
after the Effective Date not to contain a provision which would, by its
terms, prohibit the assignment by the Borrower or such Subsidiary of its
rights thereunder as security pursuant to the Security Agreement.
SECTION 5.03. Reporting Requirements. So long as any Advance or any
other Obligation of any Loan Party under any Loan Document shall remain unpaid,
any Letter of Credit shall be outstanding or any Lender Party shall have any
Commitment hereunder, the Borrower will furnish to the Agents and the Lender
Parties:
(a) Default Notice. As soon as possible and in any event within two
days after the Borrower or any of its Subsidiaries becomes aware of the
occurrence of each Default or any event, development or occurrence
reasonably likely to have a Material Adverse Effect continuing on the date
of such statement, a statement of the chief financial officer of the
Borrower setting forth details of such Default and the action that the
Borrower has taken and proposes to take with respect thereto.
(b) Annual Financials. As soon as available and in any event within
100 days after the end of each Fiscal Year, a copy of the annual audit
report for such year for the Borrower and its Subsidiaries, including
therein Consolidated balance sheets of the Borrower and its Subsidiaries
as of the end of such Fiscal Year and Consolidated statements of income
and a Consolidated statement of cash flows of the Borrower and its
Subsidiaries for such Fiscal Year, in each case accompanied by an opinion
without a "going concern" or similar qualification or exception or a
qualification arising out of the scope of the audit and otherwise
acceptable to the Administrative Agent of Ernst & Young LLP or other
independent public accountants of recognized standing acceptable to the
Required Lenders, together with (i) a certificate of such accounting firm
to the Lender Parties stating that in the course of the regular audit of
the business of the Borrower and its Subsidiaries, which audit was
conducted by such accounting firm in accordance with generally accepted
auditing standards, such accounting firm has obtained no knowledge that a
Default has occurred and is continuing, or if, in the opinion of such
accounting firm, a Default has occurred and is continuing, a statement as
to the nature thereof, (ii) a
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schedule in form satisfactory to the Administrative Agent of the
computations used by such accountants in determining, as of the end of
such Fiscal Year, compliance with the covenants contained in Section 5.04,
provided that in the event of any change in GAAP used in the preparation
of such financial statements, the Borrower shall also provide, if
necessary for the determination of compliance with Section 5.04, a
statement of reconciliation conforming such financial statements to GAAP
as in effect on the date hereof and (iii) a certificate of the Chief
Financial Officer of the Borrower stating either that such Chief Financial
Officer has, after due inquiry, no knowledge that any Default has occurred
and is continuing or, if the Chief Financial Officer has knowledge that a
Default has occurred and is continuing, a statement as to the nature
thereof and the action that the Borrower has taken and proposes to take
with respect thereto.
(c) Quarterly Financials. As soon as available and in any event
within 45 days after the end of each of the first three quarters of each
Fiscal Year, Consolidated balance sheets of the Borrower and its
Subsidiaries as of the end of such quarter and Consolidated statements of
income and a Consolidated statement of cash flows of the Borrower and its
Subsidiaries for the period commencing at the end of the previous fiscal
quarter and ending with the end of such fiscal quarter and Consolidated
statements of income and a Consolidated statement of cash flows of the
Borrower and its Subsidiaries for the period commencing at the end of the
previous Fiscal Year and ending with the end of such quarter, setting
forth in each case in comparative form the corresponding figures for the
corresponding date or period of the preceding Fiscal Year, all in
reasonable detail and duly certified (subject to normal year-end audit
adjustments and the absence of footnotes) by the Chief Financial Officer
of the Borrower as having been prepared in accordance with GAAP, together
with (i) a certificate of said officer stating either that such Chief
Financial Officer has, after due inquiry, no knowledge that any Default
has occurred and is continuing or, if the Chief Financial Officer has
knowledge that a Default has occurred and is continuing, a statement as to
the nature thereof and the action that the Borrower has taken and proposes
to take with respect thereto and (ii) a schedule in form satisfactory to
the Administrative Agent of the computations used by the Borrower in
determining compliance with the covenants contained in Section 5.04,
provided that in the event of any change in GAAP used in the preparation
of such financial statements, the Borrower shall also provide, if
necessary for the determination of compliance with Section 5.04, a
statement of reconciliation conforming such financial statements to GAAP
in effect on the date hereof.
(d) Annual Forecasts. As soon as available and in any event no later
than 45 days after the end of each Fiscal Year, an annual budget prepared
by management of the Borrower, of balance sheets, income statements and
cash flow statements on a quarterly basis for the Fiscal Year following
such Fiscal Year.
<PAGE> 108
108
(e) Litigation. Promptly after the commencement thereof, notice of
all actions, suits, investigations, litigation and proceedings before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting any Loan Party or any of
its Subsidiaries of the type described in Section 4.01(f) (except
proceedings that, if adversely determined, would not reasonably be
expected, either individually or in the aggregate, to have a Material
Adverse Effect), and promptly after the occurrence thereof, notice of any
material adverse change in the status or the financial effect on any Loan
Party or any of its Subsidiaries of the Disclosed Litigation from that
described on Schedule 4.01(f) hereto.
(f) Securities Reports. Promptly after the sending or filing
thereof, copies of all proxy statements, financial statements and reports
that any Loan Party or any of its Subsidiaries sends to its stockholders,
and copies of all regular, periodic and special reports, and all
registration statements, that any Loan Party or any of its Subsidiaries
files with the Securities and Exchange Commission or any governmental
authority that may be substituted therefor, or with any national
securities exchange.
(g) Creditor Reports. Promptly after the furnishing thereof, copies
of any statement or report furnished to any holder of Debt securities of
any Loan Party or of any of its Subsidiaries pursuant to the terms of any
indenture, loan or credit or similar agreement and not otherwise required
to be furnished to the Lender Parties pursuant to any other clause of this
Section 5.03.
(h) Agreement Notices. Promptly upon receipt thereof, copies of all
notices, requests and other documents received by any Loan Party or any of
its Subsidiaries under or pursuant to any Related Document or Material
Contract or instrument, indenture, loan or credit or similar agreement
regarding or related to any breach or default by any party thereto or any
other event that could have a Material Adverse Effect and copies of any
proposed amendment, modification or waiver of any provision of any Related
Document or Material Contract or instrument, indenture, loan or credit or
similar agreement and, from time to time upon request by the
Administrative Agent, such information and reports regarding the Related
Documents, the Material Contracts and such instruments, indentures and
loan and credit and similar agreements as the Administrative Agent may
reasonably request.
(i) ERISA. (i) ERISA Events and ERISA Reports. (A) Promptly and in
any event within 10 Business Days after any Loan Party or any ERISA
Affiliate knows or has reason to know that any ERISA Event has occurred, a
statement of the Chief Financial Officer of the Borrower describing such
ERISA Event and the action, if any, that such Loan Party or such ERISA
Affiliate has taken and proposes to take with respect thereto and (B) on
the date any records, documents or other information must be furnished to
the
<PAGE> 109
109
PBGC with respect to any Plan pursuant to Section 4010 of ERISA, a copy of
such records, documents and information.
(ii) Plan Terminations. Promptly and in any event within two
Business Days after receipt thereof by any Loan Party or any ERISA
Affiliate, copies of each notice from the PBGC stating its intention to
terminate any Plan or to have a trustee appointed to administer any Plan.
(iii) Plan Annual Reports. Promptly and in any event within 30 days
after a request from the Administrative Agent, copies of each Schedule B
(Actuarial Information) to the annual report (Form 5500 Series) with
respect to each Plan.
(iv) Multiemployer Plan Notices. Promptly and in any event within
ten Business Days after receipt thereof by any Loan Party or any ERISA
Affiliate from the sponsor of a Multiemployer Plan, copies of each notice
concerning (A) the imposition of Withdrawal Liability by any such
Multiemployer Plan, (B) the reorganization or termination, within the
meaning of Title IV of ERISA, of any such Multiemployer Plan or (C) the
amount of liability incurred, or that may be incurred, by such Loan Party
or any ERISA Affiliate in connection with any event described in clause
(A) or (B).
(j) Environmental Conditions. Promptly after the assertion or
occurrence thereof, notice of any Environmental Action against or of any
noncompliance by any Loan Party or any of its Subsidiaries with any
Environmental Law or Environmental Permit that could (i) reasonably be
expected to have a Material Adverse Effect or (ii) cause any property
described in the Mortgages to be subject to any material restrictions on
ownership, occupancy, use or transferability under any Environmental Law.
(k) Real Property. As soon as available and in any event within 100
days after the end of each Fiscal Year, a report supplementing Schedules
4.01(w) and 4.01(x) hereto, including an identification of all owned and
leased real property disposed of by the Borrower or any of its
Subsidiaries during such Fiscal Year, a list and description (including
the street address, county or other relevant jurisdiction, state, record
owner, book value thereof and, in the case of leases of property, lessor,
lessee, expiration date and annual rental cost thereof) of all real
property acquired or leased during such Fiscal Year and a description of
such other changes in the information included in such Schedules as may be
necessary for such Schedules to be accurate and complete.
(l) Insurance. As soon as available and in any event within 30 days
after the end of each Fiscal Year, a report summarizing the insurance
coverage (specifying type, amount and carrier) in effect for the Borrower
and its Subsidiaries and containing such
<PAGE> 110
110
additional information as any Agent, or any Lender Party through the
Administrative Agent, may reasonably specify.
(m) Year 2000 Compliance. Promptly after the Borrower's discovery or
determination thereof, notice (in reasonable detail) that any computer
application (including those of its suppliers, vendors and customers) that
is material to its or any of its Subsidiaries' business and operations
will not be Year 2000 Compliant (as defined in Section 4.01(cc)), except
to the extent that such failure could not reasonably be expected to have a
Material Adverse Effect.
(n) Other Information. Such other information respecting the
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Loan Party or any of its Subsidiaries as
any Agent, or any Lender Party through the Administrative Agent, may from
time to time reasonably request.
SECTION 5.04. Financial Covenants. So long as any Advance or any
other Obligation of any Loan Party under any Loan Document shall remain unpaid,
any Letter of Credit shall be outstanding or any Lender Party shall have any
Commitment hereunder, the Borrower will:
(a) Total Debt/EBITDA Ratio. Maintain at the end of each fiscal
quarter of the Borrower a Total Debt/EBITDA Ratio of not more than the
amount set forth below for each period set forth below:
<TABLE>
<CAPTION>
DURING FISCAL YEAR ENDING RATIO
-------
<S> <C>
December 31, 2000 5.50:1
December 31, 2001 5.50:1
December 31, 2002 5.25:1
December 31, 2003 5.00:1
December 31, 2004 5.00:1
December 31, 2005 4.75:1
and thereafter
</TABLE>
(b) Senior Debt/EBITDA Ratio. Maintain at the end of each fiscal
quarter of the Borrower a Senior Debt/EBITDA Ratio of not more than the
amount set forth below for each period set forth below:
<PAGE> 111
111
<TABLE>
<CAPTION>
DURING FISCAL YEAR ENDING RATIO
------
<S> <C>
December 31, 2000 4.25:1
December 31, 2001 4.25:1
December 31, 2002 4.00:1
December 31, 2003 3.75:1
December 31, 2004 3.50:1
and thereafter
</TABLE>
(c) Fixed Charge Coverage Ratio. Maintain at the end of each fiscal
quarter of the Borrower a Fixed Charge Coverage Ratio of not less than the
amount set forth below for each period set forth below:
<TABLE>
<CAPTION>
DURING FISCAL YEAR ENDING RATIO
------
<S> <C>
December 31, 2000 1.10:1
December 31, 2001 1.10:1
December 31, 2002 1.10:1
December 31, 2003 1.15:1
December 31, 2004 1.20:1
and thereafter
</TABLE>
(d) Interest Coverage Ratio. Maintain at the end of each fiscal
quarter of the Borrower an Interest Coverage Ratio of not less than the
amount set forth below for each period set forth below:
<TABLE>
<CAPTION>
DURING FISCAL YEAR ENDING RATIO
------
<S> <C>
December 31, 2000 1.75:1
December 31, 2001 2.00:1
December 31, 2002 2.00:1
December 31, 2003 2.25:1
December 31, 2004 2.50:1
and thereafter
</TABLE>
<PAGE> 112
112
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
("EVENTS OF DEFAULT") shall occur and be continuing:
(a) (i) the Borrower shall fail to pay any principal of any Advance
when the same shall become due and payable or (ii) the Borrower shall fail
to pay any interest on any Advance, or any Loan Party shall fail to make
any other payment under any Loan Document, in each case under this clause
(ii) within five Business Days after the same becomes due and payable; or
(b) any representation or warranty made by any Loan Party (or any of
its officers) under or in connection with any Loan Document shall prove to
have been incorrect in any material respect when made; or
(c) the Borrower shall fail to perform or observe any term, covenant
or agreement contained in Section 2.14, 5.01(e), (f), or (m), 5.02, 5.03
or 5.04; or
(d) any Loan Party shall fail to perform or observe any other term,
covenant or agreement contained in any Loan Document on its part to be
performed or observed if such failure shall remain unremedied for 20 days
after the earlier of the date on which (i) a Responsible Officer becomes
aware of such failure or (ii) written notice thereof shall have been given
to the Borrower by the Administrative Agent or any Lender Party; or
(e) any Loan Party or any of its Subsidiaries shall fail to pay any
principal of, premium or interest on or any other amount payable in
respect of any Debt of such Loan Party or such Subsidiary (as the case may
be) that is outstanding in a principal amount (or, in the case of any
Hedge Agreement, an Agreement Value) of at least $5,000,000 either
individually or in the aggregate (but excluding Debt outstanding
hereunder), when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and
such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such Debt; or any
other event shall occur or condition shall exist under any agreement or
instrument relating to any such Debt and shall continue after the
applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to accelerate, or
to permit the acceleration of, the maturity of such Debt or otherwise to
cause, or to permit the holder thereof to cause, such Debt to mature; or
any such Debt shall be declared to be due and payable or required to be
prepaid or redeemed (other than by a regularly scheduled required
prepayment or redemption), purchased or defeased, or an offer to prepay,
redeem, purchase or defease such Debt shall be required to be made, in
<PAGE> 113
113
each case prior to the stated maturity thereof; provided, however, that
this subsection (e) shall not apply to any secured Debt, that becomes due
as a result of a voluntary sale or transfer of the assets securing such
Debt; or
(f) any Loan Party or any of its Subsidiaries or SSCI Investors
shall generally not pay its debts as such debts become due, or shall admit
in writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding shall
be instituted by or against any Loan Party or any of its Subsidiaries
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief,
or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver, trustee or other
similar official for it or for any substantial part of its property and,
in the case of any such proceeding instituted against it (but not
instituted by it) that is being diligently contested by it in good faith,
either such proceeding shall remain undismissed or unstayed for a period
of 60 days or any of the actions sought in such proceeding (including,
without limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar official
for, it or any substantial part of its property) shall occur; or any Loan
Party or any of its Subsidiaries shall take any corporate action to
authorize any of the actions set forth above in this subsection (f); or
(g) any judgments or orders, either individually or in the
aggregate, for the payment of money in excess of $5,000,000 (exclusive of
any amounts fully covered by insurance (less any applicable deductible) or
indemnification and as to which the insurer or the indemnifying party, as
the case may be, has acknowledged its obligation to cover such judgment or
order) shall be rendered against any Loan Party or any of its Subsidiaries
and either (i) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order or (ii) there shall be any period of
25 consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect;
or
(h) any non-monetary judgment or order shall be rendered against any
Loan Party or any of its Subsidiaries that would reasonably be expected to
have a Material Adverse Effect, and there shall be any period of 25
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect;
or
(i) any provision of any Loan Document after delivery thereof
pursuant to Section 3.01, 5.01(j) or 5.01(q) shall for any reason cease to
be valid and binding on or enforceable against any Loan Party party to it,
or any such Loan Party shall so state in writing; or
<PAGE> 114
114
(j) any Collateral Document after delivery thereof pursuant to
Section 3.01 or 5.01(j) or 5.01(q) shall for any reason (other than
pursuant to the terms thereof) cease to create a valid and perfected first
priority lien on and security interest in the Collateral purported to be
covered thereby; or
(k) a Change of Control shall occur; or
(l) any ERISA Event shall have occurred with respect to a Plan and
the sum (determined as of the date of occurrence of such ERISA Event) of
the Insufficiency of such Plan and the Insufficiency of any and all other
Plans with respect to which an ERISA Event shall have occurred and then
exist (or the liability of the Loan Parties and the ERISA Affiliates
related to such ERISA Event) exceeds $1,000,000; or
(m) any Loan Party or any ERISA Affiliate shall have been notified
by the sponsor of a Multiemployer Plan that it has incurred Withdrawal
Liability to such Multiemployer Plan in an amount that, when aggregated
with all other amounts required to be paid to Multiemployer Plans by the
Loan Parties and the ERISA Affiliates as Withdrawal Liability (determined
as of the date of such notification), exceeds $2,000,000 or requires
payments exceeding $1,000,000 per annum; or
(n) any Loan Party or any ERISA Affiliate shall have been notified
by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV of
ERISA, and as a result of such reorganization or termination the aggregate
annual contributions of the Loan Parties and the ERISA Affiliates to all
Multiemployer Plans that are then in reorganization or being terminated
have been or will be increased over the amounts contributed to such
Multiemployer Plans for the plan years of such Multiemployer Plans
immediately preceding the plan year in which such reorganization or
termination occurs by an amount exceeding $1,000,000; or
(o) an "Event of Default" (as defined in any Mortgage) shall have
occurred and be continuing;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Borrower,
declare the Commitments of each Lender Party and the obligation of each Lender
Party to make Advances (other than Letter of Credit Advances by the Issuing Bank
or a Revolving Credit Lender pursuant to Section 2.03(c) and Swing Line Advances
by a Revolving Credit Lender pursuant to Section 2.02(b)) and of the Issuing
Bank to issue Letters of Credit to be terminated, whereupon the same shall
forthwith terminate, and (ii) shall at the request, or may with the consent, of
the Required Lenders, (A) by
<PAGE> 115
115
notice to the Borrower, declare the Notes, all interest thereon and all other
amounts payable under this Agreement and the other Loan Documents to be
forthwith due and payable, whereupon the Notes, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower, (B) by notice to each party required under the terms of
any agreement in support of which a Standby Letter of Credit is issued, request
that all Obligations under such agreement be declared to be due and payable and
(C) by notice to the Issuing Bank, direct the Issuing Bank to deliver a Default
Termination Notice to the beneficiary of each Standby Letter of Credit issued by
it, and the Issuing Bank shall deliver such Default Termination Notices;
provided, however, that in the event of an actual or deemed entry of an order
for relief with respect to the Borrower under the Federal Bankruptcy Code, (x)
the Commitments of each Lender Party and the obligation of each Lender Party to
make Advances (other than Letter of Credit Advances by the Issuing Bank or a
Revolving Credit Lender pursuant to Section 2.03(c) and Swing Line Advances by a
Revolving Credit Lender pursuant to Section 2.02(b)) and of the Issuing Bank to
issue Letters of Credit shall automatically be terminated and (y) the Notes, all
such interest and all such amounts shall automatically become and be due and
payable, without presentment, demand, protest or any notice of any kind, all of
which are hereby expressly waived by the Borrower.
SECTION 6.02. Actions in Respect of the Letters of Credit upon
Default. If any Event of Default shall have occurred and be continuing, the
Administrative Agent may, or shall at the request of the Required Lenders,
irrespective of whether it is taking any of the actions described in Section
6.01 or otherwise, make demand upon the Borrower to, and forthwith upon such
demand the Borrower will, pay to the Administrative Agent on behalf of the
Lender Parties in same day funds at the Administrative Agent's office designated
in such demand, for deposit in the L/C Cash Collateral Account, an amount equal
to the aggregate Available Amount of all Letters of Credit then outstanding. If
at any time the Administrative Agent or the Administrative Agent determines that
any funds held in the L/C Cash Collateral Account are subject to any right or
claim of any Person other than the Agents and the Lender Parties or that the
total amount of such funds is less than the aggregate Available Amount of all
Letters of Credit, the Borrower will, forthwith upon demand by the
Administrative Agent or the Administrative Agent, pay to the Administrative
Agent, as additional funds to be deposited and held in the L/C Cash Collateral
Account, an amount equal to the excess of (a) such aggregate Available Amount
over (b) the total amount of funds, if any, then held in the L/C Cash Collateral
Account that the Administrative Agent or the Administrative Agent, as the case
may be, determines to be free and clear of any such right and claim. Upon the
drawing of any Letter of Credit for which funds are on deposit in the L/C Cash
Collateral Account, such funds shall be applied to reimburse the Issuing Bank or
Lenders, as applicable, to the extent permitted by applicable law.
ARTICLE VII
<PAGE> 116
116
THE AGENTS
SECTION 7.01. Authorization and Action. Each Lender Party (in its
capacities as a Lender, Swing Line Bank (if applicable), Issuing Bank (if
applicable) and on behalf of itself and its Affiliates as potential Hedge Banks)
hereby appoints and authorizes each Agent to take such action as agent on its
behalf and to exercise such powers and discretion under this Agreement and the
other Loan Documents as are delegated to such Agent by the terms hereof and
thereof, together with such powers and discretion as are reasonably incidental
thereto. As to any matters not expressly provided for by the Loan Documents
(including, without limitation, enforcement or collection of the Notes), no
Agent shall be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Required Lenders,
and such instructions shall be binding upon all Lender Parties and all holders
of Notes; provided, however, that no Agent shall be required to take any action
that exposes such Agent to personal liability or that is contrary to this
Agreement or applicable law. Each Agent agrees to give to each Lender Party
prompt notice of each notice given to it by the Borrower pursuant to the terms
of this Agreement.
SECTION 7.02. Agents' Reliance, Etc. Neither any Agent nor any of
their respective directors, officers, agents or employees shall be liable for
any action taken or omitted to be taken by it or them under or in connection
with the Loan Documents, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, each Agent:
(a) may treat the payee of any Note as the holder thereof until, in the case of
the Administrative Agent, the Administrative Agent receives and accepts an
Assignment and Acceptance entered into by the Lender that is the payee of such
Note, as assignor, and an Eligible Assignee, as assignee, or, in the case of any
other Agent, such Agent has received notice from the Administrative Agent that
it has received and accepted such Assignment and Acceptance, in each case as
provided in Section 8.07; (b) may consult with legal counsel (including counsel
for any Loan Party), independent public accountants and other experts selected
by it and shall not be liable for any action taken or omitted to be taken in
good faith by it in accordance with the advice of such counsel, accountants or
experts; (c) makes no warranty or representation to any Lender Party and shall
not be responsible to any Lender Party for any statements, warranties or
representations (whether written or oral) made in or in connection with the Loan
Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of any
Loan Document on the part of any Loan Party or to inspect the property
(including the books and records) of any Loan Party; (e) shall not be
responsible to any Lender Party for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, any Loan Document or any other instrument or
document furnished pursuant thereto; and (f) shall incur no liability under or
in
<PAGE> 117
117
respect of any Loan Document by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telegram, telecopy or telex)
believed by it to be genuine and signed or sent by the proper party or parties.
SECTION 7.03. Chase, J.P. Morgan, ML&Co. and Affiliates. With
respect to its Commitments or the Commitments of its Affiliates, the Advances
made by it or the Advances made by its Affiliates and the Notes issued to it or
to its Affiliates, Chase, J.P. Morgan and ML&Co. and their Affiliates shall have
the same rights and powers under the Loan Documents as any other Lender Party
and may exercise the same as though it or its Affiliate were not an Agent; and
the term "Lender Party" or "Lender Parties" shall, unless otherwise expressly
indicated, include Chase, Morgan Guaranty Trust Company of New York and Merrill
Lynch Capital Corporation in their respective individual capacities. Chase,
Morgan Guaranty Trust Company of New York and Merrill Lynch Capital Corporation
and their respective Affiliates may accept deposits from, lend money to, act as
trustee under indentures of, accept investment banking engagements from and
generally engage in any kind of business with, any Loan Party, any of its
Subsidiaries and any Person that may do business with or own securities of any
Loan Party or any such Subsidiary, all as if Chase, J.P. Morgan and ML&Co. were
not Agents and without any duty to account therefor to the Lender Parties.
SECTION 7.04. Lender Party Credit Decision. Each Lender Party
acknowledges that it has, independently and without reliance upon any Agent or
any other Lender Party and based on the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender Party also acknowledges that it will, independently and
without reliance upon any Agent or any other Lender Party and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement.
SECTION 7.05. Indemnification. (a) Each Lender Party severally
agrees to indemnify each Agent (to the extent not promptly reimbursed by the
Borrower) from and against such Lender Party's ratable share (determined as
provided below) of any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever that may be imposed on, incurred by, or asserted
against such Agent in any way relating to or arising out of the Loan Documents
or any action taken or omitted by such Agent under the Loan Documents; provided,
however, that no Lender Party shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct as found in a final, non-appealable judgment by a court of
competent jurisdiction. Without limitation of the foregoing, each Lender Party
agrees to reimburse each Agent promptly upon demand for its ratable share of any
costs and expenses (including, without limitation, fees and expenses of counsel)
payable by the Borrower under
<PAGE> 118
118
Section 8.04, to the extent that such Agent is not promptly reimbursed for such
costs and expenses by the Borrower.
(b) Each Lender Party severally agrees to indemnify the Issuing Bank
(to the extent not promptly reimbursed by the Borrower) from and against such
Lender Party's ratable share (determined as provided below) of any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever that may be
imposed on, incurred by, or asserted against the Issuing Bank in any way
relating to or arising out of the Loan Documents or any action taken or omitted
by the Issuing Bank under the Loan Documents; provided, however, that no Lender
Party shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Issuing Bank's gross negligence or willful misconduct as
found in a final, non-appealable judgment by a court of competent jurisdiction.
Without limitation of the foregoing, each Lender Party agrees to reimburse the
Issuing Bank promptly upon demand for its ratable share of any costs and
expenses (including, without limitation, fees and expenses of counsel) payable
by the Borrower under Section 8.04, to the extent that the Issuing Bank is not
promptly reimbursed for such costs and expenses by the Borrower.
(c) For purposes of this Section 7.05, the Lender Parties'
respective ratable shares of any amount shall be determined, at any time,
according to the sum of (i) the aggregate principal amount of the Advances
outstanding at such time and owing to the respective Lender Parties, (ii) their
respective Pro Rata Shares of the aggregate Available Amount of all Letters of
Credit outstanding at such time, (iii) the aggregate unused portions of their
respective Term A Commitments and Term B Commitments at such time and (iv) their
respective Unused Revolving Credit Commitments at such time; provided that the
aggregate principal amount of Swing Line Advances owing to the Swing Line Bank
and of Letter of Credit Advances owing to the Issuing Bank shall be considered
to be owed to the Revolving Credit Lenders ratably in accordance with their
respective Revolving Credit Commitments. The failure of any Lender Party to
reimburse any Agent or the Issuing Bank, as the case may be, promptly upon
demand for its ratable share of any amount required to be paid by the Lender
Parties to such Agent or the Issuing Bank, as the case may be, as provided
herein shall not relieve any other Lender Party of its obligation hereunder to
reimburse such Agent or the Issuing Bank, as the case may be, for its ratable
share of such amount, but no Lender Party shall be responsible for the failure
of any other Lender Party to reimburse such Agent or the Issuing Bank, as the
case may be, for such other Lender Party's ratable share of such amount. Without
prejudice to the survival of any other agreement of any Lender Party hereunder,
the agreement and obligations of each Lender Party contained in this Section
7.05 shall survive the payment in full of principal, interest and all other
amounts payable hereunder and under the other Loan Documents.
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119
SECTION 7.06. Successor Agents. Any Agent may resign at any time by
giving written notice thereof to the Lender Parties and the Borrower and may be
removed at any time with or without cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Agent which, so long as no Default has occurred and is continuing,
shall be approved by the Borrower (such approval not to be unreasonably
withheld), and, which shall be a commercial bank organized under the laws of the
United States or of any State thereof and having a combined capital and surplus
of at least $1,000,000,000. If no successor Agent shall have been so appointed
by the Required Lenders, and shall have accepted such appointment, within 30
days after the retiring Agent's giving of notice of resignation or the Required
Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf
of the Lender Parties, appoint a successor Agent. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent and, in the case of a
successor Administrative Agent, upon the execution and filing or recording of
such financing statements, or amendments thereto, and such amendments or
supplements to the Mortgages, and such other instruments or notices, as may be
necessary or desirable, or as the Required Lenders may request, in order to
continue the perfection of the Liens granted or purported to be granted by the
Collateral Documents, such successor Agent shall succeed to and become vested
with all the rights, powers, discretion, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations under the Loan Documents. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent as to less than all of the Facilities and,
in the case of a successor Administrative Agent, upon the execution and filing
or recording of such financing statements, or amendments thereto, and such
amendments or supplements to the Mortgages, and such other instruments or
notices, as may be necessary or desirable, or as the Required Lenders may
request, in order to continue the perfection of the Liens granted or purported
to be granted by the Collateral Documents, such successor Agent shall succeed to
and become vested with all the rights, powers, discretion, privileges and duties
of the retiring Agent as to such Facilities, other than with respect to funds
transfers and other similar aspects of the administration of Borrowings under
such Facilities, issuances of Letters of Credit (notwithstanding any resignation
as Agent with respect to the Letter of Credit Facility) and payments by the
Borrower in respect of such Facilities, and the retiring Administrative Agent
shall be discharged from its duties and obligations under this Agreement as to
such Facilities, other than as aforesaid. If within 45 days after written notice
is given of the retiring Agent's resignation or removal under this Section 7.06
no successor Agent shall have been appointed and shall have accepted such
appointment, then on such 45th day (a) the retiring Agent's resignation or
removal shall become effective, (b) the retiring Agent shall thereupon be
discharged from its duties and obligations under the Loan Documents and (c) the
Required Lenders shall thereafter perform all duties of the retiring Agent under
the Loan Documents until such time, if any, as the Required Lenders appoint a
successor Agent as provided above. After any retiring Agent's resignation or
removal hereunder as Agent shall have become effective, the provisions of this
Article VII shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or the Notes or any other Loan Document, nor consent
to any departure by any Loan Party therefrom, shall in any event be effective
unless the same shall be in writing and signed (or, in the case of the
Collateral Documents, consented to) by the Required Lenders, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that
(a) no amendment, waiver or consent shall, unless in writing
and signed by the Borrower and all of the Lenders (other than any
Lender Party that is, at such time, a Defaulting Lender), do any of the
following at any time:
(i) waive any of the conditions specified in Section
3.01 or, in the case of the Initial Extension of Credit,
Section 3.02,
(ii) change the number of Lenders or the percentage
of (x) the Commitments, (y) the aggregate unpaid principal
amount of the Advances or (z) the aggregate Available Amount
of outstanding Letters of Credit that, in each case, shall be
required for the Lenders or any of them to take any action
hereunder,
(iii) reduce or limit the obligations of any
Subsidiary Guarantor under Section 1 of the Subsidiary
Guaranty issued by it or release such Subsidiary Guarantor or
otherwise limit such Subsidiary Guarantor's liability with
respect to the Obligations owing to the Agents and the Lender
Parties (other than, (x) to the extent permitted under the
Subsidiary Guaranty, (y) pursuant to a merger permitted
pursuant to Section 5.02(e) or (z) in connection with a sale
of such Subsidiary Guarantor permitted pursuant to Section
5.02(f) or a waiver of such Section effected with the consent
of the Required Lenders),
(iv) release all or substantially all of the
Collateral in any transaction or series of related
transactions or permit the creation, incurrence, assumption or
existence of any Lien on all or substantially all of the
Collateral in any transaction or series of related
transactions to secure any Obligations other than Obligations
owing to the Secured Parties under the Loan Documents, or
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121
(v) amend Section 2.13 or this Section 8.01;
(b) no amendment, waiver or consent shall, unless in writing
and signed by the Borrower and the Required Lenders and each Lender
(other than any Lender that is, at such time, a Defaulting Lender) that
has a Commitment under the Term A Facility, Term B Facility or
Revolving Credit Facility if such Lender is directly affected by such
amendment, waiver or consent,
(i) increase the Commitments of such Lender (it being
understood that waivers or modification of conditions
precedent, covenants, Defaults or Events of Default or a
mandatory reduction in the Revolving Credit Facility shall not
constitute an increase of the Commitment of any Lender, and
that an increase in the available portion of any Commitment of
any Lender shall not constitute an increase in the Commitment
of such Lender for these purposes),
(ii) reduce the principal of, or interest on, the
Notes held by such Lender or any fees or other amounts payable
hereunder to such Lender (other than as a result of any waiver
of the applicability of any post default increase in interest
rates; it being understood that any amendment or modification
to the financial definitions in this Agreement shall not
constitute a reduction in any rate of interest or fees for
these purposes, notwithstanding the fact that such amendment
or modification actually results in such a reduction, so long
as the primary purpose (as determined in good faith by the
Joint Lead Arrangers) of the respective amendment or
modification was not to decrease the pricing pursuant to this
Agreement), or
(iii) postpone any date fixed for any payment of
principal of, or interest on, the Notes held by such Lender
pursuant to Section 2.04 or 2.07 or any fees or other amounts
payable hereunder to such Lender pursuant to Section 2.08;
(c) no amendment, waiver or consent shall, unless in writing
and signed by the Borrower and the Required Lenders and, if the Lenders
that have Commitments under, or are owed any amounts under or in
respect of, any Facility are directly affected by such amendment,
waiver or consent, Lenders holding more than 50% of the aggregate
Commitments under the Term A Facility, the Term B Facility or the
Revolving Credit Facility, change the order of application of any
reduction in the Commitments or any prepayment of Advances between the
Term A Facility and the Term B Facility from the application thereof
set forth in the applicable provisions of Section 2.06(b)(v) in any
manner that materially affects the Lenders under such Facility or
require the permanent reduction of the Revolving Credit Facility at any
time when all or a portion of either Term Facility remains in effect;
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122
(d) no amendment, waiver or consent shall, unless in writing
and signed by the Swing Line Bank or the Issuing Bank, as the case may
be, in addition to the Lenders required above to take such action,
affect the rights or obligations of the Swing Line Bank or of the
Issuing Bank, as the case may be, under this Agreement; and
(e) no amendment, waiver or consent shall, unless in writing
and signed by an Agent in addition to the Lenders required above to
take such action, affect the rights or duties of such Agent under this
Agreement or the other Loan Documents.
At any time that no Default shall have occurred and be continuing, if, in
connection with any proposed change, waiver, discharge or termination to any of
the provisions of this Agreement as contemplated by subsection (c) of this
Section 8.01, the consent of the Required Lenders is obtained but the consent of
one or more of such other Lenders whose consent is required is not obtained,
then the Borrower shall have the right, so long as all non-consenting Lenders
whose individual consent is required are treated as described below, to replace
each such nonconsenting Lender or Lenders with one or more Eligible Assignees so
long as at the time of such replacement, each such Eligible Assignee consents to
the proposed change, waiver, discharge or termination. At the time any such
non-consenting Lender (a "DEPARTING LENDER") is replaced by an Eligible Assignee
(a "REPLACEMENT LENDER") designated by the Borrower hereunder, the Replacement
Lender and the Departing Lender shall enter into an Assignment and Acceptance
pursuant to Section 8.07 pursuant to which all of the Commitments, Advances and
Notes owed to, or held by, the Departing Lender are assigned to the Replacement
Lender, against payment by the Replacement Lender to the Departing Lender of an
amount equal to the principal amount of such outstanding Advances, together with
accrued and unpaid interest on such Advances to the date of assignment and all
accrued and unpaid fees and other amounts due to the Departing Lender hereunder
on such date. The Borrower or the Replacement Lender shall pay the
Administrative Agent's fees in connection with any such assignment.
SECTION 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including
telegraphic, telecopy or telex communication) and mailed, telegraphed,
telecopied, telexed or delivered, if to the Borrower, at its address at 225 West
Washington Street, Suite 2200, Chicago, IL 60606, Telecopy Number: (312)
419-4034, Attention: John R. Mellet; if to any Initial Lender Party, at its
Domestic Lending Office specified opposite its name on Schedule I hereto; if to
any other Lender Party, at its Domestic Lending Office specified in the
Assignment and Acceptance pursuant to which it became a Lender Party; if to
Chase, in its capacity as the Administrative Agent, at its address at The Loan
and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New
York 10081, Telecopy Number: (212) 552-5777, Attention: Michael Cerniglia, with
a copy, in the case of all notices other than Notices of Borrowing, Notices of
Issuance, Notices of Renewal and Notices of Swing Line Borrowers, to The Chase
Manhattan Bank, 270 Park Avenue, 38th Floor,
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New York, New York 10017, Telecopy Number: (212) 270-7939, Attention: Lawrence
Palumbo; if to ML&Co. in its capacity as a Joint Lead Arranger, Joint Book
Manager or Syndication Agent, at its address at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281, Telecopy Number: (212)
449-8635, Attention: Lex Maultsby; if to J.P. Morgan in its capacity as a Joint
Lead Arranger, Joint Book Manager or Documentation Agent, at its address at 60
Wall Street, New York, New York 10260-0060, Telecopy Number: (212) 648-5348,
Attention: Jose Briones; or, as to the Borrower or the Administrative Agent, at
such other address as shall be designated by such party in a written notice to
the other parties and, as to each other party, at such other address as shall be
designated by such party in a written notice to the Borrower and the
Administrative Agent. All such notices and other communications shall, when
mailed, telegraphed, telecopied or telexed, be effective when deposited in the
mails, delivered to the telegraph company, transmitted by telecopier or
confirmed by telex answerback, respectively, except that notices and
communications to any Agent pursuant to Article II, III or VII shall not be
effective until received by such Agent. Delivery by telecopier of an executed
counterpart of any amendment or waiver of any provision of this Agreement or the
Notes or of any Exhibit hereto to be executed and delivered hereunder shall be
effective as delivery of an original executed counterpart thereof.
SECTION 8.03. No Waiver; Remedies. No failure on the part of
any Lender Party or any Agent to exercise, and no delay in exercising, any right
hereunder or under any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. Costs and Expenses. (a) The Borrower agrees to
pay on demand (i) all reasonable costs and expenses of each Agent in connection
with the preparation, execution, delivery, administration, modification and
amendment of the Loan Documents (including, without limitation, (A) all due
diligence, collateral review, syndication, transportation, computer,
duplication, appraisal, audit, insurance, consultant, search, filing and
recording fees and expenses and (B) the reasonable fees and expenses of counsel
for the Syndication Agent with respect thereto, with respect to advising such
Agent as to its rights and responsibilities, or the perfection, protection or
preservation of rights or interests, under the Loan Documents (including,
without limitation, pursuant to Section 5.01(j), (k), (m) and (q)), with respect
to negotiations with any Loan Party or with other creditors of any Loan Party or
any of its Subsidiaries arising out of any Default or any events or
circumstances that may give rise to a Default and with respect to presenting
claims in or otherwise participating in or monitoring any bankruptcy, insolvency
or other similar proceeding involving creditors' rights generally and any
proceeding ancillary thereto) and (ii) all costs and expenses of each Agent and
each Lender Party in connection with the enforcement of the Loan Documents,
whether in any action, suit or litigation, or any bankruptcy, insolvency or
other similar proceeding affecting creditors' rights
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generally (including, without limitation, the reasonable fees and expenses of
counsel for the Administrative Agent and each Lender Party with respect
thereto).
(b) The Borrower agrees to indemnify, defend and save and hold
harmless each Agent, each Lender Party and each of their Affiliates and their
respective officers, directors, employees, agents and advisors (each, an
"INDEMNIFIED PARTY") from and against, and shall pay on demand, any and all
claims, damages, losses, liabilities and expenses (including, without
limitation, reasonable fees and expenses of counsel) that may be incurred by or
asserted or awarded against any Indemnified Party, in each case arising out of
or in connection with or by reason of (including, without limitation, in
connection with any investigation, litigation or proceeding or preparation of a
defense in connection therewith) (i) the Facilities, the actual or proposed use
of the proceeds of the Advances or the Letters of Credit, the Transaction
Documents or any of the transactions contemplated thereby, including, without
limitation, the Offer to Purchase and any Permitted Acquisition or other
proposed acquisition (including, without limitation, the Acquisition) by the
Borrower or any of Subsidiaries or (ii) the actual or alleged presence of
Hazardous Materials on any property of any Loan Party or any of its Subsidiaries
or any Environmental Action relating in any way to any Loan Party or any of its
Subsidiaries, except to the extent such claim, damage, loss, liability or
expense is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's bad faith, gross
negligence or willful misconduct. In the case of an investigation, litigation or
other proceeding to which the indemnity in this Section 8.04(b) applies, such
indemnity shall be effective whether or not such investigation, litigation or
proceeding is brought by any Loan Party, its directors, shareholders or
creditors or an Indemnified Party, whether or not any Indemnified Party is
otherwise a party thereto and whether or not the Transaction is consummated. The
Borrower also agrees that no Indemnified Party shall have any liability (whether
direct or indirect, in contract or tort or otherwise) for any Losses to any Loan
Party or any Loan Party's security holders or creditors resulting from, arising
out of or in any way related to or by reason of, the Facilities, the actual or
proposed use of the proceeds of the Advances or the Letters of Credit, the
Transaction Documents or any of the transactions contemplated by the Transaction
Documents except to the extent that any Loss resulted from the gross negligence
or bad faith of such Indemnified Person.
(c) If any payment of principal of, or Conversion of, any
Eurodollar Rate Advance is made by the Borrower to or for the account of a
Lender Party other than on the last day of the Interest Period for such Advance,
as a result of a payment or Conversion pursuant to Section 2.06, 2.09(b)(i) or
2.10(d), acceleration of the maturity of the Notes pursuant to Section 6.01 or
for any other reason, or by an Eligible Assignee to a Lender Party other than on
the last day of the Interest Period for such Advance upon an assignment of
rights and obligations under this Agreement pursuant to Section 8.07 as a result
of a demand by the Borrower pursuant to Section 8.07(a), or if the Borrower
fails to make any payment or prepayment of an Advance for which a notice of
prepayment has been given or that is otherwise required to be made,
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whether pursuant to Section 2.04, 2.06 or 6.01 or otherwise, the Borrower shall,
upon demand by such Lender Party (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account of such
Lender Party any amounts required to compensate such Lender Party for any
additional losses, costs or expenses that it may reasonably incur as a result of
such payment or Conversion or such failure to pay or prepay, as the case may be,
including, without limitation, any loss (including loss of anticipated profits),
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by any Lender Party to fund or maintain such
Advance.
(d) If any Loan Party fails to pay when due any costs,
expenses or other amounts payable by it under any Loan Document, including,
without limitation, fees and expenses of counsel and indemnities, such amount
may be paid on behalf of such Loan Party by the Administrative Agent or any
Lender Party, in its sole discretion.
(e) Without prejudice to the survival of any other agreement
of any Loan Party hereunder or under any other Loan Document, the agreements and
obligations of the Borrower contained in Sections 2.10 and 2.12 and this Section
8.04 shall survive the payment in full of principal, interest and all other
amounts payable hereunder and under any of the other Loan Documents.
SECTION 8.05. Right of Set-off. Upon (a) the occurrence and
during the continuance of any Event of Default and (b) the making of the request
or the granting of the consent specified by Section 6.01 to authorize the
Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, each Agent and each Lender Party and each of their
respective Affiliates is hereby authorized at any time and from time to time, to
the fullest extent permitted by law, to set off and otherwise apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Agent, such Lender Party
or such Affiliate to or for the credit or the account of the Borrower against
any and all of the Obligations of the Borrower now or hereafter existing under
the Loan Documents, irrespective of whether such Agent or such Lender Party
shall have made any demand under this Agreement or such Note or Notes and
although such Obligations may be unmatured. Each Agent and each Lender Party
agrees promptly to notify the Borrower after any such set-off and application;
provided, however, that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of each Agent and each
Lender Party and their respective Affiliates under this Section are in addition
to other rights and remedies (including, without limitation, other rights of
set-off) that such Agent, such Lender Party and their respective Affiliates may
have.
SECTION 8.06. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower and each Agent and
the Administrative Agent shall have been notified by each Initial Lender Party
that such Initial Lender Party has executed it and
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thereafter shall be binding upon and inure to the benefit of the Borrower, each
Agent and each Lender Party and their respective successors and assigns, except
that the Borrower shall not have the right to assign its rights hereunder or any
interest herein without the prior written consent of the Lender Parties.
SECTION 8.07. Assignments and Participations. (a) Each Lender
may assign to one or more Eligible Assignees all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment or Commitments, the Advances owing to it and the Note
or Notes held by it); provided, however, that (i) each such assignment shall be
of a uniform, and not a varying, percentage of all rights and obligations under
and in respect of one or more Facilities, (ii) except in the case of an
assignment to a Person that, immediately prior to such assignment, was a Lender,
an Affiliate of any Lender or an Approved Fund of any Lender or an assignment of
all of a Lender's rights and obligations under this Agreement, the aggregate
amount of the Commitments being assigned to such Eligible Assignee pursuant to
such assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $1,000,000 (or such
lesser amount as shall be approved by the Administrative Agent and, so long as
no Default shall have occurred and be continuing at the time of effectiveness of
such assignment, the Borrower) under each Facility for which a Commitment is
being assigned, (iii) except in the case of an assignment to a Person that,
immediately prior to such assignment was a Lender, an Affiliate of any Lender or
an Approved Fund of any Lender, each such assignment shall be to an Eligible
Assignee approved by the Administrative Agent and, so long as no Default shall
have occurred, the Borrower, such consent not to be unreasonably withheld, (iv)
no such assignments shall be permitted without the consent of the Joint Lead
Arrangers until the Joint Lead Arrangers shall have notified the Lender Parties
that syndication of the Commitments hereunder has been completed and (v) the
parties to each such assignment shall execute and deliver to the Administrative
Agent, for its acceptance and recording in the Register, an Assignment and
Acceptance, together with any Note or Notes subject to such assignment and a
processing and recordation fee of $3,500.
(b) Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in such Assignment and Acceptance,
(i) the assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a Lender or
Issuing Bank, as the case may be, hereunder and (ii) the Lender or Issuing Bank
assignor thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights (other than its rights under Sections 2.10, 2.12 and 8.04 to the
extent any claim thereunder relates to an event arising prior to such
assignment) and be released from its obligations under this Agreement (and, in
the case of an Assignment and Acceptance covering all of the remaining portion
of an assigning Lender's or Issuing Bank's rights and obligations under this
Agreement, such Lender or Issuing Bank shall cease to be a party hereto).
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(c) By executing and delivering an Assignment and Acceptance,
each Lender Party assignor thereunder and each assignee thereunder confirm to
and agree with each other and the other parties thereto and hereto as follows:
(i) other than as provided in such Assignment and Acceptance, such assigning
Lender Party makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or in
connection with any Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, any Loan Document or any other instrument or
document furnished pursuant thereto; (ii) such assigning Lender Party makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of any Loan Party or the performance or observance by any
Loan Party of any of its obligations under any Loan Document or any other
instrument or document furnished pursuant thereto; (iii) such assignee confirms
that it has received a copy of this Agreement, together with copies of the
financial statements referred to in Section 4.01 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon any Agent, such assigning Lender Party
or any other Lender Party and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) such assignee confirms
that it is an Eligible Assignee; (vi) such assignee appoints and authorizes each
Agent to take such action as agent on its behalf and to exercise such powers and
discretion under the Loan Documents as are delegated to such Agent by the terms
hereof and thereof, together with such powers and discretion as are reasonably
incidental thereto; and (vii) such assignee agrees that it will be bound by the
provisions of this Agreement and will perform in accordance with their terms all
of the obligations that by the terms of this Agreement are required to be
performed by it as a Lender or Issuing Bank, as the case may be.
(d) The Administrative Agent, acting for this purpose (but
only for this purpose) as the agent of the Borrower, shall maintain at its
address referred to in Section 8.02 a copy of each Assignment and Acceptance
delivered to and accepted by it and a register for the recordation of the names
and addresses of the Lender Parties and the Commitment under each Facility of,
and principal amount of the Advances owing under each Facility to, each Lender
Party from time to time (the "REGISTER"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agents and the Lender Parties shall treat each Person whose name
is recorded in the Register as a Lender Party hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Agent or any Lender Party at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender Party and an assignee, together with any Note or Notes
subject to such
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assignment, the Administrative Agent shall, if such Assignment and Acceptance
has been completed and is in substantially the form of Exhibit C hereto (and is
accompanied by any required U.S. Internal Revenue Service Forms referred to in
Section 3(vii) thereof), (i) accept such Assignment and Acceptance, (ii) record
the information contained therein in the Register and (iii) give prompt notice
thereof to the Borrower and each other Agent. In the case of any assignment by a
Lender, within five Business Days after its receipt of such notice, the
Borrower, at its own expense, shall execute and deliver to the Administrative
Agent in exchange for the surrendered Note or Notes a new Note to the order of
such Eligible Assignee in an amount equal to the Commitment assumed by it under
each Facility pursuant to such Assignment and Acceptance and, if any assigning
Lender has retained a Commitment hereunder under such Facility, a new Note to
the order of such assigning Lender in an amount equal to the Commitment retained
by it hereunder. Such new Note or Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Note or
Notes, shall be dated the Effective Date and shall otherwise be in substantially
the form of Exhibit A-1, A-2 or A-3 hereto, as the case may be.
(f) The Issuing Bank may assign to an Eligible Assignee all of
its rights and obligations under the undrawn portion of its Letter of Credit
Commitment at any time; provided, however, that the parties to each such
assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance, together
with a processing and recordation fee of $3,500.
(g) Each Lender Party may sell participations to one or more
Persons (other than any Loan Party or any of its Affiliates) in or to all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitments, the Advances owing to it and
the Note or Notes (if any) held by it); provided, however, that (i) such Lender
Party's obligations under this Agreement (including, without limitation, its
Commitments) shall remain unchanged, (ii) such Lender Party shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender Party shall remain the holder of any such Note for all
purposes of this Agreement, (iv) the Borrower, the Agents and the other Lender
Parties shall continue to deal solely and directly with such Lender Party in
connection with such Lender Party's rights and obligations under this Agreement
and (v) no participant under any such participation shall have any right to
approve any amendment or waiver of any provision of any Loan Document, or any
consent to any departure by any Loan Party therefrom, except to the extent that
such amendment, waiver or consent would reduce the principal of, or interest on,
the Notes or any fees or other amounts payable hereunder, in each case to the
extent subject to such participation, postpone any date fixed for any payment of
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, in each case to the extent subject to such participation, or release
all or substantially all of the Collateral.
<PAGE> 129
129
(h) Any Lender Party that sells a participating interest under
Section 8.07(g) shall indemnify and hold harmless the Borrower and the
Administrative Agent from and against any taxes, related penalties and interest,
and reasonable out-of-pocket costs (including reasonable attorneys' fees and
expenses) incurred or payable by the Borrower or such Agent as a result of the
failure of Borrower or such Agent to comply with its obligations to deduct or
withhold any Taxes from any payments made pursuant to this Agreement to such
Lender Party (or such participant) or such Agent, as the case may be, which
taxes would not have been incurred or payable but for such participation.
(i) Any Lender Party may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.07, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrower furnished to such Lender
Party by or on behalf of the Borrower; provided, however, that, prior to any
such disclosure, the assignee or participant or proposed assignee or participant
shall agree to preserve the confidentiality of any Confidential Information
received by it from such Lender Party.
(j) Notwithstanding any other provision set forth in this
Agreement, any Lender Party may at any time create a security interest in all or
any portion of its rights under this Agreement (including, without limitation,
the Advances owing to it and the Note or Notes held by it) in favor of any
Federal Reserve Bank in accordance with Regulation A of the Board of Governors
of the Federal Reserve System.
SECTION 8.08. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different 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. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of an original executed
counterpart of this Agreement.
SECTION 8.09. No Liability of the Issuing Bank. The Borrower
assumes all risks of the acts or omissions of any beneficiary or transferee of
any Letter of Credit with respect to its use of such Letter of Credit. Neither
the Issuing Bank nor any of its officers or directors shall be liable or
responsible for: (a) the use that may be made of any Letter of Credit or any
acts or omissions of any beneficiary or transferee in connection therewith; (b)
the validity, sufficiency or genuineness of documents, or of any endorsement
thereon, even if such documents should prove to be in any or all respects
invalid, insufficient, fraudulent or forged; (c) payment by the Issuing Bank
against presentation of documents that do not comply with the terms of a Letter
of Credit, including failure of any documents to bear any reference or adequate
reference to the Letter of Credit; or (d) any other circumstances whatsoever in
making or failing to make payment under any Letter of Credit, except that the
Borrower shall have a claim against the Issuing Bank, and Issuing Bank shall be
liable to the Borrower, to the extent of any direct, but
<PAGE> 130
130
not consequential, damages suffered by the Borrower that the Borrower proves
were caused by (i) Issuing Bank's willful misconduct or gross negligence as
determined in a final, non-appealable judgment by a court of competent
jurisdiction in determining whether documents presented under any Letter of
Credit comply with the terms of the Letter of Credit or (ii) Issuing Bank's
willful failure to make lawful payment under a Letter of Credit after the
presentation to it of a draft and certificates strictly complying with the terms
and conditions of the Letter of Credit. In furtherance and not in limitation of
the foregoing, Issuing Bank may accept documents that appear on their face to be
in order, without responsibility for further investigation, regardless of any
notice or information to the contrary.
SECTION 8.10. Confidentiality. Neither any Agent nor any
Lender Party shall disclose any Confidential Information to any Person without
the consent of the Borrower, other than (a) to such Agent's or such Lender
Party's Affiliates and their officers, directors, employees, agents and advisors
and to actual or prospective Eligible Assignees and participants, and then only
on a confidential basis, (b) as required by any law, rule or regulation or
judicial process, (c) as requested or required by any state, Federal or foreign
authority or examiner regulating such Lender Party and (d) to any rating agency
when required by it, provided that, prior to any such disclosure, such rating
agency shall undertake to preserve the confidentiality of any Confidential
Information relating to the Loan Parties received by it from such Lender Party.
SECTION 8.11. Release of Collateral; Release of Subsidiary
Guarantor. Upon the sale, lease, transfer or other disposition of any item of
Collateral of any Loan Party (including, without limitation, as a result of the
sale, in accordance with the terms of the Loan Documents, of the Loan Party that
owns such Collateral) in accordance with the terms of the Loan Documents, the
Administrative Agent will (without the necessity of any notice to, or consent
of, any Lender), at the Borrower's expense, execute and deliver to such Loan
Party such documents as such Loan Party may reasonably request to evidence the
release of such item of Collateral from the assignment and security interest
granted under the Collateral Documents in accordance with the terms of the Loan
Documents. Upon the consummation of the sale, transfer or other disposition by
the Borrower and any of its Subsidiaries of all of the Equity Interests of the
Borrower and its Subsidiaries in any other Subsidiary which is a Subsidiary
Guarantor as permitted by, and in accordance with the terms of, the Loan
Documents, such Subsidiary Guarantor shall be automatically released from the
Subsidiary Guaranty and shall have no further obligations thereunder. Upon the
written request of the Borrower, together with a certificate detailing the
manner of any such sale of a Subsidiary Guarantor and the absence of any Default
hereunder both before and after giving effect thereto, the Administrative Agent
or the Required Lenders shall execute and deliver to the Borrower such documents
as the Borrower may reasonably request to evidence the release of such
Subsidiary Guarantor from the Subsidiary Guaranty.
SECTION 8.12. Jurisdiction, Etc. (a) Each of the parties
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive
<PAGE> 131
131
jurisdiction of any New York State court or Federal court of the United States
of America sitting in New York City, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Agreement or any
of the other Loan Documents to which it is a party, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in any such New York State court or, to
the fullest extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that any party may otherwise have to bring any action or proceeding
relating to this Agreement or any of the other Loan Documents in the courts of
any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or any of the
other Loan Documents to which it is a party in any New York State or Federal
court. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.
SECTION 8.13. Governing Law. This Agreement and the Notes
shall be governed by, and construed in accordance with, the laws of the State of
New York.
[The remainder of this page intentionally left blank.]
<PAGE> 132
132
SECTION 8.14. Waiver of Jury Trial. Each of the Borrower, the
Agents and the Lender Parties irrevocably waives all right to trial by jury in
any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to any of the Loan Documents, the
Advances, the Letters of Credit or the actions of any Agent or any Lender Party
in the negotiation, administration, performance or enforcement thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
SOVEREIGN SPECIALTY CHEMICALS, INC.
By____________________________________________
Title:
MERRILL LYNCH, PIERCE,
FENNER & SMITH
INCORPORATED, as Joint
Lead Arranger, Joint
Book Manager and
Syndication Agent
By____________________________________________
Title:
J.P. MORGAN SECURITIES INC., as Joint
Lead Arranger, Joint Book Manager and
Documentation Agent
By____________________________________________
Title:
THE CHASE MANHATTAN BANK,
as Administrative Agent
By____________________________________________
Title:
<PAGE> 133
133
INITIAL ISSUING BANK
THE CHASE MANHATTAN BANK
By____________________________________________
Title:
INITIAL LENDERS
MERRILL LYNCH CAPITAL CORPORATION
By____________________________________________
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By____________________________________________
Title:
THE CHASE MANHATTAN BANK
By____________________________________________
Title:
NATIONAL CITY BANK
By____________________________________________
Title:
<PAGE> 134
SCHEDULE I
COMMITMENTS AND APPLICABLE LENDING OFFICES
<TABLE>
<CAPTION>
TERM A TERM B REVOLVING CREDIT
NAME OF INITIAL LENDER COMMITMENT COMMITMENT COMMITMENT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Merrill Lynch Capital $22,500,000.00 $37,500,000.00 $15,000,000.00
Corporation
- ------------------------------------------------------------------------------------------------
Morgan Guaranty Trust $22,500,000.00 $37,500,000.00 $15,000,000.00
Company of New York
- ------------------------------------------------------------------------------------------------
The Chase Manhattan $15,000,000.00 $0.00 $10,000,000.00
Bank
- ------------------------------------------------------------------------------------------------
National City Bank $15,000,000.00 $0.00 $10,000,000.00
</TABLE>
<TABLE>
<CAPTION>
LETTER OF CREDIT DOMESTIC LENDING OFFICE EURODOLLAR
NAME OF INITIAL LENDER COMMITMENT LENDING OFFICE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Merrill Lynch Capital $0.00 Merrill Lynch & Co. Merrill Lynch & Co.
Corporation WFC North - 16th Floor WFC North - 16th Floor
250 Vesey Street 250 Vesey Street
New York, NY 10281 New York, NY 10281
Attn: Margaret Sellinger/ Attn: Margaret Sellinger/
Mack Campbell Mack Campbell
Tel: 212-449-6187/6996 Tel: 212-449-6187/6996
Fax: 212-738-1719 Fax: 212-738-1719
- -------------------------------------------------------------------------------------------------------------------------
Morgan Guaranty Trust $0.00 Morgan Guaranty Trust Morgan Guaranty Trust
Company of New York Company of New York Company of New York
c/o J.P. Morgan Services, Inc. c/o J.P. Morgan Services, Inc.
500 Stanton Christiana Road 500 Stanton Christiana Road
Newark, DE 19713 Newark, DE 19713
Attn: Michelle Stigliano Attn: Michelle Stigliano
Tel: 302-634-1867 Tel: 302-634-1867
Fax: 302-634-4061 Fax: 302-634-4061
- -------------------------------------------------------------------------------------------------------------------------
The Chase Manhattan $20,000,000.00 1 Chase Manhattan Plaza 1 Chase Manhattan Plaza
Bank 8th Floor 8th Floor
New York, NY 10081 New York, NY 10081
Attn: Tonya Mitchell Attn: Tonya Mitchell
Tel: 212-552-7206 Tel: 212-552-7206
Fax: 212-552-5777 Fax: 212-552-5777
- -------------------------------------------------------------------------------------------------------------------------
National City Bank $0.00 National City Bank National City Bank
1900 East Ninth Street 1900 East Ninth Street
Cleveland, OH 44114 Cleveland, OH 44114
Attn: Bevette Vickerstaff Attn: Bevette Vickerstaff
Tel: 216-488-7080 Tel: 216-488-7080
</TABLE>
<PAGE> 135
<TABLE>
<S> <C> <C> <C>
TOTAL $75,000,000.00 $75,000,000.00 $50,000,000.00
</TABLE>
<TABLE>
<S> <C> <C> <C>
Fax: 216-488-7110 Fax: 216-488-7110
TOTAL $20,000,000.00
</TABLE>
<PAGE> 136
SCHEDULE II
SUBSIDIARY GUARANTORS
1. SIA Adhesives, Inc., a Delaware corporation.
2. Pierce & Stevens Corp., a New York corporation.
3. OSI Sealants, Inc., an Illinois corporation
4. Tanner Chemicals, Inc., a New Hampshire corporation.
<PAGE> 137
SCHEDULE III
EXISTING LETTERS OF CREDIT
<TABLE>
<CAPTION>
L/C # ACCOUNT PARTY BENEFICIARY FACE AMOUNT ISSUE DATE TERMINATION DATE
----- ------------- ----------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
P-363456 SOVEREIGN SPECIALTY CHEMICALS RTC PROPERTIES 25000 U.S. 4/24/98 EVERGREEN
P-383505 SOVEREIGN SPECIALTY CHEMICALS CHASE MANHATTAN BANK SINGAPORE 2,000,000 SGD 5/30/97 EVERGREEN
</TABLE>
<PAGE> 138
SCHEDULE IV
DESIGNATED MATERIAL CONTRACTS
1. Patent License Agreement, dated as of July 1, 1991, by and between
Pierce and Stevens Corporation and Matsumoto Yushi Seiyaku Co., LTD
2. Agreement of Intent, dated as of September 1, 1997, by and between the
Company and Matsumoto Yushi-Seiyaku Co.
3. Distributorship Agreement dated as of October 23, 1996 between Kohler
Co. and Darworth.
4. Exclusive Distributor Agreement dated as of July 29, 1998 (but
effective as of the close of business on July 31, 1998) by and between
ChemRex, Inc. and OSI Sealants, Inc.
5. License Agreement, dated July 29, 1998, between OSI ("Licensor") and
ChemRex, Inc. ("Licensee").
6. License Agreement, dated April 20, 1999, between Pierce & Stevens
("Licensor") and Valspar Corporation ("Licensee").
<PAGE> 139
EXHIBIT A-1
TO THE CREDIT AGREEMENT
FORM OF REVOLVING CREDIT NOTE
$_______________ Dated: December __, 1999
FOR VALUE RECEIVED, the undersigned, SOVEREIGN SPECIALTY CHEMICALS, INC.,
a Delaware corporation (the "BORROWER"), HEREBY PROMISES TO PAY
_________________________ or its registered assigns (the "LENDER") for the
account of its Applicable Lending Office (as defined in the Credit Agreement
referred to below) the aggregate principal amount of the Revolving Credit
Advances, the Letter of Credit Advances and the Swing Line Advances (each as
defined below) owing to the Lender by the Borrower pursuant to the Credit
Agreement dated as of December 29, 1999 (as amended, amended and restated,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT";
terms defined therein, unless otherwise defined herein, being used herein as
therein defined) among the Borrower, the Lender and certain other lender parties
party thereto, and The Chase Manhattan Bank, as Administrative Agent for the
Lender and such other lender parties on the Termination Date.
The Borrower promises to pay to the Lender interest on the
unpaid principal amount of each Revolving Credit Advance, Letter of Credit
Advance and Swing Line Advance from the date of such Revolving Credit Advance,
Letter of Credit Advance or Swing Line Advance, as the case may be, until such
principal amount is paid in full, at such interest rates, and payable at such
times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America to the Administrative Agent at the Administrative
Agent's Account in same day funds. Each Revolving Credit Advance, Letter of
Credit Advance and Swing Line Advance owing to the Lender by the Borrower and
the maturity thereof, and all payments made on account of principal thereof,
shall be recorded by the Lender and, prior to any transfer hereof, endorsed on
the grid attached hereto, which is part of this Promissory Note; provided,
however, that the failure of the Lender to make any such recordation or
endorsement shall not affect the Obligations of the Borrower under this
Promissory Note.
This Promissory Note is one of the Revolving Credit Notes
referred to in, and is entitled to the benefits of, the Credit Agreement. The
Credit Agreement, among other things, (i) provides for the making of advances
(variously, the "REVOLVING CREDIT ADVANCES", the "LETTER OF CREDIT ADVANCES" or
the "SWING LINE ADVANCES") by the Lender to or for the benefit of the
<PAGE> 140
2
Borrower from time to time in an aggregate amount not to exceed at any time
outstanding the U.S. dollar amount first above mentioned, the indebtedness of
the Borrower resulting from each such Revolving Credit Advance, Letter of Credit
Advance and Swing Line Advance being evidenced by this Promissory Note, and (ii)
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments on account of principal hereof
prior to the maturity hereof upon the terms and conditions therein specified.
The obligations of the Borrower under this Promissory Note and the other Loan
Documents, and the obligations of the other Loan Parties under the Loan
Documents, are secured by the Collateral as provided in the Loan Documents.
This Promissory Note and the obligations evidenced hereby may
not be transferred or assigned in whole or in part, except pursuant to and in
accordance with the provisions of Section 8.07 of the Credit Agreement,
including, without limitation, the requirement that the Administrative Agent
shall have accepted and recorded each such transfer or assignment in the
Register.
SOVEREIGN SPECIALTY CHEMICALS, INC.
By_________________________________
Title:
<PAGE> 141
ADVANCES AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
AMOUNT OF UNPAID
AMOUNT OF PRINCIPAL PAID PRINCIPAL NOTATION
DATE ADVANCE OR PREPAID BALANCE MADE BY
================== ======================== ======================== ========================= ========================
<S> <C> <C> <C> <C>
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
</TABLE>
<PAGE> 142
EXHIBIT A-2
TO THE CREDIT AGREEMENT
FORM OF TERM A NOTE
$_______________ Dated: December __, 1999
FOR VALUE RECEIVED, the undersigned, SOVEREIGN SPECIALTY
CHEMICALS, INC., a Delaware corporation (the "BORROWER"), HEREBY PROMISES TO PAY
_________________________ or its registered assigns (the "LENDER") for the
account of its Applicable Lending Office (as defined in the Credit Agreement
referred to below) the aggregate principal amount of the Term A Advances (as
defined below) owing to the Lender by the Borrower pursuant to the Credit
Agreement dated as of December 29, 1999 (as amended, amended and restated,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT";
terms defined therein, unless otherwise defined herein, being used herein as
therein defined) among the Borrower, the Lender and certain other lender parties
party thereto, and The Chase Manhattan Bank, as Administrative Agent for the
Lender and such other lender parties on the dates and in the amounts specified
in the Credit Agreement.
The Borrower promises to pay to the Lender interest on the
unpaid principal amount of each Term A Advance from the date of such Term A
Advance until such principal amount is paid in full, at such interest rates, and
payable at such times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America to the Administrative Agent, at the Administrative
Agent's Account in same day funds. The Term A Advances owing to the Lender by
the Borrower and the maturity thereof, and all payments made on account of
principal thereof, shall be recorded by the Lender and, prior to any transfer
hereof, endorsed on the grid attached hereto, which is part of this Promissory
Note; provided, however, that the failure of the Lender to make any such
recordation or endorsement shall not affect the Obligations of the Borrower
under this Promissory Note.
This Promissory Note is one of the Term A Notes referred to
in, and is entitled to the benefits of, the Credit Agreement. The Credit
Agreement, among other things, (i) provides for the making of Term A Advances by
the Lender to the Borrower in an aggregate amount not to exceed the U.S. dollar
amount first above mentioned, the indebtedness of the Borrower resulting from
such Term A Advances being evidenced by this Promissory Note, and (ii) contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events and also for prepayments on account of principal hereof prior to
the maturity hereof
<PAGE> 143
2
upon the terms and conditions therein specified. The obligations of the Borrower
under this Promissory Note and the other Loan Documents, and the obligations of
the other Loan Parties under the Loan Documents, are secured by the Collateral
as provided in the Loan Documents.
This Promissory Note and the obligations evidenced hereby may
not be transferred or assigned in whole or in part, except pursuant to and in
accordance with the provisions of Section 8.07 of the Credit Agreement,
including, without limitation, the requirement that the Administrative Agent
shall have accepted and recorded each such transfer or assignment in the
Register.
SOVEREIGN SPECIALTY CHEMICALS, INC.
By_________________________________
Title:
<PAGE> 144
ADVANCES AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
AMOUNT OF UNPAID
AMOUNT OF PRINCIPAL PAID PRINCIPAL NOTATION
DATE ADVANCE OR PREPAID BALANCE MADE BY
================== ======================== ======================== ========================= ========================
<S> <C> <C> <C> <C>
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
</TABLE>
<PAGE> 145
EXHIBIT A-3
TO THE CREDIT AGREEMENT
FORM OF TERM B NOTE
$_______________ Dated: December __, 1999
FOR VALUE RECEIVED, the undersigned, SOVEREIGN SPECIALTY
CHEMICALS, INC., a Delaware corporation (the "BORROWER"), HEREBY PROMISES TO PAY
_________________________ or its registered assigns (the "LENDER") for the
account of its Applicable Lending Office (as defined in the Credit Agreement
referred to below) the aggregate principal amount of the Term B Advances (as
defined below) owing to the Lender by the Borrower pursuant to the Credit
Agreement dated as of December 29, 1999 (as amended, amended and restated,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT";
terms defined therein, unless otherwise defined herein, being used herein as
therein defined) among the Borrower, the Lender and certain other lender parties
party thereto, and The Chase Manhattan Bank, as Administrative Agent for the
Lender and such other lender parties on the dates and in the amounts specified
in the Credit Agreement.
The Borrower promises to pay to the Lender interest on the
unpaid principal amount of each Term B Advance from the date of such Term B
Advance until such principal amount is paid in full, at such interest rates, and
payable at such times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America to the Administrative Agent, at the Administrative
Agent's Account in same day funds. The Term B Advances owing to the Lender by
the Borrower and the maturity thereof, and all payments made on account of
principal thereof, shall be recorded by the Lender and, prior to any transfer
hereof, endorsed on the grid attached hereto, which is part of this Promissory
Note; provided, however, that the failure of the Lender to make any such
recordation or endorsement shall not affect the Obligations of the Borrower
under this Promissory Note.
This Promissory Note is one of the Term B Notes referred to
in, and is entitled to the benefits of, the Credit Agreement. The Credit
Agreement, among other things, (i) provides for the making Term B Advances by
the Lender to the Borrower in an aggregate amount not to exceed the U.S. dollar
amount first above mentioned, the indebtedness of the Borrower resulting from
such Term B Advances being evidenced by this Promissory Note, and (ii) contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events and also for prepayments on account of principal hereof prior to
the maturity hereof upon the terms
<PAGE> 146
2
and conditions therein specified. The obligations of the Borrower under this
Promissory Note and the other Loan Documents, and the obligations of the other
Loan Parties under the Loan Documents, are secured by the Collateral as provided
in the Loan Documents.
This Promissory Note and the obligations evidenced hereby may
not be transferred or assigned in whole or in part, except pursuant to and in
accordance with the provisions of Section 8.07 of the Credit Agreement,
including, without limitation, the requirement that the Administrative Agent
shall have accepted and recorded each such transfer or assignment in the
Register.
SOVEREIGN SPECIALTY CHEMICALS, INC.
By_________________________________
Title:
<PAGE> 147
ADVANCES AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
AMOUNT OF UNPAID
AMOUNT OF PRINCIPAL PAID PRINCIPAL NOTATION
DATE ADVANCE OR PREPAID BALANCE MADE BY
================== ======================== ======================== ========================= ========================
<S> <C> <C> <C> <C>
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
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================== ======================== ======================== ========================= ========================
================== ======================== ======================== ========================= ========================
</TABLE>
<PAGE> 148
EXHIBIT B
TO THE CREDIT AGREEMENT
FORM OF NOTICE OF BORROWING
[Date]
The Chase Manhattan Bank,
as Administrative Agent
under the Credit Agreement
referred to below
The Loan and Agency Services Group
1 Chase Manhattan Plaza
New York, NY 10081
Attention: _______________
Ladies and Gentlemen:
The undersigned, Sovereign Specialty Chemicals, Inc., refers
to the Credit Agreement dated as of December 29, 1999 (as amended, amended and
restated, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"; the terms defined therein being used herein as therein defined),
among the undersigned, the Lender Parties party thereto, and The Chase Manhattan
Bank, as Administrative Agent for the Lender Parties, and hereby gives you
notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that the
undersigned hereby requests a Borrowing under the Credit Agreement, and in that
connection sets forth below the information relating to such Borrowing (the
"PROPOSED BORROWING") as required by Section 2.02(a) of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is
_________ __, ____.
(ii) The Facility under which the Proposed Borrowing is
requested is the _______________ Facility.
(iii) The Type of Advances comprising the Proposed Borrowing
is [Base Rate Advances] [Eurodollar Rate Advances].
(iv) The aggregate amount of the Proposed Borrowing is
$__________.
<PAGE> 149
[(v) The initial Interest Period for each Eurodollar Rate
Advance made as part of the Proposed Borrowing is __________ month[s].]
(vi) [No portion of the Proposed Borrowing shall be used
to pay the purchase price of a Permitted Acquisition.] [Set forth on
Annex I hereto is a detail of the consideration proposed to be paid for
a Permitted Acquisition (a portion of which consideration is
constituted by a portion of the Proposed Borrowing).]
The undersigned hereby certifies that the following statements
are true on the date hereof, and will be true on the date of the
Proposed Borrowing:
(A) The representations and warranties contained in each Loan
Document are correct on and as of the date of the Proposed Borrowing,
before and after giving effect to the Proposed Borrowing and to the
application of the proceeds therefrom, as though made on and as of such
date, other than any such representations or warranties that, by their
terms, refer to a specific date other than the date of the Proposed
Borrowing, in which case, as of such specific date.
(B) No Default has occurred and is continuing, or would result
from such Proposed Borrowing or from the application of the proceeds
therefrom.
Delivery of an executed counterpart of this Notice of
Borrowing by telecopier shall be effective as delivery of an original executed
counterpart of this Notice of Borrowing.
Very truly yours,
SOVEREIGN SPECIALTY CHEMICALS, INC.
By_________________________________
Title:
<PAGE> 150
ANNEX I
TO THE NOTICE OF BORROWING
[NAME OF PERMITTED ACQUISITION]
A. Purchase Price: $_________
which shall be constituted by:
Cash from the Proposed Borrowing $___________
Cash from other Sources $___________
Cash Equivalents totaling: $___________
B. Cash Equivalents referred to above:
<PAGE> 151
EXHIBIT C
TO THE CREDIT AGREEMENT
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of December
29, 1999 (as amended, amended and restated, supplemented or otherwise modified
from time to time, the "CREDIT AGREEMENT"; the terms defined therein, unless
otherwise defined herein, being used herein as therein defined) among Sovereign
Specialty Chemicals, Inc., a Delaware corporation (the "BORROWER"), the Lender
Parties party thereto, and The Chase Manhattan Bank, as Administrative Agent for
the Lender Parties.
Each "Assignor" referred to on Schedule 1 hereto (each, an
"ASSIGNOR") and each "Assignee" referred to on Schedule 1 hereto (each, an
"ASSIGNEE") agrees severally with respect to all information relating to it and
its assignment hereunder and on Schedule 1 hereto as follows:
1. Such Assignor hereby sells and assigns, without recourse
except as to the representations and warranties made by it herein, to such
Assignee, and such Assignee hereby purchases and assumes from such Assignor, an
interest in and to such Assignor's rights and obligations under the Credit
Agreement as of the date hereof equal to the percentage interest specified on
Schedule 1 hereto of all outstanding rights and obligations under the Facility
or Facilities specified on Schedule 1 hereto. After giving effect to such sale
and assignment, such Assignee's Commitments and the amount of the Advances owing
to such Assignee will be as set forth on Schedule 1 hereto.
2. Such Assignor (i) represents and warrants that its name set
forth on Schedule 1 hereto is its legal name, that it is the legal and
beneficial owner of the interest or interests being assigned by it hereunder and
that such interest or interests are free and clear of any adverse claim; (ii)
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
any Loan Document or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of, or the perfection or priority of any lien
or security interest created or purported to be created under or in connection
with, any Loan Document or any other instrument or document furnished pursuant
thereto; (iii) makes no representation or warranty and assumes no responsibility
with respect to the financial condition of any Loan Party or the performance or
observance by any Loan Party of any of its obligations under any Loan Document
or any other instrument or document furnished pursuant thereto; and (iv)
attaches the Note or Notes held by such Assignor and requests that the
Administrative Agent exchange such Note or Notes for a new Note or Notes payable
to the order of such Assignee in an amount equal to the Commitments assumed by
such Assignee pursuant hereto or new Notes payable to the order of such Assignee
in an amount equal to the Commitments assumed by such Assignee pursuant hereto
and such Assignor in an amount equal to the Commitments retained by such
Assignor under the Credit Agreement, respectively, as specified on Schedule 1
hereto.
<PAGE> 152
3. Such Assignee (i) confirms that it has received a copy of
the Credit Agreement, together with copies of the financial statements referred
to in Section 4.01 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment and Acceptance; (ii) agrees that it will, independently and
without reliance upon any Agent, any Assignor or any other Lender Party and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Credit Agreement; (iii) represents and warrants that its name set
forth on Schedule 1 hereto is its legal name; (iv) confirms that it is an
Eligible Assignee; (v) appoints and authorizes each Agent to take such action as
agent on its behalf and to exercise such powers and discretion under the Loan
Documents as are delegated to such Agent by the terms thereof, together with
such powers and discretion as are reasonably incidental thereto; (vi) agrees
that it will be bound by the provisions of the Credit Agreement and will perform
in accordance with their terms all of the obligations that by the terms of the
Credit Agreement are required to be performed by it as a Lender Party; and (vii)
attaches any U.S. Internal Revenue Service or other forms required under Section
2.12 of the Credit Agreement.
4. Following the execution of this Assignment and Acceptance,
it will be delivered to the Administrative Agent for acceptance and recording by
the Administrative Agent. The effective date for this Assignment and Acceptance
(the "EFFECTIVE DATE") shall be the date of acceptance hereof by the
Administrative Agent, unless otherwise specified on Schedule 1 hereto.
5. Upon such acceptance and recording by the Administrative
Agent, as of the Effective Date, (i) such Assignee shall be a party to the
Credit Agreement and, to the extent provided in this Assignment and Acceptance,
have the rights and obligations of a Lender Party thereunder and (ii) such
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement (other than its rights and obligations under the Loan Documents that
are specified under the terms of such Loan Documents to survive the payment in
full of the Obligations of the Loan Parties under the Loan Documents to the
extent any claim thereunder relates to an event arising prior to the Effective
Date of this Assignment and Acceptance) and, if this Assignment and Acceptance
covers all of the remaining portion of the rights and obligations of such
Assignor under the Credit Agreement, such Assignor shall cease to be a party
thereto.
6. Upon such acceptance and recording by the Administrative
Agent, from and after the Effective Date, the Administrative Agent shall make
all payments under the Credit Agreement and the Notes in respect of the interest
assigned hereby (including, without limitation, all payments of principal,
interest and commitment fees with respect thereto) to such Assignee. Such
Assignor and such Assignee shall make all appropriate adjustments in payments
under the Credit Agreement and the Notes for periods prior to the Effective Date
directly between themselves.
7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of New York.
<PAGE> 153
8. This Assignment and Acceptance may be executed in any
number of counterparts and by different 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. Delivery of an
executed counterpart of Schedule 1 to this Assignment and Acceptance by
telecopier shall be effective as delivery of an original executed counterpart of
this Assignment and Acceptance.
IN WITNESS WHEREOF, each Assignor and each Assignee have
caused Schedule 1 to this Assignment and Acceptance to be executed by their
officers thereunto duly authorized as of the date specified thereon.
<PAGE> 154
SCHEDULE 1
TO
ASSIGNMENT AND ACCEPTANCE
<TABLE>
<S> <C> <C> <C> <C> <C>
ASSIGNORS:
========================================================= =========== =========== ============= =========== ============
REVOLVING CREDIT FACILITY
========================================================= =========== =========== ============= =========== ============
Percentage interest assigned % % % % %
========================================================= =========== =========== ============= =========== ============
Revolving Credit Commitment assigned $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
Aggregate outstanding principal amount of
Revolving Credit Advances assigned $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
Principal amount of Revolving Credit Note
payable to ASSIGNOR (after assignment) $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
TERM A FACILITY
========================================================= =========== =========== ============= =========== ============
Percentage interest assigned % % % % %
========================================================= =========== =========== ============= =========== ============
Term A Commitment assigned $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
Outstanding principal amount of
Term A Advance assigned $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
Principal amount of Term A Note
payable to ASSIGNOR (after assignment) $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
TERM B FACILITY
========================================================= =========== =========== ============= =========== ============
Percentage interest assigned % % % % %
========================================================= =========== =========== ============= =========== ============
Term B Commitment assigned $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
Outstanding principal amount of
Term B Advance assigned $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
Principal amount of Term B Note
payable to ASSIGNOR (after assignment) $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
LETTER OF CREDIT FACILITY
========================================================= =========== =========== ============= =========== ============
Letter of Credit Commitment assigned $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
Letter of Credit Commitment retained $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
</TABLE>
<PAGE> 155
<TABLE>
<S> <C> <C> <C> <C> <C>
ASSIGNEES:
========================================================= =========== =========== ============= =========== ============
REVOLVING CREDIT FACILITY
========================================================= =========== =========== ============= =========== ============
Percentage interest assumed % % % % %
========================================================= =========== =========== ============= =========== ============
Revolving Credit Commitment assumed $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
Aggregate outstanding principal amount of
Revolving Credit Advances assumed $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
Principal amount of Revolving Credit Note
payable to ASSIGNEE (after assignment) $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
TERM A FACILITY
========================================================= =========== =========== ============= =========== ============
Percentage interest assumed % % % % %
========================================================= =========== =========== ============= =========== ============
Term A Commitment assumed $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
Outstanding principal amount of
Term A Advance assumed $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
Principal amount of Term A Note
payable to ASSIGNEE (after assignment) $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
TERM B FACILITY
========================================================= =========== =========== ============= =========== ============
Percentage interest assumed % % % % %
========================================================= =========== =========== ============= =========== ============
Term B Commitment assumed $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
Outstanding principal amount of
Term B Advance assumed $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
Principal amount of Term B Note
payable to ASSIGNEE (after assignment) $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
LETTER OF CREDIT FACILITY
========================================================= =========== =========== ============= =========== ============
Letter of Credit Commitment assumed $ $ $ $ $
========================================================= =========== =========== ============= =========== ============
</TABLE>
<PAGE> 156
2
Effective Date (if other than date of acceptance by Administrative Agent):
(1)_________ __, ____
ASSIGNORS
____________________________________, as Assignor
[Type or print legal name of Assignor]
By_______________________________________________
Title:
Dated: _________ __, ____
____________________________________, as Assignor
[Type or print legal name of Assignor]
By_______________________________________________
Title:
Dated: _________ __, ____
____________________________________, as Assignor
[Type or print legal name of Assignor]
By_______________________________________________
Title:
__________
(1) This date should be no earlier than five Business Days after the
delivery of this Assignment and Acceptance to the Administrative Agent.
<PAGE> 157
3
Dated: _________ __, ____
____________________________________, as Assignor
[Type or print legal name of Assignor]
By_______________________________________________
Title:
Dated: _________ __, ____
____________________________________, as Assignor
[Type or print legal name of Assignor]
By_______________________________________________
Title:
Dated: _________ __, ____
ASSIGNEES
____________________________________, as Assignee
[Type or print legal name of Assignee]
By_______________________________________________
Title:
Dated: _________ __, ____
Domestic Lending Office:
Eurodollar Lending Office:
____________________________________, as Assignee
<PAGE> 158
4
[Type or print legal name of Assignee]
By_______________________________________________
Title:
Dated: _________ __, ____
Domestic Lending Office:
Eurodollar Lending Office:
____________________________________, as Assignee
[Type or print legal name of Assignee]
By_______________________________________________
Title:
Dated: _________ __, ____
Domestic Lending Office:
Eurodollar Lending Office:
____________________________________, as Assignee
[Type or print legal name of Assignee]
By_______________________________________________
Title:
Dated: _________ __, ____
Domestic Lending Office:
Eurodollar Lending Office:
<PAGE> 159
5
____________________________________, as Assignee
[Type or print legal name of Assignee]
By_______________________________________________
Title:
Dated: _________ __, ____
Domestic Lending Office:
Eurodollar Lending Office:
Accepted (2)[and Approved] this ____
day of ___________, ____
[NAME OF Administrative Agent],
as Administrative Agent
By______________________________________
Title:
(3)[Approved this ____ day
of _____________, ____
SOVEREIGN SPECIALTY CHEMICALS, INC.
By______________________________________
_________
(2) Required if the Assignee is an Eligible Assignee solely by reason of
clause(a) (viii) or (b) of the definition of "ELIGIBLE ASSIGNEE".
(3) See footnote 2 above.
<PAGE> 160
EXECUTION COPY
$200,000,000
CREDIT AGREEMENT
Dated as of December 29, 1999
Among
SOVEREIGN SPECIALTY CHEMICALS, INC.
as Borrower
and
THE INITIAL LENDERS, INITIAL ISSUING BANK AND
SWING LINE BANK NAMED HEREIN
as Initial Lenders, Initial Issuing Bank and Swing Line Bank
and
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
as Joint Lead Arranger, Joint Book-Running Manager and Syndication Agent
and
J.P. MORGAN SECURITIES INC.
as Joint Lead Arranger, Joint Book-Running Manager and Documentation Agent
and
THE CHASE MANHATTAN BANK
as Administrative Agent
<PAGE> 161
T A B L E O F C O N T E N T S
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
1.01. Certain Defined Terms......................................... 2
1.02. Computation of Time Periods; Other Definitional Provisions.... 37
1.03. Accounting Terms.............................................. 37
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT
2.01. Advances and Letters of Credit................................ 38
2.02. Making the Advances........................................... 40
2.03. Issuance of and Drawings and Reimbursement Under Letters of
Credit........................................................ 43
2.04. Repayment of Advances......................................... 44
2.05. Termination or Reduction of the Commitments................... 48
2.06. Prepayments................................................... 49
2.07. Interest...................................................... 53
2.08. Fees.......................................................... 54
2.09. Conversion of Advances........................................ 55
2.10. Increased Costs, Etc.......................................... 56
2.11. Payments and Computations..................................... 57
2.12. Taxes......................................................... 59
2.13. Sharing of Payments, Etc...................................... 62
2.14. Use of Proceeds............................................... 63
2.15. Defaulting Lenders............................................ 63
ARTICLE III CONDITIONS OF LENDING AND ISSUANCES
OF LETTERS OF CREDIT
3.01. Conditions Precedent to Initial Extension of Credit........... 66
3.02. Conditions Precedent to Each Borrowing and Issuance andRenewal 71
3.03. Determinations Under Section 3.01............................. 72
ARTICLE IV REPRESENTATIONS AND WARRANTIES
4.01. Representations and Warranties of the Borrower................ 72
ARTICLE V COVENANTS OF THE BORROWER
5.01. Affirmative Covenants......................................... 81
5.02. Negative Covenants............................................ 91
5.03. Reporting Requirements........................................ 103
5.04. Financial Covenants........................................... 107
</TABLE>
<PAGE> 162
<TABLE>
<S> <C> <C>
ARTICLE VI EVENTS OF DEFAULT
6.01. Events of Default............................................. 109
6.02. Actions in Respect of the Letters of Credit upon Default...... 113
ARTICLE VII THE AGENTS
7.01. Authorization and Action...................................... 113
7.02. Agents' Reliance, Etc......................................... 114
7.03. Chase, J.P. Morgan, ML&Co. and Affiliates..................... 114
7.04. Lender Party Credit Decision.................................. 114
7.05. Indemnification............................................... 115
7.06. Successor Agents.............................................. 116
ARTICLE VIII MISCELLANEOUS
8.01. Amendments, Etc............................................... 117
8.02. Notices, Etc.................................................. 120
8.03. No Waiver; Remedies........................................... 120
8.04. Costs and Expenses............................................ 120
8.05. Right of Set-off.............................................. 122
8.06. Binding Effect................................................ 123
8.07. Assignments and Participations................................ 123
8.08. Execution in Counterparts..................................... 126
8.09. No Liability of the Issuing Bank.............................. 126
8.10. Confidentiality............................................... 127
8.11. Release of Collateral; Release of Subsidiary Guarantor........ 127
8.12. Jurisdiction, Etc............................................. 128
8.13. Governing Law................................................. 128
8.14. Waiver of Jury Trial.......................................... 129
</TABLE>
<PAGE> 163
iii
<TABLE>
<CAPTION>
SECTION PAGE
SCHEDULES
<S> <C> <C> <C>
Schedule I - Commitments and Applicable Lending Offices
Schedule II - Subsidiary Guarantors
Schedule III - Existing Letters of Credit
Schedule IV - Designated Material Contracts
Schedule 4.01(a) - Holders of Borrower Equity Interests
Schedule 4.01(b) - Subsidiaries
Schedule 4.01(c) - Consents
Schedule 4.01(d) - Authorizations, Approvals, Actions, Notices and
Filings
Schedule 4.01(f) - Disclosed Litigation
Schedule 4.01(p) - Plans, Multiemployer Plans and Welfare Plans
Schedule 4.01(q) - Environmental Compliance
Schedule 4.01(r) - Open Years; Unpaid Tax Liabilities; Adjusted Tax Bases
Schedule 4.01(t) - Existing Debt
Schedule 4.01(u) - Surviving Debt
Schedule 4.01(v) - Liens
Schedule 4.01(w) - Owned Real Property
Schedule 4.01(x) - Leased Real Property
Schedule 4.01(y) - Investments
Schedule 4.01(z) - Intellectual Property
Schedule 4.01(aa) - Material Contracts
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C> <C>
Exhibit A-1 - Form of Revolving Credit Note
Exhibit A-2 - Form of Term A Note
Exhibit A-3 - Form of Term B Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Security Agreement
Exhibit E - Form of Subsidiary Guaranty
</TABLE>
<PAGE> 164
iv
<TABLE>
<S> <C> <C>
Exhibit F - Form of Solvency Certificate
Exhibit G - Form of Opinion of Counsel to the Loan Parties
Exhibit H - Form of Certificate of Non-Bank Status
Exhibit I - Form of Intercompany Note
</TABLE>
<PAGE> 1
EXHIBIT 4.1A
LETTER AMENDMENT
Dated as of February 16, 2000
To the Initial Lenders and
the Administrative Agent
referred to below
Sovereign Specialty Chemicals, Inc.
Ladies and Gentlemen:
We refer to the Credit Agreement dated as of December 29, 1999 (the
"CREDIT AGREEMENT"), among Sovereign Specialty Chemicals, Inc., a Delaware
corporation (the "BORROWER"), the banks, financial institutions and other
institutional lenders listed on the signature pages hereof as the Initial
Lenders (the "INITIAL LENDERS"), the Initial Issuing Bank and the Swing Line
Bank (as therein defined), Merrill Lynch, Pierce, Fenner & Smith Incorporated,
as joint lead arranger, joint book-running manager and syndication agent, J.P.
Morgan Securities Inc., as joint lead arranger, joint book-running manager and
documentation agent, and The Chase Manhattan Bank, as administrative agent (the
"ADMINISTRATIVE AGENT"). Capitalized terms not otherwise defined in this Letter
Amendment have the same meanings as specified in the Credit Agreement.
It is hereby agreed by you and us as follows:
The Credit Agreement is, effective as of the date of this Letter
Amendment, hereby amended as follows:
(a) Section 2.01(a) is amended by deleting the last sentence of said
Section and inserting the following sentence in lieu thereof:
"Except as otherwise provided in Section 2.05(b)(i), amounts borrowed
under this Section 2.01(a) and repaid or prepaid may not be
reborrowed."
(b) Section 2.05(b)(i) is amended by adding to the end thereof a new
sentence to read as follows:
"On each date prior to eighteen months after the Effective Date on
which outstanding Term A Advances are prepaid pursuant to Section
2.06(b)(ii)(B) with proceeds of any Subordinated Debt issued pursuant
to Section 5.02(b)(x), the aggregate Term A Commitments of the Term A
Lenders shall be automatically restored and increased, on a pro rata
basis, by an aggregate amount equal to the aggregate amount of the Term
A
LETTER AMENDMENT
<PAGE> 2
2
Advances so prepaid on such date. Notwithstanding the foregoing, at no
time shall the Term A Facility as so restored and increased exceed
$75,000,000."
This Letter Amendment shall become effective as of the date first above
written when, and only when, the Administrative Agent shall have received
counterparts of this Letter Amendment executed by the undersigned and all of the
Initial Lenders or, as to any of the Initial Lenders, advice satisfactory to the
Administrative Agent that such Initial Lender has executed this Letter Amendment
, and the consent attached hereto executed by each Subsidiary Guarantor. This
Letter Amendment is subject to the provisions of Section 8.01 of the Credit
Agreement.
On and after the effectiveness of this Letter Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of
like import referring to the Credit Agreement, and each reference in the Notes
and each of the other Loan Documents to "the Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Credit Agreement, shall mean
and be a reference to the Credit Agreement, as amended by this Letter Amendment.
The Credit Agreement, as specifically amended by this Letter Amendment, is and
shall continue to be in full force and effect and is hereby in all respects
ratified and confirmed. The execution, delivery and effectiveness of this Letter
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of any Lender or the Agent under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
This Letter Amendment may be executed in any number of counterparts and
by different 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. Delivery of an executed counterpart of a
signature page to this Letter Amendment by telecopier shall be effective as
delivery of a manually executed counterpart of this Letter Amendment. This
Letter Amendment shall be governed by, and construed in accordance with, the
laws of the State of New York.
If you agree to the terms and provisions hereof, please evidence such
agreement by executing and returning a counterpart of the attached agreement to
this Letter Amendment.
Very truly yours,
SOVEREIGN SPECIALTY CHEMICALS, INC.
By
----------------------------------------
Title:
LETTER AMENDMENT
<PAGE> 3
3
Agreed as of the date first above written:
INITIAL LENDERS
MERRILL LYNCH CAPITAL CORPORATION
By
-------------------------------------
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By
-------------------------------------
Title:
THE CHASE MANHATTAN BANK
By
-------------------------------------
Title:
NATIONAL CITY BANK
By
-------------------------------------
Title:
THE BANK OF NOVA SCOTIA
By
-------------------------------------
Title:
LETTER AMENDMENT
<PAGE> 4
CONSENT
Dated as of February 16, 2000
The undersigned, as Guarantors under the Subsidiary Guaranty dated as
of December 29, 1999 (the "SUBSIDIARY GUARANTY"), in favor of the Secured
Parties (as defined in the Credit Agreement referred to in the foregoing Letter
Amendment), hereby consent to the foregoing Letter Amendment and hereby confirm
and agree that notwithstanding the effectiveness of such Letter Amendment, the
Subsidiary Guaranty is, and shall continue to be, in full force and effect and
is hereby ratified and confirmed in all respects, except that, on and after the
effectiveness of such Letter Amendment, each reference in the Subsidiary
Guaranty to the "Credit Agreement", "thereunder", "thereof" or words of like
import shall mean and be a reference to the Credit Agreement, as amended by such
Letter Amendment.
SIA ADHESIVES, INC.
By
-----------------------------------------
Title:
PIERCE & STEVENS CORP.
By
-----------------------------------------
Title:
OSI SEALANTS, INC.
By
-----------------------------------------
Title:
TANNER CHEMICALS, INC.
By
-----------------------------------------
Title:
LETTER AMENDMENT
<PAGE> 1
EXHIBIT 4.1B
AMENDMENT AND WAIVER LETTER
Dated as of February 29, 2000
To the Lenders and
the Administrative Agent
referred to below
Sovereign Specialty Chemicals, Inc.
Ladies and Gentlemen:
We refer to the Credit Agreement dated as of December 29, 1999 (the
"CREDIT AGREEMENT"), among Sovereign Specialty Chemicals, Inc., a Delaware
corporation (the "BORROWER"), the banks, financial institutions and other
institutional lenders listed on the signature pages hereof as the Lenders (the
"LENDERS"), the Initial Issuing Bank and the Swing Line Bank (as therein
defined), Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead
arranger, joint book-running manager and syndication agent, J.P. Morgan
Securities Inc., as joint lead arranger, joint book-running manager and
documentation agent, and The Chase Manhattan Bank, as administrative agent (the
"ADMINISTRATIVE AGENT"). Capitalized terms not otherwise defined in this
Amendment and Waiver Letter have the same meanings as specified in the Credit
Agreement.
It is hereby agreed by you and us as follows:
(a) The following requirements of Section 5.01(q)(ii) of the Credit
Agreement are, effective as of the date of this Amendment and Waiver Letter,
hereby waived until March 20, 2000:
(i) the requirement that Pierce & Stevens Corp. shall have provided the
Administrative Agent with (A) a Pledged Account Letter executed by Bital
Bank - Mexico on or before the Post-Closing Perfection Date in respect of
its accounts maintained at such bank and (B) a Pledged Account Letter
executed by Manufacturers and Traders Trust Company on or before the
Post-Closing Perfect Date in respect of its accounts maintained as such
bank;
(ii) the requirement that OSI Sealants, Inc. shall have provided the
Administrative Agent with a Pledged Account Letter executed by Bank One, NA
on or before the Post-Closing Perfection Date in respect of its accounts
maintained at such bank; and
(iii) the requirement that Tanner Chemicals, Inc. shall have provided
the Administrative Agent with a Pledged Account Letter executed by First
Union on or prior to the Post-Closing Perfection Date in respect of its
accounts maintained as such bank.
Amendment and Waiver Letter February 25, 2000
<PAGE> 2
2
(b) The following requirements of Section 5(a) of the Security
Agreement are, effective as of the date of this Amendment and Waiver Letter,
hereby waived as follows:
(i) the requirement that Pierce & Stevens Corp. maintain deposit
accounts only with banks that have entered into Pledged Account Letters
with the Administrative Agent is waived to the extent necessary to permit
Pierce & Stevens Corp. to maintain accounts at Bital Bank - Mexico and
Manufacturers and Traders Trust Company without such a letter until March
20, 2000;
(ii) the requirement that OSI Sealants, Inc. maintain deposit accounts
only with banks that have entered into Pledged Account Letters with the
Administrative Agent is waived to the extent necessary to permit OSI
Sealants, Inc. to maintain an account at Bank One, NA without such a letter
until March 20, 2000; and
(iii) the requirement that Tanner Chemicals, Inc. maintain deposit
accounts only with banks that have entered into Pledged Account Letters
with the Administrative Agent is waived to the extent necessary to permit
Tanner Chemicals, Inc. to maintain accounts at First Union without such a
letter until March 20, 2000.
(c) The Security Agreement is, effective as of the date of this
Amendment and Waiver Letter, hereby amended as follows:
(i) Section 1(f) is amended by adding the following proviso to the end
of clause (ii) of said Section:
"; provided however that, notwithstanding anything to the contrary
contained in this Agreement, with respect to the twelve Trademarks
listed on Schedule IV under the heading "OSI", commencing with the
Trademark "BUILDING A SAFER TOMORROW" and ending with the Trademark "PL
500" (collectively, the "ENCUMBERED TRADEMARKS"), which, as of the
Effective Date, are subject to a right of first refusal in favor of
ChemRex Inc. pursuant to that certain License Agreement dated July 29,
1998 (as amended and restated, and in effect from time to time, the
"CHEMREX LICENSE"), between OSI Sealants, Inc. and ChemRex Inc., no
security interest is granted to the Administrative Agent hereunder in
the Encumbered Trademarks for so long as the ChemRex License is in
effect; provided further, that a security interest shall be granted
hereunder in the Encumbered Trademarks immediately upon the expiration
or earlier termination of the ChemRex License; and provided further
that, notwithstanding the foregoing provisos, a security interest is
hereby granted in any proceeds from any sale of the Encumbered
Trademarks which is made pursuant to the terms of the ChemRex License";
Amendment and Waiver Letter February 25, 2000
<PAGE> 3
3
(ii) Section 9(h) is amended by adding the following proviso to the end
of clause (B) of said Section:
"; provided however that no such recordation need be made with respect
to any Encumbered Trademarks for so long as that the ChemRex License is
in effect; provided however that such a recordation will be made with
respect to the Encumbered Trademarks not later than 60 days after the
date on which the ChemRex License expires or is earlier terminated";
(iii) Schedule I is amended by deleting Part I of said Schedule in its
entirety and substituting therefor the Part I of Schedule I which is
attached to this Amendment and Waiver Letter; and
(iv) Schedule V is amended by deleting said Schedule in its entirety
and substituting therefor the Schedule V which is attached to this
Amendment and Waiver Letter.
This Amendment and Waiver Letter shall become effective as of the date
first above written when, and only when, the Administrative Agent shall have
received counterparts of this Amendment and Waiver Letter executed by the
Borrower and the Required Lenders or, as to any of such Lenders, advice
satisfactory to the Administrative Agent that such Lender has executed this
Amendment and Waiver Letter, and the consent and agreement attached hereto
executed by each Subsidiary Guarantor. This Amendment and Waiver Letter is
subject to the provisions of Section 8.01 of the Credit Agreement and Section 22
of the Security Agreement.
On and after the effectiveness of this Amendment and Waiver Letter,
each reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof" or words of like import referring to the Credit Agreement, and each
reference in the Notes and each of the other Loan Documents to "the Credit
Agreement", "thereunder", "thereof" or words of like import referring to the
Credit Agreement, shall mean and be a reference to the Credit Agreement, as
modified by this Amendment and Waiver Letter. On and after the effectiveness of
this Amendment and Waiver Letter, each reference in the Security Agreement to
"this Agreement", "hereunder", "hereof" or words of like import referring to the
Security Agreement, and each reference in the Notes and each of the other Loan
Documents to "the Security Agreement", "thereunder", "thereof" or words of like
import referring to the Security Agreement, shall mean and be a reference to the
Security Agreement, as amended and otherwise modified by this Amendment and
Waiver Letter. The Credit Agreement and the Security Agreement, as specifically
amended or otherwise modified by this Amendment and Waiver Letter, are and shall
continue to be in full force and effect and are hereby in all respects ratified
and confirmed. The execution, delivery and effectiveness of this Amendment and
Waiver Letter shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of any Lender or the Agent under any of the
Loan Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
Amendment and Waiver Letter February 25, 2000
<PAGE> 4
4
This Waiver Letter may be executed in any number of counterparts and by
different 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. Delivery of an executed counterpart of a
signature page to this Amendment and Waiver Letter by telecopier shall be
effective as delivery of a manually executed counterpart of this Amendment and
Waiver Letter. This Amendment and Waiver Letter shall be governed by, and
construed in accordance with, the laws of the State of New York.
If you agree to the terms and provisions hereof, please evidence such
agreement by executing and returning a counterpart of the attached agreement to
this Amendment and Waiver Letter.
Very truly yours,
SOVEREIGN SPECIALTY CHEMICALS, INC.
By
----------------------------------------
Title:
Amendment and Waiver Letter February 25, 2000
<PAGE> 5
Agreed as of the date first above written:
THE CHASE MANHATTAN BANK,
as Administrative Agent
By
----------------------------------------
Title:
LENDERS
THE CHASE MANHATTAN BANK
By
----------------------------------------
Title:
MERRILL LYNCH CAPITAL CORPORATION
By
----------------------------------------
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By
----------------------------------------
Title:
NATIONAL CITY BANK
By
----------------------------------------
Title:
THE BANK OF NOVA SCOTIA
By
----------------------------------------
Title:
Amendment and Waiver Letter February 25, 2000
<PAGE> 6
CONSENT AND AGREEMENT
Dated as of February 29, 2000
The undersigned, as Grantors under the Security Agreement dated as of
December 29, 1999 (the "SECURITY AGREEMENT"), in favor of the Administrative
Agent for the Secured Parties (as such terms are defined in the foregoing
Amendment and Waiver Letter), and as Guarantors under the Subsidiary Guaranty
dated as of December 29, 1999 (the "SUBSIDIARY GUARANTY"), in favor of the
Secured Parties, hereby consent and agree to the foregoing Amendment and Waiver
Letter and hereby confirm and agree to the amendments and waivers to the
Security Agreement provided for in the Amendment and Waiver Letter, and also
agree that notwithstanding the effectiveness of such Amendment and Waiver
Letter, the Subsidiary Guaranty is, and shall continue to be, in full force and
effect and is hereby ratified and confirmed in all respects, except that, on and
after the effectiveness of such Amendment and Waiver Letter, each reference in
the Subsidiary Guaranty to the "Credit Agreement", "thereunder", "thereof" or
words of like import shall mean and be a reference to the Credit Agreement, as
modified by such Amendment and Waiver Letter and each reference in the
Subsidiary Guaranty to the "Security Agreement", "thereunder", "thereof" or
words of like import shall mean and be a reference to the Security Agreement, as
amended and otherwise modified by such Amendment and Waiver Letter.
SIA ADHESIVES, INC.
By
---------------------------------------
Title:
PIERCE & STEVENS CORP.
By
---------------------------------------
Title:
OSI SEALANTS, INC.
By
---------------------------------------
Title:
TANNER CHEMICALS, INC.
By
---------------------------------------
Title:
Amendment and Waiver Letter February 25, 2000
<PAGE> 1
Exhibit 4.3
AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
AMENDED AND RESTATED SHAREHOLDERS AGREEMENT, dated as of
December 14, 1999 (this "Agreement"), by and among Sovereign Specialty
Chemicals, Inc., a Delaware corporation (the "Company"), SSCI Investors LLC, a
Delaware limited liability company ("Investors LLC"), and Sovereign Specialty
Chemicals, L.P., a Delaware limited partnership ("SSC").
WITNESSETH
WHEREAS, Investors LLC and SSC are parties to a Stock
Purchase Agreement dated as of November 24, 1999 (as amended) pursuant to which
Investors LLC has agreed to purchase certain shares of the Company owned by SSC
(the "Stock Purchase Agreement");
WHEREAS, as a condition to the consummation of the
transactions contemplated by the Stock Purchase Agreement the parties hereto
entered into a shareholders' agreement (the "Original Shareholders' Agreement"),
dated as of November 24, 1999;
WHEREAS, Investors LLC's name in the Original Shareholders'
Agreement was incorrectly stated as SSC Investors LLC;
WHEREAS, the parties hereto desire to amend the Original
Shareholders' Agreement to correct this error and to make certain other
amendments regarding certain rights, obligations and restrictions with respect
to the Common Stock of the Company;
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto hereby agree to amend and restate the
Original Shareholders' Agreement as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions.
"Affiliate": of any Person, means any other Person
controlling, controlled by or under common control with such Person.
<PAGE> 2
"Agreement": as defined in the preamble to this Agreement.
"Board of Directors": the board of directors of the Company or
a duly designated committee thereof.
"Business Day": 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
open.
"Closing": as defined in the Stock Purchase Agreement.
"Commission": the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
"Common Stock": the common stock of the Company (all classes)
now or hereafter authorized to be issued, whether voting or non-voting.
"Company": as defined in the preamble to this Agreement.
"Confidential Information": as defined in Section 5.7(b).
"Exempt Transfer": as defined in Section 4.2(d).
"Exit Sale": as defined in Section 4.3.
"First Offer": as defined in Section 4.2(c)(i).
"IPO": an initial underwritten public offering of Shares
registered under the Securities Act, whether for the sale of Shares by the
Company or by shareholders.
"Investors": AEA Investors, Inc.
"Investors LLC": as defined in the preamble to this Agreement.
"Investors LLC Parties": Investors LLC, Investors, any Person
controlling or controlled by Investors or any officers, directors, employees,
participants, shareholders of Investors or members of Investors LLC.
"Non-Transferring Party": as defined in Section 4.4(iv).
"Notice": as defined in Section 4.2(c)(i).
"Notice Period": as defined in Section 4.2(c)(i).
"Notified Shareholder": as defined in Section 5.6.
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<PAGE> 3
"Observer": as defined in Section 3.2.
"Permitted Transferees": any Person to whom Shares are
transferred by SSC or any previous Permitted Transferees, excluding any Shares
transferred under Article V or pursuant to Sections 4.3 and 4.4 and excluding
any Shares sold after the consummation of an IPO, pursuant to Rule 144 under the
Securities Act in compliance with Section 5.1(d).
"Person": any natural person, corporation, limited liability
company, partnership, firm, association, trust, government, governmental agency
or other entity, whether acting in an individual, fiduciary or other capacity.
"Piggyback Registration": as defined in Section 5.1(a).
"Pre-emptive Right Notice": as defined in Section 5.6.
"Private Offering": as defined in Section 5.6.
"Registrable Securities": (i) any shares of Common Stock owned
by the SSC Parties and (ii) any securities issued as a dividend on or other
distribution with respect to or in exchange, replacement or in subdivision of,
any such Common Stock. As to any particular Registrable Securities, such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, or (ii) such securities shall
have been sold (other than in a privately negotiated sale) pursuant to Rule 144
(or any successor provision) under the Securities Act and in compliance with the
requirements of paragraphs (c), (e), (f), (g) and (k) of Rule 144.
"Registration Expenses": as defined in Section 5.3(a).
"Related Party": as defined in Section 4.2(e).
"Right of First Offer": as defined in Section 4.2(c)(i).
"Secondary Offering": any underwritten public offering of
Shares registered under the Securities Act following an IPO in which Shares are
being sold by any shareholder.
"Securities Act": the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder, as the same shall be in
effect at the time.
"Shares": shares of Common Stock.
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<PAGE> 4
"SSC": as defined in the preamble to this Agreement.
"SSC Parties": the original signatories hereto (other than the
Company and Investors LLC) and their Permitted Transferees.
"Stock Purchase Agreement": as defined in the preamble to this
Agreement.
"Subsidiary": of any Person shall mean any corporation or
other legal entity of which such Person (either alone or through or together
with any other Subsidiary) owns, directly or indirectly, 50% or more of the
stock or other equity interests, the holders of which are generally entitled to
vote for the election of the board of directors or other governing body of such
corporation or other legal entity.
"Tag Along Notice": as defined in Section 4.4.
"Transfer": any sale, transfer, assignment, grant of a
participation in, gift, hypothecation, encumbrance, pledge or other disposition
of any securities or any interests therein, whether direct or indirect.
"Transfer Notice": as defined in Section 4.2(c)(i).
"Transfer Offer": as defined in Section 4.2(c)(i).
"Transfer Offerees": as defined in Section 4.2(c)(i).
"Transferring Party": as defined in Section 4.4(iv).
"Transfer Stock": as defined in Section 4.2(c)(i).
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representations and Warranties of the Company.
The Company hereby represents and warrants to the other parties hereto as
follows: The Company has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery by the Company of this Agreement, and the consummation by
the Company of the transactions contemplated hereby, have been duly authorized
by all necessary corporate action on the part of the Company. This Agreement has
been duly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative
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<PAGE> 5
agency or commission or other governmental authority or instrumentality,
domestic or foreign, is required by, or with respect to, the Company in
connection with the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby. The
execution and delivery of this Agreement by the Company and the consummation of
the transactions contemplated hereby by the Company does not conflict with, or
result in a breach of, any law or regulation of any governmental authority
applicable to the Company or any material agreement to which the Company is a
party.
Section 2.2. Representations and Warranties of Investors LLC.
Investors LLC hereby represents and warrants to the other parties hereto as
follows:
(a) Authority. Investors LLC has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery by Investors LLC of
this Agreement and the consummation by Investors LLC of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of Investors LLC. This Agreement has been duly
executed and delivered by Investors LLC and constitutes a valid and binding
obligation of Investors LLC enforceable against Investors LLC in accordance with
its terms. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, is
required by, or with respect to, Investors LLC in connection with the execution
and delivery by Investors LLC of this Agreement or the consummation by Investors
LLC of the transactions contemplated by this Agreement. The execution and
delivery by Investors LLC of this Agreement and the consummation by Investors
LLC of the transactions contemplated hereby does not conflict with, or result in
a breach of, any law or regulation of any governmental authority applicable to
Investors LLC or any material agreement to which Investors LLC is a party.
Section 2.3. Representations and Warranties of SSC Parties.
Each SSC Party for itself severally and not jointly hereby represents and
warrants to the other parties as follows:
(a) Authority. Such SSC Party has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery by it of this
Agreement, and the consummation by it of the transactions contemplated hereby,
have been duly authorized by all necessary corporate or organizational action on
the part of the SSC Party. This Agreement has been duly executed and delivered
by such SSC Party and constitutes a valid and binding
-5-
<PAGE> 6
obligation of such SSC Party enforceable against such SSC Party in accordance
with its terms. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, is required by, or with respect to, such SSC Party in connection with
the execution and delivery of this Agreement by such SSC Party or the
consummation by such SSC Party of the transactions contemplated hereby. The
execution and delivery by such SSC Party of this Agreement and the consumation
by such SSC Party of the transactions contemplated hereby does not conflict
with, or result in a breach of, any law or regularities of any governmental
authority applicable to such SSC Party or any material agreement to which SSC
Party is a party.
(b) Shares. Schedule 2.3 sets forth the ownership of the
Shares held by such SSC Party as of the Closing.
ARTICLE III
CORPORATE GOVERNANCE; certain corporate actions
Section 3.1. Voting of Shares. (a) From and after the date
hereof, each Investors LLC Party shall vote all Shares of Common Stock owned or
controlled by it and take all other necessary or desirable actions within its
control (including, without limitation, attendance at meetings in person or by
proxy for purposes of obtaining a quorum and execution of written consents in
lieu of meetings), to effectuate the provisions of this Agreement.
(b) From and after the date hereof, each SSC Party shall vote
all of its Shares of Common Stock owned or controlled by it and take all other
necessary or desirable actions within its control (including, without
limitation, attendance at meetings in person or by proxy for purposes of
obtaining a quorum and execution of written consents in lieu of meetings), to
effectuate the provisions of this Agreement.
(c) From and after the date hereof, the Company and its
Subsidiaries shall take all necessary or desirable actions within its control
(including, without limitation, calling special board and stockholder meetings)
to effectuate the provisions of this Agreement.
Section 3.2. Non-Voting Observer. Prior to the consummation of
the IPO if and so long as any SSC Party and its Affiliates (other than any
Person who is directly or indirectly a shareholder of the Company as of the date
hereof) beneficially own at least 10% of the Shares then outstanding on a fully
diluted basis (excluding stock options) from time to time, then such SSC Party
shall have the right to designate a single individual (the "Observer") for
consecutive terms each not less than one year (which term
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<PAGE> 7
shall end if at any time the SSC Party would not have the right to designate an
Observer) to serve as a non-voting observer of the Company's board of directors
(but not to any committee thereof except for any executive committee of the
Company's board of directors). Such individual shall (i) be a professional
employed by such entity, (ii) be of appropriate stature and experience to act as
a representative to the Company's board of directors, (iii) have relevant board
level experience and (iv) attend meetings personally without rights of
delegation or substitution. Such Observer shall be able to attend all meetings
of the Company's board of directors (but not any committee thereof except for
any executive committee of the Company's board of directors) and shall receive
all information distributed to all board members for any meetings of the
Company's board of directors (but not any committee thereof except for any
executive committee of the Company's board of directors) subject to the
provisions of Section 5.7(d). The Observer shall receive notice of all meetings
in the same manner as the other board members. Notwithstanding the foregoing,
the board of directors shall be under no obligation to take any action with
respect to any proposals made or advice furnished by the Observer.
Section 3.3. Certain Transactions. (a) Transactions (i) except
with the written consent of the SSC Parties holding a majority of the Shares
held by SSC Parties, between the Company and the Investors LLC Parties and their
Affiliates and (ii) except with the written consent of Investors, between the
Company and the SSC Parties and their Affiliates, shall, in each case, not be on
terms more favorable to such party (other than the Company) than would be
obtained by an unaffiliated third party.
(b) Notwithstanding the foregoing, Section 3.3(a) shall not
restrict (i) the payment of (x) any management fees payable to Investor LLC
Parties or their Affiliates in an annual amount of up to $1.6 million which cap
may be increased from time to time by the Company's Board of Directors to
proportionately reflect the expansion of the Company including the expansion of
the equity capitalization of the Company or (y) any transaction or financing
fees to Investors or its Affiliates, which fees shall be customary, taking into
account any fees paid to third party service providers in any such transaction,
(ii) compensation arrangements with officers, directors and employees of the
Company and its Subsidiaries, (iii) the granting or exercise of stock options to
directors, employees or consultants of the Company and its Subsidiaries in an
aggregate amount not to exceed 15% of the Shares outstanding on a fully diluted
basis (giving effect to stock options) from time to time, (iv) purchase of
Shares by employees under employee stock purchase plans or otherwise, (v)
registration rights granted by the Company to shareholders or Affiliates of
shareholders and (vi) customary director and officer indemnification or matters
relating thereto.
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<PAGE> 8
(c) The SSC Parties acknowledge that the Company may from
time to time grant registration rights and other shareholder rights to Persons
that are or become shareholders of the Company.
ARTICLE IV
TRANSFER
Section 4.1. Transfer Restrictions. (a) The Investors LLC
Parties and the SSC Parties shall not Transfer all or part of any Shares owned
of record by them in violation of the provisions of this Article IV. Any
Transfer in violation of the provisions of this Article IV shall have no effect
and be null and void. No direct or indirect transaction whose primary purpose is
to subvert the provisions of this Section 4.1 shall be permitted.
(b) The parties hereby acknowledge and agree that, so long as
such restriction is applicable hereunder or by law, each of the certificates
representing the Shares held by the SSC Parties shall be subject to stop
transfer instructions and shall include the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY BE OFFERED
OR SOLD ONLY IF REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THESE SHARES
ARE SUBJECT TO CERTAIN LIMITATIONS ON TRANSFER AND TO CERTAIN
VOTING AGREEMENTS AND OBLIGATIONS AS ARE SET FORTH IN A
SHAREHOLDERS AGREEMENT DATED AS OF NOVEMBER 24, 1999 (AS
AMENDED AND RESTATED AS OF DECEMBER 14, 1999), BY AND AMONG
SOVEREIGN SPECIALITY CHEMICALS, INC., SSCI INVESTORS LLC, AND
THE OTHER PARTIES THERETO, INCLUDING, BUT NOT LIMITED TO,
RESTRICTIONS ON THEIR SALE, TRANSFER, PLEDGE OR OTHER
DISPOSITION AND VOTING OBLIGATIONS TO EFFECT CERTAIN
TRANSACTIONS. A COPY OF SUCH AGREEMENT IS ON FILE WITH THE
SECRETARY OF SOVEREIGN SPECIALITY CHEMICALS, INC. SUCH
TRANSFER RESTRICTIONS
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<PAGE> 9
AND VOTING OBLIGATIONS SHALL BE BINDING ON FUTURE TRANSFEREES
AND HOLDERS.
Section 4.2. Consent and Right of First Offer. (a) No SSC
Party will at any time Transfer any Shares without the prior written consent of
Investors if such Transfer will result in one Person and its Affiliates
beneficially owning 10% or more of the Shares then outstanding on a fully
diluted basis (excluding stock options) from time to time; provided that no
consent shall be required if the Permitted Transferee delivers to Investors its
renunciation and waiver of any rights under Section 3.2 and Section 5.7(c) prior
to the Transfer; provided, further, that no consent is required to Transfer the
Shares from an SSC Party whose acquisition of such Shares was previously
consented to under this Section 4.2(a) to an Affiliate of such SSC Party, whose
business is primarily private equity investment. In connection with any proposed
Transfer requiring consent, the SSC Parties will provide to Investors at least
15 Business Days prior to the Transfer of the identity of the party to whom
Shares will be transferred and the terms of such Transfer. In connection with
any proposed Transfer to an Affiliate not requiring consent, the transferring
SSC Party shall provide Investors prior notice of the Transfer and the identity
of the transferee.
(b) No SSC Party will at any time Transfer any Shares (1) to
any competitor of the Company and (2) to any Person unless such Person agrees to
be bound to the terms of this Agreement, in a form reasonably satisfactory to
the Company and Investors LLC, as if it was an original party hereto. Failure of
the Transferee to agree to be so bound shall void any Transfer. All Permitted
Transferees shall be bound to the terms of this Agreement as if it were an
original party hereto.
(c) Shareholders' Right of First Offer.
(i) If any SSC Party desires to Transfer any or all
of the Shares held by such SSC Party (the "Transfer Stock") to any Person other
than pursuant to an Exempt Transfer (as defined in Section 4.2(d) below), such
SSC Party shall reduce to writing (the "Transfer Notice") the terms pursuant to
which such SSC Party desires to Transfer such Transfer Stock (a "Transfer
Offer"). Such Transfer Notice shall identify the Transfer Stock, the
consideration for the Transfer Stock, the identity of any third party offeror,
if any, and all the other terms and conditions of such Transfer Offer. The SSC
Party shall provide the Transfer Notice to the Company and Investors
(collectively, the "Transfer Offerees"). The Transfer Notice shall constitute an
irrevocable offer by the SSC Party (a "First Offer") to sell the Transfer Stock
to the Transfer Offerees at a price equal to the price and upon the same terms
contained in the Transfer Notice, and the Transfer Offerees shall be entitled to
purchase the Transfer Stock upon substantially the
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<PAGE> 10
same terms as those contained in the Transfer Notice. In particular, in the
event that non-cash consideration is specified in the First Offer, then such
Transfer Offerees may, at their option, deliver at closing cash, in lieu of such
other consideration, in an amount equal to the fair market value of such other
consideration as agreed upon by the parties.
The Transfer Offerees shall have the irrevocable right and option (the
"Right of First Offer"), exercisable as provided below, to accept the First
Offer as to all Shares of the Transfer Stock. The Company and Investors shall
consult as to their interest in purchasing the Shares and the Company shall have
the priority amongst the two to purchase Shares. If the Company and Investors
after consultation desire to exercise such option with respect to a First Offer
they shall provide the SSC Party with an irrevocable written notice to purchase
all Shares of the Transfer Stock and specifying the number of Shares of Transfer
Stock to be purchased by each of Investors and the Company pursuant to such
First Offer (the "Notice"), which shall be binding on said Transfer Offeree,
within 15 Business Days after the date of the Transfer Notice (the " Notice
Period"), provided, however, that any Transfer Offer must be accepted by the
Transfer Offerees in the aggregate with respect to all of the Transfer Stock or
it may not be accepted at all.
(ii) The closing of the purchases of the Transfer Stock by the
Transfer Offerees pursuant to paragraph (i) shall take place on the later of (a)
the third business day after any required regulatory approvals are received or
(b) the fifth Business Day after the Notice.
(iii) If the Transfer Offer is not accepted by the Transfer
Offerees, the Seller shall have 90 days from the last date of any Notice Period,
in which to Transfer all of the Transfer Stock to any Person at a price not less
than and on terms no more favorable to such Person than were contained in the
Transfer Notice.
(d) Exempt Transfer. As used herein, the term "Exempt
Transfer" shall mean (i) Transfers by any SSC Party to another SSC Party or to a
Related Party, (ii) a Transfer by a SSC Party who is an individual upon death of
such SSC Party by inheritance or operation of law to the heirs or devisees of
such SSC Party or (iii) Transfers by SSC to its partners prior to Closing. The
Transfer, directly or indirectly, by an SSC Party of an interest in a Related
Party which has acquired Shares in an Exempt Transfer, shall not be deemed an
Exempt Transfer and shall be subject to the restrictions on Transfer set forth
in Section 4.2(c).
(e) Related Party. As used herein, the term "Related Party"
with respect to any Person means, as of the time of any Transfer, (i) any person
or entity that, directly or indirectly, through one or more intermediaries, has
voting control of, or is under
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<PAGE> 11
common voting control with, or is controlled by such Person, (ii) with respect
to individuals, such Person's spouse, parents, children, siblings and/or
grandchildren, and (iii) a trust, corporation, partnership or other entity,
whose beneficiaries, shareholders, partners, or owners, or other persons or
entities holding a controlling interest in which, consist solely of such Person
and/or such other persons or entities referred to in the immediately preceding
clauses (i) or (ii).
Section 4.3. Take Along Rights. If the Investors LLC Parties
desire to Transfer or exchange directly or indirectly (by merger or otherwise),
at least 50% of the Shares beneficially owned by the Investors LLC Parties (any
such transaction being referred to herein as an "Exit Sale") to any Person who
is not an Affiliate of the transferring Investors LLC Party or an Affiliate of
Investors, Investors may require, pursuant to a written notice delivered to the
SSC Parties at least 20 days prior to the closing of the proposed Exit Sale,
that the SSC Parties sell to the prospective purchaser, concurrently with and on
the terms (including price) and subject to the conditions of the Exit Sale, up
to that number of Shares owned by the SSC Parties as shall equal the product of
(x) a fraction, the numerator of which is the number of Shares held by the
Investors LLC Parties proposed to be acquired in the Exit Sale and the
denominator of which is the number of Shares owned by the Investors LLC Parties,
and (y) the number of Shares owned by the SSC Parties. If the Investors LLC
Parties propose the Transfer of all or substantially all of the assets or
business, (whether by merger, sale or otherwise) of the Company, then Investors
and the Company shall have the right to require the SSC Parties to take promptly
all action necessary or appropriate (including voting their Shares in favor of
such transaction) in order to effect such transaction. Each of the SSC Parties
covenants and agrees that it shall take such actions as are necessary to
consummate the transactions contemplated by this Section 4.3. Any
indemnification provided in connection with any Transfer made pursuant to this
Section 4.3 shall be on a several and not joint basis and any such
indemnification shall be pro-rata in accordance with the number of Shares
Transferred or proceeds received and any such indemnification shall be limited
to the proceeds received by such SSC Party in connection with the transaction.
Section 4.4. Tag Along Rights. If the Investors LLC Parties
desire to Transfer (other than Transfer to any other Investors LLC Party or
Related Party) directly or indirectly, Shares prior to the IPO, the Investors
LLC Parties shall provide the SSC Parties with written notice (the "Tag Along
Notice") (which may, but need not be, incorporated into the notice required
pursuant to Section 4.3) setting forth:
(i) the number and class of Shares proposed to be
Transferred;
(ii) the identity of the prospective purchaser;
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(iii) all material terms and conditions of such
proposed transaction; and
(iv) that the party transferring Shares requiring a
tag-along notice (the "Transferring Party") is offering the SSC Parties (the
"Non-Transferring Party") the right to participate in such Transfer on a pro
rata basis on the same terms and conditions as are applicable to the
Transferring Party; provided that the Investors LLC Parties may Transfer (x) up
to 15% of the Shares beneficially owned by them in the aggregate as of the
Closing without complying with this Section 4.4 and (y) to other Investors LLC
Parties or to Related Parties.
Within 10 Business Days following the delivery of the Tag Along Notice, the
Non-Transferring Party shall, by notice in writing to the Transferring Party,
have the opportunity to sell to the prospective purchaser (upon the same terms
and conditions as the Transferring Party) up to that number of Shares of the
class or classes specified in the Tag Along Notice owned by such
Non-Transferring Party as shall equal the product of (x) a fraction, the
numerator of which is the number of Shares of the class or classes specified in
the Tag Along Notice owned by the Non-Transferring Party as of the date of such
proposed sale and the denominator of which is the aggregate number of Shares of
the class or classes specified in the Tag Along Notice owned as of the date of
such Tag Along Notice by Investors LLC Parties and the Non-Transferring Party
and any other participating Person, and (y) the number of Shares proposed to be
sold. The amount of Shares to be sold by the Transferring Party shall be reduced
if and to the extent necessary to provide for such sale of Shares by the
Non-Transferring Party. If the Non-Transferring Party does not elect to
participate in such sale within the 10 Business Day period referred to above,
the Transferring Party shall be entitled to consummate such sale without the
participation of the Non-Transferring Party.
Section 4.5. Permitted Transfers. The provisions of Sections
4.1, 4.2, 4.3 and 4.4 shall not apply to any Transfer of Shares made pursuant to
Article V and the provisions of Section 4.1 shall not apply to Transfers of
Shares sold after consummation of the IPO pursuant to Rule 144 of the Securities
Act and in compliance with Section 5.1 (d).
ARTICLE V
REGISTRATION RIGHTS
Section 5.1. Piggyback Registrations.
(a) Right to Piggyback. If (x) in connection with the IPO,
Shares are proposed to be sold by shareholders other than SSC Parties of the
Company or (y) after
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the completion of the IPO, whenever the Company proposes to register any of its
equity securities under the Securities Act (other than a registration on Form
S-4 or Form S-8 or any successor or similar forms) and the registration form to
be used may be used for the registration of Registrable Securities (a "Piggyback
Registration"), whether or not for sale for its own account, the Company will
give prompt written notice to SSC Parties, of its intention to effect such a
registration and will include in such registration all Registrable Securities
with respect to which the Company has received written requests for inclusion
therein within 15 days after the receipt of the Company's notice. Any Piggyback
Registration may be abandoned at any time without prejudice to the Company or
any shareholder of the Company.
(b) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration under the Securities Act on
behalf of the Company, and the managing underwriters or the Company determines
that the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering within a price range
reasonably acceptable to the Company, the Company will include in such
registration (i) first, the securities the Company proposes to sell and (ii)
second, all other securities (including the Registrable Securities and
securities held by holders other than the SSC Parties) requested to be included
in such registration, pro rata among the respective holders thereof on the basis
of the number of securities owned by each such holder subject to registration
rights with the Company.
(c) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration under the Securities Act
on behalf of holders of the Company's securities, and the managing underwriters
or the Company determines that the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering
within a price range reasonably acceptable to such holders, the Company will
include in such registration the securities (including the Registrable
Securities and securities held by holders other than the SSC Parties) requested
to be included in such registration, pro rata among the respective holders
thereof on the basis of the number of securities owned by each such holder
subject to registration rights with the Company.
(d) Holdback. (i) Each SSC Party agrees that, with respect to
the IPO, if requested by the Company, Investors or the managing underwriters, if
any, in writing, on the same basis as the Investors LLC Parties, it will not
directly or indirectly (x) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of or otherwise dispose of or transfer
any shares of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock or (y) enter into any swap or other agreement that
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transfers, in whole or in part, the economic consequence of ownership of the
Common Stock whether any such swap or transaction is to be settled by delivery
of shares of Common Stock or other securities, in cash or otherwise of any
securities of the Company, (other than securities, if any, of such SSC Party
included in such IPO), during the time period requested in such written request,
not to exceed a period beginning 7 days before and ending 18 months after the
date such registration statement for the IPO is declared effective.
(ii) Each SSC Party hereby further agrees that, with
respect to the first and second Secondary Offerings, if requested by the
Company, Investors or the managing underwriters, if any, in writing, on the same
basis as the Investors LLC Parties, it will not directly or indirectly (x)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of or otherwise dispose of or transfer any shares of Common Stock or
securities convertible into or exchangeable or exercisable for shares of Common
Stock or (y) enter into any swap or other agreement that transfers, in whole or
in part, the economic consequence of ownership of the shares whether any such
swap or transaction is to be settled by delivery of shares of Common Stock or
other securities, in cash or otherwise (other than securities, if any, of such
SSC Party included in such Secondary Offering), during the time period requested
in such written request, not to exceed a period beginning 7 days before and
ending 365 days after the date the registration statement for the first
Secondary Offering after the IPO is declared effective and not to exceed a
period beginning 7 days before and ending 180 days after the date the
registration statement for the second Secondary Offering after an IPO is
declared effective.
(iii) Notwithstanding clauses (i) and (ii) above, if
at any time any SSC Party (together with any Persons that received Shares as a
distribution or similar disposition from such SSC Party or are Affiliates of
such SSC Party) holds less than 1% of the Shares then outstanding on a fully
diluted basis (excluding stock options) from time to time, then such SSC Party
shall only be subject to the restrictions on Transfer requested by the managing
underwriter in connection with the IPO on the same basis as the Investors LLC
Parties.
(e) The Company will not enter into any agreement which is
inconsistent with the Piggyback Registration provisions contained herein. With
respect to any registration covered by Section 5.1, the Investors LLC Parties as
a whole shall not have a right to sell a greater number of shares on a
proportionate basis (based on number of securities owned) than the SSC Parties
as a whole.
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Section 5.2. Registration Procedures. Whenever the SSC Parties
have requested that any Registrable Securities be registered in a Piggyback
Registration pursuant to Section 5.1, the Company will use its reasonable
efforts to effect the registration and the sale of such Registrable Securities
in accordance with the intended method of disposition thereof, and pursuant
thereto the Company will as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Securities and thereafter use its
reasonable efforts to cause such registration statement to become effective
(provided that, before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company will furnish to the counsel
selected by the holders of a majority of the Registrable Securities covered by
such registration statement copies of all such documents proposed to be filed,
which documents will be subject to review of such counsel);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of either (i) not less than six months (subject to extension pursuant
to Section 5.5(b)) or, if such registration statement relates to an underwritten
offering, such longer period as in the opinion of counsel for the underwriters a
prospectus is required by law to be delivered in connection with sales of
Registrable Securities by an underwriter or dealer or (ii) such shorter period
as will terminate when all of the securities covered by such registration
statement have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement (but in any event not before the expiration of any longer period
required under the Securities Act), and to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement until such time as all of such securities have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its reasonable efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably
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necessary or advisable to enable such seller to consummate the disposition in
such jurisdictions of the Registrable Securities owned by such seller (provided
that the Company will not be required to (i) qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this subparagraph, (ii) subject itself to taxation in any such jurisdiction or
(iii) consent to general service of process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the discovery of the happening of
any event as a result of which, the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and, at the request of any such
seller, the Company will prepare and furnish to such seller a reasonable number
of copies of a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus will
not contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including, without limitation,
effecting a stock split or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
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(j) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
the Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any securities included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable efforts promptly to obtain the
withdrawal of such order;
(l) obtain a cold comfort letter, dated the effective date of
such registration statement (and, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), signed by the Company's independent public accountants in customary
form and covering such matters of the type customarily covered by cold comfort
letters as the holders of a majority of the Registrable Securities being sold
reasonably request (provided that such Registrable Securities constitute at
least 10% of the securities covered by such registration statement); and
(m) provide a legal opinion of the Company's outside counsel,
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, dated the date of the
closing under the underwriting agreement), with respect to the registration
statement, each amendment and supplement thereto, the prospectus included herein
(including the preliminary prospectus) and such other documents relating thereto
in customary form and covering such matters of the type customarily covered by
legal opinions of such nature.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing.
Section 5.3. Registration Expenses. (a) The Company shall pay
all Registration Expenses relating to any registration of Registrable Securities
hereunder. "Registration Expenses" shall mean any and all fees and expenses
incident to the Company's performance of or compliance with this Article V,
including, without limitation: (i) Commission, stock exchange or National
Association of Securities Dealers, Inc. registration and filing fees and all
listing fees and fees with respect to the
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inclusion of securities on the Nasdaq National Market, (ii) fees and expenses of
compliance with state securities or "blue sky" laws and in connection with the
preparation of a "blue sky" survey, including, without limitation, reasonable
fees and expenses of blue sky counsel, (iii) printing expenses, (iv) messenger
and delivery expenses, (v) fees and disbursements of counsel for the Company,
(vi) with respect to each registration, reasonable fees and disbursements of one
counsel for the selling holders of Shares (selected by the holders of a majority
of the Shares included in such registration), (vii) fees and disbursements of
all independent public accountants (including the expenses of any audit and/or
"cold comfort" letter) and fees and expenses of other persons, including special
experts, retained by the Company, and (viii) any other fees and disbursements of
underwriters, if any, customarily paid by issuers or sellers of securities.
(b) Notwithstanding the foregoing, (i) the provisions of this
Section 5.3 shall be deemed amended to the extent necessary to cause these
expense provisions to comply with "blue sky" laws of each state in which the
offering is made and (ii) in connection with any registration hereunder, each
holder of Registrable Securities being registered shall pay all underwriting
discounts and commissions and transfer taxes, if any, attributable to the
Registrable Securities included in the offering by such holder.
Section 5.4. Indemnification. (a) The Company agrees to
indemnify and hold harmless, to the extent permitted by law, each holder of
Registrable Securities, its officers, directors, members, general or limited
partners and each Person who controls such holder (within the meaning of the
Securities Act) against any losses, claims, damages, liabilities, joint or
several, to which such holder or any such director, officer, member, general or
limited partners or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon (i) any untrue or alleged untrue statement of a
material fact contained (A) in any registration statement, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or (B) in
any application or other document or communication (in this Section 5.4
collectively called an "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to qualify any securities covered by such registration
statement under the "blue sky" or securities laws thereof, or (ii) any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company will
reimburse such holder and each such director, officer, member, general or
limited partner and controlling person for any legal or any other expenses
incurred by them in connection with investigating or defending any such loss,
claim, liability, action or proceeding; provided that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
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liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon an untrue statement or alleged untrue statement, or omission or
alleged omission, made in such registration statement, any such prospectus or
preliminary prospectus or any amendment or supplement thereto, or in any
application, in reliance upon and in conformity with written information
prepared and furnished to the Company by such holder expressly for use therein
or by such holder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Company has
furnished such holder with a sufficient number of copies of the same. In
connection with an underwritten offering, the Company will indemnify such
underwriters, their officers and directors and each Person who controls such
underwriters (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the holders of Registrable
Securities.
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder will furnish
to the Company in writing such information and documents regarding such holder
and such holder's intended method of distribution or otherwise required by the
Securities Act as the Company reasonably requests for use in connection with any
such registration statement or prospectus and, to the extent permitted by law,
will indemnify and hold harmless the Company, its directors and officers and
each other Person who controls the Company (within the meaning of the Securities
Act) against any losses, claims, damages, liabilities, joint or several, to
which the Company or any such director or officer or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon (i) any untrue or
alleged untrue statement of a material fact contained in the registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or in any application or (ii) any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, but only to the extent that such untrue
statement or omission is made in such registration statement, any such
prospectus or preliminary prospectus or any amendment or supplement thereto, or
in any application, in reliance upon and in conformity with written information
prepared and furnished to the Company by such holder expressly for use therein,
and such holder will reimburse the Company and each such director, officer and
controlling person for any legal or any other expenses incurred by them in
connection with investigating or defending any such loss, claim, liability,
action or proceeding; provided that the obligation to indemnify will be
individual to each holder and will be limited to the net amount of proceeds
received by such holder from the sale of Registrable Securities pursuant to such
registration statement. In connection with an underwritten offering, the holders
of Registrable Securities will indemnify such underwriters, their officers and
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directors and each Person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the Company.
(c) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent. An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and will survive the transfer of securities by any
holder thereof. The Company also agrees to make such provisions, as are
reasonably requested by any indemnified party, for contribution to such party in
the event the Company's indemnification is unavailable for any reason.
Section 5.5. Participation in Underwritten Registrations. (a)
In the case of a registration pursuant to Section 5.1 hereof, if the Company
shall have determined to enter into any underwriting agreements in connection
therewith, all of the holders' Registrable Securities to be included in such
registration shall be subject to such underwriting agreement. Such underwriting
agreement shall also contain such representations, warranties, indemnities and
contributions by the participating holders as are customary in agreements of
that type, provided that, the representations, warranties, indemnities and
contributions of the SSC Parties shall not be on more onerous terms and
conditions than those of the Investors LLC Parties participating in the
registration, provided that the representations, warranties and indemnities
shall not relate to information in the registration statement relating solely to
the Company and not the SSC Party's relationship thereto (as a shareholder or
otherwise) and the amount payable under indemnification and contribution shall
be capped at the amount of net proceeds received by each SSC Party.
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(b) Each Person that is participating in any registration
hereunder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 5.2(e) above, such
Person will forthwith discontinue the disposition of its Registrable Securities
pursuant to the registration statement until such Person's receipt of the copies
of a supplemented or amended prospectus as contemplated by such Section 5.2(e).
In the event the Company shall give any such notice, the applicable time period
mentioned in Section 5.2(b) during which a registration statement is to remain
effective shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to this paragraph to
and including the date when each seller of a Registrable Security covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by Section 5.2 (e).
Section 5.6. Pre-Emptive Rights. Prior to the occurrence of an
IPO in the event that the Company desires to issue any Shares or any securities
convertible into or exchangeable or exercisable for Shares in an offering or
placement that is not required to be registered under the Securities Act (a
"Private Offering"), the Company must first offer to sell such securities
proposed to be issued in such Private Offering in accordance with this Section
5.6 on the same terms and conditions as the sale of such securities in such
proposed Private Offering.
The offer (the "Pre-emptive Right Notice") shall be made by
the Company to each SSC Party or Investors LLC Party who, along with its
Affiliates, owns of record at least 5% of the Shares then outstanding on a fully
diluted basis (excluding stock options) from time to time determined as of the
date of the Pre-emptive Right Notice (a "Notified Shareholder"), and shall be
dated, shall be in writing and shall set forth the terms of the proposed Private
Offering, including, but not limited to, the consideration to be paid, and all
other terms and conditions related to the proposed Private Offering.
From and after the time that the Notified Shareholders receive
the Pre-emptive Right Notice, each Notified Shareholder shall have the right,
exercisable by giving written notice to the Company of such Notified
Shareholder's intent to exercise such right within 10 Business Days of the
Pre-emptive Right Notice, to subscribe for and purchase a number of securities
subject to the Pre-emptive Right Notice, on the terms set forth in the
Pre-emptive Right Notice, such that, after giving effect to the issuance of
securities subject to the Pre-emptive Right Notice and the exercise of the
rights of each Notified Shareholder set forth in this Section 5.6 including, for
the purpose of this calculation, the issuance of Common Stock upon conversion,
exchange or exercise of any securities convertible, exchangeable or exercisable
into shares of Common Stock to be
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issued in such Private Offering), the shares of Common Stock owned by such
Notified Shareholder (assuming the conversion of any securities held by such
Notified Shareholder convertible into Common Stock (whether or not then
convertible) and the exercise of any options owned by such Notified Shareholder
exercisable for Common Stock but taking appropriate account of the exercise
price of any stock options or warrants) shall represent the same percentage of
the outstanding shares of Common Stock owned by such Notified Shareholder prior
to the consummation of such Private Offering (assuming the conversion of any
securities held by such Notified Shareholder (whether or not then convertible)
convertible into Common Stock and the exercise of any option owned by such
Notified Shareholder exercisable for Common Stock but taking appropriate account
of the exercise price of any stock options or warrants). Any Notified
Shareholder will be entitled to purchase non-voting securities in place of
voting securities pursuant to a Pre-emptive Right Notice. If any Notified
Shareholder fails to give written notice of such Notified Shareholder's election
to exercise the rights of such Notified Shareholder set forth in this Section
5.6 within 10 Business Days of the date of Pre-emptive Right Notice, such
Notified Shareholder shall be deemed to have waived the rights granted to such
Notified Shareholder under this Section 5.6 with respect to the securities so
offered under such Pre-emptive Right Notice.
Each Notified Shareholder that has exercised its rights to
purchase securities pursuant to this Section 5.6 shall, within 10 Business Days
from the date of the Pre-emptive Right Notice (such period to be extended as may
be required in order for necessary regulatory approvals to be obtained) purchase
the securities or other securities subject to the Pre-emptive Right Notice in
accordance with the terms of this Section 5.6.
Notwithstanding the foregoing, the rights provided for in this
Section 5.6 shall not apply (i) to any issuance to employees, directors or
consultants of the Company or its Subsidiary of securities or options to
purchase securities under an employee stock purchase plan or employee benefits
plan adopted by the Board of Directors of the Company, (ii) to any dividend paid
in securities or any subdivision or combination of securities, (iii) to the
issuance of securities in consideration for any acquisition by the Company and
(iv) the issuance of equity or equity equivalents as ancillary parts of a debt
financing transaction.
Section 5.7. Financial Statements and Other Information. (a)
The Company shall deliver to the SSC Parties:
(i) within 45 days after the end of each of the first
three quarterly accounting periods in each fiscal year, unaudited
consolidated statements of income and cash flows of the Company for
such fiscal quarter, and unaudited
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consolidated balance sheets of the Company as of the end of such fiscal
quarter, setting forth in each case comparisons to the same quarter of
the preceding fiscal year, all prepared in accordance with GAAP,
consistently applied, subject to the absence of footnote disclosures
and to normal year-end adjustments; and
(ii) within 90 days after the end of each fiscal
year, audited consolidated statements of income and cash flows of the
Company for such fiscal year, and consolidated balance sheets of the
Company as of the end of such fiscal year, setting forth in each case
comparisons to the preceding fiscal year, all prepared in accordance
with GAAP, consistently applied, and accompanied by, with respect to
the consolidated portions of such statements, an opinion of an
independent accounting firm.
(b) Each SSC Party agrees that any non-public information
which they may receive relating to the Company the "Confidential Information"
will be held strictly confidential and will not be disclosed by it to any Person
without the express written permission of the Company and Investors, provided,
however, that the Confidential Information may be disclosed (i) in the event of
any compulsory legal process or compliance with any law, regulation, subpeona or
other legal process or in connection with any filings that the SSC Party may be
required to make with any regulator, provided, however, that, in the event of
compulsory legal process, each SSC Party agrees to give each of Investors and
the Company prompt notice thereof and to co-operate with the Company and
Investors in securing a protective order in the event of compulsory disclosure
and that any disclosure made pursuant to public filings shall be subject to the
prior reasonable review of the Company and Investors and, (ii) to each SSC
Party's officers, directors, employees, accountants, lawyers and other
professional advisors for internal use relating solely to management of the
investment or administrative purposes within such SSC Party.
(c) As and when prepared from time to time by the Company, the
Company shall deliver to any SSC Party and its Affiliates who beneficially own
in the aggregate at least 10% of the Shares then outstanding on a fully diluted
basis (excluding stock options) from time to time monthly income statements,
balance sheets and cash flow statements for the Company.
(d) Prior to the first time providing the Observer or the SSC
Party referred to in Section 5.7(c) any non-public information regarding the
Company, such Person must acknowledge in writing in a form reasonably
satisfactory to the Company that such information is strictly confidential and
such information will not be disclosed by it to any Person (including within the
organization of such Person) except as necessary as a shareholder of the Company
or as permitted under Section 5.7 (b).
-23-
<PAGE> 24
ARTICLE VI
GENERAL PROVISIONS
Section 6.1. Notices. Any notice required to be given
hereunder shall be sufficient if in writing, and sent by facsimile transmission
and by courier service (with proof of service), hand delivery or certified or
registered mail (return receipt requested and first-class postage prepaid),
addressed as follows:
If to the Company: If to SSC:
Sovereign Specialty Chemicals, Inc. Sovereign Specialty Chemicals, Inc.
Suite 2200 Suite 2200
225 West Washington Street 225 West Washington Street
Chicago, IL 60606 Chicago, IL 60606
Attn. Chief Executive Officer Attn. Chief Executive Officer
With a copy to: With copies to:
Timothy E. Peterson First Chicago Equity Capital
Fried, Frank, Harris, Shriver & Jacobson Three First National Plaza
4 Chiswell Street Suite 1210
London EC1Y 4UP Chicago, IL 60670
Facsimile: (020 7) 972 9602 Attn. Lawrence E. Fox
Carol E. Bramson
With a copy to: and
Kirkland & Ellis
Christine J. Smith, Esq. 200 East Randolph Drive
AEA Investors, Inc. Chicago, IL 60601
65 East 55th Street Attn. Edward T. Swan, P.C.
New York, NY 10022
Facsimile: (212) 888-1459
If to Investors LLC:
Christine J. Smith, Esq.
AEA Investors, Inc.
65 East 55th Street
New York, NY 10022
Facsimile: (212) 888-1459
-24-
<PAGE> 25
With a copy to:
Timothy E. Peterson
Fried, Frank, Harris, Shriver & Jacobson
4 Chiswell Street
London EC1Y 4UP
Facsimile: (020 7) 972 9602
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
Section 6.2. Assignment; Binding Effect; Benefit. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties, except by Investors LLC
Party to any other Investors LLC Party, or in compliance with Section 4.2 (b),
by a SSC Party to another SSC Party pursuant to this Agreement. Subject to the
preceding sentence, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Notwithstanding anything contained in this Agreement to the contrary, nothing in
this Agreement, express or implied, is intended to confer on any person other
than the parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
Section 6.3. Entire Agreement. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings (oral and written) among the
parties with respect thereto.
Section 6.4. Amendment. This Agreement may be amended by the
parties hereto at any time, provided that no amendment shall be made which by
law requires the further approval of stockholders of the Company without
obtaining such further approval. This Agreement may not be amended or modified
except by an instrument in writing signed by or on behalf of the Company,
Investors LLC and Persons representing a majority of the Shares held by the SSC
Parties.
Section 6.5. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware without
regard to its rules of conflict of laws. Each of the Company, Investors LLC, on
behalf of the Investors LLC
-25-
<PAGE> 26
Parties, and the SSC Parties hereby irrevocably and unconditionally consents to
submit to the exclusive jurisdiction of the courts of the State of Delaware and
of the United States of America located in the State of Delaware for any
litigation arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any litigation relating thereto
except in such courts), waives any objection to the laying of venue of any such
litigation in such Delaware courts and agrees not to plead or claim that such
litigation brought in any such Delaware court has been brought in an
inconvenient forum.
Section 6.6. Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies of this Agreement, each of which may be signed by less than all of the
parties hereto, but together all such copies are signed by all of the parties
hereto.
Section 6.7. Headings. Headings of the Articles and Sections
of this Agreement are for the convenience of the parties only and shall be given
no substantive or interpretive effect whatsoever.
Section 6.8. Interpretation. In this Agreement, unless the
context otherwise requires, words describing the singular number shall include
the plural and vice versa, "including" shall mean including, without limitation,
and words denoting any gender shall include all genders and words denoting
natural persons shall include corporations and partnerships and vice versa.
Section 6.9. Incorporation of Exhibits and Schedules. All
exhibits and schedules hereto are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein.
Section 6.10. Severability. Any term or provision of this
Agreement which is invalid or unenforceable in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or otherwise affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any other
jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
Section 6.11. Enforcement of Agreement. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with its specific
terms or was otherwise breached. It is
-26-
<PAGE> 27
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any Delaware court, this being in addition to
any other remedy to which they may be entitled at law or in equity.
Section 6.12. Termination. The provision of Sections 3.1, 3.2,
3.3, 4.2, 4.3, 4.4, 5.6 and 5.7(a) shall terminate and shall cease to be binding
on the parties hereto upon an IPO. The rights and obligations of any SSC Party
under Sections 5.1 to 5.5 shall terminate and shall cease to be binding on the
parties hereto at such time as less than 1% of the then outstanding Shares on a
fully diluted basis (excluding stock options) are owned by such SSC Party
(together with Persons that received Shares as a distribution or similar
disposition from such SSC Party or are Affiliates of such SSC Party). This
entire Agreement will terminate and shall cease to be binding on the parties
hereto if the Stock Purchase Agreement is terminated in accordance with its
terms prior to Closing.
-27-
<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this Agreement
and caused the same to be duly delivered on their behalf as of the day and year
first written above.
SSCI INVESTORS LLC
By: _________________________________
Name: _________________________________
Title: _________________________________
SOVEREIGN SPECIALTY CHEMICALS, INC
By: _________________________________
Name: _________________________________
Title: _________________________________
SOVEREIGN SPECIALTY CHEMICALS, L.P.
By: Sovereign Chemicals Corporation
Its: General Partner
By: _________________________________
Name: _________________________________
Its: _________________________________
-28-
<PAGE> 29
================================================================================
AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
by and among
SOVEREIGN SPECIALITY CHEMICALS, INC.,
SSCI INVESTORS LLC
and
The Shareholders Listed on Schedule I Hereto
Dated as of December 14, 1999
================================================================================
<PAGE> 30
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS..................................................... 1
Section 1.1. Definitions............................................ 1
ARTICLE II REPRESENTATIONS AND WARRANTIES................................. 4
Section 2.1. Representations and Warranties of the Company.......... 4
Section 2.2. Representations and Warranties of Investors LLC........ 5
Section 2.3. Representations and Warranties of SSC Parties.......... 5
ARTICLE III CORPORATE GOVERNANCE; CERTAIN CORPORATE ACTIONS............... 6
Section 3.1. Voting of Shares....................................... 6
Section 3.2. Non-Voting Observer.................................... 6
Section 3.3. Certain Transactions................................... 7
ARTICLE IV TRANSFER....................................................... 8
Section 4.1. Transfer Restrictions.................................. 8
Section 4.2. Consent and Right of First Offer....................... 8
Section 4.3. Take Along Rights...................................... 11
Section 4.4. Tag Along Rights....................................... 11
Section 4.5. Permitted Transfers.................................... 12
ARTICLE V REGISTRATION RIGHTS............................................. 12
Section 5.1. Piggyback Registrations................................ 12
Section 5.2. Registration Procedures................................ 14
Section 5.3. Registration Expenses.................................. 17
Section 5.4. Indemnification........................................ 18
Section 5.5. Participation in Underwritten Registrations............ 20
Section 5.6. Pre-Emptive Rights..................................... 21
Section 5.7. Financial Statements and Other Information............. 22
ARTICLE VI GENERAL PROVISIONS............................................. 24
Section 6.1. Notices................................................ 24
</TABLE>
-i-
<PAGE> 31
<TABLE>
<S> <C>
Section 6.2. Assignment; Binding Effect; Benefit.................... 25
Section 6.3. Entire Agreement....................................... 25
Section 6.4. Amendment.............................................. 25
Section 6.5. Governing Law.......................................... 25
Section 6.6. Counterparts........................................... 26
Section 6.7. Headings............................................... 26
Section 6.8. Interpretation......................................... 26
Section 6.9. Incorporation of Exhibits and Schedules................ 26
Section 6.10. Severability.......................................... 26
Section 6.11. Enforcement of Agreement.............................. 26
Section 6.12. Termination........................................... 27
</TABLE>
-ii-
<PAGE> 32
===============================================================================
AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
by and among
SOVEREIGN SPECIALITY CHEMICALS, INC.,
SSCI INVESTORS LLC
and
The Shareholders Listed on Schedule I Hereto
Dated as of December 14, 1999
===============================================================================
<PAGE> 33
TABLE OF CONTENTS
ARTICLE I DEFINITIONS........................................................1
Section 1.1. Definitions..............................................1
ARTICLE II REPRESENTATIONS AND WARRANTIES....................................4
Section 2.1. Representations and Warranties of the Company............4
Section 2.2. Representations and Warranties of Investors LLC..........5
Section 2.3. Representations and Warranties of SSC Parties............5
ARTICLE III CORPORATE GOVERNANCE; CERTAIN CORPORATE ACTIONS..................6
Section 3.1. Voting of Shares.........................................6
Section 3.2. Non-Voting Observer......................................6
Section 3.3. Certain Transactions.....................................7
ARTICLE IV TRANSFER..........................................................7
Section 4.1. Transfer Restrictions....................................7
Section 4.2. Consent and Right of First Offer.........................8
Section 4.3. Take Along Rights.......................................10
Section 4.4. Tag Along Rights........................................11
Section 4.5. Permitted Transfers.....................................12
ARTICLE V REGISTRATION RIGHTS...............................................12
Section 5.1. Piggyback Registrations.................................12
Section 5.2. Registration Procedures.................................14
Section 5.3. Registration Expenses...................................17
Section 5.4. Indemnification.........................................17
Section 5.5. Participation in Underwritten Registrations.............20
Section 5.6. Pre-Emptive Rights......................................20
Section 5.7. Financial Statements and Other Information..............22
ARTICLE VI GENERAL PROVISIONS...............................................23
Section 6.1. Notices.................................................23
Section 6.2. Assignment; Binding Effect; Benefit.....................24
-i-
<PAGE> 34
Section 6.3. Entire Agreement........................................25
Section 6.4. Amendment...............................................25
Section 6.5. Governing Law...........................................25
Section 6.6. Counterparts............................................25
Section 6.7. Headings................................................25
Section 6.8. Interpretation..........................................26
Section 6.9. Incorporation of Exhibits and Schedules.................26
Section 6.10. Severability............................................26
Section 6.11. Enforcement of Agreement................................26
Section 6.12. Termination.............................................26
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<PAGE> 1
Exhibit 4.3(a)
AMENDMENT NO. 1, dated December 29, 1999 (this "Amendment"),
to the Amended and Restated Shareholders Agreement, dated as of December 14,
1999 (the "Shareholders Agreement"), by and among SSCI INVESTORS LLC, a Delaware
limited liability company (the "Buyer"), SOVEREIGN SPECIALTY CHEMICALS, INC., a
Delaware corporation (the "Company") and SOVEREIGN SPECIALTY CHEMICALS, L.P., a
Delaware limited partnership (the "Shareholder"). Capitalized terms used but not
otherwise defined herein shall have the meanings ascribed to such terms in the
Shareholders Agreement.
WHEREAS, the Shareholder and the Buyer have entered into the
Stock Purchase Agreement, dated November 24, 1999 (as amended, the "Purchase
Agreement"), that provides for the sale by the Shareholder to the Buyer of
certain shares of the Company; and
WHEREAS, in connection with the transactions contemplated by
the Purchase Agreement, the Company, the Buyer and the Shareholder have entered
into the Shareholders Agreement; and
WHEREAS, the parties desire to amend the Shareholders
Agreement and related arrangements as provided herein;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements and covenants hereinafter set forth, the parties hereto hereby
agree as follows:
SECTION 1. Amendment.
1.1 Section 3.3(b) of the Shareholders Agreement is hereby
amended and restated as follows:
"(b) Notwithstanding the foregoing, Section 3.3(a)
shall not restrict (i) the payment of (x) any management fees
payable to Investor LLC Parties or their Affiliates in an
annual amount of up to $1.6 million which cap may be increased
from time to time by the Company's Board of Directors to
proportionately reflect the expansion of the Company including
the expansion of the equity capitalization of the Company or
(y) any transaction or financing fees to Investors or its
Affiliates, which fees shall be customary, taking into account
any fees paid to third party service providers in any such
transaction, as well as, in the case of clause (x) and (y),
any related out of pocket expenses, (ii) compensation
arrangements with officers, directors and employees of the
Company and its Subsidiaries, (iii) the granting or exercise
of stock options to directors, employees or consultants of the
Company and its Subsidiaries in an aggregate amount not to
exceed 15% of the Shares outstanding on a fully diluted basis
(giving effect to stock options) from time to time, (iv)
purchase of Shares by employees under employee stock purchase
plans or otherwise, (v) registration rights granted by the
Company to shareholders or Affiliates of shareholders, (vi)
customary director and officer indemnification or matters
relating thereto and (vii) the redemption or
<PAGE> 2
purchase of Shares having original cost to the Investor LLC
Parties and their Affiliates of not more than an aggregate $5
million by the Company from the Investors LLC Parties and
their Affiliates in connection with employee stock purchases."
1.2 Subsection 3.3(c) shall be amended to add the following at
the end of the current text:
", including the payment of expenses of such shareholders. The
parties hereto consent to the payment of expenses by the
Company in connection therewith and the payment of fees and
expenses set forth under Section 3.3(b) above."
1.3 The reference in the legend in Section 4.1(b) of the
Shareholders Agreement to "SHAREHOLDERS AGREEMENT DATED AS OF NOVEMBER 24, 1999
(AS AMENDED AND RESTATED AS OF DECEMBER 14, 1999)" shall be amended and restated
as follows:
"AMENDED AND RESTATED SHAREHOLDERS AGREEMENT DATED AS OF
DECEMBER 14, 1999, AS AMENDED"
1.4 Subsection 4.4(iv) shall be amended to add the following
sentence after clause (y):
"This Section shall not apply to, and the 15% computation
shall exclude, any redemption or Transfer of Shares made in
connection with employee stock purchases in compliance with
clause (vii) of Section 3.3(b).
1.5 Schedule 2.3 of the Shareholders Agreement (which was not
previously attached) setting forth the ownership of the Shares held by each SSC
Party as of the Closing Date shall be in the form attached to this Amendment and
shall indicate thereon the Shares acquired by the SSC Parties pursuant to the
exercise of options or rights which became exercisable (or by reason of the
elimination of restrictions which were cancelled) by reason of the execution or
consummation of the Stock Purchase Agreement.
1.6 It is hereby acknowledged and agreed that, notwithstanding
anything to the contrary in the Shareholders Agreement, as amended hereby, no
employee of the Company or their Permitted Transferees shall have any rights
under this Shareholders Agreement and any arrangements with respect to similar
matters among Buyer, the Company and the employees of the Company or their
Permitted Transferees shall be governed by that certain shareholders agreement
contemplated to be entered into as if the Closing Date among Buyer, the Company
and certain employees of the Company, as such may be amended from time to time.
1.7 Notwithstanding anything to the contrary in the
Shareholders Agreement, as amended hereby, in no event shall any SSC Party
(other than J.P. Morgan and its affiliates who shall be entitled to Transfer
Shares inter se in accordance with the Shareholder Agreement) Transfer any
Shares to J.P. Morgan or its designees or affiliates (the "J.P. Morgan Parties")
<PAGE> 3
without the prior consent of Investors LLC. Investors LLC hereby consents to the
Transfer by the SSC Parties to the J.P. Morgan Parties of not more than 10.8% of
the Shares in the aggregate. Sovereign Specialty Chemicals, L.P. and the other
parties to the Shareholders Agreement agree that the confirmation provided by
AEA Investors Inc. that it would consent to a transfer of Shares to J.P. Morgan
Capital set forth in that certain letter dated November 24, 1999 provided by AEA
Investors Inc. to Sovereign Specialty Chemicals, L.P is hereby superseded in its
entirety.
SECTION 2 Effect of Amendment. Except as and to the extent
expressly modified by this Amendment, the Shareholders Agreement shall remain in
full force and effect in all respects.
SECTION 3 Governing Law. This Amendment shall be governed by
and construed in accordance with the domestic laws of the State of Delaware,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Delaware or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Delaware.
SECTION 4 Counterparts. This Amendment may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the date first written above.
SSCI INVESTORS LLC
By: __________________________________
Name:
Title:
SOVEREIGN SPECIALTY CHEMICALS, L.P.
By: Sovereign Chemicals Corporation
Its: General Partner
By: __________________________________
Name:
Title:
SOVEREIGN SPECIALTY CHEMICALS, INC.
By: __________________________________
Name:
Title:
<PAGE> 5
Schedule 2.3
<TABLE>
<CAPTION>
Shareholder Common Stock Non-Voting Common Stock
- ----------- ------------ -----------------------
<S> <C> <C>
Karl D. Loos 1,801.16 -
Charles A. Aldag, Jr. 673.96 -
Reeve B. Waud 17,718.47 40,577.74
Waud Family Partners, L.P. 4,255.84 4,714.39
Waud CapitalManagement , L.L.C. 3,114.49 3,449.98
Waud Capital Partners-II, L.P. 57,780.22 64,008.03
Waud Capital Partners-I, L.P. 62,989.47 69,795.36
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("AGREEMENT") is made and entered into as of the 29th day
of December, 1999, by and between Sovereign Specialty Chemicals, Inc., a
Delaware corporation (the "COMPANY"), and Robert B. Covalt (the "EMPLOYEE"). The
Company and the Employee are sometimes hereinafter collectively referred to as
the "PARTIES" and individually as a "PARTY." Certain capitalized terms used in
this Agreement are defined in Article VII hereof.
RECITALS
A. The Company is and will be engaged in the manufacture of adhesives,
sealants and coatings. The Company wishes to employ the Employee, and the
Employee wishes to be employed by the Company, as the Company's Chief Executive
Officer. As a condition of that employment, the Company requires that an
employment agreement be entered into pursuant to which the Employee furnishes
the Company with, among other things, certain covenants of the Employee,
including his covenant not to compete with the businesses of the Company, its
Subsidiaries and their Affiliates.
B. In order to induce the Employee to enter into this Agreement, and to
incentivize and reward his effort, loyalty and commitment to the Company,
concurrent with the execution and delivery of this Agreement the Company has
granted to the Employee a certain stock option (the "OPTION") to purchase shares
of Common Stock of the Company ("SHARES") under and pursuant to the terms of the
"Sovereign Specialty Chemicals, Inc. Stock Option Plan" (the "PLAN") and a Stock
Option Agreement in the form of Exhibit C attached hereto and by this reference
made a part hereof (the "STOCK OPTION AGREEMENT").
C. The Employee acknowledges that as a member of the Company's management,
he is one of the persons charged with primary responsibility for the
implementation of the Company's business plans, and that he will have regular
access to various confidential and/or proprietary information relating to the
Company, its Subsidiaries, their Affiliates and their businesses. Further, the
Employee acknowledges that his covenants to the Company hereinafter set forth,
specifically including but not limited to the Employee's covenant not to engage
in competition with the Company, its Subsidiaries, their Affiliates and their
businesses, are being made in partial consideration of the Company's grant of
the Option to the Employee.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, and the mutual
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby mutually acknowledged, the parties
hereby agree as follows:
ARTICLE I
EMPLOYMENT RELATIONSHIP
1.1 EMPLOYMENT. Subject to the terms and conditions of this Agreement, the
Company hereby agrees to employ the Employee to serve as the Company's Chief
Executive
<PAGE> 2
Officer, and the Employee hereby accepts such employment, and agrees to perform
his duties and responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner.
1.2 DUTIES. The Employee shall have the normal and customary duties,
responsibilities and authority of a Chief Executive Officer and shall perform
such other duties on behalf of the Company, its Subsidiaries and their
Affiliates as may be assigned to him by the Board. The Employee shall report to
the Board of the Company in connection with the Employee's performance of his
duties.
1.3 EXCLUSIVE EMPLOYMENT. While he is employed by the Company hereunder,
the Employee covenants to the Company that he will devote his entire business
time, energy, attention and skill to the Company, its Subsidiaries and their
Affiliates (except for permitted vacation periods and reasonable periods of
illness or other incapacity), and use his good faith best efforts to promote the
interests of the Company, its Subsidiaries and their Affiliates. The foregoing
shall not be construed as prohibiting the Employee from spending such time as
may be reasonably necessary to attend to his personal affairs and investments so
long as such activities do not conflict or interfere with the Employee's
obligations and/or timely performance of his duties to the Company, its
Subsidiaries and their Affiliates hereunder.
1.4 EMPLOYEE REPRESENTATIONS. The Employee hereby represents and
warrants to the Company that:
(a) the execution, delivery and performance by the Employee of this
Agreement and any other agreements contemplated hereby to which the
Employee 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 the Employee is a party or by which he is bound;
(b) the Employee is not a party to or bound by any employment
agreement, non-competition agreement or confidentiality agreement with any
other person or entity (or if a party to such an agreement, the Employee
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
(c) upon the execution and delivery of this Agreement by the
Company, this Agreement shall be the valid and binding obligation of the
Employee, enforceable in accordance with its terms.
The Employee hereby acknowledges and represents that 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.
-2-
<PAGE> 3
ARTICLE II
PERIOD OF EMPLOYMENT
2.1 EMPLOYMENT PERIOD. The Employee has been employed by the Company for
four years, and such employment shall continue hereunder until the date fixed by
the provisions of Section 2.2 hereof, subject to the early termination
provisions of Article V hereof (the "EMPLOYMENT PERIOD"), it being acknowledged
that the Company's fiscal year ends on December 31, and that the Employment
Period shall therefore be denominated in calendar years.
2.2 INITIAL TERM OF EMPLOYMENT PERIOD AND EXTENSION TERMS. The Employment
Period shall initially continue for a term commencing on the date hereof and
ending on December 31, 2003 (the "INITIAL TERM"). The Employment Period shall be
automatically extended for successive calendar years of the Company following
the expiration of the Initial Term (each such one year period being hereinafter
referred to as an "EXTENSION TERM") upon the same terms and conditions provided
for herein unless either party provides the other party with advance written
notice of its or his intention not to extend the Employment Period; provided,
however, that such notice must be delivered by the non-extending party to the
other party not later than ninety (90) days prior to the expiration of the
Initial Term or any Extension Term, as the case may be.
ARTICLE III
COMPENSATION
3.1 ANNUAL BASE COMPENSATION. During the Employment Period the Company
shall pay to the Employee an annual base salary (the "ANNUAL BASE COMPENSATION")
in the amount of $300,000. The Annual Base Compensation shall be paid in regular
installments in accordance with the Company's general payroll practices, and
shall be subject to all required federal, state and local withholding taxes. The
Employee's Annual Base Compensation shall be reviewed by the Board annually, and
may, in the discretion of the Board be increased, provided that there shall be
no obligation on the part of the Company to increase the Employee's Annual Base
Compensation, further provided that in no event shall the Employee's Annual Base
Compensation be less than the greater of (i) the amount indicated in the first
sentence of this Section 3.1 or (ii) the highest amount such Annual Base
Compensation may have been increased to by the Board subsequent to the date of
this Agreement in its discretion.
3.2 POTENTIAL ANNUAL TARGET BONUSES. In respect of each calendar year
falling within the Employment Period, the Employee shall be eligible to earn an
annual bonus, depending upon the results of operation of the Company, its
Subsidiaries and their Affiliates and the personal performance of the Employee,
of up to seventy-five percent (75%) of the Employee's Annual Base Compensation
for that calendar year (the "POTENTIAL ANNUAL TARGET BONUS") in accordance with
the terms of a bonus plan which shall be adopted and maintained in effect by the
Board for that calendar year. The amount of the Potential Annual Target Bonus,
if any, which is earned by the Employee (the "BONUSABLE AMOUNT") shall be paid
by the Company to the Employee no later than seventy-five (75) days following
the close of the Company's calendar year, provided that unless expressly
provided otherwise herein, it shall be a condition
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<PAGE> 4
precedent to the Employee's right to receive any Bonusable Amount that the
Employee be employed by the Company on the last day of that calendar year.
3.3 DISCRETIONARY BONUSES. In respect of each calendar year falling within
the Employment Period, the Company may pay a discretionary annual bonus to the
Employee (a "DISCRETIONARY BONUS") to be determined by the Board, in its sole
discretion. Any Discretionary Bonus shall be paid by the Company to the Employee
within seventy-five (75) days following the close of the Company's calendar
year, provided that unless expressly provided otherwise herein, it shall be a
condition precedent to the Employee's right to receive any Discretionary Bonus
that the Employee be employed by the Company on the last day of that calendar
year.
3.4 EXPENSES. During the Employment Period, the Employee shall be entitled
to reimbursement of all travel, entertainment and other business expenses
reasonably incurred in the performance of his duties for the Company, upon
submission of all receipts and accounts with respect thereto, and approval by
the Company thereof, in accordance with the business expense reimbursement
policies of the Company from time to time adopted by the Board.
3.5 VACATION. In respect of each calendar year falling within the
Employment Period, the Employee shall be entitled to such vacation time as the
Company customarily provides to its senior executives (but in no event less than
four (4) weeks per calendar year), provided that unused vacation may be used by
the Employee in the following calendar year only in accordance with and as
permitted by the Company's then current vacation policies in effect from time to
time.
3.6 OTHER FRINGE BENEFITS. During the Employment Period, the Employee
shall be entitled to receive such of the Company's other fringe benefits as are
being provided to other employees of the Company holding senior executive
positions, including but not limited to health insurance benefits, disability
benefits and retirement benefits.
3.7 GRANT OF STOCK OPTION. Concurrently with the parties' execution and
delivery of this Agreement the Company has granted to the Employee the Option to
purchase an aggregate of forty-eight thousand (48,000) Shares pursuant to the
terms of the Stock Option Agreement as part consideration for the Employee's
execution and delivery of this Agreement to the Company.
ARTICLE IV
COVENANTS OF THE EMPLOYEE
4.1 PROPRIETARY RIGHTS. The Employee hereby expressly agrees that all
research, discoveries, inventions and innovations (whether or not reduced to
practice or documented), improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether patentable or
unpatentable, and whether or not reduced to writing), trade secrets (being
information about the business of the Company, its Subsidiaries and their
Affiliates which is considered by the Company or any such Subsidiary or
Affiliate to be confidential and is proprietary to the Company or any such
Subsidiary or Affiliate) and confidential information, copyrightable works, and
similar and related information (in whatever
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form or medium), which (x) either (i) relate to the Company's, its Subsidiaries'
or their Affiliates' actual or anticipated business, research and development or
existing or future products or services or (ii) result from any work performed
by the Employee for the Company, its Subsidiaries or any of their Affiliates and
(y) are conceived, developed, made or contributed to in whole or in part by the
Employee during the Employment Period ("WORK PRODUCT") shall be and remain the
sole and exclusive property of the Company, such Subsidiary or such Affiliate.
The Employee shall communicate promptly and fully all Work Product to the Board.
(a) WORK MADE FOR HIRE. The Employee acknowledges that, unless
otherwise agreed in writing by the Company, all Work Product eligible for
any form of copyright protection made or contributed to in whole or in
part by the Employee within the scope of the Employee's employment by the
Company during the Employment Period shall be deemed a "work made for
hire" under the copyright laws and shall be owned by the Company, its
Subsidiaries or their Affiliates, as applicable.
(b) ASSIGNMENT OF PROPRIETARY RIGHTS. The Employee hereby assigns,
transfers and conveys to the Company, and shall assign, transfer and
convey to the Company, all right, title and interest in and to all
inventions, ideas, improvements, designs, processes, trademarks, service
marks, trade names, trade secrets, trade dress, data, discoveries and
other proprietary assets and proprietary rights in and of the Work Product
(the "PROPRIETARY RIGHTS") for the Company's exclusive ownership and use,
together with all rights to sue and recover for past and future
infringement or misappropriation thereof, provided that if a Subsidiary or
Affiliate of the Company is the owner thereof, such assignment, transfer
and conveyance shall be made to such Subsidiary or Affiliate, which shall
enjoy exclusive ownership and use, together with all rights to sue and
recover for past and future infringement or misappropriation thereof.
(c) FURTHER INSTRUMENTS. At the request of the Company (its
Subsidiaries or their Affiliates, as the case may be), at all times during
the Employment Period and thereafter, the Employee will promptly and fully
assist the Company (its Subsidiaries or their Affiliates, as the case may
be) in effecting the purpose of the foregoing assignment, including but
not limited to the further acts of executing any and all documents
necessary to secure for the Company (its Subsidiaries or their Affiliates,
as the case may be) such Proprietary Rights and other rights to all Work
Product and all confidential information related thereto, providing
cooperation and giving testimony.
(d) INAPPLICABILITY OF SECTION 4.1 IN CERTAIN CIRCUMSTANCES. The
Company expressly acknowledges and agrees that, and the Employee is hereby
advised that, this Section 4.1 does not apply to any invention for which
no equipment, supplies, facilities or trade secret information of the
Company, its Subsidiaries or any of their Affiliates was used and which
was developed entirely on the Employee's own time, unless (i) the
invention relates to the business of the Company, its Subsidiaries or any
of their Affiliates or to the Company's, its Subsidiaries' or any of their
Affiliates' actual or demonstrably anticipated research or development or
(ii) the invention results from any work performed by the Employee for the
Company, its Subsidiaries or any of their Affiliates.
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4.2 OWNERSHIP AND COVENANT TO RETURN DOCUMENTS, ETC. The Employee agrees
that all Work Product and all documents or other tangible materials (whether
originals, copies or abstracts), including without limitation, price lists,
quotation guides, outstanding quotations, books, records, manuals, files, sales
literature, training materials, customer records, correspondence, computer disks
or print-out documents, contracts, orders, messages, phone and address lists,
invoices and receipts, and all objects associated therewith, which in any way
relate to the business or affairs of the Company, its Subsidiaries and their
Affiliates either furnished to the Employee by the Company, its Subsidiaries or
any of their Affiliates or are prepared, compiled or otherwise acquired by the
Employee during the Employment Period, shall be the sole and exclusive property
of the Company, such Subsidiaries or such Affiliates. The Employee shall not,
except for the use of the Company, its Subsidiaries or any of their Affiliates,
use, copy or duplicate any of the aforementioned documents or objects, nor
remove them from the facilities of the Company or such Subsidiaries or such
Affiliates, nor use any information concerning them except for the benefit of
the Company, its Subsidiaries and their Affiliates, either during the Employment
Period or thereafter. The Employee agrees that he will deliver all of the
aforementioned documents and objects that may be in his possession to the
Company on the termination of his employment with the Company, or at any other
time upon the Company's request, together with his written certification of
compliance with the provisions of this Section 4.2 in the form of Exhibit A to
this Agreement in accordance with the provisions of Section 5.3 hereof.
4.3 NON-DISCLOSURE COVENANT. During the Employment Period and at all times
thereafter, the Employee shall not, either directly or indirectly, disclose to
any "unauthorized person" or use for the benefit of the Employee or any person
or entity other than the Company, its Subsidiaries or their Affiliates any Work
Product or any knowledge or information which the Employee may acquire while
employed by the Company (whether before or after the date of this Agreement)
relating to (i) the financial, marketing, sales and business plans and affairs,
financial statements, analyses, forecasts and projections, books, accounts,
records, operating costs and expenses and other financial information of the
Company, its Subsidiaries and their Affiliates, (ii) internal management tools
and systems, costing policies and methods, pricing policies and methods and
other methods of doing business, of the Company, its Subsidiaries and their
Affiliates, (iii) customers, sales, customer requirements and usages,
distributor lists, of the Company, its Subsidiaries and their Affiliates, (iv)
agreements with customers, vendors, independent contractors, employees and
others, of the Company, its Subsidiaries and their Affiliates, (v) existing and
future products or services and product development plans, designs, analyses and
reports, of the Company, its Subsidiaries and their Affiliates, (vi) computer
software and data bases developed for the Company, its Subsidiaries or their
Affiliates, trade secrets, research, records of research, models, designs,
drawings, technical data and reports of the Company, its Subsidiaries and their
Affiliates and (vii) correspondence or other private or confidential matters,
information or data whether written, oral or electronic, which is proprietary to
the Company, its Subsidiaries and their Affiliates and not generally known to
the public (individually and collectively "CONFIDENTIAL INFORMATION"), without
the Company's prior written permission. For purposes of this Section 4.3, the
term "UNAUTHORIZED PERSON" shall mean any person who is not (i) an officer or
director of the Company, or (ii) an employee, officer or director of a
Subsidiary or Affiliate of the Company for whom the disclosure of the knowledge
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<PAGE> 7
or information referred to herein is necessary for his performance of his
assigned duties, or (iii) a person expressly authorized by the Company to
receive disclosure of such knowledge or information. The Company expressly
acknowledges and agrees that the term "Confidential Information" excludes
information which is (A) in the public domain or otherwise generally known to
the trade, or (B) disclosed to third parties other than by reason of the
Employee's breach of his confidentiality obligation hereunder or (C) learned of
by the Employee subsequent to the termination of his employment hereunder from
any other party not then under an obligation of confidentiality to the Company,
its Subsidiaries and their Affiliates. Further, the Employee covenants to the
Company that in the Employee's performance of his duties hereunder, the Employee
will violate no confidentiality obligations he may have to any third persons.
4.4 ANTI-PIRATING AND NON-INTERFERENCE COVENANTS. The Employee covenants
to the Company that while the Employee is employed by the Company hereunder and
for the two (2) year period thereafter (the "NON-SOLICITATION PERIOD"), he will
not, for any reason, directly or indirectly: (a) solicit, hire, or otherwise do
any act or thing which may induce any other employee of the Company, its
Subsidiaries or their Affiliates to leave the employ or otherwise interfere with
or adversely affect the relationship (contractual or otherwise) of the Company,
its Subsidiaries and their Affiliates with any person who is then or thereafter
becomes an employee of the Company, its Subsidiaries and their Affiliates; or
(b) do any act or thing which may interfere with or adversely affect the
relationship (contractual or otherwise) of the Company, its Subsidiaries and
their Affiliates with any customer or vendor of the Company, its Subsidiaries
and their Affiliates or induce any such customer or vendor to cease doing
business with the Company, its Subsidiaries and their Affiliates.
4.5 COVENANT NOT TO COMPETE. The Employee expressly acknowledges that (i)
the Company is and will be engaged in the manufacture of adhesives, sealants and
coatings (the "Businesses of the Company, its Subsidiaries and their
Affiliates"); (ii) the Employee is one of a limited number of persons who has
extensive knowledge and expertise relevant to the Businesses of the Company, its
Subsidiaries and their Affiliates; (iii) the Employee's performance of his
services for the Company hereunder will afford him full and complete access to
and cause him to become highly knowledgeable about the Company's, its
Subsidiaries' and their Affiliates' Confidential Information; (iv) the
agreements and covenants contained in this Section 4.5 are essential to protect
the business and goodwill of the Company, its Subsidiaries and their Affiliates
because, if the Employee enters into any activities competitive with the
Businesses of the Company, its Subsidiaries and their Affiliates, he will cause
substantial harm to the Company or its Subsidiaries and Affiliates; and (v) his
covenants to the Company, its Subsidiaries and their Affiliates set forth in
this Section 4.5 are being made in partial consideration of the Company's grant
of the Option to him. Accordingly, the Employee hereby agrees that while he is
employed by the Company hereunder and for the one (1) year period thereafter
(the "NON-COMPETITION PERIOD"), he shall not directly or indirectly own any
interest in, invest in, lend to, borrow from, manage, control, participate in,
consult with, become employed by, render services to, or in any other manner
whatsoever engage in, any business which is competitive with any business
actively being engaged in by the Company, its Subsidiaries and their Affiliates
or actively (and demonstrably) being considered by the Company, its Subsidiaries
and their Affiliates for entry
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<PAGE> 8
into on the date of the termination of the Employment Period, within any states
or geographical regions in which any such business is being conducted or in
which the Company, its Subsidiaries and their Affiliates is or are actively (and
demonstrably) considering engaging in on the date of the termination of the
Employment Period. The preceding to the contrary notwithstanding, the Employee
shall be free to make investments in the publicly traded securities of any
corporation, provided that such investments do not amount to more than 1% of the
outstanding securities of any class of such corporation. The Company expressly
agrees that with respect to any period of time during which the Employee is not
in receipt of non-public Company information, in the instance where the Employee
renders consulting or other services to an unrelated third party which operates
two or more lines of business, one or more of which do not compete with the
Businesses of the Company, its Subsidiaries and their Affiliates and one or more
of which do compete with the businesses of the Company (a "CONSULTING CLIENT"),
so long as the Employee's performance of consulting services to or for the
benefit of the Consulting Client's business(es) is solely for the benefit of
only those businesses of the Consulting Client which do not compete with the
Businesses of the Company, its Subsidiaries and their Affiliates, the Employee
shall not be in violation of his covenant to the Company under this Section 4.5,
and shall not be required to obtain the prior consent of the Company to engage
in the performance of such services for that Consulting Client, provided that
the Employee shall provide the Company with written notice thereof prior to his
commencement of the performance of services for any such Consulting Client.
4.6 REMEDIES FOR BREACH. If the Employee commits a breach, or threatens to
commit a breach, of any of the provisions of this Article IV, the Company and
its Subsidiaries shall have the right and remedy, in addition to any other
remedy that may be available at law or in equity, to have the provisions of this
Article IV specifically enforced by any court having equity jurisdiction,
together with an accounting therefor, it being expressly acknowledged and agreed
by the Employee that any such breach or threatened breach will cause irreparable
injury to the Company and its Subsidiaries and that money damages will not
provide an adequate remedy to the Company and its Subsidiaries. Such injunction
shall be available without the posting of any bond or other security, and the
Employee hereby consents to the issuance of such injunction. The Employee
further agrees that any such injunctive relief obtained by the Company or its
Subsidiaries shall be in addition to, and not in lieu of, monetary damages and
any other remedies to which the Company or its Subsidiaries may be entitled.
Further, in the event of an alleged breach or violation by the Employee of any
of the provisions of Sections 4.4 or 4.5 hereof, the Non-Solicitation Period
and/or the Non-Competition Period, as the case may be, shall be tolled until
such breach or violation has been cured. The parties agree that in the event of
the institution of any action at law or in equity by either party to enforce the
provisions of this Article IV, the losing party shall pay all of the costs and
expenses of the prevailing party, including reasonable legal fees, incurred in
connection therewith. If any covenant contained in this Article IV or any part
thereof is hereafter construed to be invalid or unenforceable, the same shall
not affect the remainder of such covenant or any other covenants, which shall be
given full effect, without regard to the invalid portions, and any court having
jurisdiction shall have the power to modify such covenant to the least extent
necessary to render it enforceable and, in its modified form, said covenant
shall then be enforceable.
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ARTICLE V
TERMINATION OF EMPLOYMENT
5.1 TERMINATION AND TRIGGERING EVENTS. Notwithstanding anything to the
contrary elsewhere contained in this Agreement, the Employment Period shall
terminate at the expiration of the Initial Term or any Extension Term, or prior
to the expiration of the Initial Term or any Extension Term upon the occurrence
of any of the following events (hereinafter referred to as "TRIGGERING EVENTS"):
(a) the Employee's death; (b) the Employee's Total Disability; (c) the
Employee's Resignation; (d) the Employee's Resignation with Good Grounds; (e) a
Termination by the Company for Cause; or (f) a Termination by the Company
Without Cause.
5.2 RIGHTS UPON OCCURRENCE OF A TRIGGERING EVENT. Subject to the
provisions of Section 5.3 hereof, the rights of the parties upon the occurrence
of a Triggering Event prior to the expiration of the Initial Term or any
Extension Term shall be as follows:
(a) RESIGNATION AND TERMINATION BY THE COMPANY FOR CAUSE: If the
Triggering Event was the Employee's Resignation or a Termination by the
Company for Cause, the Employee shall be entitled to receive his Annual
Base Compensation and accrued but unpaid vacation through the date thereof
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 that date and thereafter, only to the extent permitted
under the terms of such plans and programs.
(b) DEATH OR TOTAL DISABILITY: If the Triggering Event was the
Employee's death or Total Disability, the Employee (or the Employee's
designated beneficiary) shall be entitled to receive the Employee's Annual
Base Compensation and accrued but unpaid vacation through the date thereof
plus a pro rata portion of the Employee's Potential Annual Target Bonus
for the calendar year in which such death or Total Disability occurred
(based on the number of days the Employee was employed during the
applicable calendar year), 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.
(c) TERMINATION BY COMPANY WITHOUT CAUSE OR RESIGNATION BY EMPLOYEE
WITH GOOD GROUNDS: If the Triggering Event was a Termination by the
Company Without Cause or a Resignation by the Employee With Good Grounds,
the Employee shall be entitled to receive his Annual Base Compensation and
accrued but unpaid vacation through the date thereof plus, in the case of
either (i) Resignation by the Employee with Grounds or (ii) a Termination
By the Company Without Cause in the discretion of the Compensation
Committee of the Board (or if none, the Board), a pro rata portion of the
Employee's Potential Annual Target Bonus for the calendar year in which
such Triggering Event occurred (based on the number of days the Employee
was employed during the applicable calendar year), payable in accordance
with the Company's normal payroll practices, provided that in addition,
the Employee shall also
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<PAGE> 10
be paid an amount equal to his then current Annual Base Compensation
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 ("ADDITIONAL SEVERANCE BENEFITS") during the one (1)
year period immediately following the date of the termination of the
Employment Period (the "SEVERANCE Period"); provided that the Employee
shall be entitled to receive such Additional Severance Benefits during the
Severance Period if and only if the Employee has executed and delivered to
the Company the General Release substantially in form and substance as set
forth in Exhibit B to this Agreement and only so long as the Employee has
not breached any of his covenants to the Company set forth in Article IV
of this Agreement.
(D) CESSATION OF ENTITLEMENTS AND COMPANY RIGHT OF OFFSET. Except as
otherwise expressly provided herein, all of the Employee's rights to
salary, employee benefits, fringe benefits and bonuses hereunder (if any)
which would otherwise accrue after the termination of the Employment
Period shall cease upon the date of such termination. The Company may
offset any loans, cash advances or fixed amounts which the Employee owes
the Company or its Affiliate against any amounts it owes the Employee
under this Agreement.
5.3 SURVIVAL OF CERTAIN OBLIGATIONS AND TERMINATION CERTIFICATE. The
provisions of Articles IV, VI and VIII shall survive any termination of the
Employment Period, whether by reason of the occurrence of a Triggering Event or
the expiration of the Initial Term or any Extension Term. Immediately following
the termination of the Employment Period, the Employee shall promptly return to
the Company all property required to be returned to the Company pursuant to the
provisions of Section 4.2 hereof and execute and deliver to the Company the
Termination Certificate attached hereto as Exhibit A and by this reference made
a part hereof.
ARTICLE VI
ASSIGNMENT
6.1 PROHIBITION OF ASSIGNMENT BY EMPLOYEE. The Employee expressly agrees
for himself and on behalf of his executors, administrators and heirs, that this
Agreement and his obligations, rights, interests and benefits hereunder shall
not be assigned, transferred, pledged or hypothecated in any way by the
Employee, his executors, administrators or heirs, and shall not be subject to
execution, attachment or similar process. Any attempt to assign, transfer,
pledge, hypothecate or otherwise dispose of this Agreement or any such rights,
interests and benefits thereunder contrary to the foregoing provisions, or the
levy of any attachment or similar process thereupon shall be null and void and
without effect and shall relieve the Company of any and all liability hereunder.
6.2 RIGHT OF COMPANY TO ASSIGN. This Agreement shall be assignable and
transferable by the Company to any successor-in-interest without the consent of
the Employee.
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<PAGE> 11
ARTICLE VII
DEFINITIONS
"AFFILIATE" means each of the Company's Subsidiaries.
"BOARD" means the Board of Directors of the Company.
"RESIGNATION" means the voluntary termination of employment hereunder by
the Employee which is not a Resignation with Good Grounds (except if made in
contemplation of a Termination by the Company for Cause), provided that if such
action is taken by the Employee without the giving of at least ninety (90) days
prior written notice, such termination of employment shall not be a
"Resignation," but instead shall constitute a Termination for Cause.
"RESIGNATION WITH GOOD GROUNDS" means a voluntary termination of the
Employee's employment hereunder on account of, and within sixty (60) days after,
the occurrence of one or more of the following events:
(i) the assignment to the Employee of any duties inconsistent in any
material respect with the Employee's position (including status, offices
and titles), authority, duties or responsibilities as contemplated by
Section 1.2 hereof which results in a diminution of the Employee's
position, excluding for this purpose an isolated, insubstantial or
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of written notice thereof given by the
Employee;
(ii) the Employee's Annual Base Compensation and/or Potential Annual
Target Bonus is/are decreased below the amount of his then Annual Base
Compensation and/or Potential Annual Target Bonus fixed by the applicable
provisions of Sections 3.1 and 3.2 hereof (provided that so long as the
aggregate sum of the Employee's Annual Base Compensation and Potential
Annual Target Bonus in respect of any calendar year during the Employment
Term are not decreased, the Company shall be free to decrease the
Potential Annual Target Bonus for that year and commensurately increase
the Annual Base Compensation for that year without any affect on the
subsequent calendar year Annual Base Compensation and Potential Annual
Target Bonus, it being expressly acknowledged by the Employee that the
operating result achievement criteria for the payment of any of the
Potential Annual Target Bonus by the Company, its Subsidiaries and their
Affiliates shall be determined by the Board, in its absolute discretion)
or the Employee's benefits under any material employee benefit plan,
program or arrangement of the Company (other than a change that affects
all Employees of the Company) are materially reduced from the level in
effect upon the Employee's commencement of participation therein;
(iii) the Employee is required by the Company to relocate his
personal residence outside of a 50 mile radius of the Company's current
principal place of business (other than as agreed to by the Employee prior
to the execution of this Agreement or as provided in another agreement
between the Company and the Employee); or
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<PAGE> 12
(iv) the failure the Company to comply with any of the provisions of
this Agreement, other than of an isolated, insubstantial or inadvertent
action not taken in bad faith and which is remedied by the Company
promptly after receipt of written notice thereof given by the Employee.
"SUBSIDIARY" 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.
"TERMINATION BY THE COMPANY FOR CAUSE" means termination by the Company
of the Employee's employment for:
(i) misappropriation of any significant monies or significant
assets or properties of the Company;
(ii) conviction of a felony or a crime involving moral turpitude;
(iii) substantial and repeated failure to comply with directions of
the Chief Executive Officer of the Company;
(iv) gross negligence or willful misconduct;
(v) chronic alcoholism or drug addiction together with the
Employee's refusal to cooperate with or participate in counseling and/or
treatment of same; or
(vi) any willful action or inaction of the Employee which, in the
reasonable opinion of the Board, constitutes dereliction (willful neglect
or willful abandonment of assigned duties), or a material breach of
Company policy or rules which, if susceptible to cure, is not cured by the
Employee within five (5) days following the Employee's receipt of written
notice from the Company advising the Employee with reasonable specificity
as to the action or inaction viewed by the Board to be dereliction or a
material breach of Company policy or rules;
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<PAGE> 13
provided that the termination of the Employee's employment hereunder by the
Company shall not be deemed a Termination by the Company for Cause unless and
until there shall have been delivered to the Employee 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 Employee) at a meeting of the Board called
and held for that purpose (after reasonable notice to and an opportunity for
Employee (alone and in person) to be heard before the Board) finding that in the
good faith opinion of the Board of Directors of the Company, the Employee was
guilty of the conduct set forth in any one or more of such clauses.
"TERMINATION BY THE COMPANY WITHOUT CAUSE" means a termination of the
Employee's employment by the Company which is not a Termination by the Company
for Cause, provided that the termination of the Employment Period on account of
the failure of the Company to extend the Employment Period in accordance with
the provisions of Section 2.2 hereof shall constitute a Termination by the
Company Without Cause.
"TOTAL DISABILITY" means the Employee's inability, because of illness,
injury or other physical or mental incapacity, to perform his duties hereunder
(as determined by the Board in good faith) for a continuous period of one
hundred eighty (180) consecutive days, or for a total of ninety (90) days within
any three hundred sixty (360) consecutive day period, in which case such Total
Disability shall be deemed to have occurred on the last day of such one hundred
eighty (180) day or three hundred sixty (360) day period, as applicable.
ARTICLE VIII
GENERAL
8.1 NOTICES. All notices under this Agreement shall be in writing and
shall be deemed properly sent, (i) when delivered, if by personal service or
reputable overnight courier service, or (ii) when received, if sent (x) by
certified or registered mail, postage prepaid, return receipt requested, or (y)
via facsimile transmission (provided that a hard copy of such notice is sent to
the addressee via one of the methods of delivery or mailing set forth above on
the same day the facsimile transmission is sent); to the recipient at the
address indicated below:
Notices to Employee:
--------------------
Robert B. Covalt
7517 Bull Valley Road
McHenry, Illinois 60050
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<PAGE> 14
Notices to Company:
-------------------
Sovereign Specialty Chemicals, Inc.
C/O Chief Financial Officer
Suite 2200
225 West Washington Street
Chicago, Illinois 60606
Facsimile (312) 419-7151
With Copies to:
---------------
Robert I. Schwimmer, Esq.
McBride Baker & Coles
500 West Madison, 40th Floor
Chicago, Illinois 60661
Facsimile (312) 993-9350
Timothy E. Peterson, Esq.
Fried, Frank, Harris, Shriver & Jacobson
4 Chriswell Street
London EC1Y 4UP
Facsimile (0207) 972-9602
Christine J. Smith, Esq.
AEA Investors Inc.
65 East 55th Street
New York, New York 10022
Facsimile (212) 888-1459
8.2 GOVERNING LAW. This Agreement shall be subject to and governed by the
laws of the State of Illinois without regard to any choice of law or conflicts
of law rules or provisions (whether of the State of Illinois or any other
jurisdiction), irrespective of the fact that the Employee may become a resident
of a different state.
8.3 BINDING EFFECT. The Agreement shall be binding upon and inure to the
benefit of the Company, its successors and assigns, and the Employee and his
executors, administrators, personal representatives and heirs.
8.4 COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding among the parties hereto with regard to the subject matter hereof,
and supersedes any and all prior agreements and understandings relating to the
employment of the Employee by the Company, including, without limitation, the
employment agreement between the Employee and the Company, dated July 1, 1999,
which is hereby null and void.
-14-
<PAGE> 15
8.5 AMENDMENTS. No change, modification or amendment of any provision of
this Agreement shall be valid unless made in writing and signed by all of the
parties hereto.
8.6 WAIVER. The waiver by the Company of a breach of any provision of this
Agreement by the Employee shall not operate or be construed as a waiver of any
subsequent breach by the Employee. The waiver by the Employee of a breach of any
provision of this Agreement by the Company shall not operate as a waiver of any
subsequent breach by the Company.
8.7 VENUE, JURISDICTION, ETC. The Employee hereby agrees that any suit,
action or proceeding relating in any way to this Agreement may be brought and
enforced in the Circuit Court of Cook County of the State of Illinois or in the
District Court of the United States of America for the Northern District of
Illinois, Eastern Division, and in either case the Employee hereby submits to
the jurisdiction of each such courts. The Employee hereby waives and agrees not
to assert, by way of motion or otherwise, in any such suit, action or
proceeding, any claim that the Employee is not personally subject to the
jurisdiction of the above-named courts, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. The Employee consents and agrees to service of process
or other legal summons for purpose of any such suit, action or proceeding by
registered mail addressed to the Employee at his or her address listed in the
business records of the Company. Nothing contained herein shall affect the
rights of the Company to bring suit, action or proceeding in any other
appropriate jurisdiction. The Employee and the Company do each hereby waive any
right to trial by jury, he or it may have concerning any matter relating to this
Agreement.
8.8 SEVERABILITY. If any portion of this Agreement shall be for any
reason, invalid or unenforceable, the remaining portion or portions shall
nevertheless be valid, enforceable and carried into effect.
8.9 HEADINGS. The headings of this Agreement are inserted for convenience
only and are not to be considered in the construction of the provisions hereof.
8.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which, taken together, shall constitute one and the same
agreement.
-15-
<PAGE> 16
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by
its duly authorized officers and its corporate seal to be hereunto affixed, and
the Employee has hereunto set his hand on the day and year first above written.
COMPANY: EMPLOYEE:
- -------- ---------
SOVEREIGN SPECIAL CHEMICALS, INC.,
a Delaware Corporation
-------------------------------
Robert B. Covalt
By:
-------------------------------
<PAGE> 17
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
BETWEEN
SOVEREIGN SPECIALTY CHEMICALS, INC.
AND
ROBERT B. COVALT
TERMINATION CERTIFICATE
-----------------------
This is to certify that, except as permitted by the Employment Agreement
(as defined below) I do not have in my possession, nor have I failed to return,
any software, inventions, designs, works of authorship, copyrightable works,
formulas, data, marketing plans, forecasts, product concepts, marketing plans,
strategies, forecasts, devices, records, data, notes, reports, proposals,
customer lists, correspondence, specifications, drawings, blueprints, sketches,
materials, patent applications, continuation applications, continuation-in-part
applications, divisional applications, other documents or property, or
reproductions of any aforementioned items belonging to SOVEREIGN SPECIALTY
CHEMICALS, INC. (the "COMPANY"), its Subsidiaries and their Affiliates,
successors or assigns.
I further certify that I have complied with all the terms of the
Employment Agreement dated December 29, 1999 between the Company and me (the
"EMPLOYMENT AGREEMENT"), relating to the reporting of any Work Product (as that
term is defined therein), conceived or made by me (solely or jointly with
others) covered by the Employment Agreement.
I acknowledge that the provisions of the Employment Agreement relating to
Confidential Information, as defined in the Employment Agreement, continue in
effect beyond the termination of the Employment Agreement, as set forth therein.
Finally, I further acknowledge that the provisions of the Employment
Agreement relating to my (i) anti-pirating, (ii) noninterference and (iii)
non-competition covenants to the Company, its Subsidiaries and their Affiliates,
remain in effect following the date of my termination of employment with the
Company.
Date:
------------------------------ ------------------------------
Employee
<PAGE> 18
EXHIBIT B
TO
EMPLOYMENT AGREEMENT
BETWEEN
SOVEREIGN SPECIALTY CHEMICALS, INC.
AND
ROBERT B. COVALT
GENERAL RELEASE
I, Robert B. Covalt, in consideration of and subject to the performance by
SOVEREIGN SPECIALTY CHEMICALS, INC., a Delaware corporation (the "COMPANY"), of
its material obligations under the Employment Agreement, dated as of the date as
of December 29, 1999 (the "AGREEMENT"), do hereby release and forever discharge
as of the date hereof the Company, its Subsidiaries and their Affiliates (as
those terms are defined in the Agreement) and all present and former directors,
officers, agents, representatives, employees, successors and assigns of the
Company, its Subsidiaries and their Affiliates and their direct or indirect
owners (collectively, the "RELEASED PARTIES") to the extent provided below.
1. I understand that any payments or benefits paid or granted to me under
Section 5.2(c) of the Agreement represent, in part, consideration for
signing this General Release and are not salary, wages or benefits to
which I was already entitled. I understand and agree that I will not
receive the payments and benefits specified in Section 5.2(c) of the
Agreement unless I execute this General Release and do not revoke this
General Release within the time period permitted hereafter or breach
this General Release.
2. Except as provided in paragraph 4 of this General Release, I knowingly
and voluntarily release and forever discharge the Company and the other
Released Parties from any and all claims, controversies, actions,
causes of action, cross-claims, counterclaims, demands, debts,
compensatory damages, liquidated damages, punitive or exemplary
damages, other damages, claims for costs and attorneys' fees, or
liabilities of any nature whatsoever in law and in equity, both past
and present (through the date of this General Release) and whether
known or unknown, suspected, or claimed against the Company or any of
the Released Parties which I, my spouse, or any of my heirs, executors,
administrators or assigns, may have, which arise out of or are
connected with my employment with, or my separation from, the Company
(including, but not limited to, any allegation, claim or violation,
arising under: Title VII of the Civil Rights Act of 1964, as amended;
the Civil Rights Act of 1991; the Age Discrimination in Employment Act
of 1967, as amended (including the Older Workers Benefit Protection
Act); the Equal Pay Act of 1963, as amended; the Americans with
Disabilities Act of 1990; the Family and Medical Leave
<PAGE> 19
Act of 1993; the Civil Rights Act of 1866, as amended; the Worker
Adjustment Retraining and Notification Act; the Employee Retirement Income
Security Act of 1974; any applicable Employee Order Programs; the Fair
Labor Standards Act; or their state or local counterparts; or under any
other federal, state or local civil or human rights law, or under any
other local, state, or federal law, regulation or ordinance; or under any
public policy, contract or tort, or under common law; or arising under any
policies, practices or procedures of the Company; or any claim for
wrongful discharge, breach of contract, negligent or intentional
infliction of emotional distress, defamation; or any claim for costs,
fees, or other expenses, including attorneys' fees incurred in these
matters) (all of the foregoing collectively referred to herein as the
"CLAIMS").
3. I represent that I have made no assignment or transfer of any right,
claim, demand, cause of action, or other matter covered by paragraph 2 of
this General Release.
4. I and the Company mutually agree that this General Release does not
waive or release any rights or claims that I may have under (a) the Age
Discrimination in Employment Act of 1967 and (b) any agreements to
which I and the Company are parties pertaining to any shares of capital
stock of the Company owned by me, which arise after the date I execute
this General Release. I acknowledge and agree that my separation from
employment with the Company in compliance with the terms of the
Agreement shall not serve as the basis for any claim or action
(including, without limitation, any claim under the Age Discrimination
in Employment Act of 1967).
5. In signing this General Release, I acknowledge and intend that it shall
be effective as a bar to each and every one of the Claims hereinabove
mentioned or implied. I expressly consent that this General Release
shall be given full force and effect according to each and all of its
express terms and provisions, including those relating to unknown and
unsuspected Claims (notwithstanding any state statute that expressly
limits the effectiveness of a general release of unknown, unsuspected
and unanticipated Claims), if any, as well as those relating to any
other Claims hereinabove mentioned or implied. I acknowledge and agree
that this waiver is an essential and material term of this General
Release and that without such waiver the Company would not have agreed
to the terms of the Agreement. I further agree that in the event I
should bring a Claim seeking damages against the Company, or in the
event I should seek to recover against the Company in any Claim brought
by a governmental agency on my behalf, this General Release shall serve
as a complete defense to such Claims. I further agree that I am not
aware of any pending charge or complaint of the type described in
paragraph 2 as of the execution of this General Release.
6. I agree that neither this General Release, nor the furnishing of the
consideration for this General Release, shall be deemed or construed at
any time to be an admission by the Company, any Released Party or myself
of any improper or unlawful conduct.
7. I agree that I will forfeit all amounts payable by the Company pursuant
to the Agreement if I challenge the validity of this General Release,
provided that nothing herein contained
-2-
<PAGE> 20
in this Agreement shall prohibit or bar me from filing a charge, including
a challenge to the validity of the Agreement, with the United States Equal
Employment Opportunity Commission ("EEOC"), or any state or local fair
employment practices agency, or from participating in any investigation,
hearing or proceeding conducted by the EEOC, or any state or local fair
employment practices agency. I also agree that if I violate this General
Release by suing the Company or the other Released Parties, I will pay all
costs and expenses of defending against the suit incurred by the Released
Parties, including reasonable attorneys' fees, and return all payments
received by me pursuant to the Agreement.
8. I agree that this General Release is confidential and agree not to
disclose any information regarding the terms of this General Release,
except to my immediate family and any tax, legal or other counsel I have
consulted regarding the meaning or effect hereof or as required by law,
and I will instruct each of the foregoing not to disclose the same to
anyone.
9. Any non-disclosure provision in this General Release does not prohibit or
restrict me (or my attorney) from responding to any inquiry about this
General Release or its underlying facts and circumstances by the
Securities and Exchange Commission (SEC), the EEOC (or a state or local
fair employment practices agency), the National Association of Securities
Dealers, Inc. (NASD), any other self-regulatory organization or
governmental entity.
10. I agree to reasonably cooperate with the Company in any internal
investigation or administrative, regulatory, or judicial proceeding. I
understand and agree that my cooperation may include, but not be
limited to, making myself available to the Company upon reasonable
notice for interviews and factual investigations; appearing at the
Company's request to give testimony without requiring service of a
subpoena or other legal process; volunteering to the Company pertinent
information; and turning over to the Company all relevant documents
which are or may come into my possession all at times and on schedules
that are reasonably consistent with my other permitted activities and
commitments. I understand that in the event the Company asks for my
cooperation in accordance with this provision, the Company will
reimburse me solely for reasonable travel expenses, including lodging
and meals, upon my submission of receipts.
11. Notwithstanding anything in this General Release to the contrary, this
General Release shall not relinquish, diminish, or in any way affect any
rights or claims arising out of any breach by the Company or by any
Released Party of the Agreement.
12. Whenever possible, each provision of this General Release shall be
interpreted in, such manner as to be effective and valid under
applicable law, but if any provision of this General Release 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 General Release
-3-
<PAGE> 21
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained
herein.
BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:
(a) I HAVE READ IT CAREFULLY;
(b) I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT
RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION
IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT
OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE AMERICANS WITH
DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF 1974, AS AMENDED;
(c) I VOLUNTARILY CONSENT TO EVERYTHING IN IT;
(d) I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND I
HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I HAVE CHOSEN NOT
TO DO SO OF MY OWN VOLITION;
(e) I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE
SUBSTANTIALLY IN ITS FINAL FORM ON _______________ ____, ____ TO CONSIDER
IT AND THE CHANGES MADE SINCE THE ______________ _____, _____VERSION OF
THIS RELEASE ARE NOT MATERIAL AND WILL NOT RESTART THE REQUIRED 21-DAY
PERIOD;
(f) THE CHANGES TO THE AGREEMENT SINCE ____________ ___, _____ EITHER ARE NOT
MATERIAL OR WERE MADE AT MY REQUEST.
(g) I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE TO
REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE
UNTIL THE REVOCATION PERIOD HAS EXPIRED;
(h) I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH
THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND
(i) I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED,
WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY
AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.
DATE:
_______________________,______ _________________________________
-4-
<PAGE> 22
EXHIBIT C
TO
EMPLOYMENT AGREEMENT
BETWEEN
SOVEREIGN SPECIALTY CHEMICALS, INC.
AND
ROBERT B. COVALT
STOCK OPTION AGREEMENT
----------------------
<PAGE> 23
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I................................................................... 1
EMPLOYMENT RELATIONSHIP..................................................... 1
1.1 Employment........................................................ 1
1.2 Duties............................................................ 2
1.3 Exclusive Employment.............................................. 2
1.4 Employee Representations.......................................... 2
ARTICLE II.................................................................. 3
PERIOD OF EMPLOYMENT........................................................ 3
2.1 Employment Period................................................. 3
2.2 Initial Term of Employment Period and Extension Terms............. 3
ARTICLE III................................................................ 3
COMPENSATION................................................................ 3
3.1 Annual Base Compensation.......................................... 3
3.2 Potential Annual Target Bonuses................................... 3
3.3 Discretionary Bonuses............................................. 4
3.4 Expenses.......................................................... 4
3.5 Vacation.......................................................... 4
3.6 Other Fringe Benefits............................................. 4
3.7 Grant of Stock Option............................................. 4
ARTICLE IV.................................................................. 4
COVENANTS OF THE EMPLOYEE................................................... 4
4.1 Proprietary Rights................................................ 4
4.2 Ownership and Covenant to Return Documents, etc................... 6
4.3 Non-Disclosure Covenant........................................... 6
4.4 Anti-Pirating and Non-Interference Covenants...................... 7
4.5 Covenant Not To Compete........................................... 7
4.6 Remedies For Breach............................................... 8
ARTICLE V................................................................... 9
TERMINATION OF EMPLOYMENT................................................... 9
5.1 Termination and Triggering Events................................. 9
5.2 Rights Upon Occurrence of a Triggering Event...................... 9
5.3 Survival of Certain Obligations and Termination Certificate....... 10
</TABLE>
<PAGE> 24
<TABLE>
<S> <C>
ARTICLE VI.................................................................. 10
ASSIGNMENT.................................................................. 10
6.1 Prohibition of Assignment by Employee............................. 10
6.2 Right of Company to Assign........................................ 10
ARTICLE VII................................................................. 11
DEFINITIONS................................................................. 11
ARTICLE VIII................................................................ 13
GENERAL..................................................................... 13
8.1 Notices........................................................... 13
8.2 Governing Law..................................................... 14
8.3 Binding Effect.................................................... 14
8.4 Complete Understanding............................................ 14
8.5 Amendments........................................................ 15
8.6 Waiver............................................................ 15
8.7 Venue, Jurisdiction, Etc.......................................... 15
8.8 Severability...................................................... 15
8.9 Headings.......................................................... 15
8.10 Counterparts..................................................... 15
</TABLE>
-ii-
<PAGE> 1
EXHIBIT 10.1A
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement (this "AMENDMENT") is made
and entered into as of the 2nd day of January, 2000 by and between Sovereign
Specialty Chemicals, Inc., a Delaware corporation (the "COMPANY") and Robert B.
Covalt (the "EMPLOYEE").
RECITALS
A. The Company and the Employee are parties to that certain Employment
Agreement dated December 29, 1999 (the "EMPLOYMENT AGREEMENT"). Capitalized
terms not expressly defined herein shall have the meanings assigned them in the
Employment Agreement.
B. In the preparation of the Employment Agreement, a mistake was made
in respect of the definition of the term "Good Grounds," and the parties now
wish to correct that mistake.
AGREEMENT:
---------
NOW, THEREFORE, in consideration of the foregoing Recitals, and the
mutual agreements herein contained, and other good and valuable consideration,
the receipt and sufficiency of which are hereby mutually acknowledged, and
pursuant to the provisions of Section 8.5 of the Employment Agreement, the
parties hereby agree as follows:
1. The definition of "RESIGNATION WITH GOOD GROUNDS" contained in
Article VII of the Employment Agreement, entitled "Definitions," is hereby
amended by adding thereto the following clause (v) thereto:
"(v) a material breach by either the Company or SSCI Investors
LLC ("INVESTORS LLC") of their respective agreements made expressly for
the benefit of the Employee under that certain Shareholders Agreement
dated December 29, 1999 by and between the Company, Investors LLC, and
all employees of the Company who were shareholders of the Company on
that date, other than any such breach which is remedied by the Company
and\or Investors LLC, as the case may be, promptly after receipt of
written notice thereof given by the Employee."
2. All of the other terms and provisions of the Employment Agreement,
except as hereinabove amended by the terms of this Amendment, shall remain in
full force and effect.
3. This Amendment shall be effective as of December 29, 1999.
(THIS SPACE INTENTIONALLY LEFT BLANK)
<PAGE> 2
4. This Amendment may be executed in any number of counterparts, each
of which when so executed and delivered will be deemed an original, and such
counterparts together will constitute one instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered as of the date and year first above written.
COMPANY: EMPLOYEE:
- ------- --------
SOVEREIGN SPECIALTY CHEMICALS,
INC., a Delaware Corporation
------------------------------
Robert B. Covalt
By:
---------------------------
Brian R. Hoesterey
Vice President
<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("AGREEMENT") is made and entered into as of the 30th day
of December, 1999, by and between SIA ADHESIVES, INC., a Delaware corporation
("SIA"), and TANNER CHEMICALS, INC., a New Hampshire corporation ("SIA") and
GERARD A. LOFTUS (the "EMPLOYEE"). SIA, Tanner and the Employee are sometimes
hereinafter collectively referred to as the "PARTIES" and individually as a
"PARTY," and as hereinbelow set forth, SIA and Tanner are sometimes collectively
referred to as the "COMPANY." Certain capitalized terms used in this Agreement
are defined in Article VII hereof.
RECITALS
A. SIA and Tanner are wholly-owned subsidiaries of Sovereign Specialty
Chemicals, Inc., a Delaware corporation (the "PARENT"), and together with their
Affiliates and the Parent, are and will be engaged in the manufacture of
adhesives, sealants and coatings.
B. The Parent has found it to be in the best interests of itself, SIA and
Tanner that the President of SIA and Tanner be one and the same person.
C. SIA and Tanner each desire to employ the Employee, and the Employee
wishes to be employed by SIA and Tanner as the President of each. As a condition
of that employment, SIA and Tanner each require that an employment agreement be
entered into pursuant to which the Employee furnishes to each of SIA and Tanner
with, among other things, certain covenants of the Employee, including his
covenant not to compete with the businesses of SIA, Tanner, their Subsidiaries
and their Affiliates.
D. In order to induce the Employee to enter into this Agreement, and to
incentivize and reward his effort, loyalty and commitment to SIA and Tanner,
concurrent with the execution and delivery of this Agreement, they have caused
the Parent to grant to the Employee a certain stock option (the "OPTION") to
purchase shares of Common Stock of the Parent ("SHARES") under and pursuant to
the terms of the "Sovereign Specialty Chemicals, Inc. Stock Option Plan" (the
"PLAN") and a Stock Option Agreement in the form of Exhibit C attached hereto
and by this reference made a part hereof (the "STOCK OPTION AGREEMENT").
E. The Employee acknowledges that as a member of the management of SIA and
Tanner, he is one of the persons charged with primary responsibility for the
implementation of their respective business plans, and that he will have regular
access to various confidential and/or proprietary information relating to each
of them, their Subsidiaries, their Affiliates and their businesses. Further, the
Employee acknowledges that his covenants to SIA and Tanner hereinafter set
forth, specifically including but not limited to the Employee's covenant not to
engage in competition with SIA, Tanner, their Subsidiaries and their Affiliates
and their businesses, are being made in partial consideration of the Parent's
grant of the Option to the Employee.
<PAGE> 2
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, and the mutual
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby mutually acknowledged, the parties
hereby agree as follows:
ARTICLE I
EMPLOYMENT RELATIONSHIP
1.1 DUAL EMPLOYMENT. Subject to the terms and conditions of this
Agreement, each of SIA and Tanner hereby agrees to employ the Employee to serve
as its President, and the Employee hereby accepts such employment, and agrees to
perform his duties and responsibilities to the best of his abilities in a
diligent, trustworthy, businesslike and efficient manner.
(a) The parties hereby expressly agree that except as expressly
provided otherwise or as the context makes obvious, subsequent references
in this Agreement to the "COMPANY" shall mean SIA and Tanner, individually
and jointly, such that:
(i) any reference to "the Company, its Subsidiaries and their
Affiliates" shall mean and include each of SIA, Tanner and their
respective Subsidiaries and Affiliates;
(ii) each obligation of the Employee to the Company set forth
in this Agreement shall constitute an obligation of the Employee (x)
to SIA, its Subsidiaries and their Affiliates and (y) to Tanner, its
Subsidiaries and their Affiliates; and;
(iii) each obligation of the Company to the Employee set forth
in this Agreement other than a financial obligation shall constitute
an obligation of each of Tanner and SIA, individually, to the
Employee.
(b) SIA and Tanner shall be each be liable for and shall each bear
50% of all financial obligations of the Company to the Employee hereunder
other than expenses which are reimbursed to the Employee pursuant to the
provisions of Section 3.4, which shall be the obligation of the company on
whose behalf the Employee incurred such expense.
(c) SIA and Tanner covenant to the Employee that they each shall
promulgate and maintain no policy or policies which is or are inconsistent
with each other.
(d) The provisions of Section 1.3 to the contrary notwithstanding
(but subject to the provisions of Section 1.2), the Employee shall
determine in his own best judgment how to allocate his time between the
SIA and Tanner.
-2-
<PAGE> 3
(e) The termination of the employment of the Employee at the
instance of either SIA or Tanner pursuant to the provisions of either
Section 5.1(e) or (f) shall constitute a concurrent termination of
employment by the other, and the termination of the Employee's employment
by either SIA or Tanner at his instance pursuant to the provisions of
either Section 5.1(c) or (d) shall constitute a concurrent termination of
employment with the other.
1.2 DUTIES.
(a) The Employee shall have the normal and customary duties,
responsibilities and authority of President and shall perform such other
duties on behalf of SIA, its Subsidiaries and their Affiliates as may be
assigned to him by the Chairman of the SIA Board and the SIA Board. The
Employee shall report to the Chairman of the SIA Board in connection with
the Employee's performance of his duties.
(b) The Employee shall have the normal and customary duties,
responsibilities and authority of President and shall perform such other
duties on behalf of Tanner, its Subsidiaries and their Affiliates as may
be assigned to him by the Chairman of the Tanner Board and the Tanner
Board. The Employee shall report to the Chairman of the Tanner Board in
connection with the Employee's performance of his duties.
1.3 EXCLUSIVE EMPLOYMENT. While he is employed by the Company hereunder,
the Employee covenants to the Company that he will devote his entire business
time, energy, attention and skill to the Company, its Subsidiaries and their
Affiliates (except for permitted vacation periods and reasonable periods of
illness or other incapacity), and use his good faith best efforts to promote the
interests of the Company, its Subsidiaries and their Affiliates. The foregoing
shall not be construed as prohibiting the Employee from spending such time as
may be reasonably necessary to attend to his personal affairs and investments so
long as such activities do not conflict or interfere with the Employee's
obligations and\or timely performance of his duties to the Company, its
Subsidiaries and their Affiliates hereunder.
1.4 EMPLOYEE REPRESENTATIONS. The Employee hereby represents and
warrants to the Company that:
(a) the execution, delivery and performance by the Employee of this
Agreement and any other agreements contemplated hereby to which the
Employee 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 the Employee is a party or by which he is bound;
(b) the Employee is not a party to or bound by any employment
agreement, non-competition agreement or confidentiality agreement with any
other person or entity (or if a party to such an agreement, the Employee
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
-3-
<PAGE> 4
(c) upon the execution and delivery of this Agreement by the
Company, this Agreement shall be the valid and binding obligation of the
Employee, enforceable in accordance with its terms.
The Employee hereby acknowledges and represents that 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.
ARTICLE II
PERIOD OF EMPLOYMENT
2.1 EMPLOYMENT PERIOD. The Employee has been employed by the Company or
its predecessor for a number of years, and such employment shall continue
hereunder until the date fixed by the provisions of Section 2.2 hereof, subject
to the early termination provisions of Article V hereof (the "EMPLOYMENT
PERIOD"), it being acknowledged that the Company's fiscal year ends on December
31, and that the Employment Period shall therefore be denominated in calendar
years.
2.2 INITIAL TERM OF EMPLOYMENT PERIOD AND EXTENSION TERMS. The Employment
Period shall initially continue for a term commencing on the date hereof and
ending on December 31, 2002 (the "INITIAL TERM"). The Employment Period shall be
automatically extended for successive calendar years of the Company following
the expiration of the Initial Term (each such one year period being hereinafter
referred to as an "EXTENSION TERM") upon the same terms and conditions provided
for herein unless either party provides the other party with advance written
notice of its or his intention not to extend the Employment Period; provided,
however, that such notice must be delivered by the non-extending party to the
other party not later than ninety (90) days prior to the expiration of the
Initial Term or any Extension Term, as the case may be.
ARTICLE III
COMPENSATION
3.1 ANNUAL BASE COMPENSATION. During the Employment Period the Company
shall pay to the Employee an annual base salary (the "ANNUAL BASE COMPENSATION")
in the amount of $150,000.00. The Annual Base Compensation shall be paid in
regular installments in accordance with the Company's general payroll practices,
and shall be subject to all required federal, state and local withholding taxes.
The Employee's Annual Base Compensation shall be reviewed by the Board annually,
and may, in the discretion of the Board be increased, provided that there shall
be no obligation on the part of the Company to increase the Employee's Annual
Base Compensation, further provided that in no event shall the Employee's Annual
Base Compensation be less than the greater of (i) the amount indicated in the
first sentence of this Section 3.1 or (ii) the highest amount such Annual Base
Compensation may have been increased to by the Board subsequent to the date of
this Agreement in its discretion.
3.2 POTENTIAL ANNUAL TARGET BONUSES. In respect of each calendar year
falling within the Employment Period, the Employee shall be eligible to earn an
annual bonus, depending upon the results of operation of the Company, the
Parent, its Subsidiaries and their Affiliates and the personal performance of
the Employee, of up to forty percent (40%) of the Employee's Annual
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<PAGE> 5
Base Compensation for that calendar year (the "POTENTIAL ANNUAL TARGET BONUS")
in accordance with the terms of a bonus plan which shall be adopted and
maintained in effect by the Board for that calendar year. The amount of the
Potential Annual Target Bonus, if any, which is earned by the Employee (the
"BONUSABLE AMOUNT") shall be paid by the Company to the Employee no later than
seventy-five (75) days following the close of the Company's calendar year,
provided that unless expressly provided otherwise herein, it shall be a
condition precedent to the Employee's right to receive any Bonusable Amount that
the Employee be employed by the Company on the last day of that calendar year.
3.3 DISCRETIONARY BONUSES. In respect of each calendar year falling within
the Employment Period, the Company may pay a discretionary annual bonus to the
Employee (a "DISCRETIONARY BONUS") to be determined by the Board, in its sole
discretion. Any Discretionary Bonus shall be paid by the Company to the Employee
within seventy-five (75) days following the close of the Company's calendar
year, provided that unless expressly provided otherwise herein, it shall be a
condition precedent to the Employee's right to receive any Discretionary Bonus
that the Employee be employed by the Company on the last day of that calendar
year.
3.4 EXPENSES. During the Employment Period, the Employee shall be entitled
to reimbursement of all travel, entertainment and other business expenses
reasonably incurred in the performance of his duties for the Company, upon
submission of all receipts and accounts with respect thereto, and approval by
the Company thereof, in accordance with the business expense reimbursement
policies of the Company from time to time adopted by the Board.
3.5 VACATION. In respect of each calendar year falling within the
Employment Period, the Employee shall be entitled to such vacation time as the
Company customarily provides to its senior executives (but in no event less than
four (4) weeks per calendar year), provided that unused vacation may be used by
the Employee in the following calendar year only in accordance with and as
permitted by the Company's then current vacation policies in effect from time to
time.
3.6 OTHER FRINGE BENEFITS. During the Employment Period, the Employee
shall be entitled to receive such of the Company's other fringe benefits as are
being provided to other employees of the Company holding senior executive
positions, including but not limited to health insurance benefits, disability
benefits and retirement benefits.
3.7 GRANT OF STOCK OPTION. Concurrently with the parties' execution and
delivery of this Agreement the Company has caused the Parent to grant to the
Employee the Option to purchase an aggregate of 9,500 Shares pursuant to the
terms of the Stock Option Agreement as part consideration for the Employee's
execution and delivery of this Agreement to the Company.
ARTICLE IV
COVENANTS OF THE EMPLOYEE
4.1 PROPRIETARY RIGHTS. The Employee hereby expressly agrees that all
research, discoveries, inventions and innovations (whether or not reduced to
practice or documented), improvements, developments, methods, designs, analyses,
drawings, reports and all similar or
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related information (whether patentable or unpatentable, and whether or not
reduced to writing), trade secrets (being information about the business of the
Company, its Subsidiaries and their Affiliates which is considered by the
Company or any such Subsidiary or Affiliate to be confidential and is
proprietary to the Company or any such Subsidiary or Affiliate) and confidential
information, copyrightable works, and similar and related information (in
whatever form or medium), which (x) either (i) relate to the Company's, its
Subsidiaries' or their Affiliates' actual or anticipated business, research and
development or existing or future products or services or (ii) result from any
work performed by the Employee for the Company, its Subsidiaries or any of their
Affiliates and (y) are conceived, developed, made or contributed to in whole or
in part by the Employee during the Employment Period ("WORK PRODUCT") shall be
and remain the sole and exclusive property of the Company, such Subsidiary or
such Affiliate. The Employee shall communicate promptly and fully all Work
Product to the Board.
(a) WORK MADE FOR HIRE. The Employee acknowledges that, unless
otherwise agreed in writing by the Company, all Work Product eligible for
any form of copyright protection made or contributed to in whole or in
part by the Employee within the scope of the Employee's employment by the
Company during the Employment Period shall be deemed a "work made for
hire" under the copyright laws and shall be owned by the Company, its
Subsidiaries or their Affiliates, as applicable.
(b) ASSIGNMENT OF PROPRIETARY RIGHTS. The Employee hereby assigns,
transfers and conveys to the Company, and shall assign, transfer and
convey to the Company, all right, title and interest in and to all
inventions, ideas, improvements, designs, processes, trademarks, service
marks, trade names, trade secrets, trade dress, data, discoveries and
other proprietary assets and proprietary rights in and of the Work Product
(the "PROPRIETARY RIGHTS") for the Company's exclusive ownership and use,
together with all rights to sue and recover for past and future
infringement or misappropriation thereof, provided that if a Subsidiary or
Affiliate of the Company is the owner thereof, such assignment, transfer
and conveyance shall be made to such Subsidiary or Affiliate, which shall
enjoy exclusive ownership and use, together with all rights to sue and
recover for past and future infringement or misappropriation thereof.
(c) FURTHER INSTRUMENTS. At the request of the Company (its
Subsidiaries or their Affiliates, as the case may be), at all times during
the Employment Period and thereafter, the Employee will promptly and fully
assist the Company (its Subsidiaries or their Affiliates, as the case may
be) in effecting the purpose of the foregoing assignment, including but
not limited to the further acts of executing any and all documents
necessary to secure for the Company (its Subsidiaries or their Affiliates,
as the case may be) such Proprietary Rights and other rights to all Work
Product and all confidential information related thereto, providing
cooperation and giving testimony.
(d) INAPPLICABILITY OF SECTION 4.1 IN CERTAIN CIRCUMSTANCES. The
Company expressly acknowledges and agrees that, and the Employee is hereby
advised that, this Section 4.1 does not apply to any invention for which
no equipment, supplies, facilities or trade secret information of the
Company, its Subsidiaries or any of their Affiliates was
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<PAGE> 7
used and which was developed entirely on the Employee's own time, unless
(i) the invention relates to the business of the Company, its Subsidiaries
or any of their Affiliates or to the Company's, its Subsidiaries' or any
of their Affiliates' actual or demonstrably anticipated research or
development or (ii) the invention results from any work performed by the
Employee for the Company, its Subsidiaries or any of their Affiliates.
4.2 OWNERSHIP AND COVENANT TO RETURN DOCUMENTS, ETC. The Employee agrees
that all Work Product and all documents or other tangible materials (whether
originals, copies or abstracts), including without limitation, price lists,
quotation guides, outstanding quotations, books, records, manuals, files, sales
literature, training materials, customer records, correspondence, computer disks
or print-out documents, contracts, orders, messages, phone and address lists,
invoices and receipts, and all objects associated therewith, which in any way
relate to the business or affairs of the Company, its Subsidiaries and their
Affiliates either furnished to the Employee by the Company, its Subsidiaries or
any of their Affiliates or are prepared, compiled or otherwise acquired by the
Employee during the Employment Period, shall be the sole and exclusive property
of the Company, such Subsidiaries or such Affiliates. The Employee shall not,
except for the use of the Company, its Subsidiaries or any of their Affiliates,
use, copy or duplicate any of the aforementioned documents or objects, nor
remove them from the facilities of the Company or such Subsidiaries or such
Affiliates, nor use any information concerning them except for the benefit of
the Company, its Subsidiaries and their Affiliates, either during the Employment
Period or thereafter. The Employee agrees that he will deliver all of the
aforementioned documents and objects that may be in his possession to the
Company on the termination of his employment with the Company, or at any other
time upon the Company's request, together with his written certification of
compliance with the provisions of this Section 4.2 in the form of Exhibit A to
this Agreement in accordance with the provisions of Section 5.3 hereof.
4.3 NON-DISCLOSURE COVENANT. During the Employment Period and at all times
thereafter, the Employee shall not, either directly or indirectly, disclose to
any "unauthorized person" or use for the benefit of the Employee or any person
or entity other than the Company, its Subsidiaries or their Affiliates any Work
Product or any knowledge or information which the Employee may acquire while
employed by the Company (whether before or after the date of this Agreement)
relating to (i) the financial, marketing, sales and business plans and affairs,
financial statements, analyses, forecasts and projections, books, accounts,
records, operating costs and expenses and other financial information of the
Company, its Subsidiaries and their Affiliates, (ii) internal management tools
and systems, costing policies and methods, pricing policies and methods and
other methods of doing business, of the Company, its Subsidiaries and their
Affiliates, (iii) customers, sales, customer requirements and usages,
distributor lists, of the Company, its Subsidiaries and their Affiliates, (iv)
agreements with customers, vendors, independent contractors, employees and
others, of the Company, its Subsidiaries and their Affiliates, (v) existing and
future products or services and product development plans, designs, analyses and
reports, of the Company, its Subsidiaries and their Affiliates, (vi) computer
software and data bases developed for the Company, its Subsidiaries or their
Affiliates, trade secrets, research, records of research, models, designs,
drawings, technical data and reports of the Company, its Subsidiaries and their
Affiliates and (vii) correspondence or other private or confidential matters,
information or data whether written, oral or electronic, which is proprietary to
the Company, its Subsidiaries and their
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<PAGE> 8
Affiliates and not generally known to the public (individually and collectively
"CONFIDENTIAL INFORMATION"), without the Company's prior written permission. For
purposes of this Section 4.3, the term "UNAUTHORIZED PERSON" shall mean any
person who is not (i) an officer or director of the Company, or (ii) an
employee, officer or director of a Subsidiary or Affiliate of the Company for
whom the disclosure of the knowledge or information referred to herein is
necessary for his performance of his assigned duties, or (iii) a person
expressly authorized by the Company to receive disclosure of such knowledge or
information. The Company expressly acknowledges and agrees that the term
"Confidential Information" excludes information which is (A) in the public
domain or otherwise generally known to the trade, or (B) disclosed to third
parties other than by reason of the Employee's breach of his confidentiality
obligation hereunder or (C) learned of by the Employee subsequent to the
termination of his employment hereunder from any other party not then under an
obligation of confidentiality to the Company, its Subsidiaries and their
Affiliates. Further, the Employee covenants to the Company that in the
Employee's performance of his duties hereunder, the Employee will violate no
confidentiality obligations he may have to any third persons.
4.4 ANTI-PIRATING AND NON-INTERFERENCE COVENANTS. The Employee covenants
to the Company that while the Employee is employed by the Company hereunder and
for the two (2) year period thereafter (the "NON-SOLICITATION PERIOD"), he will
not, for any reason, directly or indirectly: (a) solicit, hire, or otherwise do
any act or thing which may induce any other employee of the Company, its
Subsidiaries or their Affiliates to leave the employ or otherwise interfere with
or adversely affect the relationship (contractual or otherwise) of the Company,
its Subsidiaries and their Affiliates with any person who is then or thereafter
becomes an employee of the Company, its Subsidiaries and their Affiliates; or
(b) do any act or thing which may interfere with or adversely affect the
relationship (contractual or otherwise) of the Company, its Subsidiaries and
their Affiliates with any customer or vendor of the Company, its Subsidiaries
and their Affiliates or induce any such customer or vendor to cease doing
business with the Company, its Subsidiaries and their Affiliates.
4.5 COVENANT NOT TO COMPETE. The Employee expressly acknowledges that (i)
the Company is and will be engaged in the manufacture of adhesives, sealants and
coatings; (ii) the Employee is one of a limited number of persons who has
extensive knowledge and expertise relevant to the businesses of the Company, its
Subsidiaries and their Affiliates; (iii) the Employee's performance of his
services for the Company hereunder will afford him full and complete access to
and cause him to become highly knowledgeable about the Company's, its
Subsidiaries' and their Affiliates' Confidential Information; (iv) the
agreements and covenants contained in this Section 4.5 are essential to protect
the business and goodwill of the Company, its Subsidiaries and their Affiliates
because, if the Employee enters into any activities competitive with the
businesses of the Company, its Subsidiaries and their Affiliates, he will cause
substantial harm to the Company or its Subsidiaries and Affiliates; and (v) his
covenants to the Company, its Subsidiaries and their Affiliates set forth in
this Section 4.5 are being made in partial consideration of the Company having
caused the Parent to grant the Option to him. Accordingly, the Employee hereby
agrees that while he is employed by the Company hereunder and for the one (1)
year period thereafter (the "NON-COMPETITION PERIOD"), he shall not directly or
indirectly own any interest in, invest in, lend to, borrow from, manage,
control, participate in, consult with, become employed by, render
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<PAGE> 9
services to, or in any other manner whatsoever engage in, any business which is
competitive with any business actively being engaged in by the Company, its
Subsidiaries and their Affiliates or actively (and demonstrably) being
considered by the Company, its Subsidiaries and their Affiliates for entry into
on the date of the termination of the Employment Period, within any states or
geographical regions in which any such business is being conducted or in which
the Company, its Subsidiaries and their Affiliates is or are actively (and
demonstrably) considering engaging in on the date of the termination of the
Employment Period. The preceding to the contrary notwithstanding, the Employee
shall be free to make investments in the publicly traded securities of any
corporation, provided that such investments do not amount to more than 1% of the
outstanding securities of any class of such corporation.
4.6 REMEDIES FOR BREACH. If the Employee commits a breach, or threatens to
commit a breach, of any of the provisions of this Article IV, the Company and
its Subsidiaries shall have the right and remedy, in addition to any other
remedy that may be available at law or in equity, to have the provisions of this
Article IV specifically enforced by any court having equity jurisdiction,
together with an accounting therefor, it being expressly acknowledged and agreed
by the Employee that any such breach or threatened breach will cause irreparable
injury to the Company and its Subsidiaries and that money damages will not
provide an adequate remedy to the Company and its Subsidiaries. Such injunction
shall be available without the posting of any bond or other security, and the
Employee hereby consents to the issuance of such injunction. The Employee
further agrees that any such injunctive relief obtained by the Company or its
Subsidiaries shall be in addition to, and not in lieu of, monetary damages and
any other remedies to which the Company or its Subsidiaries may be entitled.
Further, in the event of an alleged breach or violation by the Employee of any
of the provisions of Sections 4.4 or 4.5 hereof, the Non-Solicitation Period
and\or the Non-Competition Period, as the case may be, shall be tolled until
such breach or violation has been cured. The parties agree that in the event of
the institution of any action at law or in equity by either party to enforce the
provisions of this Article IV, the losing party shall pay all of the costs and
expenses of the prevailing party, including reasonable legal fees, incurred in
connection therewith. If any covenant contained in this Article IV or any part
thereof is hereafter construed to be invalid or unenforceable, the same shall
not affect the remainder of such covenant or any other covenants, which shall be
given full effect, without regard to the invalid portions, and any court having
jurisdiction shall have the power to modify such covenant to the least extent
necessary to render it enforceable and, in its modified form, said covenant
shall then be enforceable.
ARTICLE V
TERMINATION OF EMPLOYMENT
5.1 TERMINATION AND TRIGGERING EVENTS. Notwithstanding anything to the
contrary elsewhere contained in this Agreement, the Employment Period shall
terminate at the expiration of the Initial Term or any Extension Term, or prior
to the expiration of the Initial Term or any Extension Term upon the occurrence
of any of the following events (hereinafter referred to as "TRIGGERING EVENTS"):
(a) the Employee's death; (b) the Employee's Total Disability; (c) the
Employee's Resignation; (d) the Employee's Resignation with Good Grounds; (e) a
Termination by the Company for Cause; or (f) a Termination by the Company
Without Cause.
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<PAGE> 10
5.2 RIGHTS UPON OCCURRENCE OF A TRIGGERING EVENT. Subject to the
provisions of Section 5.3 hereof, the rights of the parties upon the occurrence
of a Triggering Event prior to the expiration of the Initial Term or any
Extension Term shall be as follows:
(a) RESIGNATION AND TERMINATION BY THE COMPANY FOR CAUSE: If the
Triggering Event was the Employee's Resignation or a Termination by the
Company for Cause, the Employee shall be entitled to receive his Annual
Base Compensation and accrued but unpaid vacation through the date thereof
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 that date and thereafter, only to the extent permitted
under the terms of such plans and programs.
(b) DEATH OR TOTAL DISABILITY: If the Triggering Event was the
Employee's death or Total Disability, the Employee (or the Employee's
designated beneficiary) shall be entitled to receive the Employee's Annual
Base Compensation and accrued but unpaid vacation through the date thereof
plus a pro rata portion of the Employee's Potential Annual Target Bonus
for the calendar year in which such death or Total Disability occurred
(based on the number of days the Employee was employed during the
applicable calendar year), 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.
(c) TERMINATION BY COMPANY WITHOUT CAUSE OR RESIGNATION BY EMPLOYEE
WITH GOOD GROUNDS: If the Triggering Event was a Termination by the
Company Without Cause or a Resignation by the Employee With Good Grounds,
the Employee shall be entitled to receive his Annual Base Compensation and
accrued but unpaid vacation through the date thereof plus, in the case of
either (i) Resignation by the Employee with Good Grounds or (ii) a
Termination By the Company Without Cause in the discretion of the Chairman
of the Board of the Company, a pro rata portion of the Employee's
Potential Annual Target Bonus for the calendar year in which such
Triggering Event occurred (based on the number of days the Employee was
employed during the applicable calendar year), payable in accordance with
the Company's normal payroll practices, provided that in addition, the
Employee shall also be paid an amount equal to his then current Annual
Base Compensation 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 ("ADDITIONAL SEVERANCE
BENEFITS") during the one (1) year period immediately following the date
of the termination of the Employment Period (the "SEVERANCE PERIOD");
provided that the Employee shall be entitled to receive such Additional
Severance Benefits during the Severance Period if and only if the Employee
has executed and delivered to the Company the General Release
substantially in form and substance as set forth in Exhibit B to this
Agreement and only so long as the Employee has not breached any of his
covenants to the Company set forth in Article IV of this Agreement.
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<PAGE> 11
(d) CESSATION OF ENTITLEMENTS AND COMPANY RIGHT OF OFFSET. Except as
otherwise expressly provided herein, all of the Employee's rights to
salary, employee benefits, fringe benefits and bonuses hereunder (if any)
which would otherwise accrue after the termination of the Employment
Period shall cease upon the date of such termination. The Company may
offset any loans, cash advances or fixed amounts which the Employee owes
the Company or its Affiliate against any amounts it owes the Employee
under this Agreement.
5.3 SURVIVAL OF CERTAIN OBLIGATIONS AND TERMINATION CERTIFICATE. The
provisions of Articles IV, VI and VIII shall survive any termination of the
Employment Period, whether by reason of the occurrence of a Triggering Event or
the expiration of the Initial Term or any Extension Term. Immediately following
the termination of the Employment Period, the Employee shall promptly return to
the Company all property required to be returned to the Company pursuant to the
provisions of Section 4.2 hereof and execute and deliver to the Company the
Termination Certificate attached hereto as Exhibit A and by this reference made
a part hereof.
ARTICLE VI
ASSIGNMENT
6.1 PROHIBITION OF ASSIGNMENT BY EMPLOYEE. The Employee expressly agrees
for himself and on behalf of his executors, administrators and heirs, that this
Agreement and his obligations, rights, interests and benefits hereunder shall
not be assigned, transferred, pledged or hypothecated in any way by the
Employee, his executors, administrators or heirs, and shall not be subject to
execution, attachment or similar process. Any attempt to assign, transfer,
pledge, hypothecate or otherwise dispose of this Agreement or any such rights,
interests and benefits thereunder contrary to the foregoing provisions, or the
levy of any attachment or similar process thereupon shall be null and void and
without effect and shall relieve the Company of any and all liability hereunder.
6.2 RIGHT OF COMPANY TO ASSIGN. This Agreement shall be assignable and
transferable by the Company to any successor-in-interest without the consent of
the Employee.
ARTICLE VII
DEFINITIONS
"AFFILIATE" means the Parent and each of its Subsidiaries.
"BOARD" means either the SIA Board or the Tanner Board.
"PARENT" means Sovereign Specialty Chemicals, Inc., a Delaware
corporation.
"RESIGNATION" means the voluntary termination of employment hereunder by
the Employee which is not a Resignation with Good Grounds (except if made in
contemplation of a Termination by the Company for Cause), provided that if such
action is taken by the Employee without the
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<PAGE> 12
giving of at least ninety (90) days prior written notice, such termination of
employment shall not be a "Resignation," but instead shall constitute a
Termination for Cause.
"RESIGNATION WITH GOOD GROUNDS" means a voluntary termination of the
Employee's employment hereunder on account of, and within sixty (60) days after,
the occurrence of one or more of the following events:
(i) the assignment to the Employee of any duties inconsistent in any
material respect with the Employee's position (including status, offices
and titles), authority, duties or responsibilities as contemplated by
Section 1.2 hereof which results in a diminution of the Employee's
position, excluding for this purpose an isolated, insubstantial or
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of written notice thereof given by the
Employee;
(ii) the Employee's Annual Base Compensation and\or Potential Annual
Target Bonus is\are decreased below the amount of his then Annual Base
Compensation and\or Potential Annual Target Bonus fixed by the applicable
provisions of Sections 3.1 and 3.2 hereof (provided that so long as the
aggregate sum of the Employee's Annual Base Compensation and Potential
Annual Target Bonus in respect of any calendar year during the Employment
Term are not decreased, the Company shall be free to decrease the
Potential Annual Target Bonus for that year and commensurately increase
the Annual Base Compensation for that year without any affect on the
subsequent calendar year Annual Base Compensation and Potential Annual
Target Bonus, it being expressly acknowledged by the Employee that the
operating result achievement criteria for the payment of any of the
Potential Annual Target Bonus by the Company, its Subsidiaries and their
Affiliates shall be determined by the Board, in its absolute discretion)
or the Employee's benefits under any material employee benefit plan,
program or arrangement of the Company (other than a change that affects
all Employees of the Company) are materially reduced from the level in
effect upon the Employee's commencement of participation therein; or
(iii) the failure of the Company to comply with any of the
provisions of this Agreement, other than an isolated, insubstantial or
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of written notice thereof given by the
Employee.
"SIA BOARD" means the Board of Directors of SIA.
"SUBSIDIARY" 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
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<PAGE> 13
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.
"TANNER BOARD" means the Board of Directors of Tanner.
"TERMINATION BY THE COMPANY FOR CAUSE" means termination by the Company
of the Employee's employment for:
(i) misappropriation of any significant monies or significant
assets or properties of the Company;
(ii) conviction of a felony or a crime involving moral turpitude;
(iii) substantial and repeated failure to comply with directions of
the Chairman of the Board of the Company;
(iv) gross negligence or willful misconduct;
(v) chronic alcoholism or drug addiction together with the
Employee's refusal to cooperate with or participate in counseling and/or
treatment of same; or
(vi) any willful action or inaction of the Employee which, in the
reasonable opinion of the Board, constitutes dereliction (willful neglect
or willful abandonment of assigned duties), or a material breach of
Company policy or rules which, if susceptible to cure, is not cured by the
Employee within five (5) days following the Employee's receipt of written
notice from the Company advising the Employee with reasonable specificity
as to the action or inaction viewed by the Board to be dereliction or a
material breach of Company policy or rules;
provided that the termination of the Employee's employment hereunder by the
Company shall not be deemed a Termination by the Company for Cause unless and
until there shall have been delivered to the Employee a written notice from the
Chairman of the Board (after reasonable notice to and an opportunity for the
Employee (alone and in person) to have a meeting with the Chairman of the Board)
finding that in the good faith opinion of the Chairman of the Board, the
Employee was guilty of the conduct set forth in one or more of such clauses.
"TERMINATION BY THE COMPANY WITHOUT CAUSE" means a termination of the
Employee's employment by the Company which is not a Termination by the Company
for Cause, provided that the termination of the Employment Period on account of
the failure of the Company to extend the
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<PAGE> 14
Employment Period in accordance with the provisions of Section 2.2 hereof shall
constitute a Termination by the Company Without Cause.
"TOTAL DISABILITY" means the Employee's inability, because of illness,
injury or other physical or mental incapacity, to perform his duties hereunder
(as determined by the Board in good faith) for a continuous period of one
hundred eighty (180) consecutive days, or for a total of one hundred eighty
(180) days within any three hundred sixty (360) consecutive day period, in which
case such Total Disability shall be deemed to have occurred on the last day of
such one hundred eighty (180) day or three hundred sixty (360) day period, as
applicable.
ARTICLE VIII
GENERAL
8.1 NOTICES. All notices under this Agreement shall be in writing and
shall be deemed properly sent, (i) when delivered, if by personal service or
reputable overnight courier service, or (ii) when received, if sent (x) by
certified or registered mail, postage prepaid, return receipt requested, or (y)
via facsimile transmission (provided that a hard copy of such notice is sent to
the addressee via one of the methods of delivery or mailing set forth above on
the same day the facsimile transmission is sent); to the recipient at the
address indicated below:
Notices to Employee:
--------------------
Gerard A. Loftus
8500 Countryview Drive
Broadview Heights, Ohio 44147
Notices to Company:
-------------------
SIA ADHESIVES, INC. and TANNER CHEMICALS, INC.
C\O Chief Executive Officer
Sovereign Specialty Chemicals, Inc.
Suite 2200
225 West Washington Street
Chicago, Illinois 60606
Facsimile (312) 419-7151
With Copies to:
---------------
Robert I. Schwimmer, Esq.
McBride Baker & Coles
500 West Madison, 40th Floor
Chicago, Illinois 60661
Facsimile (312) 993-9350
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Timothy E. Peterson, Esq.
Fried, Frank, Harris, Shriver & Jacobson
4 Chriswell Street
London EC1Y 4UP
Facsimile (0207) 972-9602
Christine J. Smith, Esq.
AEA Investors Inc.
65 East 55th Street
New York, New York 10022
Facsimile (212) 888-1459
8.2 GOVERNING LAW. This Agreement shall be subject to and governed by the
laws of the State of Ohio without regard to any choice of law or conflicts of
law rules or provisions (whether of the State of Ohio or any other
jurisdiction), irrespective of the fact that the Employee may become a resident
of a different state.
8.3 BINDING EFFECT. The Agreement shall be binding upon and inure to the
benefit of the Company, its successors and assigns, and the Employee and his
executors, administrators, personal representatives and heirs.
8.4 COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding among the parties hereto with regard to the subject matter hereof,
and supersedes any and all prior agreements and understandings relating to the
employment of the Employee by the Company, including, without limitation, the
employment agreement between the Employee and the Company, dated March 31, 1996,
which is hereby null and void.
8.5 AMENDMENTS. No change, modification or amendment of any provision of
this Agreement shall be valid unless made in writing and signed by all of the
parties hereto.
8.6 WAIVER. The waiver by the Company of a breach of any provision of this
Agreement by the Employee shall not operate or be construed as a waiver of any
subsequent breach by the Employee. The waiver by the Employee of a breach of any
provision of this Agreement by the Company shall not operate as a waiver of any
subsequent breach by the Company.
8.7 VENUE, JURISDICTION, ETC. The Employee hereby agrees that any suit,
action or proceeding relating in any way to this Agreement may be brought and
enforced in the Court of Common Pleas of Summit County of the State of Ohio or
in the District Court of the United States of America for the Northern District
of Ohio, and in either case the Employee hereby submits to the jurisdiction of
each such court. The Employee hereby waives and agrees not to assert, by way of
motion or otherwise, in any such suit, action or proceeding, any claim that the
Employee is not personally subject to the jurisdiction of the above-named
courts, that the suit, action or proceeding is brought in an inconvenient forum
or that the venue of the suit, action or proceeding is improper. The Employee
consents and agrees to service of process or other legal summons for purpose of
any
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<PAGE> 16
such suit, action or proceeding by registered mail addressed to the Employee at
his or her address listed in the business records of the Company. Nothing
contained herein shall affect the rights of the Company to bring suit, action or
proceeding in any other appropriate jurisdiction. The Employee and the Company
do each hereby waive any right to trial by jury, he or it may have concerning
any matter relating to this Agreement.
8.8 SEVERABILITY. If any portion of this Agreement shall be for any
reason, invalid or unenforceable, the remaining portion or portions shall
nevertheless be valid, enforceable and carried into effect.
8.9 HEADINGS. The headings of this Agreement are inserted for convenience
only and are not to be considered in the construction of the provisions hereof.
8.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which, taken together, shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by
its duly authorized officers and its corporate seal to be hereunto affixed, and
the Employee has hereunto set his hand on the day and year first above written.
COMPANY: EMPLOYEE:
- -------- ---------
SIA ADHESIVES, INC.
a Delaware Corporation
------------------------------
Gerard A. Loftus
By:
------------------------------
Chairman of the Board
TANNER CHEMICALS, INC., a
New Hampshire Corporation
By:
------------------------------
Chairman of the Board
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<PAGE> 17
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
BETWEEN
SIA ADHESIVES, INC.,
TANNER CHEMICALS, INC.
AND
GERARD A. LOFTUS
TERMINATION CERTIFICATE
This is to certify that, except as permitted by the Employment
Agreement (as defined below) I do not have in my possession, nor have I failed
to return, any software, inventions, designs, works of authorship, copyrightable
works, formulas, data, marketing plans, forecasts, product concepts, marketing
plans, strategies, forecasts, devices, records, data, notes, reports, proposals,
customer lists, correspondence, specifications, drawings, blueprints, sketches,
materials, patent applications, continuation applications, continuation-in-part
applications, divisional applications, other documents or property, or
reproductions of any aforementioned items belonging to SIA ADHESIVES, INC.
and\or TANNER CHEMICALS, INC., (individually and jointly, the "COMPANY"), their
Subsidiaries and their Affiliates, successors or assigns.
I further certify that I have complied with all the terms of the
Employment Agreement dated December 30, 1999 between the Company and me (the
"EMPLOYMENT AGREEMENT"), relating to the reporting of any Work Product (as that
term is defined therein), conceived or made by me (solely or jointly with
others) covered by the Employment Agreement.
I acknowledge that the provisions of the Employment Agreement relating
to Confidential Information, as defined in the Employment Agreement, continue in
effect beyond the termination of the Employment Agreement, as set forth therein.
Finally, I further acknowledge that the provisions of the Employment
Agreement relating to my (i) anti-pirating, (ii) noninterference and (iii)
non-competition covenants to the Company, its Subsidiaries and their Affiliates,
remain in effect following the date of my termination of employment with the
Company.
Date:____________ ______________________________
Employee
<PAGE> 18
EXHIBIT B
TO
EMPLOYMENT AGREEMENT
BETWEEN
SIA ADHESIVES, INC.,
TANNER CHEMICALS, INC.
AND
GERARD A. LOFTUS
GENERAL RELEASE
I, Gerard A. Loftus, in consideration of and subject to the performance
by SIA ADHESIVES, INC., a Delaware corporation and TANNER CHEMICALS, INC., a New
Hampshire corporation, of their material obligations under the Employment
Agreement, dated as of the date as of December 30, 1999 (the "AGREEMENT"), do
hereby release and forever discharge as of the date hereof the "Company," its
"Subsidiaries" and their "Affiliates" (as those terms are defined in the
Agreement, subject to the provisions of Section 1.1 of the Agreement) and all
present and former directors, officers, agents, representatives, employees,
successors and assigns of the Company, its Subsidiaries and their Affiliates and
their direct or indirect owners (collectively, the "RELEASED PARTIES") to the
extent provided below.
1. I understand that any payments or benefits paid or granted to me under
Section 5.2(c) of the Agreement represent, in part, consideration for
signing this General Release and are not salary, wages or benefits to
which I was already entitled. I understand and agree that I will not
receive the payments and benefits specified in Section 5.2(c) of the
Agreement unless I execute this General Release and do not revoke this
General Release within the time period permitted hereafter or breach
this General Release.
2. Except as provided in paragraph 4 of this General Release, I knowingly
and voluntarily release and forever discharge the Company and the other
Released Parties from any and all claims, controversies, actions,
causes of action, cross-claims, counterclaims, demands, debts,
compensatory damages, liquidated damages, punitive or exemplary
damages, other damages, claims for costs and attorneys' fees, or
liabilities of any nature whatsoever in law and in equity, both past
and present (through the date of this General Release) and whether
known or unknown, suspected, or claimed against the Company or any of
the Released Parties which I, my spouse, or any of my heirs, executors,
administrators or assigns, may have, which arise out of or are
connected with my employment with, or my separation from, the Company
(including, but not limited to, any allegation, claim or violation,
arising under: Title VII of the Civil Rights Act of 1964, as amended;
the Civil Rights Act of 1991; the Age Discrimination in Employment Act
of 1967, as amended (including the Older Workers Benefit Protection
Act); the Equal Pay Act of 1963, as amended; the Americans with
Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the
Civil Rights Act of 1866, as amended; the Worker Adjustment
<PAGE> 19
Retraining and Notification Act; the Employee Retirement Income
Security Act of 1974; any applicable Employee Order Programs; the Fair
Labor Standards Act; or their state or local counterparts; or under any
other federal, state or local civil or human rights law, or under any
other local, state, or federal law, regulation or ordinance; or under
any public policy, contract or tort, or under common law; or arising
under any policies, practices or procedures of the Company; or any
claim for wrongful discharge, breach of contract, negligent or
intentional infliction of emotional distress, defamation; or any claim
for costs, fees, or other expenses, including attorneys' fees incurred
in these matters) (all of the foregoing collectively referred to herein
as the "CLAIMS").
3. I represent that I have made no assignment or transfer of any right,
claim, demand, cause of action, or other matter covered by paragraph 2
of this General Release.
4. I and the Company mutually agree that this General Release does not
waive or release any rights or claims that I may have under (a) the Age
Discrimination in Employment Act of 1967 and (b) any agreements to
which I and Sovereign Specialty Chemicals, Inc., a Delaware corporation
(the "PARENT") are parties pertaining to any shares of capital stock of
the Parent owned by me, which arise after the date I execute this
General Release. I acknowledge and agree that my separation from
employment with the Company in compliance with the terms of the
Agreement shall not serve as the basis for any claim or action
(including, without limitation, any claim under the Age Discrimination
in Employment Act of 1967).
5. In signing this General Release, I acknowledge and intend that it shall
be effective as a bar to each and every one of the Claims hereinabove
mentioned or implied. I expressly consent that this General Release
shall be given full force and effect according to each and all of its
express terms and provisions, including those relating to unknown and
unsuspected Claims (notwithstanding any state statute that expressly
limits the effectiveness of a general release of unknown, unsuspected
and unanticipated Claims), if any, as well as those relating to any
other Claims hereinabove mentioned or implied. I acknowledge and agree
that this waiver is an essential and material term of this General
Release and that without such waiver the Company would not have agreed
to the terms of the Agreement. I further agree that in the event I
should bring a Claim seeking damages against the Company, or in the
event I should seek to recover against the Company in any Claim brought
by a governmental agency on my behalf, this General Release shall serve
as a complete defense to such Claims. I further agree that I am not
aware of any pending charge or complaint of the type described in
paragraph 2 as of the execution of this General Release.
6. I agree that neither this General Release, nor the furnishing of the
consideration for this General Release, shall be deemed or construed at
any time to be an admission by the Company, any Released Party or
myself of any improper or unlawful conduct.
7. I agree that I will forfeit all amounts payable by the Company pursuant
to the Agreement if I challenge the validity of this General Release,
provided that nothing herein contained
-2-
<PAGE> 20
in this Agreement shall prohibit or bar me from filing a charge,
including a challenge to the validity of the Agreement, with the United
States Equal Employment Opportunity Commission ("EEOC"), or any state
or local fair employment practices agency, or from participating in any
investigation, hearing or proceeding conducted by the EEOC, or any
state or local fair employment practices agency. I also agree that if I
violate this General Release by suing the Company or the other Released
Parties, I will pay all costs and expenses of defending against the
suit incurred by the Released Parties, including reasonable attorneys'
fees, and return all payments received by me pursuant to the Agreement.
8. I agree that this General Release is confidential and agree not to
disclose any information regarding the terms of this General Release,
except to my immediate family and any tax, legal or other counsel I
have consulted regarding the meaning or effect hereof or as required by
law, and I will instruct each of the foregoing not to disclose the same
to anyone.
9. Any non-disclosure provision in this General Release does not prohibit
or restrict me (or my attorney) from responding to any inquiry about
this General Release or its underlying facts and circumstances by the
Securities and Exchange Commission (SEC), the EEOC (or a state or local
fair employment practices agency), the National Association of
Securities Dealers, Inc. (NASD), any other self-regulatory organization
or governmental entity.
10. I agree to reasonably cooperate with the Company in any internal
investigation or administrative, regulatory, or judicial proceeding. I
understand and agree that my cooperation may include, but not be
limited to, making myself available to the Company upon reasonable
notice for interviews and factual investigations; appearing at the
Company's request to give testimony without requiring service of a
subpoena or other legal process; volunteering to the Company pertinent
information; and turning over to the Company all relevant documents
which are or may come into my possession all at times and on schedules
that are reasonably consistent with my other permitted activities and
commitments. I understand that in the event the Company asks for my
cooperation in accordance with this provision, the Company will
reimburse me solely for reasonable travel expenses, including lodging
and meals, upon my submission of receipts.
11. Notwithstanding anything in this General Release to the contrary, this
General Release shall not relinquish, diminish, or in any way affect
any rights or claims arising out of any breach by the Company or by any
Released Party of the Agreement.
12. Whenever possible, each provision of this General Release shall be
interpreted in, such manner as to be effective and valid under
applicable law, but if any provision of this General Release 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 General Release
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<PAGE> 21
shall be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision had never been
contained herein.
BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:
(a) I HAVE READ IT CAREFULLY;
(b) I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT
RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE
CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE
AMERICANS WITH DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED;
(c) I VOLUNTARILY CONSENT TO EVERYTHING IN IT;
(d) I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND
I HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I HAVE
CHOSEN NOT TO DO SO OF MY OWN VOLITION;
(e) I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE
SUBSTANTIALLY IN ITS FINAL FORM ON _______________ ____, ____ TO
CONSIDER IT AND THE CHANGES MADE SINCE THE ______________ _____,
_____VERSION OF THIS RELEASE ARE NOT MATERIAL AND WILL NOT RESTART THE
REQUIRED 21-DAY PERIOD;
(f) THE CHANGES TO THE AGREEMENT SINCE ____________ ___, _____ EITHER ARE
NOT MATERIAL OR WERE MADE AT MY REQUEST.
(g) I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE
TO REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR
ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED;
(h) I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH
THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND
(i) I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED,
WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED
BY AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.
-4-
<PAGE> 22
DATE: ,
-5-
<PAGE> 23
EXHIBIT C
TO
EMPLOYMENT AGREEMENT
BETWEEN
SIA ADHESIVES, INC.,
TANNER CHEMICALS, INC.
AND
GERARD A. LOFTUS
STOCK OPTION AGREEMENT
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("AGREEMENT") is made and entered into as of the 30th
day of December, 1999, by and between OSI SEALANTS, INC., an Illinois
corporation (the "COMPANY"), and PETER LONGO (the "EMPLOYEE"). The Company and
the Employee are sometimes hereinafter collectively referred to as the "PARTIES"
and individually as a "PARTY." Certain capitalized terms used in this Agreement
are defined in Article VII hereof.
RECITALS
A. The Company is and will be engaged in the manufacture of adhesives,
sealants and coatings, and is a wholly-owned subsidiary of Sovereign Specialty
Chemicals, Inc., a Delaware corporation (the "PARENT"). The Company wishes to
employ the Employee, and the Employee wishes to be employed by the Company, as
the Company's President. As a condition of that employment, the Company requires
that an employment agreement be entered into pursuant to which the Employee
furnishes the Company with, among other things, certain covenants of the
Employee, including his covenant not to compete with the businesses of the
Company, its Subsidiaries and their Affiliates.
B. In order to induce the Employee to enter into this Agreement, and to
incentivize and reward his effort, loyalty and commitment to the Company,
concurrent with the execution and delivery of this Agreement the Company has
caused the Parent to grant to the Employee a certain stock option (the "OPTION")
to purchase shares of Common Stock of the Parent ("SHARES") under and pursuant
to the terms of the "Sovereign Specialty Chemicals, Inc. Stock Option Plan" (the
"PLAN") and a Stock Option Agreement in the form of Exhibit C attached hereto
and by this reference made a part hereof (the "STOCK OPTION AGREEMENT").
C. The Employee acknowledges that as a member of the Company's
management, he is one of the persons charged with primary responsibility for the
implementation of the Company's business plans, and that he will have regular
access to various confidential and/or proprietary information relating to the
Company, its Subsidiaries, their Affiliates and their businesses. Further, the
Employee acknowledges that his covenants to the Company hereinafter set forth,
specifically including but not limited to the Employee's covenant not to engage
in competition with the Company, its Subsidiaries, their Affiliates and their
businesses, are being made in partial consideration of the Parent's grant of the
Option to the Employee.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, and the
mutual agreements herein contained and other good and valuable consideration,
the receipt and sufficiency of which are hereby mutually acknowledged, the
parties hereby agree as follows:
<PAGE> 2
ARTICLE I
EMPLOYMENT RELATIONSHIP
1.1 EMPLOYMENT. Subject to the terms and conditions of this Agreement,
the Company hereby agrees to employ the Employee to serve as the Company's
President, and the Employee hereby accepts such employment, and agrees to
perform his duties and responsibilities to the best of his abilities in a
diligent, trustworthy, businesslike and efficient manner.
1.2 DUTIES. The Employee shall have the normal and customary duties,
responsibilities and authority of a President and shall perform such other
duties on behalf of the Company, its Subsidiaries and their Affiliates as may be
assigned to him by the Chairman of the Board and the Board. The Employee shall
report to the Chairman of the Board in connection with the Employee's
performance of his duties.
1.3 EXCLUSIVE EMPLOYMENT. While he is employed by the Company
hereunder, the Employee covenants to the Company that he will devote his entire
business time, energy, attention and skill to the Company, its Subsidiaries and
their Affiliates (except for permitted vacation periods and reasonable periods
of illness or other incapacity), and use his good faith best efforts to promote
the interests of the Company, its Subsidiaries and their Affiliates. The
foregoing shall not be construed as prohibiting the Employee from spending such
time as may be reasonably necessary to attend to his personal affairs and
investments so long as such activities do not conflict or interfere with the
Employee's obligations and\or timely performance of his duties to the Company,
its Subsidiaries and their Affiliates hereunder.
1.4 EMPLOYEE REPRESENTATIONS. The Employee hereby represents and
warrants to the Company that:
(a) the execution, delivery and performance by the Employee of
this Agreement and any other agreements contemplated hereby to which
the Employee 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 the Employee is a party or by which
he is bound;
(b) the Employee is not a party to or bound by any employment
agreement, non-competition agreement or confidentiality agreement with
any other person or entity (or if a party to such an agreement, the
Employee 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
(c) upon the execution and delivery of this Agreement by the
Company, this Agreement shall be the valid and binding obligation of
the Employee, enforceable in accordance with its terms.
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<PAGE> 3
The Employee hereby acknowledges and represents that 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.
ARTICLE II
PERIOD OF EMPLOYMENT
2.1 EMPLOYMENT PERIOD. The Employee has been employed by the Company or
its predecessor for a number of years, and such employment shall continue
hereunder until the date fixed by the provisions of Section 2.2 hereof, subject
to the early termination provisions of Article V hereof (the "EMPLOYMENT
PERIOD"), it being acknowledged that the Company's fiscal year ends on December
31, and that the Employment Period shall therefore be denominated in calendar
years.
2.2 INITIAL TERM OF EMPLOYMENT PERIOD AND EXTENSION TERMS. The
Employment Period shall initially continue for a term commencing on the date
hereof and ending on December 31, 2002 (the "INITIAL TERM"). The Employment
Period shall be automatically extended for successive calendar years of the
Company following the expiration of the Initial Term (each such one year period
being hereinafter referred to as an "EXTENSION TERM") upon the same terms and
conditions provided for herein unless either party provides the other party with
advance written notice of its or his intention not to extend the Employment
Period; provided, however, that such notice must be delivered by the
non-extending party to the other party not later than ninety (90) days prior to
the expiration of the Initial Term or any Extension Term, as the case may be.
ARTICLE III
COMPENSATION
3.1 ANNUAL BASE COMPENSATION. During the Employment Period the Company
shall pay to the Employee an annual base salary (the "ANNUAL BASE COMPENSATION")
in the amount of $196,000.00. The Annual Base Compensation shall be paid in
regular installments in accordance with the Company's general payroll practices,
and shall be subject to all required federal, state and local withholding taxes.
The Employee's Annual Base Compensation shall be reviewed by the Board annually,
and may, in the discretion of the Board be increased, provided that there shall
be no obligation on the part of the Company to increase the Employee's Annual
Base Compensation, further provided that in no event shall the Employee's Annual
Base Compensation be less than the greater of (i) the amount indicated in the
first sentence of this Section 3.1 or (ii) the highest amount such Annual Base
Compensation may have been increased to by the Board subsequent to the date of
this Agreement in its discretion.
3.2 POTENTIAL ANNUAL TARGET BONUSES. In respect of each calendar year
falling within the Employment Period, the Employee shall be eligible to earn an
annual bonus, depending upon the results of operation of the Company, the
Parent, its Subsidiaries and their Affiliates and the personal performance of
the Employee, of up to forty percent (40%) of the Employee's Annual Base
Compensation for that calendar year (the "POTENTIAL ANNUAL TARGET BONUS") in
accordance with the terms of a bonus plan which shall be adopted and maintained
in effect by the Board for that calendar year. The amount of the Potential
Annual Target Bonus, if any, which is earned by the
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<PAGE> 4
Employee (the "BONUSABLE AMOUNT") shall be paid by the Company to the Employee
no later than seventy-five (75) days following the close of the Company's
calendar year, provided that unless expressly provided otherwise herein, it
shall be a condition precedent to the Employee's right to receive any Bonusable
Amount that the Employee be employed by the Company on the last day of that
calendar year.
3.3 DISCRETIONARY BONUSES. In respect of each calendar year falling
within the Employment Period, the Company may pay a discretionary annual bonus
to the Employee (a "DISCRETIONARY BONUS") to be determined by the Board, in its
sole discretion. Any Discretionary Bonus shall be paid by the Company to the
Employee within seventy-five (75) days following the close of the Company's
calendar year, provided that unless expressly provided otherwise herein, it
shall be a condition precedent to the Employee's right to receive any
Discretionary Bonus that the Employee be employed by the Company on the last day
of that calendar year.
3.4 EXPENSES. During the Employment Period, the Employee shall be
entitled to reimbursement of all travel, entertainment and other business
expenses reasonably incurred in the performance of his duties for the Company,
upon submission of all receipts and accounts with respect thereto, and approval
by the Company thereof, in accordance with the business expense reimbursement
policies of the Company from time to time adopted by the Board. In addition,
during the Employment Period, the Employee shall be paid a $6,600.00 per year
allowance for the use of an automobile, provided that the foregoing allowance
shall not be considered part of the Employee's Annual Base Compensation, and
further provided that the said allowance shall be paid in regular installments
of $275.00 in accordance with the Company's general payroll practices, and shall
be subject to all required federal, state and local withholding taxes.
3.5 VACATION. In respect of each calendar year falling within the
Employment Period, the Employee shall be entitled to such vacation time as the
Company customarily provides to its senior executives (but in no event less than
four (4) weeks per calendar year), provided that unused vacation may be used by
the Employee in the following calendar year only in accordance with and as
permitted by the Company's then current vacation policies in effect from time to
time.
3.6 OTHER FRINGE BENEFITS. During the Employment Period, the Employee
shall be entitled to receive such of the Company's other fringe benefits as are
being provided to other employees of the Company holding senior executive
positions, including but not limited to health insurance benefits, disability
benefits and retirement benefits.
3.7 GRANT OF STOCK OPTION. Concurrently with the parties' execution and
delivery of this Agreement the Company has caused the Parent to grant to the
Employee the Option to purchase an aggregate of 9,200 Shares pursuant to the
terms of the Stock Option Agreement as part consideration for the Employee's
execution and delivery of this Agreement to the Company.
-4-
<PAGE> 5
ARTICLE IV
COVENANTS OF THE EMPLOYEE
4.1 PROPRIETARY RIGHTS. The Employee hereby expressly agrees that all
research, discoveries, inventions and innovations (whether or not reduced to
practice or documented), improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether patentable or
unpatentable, and whether or not reduced to writing), trade secrets (being
information about the business of the Company, its Subsidiaries and their
Affiliates which is considered by the Company or any such Subsidiary or
Affiliate to be confidential and is proprietary to the Company or any such
Subsidiary or Affiliate) and confidential information, copyrightable works, and
similar and related information (in whatever form or medium), which (x) either
(i) relate to the Company's, its Subsidiaries' or their Affiliates' actual or
anticipated business, research and development or existing or future products or
services or (ii) result from any work performed by the Employee for the Company,
its Subsidiaries or any of their Affiliates and (y) are conceived, developed,
made or contributed to in whole or in part by the Employee during the Employment
Period ("WORK Product") shall be and remain the sole and exclusive property of
the Company, such Subsidiary or such Affiliate. The Employee shall communicate
promptly and fully all Work Product to the Board.
(a) WORK MADE FOR HIRE. The Employee acknowledges that, unless
otherwise agreed in writing by the Company, all Work Product eligible
for any form of copyright protection made or contributed to in whole or
in part by the Employee within the scope of the Employee's employment
by the Company during the Employment Period shall be deemed a "work
made for hire" under the copyright laws and shall be owned by the
Company, its Subsidiaries or their Affiliates, as applicable.
(b) ASSIGNMENT OF PROPRIETARY RIGHTS. The Employee hereby
assigns, transfers and conveys to the Company, and shall assign,
transfer and convey to the Company, all right, title and interest in
and to all inventions, ideas, improvements, designs, processes,
trademarks, service marks, trade names, trade secrets, trade dress,
data, discoveries and other proprietary assets and proprietary rights
in and of the Work Product (the "PROPRIETARY RIGHTS") for the Company's
exclusive ownership and use, together with all rights to sue and
recover for past and future infringement or misappropriation thereof,
provided that if a Subsidiary or Affiliate of the Company is the owner
thereof, such assignment, transfer and conveyance shall be made to such
Subsidiary or Affiliate, which shall enjoy exclusive ownership and use,
together with all rights to sue and recover for past and future
infringement or misappropriation thereof.
(c) FURTHER INSTRUMENTS. At the request of the Company (its
Subsidiaries or their Affiliates, as the case may be), at all times
during the Employment Period and thereafter, the Employee will promptly
and fully assist the Company (its Subsidiaries or their Affiliates, as
the case may be) in effecting the purpose of the foregoing assignment,
including but not limited to the further acts of executing any and all
documents necessary to secure for the Company (its Subsidiaries or
their Affiliates, as the case may be) such
-5-
<PAGE> 6
Proprietary Rights and other rights to all Work Product and all
confidential information related thereto, providing cooperation and
giving testimony.
(d) INAPPLICABILITY OF SECTION 4.1 IN CERTAIN CIRCUMSTANCES.
The Company expressly acknowledges and agrees that, and the Employee is
hereby advised that, this Section 4.1 does not apply to any invention
for which no equipment, supplies, facilities or trade secret
information of the Company, its Subsidiaries or any of their Affiliates
was used and which was developed entirely on the Employee's own time,
unless (i) the invention relates to the business of the Company, its
Subsidiaries or any of their Affiliates or to the Company's, its
Subsidiaries' or any of their Affiliates' actual or demonstrably
anticipated research or development or (ii) the invention results from
any work performed by the Employee for the Company, its Subsidiaries or
any of their Affiliates.
4.2 OWNERSHIP AND COVENANT TO RETURN DOCUMENTS, ETC. The Employee
agrees that all Work Product and all documents or other tangible materials
(whether originals, copies or abstracts), including without limitation, price
lists, quotation guides, outstanding quotations, books, records, manuals, files,
sales literature, training materials, customer records, correspondence, computer
disks or print-out documents, contracts, orders, messages, phone and address
lists, invoices and receipts, and all objects associated therewith, which in any
way relate to the business or affairs of the Company, its Subsidiaries and their
Affiliates either furnished to the Employee by the Company, its Subsidiaries or
any of their Affiliates or are prepared, compiled or otherwise acquired by the
Employee during the Employment Period, shall be the sole and exclusive property
of the Company, such Subsidiaries or such Affiliates. The Employee shall not,
except for the use of the Company, its Subsidiaries or any of their Affiliates,
use, copy or duplicate any of the aforementioned documents or objects, nor
remove them from the facilities of the Company or such Subsidiaries or such
Affiliates, nor use any information concerning them except for the benefit of
the Company, its Subsidiaries and their Affiliates, either during the Employment
Period or thereafter. The Employee agrees that he will deliver all of the
aforementioned documents and objects that may be in his possession to the
Company on the termination of his employment with the Company, or at any other
time upon the Company's request, together with his written certification of
compliance with the provisions of this Section 4.2 in the form of Exhibit A to
this Agreement in accordance with the provisions of Section 5.3 hereof.
4.3 NON-DISCLOSURE COVENANT. During the Employment Period and at all
times thereafter, the Employee shall not, either directly or indirectly,
disclose to any "unauthorized person" or use for the benefit of the Employee or
any person or entity other than the Company, its Subsidiaries or their
Affiliates any Work Product or any knowledge or information which the Employee
may acquire while employed by the Company (whether before or after the date of
this Agreement) relating to (i) the financial, marketing, sales and business
plans and affairs, financial statements, analyses, forecasts and projections,
books, accounts, records, operating costs and expenses and other financial
information of the Company, its Subsidiaries and their Affiliates, (ii) internal
management tools and systems, costing policies and methods, pricing policies and
methods and other methods of doing business, of the Company, its Subsidiaries
and their Affiliates, (iii) customers, sales, customer requirements and usages,
distributor lists, of the Company, its Subsidiaries and their Affiliates, (iv)
agreements with customers, vendors, independent contractors,
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<PAGE> 7
employees and others, of the Company, its Subsidiaries and their Affiliates, (v)
existing and future products or services and product development plans, designs,
analyses and reports, of the Company, its Subsidiaries and their Affiliates,
(vi) computer software and data bases developed for the Company, its
Subsidiaries or their Affiliates, trade secrets, research, records of research,
models, designs, drawings, technical data and reports of the Company, its
Subsidiaries and their Affiliates and (vii) correspondence or other private or
confidential matters, information or data whether written, oral or electronic,
which is proprietary to the Company, its Subsidiaries and their Affiliates and
not generally known to the public (individually and collectively "CONFIDENTIAL
INFORMATION"), without the Company's prior written permission. For purposes of
this Section 4.3, the term "UNAUTHORIZED PERSON" shall mean any person who is
not (i) an officer or director of the Company, or (ii) an employee, officer or
director of a Subsidiary or Affiliate of the Company for whom the disclosure of
the knowledge or information referred to herein is necessary for his performance
of his assigned duties, or (iii) a person expressly authorized by the Company to
receive disclosure of such knowledge or information. The Company expressly
acknowledges and agrees that the term "Confidential Information" excludes
information which is (A) in the public domain or otherwise generally known to
the trade, or (B) disclosed to third parties other than by reason of the
Employee's breach of his confidentiality obligation hereunder or (C) learned of
by the Employee subsequent to the termination of his employment hereunder from
any other party not then under an obligation of confidentiality to the Company,
its Subsidiaries and their Affiliates. Further, the Employee covenants to the
Company that in the Employee's performance of his duties hereunder, the Employee
will violate no confidentiality obligations he may have to any third persons.
4.4 ANTI-PIRATING AND NON-INTERFERENCE COVENANTS. The Employee
covenants to the Company that while the Employee is employed by the Company
hereunder and for the two (2) year period thereafter (the "NON-SOLICITATION
PERIOD"), he will not, for any reason, directly or indirectly: (a) solicit,
hire, or otherwise do any act or thing which may induce any other employee of
the Company, its Subsidiaries or their Affiliates to leave the employ or
otherwise interfere with or adversely affect the relationship (contractual or
otherwise) of the Company, its Subsidiaries and their Affiliates with any person
who is then or thereafter becomes an employee of the Company, its Subsidiaries
and their Affiliates; or (b) do any act or thing which may interfere with or
adversely affect the relationship (contractual or otherwise) of the Company, its
Subsidiaries and their Affiliates with any customer or vendor of the Company,
its Subsidiaries and their Affiliates or induce any such customer or vendor to
cease doing business with the Company, its Subsidiaries and their Affiliates.
4.5 COVENANT NOT TO COMPETE. The Employee expressly acknowledges that
(i) the Company is and will be engaged in the manufacture of adhesives, sealants
and coatings; (ii) the Employee is one of a limited number of persons who has
extensive knowledge and expertise relevant to the businesses of the Company, its
Subsidiaries and their Affiliates; (iii) the Employee's performance of his
services for the Company hereunder will afford him full and complete access to
and cause him to become highly knowledgeable about the Company's, its
Subsidiaries' and their Affiliates' Confidential Information; (iv) the
agreements and covenants contained in this Section 4.5 are essential to protect
the business and goodwill of the Company, its Subsidiaries and their Affiliates
because, if the Employee enters into any activities competitive with the
businesses of the
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<PAGE> 8
Company, its Subsidiaries and their Affiliates, he will cause substantial harm
to the Company or its Subsidiaries and Affiliates; and (v) his covenants to the
Company, its Subsidiaries and their Affiliates set forth in this Section 4.5 are
being made in partial consideration of the Company having caused the Parent to
grant the Option to him. Accordingly, the Employee hereby agrees that while he
is employed by the Company hereunder and for the one (1) year period thereafter
(the "NON-COMPETITION PERIOD"), he shall not directly or indirectly own any
interest in, invest in, lend to, borrow from, manage, control, participate in,
consult with, become employed by, render services to, or in any other manner
whatsoever engage in, any business which is competitive with any business
actively being engaged in by the Company, its Subsidiaries and their Affiliates
or actively (and demonstrably) being considered by the Company, its Subsidiaries
and their Affiliates for entry into on the date of the termination of the
Employment Period, within any states or geographical regions in which any such
business is being conducted or in which the Company, its Subsidiaries and their
Affiliates is or are actively (and demonstrably) considering engaging in on the
date of the termination of the Employment Period. The preceding to the contrary
notwithstanding, the Employee shall be free to make investments in the publicly
traded securities of any corporation, provided that such investments do not
amount to more than 1% of the outstanding securities of any class of such
corporation.
4.6 REMEDIES FOR BREACH. If the Employee commits a breach, or threatens
to commit a breach, of any of the provisions of this Article IV, the Company and
its Subsidiaries shall have the right and remedy, in addition to any other
remedy that may be available at law or in equity, to have the provisions of this
Article IV specifically enforced by any court having equity jurisdiction,
together with an accounting therefor, it being expressly acknowledged and agreed
by the Employee that any such breach or threatened breach will cause irreparable
injury to the Company and its Subsidiaries and that money damages will not
provide an adequate remedy to the Company and its Subsidiaries. Such injunction
shall be available without the posting of any bond or other security, and the
Employee hereby consents to the issuance of such injunction. The Employee
further agrees that any such injunctive relief obtained by the Company or its
Subsidiaries shall be in addition to, and not in lieu of, monetary damages and
any other remedies to which the Company or its Subsidiaries may be entitled.
Further, in the event of an alleged breach or violation by the Employee of any
of the provisions of Sections 4.4 or 4.5 hereof, the Non-Solicitation Period
and\or the Non-Competition Period, as the case may be, shall be tolled until
such breach or violation has been cured. The parties agree that in the event of
the institution of any action at law or in equity by either party to enforce the
provisions of this Article IV, the losing party shall pay all of the costs and
expenses of the prevailing party, including reasonable legal fees, incurred in
connection therewith. If any covenant contained in this Article IV or any part
thereof is hereafter construed to be invalid or unenforceable, the same shall
not affect the remainder of such covenant or any other covenants, which shall be
given full effect, without regard to the invalid portions, and any court having
jurisdiction shall have the power to modify such covenant to the least extent
necessary to render it enforceable and, in its modified form, said covenant
shall then be enforceable.
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<PAGE> 9
ARTICLE V
TERMINATION OF EMPLOYMENT
5.1 TERMINATION AND TRIGGERING EVENTS. Notwithstanding anything to the
contrary elsewhere contained in this Agreement, the Employment Period shall
terminate at the expiration of the Initial Term or any Extension Term, or prior
to the expiration of the Initial Term or any Extension Term upon the occurrence
of any of the following events (hereinafter referred to as "TRIGGERING EVENTS"):
(a) the Employee's death; (b) the Employee's Total Disability; (c) the
Employee's Resignation; (d) the Employee's Resignation with Good Grounds; (e) a
Termination by the Company for Cause; or (f) a Termination by the Company
Without Cause.
5.2 RIGHTS UPON OCCURRENCE OF A TRIGGERING EVENT. Subject to the
provisions of Section 5.3 hereof, the rights of the parties upon the occurrence
of a Triggering Event prior to the expiration of the Initial Term or any
Extension Term shall be as follows:
(a) RESIGNATION AND TERMINATION BY THE COMPANY FOR CAUSE: If
the Triggering Event was the Employee's Resignation or a Termination by
the Company for Cause, the Employee shall be entitled to receive his
Annual Base Compensation and accrued but unpaid vacation through the
date thereof 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 that date and thereafter, only to
the extent permitted under the terms of such plans and programs.
(b) DEATH OR TOTAL DISABILITY: If the Triggering Event was the
Employee's death or Total Disability, the Employee (or the Employee's
designated beneficiary) shall be entitled to receive the Employee's
Annual Base Compensation and accrued but unpaid vacation through the
date thereof plus a pro rata portion of the Employee's Potential Annual
Target Bonus for the calendar year in which such death or Total
Disability occurred (based on the number of days the Employee was
employed during the applicable calendar year), 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.
(c) TERMINATION BY COMPANY WITHOUT CAUSE OR RESIGNATION BY
EMPLOYEE WITH GOOD GROUNDS: If the Triggering Event was a Termination
by the Company Without Cause or a Resignation by the Employee With Good
Grounds, the Employee shall be entitled to receive his Annual Base
Compensation and accrued but unpaid vacation through the date thereof
plus, in the case of either (i) Resignation by the Employee with Good
Grounds or (ii) a Termination By the Company Without Cause in the
discretion of the Chairman of the Board of the Company, a pro rata
portion of the Employee's Potential Annual Target Bonus for the
calendar year in which such Triggering Event occurred (based on the
number of days the Employee was employed during the applicable calendar
year), payable in accordance with the Company's normal payroll
practices, provided that in addition, the Employee shall also be paid
an amount equal to his then
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<PAGE> 10
current Annual Base Compensation 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
("ADDITIONAL SEVERANCE BENEFITS") during the one (1) year period
immediately following the date of the termination of the Employment
Period (the "SEVERANCE PERIOD"); provided that the Employee shall be
entitled to receive such Additional Severance Benefits during the
Severance Period if and only if the Employee has executed and delivered
to the Company the General Release substantially in form and substance
as set forth in Exhibit B to this Agreement and only so long as the
Employee has not breached any of his covenants to the Company set forth
in Article IV of this Agreement.
(d) CESSATION OF ENTITLEMENTS AND COMPANY RIGHT OF OFFSET.
Except as otherwise expressly provided herein, all of the Employee's
rights to salary, employee benefits, fringe benefits and bonuses
hereunder (if any) which would otherwise accrue after the termination
of the Employment Period shall cease upon the date of such termination.
The Company may offset any loans, cash advances or fixed amounts which
the Employee owes the Company or its Affiliate against any amounts it
owes the Employee under this Agreement.
5.3 SURVIVAL OF CERTAIN OBLIGATIONS AND TERMINATION CERTIFICATE. The
provisions of Articles IV, VI and VIII shall survive any termination of the
Employment Period, whether by reason of the occurrence of a Triggering Event or
the expiration of the Initial Term or any Extension Term. Immediately following
the termination of the Employment Period, the Employee shall promptly return to
the Company all property required to be returned to the Company pursuant to the
provisions of Section 4.2 hereof and execute and deliver to the Company the
Termination Certificate attached hereto as Exhibit A and by this reference made
a part hereof.
ARTICLE VI
ASSIGNMENT
6.1 PROHIBITION OF ASSIGNMENT BY EMPLOYEE. The Employee expressly
agrees for himself and on behalf of his executors, administrators and heirs,
that this Agreement and his obligations, rights, interests and benefits
hereunder shall not be assigned, transferred, pledged or hypothecated in any way
by the Employee, his executors, administrators or heirs, and shall not be
subject to execution, attachment or similar process. Any attempt to assign,
transfer, pledge, hypothecate or otherwise dispose of this Agreement or any such
rights, interests and benefits thereunder contrary to the foregoing provisions,
or the levy of any attachment or similar process thereupon shall be null and
void and without effect and shall relieve the Company of any and all liability
hereunder.
6.2 RIGHT OF COMPANY TO ASSIGN. This Agreement shall be assignable and
transferable by the Company to any successor-in-interest without the consent of
the Employee.
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<PAGE> 11
ARTICLE VII
DEFINITIONS
"AFFILIATE" means the Parent and each of its Subsidiaries.
"BOARD" means the Board of Directors of the Company.
"PARENT" means Sovereign Specialty Chemicals, Inc., a Delaware
corporation.
"RESIGNATION" means the voluntary termination of employment hereunder
by the Employee which is not a Resignation with Good Grounds (except if made in
contemplation of a Termination by the Company for Cause), provided that if such
action is taken by the Employee without the giving of at least ninety (90) days
prior written notice, such termination of employment shall not be a
"Resignation," but instead shall constitute a Termination for Cause.
"RESIGNATION WITH GOOD GROUNDS" means a voluntary termination of the
Employee's employment hereunder on account of, and within sixty (60) days after,
the occurrence of one or more of the following events:
(i) the assignment to the Employee of any duties inconsistent
in any material respect with the Employee's position (including status,
offices and titles), authority, duties or responsibilities as
contemplated by Section 1.2 hereof which results in a diminution of the
Employee's position, excluding for this purpose an isolated,
insubstantial or inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of written notice
thereof given by the Employee;
(ii) the Employee's Annual Base Compensation and\or Potential
Annual Target Bonus is\are decreased below the amount of his then
Annual Base Compensation and\or Potential Annual Target Bonus fixed by
the applicable provisions of Sections 3.1 and 3.2 hereof (provided that
so long as the aggregate sum of the Employee's Annual Base Compensation
and Potential Annual Target Bonus in respect of any calendar year
during the Employment Term are not decreased, the Company shall be free
to decrease the Potential Annual Target Bonus for that year and
commensurately increase the Annual Base Compensation for that year
without any affect on the subsequent calendar year Annual Base
Compensation and Potential Annual Target Bonus, it being expressly
acknowledged by the Employee that the operating result achievement
criteria for the payment of any of the Potential Annual Target Bonus by
the Company, its Subsidiaries and their Affiliates shall be determined
by the Board, in its absolute discretion) or the Employee's benefits
under any material employee benefit plan, program or arrangement of the
Company (other than a change that affects all Employees of the Company)
are materially reduced from the level in effect upon the Employee's
commencement of participation therein; or
(iii) the failure of the Company to comply with any of the
provisions of this Agreement, other than an isolated, insubstantial or
inadvertent action not taken in bad faith
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<PAGE> 12
and which is remedied by the Company promptly after receipt of written
notice thereof given by the Employee.
"SUBSIDIARY" 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.
"TERMINATION BY THE COMPANY FOR CAUSE" means termination by the Company
of the Employee's employment for:
(i) misappropriation of any significant monies or significant
assets or properties of the Company;
(ii) conviction of a felony or a crime involving moral
turpitude;
(iii) substantial and repeated failure to comply with
directions of the Chairman of the Board;
(iv) gross negligence or willful misconduct;
(v) chronic alcoholism or drug addiction together with the
Employee's refusal to cooperate with or participate in counseling
and/or treatment of same; or
(vi) any willful action or inaction of the Employee which, in
the reasonable opinion of the Board, constitutes dereliction (willful
neglect or willful abandonment of assigned duties), or a material
breach of Company policy or rules which, if susceptible to cure, is not
cured by the Employee within five (5) days following the Employee's
receipt of written notice from the Company advising the Employee with
reasonable specificity as to the action or inaction viewed by the Board
to be dereliction or a material breach of Company policy or rules;
provided that the termination of the Employee's employment hereunder by the
Company shall not be deemed a Termination by the Company for Cause unless and
until there shall have been
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<PAGE> 13
delivered to the Employee a written notice from the Chairman of the Board (after
reasonable notice to and an opportunity for the Employee (alone and in person)
to have a meeting with the Chairman of the Board) finding that in the good faith
opinion of the Chairman of the Board, the Employee was guilty of the conduct set
forth in one or more of such clauses.
"TERMINATION BY THE COMPANY WITHOUT CAUSE" means a termination of the
Employee's employment by the Company which is not a Termination by the Company
for Cause, provided that the termination of the Employment Period on account of
the failure of the Company to extend the Employment Period in accordance with
the provisions of Section 2.2 hereof shall constitute a Termination by the
Company Without Cause.
"TOTAL DISABILITY" means the Employee's inability, because of illness,
injury or other physical or mental incapacity, to perform his duties hereunder
(as determined by the Board in good faith) for a continuous period of one
hundred eighty (180) consecutive days, or for a total of one hundred eighty
(180) days within any three hundred sixty (360) consecutive day period, in which
case such Total Disability shall be deemed to have occurred on the last day of
such one hundred eighty (180) day or three hundred sixty (360) day period, as
applicable.
ARTICLE VIII
GENERAL
8.1 NOTICES. All notices under this Agreement shall be in writing and
shall be deemed properly sent, (i) when delivered, if by personal service or
reputable overnight courier service, or (ii) when received, if sent (x) by
certified or registered mail, postage prepaid, return receipt requested, or (y)
via facsimile transmission (provided that a hard copy of such notice is sent to
the addressee via one of the methods of delivery or mailing set forth above on
the same day the facsimile transmission is sent); to the recipient at the
address indicated below:
Notices to Employee:
Peter Longo
8295 Eagle Ridge Drive
Concord Township, Ohio 44077
Notices to Company:
OSI SEALANTS, INC.
C\O Chief Executive Officer
Sovereign Specialty Chemicals, Inc.
Suite 2200
225 West Washington Street
Chicago, Illinois 60606
Facsimile (312) 419-7151
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<PAGE> 14
With Copies to:
Robert I. Schwimmer, Esq.
McBride Baker & Coles
500 West Madison, 40th Floor
Chicago, Illinois 60661
Facsimile (312) 993-9350
Timothy E. Peterson, Esq.
Fried, Frank, Harris, Shriver & Jacobson
4 Chriswell Street
London EC1Y 4UP
Facsimile (0207) 972-9602
Christine J. Smith, Esq.
AEA Investors Inc.
65 East 55th Street
New York, New York 10022
Facsimile (212) 888-1459
8.2 GOVERNING LAW. This Agreement shall be subject to and governed by
the laws of the State of Ohio without regard to any choice of law or conflicts
of law rules or provisions (whether of the State of Ohio or any other
jurisdiction), irrespective of the fact that the Employee may become a resident
of a different state.
8.3 BINDING EFFECT. The Agreement shall be binding upon and inure to
the benefit of the Company, its successors and assigns, and the Employee and his
executors, administrators, personal representatives and heirs.
8.4 COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding among the parties hereto with regard to the subject matter hereof,
and supersedes any and all prior agreements and understandings relating to the
employment of the Employee by the Company, including, without limitation, the
employment agreement between the Employee and the Company, dated June 11, 1999,
which is hereby null and void.
8.5 AMENDMENTS. No change, modification or amendment of any provision
of this Agreement shall be valid unless made in writing and signed by all of the
parties hereto.
8.6 WAIVER. The waiver by the Company of a breach of any provision of
this Agreement by the Employee shall not operate or be construed as a waiver of
any subsequent breach by the Employee. The waiver by the Employee of a breach of
any provision of this Agreement by the Company shall not operate as a waiver of
any subsequent breach by the Company.
8.7 VENUE, JURISDICTION, ETC. The Employee hereby agrees that any suit,
action or proceeding relating in any way to this Agreement may be brought and
enforced in the Court of
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<PAGE> 15
Common Pleas of Lake County of the State of Ohio or in the District Court of the
United States of America for the Northern District of Ohio, and in either case
the Employee hereby submits to the jurisdiction of each such court. The Employee
hereby waives and agrees not to assert, by way of motion or otherwise, in any
such suit, action or proceeding, any claim that the Employee is not personally
subject to the jurisdiction of the above-named courts, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. The Employee consents and agrees to service of
process or other legal summons for purpose of any such suit, action or
proceeding by registered mail addressed to the Employee at his or her address
listed in the business records of the Company. Nothing contained herein shall
affect the rights of the Company to bring suit, action or proceeding in any
other appropriate jurisdiction. The Employee and the Company do each hereby
waive any right to trial by jury, he or it may have concerning any matter
relating to this Agreement.
8.8 SEVERABILITY. If any portion of this Agreement shall be for any
reason, invalid or unenforceable, the remaining portion or portions shall
nevertheless be valid, enforceable and carried into effect.
8.9 HEADINGS. The headings of this Agreement are inserted for
convenience only and are not to be considered in the construction of the
provisions hereof.
8.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which, taken together, shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its duly authorized officers and its corporate seal to be hereunto affixed,
and the Employee has hereunto set his hand on the day and year first above
written.
COMPANY: EMPLOYEE:
OSI SEALANTS, INC.
an Illinois Corporation
------------------------------
Peter Longo
By:
-----------------------------
Chairman of the Board
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<PAGE> 16
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
BETWEEN
OSI SEALANTS, INC.
AND
PETER LONGO
TERMINATION CERTIFICATE
This is to certify that, except as permitted by the Employment
Agreement (as defined below) I do not have in my possession, nor have I failed
to return, any software, inventions, designs, works of authorship, copyrightable
works, formulas, data, marketing plans, forecasts, product concepts, marketing
plans, strategies, forecasts, devices, records, data, notes, reports, proposals,
customer lists, correspondence, specifications, drawings, blueprints, sketches,
materials, patent applications, continuation applications, continuation-in-part
applications, divisional applications, other documents or property, or
reproductions of any aforementioned items belonging to OSI SEALANTS, INC. (the
"COMPANY"), its Subsidiaries and their Affiliates, successors or assigns.
I further certify that I have complied with all the terms of the
Employment Agreement dated December 30, 1999 between the Company and me (the
"EMPLOYMENT AGREEMENT"), relating to the reporting of any Work Product (as that
term is defined therein), conceived or made by me (solely or jointly with
others) covered by the Employment Agreement.
I acknowledge that the provisions of the Employment Agreement relating
to Confidential Information, as defined in the Employment Agreement, continue in
effect beyond the termination of the Employment Agreement, as set forth therein.
Finally, I further acknowledge that the provisions of the Employment
Agreement relating to my (i) anti-pirating, (ii) noninterference and (iii)
non-competition covenants to the Company, its Subsidiaries and their Affiliates,
remain in effect following the date of my termination of employment with the
Company.
Date:____________ ______________________________
Employee
<PAGE> 17
EXHIBIT B
TO
EMPLOYMENT AGREEMENT
BETWEEN
OSI SEALANTS, INC.
AND
PETER LONGO
GENERAL RELEASE
I, Peter Longo, in consideration of and subject to the performance by
OSI SEALANTS, INC., an Illinois corporation (the "COMPANY"), of its material
obligations under the Employment Agreement, dated as of the date as of December
30, 1999 (the "AGREEMENT"), do hereby release and forever discharge as of the
date hereof the Company, its Subsidiaries and their Affiliates (as those terms
are defined in the Agreement) and all present and former directors, officers,
agents, representatives, employees, successors and assigns of the Company, its
Subsidiaries and their Affiliates and their direct or indirect owners
(collectively, the "RELEASED PARTIES") to the extent provided below.
1. I understand that any payments or benefits paid or granted to me under
Section 5.2(c) of the Agreement represent, in part, consideration for
signing this General Release and are not salary, wages or benefits to
which I was already entitled. I understand and agree that I will not
receive the payments and benefits specified in Section 5.2(c) of the
Agreement unless I execute this General Release and do not revoke this
General Release within the time period permitted hereafter or breach
this General Release.
2. Except as provided in paragraph 4 of this General Release, I knowingly
and voluntarily release and forever discharge the Company and the other
Released Parties from any and all claims, controversies, actions,
causes of action, cross-claims, counterclaims, demands, debts,
compensatory damages, liquidated damages, punitive or exemplary
damages, other damages, claims for costs and attorneys' fees, or
liabilities of any nature whatsoever in law and in equity, both past
and present (through the date of this General Release) and whether
known or unknown, suspected, or claimed against the Company or any of
the Released Parties which I, my spouse, or any of my heirs, executors,
administrators or assigns, may have, which arise out of or are
connected with my employment with, or my separation from, the Company
(including, but not limited to, any allegation, claim or violation,
arising under: Title VII of the Civil Rights Act of 1964, as amended;
the Civil Rights Act of 1991; the Age Discrimination in Employment Act
of 1967, as amended (including the Older Workers Benefit Protection
Act); the Equal Pay Act of 1963, as amended; the Americans with
Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the
Civil Rights Act of 1866, as amended; the Worker Adjustment Retraining
and Notification Act; the Employee Retirement Income Security Act of
1974; any applicable Employee Order Programs; the Fair Labor Standards
Act; or their state or
<PAGE> 18
local counterparts; or under any other federal, state or local civil or
human rights law, or under any other local, state, or federal law,
regulation or ordinance; or under any public policy, contract or tort,
or under common law; or arising under any policies, practices or
procedures of the Company; or any claim for wrongful discharge, breach
of contract, negligent or intentional infliction of emotional distress,
defamation; or any claim for costs, fees, or other expenses, including
attorneys' fees incurred in these matters) (all of the foregoing
collectively referred to herein as the "CLAIMS").
3. I represent that I have made no assignment or transfer of any right,
claim, demand, cause of action, or other matter covered by paragraph 2
of this General Release.
4. I and the Company mutually agree that this General Release does not
waive or release any rights or claims that I may have under (a) the Age
Discrimination in Employment Act of 1967 and (b) any agreements to
which I and Sovereign Specialty Chemicals, Inc., a Delaware corporation
(the "PARENT") are parties pertaining to any shares of capital stock of
the Parent owned by me, which arise after the date I execute this
General Release. I acknowledge and agree that my separation from
employment with the Company in compliance with the terms of the
Agreement shall not serve as the basis for any claim or action
(including, without limitation, any claim under the Age Discrimination
in Employment Act of 1967).
5. In signing this General Release, I acknowledge and intend that it shall
be effective as a bar to each and every one of the Claims hereinabove
mentioned or implied. I expressly consent that this General Release
shall be given full force and effect according to each and all of its
express terms and provisions, including those relating to unknown and
unsuspected Claims (notwithstanding any state statute that expressly
limits the effectiveness of a general release of unknown, unsuspected
and unanticipated Claims), if any, as well as those relating to any
other Claims hereinabove mentioned or implied. I acknowledge and agree
that this waiver is an essential and material term of this General
Release and that without such waiver the Company would not have agreed
to the terms of the Agreement. I further agree that in the event I
should bring a Claim seeking damages against the Company, or in the
event I should seek to recover against the Company in any Claim brought
by a governmental agency on my behalf, this General Release shall serve
as a complete defense to such Claims. I further agree that I am not
aware of any pending charge or complaint of the type described in
paragraph 2 as of the execution of this General Release.
6. I agree that neither this General Release, nor the furnishing of the
consideration for this General Release, shall be deemed or construed at
any time to be an admission by the Company, any Released Party or
myself of any improper or unlawful conduct.
7. I agree that I will forfeit all amounts payable by the Company pursuant
to the Agreement if I challenge the validity of this General Release,
provided that nothing herein contained in this Agreement shall prohibit
or bar me from filing a charge, including a challenge to the validity
of the Agreement, with the United States Equal Employment Opportunity
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<PAGE> 19
Commission ("EEOC"), or any state or local fair employment practices
agency, or from participating in any investigation, hearing or
proceeding conducted by the EEOC, or any state or local fair employment
practices agency. I also agree that if I violate this General Release
by suing the Company or the other Released Parties, I will pay all
costs and expenses of defending against the suit incurred by the
Released Parties, including reasonable attorneys' fees, and return all
payments received by me pursuant to the Agreement.
8. I agree that this General Release is confidential and agree not to
disclose any information regarding the terms of this General Release,
except to my immediate family and any tax, legal or other counsel I
have consulted regarding the meaning or effect hereof or as required by
law, and I will instruct each of the foregoing not to disclose the same
to anyone.
9. Any non-disclosure provision in this General Release does not prohibit
or restrict me (or my attorney) from responding to any inquiry about
this General Release or its underlying facts and circumstances by the
Securities and Exchange Commission (SEC), the EEOC (or a state or local
fair employment practices agency), the National Association of
Securities Dealers, Inc. (NASD), any other self-regulatory organization
or governmental entity.
10. I agree to reasonably cooperate with the Company in any internal
investigation or administrative, regulatory, or judicial proceeding. I
understand and agree that my cooperation may include, but not be
limited to, making myself available to the Company upon reasonable
notice for interviews and factual investigations; appearing at the
Company's request to give testimony without requiring service of a
subpoena or other legal process; volunteering to the Company pertinent
information; and turning over to the Company all relevant documents
which are or may come into my possession all at times and on schedules
that are reasonably consistent with my other permitted activities and
commitments. I understand that in the event the Company asks for my
cooperation in accordance with this provision, the Company will
reimburse me solely for reasonable travel expenses, including lodging
and meals, upon my submission of receipts.
11. Notwithstanding anything in this General Release to the contrary, this
General Release shall not relinquish, diminish, or in any way affect
any rights or claims arising out of any breach by the Company or by any
Released Party of the Agreement.
12. Whenever possible, each provision of this General Release shall be
interpreted in, such manner as to be effective and valid under
applicable law, but if any provision of this General Release 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 General Release shall be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
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<PAGE> 20
BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:
(a) I HAVE READ IT CAREFULLY;
(b) I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT
RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE
CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE
AMERICANS WITH DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED;
(c) I VOLUNTARILY CONSENT TO EVERYTHING IN IT;
(d) I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND
I HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I HAVE
CHOSEN NOT TO DO SO OF MY OWN VOLITION;
(e) I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE
SUBSTANTIALLY IN ITS FINAL FORM ON _______________ ____, ____ TO
CONSIDER IT AND THE CHANGES MADE SINCE THE ______________ _____,
_____VERSION OF THIS RELEASE ARE NOT MATERIAL AND WILL NOT RESTART THE
REQUIRED 21-DAY PERIOD;
(f) THE CHANGES TO THE AGREEMENT SINCE ____________ ___, _____ EITHER ARE
NOT MATERIAL OR WERE MADE AT MY REQUEST.
(g) I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE
TO REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR
ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED;
(h) I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH
THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND
(i) I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED,
WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED
BY AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.
DATE: ,
---------------------------- -------------------------------
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<PAGE> 21
EXHIBIT C
TO
EMPLOYMENT AGREEMENT
BETWEEN
OSI SEALANTS, INC.
AND
PETER LONGO
STOCK OPTION AGREEMENT
<PAGE> 1
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("AGREEMENT") is made and entered into as of the 30th
day of December, 1999, by and between PIERCE & STEVENS CORPORATION, a New York
corporation (the "COMPANY"), and FREDERICK A. QUINN (the "EMPLOYEE"). The
Company and the Employee are sometimes hereinafter collectively referred to as
the "PARTIES" and individually as a "PARTY." Certain capitalized terms used in
this Agreement are defined in Article VII hereof.
RECITALS
A. The Company is and will be engaged in the manufacture of adhesives,
sealants and coatings, and is a wholly-owned subsidiary of Sovereign Specialty
Chemicals, Inc., a Delaware corporation (the "PARENT"). The Company wishes to
employ the Employee, and the Employee wishes to be employed by the Company, as
the Company's President. As a condition of that employment, the Company requires
that an employment agreement be entered into pursuant to which the Employee
furnishes the Company with, among other things, certain covenants of the
Employee, including his covenant not to compete with the businesses of the
Company, its Subsidiaries and their Affiliates.
B. In order to induce the Employee to enter into this Agreement, and to
incentivize and reward his effort, loyalty and commitment to the Company,
concurrent with the execution and delivery of this Agreement the Company has
caused the Parent to grant to the Employee a certain stock option (the "OPTION")
to purchase shares of Common Stock of the Parent ("SHARES") under and pursuant
to the terms of the "Sovereign Specialty Chemicals, Inc. Stock Option Plan" (the
"PLAN") and a Stock Option Agreement in the form of Exhibit C attached hereto
and by this reference made a part hereof (the "STOCK OPTION AGREEMENT").
C. The Employee acknowledges that as a member of the Company's
management, he is one of the persons charged with primary responsibility for the
implementation of the Company's business plans, and that he will have regular
access to various confidential and/or proprietary information relating to the
Company, its Subsidiaries, their Affiliates and their businesses. Further, the
Employee acknowledges that his covenants to the Company hereinafter set forth,
specifically including but not limited to the Employee's covenant not to engage
in competition with the Company, its Subsidiaries, their Affiliates and their
businesses, are being made in partial consideration of the Parent's grant of the
Option to the Employee.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, and the
mutual agreements herein contained and other good and valuable consideration,
the receipt and sufficiency of which are hereby mutually acknowledged, the
parties hereby agree as follows:
<PAGE> 2
ARTICLE I
EMPLOYMENT RELATIONSHIP
1.1 EMPLOYMENT. Subject to the terms and conditions of this Agreement,
the Company hereby agrees to employ the Employee to serve as the Company's
President, and the Employee hereby accepts such employment, and agrees to
perform his duties and responsibilities to the best of his abilities in a
diligent, trustworthy, businesslike and efficient manner.
1.2 DUTIES. The Employee shall have the normal and customary duties,
responsibilities and authority of a President and shall perform such other
duties on behalf of the Company, its Subsidiaries and their Affiliates as may be
assigned to him by the Chairman of the Board and the Board. The Employee shall
report to the Chairman of the Board in connection with the Employee's
performance of his duties.
1.3 EXCLUSIVE EMPLOYMENT. While he is employed by the Company
hereunder, the Employee covenants to the Company that he will devote his entire
business time, energy, attention and skill to the Company, its Subsidiaries and
their Affiliates (except for permitted vacation periods and reasonable periods
of illness or other incapacity), and use his good faith best efforts to promote
the interests of the Company, its Subsidiaries and their Affiliates. The
foregoing shall not be construed as prohibiting the Employee from spending such
time as may be reasonably necessary to attend to his personal affairs and
investments so long as such activities do not conflict or interfere with the
Employee's obligations and\or timely performance of his duties to the Company,
its Subsidiaries and their Affiliates hereunder.
1.4 EMPLOYEE REPRESENTATIONS. The Employee hereby represents and
warrants to the Company that:
(a) the execution, delivery and performance by the Employee of
this Agreement and any other agreements contemplated hereby to which
the Employee 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 the Employee is a party or by which
he is bound;
(b) the Employee is not a party to or bound by any employment
agreement, non-competition agreement or confidentiality agreement with
any other person or entity (or if a party to such an agreement, the
Employee 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
(c) upon the execution and delivery of this Agreement by the
Company, this Agreement shall be the valid and binding obligation of
the Employee, enforceable in accordance with its terms.
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<PAGE> 3
The Employee hereby acknowledges and represents that 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.
ARTICLE II
PERIOD OF EMPLOYMENT
2.1 EMPLOYMENT PERIOD. The Employee has been employed by the Company or
its predecessor for a number of years, and such employment shall continue
hereunder until the date fixed by the provisions of Section 2.2 hereof, subject
to the early termination provisions of Article V hereof (the "EMPLOYMENT
PERIOD"), it being acknowledged that the Company's fiscal year ends on December
31, and that the Employment Period shall therefore be denominated in calendar
years.
2.2 INITIAL TERM OF EMPLOYMENT PERIOD AND EXTENSION TERMS. The
Employment Period shall initially continue for a term commencing on the date
hereof and ending on December 31, 2002 (the "INITIAL TERM"). The Employment
Period shall be automatically extended for successive calendar years of the
Company following the expiration of the Initial Term (each such one year period
being hereinafter referred to as an "EXTENSION TERM") upon the same terms and
conditions provided for herein unless either party provides the other party with
advance written notice of its or his intention not to extend the Employment
Period; provided, however, that such notice must be delivered by the
non-extending party to the other party not later than ninety (90) days prior to
the expiration of the Initial Term or any Extension Term, as the case may be.
ARTICLE III
COMPENSATION
3.1 ANNUAL BASE COMPENSATION. During the Employment Period the Company
shall pay to the Employee an annual base salary (the "ANNUAL BASE COMPENSATION")
in the amount of $155,000.00. The Annual Base Compensation shall be paid in
regular installments in accordance with the Company's general payroll practices,
and shall be subject to all required federal, state and local withholding taxes.
The Employee's Annual Base Compensation shall be reviewed by the Board annually,
and may, in the discretion of the Board be increased, provided that there shall
be no obligation on the part of the Company to increase the Employee's Annual
Base Compensation, further provided that in no event shall the Employee's Annual
Base Compensation be less than the greater of (i) the amount indicated in the
first sentence of this Section 3.1 or (ii) the highest amount such Annual Base
Compensation may have been increased to by the Board subsequent to the date of
this Agreement in its discretion.
3.2 POTENTIAL ANNUAL TARGET BONUSES. In respect of each calendar year
falling within the Employment Period, the Employee shall be eligible to earn an
annual bonus, depending upon the results of operation of the Company, the
Parent, its Subsidiaries and their Affiliates and the personal performance of
the Employee, of up to forty percent (40%) of the Employee's Annual Base
Compensation for that calendar year (the "POTENTIAL ANNUAL TARGET BONUS") in
accordance with the terms of a bonus plan which shall be adopted and maintained
in effect by the Board for that calendar year. The amount of the Potential
Annual Target Bonus, if any, which is earned by the
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<PAGE> 4
Employee (the "BONUSABLE AMOUNT") shall be paid by the Company to the Employee
no later than seventy-five (75) days following the close of the Company's
calendar year, provided that unless expressly provided otherwise herein, it
shall be a condition precedent to the Employee's right to receive any Bonusable
Amount that the Employee be employed by the Company on the last day of that
calendar year.
3.3 DISCRETIONARY BONUSES. In respect of each calendar year falling
within the Employment Period, the Company may pay a discretionary annual bonus
to the Employee (a "DISCRETIONARY BONUS") to be determined by the Board, in its
sole discretion. Any Discretionary Bonus shall be paid by the Company to the
Employee within seventy-five (75) days following the close of the Company's
calendar year, provided that unless expressly provided otherwise herein, it
shall be a condition precedent to the Employee's right to receive any
Discretionary Bonus that the Employee be employed by the Company on the last day
of that calendar year.
3.4 EXPENSES. During the Employment Period, the Employee shall be
entitled to reimbursement of all travel, entertainment and other business
expenses reasonably incurred in the performance of his duties for the Company
(including fuel, insurance and maintenance for the automobile referenced in the
following sentence), upon submission of all receipts and accounts with respect
thereto, and approval by the Company thereof, in accordance with the business
expense reimbursement policies of the Company from time to time adopted by the
Board. In addition, during the Employment Period, the Employee shall be paid (i)
a $10,473.00 per year allowance for the use of an of an Infiniti I 30 or
equivalent automobile (which amount has been grossed-up, and reflects the annual
base cost thereof, subject to adjustment for any variances in lease costs) and
(ii) $6,909.00 per year allowance for membership in a country club (which amount
has been grossed-up); provided that said allowances shall be paid in regular
installments of $1,448.50 in accordance with the Company's general payroll
practices, and shall be subject to all required federal, state and local
withholding taxes; further provided that the foregoing allowances shall not be
considered part of the Employee's Annual Base Compensation.
3.5 VACATION. In respect of each calendar year falling within the
Employment Period, the Employee shall be entitled to such vacation time as the
Company customarily provides to its senior executives (but in no event less than
four (4) weeks per calendar year), provided that unused vacation may be used by
the Employee in the following calendar year only in accordance with and as
permitted by the Company's then current vacation policies in effect from time to
time.
3.6 OTHER FRINGE BENEFITS. During the Employment Period, the Employee
shall be entitled to receive such of the Company's other fringe benefits as are
being provided to other employees of the Company holding senior executive
positions, including but not limited to health insurance benefits, disability
benefits and retirement benefits.
3.7 GRANT OF STOCK OPTION. Concurrently with the parties' execution and
delivery of this Agreement the Company has caused the Parent to grant to the
Employee the Option to purchase an aggregate of 9,500 Shares pursuant to the
terms of the Stock Option Agreement as part consideration for the Employee's
execution and delivery of this Agreement to the Company.
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<PAGE> 5
ARTICLE IV
COVENANTS OF THE EMPLOYEE
4.1 PROPRIETARY RIGHTS. The Employee hereby expressly agrees that all
research, discoveries, inventions and innovations (whether or not reduced to
practice or documented), improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether patentable or
unpatentable, and whether or not reduced to writing), trade secrets (being
information about the business of the Company, its Subsidiaries and their
Affiliates which is considered by the Company or any such Subsidiary or
Affiliate to be confidential and is proprietary to the Company or any such
Subsidiary or Affiliate) and confidential information, copyrightable works, and
similar and related information (in whatever form or medium), which (x) either
(i) relate to the Company's, its Subsidiaries' or their Affiliates' actual or
anticipated business, research and development or existing or future products or
services or (ii) result from any work performed by the Employee for the Company,
its Subsidiaries or any of their Affiliates and (y) are conceived, developed,
made or contributed to in whole or in part by the Employee during the Employment
Period ("WORK Product") shall be and remain the sole and exclusive property of
the Company, such Subsidiary or such Affiliate. The Employee shall communicate
promptly and fully all Work Product to the Board.
(a) WORK MADE FOR HIRE. The Employee acknowledges that, unless
otherwise agreed in writing by the Company, all Work Product eligible
for any form of copyright protection made or contributed to in whole or
in part by the Employee within the scope of the Employee's employment
by the Company during the Employment Period shall be deemed a "work
made for hire" under the copyright laws and shall be owned by the
Company, its Subsidiaries or their Affiliates, as applicable.
(b) ASSIGNMENT OF PROPRIETARY RIGHTS. The Employee hereby
assigns, transfers and conveys to the Company, and shall assign,
transfer and convey to the Company, all right, title and interest in
and to all inventions, ideas, improvements, designs, processes,
trademarks, service marks, trade names, trade secrets, trade dress,
data, discoveries and other proprietary assets and proprietary rights
in and of the Work Product (the "PROPRIETARY RIGHTS") for the Company's
exclusive ownership and use, together with all rights to sue and
recover for past and future infringement or misappropriation thereof,
provided that if a Subsidiary or Affiliate of the Company is the owner
thereof, such assignment, transfer and conveyance shall be made to such
Subsidiary or Affiliate, which shall enjoy exclusive ownership and use,
together with all rights to sue and recover for past and future
infringement or misappropriation thereof.
(c) FURTHER INSTRUMENTS. At the request of the Company (its
Subsidiaries or their Affiliates, as the case may be), at all times
during the Employment Period and thereafter, the Employee will promptly
and fully assist the Company (its Subsidiaries or their Affiliates, as
the case may be) in effecting the purpose of the foregoing assignment,
including but not limited to the further acts of executing any and all
documents necessary to secure for the Company (its Subsidiaries or
their Affiliates, as the case may be) such
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<PAGE> 6
Proprietary Rights and other rights to all Work Product and all
confidential information related thereto, providing cooperation and
giving testimony.
(d) INAPPLICABILITY OF SECTION 4.1 IN CERTAIN CIRCUMSTANCES.
The Company expressly acknowledges and agrees that, and the Employee is
hereby advised that, this Section 4.1 does not apply to any invention
for which no equipment, supplies, facilities or trade secret
information of the Company, its Subsidiaries or any of their Affiliates
was used and which was developed entirely on the Employee's own time,
unless (i) the invention relates to the business of the Company, its
Subsidiaries or any of their Affiliates or to the Company's, its
Subsidiaries' or any of their Affiliates' actual or demonstrably
anticipated research or development or (ii) the invention results from
any work performed by the Employee for the Company, its Subsidiaries or
any of their Affiliates.
4.2 OWNERSHIP AND COVENANT TO RETURN DOCUMENTS, ETC. The Employee
agrees that all Work Product and all documents or other tangible materials
(whether originals, copies or abstracts), including without limitation, price
lists, quotation guides, outstanding quotations, books, records, manuals, files,
sales literature, training materials, customer records, correspondence, computer
disks or print-out documents, contracts, orders, messages, phone and address
lists, invoices and receipts, and all objects associated therewith, which in any
way relate to the business or affairs of the Company, its Subsidiaries and their
Affiliates either furnished to the Employee by the Company, its Subsidiaries or
any of their Affiliates or are prepared, compiled or otherwise acquired by the
Employee during the Employment Period, shall be the sole and exclusive property
of the Company, such Subsidiaries or such Affiliates. The Employee shall not,
except for the use of the Company, its Subsidiaries or any of their Affiliates,
use, copy or duplicate any of the aforementioned documents or objects, nor
remove them from the facilities of the Company or such Subsidiaries or such
Affiliates, nor use any information concerning them except for the benefit of
the Company, its Subsidiaries and their Affiliates, either during the Employment
Period or thereafter. The Employee agrees that he will deliver all of the
aforementioned documents and objects that may be in his possession to the
Company on the termination of his employment with the Company, or at any other
time upon the Company's request, together with his written certification of
compliance with the provisions of this Section 4.2 in the form of Exhibit A to
this Agreement in accordance with the provisions of Section 5.3 hereof.
4.3 NON-DISCLOSURE COVENANT. During the Employment Period and at all
times thereafter, the Employee shall not, either directly or indirectly,
disclose to any "unauthorized person" or use for the benefit of the Employee or
any person or entity other than the Company, its Subsidiaries or their
Affiliates any Work Product or any knowledge or information which the Employee
may acquire while employed by the Company (whether before or after the date of
this Agreement) relating to (i) the financial, marketing, sales and business
plans and affairs, financial statements, analyses, forecasts and projections,
books, accounts, records, operating costs and expenses and other financial
information of the Company, its Subsidiaries and their Affiliates, (ii) internal
management tools and systems, costing policies and methods, pricing policies and
methods and other methods of doing business, of the Company, its Subsidiaries
and their Affiliates, (iii) customers, sales, customer requirements and usages,
distributor lists, of the Company, its Subsidiaries and their Affiliates, (iv)
agreements with customers, vendors, independent contractors,
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<PAGE> 7
employees and others, of the Company, its Subsidiaries and their Affiliates, (v)
existing and future products or services and product development plans, designs,
analyses and reports, of the Company, its Subsidiaries and their Affiliates,
(vi) computer software and data bases developed for the Company, its
Subsidiaries or their Affiliates, trade secrets, research, records of research,
models, designs, drawings, technical data and reports of the Company, its
Subsidiaries and their Affiliates and (vii) correspondence or other private or
confidential matters, information or data whether written, oral or electronic,
which is proprietary to the Company, its Subsidiaries and their Affiliates and
not generally known to the public (individually and collectively "CONFIDENTIAL
INFORMATION"), without the Company's prior written permission. For purposes of
this Section 4.3, the term "UNAUTHORIZED PERSON" shall mean any person who is
not (i) an officer or director of the Company, or (ii) an employee, officer or
director of a Subsidiary or Affiliate of the Company for whom the disclosure of
the knowledge or information referred to herein is necessary for his performance
of his assigned duties, or (iii) a person expressly authorized by the Company to
receive disclosure of such knowledge or information. The Company expressly
acknowledges and agrees that the term "Confidential Information" excludes
information which is (A) in the public domain or otherwise generally known to
the trade, or (B) disclosed to third parties other than by reason of the
Employee's breach of his confidentiality obligation hereunder or (C) learned of
by the Employee subsequent to the termination of his employment hereunder from
any other party not then under an obligation of confidentiality to the Company,
its Subsidiaries and their Affiliates. Further, the Employee covenants to the
Company that in the Employee's performance of his duties hereunder, the Employee
will violate no confidentiality obligations he may have to any third persons.
4.4 ANTI-PIRATING AND NON-INTERFERENCE COVENANTS. The Employee
covenants to the Company that while the Employee is employed by the Company
hereunder and for the two (2) year period thereafter (the "NON-SOLICITATION
PERIOD"), he will not, for any reason, directly or indirectly: (a) solicit,
hire, or otherwise do any act or thing which may induce any other employee of
the Company, its Subsidiaries or their Affiliates to leave the employ or
otherwise interfere with or adversely affect the relationship (contractual or
otherwise) of the Company, its Subsidiaries and their Affiliates with any person
who is then or thereafter becomes an employee of the Company, its Subsidiaries
and their Affiliates; or (b) do any act or thing which may interfere with or
adversely affect the relationship (contractual or otherwise) of the Company, its
Subsidiaries and their Affiliates with any customer or vendor of the Company,
its Subsidiaries and their Affiliates or induce any such customer or vendor to
cease doing business with the Company, its Subsidiaries and their Affiliates.
4.5 COVENANT NOT TO COMPETE. The Employee expressly acknowledges that
(i) the Company is and will be engaged in the manufacture of adhesives, sealants
and coatings; (ii) the Employee is one of a limited number of persons who has
extensive knowledge and expertise relevant to the businesses of the Company, its
Subsidiaries and their Affiliates; (iii) the Employee's performance of his
services for the Company hereunder will afford him full and complete access to
and cause him to become highly knowledgeable about the Company's, its
Subsidiaries' and their Affiliates' Confidential Information; (iv) the
agreements and covenants contained in this Section 4.5 are essential to protect
the business and goodwill of the Company, its Subsidiaries and their Affiliates
because, if the Employee enters into any activities competitive with the
businesses of the
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<PAGE> 8
Company, its Subsidiaries and their Affiliates, he will cause substantial harm
to the Company or its Subsidiaries and Affiliates; and (v) his covenants to the
Company, its Subsidiaries and their Affiliates set forth in this Section 4.5 are
being made in partial consideration of the Company's having caused the Parent to
grant the Option to him. Accordingly, the Employee hereby agrees that while he
is employed by the Company hereunder and for the one (1) year period thereafter
(the "NON-COMPETITION PERIOD"), he shall not directly or indirectly own any
interest in, invest in, lend to, borrow from, manage, control, participate in,
consult with, become employed by, render services to, or in any other manner
whatsoever engage in, any business which is competitive with any business
actively being engaged in by the Company, its Subsidiaries and their Affiliates
or actively (and demonstrably) being considered by the Company, its Subsidiaries
and their Affiliates for entry into on the date of the termination of the
Employment Period, within any states or geographical regions in which any such
business is being conducted or in which the Company, its Subsidiaries and their
Affiliates is or are actively (and demonstrably) considering engaging in on the
date of the termination of the Employment Period. The preceding to the contrary
notwithstanding, the Employee shall be free to make investments in the publicly
traded securities of any corporation, provided that such investments do not
amount to more than 1% of the outstanding securities of any class of such
corporation.
4.6 REMEDIES FOR BREACH. If the Employee commits a breach, or threatens
to commit a breach, of any of the provisions of this Article IV, the Company and
its Subsidiaries shall have the right and remedy, in addition to any other
remedy that may be available at law or in equity, to have the provisions of this
Article IV specifically enforced by any court having equity jurisdiction,
together with an accounting therefor, it being expressly acknowledged and agreed
by the Employee that any such breach or threatened breach will cause irreparable
injury to the Company and its Subsidiaries and that money damages will not
provide an adequate remedy to the Company and its Subsidiaries. Such injunction
shall be available without the posting of any bond or other security, and the
Employee hereby consents to the issuance of such injunction. The Employee
further agrees that any such injunctive relief obtained by the Company or its
Subsidiaries shall be in addition to, and not in lieu of, monetary damages and
any other remedies to which the Company or its Subsidiaries may be entitled.
Further, in the event of an alleged breach or violation by the Employee of any
of the provisions of Sections 4.4 or 4.5 hereof, the Non-Solicitation Period
and\or the Non-Competition Period, as the case may be, shall be tolled until
such breach or violation has been cured. The parties agree that in the event of
the institution of any action at law or in equity by either party to enforce the
provisions of this Article IV, the losing party shall pay all of the costs and
expenses of the prevailing party, including reasonable legal fees, incurred in
connection therewith. If any covenant contained in this Article IV or any part
thereof is hereafter construed to be invalid or unenforceable, the same shall
not affect the remainder of such covenant or any other covenants, which shall be
given full effect, without regard to the invalid portions, and any court having
jurisdiction shall have the power to modify such covenant to the least extent
necessary to render it enforceable and, in its modified form, said covenant
shall then be enforceable.
ARTICLE V
TERMINATION OF EMPLOYMENT
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<PAGE> 9
5.1 TERMINATION AND TRIGGERING EVENTS. Notwithstanding anything to the
contrary elsewhere contained in this Agreement, the Employment Period shall
terminate at the expiration of the Initial Term or any Extension Term, or prior
to the expiration of the Initial Term or any Extension Term upon the occurrence
of any of the following events (hereinafter referred to as "TRIGGERING EVENTS"):
(a) the Employee's death; (b) the Employee's Total Disability; (c) the
Employee's Resignation; (d) the Employee's Resignation with Good Grounds; (e) a
Termination by the Company for Cause; or (f) a Termination by the Company
Without Cause.
5.2 RIGHTS UPON OCCURRENCE OF A TRIGGERING EVENT. Subject to the
provisions of Section 5.3 hereof, the rights of the parties upon the occurrence
of a Triggering Event prior to the expiration of the Initial Term or any
Extension Term shall be as follows:
(a) RESIGNATION AND TERMINATION BY THE COMPANY FOR CAUSE: If
the Triggering Event was the Employee's Resignation or a Termination by
the Company for Cause, the Employee shall be entitled to receive his
Annual Base Compensation and accrued but unpaid vacation through the
date thereof 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 that date and thereafter, only to
the extent permitted under the terms of such plans and programs.
(b) DEATH OR TOTAL DISABILITY: If the Triggering Event was the
Employee's death or Total Disability, the Employee (or the Employee's
designated beneficiary) shall be entitled to receive the Employee's
Annual Base Compensation and accrued but unpaid vacation through the
date thereof plus a pro rata portion of the Employee's Potential Annual
Target Bonus for the calendar year in which such death or Total
Disability occurred (based on the number of days the Employee was
employed during the applicable calendar year), 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.
(c) TERMINATION BY COMPANY WITHOUT CAUSE OR RESIGNATION BY
EMPLOYEE WITH GOOD GROUNDS: If the Triggering Event was a Termination
by the Company Without Cause or a Resignation by the Employee With Good
Grounds, the Employee shall be entitled to receive his Annual Base
Compensation and accrued but unpaid vacation through the date thereof
plus, in the case of either (i) Resignation by the Employee with Good
Grounds or (ii) a Termination By the Company Without Cause in the
discretion of the Chairman of the Board of the Company, a pro rata
portion of the Employee's Potential Annual Target Bonus for the
calendar year in which such Triggering Event occurred (based on the
number of days the Employee was employed during the applicable calendar
year), payable in accordance with the Company's normal payroll
practices, provided that in addition, the Employee shall also be paid
an amount equal to his then current Annual Base Compensation 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 ("ADDITIONAL SEVERANCE BENEFITS") during the one (1) year
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<PAGE> 10
period immediately following the date of the termination of the
Employment Period (the "SEVERANCE PERIOD"); provided that the Employee
shall be entitled to receive such Additional Severance Benefits during
the Severance Period if and only if the Employee has executed and
delivered to the Company the General Release substantially in form and
substance as set forth in Exhibit B to this Agreement and only so long
as the Employee has not breached any of his covenants to the Company
set forth in Article IV of this Agreement.
(d) CESSATION OF ENTITLEMENTS AND COMPANY RIGHT OF OFFSET.
Except as otherwise expressly provided herein, all of the Employee's
rights to salary, employee benefits, fringe benefits and bonuses
hereunder (if any) which would otherwise accrue after the termination
of the Employment Period shall cease upon the date of such termination.
The Company may offset any loans, cash advances or fixed amounts which
the Employee owes the Company or its Affiliate against any amounts it
owes the Employee under this Agreement.
5.3 SURVIVAL OF CERTAIN OBLIGATIONS AND TERMINATION CERTIFICATE. The
provisions of Articles IV, VI and VIII shall survive any termination of the
Employment Period, whether by reason of the occurrence of a Triggering Event or
the expiration of the Initial Term or any Extension Term. Immediately following
the termination of the Employment Period, the Employee shall promptly return to
the Company all property required to be returned to the Company pursuant to the
provisions of Section 4.2 hereof and execute and deliver to the Company the
Termination Certificate attached hereto as Exhibit A and by this reference made
a part hereof.
ARTICLE VI
ASSIGNMENT
6.1 PROHIBITION OF ASSIGNMENT BY EMPLOYEE. The Employee expressly
agrees for himself and on behalf of his executors, administrators and heirs,
that this Agreement and his obligations, rights, interests and benefits
hereunder shall not be assigned, transferred, pledged or hypothecated in any way
by the Employee, his executors, administrators or heirs, and shall not be
subject to execution, attachment or similar process. Any attempt to assign,
transfer, pledge, hypothecate or otherwise dispose of this Agreement or any such
rights, interests and benefits thereunder contrary to the foregoing provisions,
or the levy of any attachment or similar process thereupon shall be null and
void and without effect and shall relieve the Company of any and all liability
hereunder.
6.2 RIGHT OF COMPANY TO ASSIGN. This Agreement shall be assignable and
transferable by the Company to any successor-in-interest without the consent of
the Employee.
ARTICLE VII
DEFINITIONS
"AFFILIATE" means the Parent and each of its Subsidiaries.
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<PAGE> 11
"BOARD" means the Board of Directors of the Company.
"PARENT" means Sovereign Specialty Chemicals, Inc., a Delaware
corporation.
"RESIGNATION" means the voluntary termination of employment hereunder
by the Employee which is not a Resignation with Good Grounds (except if made in
contemplation of a Termination by the Company for Cause), provided that if such
action is taken by the Employee without the giving of at least ninety (90) days
prior written notice, such termination of employment shall not be a
"Resignation," but instead shall constitute a Termination for Cause.
"RESIGNATION WITH GOOD GROUNDS" means a voluntary termination of the
Employee's employment hereunder on account of, and within sixty (60) days after,
the occurrence of one or more of the following events:
(i) the assignment to the Employee of any duties inconsistent
in any material respect with the Employee's position (including status,
offices and titles), authority, duties or responsibilities as
contemplated by Section 1.2 hereof which results in a diminution of the
Employee's position, excluding for this purpose an isolated,
insubstantial or inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of written notice
thereof given by the Employee;
(ii) the Employee's Annual Base Compensation and\or Potential
Annual Target Bonus is\are decreased below the amount of his then
Annual Base Compensation and\or Potential Annual Target Bonus fixed by
the applicable provisions of Sections 3.1 and 3.2 hereof (provided that
so long as the aggregate sum of the Employee's Annual Base Compensation
and Potential Annual Target Bonus in respect of any calendar year
during the Employment Term are not decreased, the Company shall be free
to decrease the Potential Annual Target Bonus for that year and
commensurately increase the Annual Base Compensation for that year
without any affect on the subsequent calendar year Annual Base
Compensation and Potential Annual Target Bonus, it being expressly
acknowledged by the Employee that the operating result achievement
criteria for the payment of any of the Potential Annual Target Bonus by
the Company, its Subsidiaries and their Affiliates shall be determined
by the Board, in its absolute discretion) or the Employee's benefits
under any material employee benefit plan, program or arrangement of the
Company (other than a change that affects all Employees of the Company)
are materially reduced from the level in effect upon the Employee's
commencement of participation therein;
(iii) the Employee is required by the Company to relocate his
personal residence outside of a 50 mile radius of the Company's current
principal place of business (other than as agreed to by the Employee
prior to the execution of this Agreement or as provided in another
agreement between the Company and the Employee); or
(iv) the failure of the Company to comply with any of the
provisions of this Agreement, other than an isolated, insubstantial or
inadvertent action not taken in bad faith
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<PAGE> 12
and which is remedied by the Company promptly after receipt of written
notice thereof given by the Employee.
"SUBSIDIARY" 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.
"TERMINATION BY THE COMPANY FOR CAUSE" means termination by the Company
of the Employee's employment for:
(i) misappropriation of any significant monies or significant
assets or properties of the Company;
(ii) conviction of a felony or a crime involving moral
turpitude;
(iii) substantial and repeated failure to comply with
directions of the Chairman of the Board of the Company;
(iv) gross negligence or willful misconduct;
(v) chronic alcoholism or drug addiction together with the
Employee's refusal to cooperate with or participate in counseling
and/or treatment of same; or
(vi) any willful action or inaction of the Employee which, in
the reasonable opinion of the Board, constitutes dereliction (willful
neglect or willful abandonment of assigned duties), or a material
breach of Company policy or rules which, if susceptible to cure, is not
cured by the Employee within five (5) days following the Employee's
receipt of written notice from the Company advising the Employee with
reasonable specificity as to the action or inaction viewed by the Board
to be dereliction or a material breach of Company policy or rules;
provided that the termination of the Employee's employment hereunder by the
Company shall not be deemed a Termination by the Company for Cause unless and
until there shall have been
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<PAGE> 13
delivered to the Employee a written notice from the Chairman of the Board (after
reasonable notice to and an opportunity for the Employee (alone and in person)
to have a meeting with the Chairman of the Board) finding that in the good faith
opinion of the Chairman of the Board, the Employee was guilty of the conduct set
forth in one or more of such clauses.
"TERMINATION BY THE COMPANY WITHOUT CAUSE" means a termination of the
Employee's employment by the Company which is not a Termination by the Company
for Cause, provided that the termination of the Employment Period on account of
the failure of the Company to extend the Employment Period in accordance with
the provisions of Section 2.2 hereof shall constitute a Termination by the
Company Without Cause.
"TOTAL DISABILITY" means the Employee's inability, because of illness,
injury or other physical or mental incapacity, to perform his duties hereunder
(as determined by the Board in good faith) for a continuous period of one
hundred eighty (180) consecutive days, or for a total of one hundred eighty
(180) days within any three hundred sixty (360) consecutive day period, in which
case such Total Disability shall be deemed to have occurred on the last day of
such one hundred eighty (180) day or three hundred sixty (360) day period, as
applicable.
ARTICLE VIII
GENERAL
8.1 NOTICES. All notices under this Agreement shall be in writing and
shall be deemed properly sent, (i) when delivered, if by personal service or
reputable overnight courier service, or (ii) when received, if sent (x) by
certified or registered mail, postage prepaid, return receipt requested, or (y)
via facsimile transmission (provided that a hard copy of such notice is sent to
the addressee via one of the methods of delivery or mailing set forth above on
the same day the facsimile transmission is sent); to the recipient at the
address indicated below:
Notices to Employee:
Frederick A. Quinn
22 Gunnison Road
Boxford, Massachusetts 01921
Notices to Company:
PIERCE & STEVENS CORPORATION
C\O Chief Executive Officer
Sovereign Specialty Chemicals, Inc.
Suite 2200
225 West Washington Street
Chicago, Illinois 60606
Facsimile (312) 419-7151
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<PAGE> 14
With Copies to:
Robert I. Schwimmer, Esq.
McBride Baker & Coles
500 West Madison, 40th Floor
Chicago, Illinois 60661
Facsimile (312) 993-9350
Timothy E. Peterson, Esq.
Fried, Frank, Harris, Shriver & Jacobson
4 Chriswell Street
London EC1Y 4UP
Facsimile (0207) 972-9602
Christine J. Smith, Esq.
AEA Investors Inc.
65 East 55th Street
New York, New York 10022
Facsimile (212) 888-1459
8.2 GOVERNING LAW. This Agreement shall be subject to and governed by
the laws of the State of New York without regard to any choice of law or
conflicts of law rules or provisions (whether of the State of New York or any
other jurisdiction), irrespective of the fact that the Employee may become a
resident of a different state.
8.3 BINDING EFFECT. The Agreement shall be binding upon and inure to
the benefit of the Company, its successors and assigns, and the Employee and his
executors, administrators, personal representatives and heirs.
8.4 COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding among the parties hereto with regard to the subject matter hereof,
and supersedes any and all prior agreements and understandings relating to the
employment of the Employee by the Company, including, without limitation, the
employment agreement between the Employee and the Company, dated September 29,
1998, which is hereby null and void.
8.5 AMENDMENTS. No change, modification or amendment of any provision
of this Agreement shall be valid unless made in writing and signed by all of the
parties hereto.
8.6 WAIVER. The waiver by the Company of a breach of any provision of
this Agreement by the Employee shall not operate or be construed as a waiver of
any subsequent breach by the Employee. The waiver by the Employee of a breach of
any provision of this Agreement by the Company shall not operate as a waiver of
any subsequent breach by the Company.
8.7 VENUE, JURISDICTION, ETC. The Employee hereby agrees that any suit,
action or proceeding relating in any way to this Agreement may be brought and
enforced in the Supreme
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<PAGE> 15
Court of the State of New York, Erie County, or in the District Court of the
United States of America for the Western District of New York, and in either
case the Employee hereby submits to the jurisdiction of each such court. The
Employee hereby waives and agrees not to assert, by way of motion or otherwise,
in any such suit, action or proceeding, any claim that the Employee is not
personally subject to the jurisdiction of the above-named courts, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. The Employee consents and agrees to
service of process or other legal summons for purpose of any such suit, action
or proceeding by registered mail addressed to the Employee at his or her address
listed in the business records of the Company. Nothing contained herein shall
affect the rights of the Company to bring suit, action or proceeding in any
other appropriate jurisdiction. The Employee and the Company do each hereby
waive any right to trial by jury, he or it may have concerning any matter
relating to this Agreement.
8.8 SEVERABILITY. If any portion of this Agreement shall be for any
reason, invalid or unenforceable, the remaining portion or portions shall
nevertheless be valid, enforceable and carried into effect.
8.9 HEADINGS. The headings of this Agreement are inserted for
convenience only and are not to be considered in the construction of the
provisions hereof.
8.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which, taken together, shall constitute one and the same
agreement.
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<PAGE> 16
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its duly authorized officers and its corporate seal to be hereunto affixed,
and the Employee has hereunto set his hand on the day and year first above
written.
COMPANY: EMPLOYEE:
PIERCE & STEVENS CORPORATION
a New York Corporation
------------------------------
Frederick A. Quinn
By:
----------------------------
Chairman of the Board
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<PAGE> 17
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
BETWEEN
PIERCE & STEVENS CORPORATION
AND
FREDERICK A. QUINN
TERMINATION CERTIFICATE
This is to certify that, except as permitted by the Employment
Agreement (as defined below) I do not have in my possession, nor have I failed
to return, any software, inventions, designs, works of authorship, copyrightable
works, formulas, data, marketing plans, forecasts, product concepts, marketing
plans, strategies, forecasts, devices, records, data, notes, reports, proposals,
customer lists, correspondence, specifications, drawings, blueprints, sketches,
materials, patent applications, continuation applications, continuation-in-part
applications, divisional applications, other documents or property, or
reproductions of any aforementioned items belonging to PIERCE & STEVENS
CORPORATION (the "COMPANY"), its Subsidiaries and their Affiliates, successors
or assigns.
I further certify that I have complied with all the terms of the
Employment Agreement dated December 30, 1999 between the Company and me (the
"EMPLOYMENT AGREEMENT"), relating to the reporting of any Work Product (as that
term is defined therein), conceived or made by me (solely or jointly with
others) covered by the Employment Agreement.
I acknowledge that the provisions of the Employment Agreement relating
to Confidential Information, as defined in the Employment Agreement, continue in
effect beyond the termination of the Employment Agreement, as set forth therein.
Finally, I further acknowledge that the provisions of the Employment
Agreement relating to my (i) anti-pirating, (ii) noninterference and (iii)
non-competition covenants to the Company, its Subsidiaries and their Affiliates,
remain in effect following the date of my termination of employment with the
Company.
Date:____________ ______________________________
Employee
<PAGE> 18
EXHIBIT B
TO
EMPLOYMENT AGREEMENT
BETWEEN
PIERCE & STEVENS CORPORATION
AND
FREDERICK A. QUINN
GENERAL RELEASE
I, FREDERICK A. QUINN, in consideration of and subject to the
performance by PIERCE & STEVENS CORPORATION, a New York corporation (the
"COMPANY"), of its material obligations under the Employment Agreement, dated as
of the date as of December 30, 1999 (the "AGREEMENT"), do hereby release and
forever discharge as of the date hereof the Company, its Subsidiaries and their
Affiliates (as those terms are defined in the Agreement) and all present and
former directors, officers, agents, representatives, employees, successors and
assigns of the Company, its Subsidiaries and their Affiliates and their direct
or indirect owners (collectively, the "RELEASED PARTIES") to the extent provided
below.
1. I understand that any payments or benefits paid or granted to me under
Section 5.2(c) of the Agreement represent, in part, consideration for
signing this General Release and are not salary, wages or benefits to
which I was already entitled. I understand and agree that I will not
receive the payments and benefits specified in Section 5.2(c) of the
Agreement unless I execute this General Release and do not revoke this
General Release within the time period permitted hereafter or breach
this General Release.
2. Except as provided in paragraph 4 of this General Release, I knowingly
and voluntarily release and forever discharge the Company and the other
Released Parties from any and all claims, controversies, actions,
causes of action, cross-claims, counterclaims, demands, debts,
compensatory damages, liquidated damages, punitive or exemplary
damages, other damages, claims for costs and attorneys' fees, or
liabilities of any nature whatsoever in law and in equity, both past
and present (through the date of this General Release) and whether
known or unknown, suspected, or claimed against the Company or any of
the Released Parties which I, my spouse, or any of my heirs, executors,
administrators or assigns, may have, which arise out of or are
connected with my employment with, or my separation from, the Company
(including, but not limited to, any allegation, claim or violation,
arising under: Title VII of the Civil Rights Act of 1964, as amended;
the Civil Rights Act of 1991; the Age Discrimination in Employment Act
of 1967, as amended (including the Older Workers Benefit Protection
Act); the Equal Pay Act of 1963, as amended; the Americans with
Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the
Civil Rights Act of 1866, as amended; the Worker Adjustment Retraining
and Notification Act; the Employee Retirement Income Security Act of
1974; any applicable Employee Order Programs; the Fair Labor Standards
Act; or their state or
<PAGE> 19
local counterparts; or under any other federal, state or local civil or
human rights law, or under any other local, state, or federal law,
regulation or ordinance; or under any public policy, contract or tort,
or under common law; or arising under any policies, practices or
procedures of the Company; or any claim for wrongful discharge, breach
of contract, negligent or intentional infliction of emotional distress,
defamation; or any claim for costs, fees, or other expenses, including
attorneys' fees incurred in these matters) (all of the foregoing
collectively referred to herein as the "CLAIMS").
3. I represent that I have made no assignment or transfer of any right,
claim, demand, cause of action, or other matter covered by paragraph 2
of this General Release.
4. I and the Company mutually agree that this General Release does not
waive or release any rights or claims that I may have under (a) the Age
Discrimination in Employment Act of 1967 and (b) any agreements to
which I and Sovereign Specialty Chemicals, Inc., a Delaware corporation
(the "PARENT") are parties pertaining to any shares of capital stock of
the Parent owned by me, which arise after the date I execute this
General Release. I acknowledge and agree that my separation from
employment with the Company in compliance with the terms of the
Agreement shall not serve as the basis for any claim or action
(including, without limitation, any claim under the Age Discrimination
in Employment Act of 1967).
5. In signing this General Release, I acknowledge and intend that it shall
be effective as a bar to each and every one of the Claims hereinabove
mentioned or implied. I expressly consent that this General Release
shall be given full force and effect according to each and all of its
express terms and provisions, including those relating to unknown and
unsuspected Claims (notwithstanding any state statute that expressly
limits the effectiveness of a general release of unknown, unsuspected
and unanticipated Claims), if any, as well as those relating to any
other Claims hereinabove mentioned or implied. I acknowledge and agree
that this waiver is an essential and material term of this General
Release and that without such waiver the Company would not have agreed
to the terms of the Agreement. I further agree that in the event I
should bring a Claim seeking damages against the Company, or in the
event I should seek to recover against the Company in any Claim brought
by a governmental agency on my behalf, this General Release shall serve
as a complete defense to such Claims. I further agree that I am not
aware of any pending charge or complaint of the type described in
paragraph 2 as of the execution of this General Release.
6. I agree that neither this General Release, nor the furnishing of the
consideration for this General Release, shall be deemed or construed at
any time to be an admission by the Company, any Released Party or
myself of any improper or unlawful conduct.
7. I agree that I will forfeit all amounts payable by the Company pursuant
to the Agreement if I challenge the validity of this General Release,
provided that nothing herein contained in this Agreement shall prohibit
or bar me from filing a charge, including a challenge to the validity
of the Agreement, with the United States Equal Employment Opportunity
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<PAGE> 20
Commission ("EEOC"), or any state or local fair employment practices
agency, or from participating in any investigation, hearing or
proceeding conducted by the EEOC, or any state or local fair employment
practices agency. I also agree that if I violate this General Release
by suing the Company or the other Released Parties, I will pay all
costs and expenses of defending against the suit incurred by the
Released Parties, including reasonable attorneys' fees, and return all
payments received by me pursuant to the Agreement.
8. I agree that this General Release is confidential and agree not to
disclose any information regarding the terms of this General Release,
except to my immediate family and any tax, legal or other counsel I
have consulted regarding the meaning or effect hereof or as required by
law, and I will instruct each of the foregoing not to disclose the same
to anyone.
9. Any non-disclosure provision in this General Release does not prohibit
or restrict me (or my attorney) from responding to any inquiry about
this General Release or its underlying facts and circumstances by the
Securities and Exchange Commission (SEC), the EEOC (or a state or local
fair employment practices agency), the National Association of
Securities Dealers, Inc. (NASD), any other self-regulatory organization
or governmental entity.
10. I agree to reasonably cooperate with the Company in any internal
investigation or administrative, regulatory, or judicial proceeding. I
understand and agree that my cooperation may include, but not be
limited to, making myself available to the Company upon reasonable
notice for interviews and factual investigations; appearing at the
Company's request to give testimony without requiring service of a
subpoena or other legal process; volunteering to the Company pertinent
information; and turning over to the Company all relevant documents
which are or may come into my possession all at times and on schedules
that are reasonably consistent with my other permitted activities and
commitments. I understand that in the event the Company asks for my
cooperation in accordance with this provision, the Company will
reimburse me solely for reasonable travel expenses, including lodging
and meals, upon my submission of receipts.
11. Notwithstanding anything in this General Release to the contrary, this
General Release shall not relinquish, diminish, or in any way affect
any rights or claims arising out of any breach by the Company or by any
Released Party of the Agreement.
12. Whenever possible, each provision of this General Release shall be
interpreted in, such manner as to be effective and valid under
applicable law, but if any provision of this General Release 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 General Release shall be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
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<PAGE> 21
BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:
(a) I HAVE READ IT CAREFULLY;
(b) I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT
RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE
CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE
AMERICANS WITH DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED;
(c) I VOLUNTARILY CONSENT TO EVERYTHING IN IT;
(d) I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND
I HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I HAVE
CHOSEN NOT TO DO SO OF MY OWN VOLITION;
(e) I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE
SUBSTANTIALLY IN ITS FINAL FORM ON _______________ ____, ____ TO
CONSIDER IT AND THE CHANGES MADE SINCE THE ______________ _____,
_____VERSION OF THIS RELEASE ARE NOT MATERIAL AND WILL NOT RESTART THE
REQUIRED 21-DAY PERIOD;
(f) THE CHANGES TO THE AGREEMENT SINCE ____________ ___, _____ EITHER ARE
NOT MATERIAL OR WERE MADE AT MY REQUEST.
(g) I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE
TO REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR
ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED;
(h) I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH
THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND
(i) I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED,
WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED
BY AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.
DATE: __________________________ ________________________________
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<PAGE> 22
EXHIBIT C
TO
EMPLOYMENT AGREEMENT
BETWEEN
PIERCE & STEVENS CORPORATION
AND
FREDERICK A. QUINN
STOCK OPTION AGREEMENT
<PAGE> 1
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("AGREEMENT") is made and entered into as of the 29th
day of December, 1999, by and between Sovereign Specialty Chemicals, Inc., a
Delaware corporation (the "COMPANY"), and John R. Mellett (the "EMPLOYEE"). The
Company and the Employee are sometimes hereinafter collectively referred to as
the "PARTIES" and individually as a "PARTY." Certain capitalized terms used in
this Agreement are defined in Article VII hereof.
RECITALS
A. The Company is and will be engaged in the manufacture of adhesives,
sealants and coatings. The Company wishes to employ the Employee, and the
Employee wishes to be employed by the Company, as the Company's Vice President
and Chief Financial Officer. As a condition of that employment, the Company
requires that an employment agreement be entered into pursuant to which the
Employee furnishes the Company with, among other things, certain covenants of
the Employee, including his covenant not to compete with the businesses of the
Company, its Subsidiaries and their Affiliates.
B. In order to induce the Employee to enter into this Agreement, and to
incentivize and reward his effort, loyalty and commitment to the Company,
concurrent with the execution and delivery of this Agreement the Company has
granted to the Employee a certain stock option (the "OPTION") to purchase shares
of Common Stock of the Company ("SHARES") under and pursuant to the terms of the
"Sovereign Specialty Chemicals, Inc. Stock Option Plan" (the "PLAN") and a Stock
Option Agreement in the form of Exhibit C attached hereto and by this reference
made a part hereof (the "STOCK OPTION AGREEMENT").
C. The Employee acknowledges that as a member of the Company's
management, he is one of the persons charged with primary responsibility for the
implementation of the Company's business plans, and that he will have regular
access to various confidential and/or proprietary information relating to the
Company, its Subsidiaries, their Affiliates and their businesses. Further, the
Employee acknowledges that his covenants to the Company hereinafter set forth,
specifically including but not limited to the Employee's covenant not to engage
in competition with the Company, its Subsidiaries, their Affiliates and their
businesses, are being made in partial consideration of the Company's grant of
the Option to the Employee.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, and the
mutual agreements herein contained and other good and valuable consideration,
the receipt and sufficiency of which are hereby mutually acknowledged, the
parties hereby agree as follows:
<PAGE> 2
ARTICLE I
EMPLOYMENT RELATIONSHIP
1.1 EMPLOYMENT. Subject to the terms and conditions of this Agreement,
the Company hereby agrees to employ the Employee to serve as the Company's Vice
President and Chief Financial Officer, and the Employee hereby accepts such
employment, and agrees to perform his duties and responsibilities to the best of
his abilities in a diligent, trustworthy, businesslike and efficient manner.
1.2 DUTIES. The Employee shall have the normal and customary duties,
responsibilities and authority of a Vice President and Chief Financial Officer
and shall perform such other duties on behalf of the Company, its Subsidiaries
and their Affiliates as may be assigned to him by the Chief Executive Officer of
the Company. The Employee shall report to the Chief Executive Officer of the
Company in connection with the Employee's performance of his duties.
1.3 EXCLUSIVE EMPLOYMENT. While he is employed by the Company
hereunder, the Employee covenants to the Company that he will devote his entire
business time, energy, attention and skill to the Company, its Subsidiaries and
their Affiliates (except for permitted vacation periods and reasonable periods
of illness or other incapacity), and use his good faith best efforts to promote
the interests of the Company, its Subsidiaries and their Affiliates. The
foregoing shall not be construed as prohibiting the Employee from spending such
time as may be reasonably necessary to attend to his personal affairs and
investments so long as such activities do not conflict or interfere with the
Employee's obligations and/or timely performance of his duties to the Company,
its Subsidiaries and their Affiliates hereunder.
1.4 EMPLOYEE REPRESENTATIONS. The Employee hereby represents and
warrants to the Company that:
(a) the execution, delivery and performance by the Employee of
this Agreement and any other agreements contemplated hereby to which
the Employee 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 the Employee is a party or by which
he is bound;
(b) the Employee is not a party to or bound by any employment
agreement, non-competition agreement or confidentiality agreement with
any other person or entity (or if a party to such an agreement, the
Employee 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
(c) upon the execution and delivery of this Agreement by the
Company, this Agreement shall be the valid and binding obligation of
the Employee, enforceable in accordance with its terms.
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<PAGE> 3
The Employee hereby acknowledges and represents that 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.
ARTICLE II
PERIOD OF EMPLOYMENT
2.1 EMPLOYMENT PERIOD. The Employee has been employed by the Company
for nine months, and such employment shall continue hereunder until the date
fixed by the provisions of Section 2.2 hereof, subject to the early termination
provisions of Article V hereof (the "EMPLOYMENT PERIOD"), it being acknowledged
that the Company's fiscal year ends on December 31, and that the Employment
Period shall therefore be denominated in calendar years.
2.2 INITIAL TERM OF EMPLOYMENT PERIOD AND EXTENSION TERMS. The
Employment Period shall initially continue for a term commencing on the date
hereof and ending on December 31, 2003 (the "INITIAL TERM"). The Employment
Period shall be automatically extended for successive calendar years of the
Company following the expiration of the Initial Term (each such one year period
being hereinafter referred to as an "EXTENSION TERM") upon the same terms and
conditions provided for herein unless either party provides the other party with
advance written notice of its or his intention not to extend the Employment
Period; provided, however, that such notice must be delivered by the
non-extending party to the other party not later than ninety (90) days prior to
the expiration of the Initial Term or any Extension Term, as the case may be.
ARTICLE III
COMPENSATION
3.1 ANNUAL BASE COMPENSATION. During the Employment Period the Company
shall pay to the Employee an annual base salary (the "ANNUAL BASE COMPENSATION")
in the amount of $200,000. The Annual Base Compensation shall be paid in regular
installments in accordance with the Company's general payroll practices, and
shall be subject to all required federal, state and local withholding taxes. The
Employee's Annual Base Compensation shall be reviewed by the Board annually, and
may, in the discretion of the Board be increased, provided that there shall be
no obligation on the part of the Company to increase the Employee's Annual Base
Compensation, further provided that in no event shall the Employee's Annual Base
Compensation be less than the greater of (i) the amount indicated in the first
sentence of this Section 3.1 or (ii) the highest amount such Annual Base
Compensation may have been increased to by the Board subsequent to the date of
this Agreement in its discretion.
3.2 POTENTIAL ANNUAL TARGET BONUSES. In respect of each calendar year
falling within the Employment Period, the Employee shall be eligible to earn an
annual bonus, depending upon the results of operation of the Company, its
Subsidiaries and their Affiliates and the personal performance of the Employee,
of up to forty percent (40%) of the Employee's Annual Base Compensation for that
calendar year (the "POTENTIAL ANNUAL TARGET BONUS") in accordance with the terms
of a bonus plan which shall be adopted and maintained in effect by the
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<PAGE> 4
Board for that calendar year. The amount of the Potential Annual Target Bonus,
if any, which is earned by the Employee (the "BONUSABLE AMOUNT") shall be paid
by the Company to the Employee no later than seventy-five (75) days following
the close of the Company's calendar year, provided that unless expressly
provided otherwise herein, it shall be a condition precedent to the Employee's
right to receive any Bonusable Amount that the Employee be employed by the
Company on the last day of that calendar year.
3.3 DISCRETIONARY BONUSES. In respect of each calendar year falling
within the Employment Period, the Company may pay a discretionary annual bonus
to the Employee (a "DISCRETIONARY BONUS") to be determined by the Board, in its
sole discretion. Any Discretionary Bonus shall be paid by the Company to the
Employee within seventy-five (75) days following the close of the Company's
calendar year, provided that unless expressly provided otherwise herein, it
shall be a condition precedent to the Employee's right to receive any
Discretionary Bonus that the Employee be employed by the Company on the last day
of that calendar year.
3.4 EXPENSES. During the Employment Period, the Employee shall be
entitled to reimbursement of all travel, entertainment and other business
expenses reasonably incurred in the performance of his duties for the Company,
upon submission of all receipts and accounts with respect thereto, and approval
by the Company thereof, in accordance with the business expense reimbursement
policies of the Company from time to time adopted by the Board. In addition, for
the six month period commencing January 1, 2000, the Employee shall be paid a
$3,000 per month allowance for temporary living and travel, provided that the
foregoing allowance shall not be considered part of the Employee's Annual Base
Compensation, and further provided that the said $3,000 shall be paid in regular
installments in accordance with the Company's general payroll practices, and
shall be subject to all required federal, state and local withholding taxes.
3.5 VACATION. In respect of each calendar year falling within the
Employment Period, the Employee shall be entitled to such vacation time as the
Company customarily provides to its senior executives (but in no event less than
four (4) weeks per calendar year), provided that unused vacation may be used by
the Employee in the following calendar year only in accordance with and as
permitted by the Company's then current vacation policies in effect from time to
time.
3.6 OTHER FRINGE BENEFITS. During the Employment Period, the Employee
shall be entitled to receive such of the Company's other fringe benefits as are
being provided to other employees of the Company holding senior executive
positions, including but not limited to health insurance benefits, disability
benefits and retirement benefits.
3.7 GRANT OF STOCK OPTION. Concurrently with the parties' execution and
delivery of this Agreement the Company has granted to the Employee the Option to
purchase an aggregate of Fifteen Thousand (15,000) Shares pursuant to the terms
of the Stock Option Agreement as part consideration for the Employee's execution
and delivery of this Agreement to the Company.
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<PAGE> 5
ARTICLE IV
COVENANTS OF THE EMPLOYEE
4.1 PROPRIETARY RIGHTS. The Employee hereby expressly agrees that all
research, discoveries, inventions and innovations (whether or not reduced to
practice or documented), improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether patentable or
unpatentable, and whether or not reduced to writing), trade secrets (being
information about the business of the Company, its Subsidiaries and their
Affiliates which is considered by the Company or any such Subsidiary or
Affiliate to be confidential and is proprietary to the Company or any such
Subsidiary or Affiliate) and confidential information, copyrightable works, and
similar and related information (in whatever form or medium), which (x) either
(i) relate to the Company's, its Subsidiaries' or their Affiliates' actual or
anticipated business, research and development or existing or future products or
services or (ii) result from any work performed by the Employee for the Company,
its Subsidiaries or any of their Affiliates and (y) are conceived, developed,
made or contributed to in whole or in part by the Employee during the Employment
Period ("WORK Product") shall be and remain the sole and exclusive property of
the Company, such Subsidiary or such Affiliate. The Employee shall communicate
promptly and fully all Work Product to the Board.
(a) WORK MADE FOR HIRE. The Employee acknowledges that, unless
otherwise agreed in writing by the Company, all Work Product eligible
for any form of copyright protection made or contributed to in whole or
in part by the Employee within the scope of the Employee's employment
by the Company during the Employment Period shall be deemed a "work
made for hire" under the copyright laws and shall be owned by the
Company, its Subsidiaries or their Affiliates, as applicable.
(b) ASSIGNMENT OF PROPRIETARY RIGHTS. The Employee hereby
assigns, transfers and conveys to the Company, and shall assign,
transfer and convey to the Company, all right, title and interest in
and to all inventions, ideas, improvements, designs, processes,
trademarks, service marks, trade names, trade secrets, trade dress,
data, discoveries and other proprietary assets and proprietary rights
in and of the Work Product (the "PROPRIETARY RIGHTS") for the Company's
exclusive ownership and use, together with all rights to sue and
recover for past and future infringement or misappropriation thereof,
provided that if a Subsidiary or Affiliate of the Company is the owner
thereof, such assignment, transfer and conveyance shall be made to such
Subsidiary or Affiliate, which shall enjoy exclusive ownership and use,
together with all rights to sue and recover for past and future
infringement or misappropriation thereof.
(c) FURTHER INSTRUMENTS. At the request of the Company (its
Subsidiaries or their Affiliates, as the case may be), at all times
during the Employment Period and thereafter, the Employee will promptly
and fully assist the Company (its Subsidiaries or their Affiliates, as
the case may be) in effecting the purpose of the foregoing assignment,
including but not limited to the further acts of executing any and all
documents necessary to secure for the Company (its Subsidiaries or
their Affiliates, as the case may be) such
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<PAGE> 6
Proprietary Rights and other rights to all Work Product and all
confidential information related thereto, providing cooperation and
giving testimony.
(d) INAPPLICABILITY OF SECTION 4.1 IN CERTAIN CIRCUMSTANCES.
The Company expressly acknowledges and agrees that, and the Employee is
hereby advised that, this Section 4.1 does not apply to any invention
for which no equipment, supplies, facilities or trade secret
information of the Company, its Subsidiaries or any of their Affiliates
was used and which was developed entirely on the Employee's own time,
unless (i) the invention relates to the business of the Company, its
Subsidiaries or any of their Affiliates or to the Company's, its
Subsidiaries' or any of their Affiliates' actual or demonstrably
anticipated research or development or (ii) the invention results from
any work performed by the Employee for the Company, its Subsidiaries or
any of their Affiliates.
4.2 OWNERSHIP AND COVENANT TO RETURN DOCUMENTS, ETC. The Employee
agrees that all Work Product and all documents or other tangible materials
(whether originals, copies or abstracts), including without limitation, price
lists, quotation guides, outstanding quotations, books, records, manuals, files,
sales literature, training materials, customer records, correspondence, computer
disks or print-out documents, contracts, orders, messages, phone and address
lists, invoices and receipts, and all objects associated therewith, which in any
way relate to the business or affairs of the Company, its Subsidiaries and their
Affiliates either furnished to the Employee by the Company, its Subsidiaries or
any of their Affiliates or are prepared, compiled or otherwise acquired by the
Employee during the Employment Period, shall be the sole and exclusive property
of the Company, such Subsidiaries or such Affiliates. The Employee shall not,
except for the use of the Company, its Subsidiaries or any of their Affiliates,
use, copy or duplicate any of the aforementioned documents or objects, nor
remove them from the facilities of the Company or such Subsidiaries or such
Affiliates, nor use any information concerning them except for the benefit of
the Company, its Subsidiaries and their Affiliates, either during the Employment
Period or thereafter. The Employee agrees that he will deliver all of the
aforementioned documents and objects that may be in his possession to the
Company on the termination of his employment with the Company, or at any other
time upon the Company's request, together with his written certification of
compliance with the provisions of this Section 4.2 in the form of Exhibit A to
this Agreement in accordance with the provisions of Section 5.3 hereof.
4.3 NON-DISCLOSURE COVENANT. During the Employment Period and at all
times thereafter, the Employee shall not, either directly or indirectly,
disclose to any "unauthorized person" or use for the benefit of the Employee or
any person or entity other than the Company, its Subsidiaries or their
Affiliates any Work Product or any knowledge or information which the Employee
may acquire while employed by the Company (whether before or after the date of
this Agreement) relating to (i) the financial, marketing, sales and business
plans and affairs, financial statements, analyses, forecasts and projections,
books, accounts, records, operating costs and expenses and other financial
information of the Company, its Subsidiaries and their Affiliates, (ii) internal
management tools and systems, costing policies and methods, pricing policies and
methods and other methods of doing business, of the Company, its Subsidiaries
and their Affiliates, (iii) customers, sales, customer requirements and usages,
distributor lists, of the
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<PAGE> 7
Company, its Subsidiaries and their Affiliates, (iv) agreements with customers,
vendors, independent contractors, employees and others, of the Company, its
Subsidiaries and their Affiliates, (v) existing and future products or services
and product development plans, designs, analyses and reports, of the Company,
its Subsidiaries and their Affiliates, (vi) computer software and data bases
developed for the Company, its Subsidiaries or their Affiliates, trade secrets,
research, records of research, models, designs, drawings, technical data and
reports of the Company, its Subsidiaries and their Affiliates and (vii)
correspondence or other private or confidential matters, information or data
whether written, oral or electronic, which is proprietary to the Company, its
Subsidiaries and their Affiliates and not generally known to the public
(individually and collectively "CONFIDENTIAL INFORMATION"), without the
Company's prior written permission. For purposes of this Section 4.3, the term
"UNAUTHORIZED PERSON" shall mean any person who is not (i) an officer or
director of the Company, or (ii) an employee, officer or director of a
Subsidiary or Affiliate of the Company for whom the disclosure of the knowledge
or information referred to herein is necessary for his performance of his
assigned duties, or (iii) a person expressly authorized by the Company to
receive disclosure of such knowledge or information. The Company expressly
acknowledges and agrees that the term "Confidential Information" excludes
information which is (A) in the public domain or otherwise generally known to
the trade, or (B) disclosed to third parties other than by reason of the
Employee's breach of his confidentiality obligation hereunder or (C) learned of
by the Employee subsequent to the termination of his employment hereunder from
any other party not then under an obligation of confidentiality to the Company,
its Subsidiaries and their Affiliates. Further, the Employee covenants to the
Company that in the Employee's performance of his duties hereunder, the Employee
will violate no confidentiality obligations he may have to any third persons.
4.4 ANTI-PIRATING AND NON-INTERFERENCE COVENANTS. The Employee
covenants to the Company that while the Employee is employed by the Company
hereunder and for the two (2) year period thereafter (the "NON-SOLICITATION
PERIOD"), he will not, for any reason, directly or indirectly: (a) solicit,
hire, or otherwise do any act or thing which may induce any other employee of
the Company, its Subsidiaries or their Affiliates to leave the employ or
otherwise interfere with or adversely affect the relationship (contractual or
otherwise) of the Company, its Subsidiaries and their Affiliates with any person
who is then or thereafter becomes an employee of the Company, its Subsidiaries
and their Affiliates; or (b) do any act or thing which may interfere with or
adversely affect the relationship (contractual or otherwise) of the Company, its
Subsidiaries and their Affiliates with any customer or vendor of the Company,
its Subsidiaries and their Affiliates or induce any such customer or vendor to
cease doing business with the Company, its Subsidiaries and their Affiliates.
4.5 COVENANT NOT TO COMPETE. The Employee expressly acknowledges that
(i) the Company is and will be engaged in the manufacture of adhesives, sealants
and coatings; (ii) the Employee is one of a limited number of persons who has
extensive knowledge and expertise relevant to the businesses of the Company, its
Subsidiaries and their Affiliates; (iii) the Employee's performance of his
services for the Company hereunder will afford him full and complete access to
and cause him to become highly knowledgeable about the Company's, its
Subsidiaries' and their Affiliates' Confidential Information; (iv) the
agreements and covenants
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<PAGE> 8
contained in this Section 4.5 are essential to protect the business and goodwill
of the Company, its Subsidiaries and their Affiliates because, if the Employee
enters into any activities competitive with the businesses of the Company, its
Subsidiaries and their Affiliates, he will cause substantial harm to the Company
or its Subsidiaries and Affiliates; and (v) his covenants to the Company, its
Subsidiaries and their Affiliates set forth in this Section 4.5 are being made
in partial consideration of the Company's grant of the Option to him.
Accordingly, the Employee hereby agrees that while he is employed by the Company
hereunder and for the one (1) year period thereafter (the "NON-COMPETITION
PERIOD"), he shall not directly or indirectly own any interest in, invest in,
lend to, borrow from, manage, control, participate in, consult with, become
employed by, render services to, or in any other manner whatsoever engage in,
any business which is competitive with any business actively being engaged in by
the Company, its Subsidiaries and their Affiliates or actively (and
demonstrably) being considered by the Company, its Subsidiaries and their
Affiliates for entry into on the date of the termination of the Employment
Period, within any states or geographical regions in which any such business is
being conducted or in which the Company, its Subsidiaries and their Affiliates
is or are actively (and demonstrably) considering engaging in on the date of the
termination of the Employment Period. The preceding to the contrary
notwithstanding, the Employee shall be free to make investments in the publicly
traded securities of any corporation, provided that such investments do not
amount to more than 1% of the outstanding securities of any class of such
corporation.
4.6 REMEDIES FOR BREACH. If the Employee commits a breach, or threatens
to commit a breach, of any of the provisions of this Article IV, the Company and
its Subsidiaries shall have the right and remedy, in addition to any other
remedy that may be available at law or in equity, to have the provisions of this
Article IV specifically enforced by any court having equity jurisdiction,
together with an accounting therefor, it being expressly acknowledged and agreed
by the Employee that any such breach or threatened breach will cause irreparable
injury to the Company and its Subsidiaries and that money damages will not
provide an adequate remedy to the Company and its Subsidiaries. Such injunction
shall be available without the posting of any bond or other security, and the
Employee hereby consents to the issuance of such injunction. The Employee
further agrees that any such injunctive relief obtained by the Company or its
Subsidiaries shall be in addition to, and not in lieu of, monetary damages and
any other remedies to which the Company or its Subsidiaries may be entitled.
Further, in the event of an alleged breach or violation by the Employee of any
of the provisions of Sections 4.4 or 4.5 hereof, the Non-Solicitation Period
and/or the Non-Competition Period, as the case may be, shall be tolled until
such breach or violation has been cured. The parties agree that in the event of
the institution of any action at law or in equity by either party to enforce the
provisions of this Article IV, the losing party shall pay all of the costs and
expenses of the prevailing party, including reasonable legal fees, incurred in
connection therewith. If any covenant contained in this Article IV or any part
thereof is hereafter construed to be invalid or unenforceable, the same shall
not affect the remainder of such covenant or any other covenants, which shall be
given full effect, without regard to the invalid portions, and any court having
jurisdiction shall have the power to modify such covenant to the least extent
necessary to render it enforceable and, in its modified form, said covenant
shall then be enforceable.
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<PAGE> 9
ARTICLE V
TERMINATION OF EMPLOYMENT
5.1 TERMINATION AND TRIGGERING EVENTS. Notwithstanding anything to the
contrary elsewhere contained in this Agreement, the Employment Period shall
terminate at the expiration of the Initial Term or any Extension Term, or prior
to the expiration of the Initial Term or any Extension Term upon the occurrence
of any of the following events (hereinafter referred to as "TRIGGERING EVENTS"):
(a) the Employee's death; (b) the Employee's Total Disability; (c) the
Employee's Resignation; (d) the Employee's Resignation with Good Grounds; (e) a
Termination by the Company for Cause; or (f) a Termination by the Company
Without Cause.
5.2 RIGHTS UPON OCCURRENCE OF A TRIGGERING EVENT. Subject to the
provisions of Section 5.3 hereof, the rights of the parties upon the occurrence
of a Triggering Event prior to the expiration of the Initial Term or any
Extension Term shall be as follows:
(a) RESIGNATION AND TERMINATION BY THE COMPANY FOR CAUSE: If
the Triggering Event was the Employee's Resignation or a Termination by
the Company for Cause, the Employee shall be entitled to receive his
Annual Base Compensation and accrued but unpaid vacation through the
date thereof 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 that date and thereafter, only to
the extent permitted under the terms of such plans and programs.
(b) DEATH OR TOTAL DISABILITY: If the Triggering Event was the
Employee's death or Total Disability, the Employee (or the Employee's
designated beneficiary) shall be entitled to receive the Employee's
Annual Base Compensation and accrued but unpaid vacation through the
date thereof plus a pro rata portion of the Employee's Potential Annual
Target Bonus for the calendar year in which such death or Total
Disability occurred (based on the number of days the Employee was
employed during the applicable calendar year), 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.
(c) TERMINATION BY COMPANY WITHOUT CAUSE OR RESIGNATION BY
EMPLOYEE WITH GOOD GROUNDS: If the Triggering Event was a Termination
by the Company Without Cause or a Resignation by the Employee With Good
Grounds, the Employee shall be entitled to receive his Annual Base
Compensation and accrued but unpaid vacation through the date thereof
plus, in the case of either (i) Resignation by the Employee with
Grounds or (ii) a Termination By the Company Without Cause in the
discretion of the Chief Executive Officer of the Company, a pro rata
portion of the Employee's Potential Annual Target Bonus for the
calendar year in which such Triggering Event occurred (based on the
number of days the Employee was employed during the applicable calendar
year), payable in accordance with the Company's normal payroll
practices, provided that in addition, the Employee shall also be paid
an amount
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<PAGE> 10
equal to his then current Annual Base Compensation 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 ("ADDITIONAL SEVERANCE BENEFITS") during the one (1) year
period immediately following the date of the termination of the
Employment Period (the "SEVERANCE PERIOD"); provided that the Employee
shall be entitled to receive such Additional Severance Benefits during
the Severance Period if and only if the Employee has executed and
delivered to the Company the General Release substantially in form and
substance as set forth in Exhibit B to this Agreement and only so long
as the Employee has not breached any of his covenants to the Company
set forth in Article IV of this Agreement.
(d) CESSATION OF ENTITLEMENTS AND COMPANY RIGHT OF OFFSET.
Except as otherwise expressly provided herein, all of the Employee's
rights to salary, employee benefits, fringe benefits and bonuses
hereunder (if any) which would otherwise accrue after the termination
of the Employment Period shall cease upon the date of such termination.
The Company may offset any loans, cash advances or fixed amounts which
the Employee owes the Company or its Affiliate against any amounts it
owes the Employee under this Agreement.
5.3 SURVIVAL OF CERTAIN OBLIGATIONS AND TERMINATION CERTIFICATE. The
provisions of Articles IV, VI and VIII shall survive any termination of the
Employment Period, whether by reason of the occurrence of a Triggering Event or
the expiration of the Initial Term or any Extension Term. Immediately following
the termination of the Employment Period, the Employee shall promptly return to
the Company all property required to be returned to the Company pursuant to the
provisions of Section 4.2 hereof and execute and deliver to the Company the
Termination Certificate attached hereto as Exhibit A and by this reference made
a part hereof.
ARTICLE VI
ASSIGNMENT
6.1 PROHIBITION OF ASSIGNMENT BY EMPLOYEE. The Employee expressly
agrees for himself and on behalf of his executors, administrators and heirs,
that this Agreement and his obligations, rights, interests and benefits
hereunder shall not be assigned, transferred, pledged or hypothecated in any way
by the Employee, his executors, administrators or heirs, and shall not be
subject to execution, attachment or similar process. Any attempt to assign,
transfer, pledge, hypothecate or otherwise dispose of this Agreement or any such
rights, interests and benefits thereunder contrary to the foregoing provisions,
or the levy of any attachment or similar process thereupon shall be null and
void and without effect and shall relieve the Company of any and all liability
hereunder.
6.2 RIGHT OF COMPANY TO ASSIGN. This Agreement shall be assignable and
transferable by the Company to any successor-in-interest without the consent of
the Employee.
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ARTICLE VII
DEFINITIONS
"AFFILIATE" means each of the Company's Subsidiaries.
"BOARD" means the Board of Directors of the Company.
"RESIGNATION" means the voluntary termination of employment hereunder
by the Employee which is not a Resignation with Good Grounds (except if made in
contemplation of a Termination by the Company for Cause), provided that if such
action is taken by the Employee without the giving of at least ninety (90) days
prior written notice, such termination of employment shall not be a
"Resignation," but instead shall constitute a Termination for Cause.
"RESIGNATION WITH GOOD GROUNDS" means a voluntary termination of the
Employee's employment hereunder on account of, and within sixty (60) days after,
the occurrence of one or more of the following events:
(i) the assignment to the Employee of any duties inconsistent
in any material respect with the Employee's position (including status,
offices and titles), authority, duties or responsibilities as
contemplated by Section 1.2 hereof which results in a diminution of the
Employee's position, excluding for this purpose an isolated,
insubstantial or inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of written notice
thereof given by the Employee;
(ii) the Employee's Annual Base Compensation and/or Potential
Annual Target Bonus is/are decreased below the amount of his then
Annual Base Compensation and/or Potential Annual Target Bonus fixed by
the applicable provisions of Sections 3.1 and 3.2 hereof (provided that
so long as the aggregate sum of the Employee's Annual Base Compensation
and Potential Annual Target Bonus in respect of any calendar year
during the Employment Term are not decreased, the Company shall be free
to decrease the Potential Annual Target Bonus for that year and
commensurately increase the Annual Base Compensation for that year
without any affect on the subsequent calendar year Annual Base
Compensation and Potential Annual Target Bonus, it being expressly
acknowledged by the Employee that the operating result achievement
criteria for the payment of any of the Potential Annual Target Bonus by
the Company, its Subsidiaries and their Affiliates shall be determined
by the Board, in its absolute discretion) or the Employee's benefits
under any material employee benefit plan, program or arrangement of the
Company (other than a change that affects all Employees of the Company)
are materially reduced from the level in effect upon the Employee's
commencement of participation therein;
(iii) the Employee is required by the Company to relocate his
personal residence outside of a 50 mile radius of the Company's current
principal place of business (other than as agreed to by the Employee
prior to the execution of this Agreement or as provided in another
agreement between the Company and the Employee); or
- 11 -
<PAGE> 12
(iv) the failure of the Company to comply with any of the
provisions of this Agreement, other than an isolated, insubstantial or
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of written notice thereof given by the
Employee.
"SUBSIDIARY" 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.
"TERMINATION BY THE COMPANY FOR CAUSE" means termination by the Company
of the Employee's employment for:
(i) misappropriation of any significant monies or significant
assets or properties of the Company;
(ii) conviction of a felony or a crime involving moral
turpitude;
(iii) substantial and repeated failure to comply with
directions of the Chief Executive Officer of the Company;
(iv) gross negligence or willful misconduct;
(v) chronic alcoholism or drug addiction together with the
Employee's refusal to cooperate with or participate in counseling
and/or treatment of same; or
(vi) any willful action or inaction of the Employee which, in
the reasonable opinion of the Board, constitutes dereliction (willful
neglect or willful abandonment of assigned duties), or a material
breach of Company policy or rules which, if susceptible to cure, is not
cured by the Employee within five (5) days following the Employee's
receipt of written notice from the Company advising the Employee with
reasonable specificity as to the action or inaction viewed by the Board
to be dereliction or a material breach of Company policy or rules;
- 12 -
<PAGE> 13
provided that the termination of the Employee's employment hereunder by the
Company shall not be deemed a Termination by the Company for Cause unless and
until there shall have been delivered to the Employee a written notice from the
Chief Executive Officer of the Company (after reasonable notice to and an
opportunity for the Employee (alone and in person) to have a meeting with the
Chief Executive Officer of the Company) finding that in the good faith opinion
of the Chief Executive Officer of the Company, the Employee was guilty of the
conduct set forth in one or more of such clauses.
"TERMINATION BY THE COMPANY WITHOUT CAUSE" means a termination of the
Employee's employment by the Company which is not a Termination by the Company
for Cause, provided that the termination of the Employment Period on account of
the failure of the Company to extend the Employment Period in accordance with
the provisions of Section 2.2 hereof shall constitute a Termination by the
Company Without Cause.
"TOTAL DISABILITY" means the Employee's inability, because of illness,
injury or other physical or mental incapacity, to perform his duties hereunder
(as determined by the Board in good faith) for a continuous period of one
hundred eighty (180) consecutive days, or for a total of ninety (90) days within
any three hundred sixty (360) consecutive day period, in which case such Total
Disability shall be deemed to have occurred on the last day of such one hundred
eighty (180) day or three hundred sixty (360) day period, as applicable.
ARTICLE VIII
GENERAL
8.1 NOTICES. All notices under this Agreement shall be in writing and
shall be deemed properly sent, (i) when delivered, if by personal service or
reputable overnight courier service, or (ii) when received, if sent (x) by
certified or registered mail, postage prepaid, return receipt requested, or (y)
via facsimile transmission (provided that a hard copy of such notice is sent to
the addressee via one of the methods of delivery or mailing set forth above on
the same day the facsimile transmission is sent); to the recipient at the
address indicated below:
Notices to Employee:
-------------------
John R. Mellett
31 Windsor Ridge
Frisco, Texas 75034
Notices to Company:
------------------
Sovereign Specialty Chemicals, Inc.
C/O Chief Executive Officer
Suite 2200
225 West Washington Street
Chicago, Illinois 60606
Facsimile (312) 419-7151
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<PAGE> 14
With Copies to:
--------------
Robert I. Schwimmer, Esq.
McBride Baker & Coles
500 West Madison, 40th Floor
Chicago, Illinois 60661
Facsimile (312) 993-9350
Timothy E. Peterson, Esq.
Fried, Frank, Harris, Shriver & Jacobson
4 Chriswell Street
London EC1Y 4UP
Facsimile (0207) 972-9602
Christine J. Smith, Esq.
AEA Investors Inc.
65 East 55th Street
New York, New York 10022
Facsimile (212) 888-1459
8.2 GOVERNING LAW. This Agreement shall be subject to and governed by
the laws of the State of Illinois without regard to any choice of law or
conflicts of law rules or provisions (whether of the State of Illinois or any
other jurisdiction), irrespective of the fact that the Employee may become a
resident of a different state.
8.3 BINDING EFFECT. The Agreement shall be binding upon and inure to
the benefit of the Company, its successors and assigns, and the Employee and his
executors, administrators, personal representatives and heirs.
8.4 COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding among the parties hereto with regard to the subject matter hereof,
and supersedes any and all prior agreements and understandings relating to the
employment of the Employee by the Company, including, without limitation, the
employment agreement between the Employee and the Company, dated March 31, 1999,
which is hereby null and void.
8.5 AMENDMENTS. No change, modification or amendment of any provision
of this Agreement shall be valid unless made in writing and signed by all of the
parties hereto.
8.6 WAIVER. The waiver by the Company of a breach of any provision of
this Agreement by the Employee shall not operate or be construed as a waiver of
any subsequent breach by the Employee. The waiver by the Employee of a breach of
any provision of this Agreement by the Company shall not operate as a waiver of
any subsequent breach by the Company.
8.7 VENUE, JURISDICTION, ETC. The Employee hereby agrees that any suit,
action or proceeding relating in any way to this Agreement may be brought and
enforced in the Circuit
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<PAGE> 15
Court of Cook County of the State of Illinois or in the District Court of the
United States of America for the Northern District of Illinois, Eastern
Division, and in either case the Employee hereby submits to the jurisdiction of
each such courts. The Employee hereby waives and agrees not to assert, by way of
motion or otherwise, in any such suit, action or proceeding, any claim that the
Employee is not personally subject to the jurisdiction of the above-named
courts, that the suit, action or proceeding is brought in an inconvenient forum
or that the venue of the suit, action or proceeding is improper. The Employee
consents and agrees to service of process or other legal summons for purpose of
any such suit, action or proceeding by registered mail addressed to the Employee
at his or her address listed in the business records of the Company. Nothing
contained herein shall affect the rights of the Company to bring suit, action or
proceeding in any other appropriate jurisdiction. The Employee and the Company
do each hereby waive any right to trial by jury, he or it may have concerning
any matter relating to this Agreement.
8.8 SEVERABILITY. If any portion of this Agreement shall be for any
reason, invalid or unenforceable, the remaining portion or portions shall
nevertheless be valid, enforceable and carried into effect.
8.9 HEADINGS. The headings of this Agreement are inserted for
convenience only and are not to be considered in the construction of the
provisions hereof.
8.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which, taken together, shall constitute one and the same
agreement.
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<PAGE> 16
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its duly authorized officers and its corporate seal to be hereunto affixed,
and the Employee has hereunto set his hand on the day and year first above
written.
COMPANY: EMPLOYEE:
- ------- --------
SOVEREIGN SPECIAL CHEMICALS,
INC., a Delaware Corporation
____________________________________
John R. Mellett
By: __________________________
Chairman of the Board
<PAGE> 17
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
BETWEEN
SOVEREIGN SPECIALTY CHEMICALS, INC.
AND
JOHN R. MELLETT
TERMINATION CERTIFICATE
This is to certify that, except as permitted by the Employment
Agreement (as defined below) I do not have in my possession, nor have I failed
to return, any software, inventions, designs, works of authorship, copyrightable
works, formulas, data, marketing plans, forecasts, product concepts, marketing
plans, strategies, forecasts, devices, records, data, notes, reports, proposals,
customer lists, correspondence, specifications, drawings, blueprints, sketches,
materials, patent applications, continuation applications, continuation-in-part
applications, divisional applications, other documents or property, or
reproductions of any aforementioned items belonging to SOVEREIGN SPECIALTY
CHEMICALS, INC. (the "COMPANY"), its Subsidiaries and their Affiliates,
successors or assigns.
I further certify that I have complied with all the terms of the
Employment Agreement dated December 29, 1999 between the Company and me (the
"EMPLOYMENT AGREEMENT"), relating to the reporting of any Work Product (as that
term is defined therein), conceived or made by me (solely or jointly with
others) covered by the Employment Agreement.
I acknowledge that the provisions of the Employment Agreement relating
to Confidential Information, as defined in the Employment Agreement, continue in
effect beyond the termination of the Employment Agreement, as set forth therein.
Finally, I further acknowledge that the provisions of the Employment
Agreement relating to my (i) anti-pirating, (ii) noninterference and (iii)
non-competition covenants to the Company, its Subsidiaries and their Affiliates,
remain in effect following the date of my termination of employment with the
Company.
Date: ____________________________ ____________________________________
Employee
<PAGE> 18
EXHIBIT B
TO
EMPLOYMENT AGREEMENT
BETWEEN
SOVEREIGN SPECIALTY CHEMICALS, INC.
AND
JOHN R. MELLETT
GENERAL RELEASE
I, John R. Mellett, in consideration of and subject to the performance
by SOVEREIGN SPECIALTY CHEMICALS, INC., a Delaware corporation (the "COMPANY"),
of its material obligations under the Employment Agreement, dated as of the date
as of December 29, 1999 (the "AGREEMENT"), do hereby release and forever
discharge as of the date hereof the Company, its Subsidiaries and their
Affiliates (as those terms are defined in the Agreement) and all present and
former directors, officers, agents, representatives, employees, successors and
assigns of the Company, its Subsidiaries and their Affiliates and their direct
or indirect owners (collectively, the "RELEASED PARTIES") to the extent provided
below.
1. I understand that any payments or benefits paid or granted to me under
Section 5.2(c) of the Agreement represent, in part, consideration for
signing this General Release and are not salary, wages or benefits to
which I was already entitled. I understand and agree that I will not
receive the payments and benefits specified in Section 5.2(c) of the
Agreement unless I execute this General Release and do not revoke this
General Release within the time period permitted hereafter or breach
this General Release.
2. Except as provided in paragraph 4 of this General Release, I knowingly
and voluntarily release and forever discharge the Company and the other
Released Parties from any and all claims, controversies, actions,
causes of action, cross-claims, counterclaims, demands, debts,
compensatory damages, liquidated damages, punitive or exemplary
damages, other damages, claims for costs and attorneys' fees, or
liabilities of any nature whatsoever in law and in equity, both past
and present (through the date of this General Release) and whether
known or unknown, suspected, or claimed against the Company or any of
the Released Parties which I, my spouse, or any of my heirs, executors,
administrators or assigns, may have, which arise out of or are
connected with my employment with, or my separation from, the Company
(including, but not limited to, any allegation, claim or violation,
arising under: Title VII of the Civil Rights Act of 1964, as amended;
the Civil Rights Act of 1991; the Age Discrimination in Employment Act
of 1967, as amended (including the Older Workers Benefit Protection
Act); the Equal Pay Act of 1963, as amended; the Americans with
Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the
Civil Rights Act of 1866, as amended; the Worker Adjustment Retraining
and Notification Act; the Employee Retirement Income Security Act of
1974;
<PAGE> 19
any applicable Employee Order Programs; the Fair Labor Standards Act;
or their state or local counterparts; or under any other federal, state
or local civil or human rights law, or under any other local, state, or
federal law, regulation or ordinance; or under any public policy,
contract or tort, or under common law; or arising under any policies,
practices or procedures of the Company; or any claim for wrongful
discharge, breach of contract, negligent or intentional infliction of
emotional distress, defamation; or any claim for costs, fees, or other
expenses, including attorneys' fees incurred in these matters) (all of
the foregoing collectively referred to herein as the "CLAIMS").
3. I represent that I have made no assignment or transfer of any right,
claim, demand, cause of action, or other matter covered by paragraph 2
of this General Release.
4. I and the Company mutually agree that this General Release does not
waive or release any rights or claims that I may have under (a) the Age
Discrimination in Employment Act of 1967 and (b) any agreements to
which I and the Company are parties pertaining to any shares of capital
stock of the Company owned by me, which arise after the date I execute
this General Release. I acknowledge and agree that my separation from
employment with the Company in compliance with the terms of the
Agreement shall not serve as the basis for any claim or action
(including, without limitation, any claim under the Age Discrimination
in Employment Act of 1967).
5. In signing this General Release, I acknowledge and intend that it shall
be effective as a bar to each and every one of the Claims hereinabove
mentioned or implied. I expressly consent that this General Release
shall be given full force and effect according to each and all of its
express terms and provisions, including those relating to unknown and
unsuspected Claims (notwithstanding any state statute that expressly
limits the effectiveness of a general release of unknown, unsuspected
and unanticipated Claims), if any, as well as those relating to any
other Claims hereinabove mentioned or implied. I acknowledge and agree
that this waiver is an essential and material term of this General
Release and that without such waiver the Company would not have agreed
to the terms of the Agreement. I further agree that in the event I
should bring a Claim seeking damages against the Company, or in the
event I should seek to recover against the Company in any Claim brought
by a governmental agency on my behalf, this General Release shall serve
as a complete defense to such Claims. I further agree that I am not
aware of any pending charge or complaint of the type described in
paragraph 2 as of the execution of this General Release.
6. I agree that neither this General Release, nor the furnishing of the
consideration for this General Release, shall be deemed or construed at
any time to be an admission by the Company, any Released Party or
myself of any improper or unlawful conduct.
7. I agree that I will forfeit all amounts payable by the Company pursuant
to the Agreement if I challenge the validity of this General Release,
provided that nothing herein contained in this Agreement shall prohibit
or bar me from filing a charge, including a challenge to the validity
of the Agreement, with the United States Equal Employment Opportunity
- 2 -
<PAGE> 20
Commission ("EEOC"), or any state or local fair employment practices
agency, or from participating in any investigation, hearing or
proceeding conducted by the EEOC, or any state or local fair employment
practices agency. I also agree that if I violate this General Release
by suing the Company or the other Released Parties, I will pay all
costs and expenses of defending against the suit incurred by the
Released Parties, including reasonable attorneys' fees, and return all
payments received by me pursuant to the Agreement.
8. I agree that this General Release is confidential and agree not to
disclose any information regarding the terms of this General Release,
except to my immediate family and any tax, legal or other counsel I
have consulted regarding the meaning or effect hereof or as required by
law, and I will instruct each of the foregoing not to disclose the same
to anyone.
9. Any non-disclosure provision in this General Release does not prohibit
or restrict me (or my attorney) from responding to any inquiry about
this General Release or its underlying facts and circumstances by the
Securities and Exchange Commission (SEC), the EEOC (or a state or local
fair employment practices agency), the National Association of
Securities Dealers, Inc. (NASD), any other self-regulatory organization
or governmental entity.
10. I agree to reasonably cooperate with the Company in any internal
investigation or administrative, regulatory, or judicial proceeding. I
understand and agree that my cooperation may include, but not be
limited to, making myself available to the Company upon reasonable
notice for interviews and factual investigations; appearing at the
Company's request to give testimony without requiring service of a
subpoena or other legal process; volunteering to the Company pertinent
information; and turning over to the Company all relevant documents
which are or may come into my possession all at times and on schedules
that are reasonably consistent with my other permitted activities and
commitments. I understand that in the event the Company asks for my
cooperation in accordance with this provision, the Company will
reimburse me solely for reasonable travel expenses, including lodging
and meals, upon my submission of receipts.
11. Notwithstanding anything in this General Release to the contrary, this
General Release shall not relinquish, diminish, or in any way affect
any rights or claims arising out of any breach by the Company or by any
Released Party of the Agreement.
12. Whenever possible, each provision of this General Release shall be
interpreted in, such manner as to be effective and valid under
applicable law, but if any provision of this General Release 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 General Release shall be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:
- 3 -
<PAGE> 21
(a) I HAVE READ IT CAREFULLY;
(b) I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT
RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE
CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE
AMERICANS WITH DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED;
(c) I VOLUNTARILY CONSENT TO EVERYTHING IN IT;
(d) I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND
I HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I HAVE
CHOSEN NOT TO DO SO OF MY OWN VOLITION;
(e) I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE
SUBSTANTIALLY IN ITS FINAL FORM ON _______________ ____, ____ TO
CONSIDER IT AND THE CHANGES MADE SINCE THE ______________ _____,
_____VERSION OF THIS RELEASE ARE NOT MATERIAL AND WILL NOT RESTART THE
REQUIRED 21-DAY PERIOD;
(f) THE CHANGES TO THE AGREEMENT SINCE ____________ ___, _____ EITHER ARE
NOT MATERIAL OR WERE MADE AT MY REQUEST.
(g) I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE
TO REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR
ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED;
(h) I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH
THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND
(i) I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED,
WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED
BY AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.
DATE: _________________ ____ , ______ ____________________________________
- 4 -
<PAGE> 22
EXHIBIT C
TO
EMPLOYMENT AGREEMENT
BETWEEN
SOVEREIGN SPECIALTY CHEMICALS, INC.
AND
JOHN R. MELLETT
STOCK OPTION AGREEMENT
<PAGE> 23
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I................................................................. 2
EMPLOYMENT RELATIONSHIP................................................... 2
1.1 Employment................................................... 2
1.2 Duties....................................................... 2
1.3 Exclusive Employment......................................... 2
1.4 Employee Representations..................................... 2
ARTICLE II................................................................ 3
PERIOD OF EMPLOYMENT...................................................... 3
2.1 Employment Period............................................ 3
2.2 Initial Term of Employment Period and Extension Terms........ 3
ARTICLE III............................................................... 3
COMPENSATION.............................................................. 3
3.1 Annual Base Compensation..................................... 3
3.2 Potential Annual Target Bonuses.............................. 4
3.3 Discretionary Bonuses........................................ 4
3.4 Expenses..................................................... 4
3.5 Vacation..................................................... 4
3.6 Other Fringe Benefits........................................ 5
3.7 Grant of Stock Option........................................ 5
ARTICLE IV................................................................ 5
COVENANTS OF THE EMPLOYEE................................................. 5
4.1 Proprietary Rights........................................... 5
4.2 Ownership and Covenant to Return Documents, etc.............. 6
4.3 Non-Disclosure Covenant...................................... 7
4.4 Anti-Pirating and Non-Interference Covenants................. 8
4.5 Covenant Not To Compete...................................... 8
4.6 Remedies For Breach.......................................... 8
ARTICLE V................................................................. 9
TERMINATION OF EMPLOYMENT................................................. 9
5.1 Termination and Triggering Events............................ 9
5.2 Rights Upon Occurrence of a Triggering Event................. 9
5.3 Survival of Certain Obligations and Termination Certificate.. 11
</TABLE>
<PAGE> 24
<TABLE>
<S> <C>
ARTICLE VI................................................................ 11
ASSIGNMENT................................................................ 11
6.1 Prohibition of Assignment by Employee........................ 11
6.2 Right of Company to Assign................................... 11
ARTICLE VII............................................................... 11
DEFINITIONS............................................................... 11
ARTICLE VIII.............................................................. 14
GENERAL................................................................... 14
8.1 Notices...................................................... 14
8.2 Governing Law................................................ 15
8.3 Binding Effect............................................... 15
8.4 Complete Understanding....................................... 15
8.5 Amendments................................................... 15
8.6 Waiver....................................................... 15
8.7 Venue, Jurisdiction, Etc..................................... 15
8.8 Severability................................................. 16
8.9 Headings..................................................... 16
8.10 Counterparts................................................ 16
</TABLE>
- ii -
<PAGE> 1
Exhibit 10.6
SOVEREIGN SPECIALTY CHEMICALS, INC.
MANAGEMENT INCENTIVE COMPENSATION PLAN
PURPOSE:
The Plan is designed to competitively compensate Management on an annual basis
for achieving Company objectives and for successfully completing specific
individual objectives. The Plan aligns the interests of the Company's Management
Team with the objectives and goals of the Company. The structure of this Plan
provides the framework for the Company-wide Variable Pay Plan for Non-Union
Employees. All aspects of the Management Incentive Compensation Plan must
conform to the Compensation Committee Charter (attached).
ELIGIBILITY:
Participation in the Management Incentive Compensation Plan is extended to
Officers, Directors, Managers or other key positions, which have been determined
to have significant, positive and measurable impact on the Company's overall
results. Eligible positions are reviewed annually for inclusion into the Plan
each year.
EFFECTIVE DATE:
The Plan is effective 1/1/00 and supersedes all previous Management Incentive
Compensation Plans. The Plan runs concurrent with the Company's fiscal year and
remains in effect through 12/31/00.
PLAN SUMMARY:
The Management Incentive Compensation Plan establishes a Target Bonus for each
Participant in the Plan. The Target Bonus percentage available to Participants
reflects the various levels of positions within the Company. The Target Bonus is
based on the Participant's annualized regular base compensation, which is in
effect at the close of each fiscal year. A significant portion of the Target
Bonus is allocated to achieving Company Objectives with the remainder available
for achieving Individual Objectives. Exhibit A - 1 lists Management Incentive
Compensation Plan Target Bonus percentages by position. Exhibit A - 2 provides a
listing of Management Incentive Plan Participants eligible in 2000. In addition,
the Plan provides the opportunity for Management to make recommendations for
Discretionary Bonuses above and beyond the Target Bonus based on specific
criteria.
PLAN DESIGN:
COMPANY OBJECTIVES:
The Company Objectives Bonus contains two parts:
1.) Revenue Component
Participants have a specified percentage of the Company
Objectives Bonus based on achieving specified revenue-related
goals for the Company.
2.) EBITDA Component
1
<PAGE> 2
Participants have a specified percentage of the Company
Objective Bonus based on achieving specified EBITDA goals for
the Company.
Revenue and EBITDA targets are based on either the Corporation's
Budget, the Subsidiary's Budget or, a combination of both. Payments for
the achievement of Revenue and EBITDA targets are determined by using a
weighted matrix which rewards at a greater level for EBITDA achievement
(weighted 80%) over Revenue achievement (weighted 20%). The Revenue
Component and EBITDA Component work in harmony with each other to
produce a multiplier, which is then applied to the Target Bonus Amount.
The matrix used for calculating Incentive Compensation Awards is
illustrated on Exhibit B.
The Plan establishes a threshold of 90% for both EBITDA and Revenue
achievement for minimum payment to occur. Revenue results and EBITDA
results must both achieve 90% of Budget to qualify for a 50% payment of
the Company Objectives portion. No payment occurs if either one of
these components is less than 90%. The Plan is capped at 200% for a
maximum payment based on Company results.
INDIVIDUAL OBJECTIVES:
Individual Objectives are mutually agreed upon goals that are specific
and measurable. These goals are established at the beginning of each
fiscal year and are subject to approval by the CEO. The CEO's
Individual Objectives are presented to the Compensation Committee of
the Board of Directors for approval.
DISCRETIONARY BONUS:
The CEO, at his discretion, may reward Participants above and beyond
the earned Incentive Compensation Award for producing extraordinary
results for the Company. This includes activities favorably affecting
the near term financial success of the Company above Budgeted levels;
or contributions that result in significant technical or business
development impact; or acquisitions of an exceptional strategic value.
Exhibit C illustrates the Plan Design.
ADMINISTRATION:
The Plan is administered by the CEO of the Company and the Vice-President -
Human Resources under the general direction of The Compensation Committee of the
Board of Directors.
Audited results are used to calculate Incentive Compensation Awards.
Because of the strategic importance of acquisitions and to encourage Management
to effectively integrate acquisitions, acquisitions completed during the Plan
year are treated as follows:
For the year in which the business was acquired, Revenue and EBITDA
values will be additive according to the ratios indicated in the "Plan
Design" if the budgeted target levels have been achieved.
Recommendations for salary increases in base compensation are made by the CEO
and presented to The Compensation Committee for approval. Approved increases in
base compensation are effective April 1, 2000.
DETERMINATION OF INCENTIVE COMPENSATION AND PAYMENT:
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<PAGE> 3
Incentive Compensation Awards for all Participants, except the CEO, are
recommended by the CEO and presented to The Compensation Committee of the Board
of Directors for approval.
The Incentive Compensation Award for the CEO is recommended by the Compensation
Committee.
The Compensation Committee approves Incentive Compensation Award recommendations
to ensure payments to Participants no later than March 15 of each year.
Payments to Participants under the Company's Incentive Compensation Plan are
considered taxable income to Participants in the year paid and are subject to
applicable taxes and are in compliance with benefit plan provisions.
PLAN PARTICIPATION AND CHANGE OF STATUS:
The following procedures apply if a Participant's employment status with the
Company changes during the Incentive Plan Year due to:
TERMINATION OF EMPLOYMENT
- Resignation or Termination for Cause:
To be eligible to receive an Incentive Compensation Award, a
Participant must be an active, regular employee of the Company on
the last day of the Plan year. Voluntary termination prior to the
end of the Plan year or termination for cause at any time during
the Plan year serves as forfeiture of any Award.
- Resignation with Good Grounds or Termination without Cause:
Participants who resign with good grounds or who are terminated by
the Company without cause are eligible to earn an Incentive
Compensation Award at the discretion of the CEO.
NEW HIRE, PROMOTION AND TRANSFER:
- New Hire:
New Hires are eligible to earn a pro-rated portion of Target
Incentive Compensation based on the actual length of employment
for that respective Plan year.
- Promotion and Transfer:
Target Incentive Compensation for Participants who are transferred
to, or promoted into other positions having a higher or different
Target Bonus percentage during the Plan year is reflective of time
spent in each position at each percentage.
LEAVE OF ABSENCE:
Participants who have been on an approved leave of absence for periods
greater than 30 days in length are eligible to earn a pro-rated portion
of Target Incentive Compensation which reflects active employment. For
leaves of absence of less than 30 days, there is no adjustment to the
Target Incentive Compensation calculation.
TOTAL DISABILITY:
In the event of total disability, Target Incentive Compensation is
calculated pro-rata through the month in which the disability was
determined to be total. Payment is made at the regular Management
Incentive Compensation payment time.
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<PAGE> 4
DEATH:
In the event of death, a Participant's Target Incentive Compensation
Award is calculated pro-rata through the month in which the death
occurred. Payment is made at the regular Management Incentive
Compensation payment time. Payment will be released in accordance with
applicable state law in which the Participant resided.
DISCLAIMER:
Participation in the Management Incentive Compensation Plan is not deemed to
constitute a contract of employment with any Participant and is not to be
construed as an employment agreement. Furthermore, the Plan operates under the
sanction of The Compensation Committee and as such, any or all provisions of the
Plan may be modified, amended, suspended or terminated in whole, or in part, at
their sole discretion.
4
<PAGE> 1
Exhibit 10.7
SOVEREIGN SPECIALTY CHEMICALS, INC.
STOCK OPTION PLAN
ARTICLE 1
GENERAL
1.1 Purpose. The purpose of this Sovereign Specialty
Chemicals, Inc. Stock Option Plan (the "Plan") is to provide for certain key
employees and/or directors of Sovereign Specialty Chemicals, Inc., a Delaware
corporation (the "Company"), and its subsidiaries and affiliates, an incentive
(i) to join and/or remain in the service of the Company and its subsidiaries and
affiliates, (ii) to maintain and enhance the long-term performance and
profitability of the Company and its subsidiaries and affiliates and (iii) to
acquire a proprietary interest in the success of the Company and its
subsidiaries and affiliates.
1.2 Definition of Certain Terms.
(a) "Affiliate" of any Person, means any other Person
controlling, controlled by or under common control with such Person.
(b) "Board" means the Board of Directors of the
Company.
(c) "Code" means the Internal Revenue Code of 1986,
as amended.
(d) "Committee" means the Committee appointed to
administer the Plan in accordance with Section 1.3.
(e) "Company" means Sovereign Specialty Chemicals,
Inc., a Delaware corporation.
(f) "Common Stock" means the shares of common stock,
$.01 par value, of the Company and any other shares into which such common stock
shall
<PAGE> 2
thereafter be exchanged by reason of a recapitalization, merger, consolidation,
split-up, combination, exchange of shares or the like.
(g) "Disability" means, unless otherwise set forth in
an Option Agreement or an employment or similar agreement between the Company
and the Optionee, the Optionee's inability, because of injury, illness or other
incapacity to perform services to the Company (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.
(h) "IPO" means an initial underwritten public
offering of the Common Stock registered under the Securities Act of 1933, as
amended, whether for the sale of shares of Common Stock by the Company or by
shareholders.
(i) "Option" means a "nonqualified" stock option, as
described in Section 1.5, granted under the Plan.
(j) "Option Agreement" means an agreement issued
pursuant to Section 2.1.
(k) "Optionee" means an employee and/or director of
the Company or any of its subsidiaries or affiliates who has been awarded any
Option under this Plan.
(l) "Person" any natural person, corporation, limited
liability company, partnership, firm, association, trust, government,
governmental agency or other entity, whether acting in an individual, fiduciary
or other capacity.
(m) "Plan" means this Sovereign Specialty Chemicals,
Inc. Stock Option Plan.
(n) "Shareholder Agreement" means an agreement
between the Optionee and the Company as described in Section 2.5, and in the
form in effect as of December 29, 1999.
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<PAGE> 3
(o) "Subsidiary" of any Person shall mean any
corporation or other legal entity of which such Person (either alone or through
or together with any other Subsidiary) owns, directly or indirectly, 50% or more
of the stock or other equity interests, the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body of such corporation or other legal entity.
(p) "Termination With Cause," with respect to any
Optionee, means, unless otherwise set forth in an Option Agreement or an
employment or similar agreement between the Company and an Optionee, termination
by the Company or any of its Subsidiaries or Affiliates of such Optionee's
employment for: (i) misappropriation of any significant monies or significant
assets or properties of the Company or any Subsidiary, (ii) conviction of a
felony or a crime involving moral turpitude, (iii) substantial and repeated
failure to comply with directions of the Chief Executive Officer of the Company
or other superior of the Optionee or the Board of Directors of the Company or
any of its Subsidiaries or Affiliates, (iv) gross negligence or willful
misconduct, (v) chronic alcoholism or drug addiction together with Optionee's
refusal to cooperate with or participate in counseling and/or treatment of same
or (vi) any willful action or inaction of the Optionee which, in the reasonable
opinion of the Board, constitutes dereliction (willful neglect or willful
abandonment of assigned duties), or a material breach of Company or Subsidiary
policy or rules which, if susceptible to cure, is not cured by the Optionee
within five (5) days following the Optionee's receipt of written notice from the
Company advising the Optionee with reasonable specificity as to the action or
inaction viewed by the Company or Subsidiary to be dereliction or a material
breach of Company or Subsidiary policy or rules.
1.3 Administration.
(a) Subject to Section 1.3(e), the Plan shall be
administered by a committee of the Board which shall consist of at least two
directors and which shall have the power of the Board to authorize awards under
the Plan. The members of the
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<PAGE> 4
Committee shall be appointed by, and may be changed from time to time in the
discretion of, the Board.
(b) The Committee shall have the authority (i) to
exercise all of the powers granted to it under the Plan, (ii) to construe,
interpret and implement the Plan and any Option Agreement executed pursuant to
Section 2.1 in accordance with the terms thereof, (iii) to prescribe, amend and
rescind rules and regulations relating to the Plan, (iv) to make all
determinations necessary or advisable in administering the Plan, (v) to correct
any defect, supply any omission and reconcile any inconsistency in the Plan, and
(vi) to grant Options on such terms, not inconsistent with the Plan, as it shall
determine.
(c) The determination of the Committee on all matters
relating to the Plan or any Option Agreement shall be conclusive.
(d) No member of the Committee shall be liable for
any action or determination made in good faith with respect to the Plan or any
award thereunder.
(e) Notwithstanding anything to the contrary
contained herein: (i) until the Board shall appoint the members of the
Committee, the Plan shall be administered by the Board; and (ii) the Board may,
in its sole discretion, at any time and from time to time, resolve to administer
the Plan. In either of the foregoing events, the term "Committee" as used herein
shall be deemed to mean the Board.
1.4 Persons Eligible for Awards. Awards under the Plan may be
made from time to time to such key employees and/or directors of the Company or
its subsidiaries and/or affiliates as the Committee shall in its sole discretion
select.
1.5 Types of Awards Under the Plan. Awards may be made under
the Plan in the form of stock options, which shall be "nonqualified" stock
options subject to the provisions of section 83 of the Code, all as more fully
set forth in Article 2.
1.6 Shares Available for Awards.
(a) Subject to Section 3.4 (relating to adjustments
upon changes in capitalization), the maximum number of shares of Common Stock
with respect to
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<PAGE> 5
which Options may be awarded under the Plan shall be 240,713 shares. Shares of
Common Stock covered by Options granted under the Plan which expire or terminate
for any reason shall again become available for award under the Plan.
(b) Shares that are issued upon the exercise of
Options awarded under the Plan shall be authorized and unissued or treasury
shares of Common Stock.
(c) Without limiting the generality of the preceding
provisions of this Section 1.6, the Committee may, but solely with the
Optionee's consent, agree to cancel any award of Options under the Plan and
issue new Options in substitution therefor, provided that the Options as so
substituted shall satisfy all of the requirements of the Plan as of the date
such new Options are awarded.
ARTICLE 2
STOCK OPTIONS
2.1 Agreements Evidencing Stock Options
(a) Options awarded under the Plan shall be evidenced
by Option Agreements which shall not be inconsistent with the terms and
provisions of the Plan, and which shall contain such provisions as the Committee
may in its sole discretion deem necessary or desirable. Without limiting the
generality of the foregoing, the Committee may in any Option Agreement impose
such restrictions or conditions upon the exercise of an Option or upon the sale
or other disposition of the shares of Common Stock issuable upon exercise of an
Option as the Committee may in its sole discretion determine. By accepting an
award pursuant to the Plan each Optionee shall thereby agree that each such
award and shares of Common Stock acquired upon exercise of an Option shall be
subject to all of the terms and provisions of the Plan, including, but not
limited to, the provisions of Sections 1.3(d) and 2.5.
(b) Each Option Agreement shall set forth the number
of shares of Common Stock subject to the Option granted thereby.
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<PAGE> 6
(c) Each Option Agreement shall set forth the amount
payable by the Optionee to the Company upon exercise of the Option evidenced
thereby. Unless otherwise determined by the Committee, the Option exercise price
per share of Common Stock of a "nonqualified" stock option shall be not less
than the fair market value of the Common Stock on the date of grant, adjusted as
determined by the Committee to reflect changes in capitalization as contemplated
by Section 3.4.
2.2 Term of Options.
Each Option Agreement shall set forth the period
during which the Option evidenced thereby shall be exercisable, whether in whole
or in part, such periods to be determined by the Committee in its discretion.
2.3 Exercise of Options. Subject to the provisions of this
Article 2, each Option granted under the Plan shall be exercisable as follows:
(a) An Option shall become exercisable at such times
and subject to such conditions as the applicable Option Agreement may provide.
(b) Unless the applicable Option Agreement otherwise
provides, an Option granted under the Plan may be exercised from time to time as
to all or part of the shares as to which such Option shall then be exercisable.
(c) An Option shall be exercisable by the filing of a
written notice of exercise with the Company, on such form and in such manner as
the Committee shall in its sole discretion prescribe.
(d) Unless the applicable Option Agreement otherwise
provides, any written notice of exercise of an Option shall be accompanied by
payment of the exercise price for the shares being purchased. Such payment shall
be made by certified or official bank check payable to the Company (or the
equivalent thereof as may be set forth in an Option Agreement or as may be
acceptable to the Committee). Subject to Section 3.10 of the Plan, as soon as
practicable after receipt of such payment and the satisfaction
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<PAGE> 7
of the withholding taxes referred to in Section 3.3, the Company shall deliver
to the Optionee a certificate or certificates for the shares of Common Stock so
purchased.
2.4 Termination of Options.
(a) Notwithstanding anything to the contrary in this
Plan, except as the Option Agreement, the Shareholder Agreement or the Committee
may otherwise provide or as set forth in Section 2.4(b), Section 2.4(d), Options
granted to an Optionee (and already vested but not yet exercised) shall
terminate on the date which is 45 days after termination of his employment with
the Company for any reason (other than by reason of death or disability in which
case the Options shall terminate on the date which is 180 days after the date of
such termination).
(b) Notwithstanding anything to the contrary in this
Plan, unless otherwise determined by the Committee or as set forth in an Option
Agreement, all Options granted to an Optionee shall immediately expire and cease
to be exercisable and all rights granted to an Optionee under this Plan and such
Optionee's Option Agreement shall immediately expire in the event of a
Termination With Cause of the Optionee by the Company at any time.
(c) Unless the applicable Option Agreement expressly
provides otherwise, Options awarded to Optionees under the terms of the Plan
will be exercisable only in accordance with the following vesting schedule:
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<PAGE> 8
<TABLE>
<CAPTION>
Cumulative
Percentage of
Applicable Date Total Shares
--------------- ------------
<S> <C>
On the first anniversary of the date of
the Option Agreement 20%
On the second anniversary of the date of
the Option Agreement 40%
On the third anniversary of the date of
the Option Agreement 60%
On the fourth anniversary of the date of
the Option Agreement 80%
On the fifth anniversary of the date of
the Option Agreement 100%
</TABLE>
The Committee may modify this vesting schedule in any manner that it deems
appropriate in any Option Agreement or otherwise, and may provide different
vesting schedules in different Option Agreements in its sole discretion. Except
as the Committee may otherwise provide or as otherwise set forth in an Option
Agreement, in the event that Optionee's employment with the Company is
terminated for any reason prior to the date on which the Optionee's right to
exercise the Options has fully vested pursuant to this Section 2.4(c), the
Options will immediately cease to be exercisable with respect to any and all
shares which have not vested as of the date of such termination. The Committee
may accelerate the vesting of any Options at any time.
(d) Unless otherwise set forth in an Option Agreement
or as determined by the Committee, in the event of a Non-Control Transaction (as
hereinafter defined), (A) all outstanding Options shall remain outstanding and
subject to the terms and conditions of the Plan, including the vesting schedule
contained in Section 2.4(c), and (B) each Optionee shall only be entitled to
receive in respect of each share of Common Stock subject to the Option, upon
exercise of such Option after the vesting thereof, the same amount and kind of
stock, securities, cash, property or other consideration that each holder of a
share of Common Stock was entitled to receive in the Non-Control Transaction in
respect of a share. Unless otherwise set forth in an Option Agreement or as
determined by the Committee, in the event of a Transaction (as hereinafter
defined), each outstanding Option shall vest immediately prior thereto, and, as
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<PAGE> 9
of the date of the occurrence of the Transaction (the "Transaction Date"), the
Company shall have the right to cancel any or all Options which have not been
exercised as of the Transaction Date, subject to the payment of the purchase
price described below. The purchase price payable by the Company to the Optionee
upon the cancellation of each unexercised Option will be the fair market value
of the Common Stock underlying each such Option determined as of the Transaction
Date less the aggregate exercise price of each such Option. The fair market
value will be determined in good faith by the Board based on the value being
paid to or received by the holders of Common Stock in such Transaction for their
shares of Common Stock.
Unless otherwise provided in an Option Agreement or as
determined by the Committee, "Transaction" means (i) the approval by members or
stockholders of the liquidation or dissolution of SSCI Investors LLC, a Delaware
limited liability company ("Investors LLC"), or the Company, (ii) a sale or
other disposition of 51% or more of the outstanding interests or voting stock,
respectively, of Investors LLC or the Company, (iii) the merger or consolidation
of Investors LLC or the Company with or into any entity, or (iv) a sale or other
disposition of substantially all of the assets of Investors LLC or the Company;
provided, however, that the term "Transaction" shall exclude each transaction
which is a "Non-Control Transaction." Unless otherwise provided in an Option
Agreement, "Non-Control Transaction" means (i) any transaction following which
AEA Investors Inc. and/or its affiliates, participants, investors and/or
employees own, directly or indirectly, a majority of the outstanding interests
or shares of voting stock of the purchasing or surviving entity, as applicable,
(ii) a merger or consolidation following which those persons who owned directly
or indirectly a majority of the outstanding interests or shares of voting stock
of Investors LLC and/or the Company immediately prior to such merger or
consolidation will own directly or indirectly a majority of the outstanding
interests or shares of voting stock of the surviving corporation, (iii) a sale
or other disposition of interests or capital stock, respectively, of Investors
LLC or the
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<PAGE> 10
Company following which those persons who owned directly or indirectly a
majority of the outstanding interests or shares of voting stock immediately
prior to such sale will own directly or indirectly a majority of the outstanding
interests or shares of voting stock of the purchasing entity, (iv) a sale or
other disposition of substantially all of the assets of Investors LLC or the
Company to an affiliate of Investors LLC or the Company or (v) an IPO of the
Company or (vi) any transaction following which Investors LLC, AEA Investors
Inc, a Delaware Corporation ("AEA"), any Person controlling or controlled by AEA
or any officers, directors, employees, participants, shareholders or AEA or
members of Investors LLC (the "Investors LLC Parties") constitute a majority of
the directors of the Board or have a right to elect a majority of the Board.
2.5 Shareholder Agreements.
By accepting an award pursuant to the Plan each
Optionee shall thereby agree to execute the Shareholder Agreement and any Option
granted pursuant to the Plan shall not be deemed granted unless and until the
Optionee executes the Shareholder Agreement. Each such award and shares of
Common Stock acquired upon exercise of an Option shall be subject to all of the
terms and provisions of the Shareholder Agreement.
- 10 -
<PAGE> 11
ARTICLE 3
MISCELLANEOUS
3.1 Amendment of the Plan; Modification of Awards.
(a) The Board may, without stockholder approval, from
time to time suspend or discontinue the Plan or revise or amend it in any
respect whatsoever, except that no such suspension, discontinuance, revision or
amendment shall adversely alter or impair any rights or obligations under any
award theretofore made under the Plan without the consent of the person to whom
such award was made.
(b) With the consent of the Optionee and subject to
the terms and conditions of the Plan (including Section 3.1(a)), the Committee
may amend outstanding Option Agreements with such Optionee, for example, to (i)
accelerate the time or times at which an Option may be exercised or (ii) extend
the scheduled expiration date of the Option.
3.2 Nonassignability. Unless otherwise provided in an Option
Agreement or as determined by the Committee, no right granted to any Optionee
under the Plan or under any Option Agreement shall be assignable or transferable
other than by will or by the laws of descent and distribution. Unless otherwise
determined by the Committee, during the life of the Optionee, all rights granted
to the Optionee under the Plan or under any Option Agreement shall be
exercisable only by him.
3.3 Withholding of Taxes. The Company shall be entitled to
withhold an amount sufficient to satisfy any federal, state and other
governmental tax requirements related to an Option. Whenever, under the Plan,
shares of Common Stock are to be delivered upon exercise of an Option, the
Company shall be entitled to require as a condition of delivery that the
Optionee remit an amount sufficient to satisfy all federal, state and other
governmental tax withholding requirements related thereto, which may, in the
sole discretion of the Committee, include delivery or withholding of shares of
Common Stock.
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<PAGE> 12
3.4 Adjustments Upon Changes in Capitalization. Except as
otherwise provided in an Option Agreement, the exercise price for Options and
the number of shares of Common Stock or other property which may be issued
pursuant to the exercise of Options granted under the Plan shall be
automatically adjusted to reflect any stock splits, reverse stock splits or
dividends paid in the form of Common Stock, and equitably adjusted as determined
by the Committee to be appropriate and reasonable for any other increase or
decrease in the number of issued shares of Common Stock resulting from the
subdivision or combination of shares of Common Stock or other capital
adjustments, or the payment of any other stock dividend or other extraordinary
dividend after the effective date of this Plan, or other increase or decrease in
the number of such shares of Common Stock or any substantial sale of the assets
of the Company; provided, however, that, unless otherwise determined by the
Committee, any Options to purchase fractional shares of Common Stock resulting
from any such adjustment shall be eliminated. Adjustments under this Section 3.4
shall be made by the Committee, whose determination as to what adjustments shall
be made, and the extent thereof, shall be final, binding and conclusive.
3.5 Right of Discharge Reserved. Nothing in this Plan or in
any Option Agreement shall confer upon any employee or other person the right to
continue in the employment or service of the Company or any of its subsidiaries
or affiliates or affect any right which the Company or any of its subsidiaries
or affiliates may have to terminate the employment or service of such employee
or other person.
3.6 No Rights as a Stockholder. No Optionee or other person
holding an Option shall have any of the rights of a stockholder of the Company
with respect to shares subject to an Option until the issuance of a stock
certificate to him for such shares. Except as otherwise provided in Sections
2.4(d) or 3.4, no adjustment shall be made for dividends, distributions or other
rights (whether ordinary or extraordinary, and whether in
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<PAGE> 13
cash, securities or other property) for which the record date is prior to the
date such stock certificate is issued.
3.7 Nature of Payments.
(a) Any and all payments of shares of Common Stock or
cash hereunder shall be granted, transferred or paid in consideration of
services performed by the Optionee for the Company or any of its subsidiaries or
affiliates.
(b) All such grants, issuances and payments shall
constitute a special incentive payment to the Optionee and shall not, unless
otherwise determined by the Committee, be taken into account in computing the
amount of salary or compensation of the Optionee for the purposes of determining
any pension, retirement, death or other benefits under (i) any pension,
retirement, life insurance or other benefit plan of the Company or any of its
subsidiaries or affiliates or (ii) any agreement between the Company or any of
its subsidiaries or affiliates and the Optionee.
3.8 Non-Uniform Determinations.
The Committee's determinations under the Plan need
not be uniform and may be made by it selectively among persons who receive, or
are eligible to receive, awards under the Plan (whether or not such persons are
similarly situated). Without limiting the generality of the foregoing, the
Committee shall be entitled, among other things, to make non-uniform and
selective determinations, and to enter into non-uniform and selective Option
Agreements, as to (i) the persons to receive awards under the Plan, (ii) the
terms and provisions of awards under the Plan and (iii) the treatment of awards
under the Plan pursuant to Section 3.4 hereof.
3.9 Other Payments or Awards. Nothing contained in the Plan
shall be deemed in any way to limit or restrict the Company or any of its
subsidiaries or affiliates or the Committee from making any award or payment to
any person under any other plan, arrangement or understanding, whether now
existing or hereafter in effect.
3.10 Restrictions.
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<PAGE> 14
(a) If the Committee shall at any time determine that
any Consent (as hereinafter defined) is necessary or desirable as a condition
of, or in connection with, the granting of any award under the Plan, the
issuance or purchase of shares or the exercise of other rights hereunder or the
taking of any other action hereunder (each such action being hereinafter
referred to as a "Plan Action"), then such Plan Action shall not be taken, in
whole or in part, unless and until such Consent shall have been effected or
obtained to the full satisfaction of the Committee. Without limiting the
generality of the foregoing, if (i) the Committee is entitled under the Plan to
make any payment in cash, Common Stock or both, and (ii) the Committee
determines that a Consent is necessary or desirable as a condition of, or in
connection with, payment in any one or more of such forms, the Committee shall
be entitled to determine not to make any payment whatsoever until such Consent
shall have been obtained in the manner aforesaid. In such event, the Committee
will use reasonable efforts to obtain such Consent.
(b) The term "Consent" as used herein with respect to
any Plan Action means (i) any and all listings, registrations, qualifications or
similar requirements in respect thereof upon any securities exchange or under
any federal, state or local law, rule or regulation, (ii) any and all written
agreements and representations by the grantee with respect to the disposition of
shares, or with respect to any other matter, which the Committee shall deem
necessary or desirable to comply with the terms of any such listing,
registration, qualification or similar requirement or to obtain an exemption
from the requirement that any such listing, qualification or registration be
made and (iii) any and all consents, clearances and approvals in respect of a
Plan Action by any governmental or other regulatory bodies.
3.11 Section Headings. The section headings contained herein
are for the purposes of convenience only and are not intended to define or limit
the contents of said sections.
3.12 Effective Date and Term of Plan.
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<PAGE> 15
(a) This Plan shall be deemed adopted and become
effective upon the approval thereof by the Board and shareholders of the
Company.
(b) Subject to Section 3.1 (a) hereof, the Plan shall
terminate 10 years after the date on which it becomes effective, and no awards
shall thereafter be made under the Plan. Notwithstanding the foregoing, all
awards made under the Plan prior to the date on which the Plan terminates shall
remain in effect until such awards have been satisfied or terminated in
accordance with the terms and provisions of the Plan.
- 15 -
<PAGE> 1
Exhibit 10.8
SOVEREIGN SPECIALTY CHEMICALS, INC.
STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
NONQUALIFIED STOCK OPTION AGREEMENT dated as of December 29,
1999 between Sovereign Specialty Chemicals, Inc., a Delaware corporation (the
"Company") and Robert B. Covalt (the "Optionee").
The Company's Compensation Committee or the Company's Board of
Directors acting as the Committee (in either case, the "Committee") has
determined that the Optionee is one of the key employees of the Company, and
that the objectives of the Company's Stock Option Plan (the "Plan") will be
furthered by awarding to the Optionee Options under the Plan. Capitalized terms
defined in the Plan and not otherwise defined herein shall have the meaning
given such terms in the Plan.
In consideration of the foregoing and of the mutual
undertakings set forth in this Nonqualified Stock Option Agreement, the Company
and the Optionee agree as follows:
SECTION 1. Grant of Option.
1.1 The Company hereby grants to the Optionee an option (the
"Option") to purchase 48,000 shares of Common Stock ("Common Stock") of the
Company, at a purchase price of $129.50 per share.
1.2 The Option granted hereby is intended to be a
"nonqualified" stock option subject to the provisions of section 83 of the Code
and is not intended to qualify as an "incentive stock option" subject to the
provisions of section 422 of the Code.
SECTION 2. Exercisability.
2.1 Subject to Section 4 hereof, the Option shall become
vested and exercisable with respect to 1/16th of the number of shares of Common
Stock covered thereby on each March 31, June 30, September 30 and December 31
during the period commencing on the date hereof and ending on December 31, 2003.
2.2 In the event the Optionee's employment is terminated by
reason of the Optionee's death or Disability following the third anniversary of
the date hereof, the Option shall become exercisable in full.
2.3 Subject to Section 4 and other terms of the Plan, the
Option will terminate as to any and all shares of Common Stock for which the
Option has not yet been exercised on December 28, 2009.
<PAGE> 2
SECTION 3. Method of Exercise.
3.1 The Option or any part thereof may be exercised only by
giving written notice to the Company in the form of Exhibit A hereto, which
notice shall state the election to exercise the Option and the number of whole
shares of Common Stock with respect to which the Option is being exercised. Such
notice must be accompanied by payment of the full purchase price for the number
of shares purchased.
3.2 Payment of the purchase price shall be made by certified
or official bank check payable to the Company. As soon as it is practicable
after it receives payment of the purchase price, the Company shall deliver to
the Optionee a certificate or certificates for the shares of Common Stock
acquired pursuant to the Option.
SECTION 4. Termination of Employment.
4.1 Death or Disability. In the event the Optionee's
employment is terminated by reason of the Optionee's death or Disability, the
Option, to the extent vested and exercisable on the date of termination (after
giving effect to Section 2.2 hereof) shall remain exercisable by the Optionee or
by the Optionee's legatee or legatees under his will, or by his personal
representatives or distributees, as applicable, for a period of 180 days
following such termination of employment.
4.2 Termination for Cause. In the event of a Termination With
Cause of the Optionee by the Company at any time, the Option shall immediately
expire and cease to be exercisable and all rights granted to the Optionee under
this Agreement shall immediately expire.
4.3 Other Termination of Employment. If the employment of the
Optionee is terminated under any circumstance other than those set forth in
Sections 4.1 or 4.2 hereof, the Optionee may, at any time within forty five (45)
days after his or her termination of employment, exercise the Option to the
extent, but only to the extent, that the Option or portion thereof was
exercisable on the date of termination.
4.4 Repurchase and Cancellation. Any Common Stock issued
pursuant to exercise of this Option is subject to the right of the Company to
purchase set forth in Section 4.5 of the Shareholder Agreement between the
Optionee and the Company, dated December 29, 1999 (the "Shareholder Agreement"),
and any unexercised Options are subject to cancellation as set forth in 4.5 of
the Shareholder Agreement.
2
<PAGE> 3
SECTION 5. Nonassignability.
No right granted to the Optionee under the Plan or this
Agreement shall be assignable or transferable (whether by operation of law or
otherwise and whether voluntarily or involuntarily), other than by will or by
the laws of descent and distribution. All rights granted to the Optionee under
the Plan or this Agreement shall be exercisable only by the Optionee or his
estate, heirs or personal representatives.
SECTION 6. Right of Discharge Reserved.
Nothing in the Plan or in this Agreement shall confer upon the
Optionee any right to continue in the employ or service of the Company or affect
any right which the Company may have to terminate the employment or services of
the Optionee.
SECTION 7. No Rights as a Stockholder.
Neither the Optionee nor any person succeeding to the
Optionee's rights hereunder shall have any right as a stockholder with respect
to any shares subject to the Option until the date of the issuance of a stock
certificate to him or her for such shares. Except for adjustments made pursuant
to Section 3.4 of the Plan, no adjustment shall be made for dividends,
distributions or other rights (whether ordinary or extraordinary, and whether in
cash, securities or other property) for which the record date is prior to the
date such stock certificate is issued.
SECTION 8. Plan Provisions to Prevail.
This Agreement shall be subject to all of the terms and
provisions of the Plan and the Shareholder Agreement, which are incorporated
hereby and made a part hereof. In the event there is any inconsistency between
the provisions of this Agreement and the Plan or the Shareholder Agreement, the
provisions of the Plan or the Shareholder Agreement, as applicable, shall
govern.
SECTION 9. Optionee's Acknowledgments.
By entering into this Agreement the Optionee agrees and
acknowledges that (a) he has received and read a copy of the Plan and accepts
this Option subject to the terms and provisions of the Plan, and (b) that no
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any award thereunder. As a condition to
the issuance of shares of Common Stock under this Option, the Optionee
authorizes the Company to withhold in accordance with applicable law from any
compensation payable to him any taxes required to be withheld by the Company
under federal, state, or local law as a result of his exercise of this Option.
3
<PAGE> 4
SECTION 10. Section Headings.
The Section headings contained herein are for the purposes of
convenience only and are not intended to define or limit the contents of said
Sections.
SECTION 11. Notices.
Any notice to be given to the Company hereunder shall be in
writing and shall be addressed to the Secretary of the Company, Christine J.
Smith, c/o AEA Investors Inc., 65 East 55th Street, New York, New York 10022 or
at such other address as the Company may hereinafter designate to the Optionee
by notice as provided herein. Any notice to be given to Optionee shall be given
at the address set forth on the first page hereof, or at such other address as
Optionee may hereinafter designate to the Company by notice as provided herein.
Notices hereunder shall be deemed to have been duly given when personally
delivered or mailed by registered or certified mail to the party entitled to
receive them.
SECTION 12. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and the successors and assigns of the Company and, to the
extent set forth in Section 5, the estate, heirs or personal representatives of
the Optionee.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
SOVEREIGN SPECIALTY CHEMICALS, INC.
By:_____________________________________
________________________________________
Robert B. Covalt
4
<PAGE> 1
Exhibit 10.8a
FIRST AMENDMENT
TO
NONQUALIFIED STOCK OPTION AGREEMENT
This First Amendment to the Nonqualified Stock Option Agreement (this
"Amendment") is made and entered into as of the 4th day of January, 2000 by and
between Sovereign Specialty Chemicals, Inc., a Delaware corporation (the
"Company") and Robert B. Covalt (the "Optionee").
WHEREAS, the Company granted the Optionee a stock option to purchase
shares of Company Common Stock pursuant to the terms and conditions of the
Sovereign Specialty Chemicals, Inc. Stock Option Plan (the "Plan") and the
Nonqualified Stock Option Agreement, dated as of December 29, 1999 (the "Option
Agreement"). Capitalized terms not expressly defined herein shall have the
meanings ascribed to them in the Plan and the Option Agreement; and
WHEREAS, pursuant to Section 3.1 of the Plan, the Committee appointed
to administer the Plan, with the consent of the Optionee, desires to amend the
Option Agreement as set forth in this Agreement to correct a mistake.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, the parties hereby agree as follows:
1. Section 2.1 of the Option Agreement shall be amended and restated in
its entirety as follows:
"Subject to Section 4 hereof, the Option shall become vested and
exercisable with respect to 1/16th of the number of shares of Common Stock
covered thereby on each March 31, June 30, September 30 and December 31
commencing March 31, 2000 and ending on December 31, 2003."
2. Other than as expressly provided herein, all other terms and provisions of
the Option Agreement shall remain in full force and effect.
3. This Amendment shall be effective as of December 29, 1999.
4. This Amendment may be executed in any number of counterparts, each of which
when so executed and delivered will be deemed an original, and such
counterparts together will constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
SOVEREIGN SPECIALTY CHEMICALS, INC.
By:_____________________________________
Brian R. Hoesterey, Vice President
_____________________________________
Robert B. Covalt
<PAGE> 1
EXHIBIT 10.10
SOVEREIGN SPECIALTY CHEMICALS, INC.
STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
NONQUALIFIED STOCK OPTION AGREEMENT dated as of December 29,
1999 between Sovereign Specialty Chemicals, Inc., a Delaware corporation (the
"Company") and [ ] the "Optionee").
The Company's Compensation Committee or the Company's Board of
Directors acting as the Committee (in either case, the "Committee") has
determined that the Optionee is one of the key employees of the Company, and
that the objectives of the Company's Stock Option Plan (the "Plan") will be
furthered by awarding to the Optionee Options under the Plan. Capitalized terms
defined in the Plan and not otherwise defined herein shall have the meaning
given such terms in the Plan.
In consideration of the foregoing and of the mutual
undertakings set forth in this Nonqualified Stock Option Agreement, the Company
and the Optionee agree as follows:
SECTION 1. Grant of Option.
1.1 The Company hereby grants to the Optionee an option (the
"Option") to purchase [ ] shares of Common Stock ("Common Stock") of the
Company, at a purchase price of $129.50 per share.
1.2 The Option granted hereby is intended to be a
"nonqualified" stock option subject to the provisions of section 83 of the Code
and is not intended to qualify as an "incentive stock option" subject to the
provisions of section 422 of the Code.
SECTION 2. Exercisability.
2.1 Subject to Sections 2.2, 2.3 and 4 hereof, the Option
shall be exercisable for the cumulative number of shares and at the times
provided in the following schedule:
<TABLE>
<CAPTION>
Cumulative
Applicable Date Number of Shares
--------------- ----------------
<S> <C>
On the first anniversary of the date hereof 20%
On the second anniversary of the date hereof 40%
On the third anniversary of the date hereof 60%
On the fourth anniversary of the date hereof 80%
On the fifth anniversary of the date hereof 100%
</TABLE>
- 1 -
<PAGE> 2
For purposes of this agreement, each of the first through fifth anniversaries of
the date hereof shall be referred to as a "Vesting Date."
2.2 Death, Disability or Good Grounds. In the event that the
Optionee's employment is terminated by the Company other than by reason of a
Termination With Cause, by the Optionee for "Resignation for Good Grounds" (as
defined in the employment agreement between the Optionee and the Company, dated
[ ]), or as a result of the Optionee's death or Disability, the Option shall
become exercisable with respect to an additional 5% of the number of shares
covered thereby for each complete three (3) month period that has elapsed from
the preceding Vesting Date through the date of the Optionee's termination of
employment. Notwithstanding the foregoing, in the event the Optionee's
employment is terminated by reason of the Optionee's death or Disability
following the third anniversary of the date hereof, the Option shall become
exercisable in full.
2.3 Subject to Section 4, the Option will terminate as to any
and all shares of Common Stock for which the Option has not yet been exercised
on December 28, 2009.
SECTION 3. Method of Exercise.
3.1 The Option or any part thereof may be exercised only by
giving written notice to the Company in the form of Exhibit A hereto, which
notice shall state the election to exercise the Option and the number of whole
shares of Common Stock with respect to which the Option is being exercised. Such
notice must be accompanied by payment of the full purchase price for the number
of shares purchased.
3.2 Payment of the purchase price shall be made by certified
or official bank check payable to the Company. As soon as it is practicable
after it receives payment of the purchase price, the Company shall deliver to
the Optionee a certificate or certificates for the shares of Common Stock
acquired pursuant to the Option.
SECTION 4. Termination of Employment.
4.1 Death or Disability. In the event that the Optionee's
employment is terminated as a result of the Optionee's death or Disability, the
Option, to the extent exercisable on the date of termination (after giving
effect to Section 2.2 hereof) shall remain exercisable by the Optionee or by the
Optionee's legatee or legatees under his will, or by his personal
representatives or distributees, as applicable for a period of 180 days
following a termination of employment.
4.2 Termination for Cause. In the event of a Termination With
Cause of the Optionee by the Company at any time, the Option shall immediately
expire and cease to be exercisable and all rights granted to the Optionee under
this Agreement shall immediately expire.
- 2 -
<PAGE> 3
4.3 Other Termination of Employment. If the employment of the
Optionee is terminated under any circumstance other than those set forth in
Sections 4.1 or 4.2 hereof, the Optionee may, at any time within forty five (45)
days after his or her termination of employment, exercise the Option to the
extent, but only to the extent, that the Option or portion thereof was
exercisable on the date of termination.
4.4 Repurchase and Cancellation. Any Common Stock issued
pursuant to exercise of this Option is subject to the right of the Company to
purchase set forth in Section 4.5 of the Shareholder Agreement between the
Optionee and the Company, dated December 29, 1999 (the "Shareholder Agreement"),
and any unexercised Options are subject to cancellation as set forth in Section
4.5 of the Shareholder Agreement.
SECTION 5. Nonassignability.
No right granted to the Optionee under the Plan or this
Agreement shall be assignable or transferable (whether by operation of law or
otherwise and whether voluntarily or involuntarily), other than by will or by
the laws of descent and distribution. All rights granted to the Optionee under
the Plan or this Agreement shall be exercisable only by the Optionee or his
estate, heirs or personal representatives.
SECTION 6. Right of Discharge Reserved.
Nothing in the Plan or in this Agreement shall confer upon the
Optionee any right to continue in the employ or service of the Company or affect
any right which the Company may have to terminate the employment or services of
the Optionee.
SECTION 7. No Rights as a Stockholder.
Neither the Optionee nor any person succeeding to the
Optionee's rights hereunder shall have any right as a stockholder with respect
to any shares subject to the Option until the date of the issuance of a stock
certificate to him or her for such shares. Except for adjustments made pursuant
to Section 3.4 of the Plan, no adjustment shall be made for dividends,
distributions or other rights (whether ordinary or extraordinary, and whether in
cash, securities or other property) for which the record date is prior to the
date such stock certificate is issued.
SECTION 8. Plan Provisions to Prevail.
This Agreement shall be subject to all of the terms and
provisions of the Plan and the Shareholder Agreement, which are incorporated
hereby and made a part hereof. In the event there is any inconsistency between
the provisions of this Agreement and the Plan or the Shareholder Agreement, the
provisions of the Plan or the Shareholder Agreement, as applicable, shall
govern.
- 3 -
<PAGE> 4
SECTION 9. Optionee's Acknowledgments.
By entering into this Agreement the Optionee agrees and
acknowledges that (a) he has received and read a copy of the Plan and accepts
this Option subject to the terms and provisions of the Plan, and (b) that no
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any award thereunder. As a condition to
the issuance of shares of Common Stock under this Option, the Optionee
authorizes the Company to withhold in accordance with applicable law from any
compensation payable to him any taxes required to be withheld by the Company
under federal, state, or local law as a result of his exercise of this Option.
SECTION 10. Section Headings.
The Section headings contained herein are for the purposes of
convenience only and are not intended to define or limit the contents of said
Sections.
SECTION 11. Notices.
Any notice to be given to the Company hereunder shall be in
writing and shall be addressed to the Secretary of the Company, Christine J.
Smith, c/o AEA Investors Inc., 65 East 55th Street, New York, New York 10022 or
at such other address as the Company may hereinafter designate to the Optionee
by notice as provided herein. Any notice to be given to Optionee shall be given
at the address set forth on the first page hereof, or at such other address as
Optionee may hereinafter designate to the Company by notice as provided herein.
Notices hereunder shall be deemed to have been duly given when personally
delivered or mailed by registered or certified mail to the party entitled to
receive them.
SECTION 12. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and the successors and assigns of the Company and, to the
extent set forth in Section 5, the estate, heirs or personal representatives of
the Optionee.
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
SOVEREIGN SPECIALTY
CHEMICALS, INC.
By:
OPTIONEE
- 5 -
<PAGE> 6
Schedule 1
The following individuals entered into agreements substantially identical to the
agreement filed with this report. The following chart sets forth the material
details in which such agreements differ from the document filed.
<TABLE>
<CAPTION>
NAME NUMBER OF OPTIONS EXERCISE PRICE
- ---- ----------------- --------------
<S> <C> <C>
John R. Mellett 15,000 $129.50
Martyn Howell-Jones 2,500 $129.50
Richard W. Johnston 4,000 $129.50
Paul Gavlinski 4,000 $129.50
Karen K. Seeberg 2,500 $129.50
Frederick A. Quinn 9,500 $129.50
Gerard A. Loftus 9,500 $129.50
Peter Longo 9,200 $129.50
Mark Longo 9,200 $129.50
Louis Pace 9,000 $129.50
Richard Bashford 5,000 $129.50
</TABLE>
<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
Tanner Chemicals, Inc., a New Hampshire corporation
SSC International, Inc., a Barbados corporation
Sovereign Specialty Chemicals PTE Ltd, a Singapore Corporation
Sovereign Specialty Chemicals U.K. Ltd, a U.K. Corporation
Pierce & Stevens
None
SIA Adhesives
None
OSI Sealants
None
Tanner
None
<PAGE> 1
EXHIBIT 23.2
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-95659) pertaining to the Employee Stock Purchase Plan of Sovereign
Specialty Chemicals, Inc. of our report dated February 25, 2000 (Except for Note
18, as to which the date is March 23, 2000), with respect to the consolidated
financial statements and schedule of Sovereign Specialty Chemicals, Inc.
included in the Annual Report (Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Chicago, Illinois
February 25, 2000
(Except for Note 18, as to which
the date is March 23, 2000)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOVEREIGN
SPECIALTY CHEMICALS INC.'S DECEMBER 31, 1999 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,005
<SECURITIES> 0
<RECEIVABLES> 38,756
<ALLOWANCES> 0
<INVENTORY> 26,028
<CURRENT-ASSETS> 86,172
<PP&E> 63,861
<DEPRECIATION> (12,336)
<TOTAL-ASSETS> 257,839
<CURRENT-LIABILITIES> 68,861
<BONDS> 0
0
0
<COMMON> 22
<OTHER-SE> 56,594
<TOTAL-LIABILITY-AND-EQUITY> 257,839
<SALES> 237,408
<TOTAL-REVENUES> 237,408
<CGS> 162,550
<TOTAL-COSTS> 162,550
<OTHER-EXPENSES> 62,503
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,076
<INCOME-PRETAX> (2,721)
<INCOME-TAX> 4,218
<INCOME-CONTINUING> (6,939)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,055)
<CHANGES> 0
<NET-INCOME> (7,994)
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
<PAGE> 1
EXHIBIT 99.1
Cautionary Statements for Purposes of "Safe Harbor" Provisions of Securities
Reform Act of 1995
Certain statements contained in our public filings, press releases and
other documents and materials may include, forward-looking statements including
statements relating to our strategy, expectations for the industry, capital
requirements and hedging activities. We have based these forward-looking
statements on our current expectations and projections about future events.
These forward-looking statements are subject to risks, uncertainties and
assumptions about us, including, among other things
- our anticipated growth and business strategies
- our expected internal growth
- our ability to integrate acquired businesses
- anticipated trends and conditions in the specialty
chemicals industry
- our future capital needs
- our ability to develop new technologies
- our ability to control costs and maintain quality
- our ability to compete
These forward-looking statements are subject to a number of risks and
uncertainties, including those discussed below, which could cause our actual
results to differ materially from historical results or those anticipated and
certain of which are beyond our control. The words "believe," "expect,"
"anticipate" and similar expressions identify forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The risks included here are not exhaustive. Other sections of this report may
describe additional factors that could adversely impact our business and
financial performance. Moreover, we operate in a very competitive and rapidly
changing environment. New risk factors emerge from time to time and it is not
possible for us to predict all such risk factors, nor can we assess the impact
of all such risk factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results.
Investors should also be aware that while we do, from time to time,
communicate with securities analysts, it is against our policy to disclose to
them any material non-public information or other confidential commercial
information. Accordingly, investors should not assume that we agree with any
statement or report issued by any analyst irrespective of the content of the
statement or report. Furthermore, we have a policy against issuing or confirming
financial forecasts or projections issued by
F-1
<PAGE> 2
others. Thus, to the extent that reports issued by securities analysts contain
any projections, forecasts or opinions, such reports are not our responsibility.
The following factors could cause actual results to differ materially
from historical results or anticipated results:
OUR INDEBTEDNESS COULD RESTRICT OUR OPERATIONS, MAKE US MORE VULNERABLE TO
ADVERSE ECONOMIC CONDITIONS AND MAKE IT MORE DIFFICULT FOR US TO MAKE PAYMENTS
ON THE NOTES AND OUR OTHER INDEBTEDNESS.
We have and will continue to have a significant amount of
indebtedness. Our current and future indebtedness could have important
consequences to for us. For example, it could
- impair our ability to obtain additional financing for working
capital, capital expenditures, acquisitions or general
corporate or other purposes
- limit our ability to use operating cash flow in other
areas of our business because we must dedicate a
substantial portion of these funds to make principal and
interest payments on our indebtedness
- put us at a competitive disadvantage to less leveraged
competitors
- hinder our ability to adjust rapidly to changing market
conditions
- increase our vulnerability in the event of a business or
general economic downturn
- make it more difficult for us to satisfy our obligations with
respect to our indebtedness
- increase our vulnerability to interest rate increases to the
extent our variable-rate debt is not effectively hedged
- limit, along with the financial and other restrictive
covenants in our indebtedness, our ability to make
investments or take other actions or borrow additional funds
Our ability to repay or refinance our indebtedness will depend on our
financial and operating performance, which, in turn, is subject to prevailing
economic and competitive conditions and to financial, business and other
factors, many of which are beyond our control. These factors could include
operating difficulties, increased operating costs or raw material or product
prices, the response of competitors, regulatory developments and delays in
implementing strategic projects. Our ability to meet our debt service and other
obligations may depend in significant part on the extent to which we can
successfully implement our business strategy. We may not be able to implement
our business strategy or the anticipated results of our strategy may not be
realized.
F-2
<PAGE> 3
We may be able to incur substantial additional indebtedness in the
future. The terms of the indenture governing our notes do not prohibit us or our
subsidiaries from incurring indebtedness, although the indenture does contain
limitations on additional indebtedness. Based on our current level of
operations, we believe that our cash flow from operations and our available
financing will be adequate to meet our anticipated requirements for operating
our business and servicing our debt. If, in the future, we cannot generate
enough cash from operations to make scheduled payments on our indebtedness, we
may be required to reduce or delay capital expenditures, refinance our
indebtedness, obtain additional financing or sell assets. Our business may not
be able to generate cash flow, and we may not be able to obtain funding
sufficient or utilize other means to satisfy our debt service requirements.
THE OPERATING AND FINANCIAL RESTRICTIONS IMPOSED BY OUR DEBT AGREEMENTS,
INCLUDING OUR CREDIT FACILITY AND THE INDENTURE RELATING TO OUR NOTES, COULD
NEGATIVELY AFFECT OUR ABILITY TO FINANCE OPERATIONS AND CAPITAL NEEDS OR TO
ENGAGE IN OTHER BUSINESS ACTIVITIES.
Our existing debt agreements contain covenants that restrict our
ability and our subsidiaries' ability to
- incur additional indebtedness
- incur liens on property or assets
- make acquisitions
- merge or consolidate with third parties
- make restricted payments and investments
- pay dividends and make distributions
- repurchase or redeem capital stock
- dispose of assets
- guarantee obligations
- enter into sale and leaseback transactions
- engage in certain transactions with subsidiaries and
affiliates and otherwise restrict corporate activities
F-3
<PAGE> 4
In addition, our credit facility contains financial covenants,
including
- a total debt to EBITDA ratio
- a senior debt to EBITDA ratio
- a fixed charge coverage ratio
- an interest expense coverage ratio
Our ability to meet these covenants and requirements in the future may
be affected by events beyond our control, including prevailing economic,
financial and industry conditions. Our breach or failure to comply with any of
these covenants could result in a default under our credit facility or the
indenture. If we default under our credit facility, the lenders could cease to
make further extensions of credit, cause all of our outstanding debt obligations
under our credit facility to become due and payable, require us to apply all of
our available cash to repay the indebtedness under our credit facility or
prevent us from making debt service payments on any other indebtedness we owe.
If a default under the indenture occurs, the holders of the notes could elect to
declare the notes due and payable. If the indebtedness under our credit facility
or the notes is accelerated, we may not have sufficient assets to repay amounts
due under these existing debt agreements or on other debt securities then
outstanding.
THE SUCCESS OF OUR ACQUISITION STRATEGY COULD BE ADVERSELY AFFECTED BY THE
UNAVAILABILITY OF SUITABLE ACQUISITION CANDIDATES OR OUR INABILITY TO FINANCE
FUTURE ACQUISITIONS OR SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES.
Our business strategy includes making acquisitions, but we can give you
no assurance that suitable acquisition candidates will continue to be available
or that we will be able to negotiate acceptable prices and terms. We expect to
finance acquisitions primarily through the issuance of additional debt. However,
we may not be able to obtain additional financing for future acquisitions. Also,
our credit facility limits our ability to make acquisitions and to incur
indebtedness. In addition, growth by acquisition involves risks such as
- difficulties in integrating the operations and personnel of
acquired companies
- the potential loss of key employees and customers of acquired
companies
- diversion of our management's attention from ongoing business
concerns
If the execution of our acquisition strategy is unsuccessful, our
ability to compete successfully with larger companies, or companies that are
able to complete successful acquisitions in our industry, will be reduced.
F-4
<PAGE> 5
WE MAY BE UNABLE TO IMPLEMENT SUCCESSFULLY OUR EXPANSION INTO FOREIGN MARKETS.
Our business strategy includes increasing our 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.
Our 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
- changes in U.S. law affecting foreign trade
- economic and political changes in the foreign nations in which
our products are sold
One or more of these factors could have a material adverse effect on
our business, financial condition or results of operations in the future.
THE ADHESIVES, SEALANTS AND COATINGS SEGMENT OF THE SPECIALTY CHEMICALS INDUSTRY
IS HIGHLY COMPETITIVE.
We compete with a wide variety of specialty chemical manufacturers.
Some of our competitors are larger, have greater financial resources and are
less leveraged than we are. As a result, these competitors may be better able to
withstand a change in market conditions within the specialty chemical industry
and throughout the economy as a whole. These competitors may also be able to
maintain significantly greater operating and financial flexibility than we can.
Additionally, a number of our niche product applications are customized or sold
for highly specialized uses. Competitors that have greater financial,
technological, manufacturing and marketing resources than we do and that do not
today market similar applications for these uses could choose to do so in the
future. Increased competition could have a material adverse effect on our
business, financial condition or results of operations.
WE DEPEND SIGNIFICANTLY ON OUR SENIOR MANAGEMENT TEAM.
Our success depends in large part on the services of our senior
management team including our Chairman, President and Chief Executive Officer,
Robert B. Covalt. The loss of any of our key executives could materially
adversely affect our company and seriously impair our ability to implement our
business strategy. The employment agreements of most of our key executives
expire on December 31, 2002 or
F-5
<PAGE> 6
December 31, 2003. With the exception of Robert B. Covalt, we do not maintain
key person life insurance policies on any of our executive officers. Our ability
to manage our anticipated growth will also depend on our ability to identify,
hire and retain qualified management personnel. If we are unsuccessful in
attracting and retaining qualified personnel, it could have a material adverse
affect on our business, financial condition or results of operations.
WE MAY BE UNABLE TO RESPOND EFFECTIVELY TO TECHNOLOGICAL CHANGES IN OUR
INDUSTRY.
Our future business success will depend upon our ability to maintain
and enhance our 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. If we
cannot keep pace with the technological advances in the specialty chemicals
industry, it could have a material adverse effect on our business, financial
condition or results of operations.
WE RELY ON SUPPLIES OF A VARIETY OF SPECIALTY AND COMMODITY CHEMICALS IN OUR
MANUFACTURING PROCESS.
We use a variety of specialty and commodity chemicals in our
manufacturing processes. These raw materials are generally available from
numerous independent suppliers. We typically purchase raw materials on a
contract basis. Some of the raw materials that we use are derived from
propylene, crude oil derivatives and ethylene. There have been historical
periods of rapid and significant movements in the prices of propylene, crude oil
derivatives and ethylene both upward and downward. We generally pass changes in
the prices of raw materials to our customers over a period of time. We cannot
always do so, however, and any limitation on our ability to pass through any
such price increases could have a material adverse effect on our business,
financial condition or results of operations.
RISKS ASSOCIATED WITH THE OPERATION OF OUR MANUFACTURING FACILITIES MAY HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Our revenues are dependent on the continued operation of our various
manufacturing facilities. The operation of chemical manufacturing plants
involves many risks including
- the breakdown, failure or substandard performance of equipment
- inclement weather and natural disasters
- the need to comply with directives of, and maintain all
necessary permits from, government agencies
- raw material supply disruptions
- labor force shortages, work stoppages or other labor
difficulties
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- transportation interruptions
The occurrences of material operational problems, including but not
limited to the above events, may have a material adverse effect on the
productivity and profitability of a particular manufacturing facility, or with
respect to various facilities of our company as a whole, during the period of
the operational difficulties.
Our operations are also subject to various hazards incident to the
production of industrial chemicals including the use, handling, processing,
storage and transportation of hazardous materials. These hazards can cause
personal injury and loss of life, severe damage to and destruction of property
and equipment, environmental damage and suspension of operations. Claims arising
from any future catastrophic occurrence at one of our locations may result in us
being named as a defendant in lawsuits asserting potentially large claims. In
addition, individuals could seek damages for alleged personal injury or property
damage resulting from exposure to chemicals at our facilities. Although we
maintain insurance policies that could provide some coverage for these claims,
that coverage does not include all of these risks and is subject to limitations
and, accordingly, may be inadequate.
POTENTIAL ENVIRONMENTAL LIABILITIES MAY ARISE IN THE FUTURE AND ADVERSELY
IMPACT OUR FINANCIAL POSITION.
We are subject to extensive laws and regulations pertaining to air
emissions, wastewater discharges, the handling and disposal of solid and
hazardous wastes, the remediation of contamination, and otherwise relating to
health, safety and protection of the environment. Additionally, the operation of
chemical manufacturing plants involves the risk of chemical spills and other
discharges or releases of hazardous substances, including gases. Should this
risk materialize, it may cause personal injury and loss of life, severe damage
to or destruction of property and equipment, and environmental damage, which
could lead to claims under the environmental laws.
There are conditions at our facilities that require environmental
remediation. While we believe that any costs relating to this remediation that
are not covered by indemnification or insurance will not be material, they could
be. Environmental laws are constantly evolving and it is impossible to predict
accurately the effect they may have upon our capital expenditures, earnings or
competitive position in the future. Should environmental laws become more
stringent, the cost of compliance would increase. If we cannot pass along future
costs to our customers, any increases may have a material adverse effect on our
business, financial condition or results of operations.
DEMAND FOR SOME OF OUR PRODUCTS IS CYCLICAL IN NATURE AND SUBJECT TO CHANGES IN
GENERAL ECONOMIC CONDITIONS.
A significant portion of our products are used in industries that
experience cyclicality and are 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
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and remodeling. Sales to the transportation industry are also cyclical in
nature. Downturns in the building and construction market or the transportation
industry could have a material adverse effect on our business, financial
condition or results of operations.
PRODUCT LIABILITY CLAIMS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Because many of our products provide critical performance attributes to
our customers' products, the sale of these products entails risk of product
liability claims. A successful product liability claim, or series of claims,
against us in excess of our insurance coverage could have a material adverse
effect on our business, financial condition or results of operations.
WE ARE CONTROLLED BY ONE PRINCIPAL SHAREHOLDER.
The interests of our controlling shareholder may be in conflict with
the interests of other investors. We are 75% owned by SSCI Investors LLC. As a
result, SSCI Investors LLC will be able to direct the election of the members of
our board of directors and therefore direct our management and policies.
Circumstances may occur in which the interests of SSCI Investors LLC, as an
equity holder, could be in conflict with the interests of other investors.
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