<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10
FILED PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
SPECIALTY PRODUCTS & INSULATION CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
PENNSYLVANIA 23-1713012
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
----------------
1097 COMMERCIAL AVENUE 17520-0576
P.O. BOX 576 (Zip Code)
EAST PETERSBURG,
PENNSYLVANIA
(Address of principal
executive offices)
----------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (717) 569-3900
COPY TO:
THOMAS A. RALPH, ESQ.
CHRISTOPHER G. KARRAS, ESQ.
DECHERT PRICE & RHOADS
4000 BELL ATLANTIC TOWER
1717 ARCH STREET
PHILADELPHIA, PENNSYLVANIA 19103-2793
(215) 994-4000
----------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SPECIALTY PRODUCTS & INSULATION CO.
I. INFORMATION INCLUDED IN INFORMATION STATEMENT AND INCORPORATED IN FORM 10 BY
REFERENCE
<TABLE>
<CAPTION>
FORM 10
ITEM NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
- -------- ------------ ---------------------------------
<S> <C> <C>
1. Business.................... "Summary," "Business" and "Management's
Discussion and Analysis of Results of
Operations and Financial Condition."
2. Financial Information....... "Summary," "Selected Consolidated Financial
Data" and "Management's Discussion and Analysis
of Results of Operations and Financial
Condition."
3. Properties.................. "Business."
4. Security Ownership of
Certain Beneficial Owners
and Management.............. "Principal Shareholders."
5. Directors and Executive "Management."
Officers....................
6. Executive Compensation...... "Management."
7. Certain Relationships and
Related Transactions........ "Summary," "Management," and "Separation from
Irex."
8. Legal Proceedings........... "Business" and "Separation from Irex."
9. Market Price of and
Dividends on the
Registrant's Common Equity
and Related Stockholder
Matters..................... "Dividend Policy" and "Description of Capital
Stock."
11. Description of Registrant's
Securities to be
Registered.................. "Description of Capital Stock."
12. Indemnification of Directors
and Officers................ "Management" and "Description of Capital Stock."
13. Financial Statements and
Supplementary Data.......... "Summary," "Selected Consolidated Financial
Data," "Management's Discussion and Analysis of
Results of Operations and Financial Condition"
and "Index to Financial Statements."
15. Financial Statements and
Exhibits.................... "Index to Financial Statements."
</TABLE>
<PAGE>
INFORMATION STATEMENT
IREX CORPORATION'S SPIN-OFF
OF
SPECIALTY PRODUCTS & INSULATION CO.
THROUGH A DISTRIBUTION OF COMMON STOCK
TO THE
HOLDERS OF IREX CORPORATION COMMON STOCK
This Information Statement is being furnished by Irex Corporation ("Irex")
to its shareholders in connection with the distribution (the "Distribution")
to such shareholders of one share of the common stock, par value $.01 per
share ("Common Stock"), of Specialty Products & Insulation Co. ("SPI" or the
"Company") for every fifty shares of common stock of Irex owned on the Record
Date (as defined below). To effect the Distribution, Irex has caused 100% of
the outstanding shares of SPI Common Stock (which were previously solely owned
by Irex) to be distributed to the holders of Irex common shares. As a result
of the Distribution, the Company has ceased to be a subsidiary of Irex and
Irex no longer owns any shares of SPI Common Stock.
Immediately following the Distribution, Evercore Capital Partners L.P.,
Evercore Capital Partners (NQ) L.P. and Evercore Capital Offshore Partners
L.P. (collectively, "Evercore") invested approximately $15.4 million in SPI in
exchange for 7,113 shares of newly-issued SPI Common Stock, and certain
officers of the Company acquired [up to 140] shares of newly-issued Common
Stock. Evercore's investment in the Company, together with the amounts
invested by SPI's management, shall be referred to herein as the "New
Investment." As a result of the Distribution and the New Investment,
approximately 55% of SPI's Common Stock is now owned by shareholders of Irex
who received stock in the Distribution and by the Company's management, and
approximately 45% of the Common Stock is owned by Evercore.
Certificates for the Common Stock will be mailed on or about [November ,
1998] to holders of record of Irex common stock at the close of business on
[November , 1998] (the "Record Date"). The Company will not mail certificates
for fractional shares, but instead, will repurchase such shares at a rate of
$2,698.08 per share. No consideration will be paid by Irex shareholders for
shares of Common Stock.
Irex will receive an opinion of counsel to the effect that the Distribution
is not taxable to Irex and its shareholders for federal income tax purposes.
See "Separation from Irex--Federal Income Tax Consequences."
NO VOTE OF IREX SHAREHOLDERS IS REQUIRED IN CONNECTION WITH THE DISTRIBUTION.
THEREFORE, WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO
SEND US A PROXY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
THE DATE OF THIS INFORMATION STATEMENT IS NOVEMBER 5, 1998.
<PAGE>
INFORMATION STATEMENT SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements and notes thereto appearing elsewhere in
this Information Statement. For purposes of this Information Statement, the
"Company" and "SPI"refer to Specialty Products & Insulation Co. and its
consolidated subsidiaries, unless the context otherwise requires. Unless
otherwise indicated, the information contained in this Information Statement
(i) gives effect to the spin-off of the Company from its parent, Irex
Corporation ("Irex"), through the pro rata distribution of 100% of the capital
stock of the Company to the shareholders of Irex (the "Separation") and (ii)
gives effect to the recapitalization of each share of the Company's previously
issued common stock into [0.8532] shares of Common Stock.
THE COMPANY
The Company is a national distributor and fabricator of mechanical
insulation, architectural/acoustical products and specialty products to
commercial and industrial markets. The Company also offers customized
fabrication, export and other value-added services related to its core product
lines. The Company operates through a national network of 58 distribution
centers, including ten fabrication facilities, at locations in 24 states.
Through this network, the Company sells approximately 25,000 stock keeping
units to more than 9,000 customers. Such customers include specialty
contractors, facility owners, general contractors, original equipment
manufacturers ("OEMs"), exporters and supply houses. The Company's principal
product categories include piping and equipment insulation, as well as
acoustical ceilings and specialty wall panels for use in new construction,
maintenance, renovation and repair.These categories include the products of
more than 150 manufacturers, including Armstrong World Industries, Owens
Corning, Johns Manville, Dow Chemical and Pittsburgh Corning. Since commencing
operations in the early 1980s, the Company has experienced significant growth
as a result of its ability to capitalize on industry changes including,
principally, an increased reliance on distributors by manufacturers and
customers. Net sales of the Company increased from $118.4 million in 1995 to
$158.5 million in 1997, and operating income grew from $4.1 million in 1995 to
$7.0 million in 1997. In the first six months of 1998, net sales and operating
income totalled $90.0 million and $3.7 million, respectively, as compared to
$73.8 million and $2.7 million, respectively, in the first six months of 1997.
Significant changes in the Company's markets have resulted in the emergence
of an independent distribution channel. Independent distribution has reduced
duplicative functions performed by both manufacturers and customers, allowing
them to devote greater resources to their core competencies. Manufacturers have
been able to reduce logistical costs, lower marketing expenses and better
manage inventories by outsourcing the distribution function to independent
distributors. Customers have also been able to lower operating costs, reduce
their number of supply sources and gain high-quality, value-added services
through the utilization of independent distributors. This evolution has
produced markets which are highly fragmented and populated by many small local
and regional distributors. However, the Company believes the industry is
undergoing a significant trend toward consolidation as both manufacturers and
customers seek to enhance efficiencies and reduce costs while maintaining high
levels of product and service quality. The Company believes that large,
national distributors with significant purchasing power, integrated information
systems and relatively low infrastructure costs can offer greater value to
customers and will be well positioned to benefit from the consolidation in this
industry.
Two key components of the Company's growth strategy have been acquisitions
and openings of distribution and service centers ("distribution centers"). This
strategy has enabled the Company to further penetrate existing markets, broaden
its product and service capabilities and take advantage of current industry
dynamics. For the
2
<PAGE>
five-year period ended December 31, 1997, the Company acquired 11 distribution
operations, including three from affiliates, which together contributed
approximately $13.2 million, or 8.3%, of the Company's 1997 net sales. During
the same period, the Company opened 10 distribution centers, which together
contributed approximately $12.3 million, or 7.8%, of the Company's 1997 net
sales. Since January 1, 1998, the Company has completed three acquisitions and
opened three distribution centers.
The Company is committed to capitalizing on the expertise, knowledge and
experience it has developed in its core markets to increase market share and
profitability. In addition, the Company's operating strategy includes the
following key elements:
. Superior Customer Service. With distribution centers and sales forces in
each area that it serves, the Company provides its customers with rapid
delivery and localized service. The Company believes that providing a high
level of customer service leads to long-term relationships with its
customers.
. National Network of Distribution Centers. The Company believes its national
distribution network enables the Company to attract customers that have
multiple locations, participate with key vendors in the development of
national marketing and sales strategies, achieve geographic diversification
and facilitate best-practice benchmarking as well as innovation and
knowledge-sharing within the Company.
. Strong Supplier Relationships. The Company believes its national presence,
financial strength and partnering philosophy have enabled the Company to
become the preferred distributor for many of its suppliers. The Company
works with its suppliers to develop common expansion programs as well as
customer-oriented product solutions.
. Low Cost of Operations. The Company believes that its volume of purchases
and desirability as a vendor enable it to obtain purchase terms that are as
favorable as those available to other large competitors. The Company is also
able to realize advantages from the economies of large-scale operation in
the areas of administrative processing, information systems, financing
terms, technical expertise, inventory and working capital management.
. Innovative and Committed Employees. Management believes the Company's
corporate culture and values allow it to attract, develop and retain
innovative and committed employees. The Company's senior management has an
average of approximately 10 years' experience with the Company, and many of
its sales and service staff have been working in the same markets for 10
years or more.
The Company believes that its operating strategy provides a foundation for
growth in each of the markets in which it participates. See "Business--Growth
Strategy." The Company's growth strategy includes the following key elements:
. Increase Sales of Existing and Accessory Products. Management believes the
Company's strengths and operating strategies will lead to increased sales to
its existing customer base. The Company believes acquisitions, the opening
of new distribution centers and other strategic initiatives will generate
additional sales of existing products to new customers.
. Open New Distribution Centers. The Company expects to continue to open new
distribution centers as a result of new market opportunities, customer
service requirements, supplier initiatives and strategic opportunities. As
the Company continues to broaden its national distribution network, the
Company believes that it will be able to capitalize on operating
efficiencies and the benefits of large-scale operation.
. Continue Acquisitions. The Company is committed to continuing its strategy
to acquire distribution businesses with strong market positions, supplier
support or attractive customer bases. Acquisitions allow the Company to
accelerate revenue growth, expand its geographical presence, add product
lines and technical expertise and achieve greater operating efficiencies.
3
<PAGE>
. Emphasize National Accounts. Management believes that the Company's national
distribution network gives the Company a competitive advantage in securing
national and multi-regional customers seeking to reduce vendors, outsource
non-core operations, integrate supply and gain value-added services such as
procurement and material management.
. Add Product Lines. The Company intends to leverage its core product and
technical expertise to add product lines which are complementary to those
currently offered. The Company believes that its existing national
distribution infrastructure enables it to add new product lines without
incurring significant additional cost.
The Company's executive offices are located at 1097 Commercial Avenue, East
Petersburg, Pennsylvania 17520, and its telephone number is (717) 569-3900.
RECENT ACQUISITIONS
On March 1, 1998, the Company acquired certain assets relating to the
mechanical insulation distribution and fabrication operations of Extol of
Texas, Inc., with service centers located in Houston and Corpus Christi, Texas
("Extol"), for approximately $5.6 million in cash. The acquisition was financed
by borrowings from Irex. For the year ended December 31, 1997, Extol generated
sales of approximately $13.2 million.
On June 29, 1998, the Company acquired certain assets relating to the
mechanical insulation distribution and fabrication operations of Presnell
Insulation Co., Inc. ("Presnell") for cash consideration of approximately $1.0
million. Presnell has distribution centers in Charlotte, North Carolina,
Birmingham, Alabama and Atlanta, Georgia. The acquisition was financed by
borrowings from Irex. For the year ended December 31, 1997, Presnell generated
sales of approximately $3.8 million.
On October 26, 1998, the Company acquired the outstanding common stock of
Paragon Industries, Inc. ("Paragon"), a distributor and laminator of numerous
mechanical insulation, HVAC, metal building insulation and specialty products.
The purchase price for Paragon was approximately $3.7 million (including the
assumption of $1.7 million of debt). The acquisition was financed by borrowing
from Irex. For the fiscal year ended March 31, 1998, Paragon generated sales of
approximately $15.0 million.
THE DISTRIBUTION AND SEPARATION FROM IREX
Since commencing operations in 1982, the Company has been a wholly-owned
subsidiary of Irex. Through its operating subsidiaries other than the Company,
Irex is primarily engaged in the business of specialty contracting throughout
the United States and Canada. In January 1998, Irex announced plans to effect
the Separation through a pro rata distribution of 100% of the capital stock of
the Company to the shareholders of Irex. Immediately prior to the Separation,
the Company declared a reverse stock split, whereby each share of the Company's
previously-issued common stock was converted into [0.8532] shares of Common
Stock. The reverse stock split reduced the Company's outstanding stock from
10,000 to [8,532] shares of Common Stock, all of which were held by Irex.
Following this recapitalization, the Company effected the Separation by
distributing such shares to the shareholders of Irex on the basis of one share
of SPI Common Stock for every fifty Irex common shares held. The Company will
issue certificates for such shares in November 1998. The Company will not issue
certificates for fractional shares, but, instead, will repurchase such shares
at a rate of $2,698.08 per share. As a result of the Separation and the New
Investment (discussed below), all of the capital stock of the Company is owned
by the shareholders of Irex who received shares of Common Stock in the
Separation, the Company's management and by Evercore. See "Separation from
Irex."
The decision to effect the Separation was based on a number of factors.
First, it will give both corporations greater managerial, operational and
financial flexibility to focus on and respond to changing market conditions in
their respective business environments. Second, the Company's ability to pursue
and finance acquisitions and other
4
<PAGE>
business opportunities will be enhanced by operating independently. Third,
financial advisors have advised Irex and the Company that equity capital
necessary to meet the business needs of Irex and the Company can be most
effectively raised by the Company following its Separation from Irex, rather
than through financings by either Irex or the Company while Irex continued to
hold a substantial equity interest in the Company. Fourth, management believes
the Separation will assist the Company in serving certain customers. Through
the specialty contracting businesses operated by its other subsidiaries, Irex
competes with customers whose business is solicited by the Company, and the
Company believes these customers will be more likely to purchase products from
the Company after it is independent from Irex. Finally the Separation will
enable the Company to provide its management and employees with incentive
compensation in the form of direct and indirect equity ownership in the
Company.
In connection with the Separation, the Company has entered into several
agreements with Irex and its subsidiaries setting forth the terms and
conditions of the Separation and governing certain interim and longer-term
relationships between the companies. See "Separation from Irex--Agreements with
Irex."
NEW INVESTMENT
On November , 1998 (the "Closing Date"), immediately following the
consummation of the Distribution, Evercore invested approximately $15.4 million
in the Company in exchange for 7,113 shares of Common Stock of SPI. The
purchase price per share of Common Stock was $2,158.46. As a result of the
Distribution and such New Investment in the Company, as of the Closing Date
approximately 55% of SPI Common Stock is owned by shareholders of Irex who
received stock in the Distribution and approximately 45% of SPI Common Stock is
owned by Evercore.
The Company and Evercore are parties to a Stock Subscription Agreement, dated
October 27, 1998 (the "Stock Subscription Agreement"), which contains certain
provisions relating to the future control of the Board of Directors of SPI. The
Stock Subscription Agreement also contains provisions restricting the Company's
business dealings with affiliates, including Evercore, and gives Evercore and
certain other owners of the Company's stock the right to demand the
registration of their Common Stock. (See "New Investment".)
In connection with the New Investment, the Company adopted amended and
restated by-laws (the "By-laws") which contain certain provisions governing the
voting rights of the Board of Directors. Under the By-laws, certain actions of
the Board of Directors will require a supermajority vote of two-thirds of the
authorized Directors of the Company (but not less than five Directors). Such
actions include, but are not limited approval of mergers, acquisitions,
dividends and the issuance of additional equity securities.
In connection with the New Investment, SPI entered into a Note Purchase
Agreement with Evercore (the "Evercore Note Purchase Agreement"), which,
subject to the conditions set forth therein, will provide funding for up to 25%
of the purchase price of certain acquisitions by SPI of related businesses, as
well as for general corporate purposes. The Evercore Note Purchase Agreement
provides for the immediate purchase by Evercore of $3.5 million of the
Company's Adjustable Rate Junior Subordinated Pay-in-Kind-Notes due 2007 (the
"ECP Notes"), bearing an interest rate of 11%. The proceeds of these Notes will
be used for general corporate purposes. In addition, Evercore has agreed to
purchase an aggregate additional amount of up to $20 million of the ECP Notes
over a three year period to fund up to 25% of the purchase price of
acquisitions, subject to certain conditions including a requirement that the
Company have a ratio of indebtedness under its Credit Agreement to EBITDA in
excess of 2.5 to 1.0. The Evercore Note Purchase Agreement contains a number of
restrictive covenants, including covenants which limit transactions with
affiliates and payments of dividends, and requires that the Company maintain a
certain leverage ratio. All indebtedness of the Company under the Evercore Note
Purchase Agreement will be subordinated and rank junior to all other
indebtedness of the Company, other than trade indebtedness and indebtedness of
the Company which is expressly ranked junior to the ECP Notes.
CERTAIN SPECIAL CONSIDERATIONS
See "Certain Special Considerations" beginning on page 7 for a discussion of
certain information that should be considered by shareholders of the Common
Stock.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth summary historical and pro forma consolidated
financial information of the Company as of and for the periods indicated. The
pro forma balance sheet information assumes the New Investment ocurred on June
30, 1998. The pro forma income statement information assumes the New Investment
occurred as of January 1, 1997. The summary consolidated financial information
should be read in conjunction with the "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company and the
related notes included elsewhere in this Information Statement.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- ---------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................... $118,395 $141,800 $158,510 $73,833 $90,036
-------- -------- -------- ------- -------
Gross profit....................... 25,892 31,110 34,252 15,902 20,056
-------- -------- -------- ------- -------
Operating income................... 4,051 6,348 7,023 2,729 3,662
Interest expense, net.............. 1,840 1,854 1,939 925 1,072
-------- -------- -------- ------- -------
Income before income taxes......... 2,211 4,494 5,084 1,804 2,590
Income tax provision............... 918 1,810 2,077 736 1,062
-------- -------- -------- ------- -------
Net income......................... $ 1,293 $ 2,684 $ 3,007 $ 1,068 $ 1,528
======== ======== ======== ======= =======
Net income per share--basic........ $ 151.55 $ 314.58 $ 352.44 $125.18 $179.09
Net income per share--diluted...... $ 151.55 $ 314.58 $ 352.44 $125.18 $179.09
Weighted average number of common
shares outstanding--basic......... 8,532 8,532 8,532 8,532 8,532
Weighted average number of common
shares outstanding--diluted....... 8,532 8,532 8,532 8,532 8,532
PRO FORMA INCOME STATEMENT DATA
(1):
Operating income................... $ 7,023 $ 3,662
Interest expense, net.............. 1,747 1,034
-------- -------
Income before income taxes......... 5,276 2,628
Income tax provision............... 2,156 1,078
-------- -------
Net income......................... $ 3,120 $ 1,550
======== =======
Net income per share--basic........ $ 197.66 $ 98.19
Net income per share--diluted...... $ 197.66 $ 98.19
Weighted average number of common
shares outstanding--basic......... 15,785 15,785
Weighted average number of common
shares outstanding--diluted....... 15,785 15,785
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997 AS OF JUNE 30, 1998
----------------------- -------------------------------------
ACTUAL ACTUAL PRO FORMA (3) AS ADJUSTED (4)
----------------------- ------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $11,266 $ 9,991 $ (499) $17,031
Total assets ........... 47,651 57,647 57,647 57,647
Total long-term debt
(2).................... 26,493 31,107 31,107 27,442
Shareholder's equity.... 9,180 10,630 140 14,295
</TABLE>
- --------
(1) Gives pro forma effect to the New Investment including the subordinated
debt borrowings and the application of the estimated net proceeds therefrom
as if such transactions had occurred on January 1, 1997.
(2) Total long-term debt includes notes payable to affiliate (both the long-
term and current portions) and payable to affiliates, excluding the
dividend payable to Irex, and subordinated debt borrowings.
(3) Represents actual data as of June 30, 1998 as adjusted to give effect to
the $10.5 million planned dividend to Irex. Such dividend will be paid in a
combination of $7.0 million of cash and $3.5 million of junior subordinated
notes.
(4) Adjusted to reflect (i) the Separation, including the $10.5 million
dividend to Irex (in the form of cash and notes), (ii) the New Investment
private equity offering of 7,253 shares of Common Stock by the Company at
an assumed offering price of $2,158.46 per share, (iii) the application of
approximately $10.7 million of the net proceeds to the repayment of
indebtedness (both long-term and payable to affiliates) as well as the
partial repayment of indebtedness incurred in connection with the
declaration of the $10.5 million dividend to Irex, (iv) the issuance of
subordinated debt, and (v) the recapitalization of each share of the
Company's previously issued common stock into 0.8532 shares of Common
Stock.
6
<PAGE>
CERTAIN SPECIAL CONSIDERATIONS
Shareholders of Irex receiving shares of Common Stock as a result of the
Separation should carefully consider the following special considerations as
well as the other information set forth elsewhere in this Information
Statement.
LACK OF INDEPENDENT OPERATING HISTORY
The Company has no operating history independent of Irex. Prior to the
Separation, the Company operated as a wholly owned subsidiary of Irex and
relied on Irex for various financial, administrative and managerial services
necessary for its operations. SPI also maintained a minimal executive,
financial and administrative staff. As a result of the Separation, the Company
will maintain its own lines of credit and banking relationships and perform
its own financial, administrative and managerial functions without the benefit
of such services. Irex will have no obligation to provide assistance to the
Company except pursuant to certain agreements as described in "Separation from
Irex--Agreements with Irex." While management believes that the Separation
will have a positive impact on the Company, the Company may encounter
financial, administrative, managerial or other difficulties as a result of its
lack of independent operating history or the discontinuance of its reliance on
the financial and other services of Irex. No assurance can be given that the
Company, as an independent entity, will achieve operating results comparable
to those prior to the Separation. See "Separation from Irex."
LIMITATIONS ON ABILITY TO RAISE EQUITY CAPITAL AND POTENTIAL DEPENDENCE ON
DEBT FINANCING
In order to preserve the tax-free status of the Separation, the Company's
future ability to issue Common Stock may be limited under federal income tax
laws for a period of at least two years following consummation of the
Separation. The Company's limited ability to issue capital stock during such
period (including its limited ability to issue Common Stock in connection with
acquisitions) may require the Company to rely on other financing sources, such
as bank credit facilities or debt offerings. Although the Company believes it
can obtain financing necessary to maintain its acquisition and growth program,
reliance on such alternative financing sources could adversely affect the
Company's ability to continue its acquisition program, create significant debt
service obligations and create other risks for the Company and its
shareholders. No assurance can be given that the Company will be able to
obtain the capital it will need to meet its operating needs and finance its
acquisition program. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business--Growth Strategy."
RISKS ASSOCIATED WITH FUTURE ACQUISITIONS; ABILITY TO MANAGE GROWTH
The Company's growth strategy contemplates further acquisitions of
distribution and related businesses. The Company's future success is
dependent, in part, upon its ability to identify, finance and acquire suitable
businesses on favorable terms and then to integrate and manage the acquired
businesses quickly and successfully. Acquisitions involve special risks,
including risks associated with unanticipated liabilities, diversion of
management attention, possible adverse effects on earnings resulting from
increased goodwill amortization, potential increased interest costs,
dependence on retention, hiring and training of key personnel and difficulties
relating to the integration of the acquired businesses. Although the Company
believes that it can successfully implement its acquisition program, there can
be no assurance that the Company will be able to identify or acquire
acceptable acquisition candidates on terms favorable to the Company and in a
timely manner to the extent necessary to fulfill the Company's growth
strategy. The Company's ability to achieve and manage its growth will depend
on a number of factors, including the availability of working capital to
support such growth, existing and emerging competition and the Company's
ability to maintain sufficient profit margins. Continued growth could place
additional demands on the Company's administrative, operational and financial
resources. There can be no assurance that the Company will be able to continue
to achieve or manage growth effectively, or that future acquisitions will not
have an adverse effect upon the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Growth Strategy."
7
<PAGE>
CONTROLLING SHAREHOLDER
Evercore beneficially owns approximately 45% of the Common Stock of the
Company. In addition, at all times prior to the third anniversary of the date
of the New Investment, the Company has agreed to support the nomination to the
Board of Directors of at least three persons recommended by Evercore (the
"Evercore Directors"), so long as Evercore owns greater than 30% of the Common
Stock. The Evercore Directors will effectively have the right to approve
certain actions of the Company, including certain mergers, the issuance of
additional securities and the declaration of dividends. Following the third
anniversary of the date of the New Investment, Evercore may also seek to elect
a majority of the Board of Directors. Circumstances may occur in which the
interests of Evercore could be in conflict with the interests of the other
shareholders of the Company.
SEASONALITY; INDUSTRY AND ECONOMIC CYCLES
The Company's business is seasonal. The Company has in the past experienced
seasonal fluctuations in sales and operating results from quarter to quarter.
Operating results are weakest in the first calendar quarter because of the
effects of winter weather on commercial and industrial construction and the
consequent reduction in sales of mechanical insulation and
architectural/acoustical products. Fluctuations in the Company's quarterly
sales and operating results could result in significant volatility in, and
otherwise adversely affect, the market price of the Common Stock. See
"Management's Discussion of Financial Condition and Results of Operations--
Seasonality and Quarterly Results of Operations."
Some of the principal markets for the products and services offered by the
Company are subject to cyclical economic fluctuations that generally affect
pricing, availability and demand for mechanical insulation and
architectural/acoustical products. Cyclical fluctuations could also affect
growth rates in the markets served by the Company's customers, the
availability of products from vendors and the availability of suitable
acquisition candidates. As a result, changes in general economic conditions
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Seasonality and Cyclicality."
DEPENDENCE ON SUPPLIER RELATIONSHIPS
The Company's distribution operations are materially dependent on its
relationships with its suppliers. Generally, distribution agreements between
the Company and its suppliers may be terminated without cause by the suppliers
at any time. As a result, even the largest of the Company's suppliers could
terminate the flow of its products to the Company at any time and the Company
would have to obtain substitute products to maintain its reserves. Although
management believes that the Company can maintain its relationships with its
suppliers for the foreseeable future, there can be no assurance that it will
be able to do so. The termination or limitation by any key supplier of its
relationship with the Company could have a material adverse effect on the
Company's business, operating results and financial condition.
POTENTIAL RISKS DUE TO CHANGES IN INDUSTRY TRENDS
The distribution industry is undergoing significant change. Historically,
distributors of mechanical insulation and architectural/acoustical products
served primarily as suppliers and extensions of manufacturers' sales forces.
In recent years, both manufacturers and customers have been relying
increasingly on distributors such as the Company to reduce purchasing costs
and provide a broad range of value-added services. As customers increasingly
seek low-cost alternatives to traditional methods of purchasing and sources of
supply, they are, among other things, reducing the number of their suppliers.
Although the Company believes it can maintain current customer relationships,
there can be no assurance that the Company will not lose customers, including
key accounts, as existing customers reduce the number of distributors with
which they do business. Also, distributors are consolidating to achieve
economies of scale and increase efficiencies. This consolidation trend could
cause the industry to become more competitive. The failure by the Company to
respond effectively to such consolidation and increased competition or to
other changes in the industry could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Industry Overview."
8
<PAGE>
DEPENDENCE ON IREX INFORMATION SYSTEMS; POTENTIAL SYSTEMS CONVERSION; YEAR
2000 ISSUE
The Company utilizes and will continue to utilize information systems
provided by Irex, which play an integral role in product tracking, pricing and
availability; order processing and shipping; distribution center operations;
purchasing; inventory management; financial reporting; and other financial and
operational functions. The Company has entered into an agreement with Irex
pursuant to which Irex will provide information system services to the Company
for at least 18 months and up to three years following the Separation. During
such period the Company intends to evaluate its existing and future
information system requirements and examine its options for obtaining such
services. These options include, among others, continuing the existing
relationship with Irex or replacing the Company's current systems. If the
Company decides to install new information systems, there can be no assurance
that it will be able to successfully implement, integrate and operate such
systems without experiencing unanticipated delays, complications and expenses.
Significant disruptions in the Company's information systems or the failure to
successfully complete a conversion to new information systems on a timely
basis could result in operational and financial disruptions and adversely
affect the Company's business, operating results and financial condition. See
"Business--Information Systems."
The Company does not expect to have material exposure to Year 2000
conversion risks following the installation of an upgrade to its information
system software scheduled for November 1998. This planned upgrade has been
installed and tested by the software system vendor in other information
systems and, as a result, the Company believes its information systems will be
Year 2000 compliant following the upgrade. The Company is presently unable to
determine the effects of Year 2000 compliance by its suppliers and customers,
and the failure of suppliers or customers to address such issues effectively
could have a material adverse effect on the Company. See "Business--
Information Systems."
POTENTIAL LIABILITY FOR TAXES RELATED TO THE SEPARATION
In connection with the Separation, the Company entered into a tax sharing
and indemnification agreement with Irex (the "Tax Agreement"). Under the Tax
Agreement the Company is restricted, for a period of two years following the
date of the Separation, from engaging in certain transactions, including
certain issuances of stock, redemptions of stock or ceasing to engage in its
trade or business, without first obtaining either a ruling from the Internal
Revenue Service or an opinion from nationally recognized tax counsel that such
transaction will not affect the tax-free nature of the Separation to Irex. The
Tax Agreement also requires the Company to indemnify Irex (i) for certain tax
liabilities attributable to the income or operations of the Company for
periods prior to the consummation of the Separation, and (ii) for tax
liabilities that may be incurred by Irex as a result of actions that the
Company may undertake following the Separation that cause the Separation to be
treated as a taxable transaction to Irex. Under recently enacted changes to
the Internal Revenue Code applicable to spin-off distributions, a distributing
corporation (Irex) will recognize gain on the appreciation in the stock of the
distributed corporation (the Company) if the distribution is part of a plan or
series of related transactions pursuant to which one or more persons acquire,
directly or indirectly, 50% or more of the voting power or value of the stock
of either corporation. There is a rebuttable presumption that any acquisitions
of stock (including acquisitions through stock issuances by the Company)
occurring during the period beginning two years before and ending two years
after the Separation are part of such a plan (or series of related
transactions). Such presumption may be rebutted by establishing that the
Separation and acquisitions of such stock are not pursuant to a plan or series
of related transactions. Although the Company does not expect these
restrictions to materially inhibit its operations or growth opportunities, if
there is a final determination that any or all of the distributions of Common
Stock effected in connection with the Separation are taxable, the Company
could become liable for a portion of the taxes due in connection with the
Separation to the extent that such tax liability cannot be collected from Irex
or the remaining members of the Irex consolidated group. See "Separation from
Irex--Agreements with Irex--Tax Sharing and Indemnification Agreement."
LACK OF ARM'S-LENGTH BARGAINING ON AGREEMENTS WITH IREX
The Company has entered into certain agreements with Irex and its
subsidiaries (the "Separation Agreements") in connection with the Separation
which set forth the terms of the Separation, the right to utilize
9
<PAGE>
Irex's information system, tax sharing and indemnification, and benefits
sharing. Although management of the Company believes that the terms of the
Separation Agreements are fair to the Company, the terms of the Separation
Agreements were fixed, in part, between Irex and the Company when they were
parent and subsidiary and not independent parties negotiating on an arm's-
length basis. Accordingly, there is no assurance that the terms of the
Separation Agreements will be as favorable to the Company as those that might
be obtained from an unaffiliated third party.
BENEFITS TO IREX AND ITS AFFILIATES AS A RESULT OF THE SEPARATION AND NEW
INVESTMENT
Irex and its affiliates other than the Company, none of which is affiliated
with the Company, have received the following benefits as a result of the
Separation and Offering: (i) a $10.5 million cash dividend declared by the
Company to Irex immediately prior to the Separation, which dividend will be
paid with $7 million in cash from the proceeds of the New Investment and the
remainder through the execution of a $3.5 million subordinated note to Irex;
(ii) payment of approximately $7.2 million of debt owed by the Company as of
June 30, 1998 to Irex or affiliates of Irex, which will be paid with proceeds
of the New Investment; and (iii) payment of approximately $23.9 million owed
to Irex as of June 30, 1998 pursuant to an intercompany account which the
Company intends to pay with funds borrowed from a credit facility which it
will enter into upon receiving the New Investment. See "Separation from Irex."
The actual amounts of such intercompany accounts to be repaid will be
determined as of the date of the consummation of the New Investment.
POTENTIAL INFLUENCE OF IREX C.E.O.
Upon completion of the Offering and Separation, W. Kirk Liddell and his
spouse will beneficially own approximately 6.2% of the Company's outstanding
Common Stock. In addition, approximately 5.0% of the Company's outstanding
Common Stock will be held by a custodian for Mr. Liddell's minor children. See
"Principal Shareholders." Mr. Liddell serves on the Company's Board of
Directors and is President, Chief Executive Officer and a director of Irex. As
a result of his share ownership in SPI and positions with Irex and the
Company, Mr. Liddell will be in a position to influence the business and
affairs of Irex and the Company. To the extent the Company and Irex have
differing interests, Mr. Liddell could be presented with conflicts of
interests in his roles as a director of each company. There can be no
assurance that actions of the Company taken in the context of such interests
will be as favorable to the Company as actions taken in the absence of such
conflicts.
COMPETITION
The Company's markets are fragmented and highly competitive, and feature
numerous distribution channels, including national, regional and local
distributors; local supply houses; and direct sales by manufacturers. Many of
the Company's competitors are smaller businesses that sell to customers in a
limited geographic area; others are significant regional distributors. Certain
of the Company's competitors sell identical or equivalent products at
competitive prices. There can be no assurance that the Company will be able to
compete successfully in the markets in which it operates.
DEPENDENCE ON KEY PERSONNEL
The Company's operations are highly dependent on the skills, experience and
efforts of its Chief Executive Officer and senior management, and the Company
may depend on the senior management of any significant businesses it acquires
in the future. Although the Company has entered into employment agreements
containing confidentiality and non-competition provisions with its Chief
Executive Officer and other members of its senior management, the business and
prospects of the Company could be adversely affected if any of these persons
does not continue in his position, and the Company is unable to attract and
retain a qualified replacement. See "Management."
10
<PAGE>
ANTI-TAKEOVER PROVISIONS
The Company's restated articles of incorporation divide SPI's Board of
Directors into three classes, each serving a multi-year term. By extending the
period of time required to re-elect or replace the entire Board of Directors,
such classification may have the effect of discouraging persons seeking to
effect a takeover or assume control of the board. In addition, shares of the
Company's Preferred Stock, par value $.01 per share (the "Preferred Stock"),
may be issued by the Board of Directors without shareholder approval on such
terms and conditions as the Board of Directors may determine. Should the Board
of Directors elect to issue Preferred Stock, the rights of the holders of the
Common Stock may be subject to, and may be adversely affected by, the rights
of the holders of the Preferred Stock. The potential issuance of Preferred
Stock could also have the effect of delaying, deterring or preventing a change
of control of the Company. See "Description of Capital Stock--Preferred Stock"
and "Description of Capital Stock--Certain Provisions of the Pennsylvania
Business Corporation Law."
ABSENCE OF PUBLIC MARKET FOR THE COMMON STOCK
There is no public market for the Common Stock. Although the Common Stock is
registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), an active or liquid trading market in the Common Stock will
likely not develop. In addition, such registration may be terminated upon
application of the Company to the Securities and Exchange Commission (the
"Commission") if there are fewer than 300 record holders of the Common Stock.
The Company anticipates that upon the consummation of the transactions
contemplated herein, the Company will have fewer than 300 shareholders of
record and that, if this is the case, it will seek to deregister the Common
Stock under the Exchange Act. The termination of registration of the Common
Stock under the Exchange Act would substantially reduce the information
required to be furnished by the Company to holders of Common Stock and to the
Commission and would make certain provisions of the Exchange Act no longer
applicable to the Common Stock. Such termination would reduce the information
about the Company which is publicly available, and consequently, the public
market for any publicly held stock of the Company would also likely be
reduced.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial information presented below as of and for the years
ended December 31, 1996 and December 31, 1997, and for the year ended December
31, 1995 has been derived from the audited consolidated financial statements
of the Company included elsewhere in this Information Statement. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the Company's
consolidated financial statements and related notes included elsewhere in this
Information Statement. The historical financial information as of and for the
years ended December 31, 1993 and December 31, 1994 and for the six months
ended June 30, 1997 and June 30, 1998 and as of December 31, 1995 and June 30,
1998 have been derived from the unaudited consolidated financial statements of
the Company and, in the opinion of management, include all adjustments
(consisting only of normal, recurring adjustments) necessary to present fairly
the information set forth therein.
The pro forma financial information has been prepared on the basis of
certain assumptions and estimates and may not be indicative of the results
that would have been achieved if the recapitalization described herein and the
New Investment had been effected on the dates indicated or that may be
achieved in the future.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------- ---------------
1993 1994 1995 1996 1997 1997 1998
------- -------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $89,396 $101,895 $118,395 $141,800 $158,510 $73,833 $90,036
------- -------- -------- -------- -------- ------- -------
Gross profit........... 18,937 21,564 25,892 31,110 34,252 15,902 20,056
Selling, general, and
administrative
expense............... 17,426 18,957 21,841 24,762 27,229 13,173 16,394
------- -------- -------- -------- -------- ------- -------
Operating income....... 1,511 2,607 4,051 6,348 7,023 2,729 3,662
Interest expense, net.. 913 1,194 1,840 1,854 1,939 925 1,072
------- -------- -------- -------- -------- ------- -------
Income before income
taxes................. 598 1,413 2,211 4,494 5,084 1,804 2,590
Income tax provision... 216 655 918 1,810 2,077 736 1,062
------- -------- -------- -------- -------- ------- -------
Net income ............ $ 382 $ 758 $ 1,293 $ 2,684 $ 3,007 $ 1,068 $ 1,528
======= ======== ======== ======== ======== ======= =======
Net income per share-
basic................. $ 44.77 $ 88.84 $ 151.55 $ 314.58 $ 352.44 $125.18 $179.09
Net income per share-
diluted............... $ 44.77 $ 88.84 $ 151.55 $ 314.58 $ 352.44 $125.18 $179.09
Weighted average number
of common shares
outstanding--basic.... 8,532 8,532 8,532 8,532 8,532 8,532 8,532
Weighted average number
of common shares
outstanding--diluted.. 8,532 8,532 8,532 8,532 8,532 8,532 8,532
PRO FORMA INCOME
STATEMENT DATA (1):
Operating income....... $ 7,023 $ 3,662
Interest expense, net.. 1,747 1,034
-------- -------
Income before income
taxes................. 5,276 2,628
Income tax provision... 2,156 1,078
-------- -------
Net income............. $ 3,120 $ 1,550
======== =======
Net income per share--
basic................. $ 197.66 $ 98.19
Net income per share--
diluted............... $ 197.66 $ 98.19
Weighted average number
of common shares
outstanding--basic.... 15,785 15,785
Weighted average number
of common shares
outstanding--diluted.. 15,785 15,785
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 1998
------------------------------------- ------------------------------------
1993 1994 1995 1996 1997 ACTUAL PRO FORMA (3) AS ADJUSTED (4)
------- ------ ------ ------- ------- ------ ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $10,198 $9,166 $9,839 $10,804 $11,266 $9,991 $ (499) $17,031
Total assets........... 28,480 31,814 36,026 38,935 47,651 57,647 57,647 57,647
Total debt (2)......... 19,055 20,819 22,996 22,370 26,493 31,107 31,107 27,442
Shareholder's equity... 3,279 3,655 4,200 6,421 9,180 10,630 140 14,295
</TABLE>
- --------
(1) Adjusted to reflect the change in interest expense and the corresponding
income tax related to the reduction in long-term debt and payable to
affiliates from the estimated net proceeds of the New Investment and the
increase in subordinated debt as if it had occurred on January 1, 1997.
(2) Total long-term debt is composed of:
(a) Long-term debt with an affiliate ($8,550 from 1993 through 1995, $7,364
in 1996, $6,178 in 1997 and $4,993 in 1998) and other long-term debt
($94 in 1997 and $75 in 1998).
(b) Payable to affiliates. This balance was $10,505 in 1993, $12,269 in
1994, $14,446 in 1995, $15,006 in 1996, $20,221 in 1997 and $26,039 in
1998.
(3) Represents actual data as of June 30, 1998 as adjusted to give effect to
the planned $10.5 million dividend to Irex. Such dividend will be paid in
a combination of $7.0 million in cash and with $3.5 million of junior
subordinated notes.
(4) Adjusted to reflect (i) the Separation, including the $10.5 million
dividend to Irex (in the form of cash and notes), (ii) the New Investment
private equity offering of 7,253 shares of Common Stock by the Company at
an assumed offering price of $2,158.46 per share, (iii) the application of
approximately $10.7 million of the net proceeds to the repayment of
indebtedness (both long-term and payable to affiliates) as well as the
partial repayment of indebtedness incurred in connection with the
declaration of the $10.5 million dividend to Irex, (iv) the issuance of
subordinated debt, and (v) the recapitalization of each share of the
Company's previously issued common stock into 0.8532 shares of Common
Stock.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the consolidated
financial statements appearing elsewhere in this Information Statement.
The Company is a national distributor and fabricator of mechanical
insulation, architectural/acoustical products and specialty products and
services for the commercial and industrial markets. The Company has developed
a national network of 58 distribution centers, including ten fabrication
facilities, at locations in 24 states. Through this network, the Company
distributes a variety of mechanical insulation, architectural/acoustical
products and numerous specialty products to customers for use in the new
construction, renovation and maintenance sectors of industrial and commercial
markets. The Company also provides products and services to customers in a
range of industries, including the general commercial construction, utilities,
petro-chemical, pulp and paper, cold storage, chemical, marine and original
equipment manufacturing industries, among others.
Historically, the supply markets in which the Company operates have been
highly fragmented and populated by many smaller local and regional
distributors. The industry has begun a trend toward consolidation due
principally to the economies of scale realized by large distributors, the
increasing demand by customers for fewer sources of supply, the benefits of
volume purchasing by larger vendors and demands by customers for additional
value-added services which require substantial investments in technology,
human resources and infrastructure. The Company believes that those
distributors which develop the capabilities and strengths to take advantage of
these trends will be well-positioned to gain market share.
In order to take advantage of market opportunities, the Company has adopted
a growth strategy which focuses primarily on acquiring and opening new
distribution centers. The Company initially followed this strategy in regional
markets and, more recently, has begun to implement it on a national scale. For
the three-year period ended December 31, 1997, the Company acquired seven
distribution operations and opened six new distribution centers. Through
targeted acquisitions and distribution center openings, the Company is able to
expand its geographic presence into new markets, meet supplier initiatives and
customer service requirements, pursue strategic opportunities, broaden its
product and service capabilities and take advantage of current industry
dynamics. Distribution centers opened through start-ups or acquisitions during
the three-year period ended December 31, 1997 accounted for approximately
37.2% of the $40.1 million increase in the Company's net sales during that
period. The Company believes that future results of operations will depend in
large part on the Company's ability to continue to make acquisitions on
attractive terms and open new distribution centers in strategic locations, and
then to successfully integrate and manage these new facilities.
Newly opened distribution centers typically generate an operating loss
during the first one to two years of operations. A greater number of
distribution center openings by the Company in the two-year period ended
December 31, 1997 resulted in a higher percentage of facility and personnel
expenses in 1997 as compared to 1996. However, as the Company generates
incremental volume through acquired or newly opened distribution centers, the
Company believes it will realize improvement in its operating margins by
carrying its fixed costs over a larger revenue base.
On January 19, 1998, Irex announced the Separation. In early 1998, the
Company planned to conduct an initial public offering of its Common Stock
immediately following the Separation. However, in June 1998, due to market
conditions, the Company postponed the proposed offering. On October 27, 1998,
the Company entered into a Stock Subscription Agreement with Evercore,
pursuant to which Evercore invested approximately $15.4 million in SPI in
return for 7,113 shares of newly-issued Common Stock. At the time of the
Evercore investment, the Company's management also purchased [up to 140]
shares of Common Stock. The Company believes that
14
<PAGE>
the Separation and such New Investment will provide the Company with increased
flexibility to fund and execute its growth strategy of internal expansion and
acquisitions.
The Company has entered into an agreement with Irex which provides, among
other things, for Irex to continue to provide information services to the
Company for at least 18 months and up to three-years following the Separation.
See "Separation from Irex."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's consolidated statements of income expressed as a percentage
of net sales:
<TABLE>
<CAPTION>
THREE
MONTHS SIX MONTHS
ENDED JUNE ENDED
YEAR ENDED DECEMBER 31, 30, 1998 JUNE 30,
------------------------- ------------ ------------
1995 1996 1997 1997 1998 1997 1998
------- ------- ------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 78.1% 78.1% 78.4% 78.2% 77.4% 78.5% 77.7%
------- ------- ------- ----- ----- ----- -----
Gross profit............ 21.9% 21.9% 21.6% 21.8% 22.6% 21.5% 22.3%
Selling, general and
administrative
expenses............... 18.4% 17.4% 17.2% 17.5% 17.8% 17.8% 18.2%
------- ------- ------- ----- ----- ----- -----
Operating income........ 3.5% 4.5% 4.4% 4.3% 4.8% 3.7% 4.1%
Interest expense, net... 1.6% 1.3% 1.2% 1.3% 1.2% 1.3% 1.2%
------- ------- ------- ----- ----- ----- -----
Income before income
taxes.................. 1.9% 3.2% 3.2% 3.0% 3.6% 2.4% 2.9%
Income tax provision.... 0.8% 1.3% 1.3% 1.2% 1.5% 1.0% 1.2%
------- ------- ------- ----- ----- ----- -----
Net income.............. 1.1% 1.9% 1.9% 1.8% 2.1% 1.4% 1.7%
======= ======= ======= ===== ===== ===== =====
</TABLE>
THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE AND SIX MONTHS
ENDED JUNE 30, 1997
Net Sales. The Company's net sales increased by $9.8 million, or 26.1% to
$47.4 million for the second quarter ended June 30, 1998 as compared to $37.6
million for the second quarter of the prior year. Year-to-date net sales of
$90.0 million increased by 21.9% as compared to $73.8 million reported for the
first six months of the prior year.
The sales increases were a result of revenues generated from acquisitions,
new distribution centers opening and existing operations. Acquisitions and
distribution center openings in markets where the Company previously had
distribution centers may result in sales to previous customers being recorded
at different locations. Sales at new locations either as a result of
acquisitions or opening of distribution centers accounted for approximately
75.3% and 72.7% of the sales increase for the three month and six month period
ended June 30, 1998 respectively.
Gross Profit. Gross profit increased by $2.5 million, or 30.8%, to $10.7
million for the second quarter ended June 30, 1998 from $8.2 million for the
second quarter of the prior year. Year-to-date gross profit
15
<PAGE>
increased from $15.9 million to $20.1 million, or by 26.1%. As a percentage of
net sales, gross profit also increased from 21.8% to 22.6% and 21.5% to 22.3%,
respectively, in the three month and the six month periods ended June 30,
1998.
The improvement in gross profit as a percentage of sales is primarily
attributable to margin expansion in certain product categories as opposed to a
change in product mix.
Selling, General and Administrative Expenses ("SG&A"). As a percentage of
net sales, SG&A increased from 17.5% for the second quarter ended June 30,
1997 to 17.8% for the second quarter ended June 30, 1998. For the six months
ended June 30, 1997 and 1998, SG&A as a percentage of sales was 17.8% and
18.2%, respectively.
The increase in SG&A as a percentage of net sales is primarily a result of
acquisitions and new center openings, expansion of existing facilities, and an
increase in the provision for losses on accounts receivable.
It is the Company's practice to determine the need for specific reserves
based on a review by management of accounts exceeding certain parameters based
on the aging and amount of the receivable balances. Through this review,
management determines the reserve need based on factors including the overall
customer's business viability, payment history, the Company's prior
relationship with the customer and the amount of the Company's legal
protection. The general reserve is determined through the application of a
factor to the overall accounts receivable balance as well as an estimate by
management based on the overall condition of the accounts receivable balance.
This estimate is based on factors such as the overall aging of the receivable
balances, historical experience and current conditions.
In the first six months of 1997, the condition of the receivable balance
remained fairly constant with that as of December 31, 1996. In the first half
of 1998, management's review of specific accounts resulted in an increase in
the specific reserve based on activity within these accounts since December
31, 1997. As a result, the provision for bad debts increased by $350,000 for
the six months ended June 30, 1998.
Interest Expense. Interest expense was $0.6 million and $0.5 million,
respectively, for the second quarter ended June 30, 1998 and 1997. Year-to-
date, interest expense was $1.1 million for 1998 compared to $0.9 million in
1997. Interest expense on the long term notes payable to affiliate accounted
for $0.2 million in the second quarter and $0.3 million for the six months
ended June 30, 1998 and 1997. The remainder of $0.4 million and $0.3 million,
respectively, for the second quarter in 1998 and 1997, and $0.8 million and
$0.6 million, respectively, for year-to-date June 30, 1998 and 1997,
represented the interest charge allocated to the Company from Irex based on
the monthly balance in the payable to affiliates account. The recent
acquisitions and increased levels of inventory and accounts receivable were
funded through short-term borrowings from Irex.
Income Tax Provision. The Company's effective tax rate was 41.0% for the
three months and six months ended June 30, 1998, and 40.8% for the respective
periods ended June 30, 1997. The Company's tax return is included in the
consolidated tax return of Irex. The Company's income tax provision in 1998
and 1997 is based on the amount which would have resulted had the Company
filed a separate tax return.
Acquisitions. On March 1, 1998, the Company acquired certain assets of Extol
of Texas, Inc. ("Extol"), with service centers in Houston and Corpus Christi,
Texas, for approximately $5.6 million in cash. Extol accounted for sales of
$4.6 million and $3.4 million, respectively, for the six months and three
months ended June 30, 1998.
On June 29, 1998, the Company acquired certain assets of Presnell Insulation
Co., Inc. ("Presnell") for cash consideration of approximately $1.0 million.
Presnell is primarily engaged in the distribution and fabrication of
mechanical insulation products, with service centers in Midland, North
Carolina, Birmingham, Alabama, and Atlanta, Georgia. No sales were recorded
with respect to Presnell for the three months and six months ended June 30,
1998 as a result of this transaction.
16
<PAGE>
The year-to-date financials and those for the period ending June 30, 1998
also included the results of operations of Construction Systems, Inc. from
which the Company purchased certain assets on December 8, 1997. Net sales
aggregated $2.6 million for the three months and $5.0 million for the six
months ended June 30, 1998.
On October 26, 1998, the Company acquired all of the issued and outstanding
stock of Paragon Industries, Inc., a distributor and laminator of numerous
mechanical insulation, HVAC, metal building insulation and specialty products.
The purchase price for Paragon was approximately $3.7 million (including the
assumption of $1.7 million of debt). Sales for the fiscal year ended March
1998 were approximately $15.0 million.
IPO Expenses. Through June 30, 1998, the Company had incurred and
capitalized on its balance sheet approximately $584,000 of costs related to an
initial public offering. During the third quarter of 1998, the Company decided
not to proceed with the initial public offering of its common stock. In total,
approximately $1.1 million in expenses related to the initial public offering
were incurred through September 30, 1998 and were expensed in the third
quarter of 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Sales. The Company's net sales increased $16.7 million, or 11.8%, to
$158.5 million in 1997 from $141.8 million in 1996. Of this increase,
approximately 34.4% was attributable to sales volume from six distribution
centers opened in 1996 and 1997. Growth from existing operations accounted for
approximately 39.0% of the increase in net sales as volume remained strong
across each of the Company's primary lines of business. Export sales, which
primarily consist of sales to domestic exporters and are included in the
growth from existing operations, comprised 10.0% of the Company's net sales
and contributed $5.0 million of this increase. The remaining increase in net
sales, representing $4.4 million, resulted from six acquisitions completed
during the two-year period ended December 31, 1997.
Gross Profit. Gross profit increased 10.1% to $34.3 million in 1997 from
$31.1 million in 1996. As a percentage of net sales, the gross profit
decreased slightly to 21.6% from 21.9% in 1996. The slight decrease was
primarily the result of greater sales of products shipped directly from
manufacturers to the customers ("direct-ship business"), which generate lower
margins for the Company. Management does not expect direct-ship business to
increase as a percentage of total sales.
Selling, General and Administrative Expenses. SG&A primarily consist of
personnel-related expenses and facility lease and operating expenses. SG&A
increased 10.0%, to $27.2 million in 1997 from $24.8 million in 1996. As a
percentage of net sales, SG&A decreased to 17.2% in 1997 from 17.4% in 1996.
The improvement was generally the result of a decrease in the provision for
losses on accounts receivable as the Company has made significant efforts
toward improving the quality of its credit portfolio. This decrease in the
loss provision was partially offset by increases in personnel and facility
lease expenses due to newly opened distribution centers.
The allowance for doubtful accounts at December 31, 1997 reflects the
improved condition of the receivable balances through a concentrated effort by
management to improve the credit quality and collection process. The success
of this overall effort is evidenced by the reduction in the days sales
outstanding from 64.9 days at December 31, 1996 to 63.5 days at December 31,
1997. As a result of this improvement, the allowance balance was reduced,
favorably impacting the total provision for 1997.
The method used to establish the non-specific reserve during this same
period remained unchanged.
Interest Expense, Net. Interest expense was $1.9 million in both 1997 and
1996. A portion of the interest expense was attributable to the long-term
notes payable to affiliate, which accounted for $0.7 million of interest
expense in both 1997 and 1996. The remaining interest expense was primarily
associated with the payable to affiliates account. Based upon the activity in
this account, Irex charged the Company interest of $1.2 million in 1997 and
$1.1 million in 1996.
17
<PAGE>
Income Tax Provision. The effective tax rate was 40.9% in 1997 and 40.3% in
1996. The Company's tax return is included in the consolidated income tax
return filed by Irex. However, the Company's income tax provision is based on
the amount which would have resulted had the Company filed a separate tax
return.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales. The Company's net sales increased $23.4 million, or 19.8%, to
$141.8 million in 1996 from $118.4 million in 1995. Higher sales volume at
existing centers accounted for approximately 80.9% of the increase. Export
sales, included in the growth from existing centers, increased to $11.0
million in 1996 from $2.0 million in 1995. The increase in export sales was
primarily the result of sales made to two domestic exporters of products
destined for Russia. Three distribution centers opened in 1996 contributed
approximately 7.5% of the increase. The remaining increase in net sales,
representing $2.7 million, resulted from four acquisitions completed during
the two-year period ended December 31, 1996.
Gross Profit. Gross profit increased 20.2% to $31.1 million in 1996 from
$25.9 million in 1995. As a percentage of net sales, the gross profit remained
stable at 21.9% in both 1996 and 1995. An increase in direct-ship business,
which carries lower gross margins, was offset by higher gross margins on the
sales of fabricated products.
Selling, General and Administrative Expenses. SG&A increased 13.4% to $24.8
million in 1996 from $21.8 million in 1995. The increase was primarily
attributable to higher personnel expenses from the opening of new distribution
centers, the pursuit of new industrial customers in the Southwest and the
securing of a new national account as reflected in the increase in sales
volume. However, as a percentage of net sales, SG&A decreased to 17.4% in 1996
from 18.4% in 1995. This decrease was primarily due to the ability of the
Company to increase sales without a corresponding increase in its overhead
structure.
Interest Expense, Net. Interest expense remained relatively unchanged in
1995 and 1996 at $1.9 million. A portion of the interest expense was
attributable to the long-term notes payable to affiliate, which accounted for
interest expense of $0.7 million in 1996 and $0.8 million in 1995. The
remaining interest expense was primarily associated with the payable to
affiliates account. Based upon the activity in this account, Irex charged the
Company interest of $1.1 million in 1996 and $1.0 million in 1995.
Income Tax Provision. The effective tax rate was 40.3% in 1996 and 41.5% in
1995. The Company's tax return is included in the consolidated income tax
return filed by Irex. However, the Company's income tax provision is based on
the amount which would have resulted had the Company filed a separate tax
return.
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
The following table presents certain unaudited quarterly data from the
Company's consolidated statements of income for each of the last nine fiscal
quarters. In the opinion of the Company's management, this quarterly
information has been prepared on the same basis as the audited consolidated
financial statements appearing elsewhere in this Information Statement and
includes all adjustments (consisting only of normal recurring adjustments)
necessary to fairly present the unaudited quarterly results set forth herein.
The Company's quarterly results may be subject to fluctuation; thus, the
operating results for any quarter are not necessarily indicative of results
for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1996 1996 1996 1997 1997 1997 1997 1998 1998
-------- --------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $35,187 $37,689 $36,371 $36,280 $37,553 $41,548 $43,129 $42,669 $47,367
Cost of net sales....... 27,570 29,659 27,967 28,555 29,376 32,450 33,877 33,309 36,671
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 7,617 8,030 8,404 7,725 8,177 9,098 9,252 9,360 10,696
Selling, general and
administrative
expenses............... 6,087 6,067 6,783 6,588 6,585 6,822 7,234 7,992 8,402
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income........ $ 1,530 $ 1,963 $ 1,621 $ 1,137 $ 1,592 $ 2,276 $ 2,018 $ 1,368 $ 2,294
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
(AS A PERCENTAGE OF NET SALES)
----------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1996 1996 1996 1997 1997 1997 1997 1998 1998
-------- --------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of net sales....... 78.4 78.7 76.9 78.7 78.2 78.1 78.5 78.1 77.4
----- ----- ----- ----- ----- ----- ----- ----- ------
Gross profit............ 21.6 21.3 23.1 21.3 21.8 21.9 21.5 21.9 22.6
Selling, general and
administrative
expenses............... 17.3 16.1 18.6 18.2 17.5 16.4 16.8 18.7 17.8
----- ----- ----- ----- ----- ----- ----- ----- ------
Operating income........ 4.3% 5.2% 4.5% 3.1% 4.3% 5.5% 4.7% 3.2% 4.8%
===== ===== ===== ===== ===== ===== ===== ===== ======
</TABLE>
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. The primary factor that may affect the
Company's quarterly operating results is lower sales volumes in the first
quarter due to winter weather conditions in certain regions of the country,
which reduces the number of new construction, renovation and maintenance
projects and consequently decreases demand for the Company's products and
services.
LIQUIDITY AND CAPITAL RESOURCES
The Company has primarily relied on cash flow from operations and borrowings
from the Company's affiliates prior to the Separation to finance its
operations. During the six months ended June 30, 1998, net cash provided by
operating activities totalled $2.4 million as compared to $0.5 million in the
first six months of 1997. The increase was primarily a result of an increase
in accounts payable net of the increase in accounts receivable as a result of
sales. Net cash used for investing activities totalled $6.8 million in the
first six months of 1998 as compared to $0.3 million in the comparable period
in 1997. The 1998 period reflects two acquisitions which resulted in goodwill
of approximately $0.9 million which will be amortized over 15 years. The net
cash provided from financing activities in the first six months of 1998 was
primarily a result of borrowings from affiliates.
Net cash provided by operating activities totaled $1.2 million during the
year ended December 31, 1997 compared to $1.9 million during the year ended
December 31, 1996. The decrease was primarily attributable to an increase in
accounts receivable, partially offset by an increase in accounts payable, each
of which resulted from the Company's higher sales volume. While the balance
for receivables and inventories has increased as a result of the growth in
sales and the number of distribution centers, the Company's focus on effective
asset management has led to an improvement in both accounts receivable
turnover and inventory turnover. Receivables turnover, calculated using 12-
month average balance for accounts receivable, improved to 5.7x in 1997 from
5.2x in 1995. Inventory turnover, exclusive of sales shipped directly from
manufacturers to customers, increased to 7.2x in 1997 from 6.7x in 1995.
Net cash used for investing activities totaled $4.0 million in 1997 and $0.8
million in 1996. The Company completed three acquisitions in the fourth
quarter of 1997 for aggregate cash consideration of $3.5 million, which
collectively resulted in goodwill of approximately $0.9 million that is being
amortized on a straight-line basis over 15 years. Capital expenditures totaled
$0.6 million in each of 1997 and 1996.
Net cash provided by financing activities totaled $3.2 million in 1997
compared to net cash used of $1.1 million in 1996. The $4.2 million change was
attributable to an increase in the Company's payable to affiliates account.
During 1997 and 1996, the Company made debt repayments of $1.2 million to an
affiliate of the Company.
Except for the acquisition which occurred on October 26, 1998, as of June
30, 1998, the Company had, and as of the date of this Information Statement,
the Company has, no material commitments for capital expenditures.
In connection with the New Investment, the Company declared a dividend of
$10.5 million to Irex. This dividend will be paid with $7.0 million in cash
from the proceeds of the New Investment and by issuing a $3.5 million
subordinated note to Irex.
The Company expects to enter into a committed revolving credit facility
agreement (the "Credit Agreement") in connection with and prior to
consummation of the New Investment. The credit facility is
19
<PAGE>
expected to provide approximately $50.0 million in senior unsecured debt at an
interest rate subject to quarterly adjustment to reflect the Company's debt
level as a function of its operating results. The Company expects that funds
from operations and availability under the credit facility will be sufficient
to meet its working capital and growth strategy requirements for the
foreseeable future. The remaining net proceeds of the New Investment after
payment of the debt incurred to pay the dividend to Irex will be utilized to
repay long-term and a portion of the short-term borrowings from Irex. Long-
term borrowings from Irex at June 30, 1998 were approximately $5.0 million.
The Company plans to utilize funding from the credit facility to repay the
short-term borrowings from affiliates and for general working capital. The
credit facility will also be utilized to finance acquisitions including
related working capital requirements.
Concurrently with the New Investment, SPI entered into a Note Agreement with
Irex (the "Irex Note Agreement") which provides for the immediate issuance to
Irex of $3.5 million of the Company's Junior Subordinated Pay-in-Kind Notes
due 2002 (the "Irex Notes"), bearing an interest rate of 10.5%. The Irex Notes
constitute a portion of the $10.5 million dividend the Company declared
immediately prior to the Separation. All indebtedness of the Company under the
Irex Note Agreement will be subordinated to and rank junior to all other
indebtedness of the Company, other than trade indebtedness and indebtedness of
the Company which is expressly ranked junior to the Irex Notes. Such
indebtedness will rank pari passu with indebtedness under the Evercore Note
Purchase Agreement.
The Evercore Note Purchase Agreement provides for the immediate purchase by
Evercore of $3.5 million of ECP Notes. The proceeds of these Notes will be
used for general corporate purposes. In addition, Evercore has agreed commit
to purchase an aggregate additional amount of up to $20 million of the ECP
Notes over a three year period to fund up to 25% of the purchase price of
acquisitions, subject to certain conditions, including that the Company have a
ratio of indebtedness under its Credit Agreement to EBITDA in excess of 2.5 to
1.0. The Evercore Note Purchase Agreement contains a number of restrictive
covenants, including covenants which limit transactions with affiliates and
payments of dividends, and requires that the Company maintain a certain
leverage ratio. All indebtedness of the Company under the Evercore Note
Purchase Agreement will be subordinated and rank junior to all other
indebtedness of the Company, other than trade indebtedness and indebtedness of
the Company which is expressly ranked junior to the ECP Notes. Such
indebtedness will rank pari passu with indebtedness under the Irex Note
Agreement.
INFLATION
The Company does not believe that inflation has had a material effect on its
results of operations in recent years. There can be no assurance, however,
that the Company's business will not be affected by inflation in the future.
YEAR 2000
The Company utilizes information systems maintained by Irex. The Company's
ability to conduct its day-to-day operations is dependent in part on an
integrated software program and data-based system, which serves as a critical
tool in carrying out functions in several key areas of the business, including
inventory management, pricing, sales, financial reporting and personnel
administration.
The Company has entered into an agreement with Irex pursuant to which Irex
will continue to provide information services to the Company on a fee for
services basis for at least 18 months and up to three years subsequent to the
Separation. See "Separation from Irex--Agreements with Irex."
The Company has reviewed all of its current computer applications with
respect to the Year 2000 issue. The Company believes all of its relevant
applications will be Year 2000 compliant following the installation of an
upgrade to the system software scheduled for November 1998. The Company
believes that any additional costs with respect to Year 2000 compliance will
not be material to the Company. The Company is unable to determine the effects
of Year 2000 compliance by its suppliers and customers.
20
<PAGE>
DIVIDEND POLICY
The Company does not plan to pay dividends on its Common Stock in the
foreseeable future and plans to retain any future earnings to finance its
operations and expand its business. Any future determination as to the payment
of cash dividends will be at the discretion of the Company's Board of
Directors and will depend, among other factors, upon the Company's earnings,
financial condition and capital requirements and the terms of the Company's
financing agreements. In addition, the Credit Agreement, the Evercore Note
Purchase Agreement and the Irex Note Agreement contain limitations on the
payment of cash dividends.
In connection with the Separation and the New Investment, the Company
declared a dividend of $10.5 million to Irex, as it's sole shareholder,
immediately prior to the Separation. The Company will pay such dividend with
$7.0 million in cash and by issuing to Irex $3.5 million of junior
subordinated notes.
21
<PAGE>
BUSINESS
INTRODUCTION
Specialty Products & Insulation Co. is a national distributor and fabricator
of mechanical insulation, architectural/acoustical products and specialty
products to commercial and industrial markets. The Company also offers
customized fabrication, export and other value-added services related to its
core product lines. The Company operates through a national network of 58
distribution centers, including ten fabrication facilities, at locations in 24
states. Through this network, the Company offers approximately 25,000 stock
keeping units to more than 9,000 customers, including specialty contractors,
facility owners, general contractors, original equipment manufacturers
("OEMs"), exporters and supply houses. The Company's principal product
categories include piping and equipment insulation as well as acoustical
ceilings and specialty wall panels, and include the products of more than 150
manufacturers including Armstrong World Industries, Owens Corning, Johns
Manville, Dow Chemical and Pittsburgh Corning. Since commencing operations in
the early 1980s, the Company has experienced significant growth as a result of
its ability to capitalize on industry changes including, principally, the
increased reliance on distributors by manufacturers and customers. Net sales
of the Company increased from $118.4 million in 1995 to $158.5 million in
1997, and operating income grew from $4.1 million in 1995 to $7.0 million in
1997. In the first six months of 1998, net sales and operating income totalled
$90.0 million and $3.7 million, respectively, as compared to $73.8 million and
$2.7 million respectively, in the first six months of 1997.
INDUSTRY OVERVIEW
The Company competes in the highly fragmented and consolidating commercial
and industrial segment of the building products industry. The Company broadly
defines its two core markets as mechanical insulation, consisting primarily of
pipe, duct and equipment insulation and architectural/acoustical products,
consisting primarily of acoustical ceiling systems, fiberglass-reinforced
panels and other wall and ceiling products. The Company participates in the
commercial and industrial markets by supplying products for use in (i) new
construction, (ii) renovation of existing facilities, (iii) ongoing
maintenance and (iv) OEM applications.
The channels of supply in the Company's markets have experienced significant
change. In the early 1980s, product sales in the Company's markets were
characterized by direct sales from manufacturers to contractors who in turn
sold the products to other contractors and end-users. An expanding and
increasingly diverse customer base made it difficult for the typical
manufacturer to directly serve its entire potential customer universe. Also,
as manufacturers realized opportunities to enhance profitability and improve
returns on capital, the need for independent distributors evolved. Through
this evolution, independent distributors have enabled manufacturers to reduce
logistical expenses, lower marketing expenses and better manage inventories.
In addition, customers began to utilize independent distribution sources in
order to lower costs, reduce supply sources and gain high-quality, value-added
services. Customers are increasingly outsourcing non-core business functions
to distributors able to provide value-added services such as procurement,
delivery and inventory management. The emergence of the distribution channel
has reduced duplicative functions performed by both manufacturers and
customers, thereby affording them more resources for their core competencies.
The evolution toward independent distribution has produced an industry
populated by many smaller local and regional distributors. The Company
believes the industry is now starting to undergo a trend toward consolidation
of these smaller distributors as both suppliers and customers seek to enhance
efficiencies, focus on their core competencies and reduce costs while
maintaining high levels of product and service quality. The Company believes
that those distributors that develop the capabilities and strengths to satisfy
these demands will be well positioned to exceed market growth rates in this
industry. Specifically, the Company believes that large, national distributors
with significant volumes, sophisticated information systems and relatively low
infrastructure costs can offer more value to customers and therefore gain
higher market share.
22
<PAGE>
Key customer categories in the markets served by the Company include the
following:
Specialty Contractors, such as insulation and acoustical contractors,
constitute the primary customer segment for the installation and
maintenance of mechanical insulation and architectural/acoustical systems.
The Company believes specialty contractors are increasingly developing
long-term relationships with distributors in order to improve labor
productivity, eliminate inventories and reduce material handling costs.
Facility Owners, such as manufacturing and process plants, large
retailers, universities and other institutions, represent a growing source
of business for distributors as these customers increasingly separate
material and labor purchases and perform their own maintenance and new
construction. The Company believes that facility owners with locations
nationwide value distributors that can provide products and services to
multiple locations.
General Contractors, such as mechanical contractors and engineering
firms, are increasingly purchasing materials for their projects and
performing their own insulation work. The Company believes these customers
seek distributors with strong sourcing capabilities, processes and
information systems.
Original Equipment Manufacturers, such as manufacturers of appliances,
modular office equipment and air conditioning systems, benefit from the
purchasing, fabrication, material handling, inventory management,
procurement and delivery capabilities of larger distributors.
Exporters, representing purchasers of materials required for projects
overseas, benefit from the product knowledge, purchasing power,
consolidation capabilities and delivery flexibility of large distributors.
Supply Houses, such as plumbing wholesalers, are generally distributors
in specialized fields that re-sell products to other customer groups. These
customers include specialty and integrated suppliers that may benefit from
the purchasing, warehousing and service capabilities of larger, more
sophisticated distributors.
Mechanical Insulation Products. The mechanical insulation product market
includes thermal insulation materials and systems for use in the commercial
and industrial sectors of the construction industry as well as OEM
applications. Mechanical insulation is used in new construction, maintenance,
renovation and upgrades of manufacturing facilities, process plants,
commercial buildings and mechanical equipment. These products enable customers
to improve the performance of their mechanical systems and products, reduce
energy costs, decrease emissions, such as carbon dioxide and sulfur dioxide,
and improve the comfort and safety of the work environment. According to the
American Society of Heating, Refrigerating and Air Conditioning Engineers
("ASHRAE"), current insulation practices in the United States often result in
the under-insulation of equipment, commercial buildings and industrial
facilities. If such equipment, buildings and facilities were insulated at the
ASHRAE standard, the Company believes that significant reductions in energy
consumption, utility costs and carbon dioxide emissions could be achieved.
Architectural/Acoustical Products. The architectural/acoustical product
market includes ceiling panels and grid systems and specialty wall panels for
the new construction, renovation and retail market segments. These products
are used in commercial office buildings, education facilities, health care
institutions, entertainment complexes and correctional facilities. Independent
estimates forecast that the strongest areas of future growth in the
nonresidential construction market include hotels, educational and public
administration facilities. The ceiling systems segment includes acoustical and
decorative ceilings and suspension systems. Ceiling systems provide an array
of design option benefits to the customer such as acoustic performance, fire
resistance, humidity resistance, light reflectance and durability or ease of
maintenance. The specialty wall segment includes decorative, acoustical and
specialized panels designed for specific uses such as trade show dividers,
modular office systems and kitchen, bath and clean room environments. Many
specialty products are included within this market, the largest component
being passive firestop and fire protection products which are used in new
construction and renovation projects for occupancy safety and property
protection.
OPERATING STRATEGY
The Company is focused on its traditional strengths as a broadly based
national distributor and fabricator of mechanical insulation,
architectural/acoustical products, specialty products and value-added
services. The Company is committed to capitalizing on the expertise, knowledge
and experience its has developed in these
23
<PAGE>
core markets to increase market share and profitability. In addition, the
Company's operating strategy includes the following key elements:
Superior Customer Service. Customers choose suppliers based, in significant
part, on the quality of the service provided. With distribution and sales
forces in each area that it serves, the Company provides its customers with
rapid delivery and localized service. The Company believes its well-trained,
technically competent workforce provides a level of customer service that
leads to long-term relationships with its customers. The Company also believes
that the ongoing assessment of customer satisfaction is critical in the
distribution industry. The Company has implemented a customer satisfaction
survey program and is committed to the ongoing measurement of customer
satisfaction.
National Network of Distribution Centers. Management believes the Company's
national distribution network provides a platform for growth and
profitability. The Company's 58 distribution centers combine warehouse and
office facilities at locations in 24 states. This national network enables the
Company to (i) attract customers that have multiple locations and provide them
with services from multiple distribution centers within a single service
agreement; (ii) participate with key vendors in the development of national
marketing and sales strategies; (iii) achieve geographic diversification to
lessen the impact of reduced demand in any given region; and (iv) facilitate
best-practice benchmarking as well as innovation and knowledge-sharing within
the Company. Management believes the Company's national network provides it
with a unique competitive advantage.
Strong Supplier Relationships. The Company believes that it has excellent
and long-term relationships with its major suppliers. The Company believes its
national presence, financial strength and partnering philosophy have enabled
the Company to become the preferred distributor for many of its suppliers. The
Company works with its suppliers to develop common expansion programs as well
as customer-oriented product solutions.
Low Cost of Operations. The Company believes that its volume of purchases
and desirability as a vendor enable it to obtain purchase terms that are as
favorable as those available to other large competitors. The Company is also
able to realize advantages from the economies of large-scale operation in the
areas of administrative processing, information systems, financing terms,
technical expertise, inventory and working capital management.
Innovative and Committed Employees. Management believes the Company's
corporate culture and values provide it with a competitive advantage. The
Company is focused on recruiting, developing and retaining highly innovative
and committed employees. The Company's senior management has an average of
approximately 10 years' experience with the Company, and many of its sales and
service staff have been working in the same markets for 10 years or more.
GROWTH STRATEGY
The Company believes that its operating strategy provides a foundation for
growth in each of the markets in which it participates. The Company's growth
strategy includes the following key elements:
Increase Sales of Existing and Accessory Products. Management believes the
Company's strengths and operating strategies will lead to increased sales of
existing products to its existing customer base. In addition, the Company
believes that expansion through acquisitions, new distribution center openings
and other strategic initiatives will generate additional sales of existing
products to new customers. Through improved sales efforts, the Company is also
focused on increasing sales of accessory products, such as adhesives and
tools, which are related to its core product lines and customer requirements.
Open New Distribution Centers. The Company expects to continue to open new
distribution centers as a result of new market opportunities, customer service
requirements, supplier initiatives and strategic opportunities.
24
<PAGE>
As the Company continues to broaden its national distribution network through
additional openings, the Company believes it will be able to capitalize on
operating efficiencies and the benefits of a large-scale operation.
Continue Acquisitions. The Company is committed to continuing its
acquisition program to acquire distribution businesses with strong market
positions, supplier support or attractive customer bases. Acquisitions allow
the Company to accelerate revenue growth, expand its geographical presence and
add product lines and technical expertise. The distribution industry continues
to consolidate, and management believes the Company will be able to capitalize
on significant growth opportunities through acquisitions of smaller regional
and local distribution operations.
Emphasize National Accounts. The Company has implemented a national accounts
marketing program directed at facility owners and general contractors.
Management believes that the Company's national distribution network gives the
Company a competitive advantage in securing national and multi-regional
customers seeking to reduce vendors, outsource non-core operations, integrate
supply and gain value-added services such as procurement and material
management.
Add Product Lines. The Company intends to leverage its core product and
technical expertise to add product lines which are complementary to those
currently offered. The Company believes that its existing national
distribution infrastructure enables it to add new product lines without
incurring significant additional cost. For example, the Company utilized its
expertise in both of its core product lines to enter the passive fire
protection market.
PRODUCTS AND SERVICES
The Company offers complete lines of mechanical insulation,
architectural/acoustical products and specialty products as well as customized
fabrication solutions and other value-added services, enabling it to satisfy a
broad range of customer requirements. In all, the Company offers approximately
25,000 stock keeping units from more than 70 product lines, including those of
the leading manufacturers in the industries it serves. The Company believes it
offers significant depth and breadth in its core product lines throughout its
nationwide operations, enabling customers to satisfy most, if not all, of
their product needs through a single source.
In addition, as the distribution industry continues to evolve and
consolidate, customers are increasingly relying on the Company to perform
various value-added services in connection with product distribution. The
Company's fabrication business represents its most significant value-added
service to customers. Its fabrication capabilities extend across all major
product lines and include custom-fitted pipe covering, decorative wall panels
and precision die-cutting. The Company also offers a range of other value-
added services, including energy audits, technical advice, materials handling
and electronic order processing.
25
<PAGE>
The following table sets forth representative samples of the products and
services offered by the Company in its four principal product and service
categories as a percentage of the Company's 1997 net sales from each category:
<TABLE>
<CAPTION>
PRODUCT/SERVICE % OF AGGREGATE 1997
CATEGORY REPRESENTATIVE PRODUCTS REPRESENTATIVE SERVICES NET SALES
- ------------------------ ------------------------ ------------------------ -------------------
<S> <C> <C> <C>
Mechanical Insulation Calcium Silicate, Delivery, Electronic 46.7%
Products Cellular Glass, Processing, Energy
Fiberglass, Jacketing, Audits, Fabrication,
Mineral Fiber, Rigid Innovative Supply
Polyurethane Foam, Agreements, Quantity
Polystyrene Rubber Definition, Product
Shipment Consolidation,
Technical Advice
Architectural/Acoustical Acoustical and Delivery, Electronic 38.3%
Products Decorative Ceiling Processing, Fabrication,
Systems, Acoustical and Quantity Definition,
Decorative Wall Panels, Material Management,
Building Insulation, Product Shipment
Drywall, Fiberglass Consolidation, Technical
Reinforced Panels, Advice
Interior Doors, Metal
Studs
Fabrication Services Acoustical Decorative Customized Fabrication 11.0%
and Display Panels, Solutions, Delivery,
Lamination, OEM Electronic Processing,
Products, Insulation Material Management,
Pipe Covering, Equipment Private Label
Segments and Fittings, Fabrication, Product
Pipe and Tank Wrap, Shipment Consolidation
Precision Die Cutting,
Pre-Cut Insulation
Jacketing
Specialty Products Passive Firestop/Fire Delivery, Quantity 4.0%
Proofing Systems, Floor Definition, Electronic
Covering, Exterior Processing, Material
Insulation Finish Management, Product
Systems Training, Product
Shipment Consolidation,
Technical Advice
</TABLE>
CUSTOMERS
The Company currently serves more than 9,000 customers, including specialty
contractors, facility owners, general contractors, OEMs, exporters and supply
houses. The Company's top 10 customers (including two affiliates) in terms of
net sales accounted for approximately 17% of net sales in 1997, and no single
customer accounted for more than 5% of net sales in 1997.
DISTRIBUTION NETWORK
The Company's distribution network is organized into eight regional
territories encompassing 58 distribution centers in 24 states. Regional
managers are members of the Company's senior management team and have
responsibility for overall operations within each region. Each individual
service center has its own customer-focused team that typically consists of a
branch manager, outside and inside sales representatives and customer service
representatives who include distribution center driver teams and support
staff. The Company's branches are organized as autonomous, decentralized units
and are capable of meeting local market needs as well as offering competitive
prices within the Company's overall policies. Each branch handles one or more
of the
26
<PAGE>
Company's product groups and operates as a separate profit center. Branch
managers have the authority and responsibility, within Company guidelines, to
set pricing and tailor the facility's product offering and mix, as well as the
nature of services offered to meet the local market environment. In addition,
each branch manager is responsible for purchasing, maintenance of adequate
inventory levels, cost controls and customer relations. Common accounting,
information systems, insurance, tax and other administrative functions are
provided at the corporate level to eliminate duplicate administrative
expenses.
SALES AND MARKETING
The Company has approximately 48 outside sales representatives, including
branch managers, and 68 inside sales/customer service representatives.
Generally, the inside sales/customer service representatives support the
outside sales representatives and have independent sales responsibility,
including specific customer service and order entry duties. Each outside sales
representative works in an assigned sales territory associated with one of the
Company's 58 distribution facilities and is actively supported by the branch
and regional teams. National accounts are supported by two specialists and the
Company's senior management in conjunction with the total distribution
network. All sales representatives are employees of the Company and are
generally compensated on a salary and incentive-based compensation
arrangement. The incentive portion of the salesperson's compensation is based
on a return-on-assets model and averages above 20% of base compensation.
The Company also markets its products through sales brochures, customer
events and occasional sales promotions.
The Company's return and allowance policy generally provides for the return
of standard inventoried products that do not satisfy customer requirements,
provided they are in resalable condition, or products which do not meet
quality standards. Special-order and fabricated products cannot be returned.
The customer is responsible for applicable freight costs and a handling charge
may be levied against the return, depending upon the Company's agreement with
the customer. The Company's suppliers maintain similar policies with the
Company. The Company's experience with returns and allowances has not had a
material effect on the Company's business or financial condition.
SUPPLIERS
The Company has a broad base of approximately 150 suppliers that includes
most major manufacturers in the industries the Company serves. The Company's
leading suppliers of mechanical insulation include Owens-Corning Fiberglas,
Johns Manville, Armstrong World Industries, Dow Chemical, CertainTeed, H.B.
Fuller, Pittsburgh Corning, Thermal Ceramics, Calsilite Group, Childers
Products, RPR Industries and RBX Corporation, among others. The Company's
leading suppliers of architectural/acoustical products include Armstrong World
Industries, STO, National Gypsum, Kemlite, Lasco and Sequentia, among others.
INFORMATION SYSTEMS
The Company utilizes information systems maintained by Irex. The systems use
software that unites the Company's distribution centers and integrates product
tracking, pricing and availability; order processing and shipping;
distribution center operations; purchasing; inventory management; receivables
management; financial reporting; and other financial and operational
functions. A new release of the system software has been fully tested by other
customers of the system vendor and is scheduled to be installed in 1998 to
address Year 2000 compliance issues and provide other function upgrades. See
"Risk Factors--Dependence On Information Systems; Systems Conversion; Year
2000 Issue."
The Company has entered into an agreement with Irex pursuant to which Irex
will continue to provide information system services to the Company on a fee-
for-services basis for at least 18 months and up to three years following
consummation of the New Investment and Separation. During such period the
Company intends to evaluate its existing and future information system
requirements and examine its options for obtaining such services. See
"Separation from Irex--Agreements with Irex--Corporate Separation Agreement."
27
<PAGE>
COMPETITION
The Company's markets are highly competitive. Historically, the markets in
which the Company participates have been highly fragmented and populated by a
large number of smaller, local and regional distributors operating in single
geographic areas. These smaller, often owner-operated, distributors have
constituted the principal competition to the Company, but other significant
competitors include regional distributors as well as manufacturers selling
directly to end-users. Certain of the Company's competitors sell identical or
equivalent products at competitive prices, and the Company also competes on
the basis of responsiveness to the needs of customers for product quality,
service, product diversity, and availability.
SEASONALITY AND CYCLICALITY
The Company's business is seasonal and in the past has experienced seasonal
fluctuations in sales and operating results from quarter to quarter. Operating
results are weakest in the first calendar quarter because of the effects of
winter weather on commercial and industrial construction and the consequent
reduction in sales of mechanical insulation and architectural/acoustical
products. Fluctuations in the Company's quarterly sales and operating results
could result in significant volatility in, and otherwise adversely affect, the
market price of the Common Stock. See "Management's Discussion of Financial
Condition and Results of Operations--Seasonality and Quarterly Results of
Operations."
Some of the principal markets for the products and services offered by the
Company are subject to cyclical economic fluctuations that generally affect
pricing, availability and demand for mechanical insulation and
architectural/acoustical products. Cyclical fluctuations can also affect
growth rates in the markets served by the Company's customers, the
availability of products from vendors and the availability of suitable
acquisition candidates. As a result, changes in general economic conditions
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Risk Factors--Seasonality; Industry and
Economic Cycles."
EMPLOYEES
On September 22, 1998, the Company had 596 employees, including 48 outside
sales representatives, 266 distribution center, delivery, clerical and support
personnel, 149 fabrication personnel and 65 supervisors and managers,
including the Company's executive officers. None of the Company's employees is
covered by a collective bargaining agreement. Management considers the
Company's relations with its employees to be good.
PROPERTIES
The Company leases all of its office and distribution center space. The
typical distribution center lease is for a three- to five-year term and
requires the Company to pay all ongoing expenses such as taxes, utilities,
insurance and maintenance expenses. The following table sets forth certain
information with respect to the Company's significant distribution and
fabrication facilities:
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE
-------- --------------
<S> <C>
Atlanta, Georgia......................................... 24,600
Benicia, California...................................... 26,417
Camden, New Jersey....................................... 30,000
Charleston, South Carolina............................... 20,000
Chicago, Illinois........................................ 32,093
Dallas, Texas............................................ 19,840
Indianapolis, Indiana.................................... 21,000
Philadelphia, Pennsylvania............................... 20,000
Syracuse, New York....................................... 22,000
Tampa, Florida........................................... 22,338
</TABLE>
The Company's corporate headquarters are located in approximately 8,900
square feet of leased office space in East Petersburg, Pennsylvania.
28
<PAGE>
LEGAL PROCEEDINGS
The Company is not currently a party to any material litigation. In the
ordinary course of its business, the Company is from time to time involved in
various contractual, warranty, product liability and other cases and claims.
None of the cases currently pending are expected, individually or in the
aggregate, to have a material adverse effect on the Company's business,
operating results or financial condition.
REGULATORY MATTERS
The Company's operations and properties are subject to federal, state, local
and foreign laws, regulations and ordinances relating to the use, storage,
handling, generation, transportation, treatment, emission, release, discharge
and disposal of certain materials, substances and wastes, including laws
pertaining to employee health and safety in connection with the foregoing.
Based upon the Company's experience to date, the Company believes that the
future cost of compliance with existing environmental and employee health and
safety laws, regulations and ordinances will not have a material adverse
effect on the Company's business, operating results or financial condition.
However, future events, such as changes in existing laws and regulations or
their interpretation, may give rise to additional compliance costs or
liabilities that could have a material adverse effect on the Company's
business, operating results and financial condition. Compliance with more
stringent laws or regulations, as well as more vigorous enforcement policies
of regulatory agencies or stricter or different interpretations of existing
laws, may require additional expenditures by the Company that may be material.
29
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ---------
<S> <C> <C>
Ronald L. King.......... 54 President, Chief Executive Officer and Chairman of the Board of Directors
Michael J. Hughes....... 42 Vice President, Chief Financial Officer, Secretary and Treasurer
Daniel D. Bofinger...... 40 Vice President and Regional Manager
Michael T. Conner....... 45 Vice President and Regional Manager
Michael C. Feehery...... 40 Vice President and Regional Manager
Raymond J. Horan........ 47 Vice President and Regional Manager
Charles F. Schattgen.... 46 Vice President and Regional Manager
W. Kirk Liddell 49 Director
John O. Shirk 54 Director
William W. Adams 64 Director
David G. Offensend 45 Director
John R. Birk 47 Director
Christopher L. Ryan 36 Director
</TABLE>
- --------
Ronald L. King has been President and Chief Executive Officer of the Company
since June 1997. He previously served as Executive Vice President of the
Company since 1993. Prior to joining the Company, Mr. King was President of
Distribution International and held senior management positions with the Anco
Industries group of companies. In 1998 he was elected President of the World
Insulation & Acoustic Congress Organization and is a past president of the
National Insulation Association.
Michael J. Hughes became Vice President, Chief Financial Officer, Secretary
and Treasurer of the Company in April 1998. From 1996 until joining the
Company he was Senior Vice President, Investment Banking, of Berwind
Financial, L.P., a regional investment banking firm based in Philadelphia,
Pennsylvania. From 1990 to 1996, Mr. Hughes was Senior Vice President-External
Finance for Meridian Bancorp, Inc.
Daniel D. Bofinger has been Regional Manager, with responsibility for
central Pennsylvania and New England, since 1992 and has been a Vice President
of the Company since 1996. Mr. Bofinger joined the Company in 1982 as a
production superintendent, and became manager of the Lancaster Fabrication
Division in 1986.
Michael T. Conner has been Vice President and Regional Manager of the
Company, with responsibility for the Midwest, since 1996. He joined the
Company in 1986 as a sales representative and served as branch manager of the
Company's Indianapolis operations until his promotion to his current position.
Michael C. Feehery has been Vice President and Regional Manager of the
Company, with responsibility for the Southwest, since 1996. He joined the
Company in 1989 and was branch manager from 1990 until his promotion to his
current position.
Raymond J. Horan has been Vice President and Regional Manager of the
Company, with responsibility for the mid-Atlantic region, since 1996. He
joined the Company in 1987 as branch manager for the Company's Chicago
operations. Mr. Horan previously held various sales position with the ceilings
division of Armstrong World Industries.
30
<PAGE>
Charles F. Schattgen has been Vice President and Regional Manager of the
Company, with responsibility for the Southeast, since 1991. He joined the
Company in 1985 as branch manager and became area manager in 1987. Before
joining the Company, Mr. Schattgen was employed by Owens Corning Fiberglas.
W. Kirk Liddell has been President, Chief Executive Officer and a director
of Irex since 1984. Mr. Liddell also serves on the boards of directors of High
Industries, Inc., the Pennsylvania Chamber of Business and Industry and the
Lancaster Alliance, and is President of the Economic Development Company of
Lancaster County.
John O. Shirk has been a partner in the law firm of Barkley, Snyder, Senft &
Cohen, LLP, located in Lancaster, Pennsylvania, since 1973 and was managing
partner from 1983 to 1994. Mr. Shirk is a director of the Economic Development
Company of Lancaster County, EDC Finance Corporation, Harrisburg Area
Community College Foundation, Fulton Financial Corporation, The Horst Group,
Inc., Educators Mutual Life Insurance Company and Irex.
William W. Adams is a former Chairman and President of Armstrong World
Industries, Inc. Mr. Adams joined Armstrong in 1956 and was elected an
Executive Vice President and member of the Armstrong Board of Directors in
1982. He was named Chairman and President in 1988 and retired on January 1,
1995. Mr. Adams is a Director Emeritus of Bell Atlantic Corporation and a
director of High Industries, Inc., Irex Corporation, the National Association
of Corporate Directors and the Lancaster Alliance. He also serves on the
Senior Executive Committee of SCP Private Equity Partners, and is a member of
the Advisory Board of Boardroom Consultants.
David G. Offensend, a founding partner of Evercore Partners Inc., has been
with Evercore since October 1995. Mr. Offensend was Managing Director of Oak
Hill Partners, Inc. and its predecessor from April 1990 to September 1995;
Vice President and Director of Acadia MGP, Inc. from March 1992 to September
1995; and Vice President of Keystone, Inc. from March 1992 to September 1995.
Mr. Offensend serves on the board of directors of Specialty Foods Corporation.
John R. Birk has been an Operating Executive of Evercore Partners, Inc.
since September 1995. From January 1995 to September 1995, Mr. Birk served as
President of Ideon Group, Inc., Chairman of Wright Express, Chairman of
National Leisure Group and President of Hotline Travel. Mr. Birk was Chief
Executive Officer and a Director of Wright Express from 1992 to 1995. Mr. Birk
was President and a Director of Advo, Inc. from 1988 to 1992. Mr. Birk serves
as a Trustee of T.O. Richardson Mutual Funds.
Christopher L. Ryan has been a Managing Director of Evercore Partners, Inc.
since May 1998. Prior to joining Evercore in May 1998, Mr. Ryan was a
Principal since 1997 and Vice President since 1994 in the Mergers and
Acquisitions department of Morgan Stanley and Co. Incorporated. From 1987 to
1994, Mr. Ryan worked in the Investment Banking Division of Lehman Brothers.
DIRECTOR COMPENSATION AND ARRANGEMENTS
The Company expects to pay directors not affiliated with the Company an
annual fee of $2,000 for serving on the Board of Directors, a fee of $500 for
attending each meeting of the Board of Directors and a fee of $500 for
attending each meeting of a committee of the Board of Directors not held
concurrently with a board meeting. Directors will be reimbursed for expenses
incurred in connection with meetings of the Board of Directors or committees
thereof. All payments of annual fees will be paid in cash following the annual
shareholders' meeting during the year for which such payment is made. In
addition, directors will be expected to participate in the Company's stock
option program, as described below.
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal year ended December 31, 1997,
certain information regarding the cash compensation paid by the Company, as
well as certain other compensation paid or accrued for such
31
<PAGE>
year, to the executive officers of the Company named below (the "named
executive officers"), in all capacities in which they served:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ------------
STOCK OPTION
AWARDS (1) ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS (# SHARES) COMPENSATION (2)
--------------------------- ---------- --------- ------------ ----------------
<S> <C> <C> <C> <C>
Ronald L. King.............. $ 135,000 $ 70,101 200 $8,009
President and Chief
Executive Officer
Charles F. Schattgen........ $ 84,540 $ 31,855 150 $6,094
Vice President and Regional
Manager
Raymond J. Horan............ $ 84,000 $ 31,651 150 $6,053
Vice President and Regional
Manager
</TABLE>
- --------
(1) All options granted were for Irex common stock pursuant to the Irex
Corporation Non-Qualified Stock Option Plan.
(2) Includes matching payments paid by Irex pursuant to Irex's 401(k) plan and
Irex's Employee Stock Ownership Plan.
The following table provides information pertaining to individual grants of
options to purchase Irex common stock made by Irex to the named executive
officers during 1997:
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
STOCK
OPTIONS % OF ALL OPTIONS EXERCISE GRANT DATE
GRANTED (1) GRANTED TO ALL PRICE EXPIRATION PRESENT
(# SHARES) EMPLOYEES (PER SHARE) DATE VALUE (2)
----------- ---------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Ronald L. King.......... 200 4.3% $21.875 12/31/07 $1,040
Charles F. Schattgen.... 150 3.3% $21.875 12/31/07 $ 780
Raymond J. Horan........ 150 3.3% $21.875 12/31/07 $ 780
</TABLE>
- --------
(1) All options granted were options to purchase Irex common stock pursuant to
the Irex Corporation Non-Qualified Stock Option Plan. As of , there
were shares of Irex common stock outstanding.
(2) The grant date present value was calculated using the Black-Scholes option
pricing model with the following assumptions: (i) expected volatility of
23.0%, (ii) a risk-free interest rate of 6.1%, (iii) expected life of
three years and (iv) no dividend yield.
The following table sets forth certain information with respect to
unexercised options to purchase common stock of Irex held by the named
executive officers at the end 1997.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
NAME UNEXERCISED OPTIONS(1) IN-THE-MONEY OPTIONS (1)
---- ------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ronald L. King.............. 1,000 350 $11,375 $1,931
Charles F. Schattgen........ 1,000 300 $ 5,688 $1,650
Raymond J. Horan............ 750 300 $ 5,688 $1,650
</TABLE>
- --------
(1) All options are options to purchase Irex common stock pursuant to the Irex
Corporation Non-Qualified Stock Option Plan.
32
<PAGE>
STOCK OPTION PLAN
The Company intends to adopt the 1998 Specialty Products & Insulation Co.
Stock Option Plan (the "Plan"), which is expected to provide for the granting
of non-qualified stock options ("Options") to certain directors, officers and
other key employees (the "Key Employees") of the Company. The Plan will also
permit the Company to issue qualified stock options, stock appreciation rights
and restricted stock to the Key Employees. The Plan will be administered by
the Compensation and Benefits Committee of the Board of Directors of the
Company (the "Compensation and Benefits Committee"). The aggregate maximum
number of shares of Common Stock available for awards of Options under the
Plan will be 2,905.8 shares, subject to adjustment to reflect changes in the
Company's capitalization. Approximately 1,186 of these shares will be awarded
on the basis of the Company's performance. The Company intends to award
approximately 85% of the maximum number of Options available under the Plan
during the first year after the Plan is adopted and may award the remaining
Options available under the Plan during the following nine years. No awards
can be made under the Plan more than 10 years after the effective date of the
Plan.
The exercise price of the Options will be determined by the Compensation and
Benefits Committee in its discretion, provided that the exercise price of any
Option cannot be less than the fair market value of a share of Common Stock on
the date such Option is granted. Options will vest and may be exercised three
years after the date of grant and/or in the event that the Company achieves
certain performance objectives. No Option may be exercised more than 13 years
after the date of grant. The Options may not be exercised following
termination of the grantee's employment with the Company, except that in the
event a grantee's employment terminates due to death, disability, retirement
or involuntary termination due to certain reasons, options held by such
grantee or his or her estate shall be exercisable, if vested at the time of
termination of employment, for a certain period after termination.
EXECUTIVE INCENTIVE PLAN
The Company's Executive Incentive Plan provides certain officers of the
Company with annual incentive cash bonus awards based on achievement of
certain pre-established quantitative and qualitative goals. The goal of the
Executive Incentive Plan is to reward executives for superior performance and
for exceeding the Company's predetermined financial and business goals. To be
eligible under the Executive Incentive Plan, a participant must be a full-time
regular employee on the date of payments.
INSURANCE AND INDEMNIFICATION
In connection with the Separation, the Company has obtained directors' and
officers' insurance against certain liabilities such persons may incur on
behalf of the Company. For a discussion of the limitations on liability of the
Company's directors and the indemnification by the Company of such directors
set forth in the Company's bylaws , see "Description of Capital Stock--
Limitation on Liability and Indemnification."
EMPLOYMENT AGREEMENTS
In connection with the Separation, the Company has entered into employment
agreements with Ronald L. King, Michael J. Hughes and each of the executive
officers of the Company. The agreement with Mr. King provides that Mr. King
will serve as the President and Chief Executive Officer of the Company for a
period of three years after the date of the agreement. At each anniversary of
the effective date of the agreement, Mr. King's employment will be extended
for one additional year, unless the Company provides 90 days prior written
notice of its intent not to extend the term of Mr. King's employment. Under
the agreement, the Company or Mr. King may terminate Mr. King's employment
with or without cause. If Mr. King's employment is terminated by the Company
without cause, the Company must continue to pay Mr. King's salary, incentive
compensation and other benefits in effect at the time of termination for the
remainder of the term of the agreement. Mr. King is subject to a non-
competition covenant for the term of the agreement. The agreements with the
executive officers of the Company, other than Michael Hughes, are similar to
the agreement with Mr. King, except that the term of each such agreement will
be extended for consecutive one year periods unless SPI gives the appropriate
executive at least sixty days notice of its intent not to continue the
agreement. Mr. Hughes' agreement has a term similar to that of Mr. King's
agreement.
33
<PAGE>
PRINCIPAL SHAREHOLDERS
Immediately following the Separation and the New Investment, all of the
Company's capital stock will be owned by the shareholders of Irex who receive
shares of Common Stock in the Separation, the Company's management and by
Evercore. See "Separation from Irex." The following table sets forth certain
information regarding the beneficial ownership of the Company's Common Stock
immediately following consummation of the Separation and the New Investment
with respect to (i) each person who is the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) each director and named executive officer
of the Company, and (iii) all directors and executive officers of the Company
as a group. Unless otherwise specified, each person set forth below has sole
voting and investment power with respect to the shares reported.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
NUMBER OF SHARES COMMON STOCK BENEFICIALLY
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNED
---------------- --------------------- -------------------------
<S> <C> <C>
James E. Hipolit (2)
c/o Irex Corporation
120 North Lime Street
Lancaster, Pennsylvania
17608......................... 850 5.4%
David F. Andrew, W. Kirk
Liddell and
Jane E. Pinkerton, Trustees of
the Irex Corporation
Employees' Savings Incentive
Plan (3)
c/o Irex Corporation
120 North Lime St.
Lancaster, Pennsylvania
17608......................... 1,294 8.3%
W. Kirk Liddell (4)
c/o Irex Corporation
120 North Lime Street
Lancaster, Pennsylvania
17608......................... 964 6.2%
Ronald L. King **.............. [73] *
Michael J. Hughes **........... [46] *
David D. Bofinger.............. 2 *
Michael T. Conner.............. 2 *
Michael C. Feehery............. 2 *
Raymond J. Horan............... 22 *
Charles F. Schattgen........... 34 *
John O. Shirk (5).............. 93 *
William W. Adams............... 43 *
David G. Offensend (6)......... 7,113 45.5%
Christopher L. Ryan............ -- *
John Birk...................... -- *
Evercore Partners L.L.C. (7)... 7,113 45.5%
Evercore Capital Partners L.P.
.............................. 4,730 30.2%
Evercore Capital Partners (NQ)
L.P. ......................... 1,135 7.3%
Evercore Capital Partners
Offshore Partners L.P. ....... 1,248 8.0%
All directors and executive
officers as a group (8)....... 8,342 52.9%
</TABLE>
- --------
* Less than 1%
** Assumes purchase of 46 shares of Common Stock at closing of Separation.
(1) Based on beneficial ownership of Irex common stock as of September 21,
1998 and after giving effect to (i) the recapitalization of the Common
Stock of the Company prior to the Separation, (ii) the distribution of
Common Stock to Irex shareholders effected in connection with the
Separation and (iii) the New Investment.
34
<PAGE>
(2) Includes 70 shares with respect to which Mr. Hipolit will have sole or
share voting and investment power and a total of 780 shares to be held by
Mr. Hipolit as custodian for the minor children of W. Kirk Liddell under
the Pennsylvania Uniform Transfers to Minors Act. Mr. Hipolit disclaims
beneficial ownership of the shares he will hold as custodian.
(3) Based on Irex estimates of the number of shares of Common Stock to remain
in the Irex Corporation Employees' Savings Incentive Plan following the
transfer of certain of the plan's assets in connection with the
Separation. See "Separation from Irex--Agreements with Irex--Benefits
Sharing Agreement." Under the terms of the plan, the trustees of the plan
will have voting and investment power over the shares of Common Stock
reported.
(4) Includes 465 shares with respect to which Mr. Liddell will have sole
voting and investment power and 499 shares held by Mr. Liddell's spouse,
with respect to which Mr. Liddell disclaims beneficial ownership. Does not
include shares owned by the minor children of Mr. Liddell held by Mr.
Hipolit as custodian, as reported above.
(5) Includes 30 shares with respect to which Mr. Shirk will have sole voting
and investment power, 11 shares held by Mr. Shirk's spouse, 2 shares held
by Mr. Shirk's spouse as custodian under the Pennsylvania Uniform
Transfers to Minors Act and 50 shares held by Barley, Snyder, Senft &
Cohen, LLP, of which Mr. Shirk is a partner.
(6) David G. Offensend is a Member of Evercore Partners L.L.C., the general
partner of each of Evercore Capital Partners L.P., Evercore Capital
Partners (NQ) L.P. and Evercore Capital Offshore Partners L.P. As such,
Mr. Offensend may be deemed to beneficially own the shares owned by such
partnerships. Mr. Offensend disclaims beneficial ownership of any of the
shares owned by such partnerships.
(7) Evercore Partners L.L.C. is the general partner of each of Evercore
Capital Partners L.P., Evercore Capital Partners (NQ) L.P. and Evercore
Capital Offshore Partners L.P. and, as such may be deemed to beneficially
own the shares owned by such partnerships.
(8) In connection with the Separation and the Offering, the Company expects to
grant options to purchase an aggregate of 2,905.8 shares of Common Stock
to certain officers and employees of the Company under the Company's stock
option plan. See "Management--Stock Option Plan" and "Separation from
Irex--Agreements with Irex--Benefits Sharing Agreement." All of the
options have limitations on exercise and none are included in the table
above.
SEPARATION FROM IREX
BACKGROUND AND REASONS FOR THE SEPARATION
Since commencing operations in 1982, the Company has been a wholly owned
subsidiary of Irex. Through its operating subsidiaries other than the Company,
Irex is primarily engaged in the business of specialty contracting throughout
the United States and Canada. In January 1998, Irex announced plans to effect
the Separation through a pro rata distribution (the "Distribution") of 100% of
the capital stock of the Company to the shareholders of Irex. Immediately
prior to the Separation, the Company declared a reverse stock split, whereby
each share of the Company's previously issued common stock was converted into
[0.8532] shares of Common Stock. The reverse stock split reduced the Company's
outstanding shares from 10,000 to [8,532] shares of Common Stock, all of which
were held by Irex. Following this recapitalization, the Company effected the
Separation by distributing all of such shares to the shareholders of Irex on
the basis of one share of SPI Common Stock for every fifty shares of Irex
common stock held. The Company will issue certificates for such shares in
[November 1998]. The Company will not issue certificates for fractional
shares, but, instead, will repurchase such shares at a rate of $2,698.08 per
share. As a result of the Separation and the New Investment, all of the
capital stock of the Company is owned by the shareholders of Irex who received
shares of Common Stock in the Separation, the Company's management and by
Evercore.
The decision to effect the Separation was based on a number of factors. The
Separation will provide both Irex and SPI with greater managerial, operational
and financial flexibility to focus on and respond to changing market
conditions in their respective business environments. The Company also
believes that its ability to pursue and finance acquisitions and other
business opportunities will be enhanced if the Company operates independently.
The Separation will provide the Company with direct access to capital markets,
subject to certain limitations for a two-year period following the Separation.
See "Risk Factors--Limitations on Ability to Raise
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Equity Capital and Dependence on Alternative Financing." As a separate entity,
the Company will not be subject to Irex's capital structure restrictions and
will be in a better position to fund its operating and growth strategies.
Furthermore, financial advisors have advised Irex and the Company that equity
capital necessary to meet the business needs of Irex and the Company can be
most effectively raised by the Company following its Separation from Irex,
rather than through financings by either Irex or the Company while Irex
continues to hold a substantial equity interest in the Company. In addition,
management believes the Separation will assist the Company in serving certain
customers. Through the specialty contracting businesses operated by its other
subsidiaries, Irex competes with customers whose business is solicited by the
Company, and the Company believes these customers will be more likely to
purchase products from the Company after it is independent from Irex. The
Separation will also enable the Company to provide its management and
employees with incentive compensation in the form of direct and indirect
equity ownership in the Company.
Immediately prior to consummation of the Separation, the Company declared a
dividend to Irex in the amount of $10.5 million. Such dividend will be paid in
a combination of $7.0 million in cash and $3.5 million of Irex Notes. In
connection with the Separation and the New Investment, the Company also paid
approximately $5.1 million of debt owed by the Company to Irex as of June 30,
1998, which was paid with proceeds from the New Investment, and approximately
$26.0 million owed to Irex as of June 30, 1998 pursuant to an intercompany
account which the Company paid though a combination of proceeds from the New
Investment and with borrowed funds from a credit facility.
Another subsidiary of Irex, ACandS, Inc. ("ACandS"), is engaged in the
thermal insulation contracting business. ACandS has been the subject of
numerous lawsuits seeking damages for injuries allegedly caused by exposure to
asbestos contained in insulation products installed or sold by ACandS before
1974. The Company has never been named as a defendant in any asbestos-related
lawsuit, nor has any asbestos-related claim been made against it. The
Company's involvement with the thermal insulation contracting business has
been minimal, and, in the Company's opinion, it has no material liability in
connection with that involvement.
MANNER OF EFFECTING THE DISTRIBUTION
On or about [November , 1998] (the "Distribution Date"), Irex will deliver
certificates for the shares of Common Stock to be issued in the Distribution
to the shareholders of Irex holding fifty or more Irex common shares on the
Record Date. The Distribution will be made on the basis of one share of Common
Stock for every fifty shares of Irex common stock outstanding on the Record
Date. All such shares of Common Stock will be fully paid and nonassessable and
the holders thereof will not be entitled to preemptive rights. Certificates
for the Common Stock will be mailed to Irex common shareholders on or about
[November , 1998]. The Company will not issue certificates for fractional
shares, but, instead, will repurchase such shares at a rate of $2,698.08 per
share. The Company will mail checks for fractional shares at the same time
that it mails stock certificates.
No holder of Irex common shares will be required to pay any cash or other
consideration for the shares of Common Stock received in the Distribution, or
to surrender or exchange Irex common shares in order to receive Common Stock
of the Company.
FEDERAL INCOME TAX CONSEQUENCES
Irex has been advised by special tax counsel ("Tax Counsel") that, based
upon certain customary representations made by Irex and the Company, the
Distribution will qualify as a tax-free distribution under Section 355 of the
Internal Revenue Code of 1986, as amended (the "Code"). So long as the
Distribution qualifies under Section 355 of the Code, in the opinion of Tax
Counsel the principal federal income tax consequences of the Distribution will
be as follows:
1. No gain or loss will be recognized by, or be includable in the income
of, a holder of Irex common stock solely as a result of the receipt of
Common Stock in the Distribution, other than in respect of cash received in
lieu of fractional shares.
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2. No gain or loss will be recognized by Irex with respect to the Common
Stock distributed in the Distribution.
3. Assuming that a holder of Irex common stock holds such Irex common
stock as a capital asset, such holder's holding period for the Common Stock
received in the Distribution will include the period during which such Irex
common stock was held.
4. The tax basis of Irex common stock held by Irex shareholders
immediately prior to the Distribution will be apportioned (based upon
relative fair market values at the time of the Distribution) between such
Irex common stock and the Common Stock received by such shareholder in the
Distribution.
5. Irex shareholders receiving cash on the sale of a fractional interests
in Common Stock will recognize gain or loss measured by the difference
between the amount of cash received and the tax basis of such holder's
fractional interest. Provided that the Irex common stock is held as a
capital asset, such gain or loss will be a capital gain or loss.
The foregoing is only a summary of the material federal income tax
consequences of the Distribution under current law and does not take into
account any special circumstances that may apply to particular shareholders.
Each shareholder should consult his or her tax advisor as to the particular
consequences of the Distribution to such shareholder, including the
application of state, local and foreign tax laws, and as to possible changes
in tax laws that may affect the tax consequences described above. This summary
may not be applicable to shareholders who received their Irex common stock
pursuant to the exercise of options or otherwise as compensation or who are
not citizens or residents of the United States.
The opinion of Tax Counsel referred to above will not be binding upon the
Internal Revenue Service (the "IRS") and is subject to certain factual
representations and assumptions. Irex is not aware of any present facts or
circumstances which should cause such representations and assumptions to be
untrue. However, certain future events not within the control of Irex or the
Company could cause the Distribution not to qualify as tax-free. If the
Distribution is deemed to be taxable, then (1) each holder of Irex common
stock who receives shares of Common Stock in the Distribution would be treated
as if such shareholder received a taxable distribution, taxed as a dividend to
the extent of such shareholder's pro rata share of Irex's current and
accumulated earnings and profits and (2) corporate level taxes would be
payable by the consolidated group of which Irex is the common parent, based
upon the excess of the fair market value of the Common Stock on the date of
the Distribution over Irex's tax basis therein. Irex expects that the
Distribution will be treated as tax-free.
Information with respect to the allocation of tax basis between SPI Common
Stock and Irex common stock will be provided to shareholders at the time of
distribution of the certificates representing shares of Common Stock.
OTHER INFORMATION
Following the Distribution, Irex will not hold any shares of Common Stock.
Irex will continue to be a corporation subject to the information reporting
requirements of Section 15(d) of the Exchange Act.
AGREEMENTS WITH IREX
In connection with the Separation and the New Investment, the Company
entered into several agreements with Irex and its subsidiaries setting forth
certain interim and longer-term relationships between the companies. The
following summaries of the principal terms of these agreements are qualified
in their entirety by reference to the full text of such agreements. See
"Additional Information."
Corporate Separation Agreement. Irex and its subsidiaries (collectively, the
"Irex Companies") and SPI have entered into a separation agreement (the
"Separation Agreement") which sets forth certain agreements with respect to
the Separation and certain agreements between the Company and the Irex
Companies governing the relationship between them following the Separation.
Pursuant to the Separation Agreement, Irex will provide the Company with
access to Irex's management information systems at least 18 months and up to
three years
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following the Separation. Under the agreement, access to system hardware and
software and related support services maintained by Irex will be made
available on a monthly fee basis based on a formula that takes into account
the Company's relative use of the system. The agreement also provides for the
Company to utilize customization capabilities of system programmers employed
by Irex on an hourly fee basis. The Separation Agreement also provides
reciprocal indemnification provisions between the Irex Companies and the
Company, pursuant to which the Irex Companies agree to indemnify the Company
for liabilities relating to their businesses arising at any time, and the
Company agrees to indemnify the Irex Companies for liabilities relating to its
business arising after January 1, 1982. The agreement also includes provisions
governing certain workers' compensation and liability insurance payments,
pursuant to which Irex will maintain responsibility for processing payment
claims occurring as a result of incidents involving the Company's employees
and arising prior to April 1, 1998, and the Company will indemnify Irex for
payments made by Irex as a result of such claims (up to the amount of the
deductible stated in the workers' compensation insurance policies governing
such claims). The agreement also provides for the Company to reimburse Irex
for all third-party expenses incurred in connection with the Separation and
New Investment, including attorneys' and accountants' fees and expenses,
filing fees, printing costs and similar items. Pursuant to the Separation
Agreement, intercompany accounts among Irex, Irex affiliates and the Company
will be settled shortly after the date of consummation of the Separation. As
of June 30, 1998, the settlement of those accounts would result in a payment
of $26.0 million from the Company to Irex; however, the settlement amount will
be determined on the effective date of the Separation.
Tax Sharing and Indemnification Agreement. The Company and Irex have entered
into a tax sharing and indemnification agreement (the "Tax Agreement").
Pursuant to the Tax Agreement, (i) the Company will generally be indemnified
for tax liabilities of any consolidated, combined and unitary group of
corporations that includes Irex and/or its subsidiaries (including the
Company) (an "Irex Group") for periods prior to the consummation of the
Separation other than certain tax liabilities attributable to the income or
operations of the Company, (ii) the Company will be restricted, for a period
of two years following the date of the consummation of the Separation, from
engaging in certain transactions (certain issuances of stock, redemptions of
stock or ceasing to engage in its trade or business) without first obtaining
either a ruling from the Internal Revenue Service or an opinion from
nationally recognized tax counsel that the transaction will not affect the
tax-free nature of the Separation to Irex and (iii) the Company will be
required to indemnify Irex for (a) certain tax liabilities attributable to the
income or operations of the Company for the periods prior to the consummation
of the Separation, and (b) tax liabilities that may be incurred by Irex as a
result of actions that the Company may undertake following the Separation and
that cause the Separation to be treated as a taxable transaction to Irex. The
Company does not expect these restrictions to materially inhibit its
operations or growth opportunities.
Irex and the Company have received an opinion of Dechert Price & Rhoads,
counsel to Irex and the Company, that for U.S. federal income tax purposes the
Separation should qualify as a tax-free spin-off. The opinion of counsel will
be based on certain assumptions and the accuracy of factual representations
made by Irex and the Company. Neither Irex nor the Company is aware of any
present facts or circumstances which should cause such representations and
assumptions to be untrue. However, the opinion of counsel is not binding on
either the Internal Revenue Service ("IRS") or the courts. A ruling has not
been, and will not be, sought from the IRS with respect to the U.S. federal
income tax consequences of the Separation, and it is possible that the IRS may
take the position that the Separation does not qualify as a tax-free spin-off.
See "Risk Factors--Potential Liability for Taxes Related to the Separation."
Benefits Sharing Agreement. The Company and Irex have entered into a
benefits sharing agreement (the "Benefits Agreement") pursuant to which assets
and liabilities under employee benefit plans and other employment-related
liabilities will be divided between them. In general, the Company is
responsible for compensation and employee benefits relating to both its active
and former employees. Irex generally remains responsible for compensation and
employee benefits relating to its active and former employees. The Company's
401(k) Plan has received a transfer of plan assets from the Irex Employees'
Savings Incentive Plan equal to the account balances of the Company's active
and former employees. Prior to the Separation, Irex amended its pension plan
to cease future benefit accruals. In connection with the Separation, the
Company has made a
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payment to Irex for a portion of the unfunded accrued liability under the Irex
defined benefit pension plan attributable to the Company's employees and
former employees. The Company does not currently intend to sponsor a defined
benefit pension plan for periods immediately following the Separation.
NEW INVESTMENT
On November , 1998 (the "Closing Date"), immediately following the
consummation of the Distribution, Evercore Capital Partners L.P., Evercore
Capital Partners (NQ) L.P. and Evercore Capital Offshore Partners L.P.
invested approximately $15.4 million in the Company in exchange for 7,113
shares of Common Stock of SPI. The purchase price per share of Common Stock
was $2,158.46. In addition, immediately following the Separation, the
Company's management collectively purchased [up to 140 shares] of Common
Stock. As a result of the Distribution and such New Investment in the Company,
as of the Closing Date approximately 55% of SPI Common Stock is owned by
shareholders of Irex who received stock in the Distribution and SPI's
management, and approximately 45% of SPI Common Stock is owned by Evercore.
The Company and Evercore are parties to a Stock Subscription Agreement,
dated October 27, 1998, which contains provisions relating to the subjects
discussed below. The following discussion of the Stock Subscription Agreement
is qualified in its entirety by the terms of such agreement.
BOARD OF DIRECTORS
The Board of Directors of SPI will consist of seven members until such time
as an affirmative vote of two-thirds of the authorized directors of the
Company passes a resolution to the contrary. The Company and Evercore have
entered into an agreement whereby the number of authorized directors will not
be changed until the earlier to occur of (x) the consummation of a registered
public offering, (y) such time as any person acquires at least 90% of the
Common Stock and (z) the fifth anniversary of the Closing Date.
At all times after the Closing Date, the Company has agreed to recommend to
the Board of Directors that the following number of persons selected by
Evercore be included in the slate of nominees recommended by the Board of
Directors to shareholders for election as directors: (a) so long as Evercore
collectively owns equal to or greater than 30% of the outstanding Common
Stock, three persons; (b) so long as Evercore collectively owns equal to or
greater than 15% of the outstanding Common Stock and less than 30% of the
Common Stock, two persons; (c) so long as Evercore collectively owns equal to
or greater than 5% of the outstanding Common Stock and less than 15% of the
outstanding Common Stock, one person.
Prior to the third anniversary of the Closing Date, Evercore has agreed not
to seek or support the election of more than three representatives of Evercore
to the Board of Directors of SPI. However, following the third anniversary of
the Closing Date, Evercore will be entitled to seek the election of four
directors; following the fourth anniversary of the Closing Date, Evercore will
be entitled to seek the election of five directors; following the fifth
anniversary of the Closing Date, Evercore will be entitled to seek the
election of six directors; and following the six anniversary of the Closing
Date, Evercore will be entitled to seek the election of seven directors.
Evercore has also agreed to certain other provisions regarding the
composition of the Board of Directors of the Company. At any time prior to the
earlier to occur of (x) consummation of a registered public offering of Common
Stock and (y) such time as any Person acquires at least 90% of the Common
Stock, the Company has agreed to support the nomination of, and the Company's
nominating committee (if any) will recommend to the Board of Directors that,
the following number of candidates recommended by the Continuing Directors (as
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defined below) of the Company be included in the slate of nominees recommended
by the Board of Directors for election as Directors at the annual
shareholders' meeting held for the time periods listed below:
<TABLE>
<CAPTION>
TOTAL NUMBER
ANNIVERSARY OF CLOSING DATE OF IREX DIRECTORS
--------------------------- -----------------
<S> <C>
First................................................... 3
Second.................................................. 3
Third................................................... 2
Fourth.................................................. 1
Fifth and thereafter.................................... 0
</TABLE>
As defined in the Stock Subscription Agreement, a "Continuing Director" will
include any director (who is not an officer of the Company or a person
designated by Evercore to serve as a director of the Company) who is either a
director of the Company immediately following the consummation of the New
Investment or is designated for election by the Continuing Directors or
elected by the Continuing Directors to the board of directors of the Company
with the affirmative vote of a majority of the Continuing Directors of the
Company who were directors of the Company at the time of such nomination or
election.
SALES BY EVERCORE
In the event Evercore effects any sale of Common Stock (other than sales
under certain limited exceptions), then Evercore is required as a condition to
such sale to cause the purchaser of its Common Stock to provide the benefits
of such sale to all holders of Common Stock on the same terms as provided to
Evercore.
REGISTRATION RIGHTS
Subject to the limitations described below, at any time after two years from
the anniversary of the date of the New Investment, upon the written request of
Evercore or any person or entity that acquires Common Stock from Evercore
(each an "Evercore Person") or at any time after the earlier of (x) the fourth
anniversary of the date of the New Investment or (y) the 180th day after a
registered public offering of Common Stock, upon the written request of any
group of stockholders (not including an Evercore Person) which are
collectively the beneficial holders of 10% or more of the outstanding SPI
Common Stock (each a "Shareholder Group") requesting that SPI effect the
registration under the Securities Act of 1933 (the "Securities Act") of all or
any part of the Common Stock, the Company will promptly file with the
Securities and Exchange Commission a registration statement under the
Securities Act registering the offering and sale of the securities which the
Company has been so requested to register (a "Demand Registration"). However,
(i) the Company need not effect a Demand Registration unless such Demand
Registration shall include the lesser of (a) 5% of the shares of Common Stock
then outstanding or (b) all shares of Common Stock beneficially owned by such
Evercore Person or Shareholder Group, as the case may be, and (ii) the Company
shall not be required to effect more than one Demand Registration in any
twelve-month period. In addition, SPI shall not be required to effect more
than three Demand Registrations for requests made by Evercore Persons and one
Demand Registrations for requests made by Shareholder Groups.
LIMIT ON TRANSACTIONS WITH AFFILIATES
The Company has agreed not to and will not permit its subsidiaries to,
directly or indirectly, sell, lease or otherwise transfer any of its
properties or assets to, or purchase any property or assets from, or enter
into any contract, agreement, understanding, loan, advance or guarantee with,
or for the benefit of, Irex or any of its affiliates, Evercore, any officer,
director, holder of 5% or more of the Common Stock, or affiliate of the
Company or Evercore (each an "Affiliate Transaction") except for (i) Affiliate
Transactions which are conducted in good faith and on terms that are no less
favorable to the Company or the relevant subsidiary than those which would
have been available at such time in a transaction with an independent third
party on an arms' length basis and have been approved by a majority of the
disinterested directors of the Company, or (ii) with respect to any Affiliate
Transaction that involves (A) a change of control of the Company, (B) a
substantial change in the
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Company's equity ownership, (C) a Rule 13e-3 transaction as defined under the
Exchange Act, (D) a sale of all or substantially all of the Company's assets,
(E) certain sales of shares by Evercore (as described in the Stock
Subscription Agreement), (F) or transactions with substantially similar
effect, Affiliate Transactions for which the Company has obtained an opinion
from a nationally recognized investment banking firm that such Affiliate
Transaction is fair to the shareholders of the Company or such subsidiary from
a financial point of view. These arrangements do not apply to agreements
between the Company and Irex or any of its subsidiaries relating to sales of
materials which are conducted in good faith and on terms that are no less
favorable to the Company or the relevant Company subsidiary than those which
would have been available at the time in a transaction with an independent
third party on an arms' length basis. Any transaction or proposed series of
transactions involving aggregate sales or expenditures in excess of $5.0
million shall, upon the request of any director, require the approval of the
Board of Directors of the Company in accordance with the Stock Subscription
Agreement.
SUB-DEBT AND SUB-DEBT LINE
Concurrently with the New Investment, SPI entered into the Irex Note
Agreement, which provides for the immediate issuance to Irex of $3.5 million
of Irex Notes, bearing an interest rate of 10.5%. All indebtedness of the
Company under the Irex Note Agreement will be subordinated to and rank junior
to all other indebtedness of the Company, other than trade indebtedness and
indebtedness of the Company which is expressly ranked junior to the Irex
Notes. Such indebtedness will rank pari passu with indebtedness under the
Evercore Note Purchase Agreement.
The Evercore Note Purchase Agreement will provide for the immediate purchase
by Evercore of $3.5 million of ECP Notes, bearing an interest rate of 11%. The
proceeds of the ECP Notes will be used for general corporate purposes. In
addition, Evercore will commit to purchase an aggregate additional amount of
up to $20 million of the ECP Notes over a three year period to fund a portion
of the cost of certain acquisitions, subject to certain conditions, including
the requirement that the Company have a ratio of indebtedness under its Credit
Agreement to EBITDA in excess of 2.5 to 1.0. The ECP Notes will have various
interest rates ranging from 11% to 13% (as such rates may be adjusted due to
changes in the yields of U.S. treasury obligations). The Evercore Note
Purchase Agreement contains a number of restrictive covenants, including
covenants which limit transactions with affiliates and the payment of
dividends and which require that the Company maintain a certain leverage
ratio. All indebtedness of the Company under the Evercore Note Purchase
Agreement will be subordinated and rank junior to all other indebtedness of
the Company, other than trade indebtedness and indebtedness of the Company,
which is expressly ranked junior to the ECP Notes. Such indebtedness will rank
pari passu with indebtedness under the Irex Note Agreement.
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company is subject to
and qualified in its entirety by reference to the Company's Restated Articles
of Incorporation, which have been filed as an exhibit to the Registration
Statement which includes this Information Statement.
COMMON STOCK
The Company is authorized to issue up to 15.0 million shares of Common
Stock, par value $.01 per share ("Common Stock").
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by shareholders. Shareholders do not have cumulative
voting rights in the election of directors, meaning that the holders of a
majority of the shares entitled to vote in any election of directors may elect
all of the directors standing for election. Shareholders do not have the
preemptive right to purchase newly issued Common Stock before it is offered to
others by the Company. The bylaws provide that special meetings of the
shareholders of the Company may be called only by the Board of Directors.
Generally, whenever any corporate action is to be taken by vote of the
shareholders of the Company, or by vote of a class of such shareholders of the
Company, it
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shall be authorized upon receiving the affirmative vote of a majority of the
votes cast by such shareholders, or by such class of shareholders, entitled to
vote thereon.
In connection with the New Investment, the Company adopted amended and
restated by-laws ("By-laws"), which contain certain provisions governing the
voting rights of the Board of Directors. Under the By-laws, certain actions of
the Board of Directors will require a supermajority vote of two-thirds of the
authorized Directors of the Company (but not less than five Directors). Such
actions include, but are not limited to, approval of any merger,
consolidation, recapitalization, sale of all or substantially all the assets
of the Company, reclassification of equity securities of the company, the
issuance of additional equity securities of the Company, and the declaration
of any dividend on or the redemption of any equity securities of the Company.
The By-laws contain provisions permitting the written consent of
shareholders in lieu of a meeting. Under the By-laws, any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting upon the written consent of shareholders who would have been entitled
to cast the minimum number of votes that would be necessary to authorize the
action at a meeting at which all shareholders entitled to vote were present
and voting. Such action is not effective until at least ten days' written
notice is provided to each shareholder entitled to vote who has not consented
already.
PREFERRED STOCK
The Company is authorized to issue up to 15.0 million shares of Preferred
Stock. The Board of Directors is authorized, subject to any limitations
prescribed by law, without further shareholder approval, to issue such shares
of Preferred Stock in one or more series, with such rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be established by the Board of Directors at the time of issuance.
The issuance of Preferred Stock by the Board of Directors could adversely
affect the rights of holders of Common Stock. The issuance of shares of
Preferred Stock could result in securities outstanding that would have
preference over the Common Stock with respect to dividends and in liquidation
and that could (upon conversion or otherwise) enjoy all of the rights of the
Common Stock.
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by third persons to obtain
control of the Company through merger, tender offer, proxy or consent
solicitation or otherwise, by making such attempts more difficult to achieve
or more costly. The Board of Directors may issue Preferred Stock without
shareholder approval and with voting rights that could adversely affect the
voting power of holders of Common Stock. There are no agreements or
understandings for the issuance of Preferred Stock, and the Company has no
plans to issue any shares of Preferred Stock. See "Risk Factors--Anti-Takeover
Provisions."
INAPPLICABILITY OF CERTAIN PROVISIONS OF THE PENNSYLVANIA BUSINESS CORPORATION
LAW
The Company's restated articles of incorporation provide that the Company
has opted out of Subchapters C, D and E of Chapter 25 of the PBCL and, to the
extent permitted therein, Subchapters F, G and H of Chapter 25 of the PBCL.
Had these sections applied to the Company, they would have made it more
difficult for persons to acquire and exercise control over SPI. The Company's
articles of incorporation and bylaws also provide that Section 515 of Title 15
of the Pennsylvania Consolidated Statutes will not be applicable to the
Company or any directors or officers of the Company. In addition, the Company
intends to submit to its shareholders a proposal to opt out of Section 1715 of
Title 15 of the Pennsylvania Consolidated Statutes. If these provisions were
to apply to the Company, they would have allowed the Company's Board of
Directors to consider various corporate interests, including those of
employees, suppliers, clients and communities when approving corporate
actions.
LIMITATION OF LIABILITY AND INDEMNIFICATION
As permitted by the PBCL, the Company's bylaws provide that a director shall
not be personally liable for monetary damages for any action taken, or any
failure to take any action, unless (i) the director has breached or
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failed to perform the duties of his office under Section 8363 of the
Pennsylvania Directors Liability Act (relating to standard of care and
justifiable reliance) and (ii) the breach or failure to perform constitutes
improper self-dealing, willful misconduct or recklessness. Such limitation on
liability does not apply to the responsibility or liability of a director
pursuant to any criminal statute or the liability of a director for the
payment of taxes pursuant to local, state or federal law. In addition, the
bylaws provide that the Company shall indemnify any person who is a party or
is threatened to be made a party to any lawsuit or claim for damages arising
by reason of the fact that he is or was a director, officer or employee of the
Company or any subsidiary.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997
included in this Information Statement and elsewhere in the Form 10 have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their report with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing in giving
said report.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Form 10 (the "Form 10") under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). This Information Statement, which
constitutes a part of the Form 10, does not contain all of the information set
forth in the Form 10. Statements made in this Information Statement as to the
contents of any agreement or other document referred to herein are not
necessarily complete, and reference is made to the copy of such agreement or
other document filed as an exhibit or schedule to the Form 10 and each such
statement shall be deemed qualified in its entirety by such reference. For
further information, reference is made to the Form 10 and to the exhibits and
schedules filed therewith, which are available for inspection without charge
at the public reference facilities maintained by the Commission in Room 1024,
450 Fifth Street, N.W, Washington, D.C. 20549. Copies of the material
containing this information may be obtained from the Commission upon payment
of the prescribed fees.
After the Separation, the Company will be subject to the information and
reporting requirements of the Exchange Act and, in accordance therewith, will
be required to file reports and other information with the Commission. The
Company's registration with the Commission may be terminated if there are
fewer than 300 record holders of the Common Stock. The Company anticipates
that upon the consummation of the transactions contemplated herein, there will
be fewer than 300 shareholders of record in the Company and that, if this is
the case, the Company will seek to deregister the Common Stock under the
Exchange Act. The termination of registration of the Common Stock under the
Exchange Act would substantially reduce the information required to be
furnished by the Company to holders of Common Stock and to the Commission and
would make certain provisions of the Exchange Act no longer applicable to the
Common Stock.
The Form 10, as well as any report and other information filed by the
Company with the Commission, may be inspected and copied at the public
reference facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The Commission maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Information Statement that are not
related to historical results are forward-looking statements. Actual results
may differ materially from those projected or implied in the forward-looking
statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed under "Certain Special
Considerations," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business." Further, certain forward-looking
statements are based upon assumptions as to future events that may not prove
to be accurate. These forward-looking statements involve risks and
uncertainties including, but not limited to, those set forth under "Certain
Special Considerations."
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants................................. F- 2
Consolidated Balance Sheets as of December 31, 1996 and 1997............. F- 3
Consolidated Statements of Income for the years ended December 31, 1995,
1996 and 1997........................................................... F- 4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995,
1996 and 1997........................................................... F- 5
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997..................................................... F- 6
Notes to Consolidated Financial Statements as of December 31, 1996 and
1997 and
for the years ended December 31, 1995, 1996 and 1997.................... F- 7
Unaudited Condensed Consolidated Statements of Income for the six months
ended
June 30, 1997 and 1998.................................................. F-16
Unaudited Condensed Consolidated Balance Sheets as of June 30, 1997 and
1998.................................................................... F-17
Unaudited Condensed Consolidated Statements of Cash Flows for the six
months ended
June 30, 1997 and 1998.................................................. F-18
Notes to Unaudited Condensed Consolidated Financial Statements........... F-19
</TABLE>
F-1
<PAGE>
After the reverse stock split discussed in Note 11 to the Company's
consolidated financial statements is effected, we expect to be in a position
to render the following report.
Arthur Andersen LLP
Lancaster, Pennsylvania
March 16, 1998, except with
respect to certain
information in Note 11, as
to which the date is
November 4, 1998.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Specialty Products & Insulation Co.:
We have audited the accompanying consolidated balance sheets of Specialty
Products & Insulation Co. (a Pennsylvania corporation and a wholly owned
subsidiary of Irex Corporation) and subsidiary as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholder's equity
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as, evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Specialty Products &
Insulation Co. and subsidiary as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of valuation and
qualifying accounts is presented for purposes of complying with the Securities
and Exchange Commission rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
F-2
<PAGE>
SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, 1997
------------------------------ -----------------------
PRO FORMA
1996 1997 (SEE NOTE 12)
-------------- -------------- -----------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents............ $ 78 $ 345 $ 345
Receivables, less
reserves of $466 in
1997 and $994 in 1996.. 22,769 27,635 27,635
Inventories of materials
and supplies........... 13,117 15,667 15,667
Prepaid expenses........ 408 173 173
Deferred income taxes... 930 1,100 1,100
-------------- -------------- --------------
Total current assets.. 37,302 44,920 44,920
Property and Equipment, at
cost:
Buildings and
improvements........... 1,153 1,315 1,315
Machinery and
equipment.............. 2,655 2,996 2,996
-------------- -------------- --------------
3,808 4,311 4,311
Less accumulated
depreciation........... (2,242) (2,543) (2,543)
-------------- -------------- --------------
1,566 1,768 1,768
Other Assets.............. 67 963 963
-------------- -------------- --------------
$ 38,935 $ 47,651 $ 47,651
============== ============== ==============
LIABILITIES AND
SHAREHOLDER'S EQUITY
Current Liabilities:
Current portion of long-
term notes payable to
affiliates
and other long-term
debt................... $ 1,436 $ 1,455 $ 1,455
Accounts payable........ 6,261 7,360 7,360
Payable to affiliates... 15,006 20,221 20,221
Accrued liabilities..... 2,746 4,108 4,108
Accrued income taxes.... 1,049 510 510
Dividend payable to Irex
Corporation............ -- -- 10,490
-------------- -------------- --------------
Total current
liabilities.......... 26,498 33,654 44,144
Deferred Income Taxes..... 88 -- --
Long-term notes payable to
affiliates, less current
portion.................. 5,928 4,742 4,742
Long-term debt, less
current portion.......... -- 75 75
Commitments and
Contingencies
Shareholder's Equity:
Preferred stock, $0.01
par value per share;
15,000,000 shares
authorized; none
issued................. -- -- --
Common stock, $0.01 par
value per share;
15,000,000 shares
authorized; 8,532
issued and
outstanding............ -- -- --
Paid-in surplus......... 1,003 1,003 1,003
Retained earnings....... 5,418 8,177 (2,313)
-------------- -------------- --------------
Total shareholder's
equity............... 6,421 9,180 (1,310)
-------------- -------------- --------------
$ 38,935 $ 47,651 $ 47,651
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales.............................. $ 118,395 $ 141,800 $ 158,510
Cost of sales.......................... 92,503 110,690 124,258
------------ ------------ ------------
Gross profit......................... 25,892 31,110 34,252
Selling, general and administrative
expenses.............................. 21,841 24,762 27,229
------------ ------------ ------------
Operating income..................... 4,051 6,348 7,023
Interest expense, net.................. 1,840 1,854 1,939
------------ ------------ ------------
Income before income taxes........... 2,211 4,494 5,084
Income tax provision................... 918 1,810 2,077
------------ ------------ ------------
Net income........................... $ 1,293 $ 2,684 $ 3,007
============ ============ ============
Net income per share--basic............ $ 151.55 $ 314.58 $ 352.44
============ ============ ============
Net income per share--diluted.......... $ 151.55 $ 314.58 $ 352.44
============ ============ ============
Weighted average shares outstanding--
basic................................. 8,532 8,532 8,532
============ ============ ============
Weighted average shares outstanding--
diluted............................... 8,532 8,532 8,532
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PAID-IN
COMMON STOCK SURPLUS RETAINED EARNINGS
------------ ------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, January 1, 1995................. $-- $1,003 $2,652
Net income............................. -- -- 1,293
Distribution to parent................. -- -- (748)
---- ------ ------
Balance, December 31, 1995............... -- 1,003 3,197
Net income............................. -- -- 2,684
Distribution to parent................. -- -- (463)
---- ------ ------
Balance, December 31, 1996............... -- 1,003 5,418
Net income............................. -- -- 3,007
Distribution to parent................. -- -- (248)
---- ------ ------
Balance, December 31, 1997............... $-- $1,003 $8,177
==== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income..................................... $ 1,293 $ 2,684 $ 3,007
Reconciliation of net income to net cash
provided by (used for) operating activities--
Depreciation and amortization................ 514 558 640
Deferred income tax (benefit) provision...... (6) (191) 364
Provision for losses on accounts receivable.. 830 1,120 71
(Gain) loss on sale of assets................ (2) 75 15
(Increase) decrease in assets--
Receivables.................................. (3,387) (1,590) (3,672)
Inventories.................................. (755) (1,934) (1,204)
Other prepaid expenses....................... 31 (182) 248
Other assets................................. (23) -- --
Increase (decrease) in liabilities--
Accounts payable............................. 640 39 1,042
Accrued liabilities and other................ 501 499 1,134
Accrued income taxes......................... 261 776 (495)
-------- -------- --------
Net cash (used for) provided by operating
activities................................ (103) 1,854 1,150
-------- -------- --------
Cash Flows From Investing Activities:
Additions to property and equipment............ (413) (559) (559)
Proceeds from sales of property and equipment.. 79 24 4
Acquisitions of certain businesses, net of cash
acquired
Assets, net of liabilities assumed.......... (961) (120) (2,523)
Intangibles.................................. -- (60) (930)
Other investing................................ -- (62) (33)
-------- -------- --------
Net cash used for investing activities..... (1,295) (777) (4,041)
-------- -------- --------
Cash Flows From Financing Activities:
Payments on long-term debt..................... -- (1,186) (1,186)
Increase in payable to affiliates.............. 1,429 97 4,344
-------- -------- --------
Net cash provided by (used for) financing
activities................................ 1,429 (1,089) 3,158
-------- -------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents..................................... 31 (12) 267
Cash and Cash Equivalents, Beginning of Year..... 59 90 78
-------- -------- --------
Cash and Cash Equivalents, End of Year........... $ 90 $ 78 $ 345
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
Description of Business
Specialty Products & Insulation Co. and subsidiary (the Company or SPI), a
wholly-owned subsidiary of Irex Corporation (Irex) (See Note 11), is a
distribution and fabrication business that competes in the large and highly
fragmented building products industry. The Company broadly defines its two
core markets as mechanical insulation, consisting of pipe, duct, and equipment
insulation for commercial and industrial customers, and
architectural/acoustical products, consisting primarily of acoustical
ceilings, fiberglass reinforced panel, and other wall and ceiling products.
Basis of Presentation
The consolidated financial statements reflect the results of operations,
financial position, changes in shareholder's equity and cash flows of the
Company. The consolidated financial statements have been prepared using the
historical basis in the assets and liabilities and historical results of
operations of the Company.
The Company receives certain administrative and management services provided
by Irex. The cost of these services has been allocated to the Company based on
the estimated utilization of those services through a management fee. These
services are discussed further in Note 10.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of SPI and its
wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
principally on a first-in, first-out (FIFO) basis. Included in inventory cost
are material costs and costs directly associated with the fabrication of the
Company's products.
Reserves for Certain Self-Insured Business Risks
The Company is self-insured against a portion of its workers' compensation
and other insurance risks. The process of determining reserve requirements for
losses within its self-insured retention limits utilizes historical trends,
involves an evaluation of claim frequency, severity and other factors and also
includes the effect of future inflation.
F-7
<PAGE>
Income Taxes
The Company accounts for income taxes using the liability method, whereby
deferred tax assets and liabilities are recognized using enacted tax rates,
for the estimated future tax effects of temporary differences between the
financial reporting and tax bases of assets and liabilities.
Property and Equipment
Property and equipment are depreciated using principally the straight-line
method over the following estimated useful lives of the assets. Expenditures
for maintenance and repairs are expensed as incurred.
<TABLE>
<CAPTION>
CLASSIFICATION ESTIMATED USEFUL LIVES
-------------- ----------------------
<S> <C>
Buildings......................................... 15 to 30 years
Leasehold improvements............................ 3 to 10 years
Machinery and equipment........................... 3 to 7 years
</TABLE>
Other Assets
Other assets consist of goodwill and other intangibles. Goodwill, which
represents the excess of cost over fair value of the net assets of acquired
businesses, is being amortized on a straight-line basis principally over 15
years. The Company develops operating income projections and evaluates the
recoverability and amortization period of goodwill using these projections.
Based upon management's current assessment, the estimated remaining
amortization period of goodwill is appropriate and the remaining balance is
fully recoverable. There was no unamortized goodwill at December 31, 1996. At
December 31, 1997, unamortized goodwill was $842,000.
Revenue Recognition
Sales are recorded as orders are shipped or picked up by the customer and
are reported net of discounts and returns. Sales include the revenue related
to products shipped directly from the manufacturer to the customer as the
purchasing terms are similar to other products purchased and the Company bears
the credit risk related to the sale. These sales represent approximately 14%,
16% and 16% of the total net sales reported in 1995, 1996 and 1997,
respectively.
Supplemental Cash Flow Information
The Company's state income tax payments, net of refunds, were $28,000,
$131,000 and $280,000 in 1995, 1996 and 1997, respectively. Interest on the
notes payable to affiliate and the payable to affiliates account are charged
to the payable to affiliates account.
Concentration of Credit Risk and Business
The Company is primarily engaged in the distribution of mechanical
insulational and architectural/acoustical products throughout the United
States.
The Company grants credit to customers after a thorough review of their
financial condition. The concentration of credit risk with respect to accounts
receivable is limited due to the Company's large customer base located
throughout the United States. For the years ended December 31, 1995, 1996, and
1997, no one customer accounted for more than 10% of sales.
The Company purchases materials for resale from a limited number of major
suppliers. Such concentration is normal for the industry and does not
represent an unreasonable risk or vulnerability to the Company.
F-8
<PAGE>
3. ACQUISITIONS:
On October 17, 1997, the Company acquired all of the issued and outstanding
stock of Richlar Industries, Inc. (Richlar), located in East Syracuse, New
York, for cash consideration of approximately $866,000. Richlar is primarily
engaged in the business of precision die cutting, lamination, and specialty
fabrication.
On December 8, 1997, the Company acquired certain assets of Construction
Systems, Inc. (CSI), located in Houston, Texas, for cash consideration of
approximately $2,374,000. CSI was primarily engaged in the distribution of
architectural/acoustical products and specialty products from two distribution
centers in Houston, Texas.
On December 24, 1997, the Company acquired certain assets of the Louisville,
Kentucky distribution center of R. E. Kramig and Company, Inc. (Kramig) for
cash consideration of approximately $213,000. Kramig was primarily engaged in
the distribution of mechanical insulation.
The acquisitions were accounted for using the purchase method of accounting,
and the financial statements reflect the results of operations and cash flows
of the operation from the dates of the acquisitions. Had the acquisitions
occurred at the beginning of the periods presented, sales and net income would
not have been materially different from reported results.
In January 1995, the Company acquired from Distribution International (DI),
the assets of four distribution centers in North Carolina and Tennessee for
cash consideration of approximately $961,000. DI was primarily engaged in the
distribution of mechanical insulation from these four distribution centers.
4. INCOME TAXES:
The Company's tax return is included in the consolidated federal income tax
returns of Irex. The current and deferred tax expense recorded by the Company
is based on what such amounts would have been had it filed a separate tax
return. All federal income tax payments are made by Irex.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Deferred income taxes are computed based on the differences between
financial reporting and income tax reporting bases of assets and liabilities
using enacted tax rates. The impact of changes in tax rates is reflected in
income in the period in which the change is enacted. In conformity with SFAS
109, deferred tax assets are classified based on the financial reporting
classification of the related liabilities and assets which give rise to
temporary book/tax differences. Deferred taxes relate to the following
temporary differences:
<TABLE>
<CAPTION>
1996 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
Insurance reserves......................................... $ 77 $ 574
Bad debt reserves.......................................... 387 181
Uniform cost capitalization on inventories................. 404 435
Other...................................................... (26) (89)
------ --------
$ 842 $ 1,101
====== ========
</TABLE>
The Company has determined that no valuation allowance for the deferred tax
asset is required as of December 31, 1996 and 1997 as it is considered more
likely than not that such benefits will be realized in the future through the
combination of carryback availability, certain tax planning strategies that
would allow for acceleration of deductible temporary differences to utilize
remaining carryback availability and through expected future taxable income.
F-9
<PAGE>
Income tax provision (benefit) consists of :
<TABLE>
<CAPTION>
1995 1996 1997
---- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal.............................................. $782 $1,608 $1,396
State................................................ 142 393 317
---- ------ ------
Total currently payable............................ 924 2,001 1,713
---- ------ ------
Deferred:
Federal.............................................. (35) (135) 297
State................................................ 29 (56) 67
---- ------ ------
Total deferred..................................... (6) (191) 364
---- ------ ------
Total.................................................. $918 $1,810 $2,077
==== ====== ======
</TABLE>
The effective income tax rate is different from the statutory Federal income
tax rate as indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.......................... 34.0% 34.0% 34.0%
State income taxes ($171,000, $337,000 and $384,000),
net of federal benefit.................................... 5.1 5.0 5.0
Meals and entertainment.................................... 2.4 1.3 1.9
---- ---- ----
Effective income tax rate................................ 41.5% 40.3% 40.9%
==== ==== ====
</TABLE>
5. EMPLOYEE BENEFIT PLANS:
Pension Plans
The Company's salaried employees participate in Irex's noncontributory
defined benefit pension plan. The benefits under the plan are based on years
of service and salary levels. Irex's policy is to fund pension costs in
accordance with the requirements of the Employee Retirement Income Security
Act of 1974. The Company receives an allocation of the plan's expenses from
Irex. In 1995, 1996, and 1997, the Company's share of the plan's total expense
was $230,000, $245,000, and $165,000, respectively. The Company will not
participate in the plan following its separation from Irex. All liabilities
associated with the plan will remain with Irex. The following table sets forth
the Plan's funded status and related amounts recognized in the consolidated
balance sheet of Irex and subsidiaries at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $5,568 and $6,629, respectively............ $ 6,039 $ 6,986
======= =======
Projected benefit obligation for service rendered to
date................................................... $ 7,698 $ 8,760
Plan assets at fair value............................... (7,528) (8,759)
------- -------
Projected benefit obligation in excess of plan assets... 170 1
Unrecognized net loss from past experience different
from that assumed and effects of changes in
assumptions............................................ 275 840
------- -------
Accrued pension cost.................................... $ 445 $ 841
======= =======
</TABLE>
F-10
<PAGE>
Assumptions used were as follows:
<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
Weighted average discount rates.................................. 7.75% 7.25%
Rates of increase in future compensation levels.................. 5.00% 5.00%
Expected long-term rate of return on assets...................... 8.50% 8.50%
</TABLE>
The Company also maintains a defined contribution plan for its hourly-paid
employees. Company contributions to the plan are based on a percentage of
eligible employees' compensation. The expense for this plan was $69,000 in
1995, $108,000 in 1996, and $105,000 in 1997.
Postretirement Benefits Other Than Pensions
In addition to the pension plans, the Company's retired employees
participate in an Irex-sponsored plan that provides certain health care
benefits. Active salaried employees who were at least age 55 and had 10 years
of consecutive service at January 1, 1990, are eligible for these benefits
upon retirement. Also, active salaried employees of the Company whose age plus
years of service equaled at least 55 at January 1, 1990, are eligible for
these benefits upon retirement when they attain age 62 as long as such
employees have either 20 years of service or their age plus years of service
equals 90 upon retirement. Cash payments of up to $60 per month are given to
retirees over age 65 to purchase supplemental Medicare coverage. Eligible
retirees under age 65 are fully covered by Irex's insurance plan. The number
of retirees under age 65 currently participating in the plan is not
significant. Also the number of active employees of the Company who may become
eligible is not significant; further, the Company will not participate in the
plan following its separation from Irex. All liabilities associated with the
plan will remain with Irex.
The expected cost of these benefits is charged to expense during the years
that the employees render service. The transition obligation is being
amortized over 20 years. In 1995, 1996, and 1997 the Company's share of the
Plan's total expense was $22,000, $29,000, and $15,000, respectively.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated balance sheet of Irex and subsidiaries at
December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Vested benefit obligation............................. $ 798 $ 798
Non-vested benefit obligation......................... 158 129
------- -------
956 927
Plan assets at fair value.............................. (51) --
------- -------
Accumulated postretirement benefit obligation in excess
of plan assets........................................ 905 927
Unrecognized transition obligation..................... (769) (721)
Unrecognized net gain.................................. 340 289
------- -------
Accrued postretirement benefit liability............... $ 476 $ 495
======= =======
</TABLE>
For measurement purposes, a 13% annual rate of increase in the per capita
cost of covered health care benefits was assumed for calendar 1997; the rate
was assumed to decrease to 10% in 1998 and 7% for 2001 and remain level
thereafter. Due to the provisions of the plan, increasing the assumed health
care cost trend rates by one percentage point in each year would not have a
significant impact on the accumulated postretirement benefit obligation or the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1997.
F-11
<PAGE>
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% and 7.25% at December 31, 1996 and
1997, respectively. The expected long-term rate of return on assets was 8.50%
at December 31, 1996.
Other
The Company has an incentive compensation plan covering substantially all of
its officers and key employees. The amount of incentive compensation is
dependent upon the rate of return on assets of the Company and the particular
regional or branch office. Total incentive compensation expense was $1,012,000
for 1995, $1,335,000 for 1996, and $1,428,000 for 1997.
Substantially all of the Company's salaried employees are covered by defined
contribution savings incentive and employee stock ownership plans (ESOP)
maintained by Irex. Contributions to the savings incentive plan are based on a
percentage of employee contributions to the plan, while ESOP contributions are
discretionary. The Company's share of these plans' total expense was $256,000
in 1995, $299,000 in 1996, and $259,000 in 1997.
6. INCOME PER COMMON SHARE:
In 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128 "Earnings Per Share." SFAS No. 128 requires dual presentation
of basic and diluted earnings per share on the face of the income statement
for all entities with complex capital structures. The Company's basic income
per share is calculated as income available to shareholders divided by the
weighted average number of shares outstanding. Earnings per share have been
retroactively restated to reflect the 291.4 to 1 stock split-up effected in
the form of a dividend discussed in Note 11. For diluted income per share,
there are no common stock equivalents.
7. BORROWINGS:
Long-term notes payable to affiliates consists of the following at December
31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
9.25% unsecured notes payable to affiliate due in equal
annual installments
from May 1, 1996 to 2002................................... $ 7,114 $ 5,928
Unsecured note payable at prime commercial rate due to
affiliate on
December 1, 1998........................................... 250 250
------- -------
Total..................................................... 7,364 6,178
Less current portion...................................... 1,436 1,436
------- -------
$ 5,928 $ 4,742
======= =======
</TABLE>
Prime commercial rate is determined by the rate in effect on the previous
December 1 and June 1.
Other long-term debt is comprised of three unsecured notes totalling $94,000
as of December 31, 1997, with interest rates ranging from 6.63% to 8.16%,
payable in monthly and annual installments through July 10, 2009. As of
December 31, 1997, the current portion of other long-term debt is $19,000.
Other long-term debt was $0, as of December 31, 1996.
Interest expense for the notes payable to affiliate was $790,000 in 1995,
$725,000 in 1996, and $679,000 in 1997.
Any unpaid principal balance on each of the notes payable to affiliate may
be prepaid in whole or in part without premium or penalty provided that at the
time of any such prepayment all interest accrued to the date of prepayment on
the portion of the principal balance be simultaneously paid and all
prepayments be made on December 31 unless otherwise agreed by the holder.
F-12
<PAGE>
Long-term borrowings maturing during the next five years are as follows (in
thousands):
<TABLE>
<S> <C>
1998.............................................................. $1,455
1999.............................................................. 1,200
2000.............................................................. 1,192
2001.............................................................. 1,192
2002.............................................................. 1,192
</TABLE>
The payables to affiliates account, within current liabilities, includes the
Company's cumulative cash borrowings from Irex and affiliates. Interest
expense was $1,048,000 in 1995, $1,132,000 in 1996 and $1,249,000 in 1997. The
weighted average interest rate for the years ended December 31, 1995, 1996 and
1997 was 8%.
8. COMMITMENTS AND CONTINGENCIES:
The Company leases distribution centers and sales offices under
noncancelable operating lease agreements. Rental expense for all operating
leases was $2,866,000 in 1995, $2,983,000 in 1996 and $3,624,000 in 1997. As
of December 31, 1997, the future minimum rental commitments under
noncancelable operating leases that have terms in excess of one year are as
follows (in thousands):
<TABLE>
<S> <C>
1998............................................................. $2,615
1999............................................................. 1,936
2000............................................................. 1,525
2001............................................................. 1,020
2002............................................................. 583
Subsequent years................................................. 299
------
Total minimum rental obligations............................... $7,978
======
</TABLE>
The Company is involved from time to time in various claims and litigation
arising in the ordinary course of its business. Management believes the
outcome of such claims and litigation will not materially affect the Company's
long-term business, financial position or results of operations.
The Company, together with other subsidiaries of Irex, has guaranteed
certain obligations of Irex, which at December 31, 1997 totaled $27,604,000.
Such guarantees with respect to the Company will terminate upon completion of
the separation transaction discussed in Note 11.
9. ACCRUED LIABILITIES:
The components of accrued liabilities as of December 31, 1996 and 1997 are
as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Salaries and wages......................................... $ 1,295 $ 1,404
Workers' compensation, general and auto liability
insurance................................................. -- 1,263
Other...................................................... 1,451 1,441
------- -------
$ 2,746 $ 4,108
======= =======
</TABLE>
At December 31, 1996, an affiliate of the Company maintained the reserves
for workers' compensation, general and auto liability insurance. See note 10.
10. RELATED PARTIES:
The Company sells its products to the specialty contracting subsidiaries of
Irex. Sales to those affiliates are included in the Company's net sales as
reflected in the consolidated statements of income. Net sales to the Company's
affiliates were $10,682,000, $12,383,000 and $9,301,000 in 1995, 1996 and
1997, respectively.
F-13
<PAGE>
Irex provides various administrative and management services to its
affiliates, including the Company. These services include, among others,
management and maintenance of the information systems, legal, credit and risk
management, cash management, tax, accounting and personnel administration.
Irex allocates these costs to its affiliates through a combination of the
estimated utilization of the services provided or as a percentage of net
sales. Amounts allocated to the Company in excess of the actual costs incurred
by Irex for these services are shown in the statements of shareholder's equity
as a distribution to parent. Collectively, the allocation of the actual costs
incurred by Irex for these services are reflected as selling, general and
administrative expenses in the Company's consolidated statements of income.
Management believes the methodology used to allocate the costs of these
services is reasonable. As such, the Company was charged and has included
$1,616,000, $1,815,000 and $2,542,000 in 1995, 1996 and 1997, respectively, as
selling, general and administrative expenses in the consolidated statements of
income. Amounts allocated to the Company in excess of the actual costs
incurred by Irex for these services, in the amount of $748,000, $463,000 and
$248,000 in 1995, 1996 and 1997, respectively, are shown in the statements of
shareholder's equity as a distribution to parent.
Irex administers the Company's insurance program. Prior to 1997, the
reserves for workers' compensation and other insurance risks were not
reflected on the consolidated balance sheet of the Company. As indicated in
note 9 above, an affiliate of the Company maintained these reserves and made
payments on behalf of the Company. The appropriate charges to the Company were
recognized in the payable to affiliates account. The Company's expense related
to workers' compensation and other insurance programs was $484,000 in 1995,
$501,000 in 1996 and $606,000 in 1997.
The Company's cash transactions flow through a consolidated banking
arrangement that is maintained by Irex. The Company, in the normal course of
business, receives credit for cash deposited or charges for working capital
needed. The payable to affiliates account, at December 31, 1997, includes the
Company's cumulative cash borrowings from Irex and affiliates. Based upon the
activity within the payable to affiliates account, the Company is charged
interest expense from Irex. Interest expense was $1,048,000 in 1995,
$1,132,000 in 1996 and $1,249,000 in 1997.
11. SUBSEQUENT EVENTS:
Separation
On January 19, 1998, Irex announced its intention to spin off Specialty
Products & Insulation Co. to its shareholders. Irex's Board of Directors, at
its February 26, 1998 meeting, approved the proposed transaction in which
shareholders of Irex common stock will receive a dividend of the Company's
Common stock. This dividend is expected to be a tax-free distribution to
current shareholders of Irex common stock. The transaction is expected to be
completed in the fourth quarter of 1998.
Concurrent with the spin off transaction described above, the Company
intends to file a Form 10 with the Securities and Exchange Commission for
purposes of registering shares of common stock.
On October 28, 1998, the Company entered into a Stock Subscription Agreement
with Evercore Capital Partners L.P., Evercore Capital Partners (NQ) L.P. and
Evercore Capital Offshore Partners L.P. (collectively, Evercore). Immediately
following the spin off described above, Evercore will acquire approximately
45% of the total outstanding shares of the Company's common stock for
approximately $15.4 million and loan $3.5 million to the Company in the form
of a 9 year subordinated note, bearing interest at 11%. In addition, Evercore
has agreed to provide a three year $20.0 million variable interest rate credit
line to the Company. In addition, the Company's management will acquire up to
140 shares of the Common Stock.
On April 9, 1998, the Company filed Restated Articles of Incorporation which
increased the authorized number of shares of common stock to 15,000,000,
changed the common stock par value to $0.01 and authorized 15,000,000 shares
of Preferred stock at $0.01 par value. These changes have been retroactively
reflected in the accompanying financial statements.
F-14
<PAGE>
In conjunction with the above transactions, the Company will enter into
several agreements with Irex.
.Corporate Separation Agreement--Pursuant to this agreement, Irex will
provide management information system services to the Company. In addition,
certain indemnifications, excluding tax related items, between the Company
and Irex are defined in this agreement.
.Tax Sharing and Indemnification Agreement--Tax related indemnifications
between the Company and Irex are defined within this agreement. These
indemnifications relate to the periods before and after the transactions
described above.
.Benefits Sharing Agreement--This agreement addresses the division of
employee benefit plans and other employment-related liabilities between the
Company and Irex.
Prior to the spin-off described above, the Company will declare a 0.8532 to
1 reverse stock split. The reverse stock split has been retroactively
reflected in the accompanying financial statements.
Acquisition
On March 1, 1998, the Company acquired the assets of Extol of Texas, Inc.
(Extol), located in Houston, Texas, for cash consideration of approximately
$5,558,000. Extol is primarily engaged in the distribution and fabrication of
commercial and industrial insulation systems, and other specialty products.
12. PRO FORMA INFORMATION (UNAUDITED):
The unaudited pro forma consolidated balance sheet of the Company as of
December 31, 1997 reflects the planned dividend (estimated at $10,490,000) to
be made to Irex through the execution of a note payable to Irex and
subsequently partially repaid from the net proceeds of the New Investment.
Pursuant to the requirements of the Securities and Exchange Commission, the
dividend has been reflected in the pro forma balance sheet without giving
effect to any receipt of the net proceeds from the New Investment. In
addition, pursuant to the requirements of the Securities and Exchange
Commission, the pro forma income per share data giving effect to the number of
shares whose proceeds were used to in effect pay the dividend on both a basic
and diluted basis is $224.54. Pro forma weighted average shares outstanding on
both a basic and diluted basis was 13,392.
F-15
<PAGE>
SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------- ---------------
1997 1998 1997 1998
------- -------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.................................... $37,553 $ 47,367 $73,833 $90,036
Cost of sales................................ 29,376 36,671 57,931 69,980
------- -------- ------- -------
Gross profit............................... 8,177 10,696 15,902 20,056
Selling, general and administrative
expenses.................................... 6,585 8,402 13,173 16,394
------- -------- ------- -------
Operating income........................... 1,592 2,294 2,729 3,662
Interest expense, net........................ 477 556 925 1,072
------- -------- ------- -------
Income before income taxes................. 1,115 1,738 $ 1,804 2,590
Income tax provision......................... 455 713 736 1,062
------- -------- ------- -------
Net income................................. $ 660 $ 1,025 $ 1,068 $ 1,528
======= ======== ======= =======
Net income per share--basic.................. $ 77.36 $ 120.14 $125.18 $179.09
======= ======== ======= =======
Net income per share--diluted................ $ 77.36 $ 120.14 $125.18 $179.09
======= ======== ======= =======
Weighted average shares outstanding--basic... 8,532 8,532 8,532 8,532
======= ======== ======= =======
Weighted average shares outstanding--
diluted..................................... 8,532 8,532 8,532 8,532
======= ======== ======= =======
</TABLE>
See notes to the condensed consolidated financial statements.
F-16
<PAGE>
SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
DEC. 1998
31, JUNE 30, PRO FORMA
1997 1998 (SEE NOTE 8)
------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................... $ 345 $ 518 $ 518
Receivables, net................................ 27,635 32,449 32,449
Inventories of materials and supplies........... 15,667 18,509 18,509
Prepaid expenses................................ 173 817 817
Deferred income taxes........................... 1,100 1,100 1,100
------- ------- -------
Total current assets........................... 44,920 53,393 53,393
------- ------- -------
Property and Equipment, net...................... 1,768 2,471 2,471
------- ------- -------
Other Assets..................................... 963 1,783 1,783
------- ------- -------
$47,651 $57,647 $57,647
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Current portion of long-term notes payable to
affiliates and other
long-term debt................................. $ 1,455 $ 1,453 $ 1,453
Accounts payable................................ 7,360 10,775 10,775
Payable to affiliates........................... 20,221 26,039 26,039
Accrued liabilities............................. 4,108 4,659 4,659
Accrued income taxes............................ 510 476 476
Dividend payable to Irex Corporation............ -- -- 10,490
------- ------- -------
Total current liabilities...................... 33,654 43,402 53,892
------- ------- -------
Long-term notes payable to affiliates, less
current portion................................. 4,742 3,557 3,557
Long-term debt, less current portion............. 75 58 58
Commitments and Contingencies
Shareholder's Equity:
Preferred stock, $0.01 par value per share;
15,000,000 shares authorized; none issued...... -- -- --
Common stock, $0.01 par value per share;
15,000,000 shares authorized; 8,532 issued and
outstanding.................................... -- -- --
Paid-in surplus................................. 1,003 1,003 1,003
Retained earnings............................... 8,177 9,627 (863)
------- ------- -------
Total shareholder's equity..................... 9,180 10,630 140
------- ------- -------
$47,651 $57,647 $57,647
======= ======= =======
</TABLE>
See notes to the condensed consolidated financial statements.
F-17
<PAGE>
SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30,
----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 1,528 $ 1,068
Reconciliation of net income to net cash provided by
operating activities
Depreciation and amortization............................. 452 307
Provision for losses on accounts receivable............... 341 (9)
(Gain) loss on sale of assets............................. (65) 2
(Increase) decrease in assets--
Receivables............................................... (3,039) (1,673)
Inventories............................................... (112) (412)
Other prepaid expenses.................................... (644) 308
Increase (decrease) in liabilities--
Accounts payable.......................................... 3,415 891
Accrued income taxes...................................... (34) 555
Accrued liabilities and other............................. 551 (493)
------- -------
Net cash provided by operating activities............... 2,393 544
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment......................... (186) (276)
Acquisitions of certain businesses
Assets.................................................... (5,640) --
Intangibles............................................... (930) --
------- -------
Net cash used for investing activities.................. (6,756) (276)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt.................................. (1,204) (1,186)
Increase in payable to affiliates........................... 5,740 1,060
------- -------
Net cash provided by (used for) financing activities.... 4,536 (126)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 173 142
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 345 78
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 518 $ 220
======= =======
</TABLE>
See notes to the condensed consolidated financial statements.
F-18
<PAGE>
SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
1. BASIS OF PRESENTATION:
Specialty Products & Insulation Co. (the Company) is a wholly owned
subsidiary of Irex Corporation (Irex). The consolidated financial
statements of the Company include the accounts of Specialty Products &
Insulation Co. and its wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosure normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These
condensed consolidated financial statements should be read in conjunction
with the Company's annual audited financial statements for the year ended
December 31, 1997.
The financial information presented herein reflects all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair presentation of the results for the
interim periods presented. The results for interim periods are not
necessarily indicative of the results to be expected for the full year.
2. RELATED PARTIES:
The Company sells its products to the specialty contracting subsidiaries of
Irex. Sales to those affiliates are included in the Company's net sales as
reflected in the consolidated statements of income. Net sales to the
Company's affiliates were $1,308,000 and $2,024,000 and $4,095,000 and
$3,964,000, in the three and six months ended June 30, 1997 and 1998,
respectively.
Prior to March 31, 1998, Irex provided various administrative and
management services to its affiliates, including the Company. These
services included, among others, management and maintenance of the
information systems, legal, credit and risk management, cash management,
tax, accounting, and personnel administration. Irex allocated these costs
to its affiliates through a combination of the estimated utilization of the
services provided or as a percentage of net sales. Amounts allocated to the
Company in excess of the actual costs incurred by Irex for these services
are shown in the statement of shareholder's equity as a distribution to
parent. Collectively, the allocation of the actual costs incurred by Irex
for these services are reflected as selling, general and administrative
expenses in the Company's consolidated statements of income. Management
believes the methodology used to allocate the cost of these services is
reasonable. Amounts allocated to the Company in excess of the actual costs
incurred by Irex for these services were $67,000 for the three months ended
June 30, 1997 and $180,000 and $78,000 for the six months ended
June 30, 1997 and 1998, respectively, and are considered to be a
distribution to parent.
After March 31, 1998, the administrative and management services provided
to the Company by Irex were limited to the management and maintenance of
the information systems and other miscellaneous services. Irex charges the
Company the cost of these services based on the estimated utilization of
the services provided.
The costs described in the prior two paragraphs are reflected as selling,
general and administrative expenses in the Company's consolidated
statements of income and total $624,000 and $1,242,000 for the three and
six month periods ended June 30, 1997, respectively, and $240,000 and
$868,000 for the three and six month periods ended June 30, 1998,
respectively.
F-19
<PAGE>
3. SUPPLEMENTAL CASH FLOW INFORMATION:
The Company's state income tax payments, net of refunds, were $22,000 and
$129,000 for the three and six month periods ended June 30, 1997,
respectively, and $253,000 and $352,000 for the three and six months ended
June 30, 1998, respectively. Interest on the notes payable to affiliate and
the payable to affiliates account are charged to the payable to affiliates
account.
4. SEPARATION:
On January 19, 1998, Irex announced its intention to spin off Specialty
Products & Insulation Co. to its shareholders. Irex's Board of Directors,
at its February 26, 1998 meeting approved the proposed transaction in which
shareholders of Irex common stock will receive a dividend of the Company's
common stock. This dividend is expected to be a tax-free distribution to
current shareholders of Irex common stock. The transaction is expected to
be completed in the fourth quarter of 1998.
On April 9, 1998, the Company filed Restated Articles of Incorporation,
which increased the authorized number of shares of common stock to
15,000,000, changed the common stock par value to $0.01 and authorized
15,000,000 shares of preferred stock at $0.01 par value. These changes have
been retroactively reflected in the accompanying financial statements.
Concurrent with the spin off transaction described above, the Company
intends to file a Form 10 with the Securities and Exchange Commission for
purposes of registering shares of common stock.
On October 28, 1998, the Company entered into a Stock Subscription
Agreement with Evercore Capital Partners L.P., Evercore Capital Partners
(NQ) L.P. and Evercore Capital Offshore Partners L.P. (collectively,
Evercore). Pursuant to the Stock Subscription Agreement, Evercore will
acquire approximately 45% of the total outstanding shares of the Company's
common stock for approximately $15.4 million and loan $3.5 million to the
Company in the form of a 9 year subordinated note, bearing interest at 11%.
In addition, Evercore has agreed to provide a three year $20.0 million
variable interest rate credit line to the Company. In addition, the
Company's management will acquire up to 140 shares of the Common Stock.
Prior to the spin-off described above, the Company will declare a 0.8532 to
1 reverse stock split. The reverse stock split has been retroactively
reflected in the accompanying financial statements.
5.DEFERRED OFFERING COSTS:
On April 13 1998, the Company filed a registration statement on Form S-1
with the Securities and Exchange Commission relating to the initial public
offering of 2,000,000 shares of the Company's Common Stock. The Company had
previously announced the planned spin off from Irex Corporation through a
pro rata distribution of all of the Company's common stock to the
shareholders of Irex Corporation. On June 17, 1998, the Company announced
the postponement of its planned spin off from Irex Corporation and the
initial public offering due to adverse market conditions. Through June 30,
1998, the Company had incurred and capitalized on their balance sheet
approximately $584,000 of costs related to the initial public offering.
During the third quarter of 1998, the Company decided not to proceed with
the initial public offering of its common stock. In total, approximately
$1.1 million in expenses related to the initial public offering were
incurred through September 30, 1998 and will be expensed in the third
quarter of 1998.
6. CREDIT FACILITY:
The Company has executed a letter of commitment with a syndicate of lenders
for a $50.0 million unsecured credit facility. The investment in the
Company by the group of investors, discussed above, is contingent upon the
Company securing this credit facility for working capital, acquisitions and
general corporate purposes.
7. EMPLOYEE BENEFIT PLAN:
In connection with the Separation discussed above, the Company has adopted
a defined contribution savings incentive plan covering substantially all
salaried employees. Contributions to the savings incentive plan are
F-20
<PAGE>
based on specified percentages of employee contributions to the plan. As a
result of the adoption of this plan, the Company's salaried employees no
longer contribute or participate in the defined contribution savings
incentive plan maintained by Irex.
8. ACQUISITIONS:
On March 1, 1998, the Company acquired the assets of Extol of Texas, Inc.
(Extol), located in Houston, Texas, for cash consideration of approximately
$5,558,000. Extol is primarily engaged in the distribution and fabrication
of commercial and industrial insulation systems, and other specialty
products. The acquisition was accounted for using the purchase method of
accounting, and the financial statements reflect the results of operations
and cash flows of the operation from the date of acquisition. On June 29,
1998, the Company acquired the assets of Presnell Insulation Co., Inc.
("Presnell") for cash consideration of approximately $1.0 million. Presnell
is primarily engaged in the distribution and fabrication of mechanical
insulation products. Had the acquisition occurred at the beginning of the
periods presented, sales and net income would not have been materially
different from reported results.
On October 26, 1998, the Company acquired the outstanding common stock of
Paragon Industries, Inc. (Paragon), a distributor and laminator of numerous
mechanical insulation, HVAC, metal building insulation and specialty
products. The purchase price for Paragon was approximately $3.7 million
(including the assumption of $1.7 million of debt). Paragon had sales of
approximately $15.0 million for the fiscal year ended March 31, 1998.
9. PRO FORMA INFORMATION:
The unaudited pro forma consolidated balance sheet of the Company as of
June 30, 1998, reflects the planned dividend (estimated at $10,490,000) to
be made to Irex through the execution of a note payable to Irex and
subsequently partially repaid from the net proceeds of the New Investment.
Pursuant to the requirements of the Securities and Exchange Commission, the
dividend has been reflected in the pro forma balance sheet without giving
effect to any receipt of the net proceeds of the New Investment. In
addition, pursuant to the requirements of the Securities and Exchange
Commission, the pro forma income per share data giving effect to the number
of shares whose proceeds were used to in effect pay the dividend on both a
basic and diluted basis is $76.54 and $114.10 for the three months and six
months ended June 30, 1998, respectively. Pro forma weighted average shares
outstanding on both a basic and diluted basis are 13,392.
F-21
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Information Statement Summary............................................. 2
Certain Special Considerations............................................ 7
Selected Consolidated Financial Data...................................... 12
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 14
Dividend Policy........................................................... 21
Business.................................................................. 22
Management................................................................ 30
Principal Shareholders.................................................... 34
Separation from Irex...................................................... 35
New Investment............................................................ 39
Description of Capital Stock.............................................. 41
Experts................................................................... 43
Additional Information.................................................... 43
Cautionary Statement Regarding Forward-Looking Statements................. 44
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF SPECIALTY PRODUCTS APPEARS HERE]
SPECIALTY PRODUCTS &
INSULATION CO.
INFORMATION STATEMENT
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
II. INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has not issued any unregistered securities within the past three
years.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statement Schedules:
Schedules not included herein are omitted because of the absence of the
conditions under which they are required or because the information required
by such omitted schedules is set forth in the financial statements or the
notes thereto.
(b) Exhibits:
The following exhibits are filed herewith unless otherwise indicated:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Stock Subscription Agreement among Irex, SPI and Evercore.
3.1 Restated Articles of Incorporation of the Company.
3.2 Bylaws of the Company.
4.1* Specimen Common Stock Certificate.
10.1 Form of Corporate Separation Agreement.
10.2 Form of Tax Sharing and Indemnification Agreement.
10.3 Form of Benefits Sharing Agreement.
10.4* Form of 1998 Specialty Products & Insulation Co. Stock Option Plan.
10.5 Form of Employment Agreement of Ronald L. King.
10.6 Form of Employment Agreement of Michael J. Hughes.
10.7 Form of Executive Employment Agreement.
10.8 Form of Evercore Note Purchase Agreement.
10.9 Form of Irex Note Agreement
10.10* [Credit Facility].
21.1* Subsidiaries of the Registrant.
23.1* Consent of Arthur Andersen LLP.
99.1* Consent of W. Kirk Liddell
99.2* Consent of John O. Shirk
99.3* Consent of William W. Adams
99.4* Consent of David G. Offensend
99.5* Consent of Christopher L. Ryan
99.6* Consent of John Birk
</TABLE>
- --------
*To be filed by amendment.
II-1
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this Form 10 to be signed on its behalf
by the undersigned, thereunto duly authorized.
Specialty Products & Insulation Co.
/s/ Ronald L. King
By: _________________________________
Ronald L. King President and Chief
Executive Officer
Date: November 4, 1998
II-2
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Specialty Products & Insulation Co.
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
Form 10.
Arthur Andersen LLP
Lancaster, Pennsylvania
November 4, 1998
II-3
<PAGE>
SCHEDULE II
SPECIALTY PRODUCTS & INSULATION CO. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT PROVISION BALANCE
BEGINNING CHARGED ACCOUNTS AT END
OF YEAR TO EXPENSE WRITTEN OFF OF YEAR
---------- ---------- ----------- -------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Allowance for Doubtful Accounts..... $700 $ 830 $(936) $594
YEAR ENDED DECEMBER 31, 1996
Allowance for Doubtful Accounts..... $594 $1,120 $(720) $994
YEAR ENDED DECEMBER 31, 1997
Allowance for Doubtful Accounts..... $994 $ 71 $(599) $466
</TABLE>
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE NO.
------- ----------- ------------
<C> <S> <C>
2.1 Stock Subscription Agreement among Irex, SPI and
Evercore ............................................
3.1 Restated Articles of Incorporation of the Company....
3.2 Bylaws of the Company................................
4.1* Specimen Common Stock Certificate....................
10.1 Form of Corporate Separation Agreement...............
10.2 Form of Tax Sharing and Indemnification Agreement....
10.3 Form of Benefits Sharing Agreement...................
10.4* Form of 1998 Specialty Products & Insulation Co.
Stock Option Plan...................................
10.5 Form of Employment Agreement of Ronald L. King.......
10.6 Form of Employment Agreement of Michael J. Hughes....
10.7 Form of Executive Employment Agreement ..............
10.8 Form of Evercore Note Purchase Agreement ............
10.9 Form of Irex Note Agreement .........................
10.10* [Credit Facility]....................................
21.1* Subsidiaries of the Registrant.......................
23.1* Consent of Arthur Anderson LLP.......................
99.1* Consent of W. Kirk Liddell ..........................
99.2* Consent of John O. Shirk.............................
99.3* Consent of William W. Adams..........................
99.4* Consent of David G. Offensend........................
99.5* Consent of Christopher L. Ryan.......................
99.6* Consent of John Birk.................................
</TABLE>
- --------
*To be filed by amendment
<PAGE>
EXHIBIT 2.1
================================================================================
STOCK SUBSCRIPTION AGREEMENT
Dated as of October 28, 1998
by and among
IREX CORPORATION
SPECIALTY PRODUCTS & INSULATION CO.
EVERCORE CAPITAL PARTNERS L.P.
EVERCORE CAPITAL PARTNERS (NQ) L.P.
and
EVERCORE CAPITAL OFFSHORE PARTNERS L.P.
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
ARTICLE I
<S> <C>
DEFINITIONS........................................................... 1
(S)1. Definitions............................................................. 1
ARTICLE II
ISSUANCE OF SHARES.................................................... 9
(S)2.1 Issuance of Shares...................................................... 9
(S)2.2 Price................................................................... 9
(S)2.3 Closing................................................................. 9
ARTICLE III
REPRESENTATIONS OF PARENT AND THE COMPANY............................. 9
(S)3. Representations of Parent and the Company............................... 9
(S)3.1 Authorization and Validity; Enforceability.............................. 9
(S)3.2 Existence and Good Standing............................................. 10
(S)3.3 Capital Stock........................................................... 10
(S)3.4 Subsidiaries and Investments............................................ 11
(S)3.5 Financial Statements and No Material Changes............................ 12
(S)3.6 Books and Records....................................................... 13
(S)3.7 Title to Properties; Encumbrances....................................... 13
(S)3.8 Owned Real Property..................................................... 13
(S)3.9 Leases.................................................................. 13
(S)3.10 Material Contracts...................................................... 14
(S)3.11 Consents and Approvals; No Violations................................... 15
(S)3.12 Litigation.............................................................. 16
(S)3.13 Taxes................................................................... 16
(S)3.14 Liabilities............................................................. 18
(S)3.15 Insurance............................................................... 18
(S)3.16 Intellectual Properties................................................. 18
(S)3.17 Compliance with Laws.................................................... 19
(S)3.18 Employment Relations.................................................... 19
(S)3.19 Employee Benefit Plans.................................................. 19
(S)3.20 Environmental Laws and Regulations...................................... 23
(S)3.21 Interests in Clients, Suppliers, Etc.................................... 24
(S)3.22 Compensation of Employees............................................... 24
(S)3.23 Permits................................................................. 24
(S)3.24 No Changes Since Balance Sheet Date..................................... 25
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(S)3.25 Year 2000 Reprogramming............................................... 25
(S)3.26 Suppliers............................................................. 26
(S)3.27 Product Liability Claims.............................................. 26
(S)3.28 Spin-Off.............................................................. 26
(S)3.29 Brokers' or Finders' Fees............................................. 26
ARTICLE IV
REPRESENTATIONS OF PURCHASERS....................................... 27
(S)4. Representations of Purchasers......................................... 27
(S)4.1 Existence and Good Standing of Each Purchaser; Power and Authority.... 27
(S)4.2 Consents and Approvals; No Violations................................. 27
(S)4.3 Purchase for Investment............................................... 28
(S)4.4 Brokers' or Finders' Fees............................................. 28
(S)4.5 Accredited Investors.................................................. 28
(S)4.6 Sufficient Funds...................................................... 28
(S)4.7 Restricted Securities................................................. 28
(S)4.8 Legend................................................................ 28
(S)4.9 Antitrust Compliance.................................................. 29
(S)4.10 No Plan to Acquire Common Stock....................................... 29
ARTICLE V
CONDUCT OF BUSINESS; EXCLUSIVE DEALING; REVIEW...................... 29
(S)5.1 Conduct of Business of the Company.................................... 29
(S)5.2 Exclusive Dealing..................................................... 30
(S)5.3 Review of the Company................................................. 31
(S)5.4 Best Efforts.......................................................... 31
ARTICLE VI
CONDITIONS TO PURCHASERS' OBLIGATIONS............................... 32
(S)6. Conditions to Purchasers' Obligations................................. 32
(S)6.1 Truth of Representations and Warranties............................... 32
(S)6.2 Performance of Agreements............................................. 32
(S)6.3 Opinion of Parent's Counsel........................................... 32
(S)6.4 Good Standing and Other Certificates.................................. 32
(S)6.5 No Material Adverse Change............................................ 33
(S)6.6 No Litigation Threatened.............................................. 33
(S)6.7 Employment Agreements................................................. 33
(S)6.8 Effectiveness of Registration Statement; Information Statement........ 34
(S)6.9 Governmental Approvals................................................ 34
(S)6.10 Board of Directors.................................................... 34
(S)6.11 Note Purchase Agreement............................................... 34
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
(S)6.12 Corporate Separation Agreement........................................ 34
(S)6.13 Tax Sharing and Indemnification Agreement............................. 34
(S)6.14 Benefits Sharing Agreement............................................ 34
(S)6.15 Certificate of Incorporation; By-Laws................................. 34
(S)6.16 Credit Agreement...................................................... 35
(S)6.17 Transaction Fee....................................................... 35
(S)6.18 Management Equity Participation....................................... 35
(S)6.19 Loan from Parent...................................................... 35
(S)6.20 Spin-Off.............................................................. 35
(S)6.21 Statutes.............................................................. 35
(S)6.22 Proceedings........................................................... 35
(S)6.23 Guaranties............................................................ 35
ARTICLE VII
CONDITIONS TO PARENT'S AND THE COMPANY'S OBLIGATIONS................. 36
(S)7. Conditions to Parent's and the Company's Obligations.................. 36
(S)7.1 Truth of Representations and Warranties............................... 36
(S)7.2 Performance of Agreements............................................. 36
(S)7.3 Note Purchase Agreement............................................... 36
(S)7.4 Governmental Approvals................................................ 36
(S)7.5 Option Plan........................................................... 36
(S)7.6 Statutes.............................................................. 36
(S)7.7 Proceedings........................................................... 36
(S)7.8 Purchaser Documents................................................... 37
(S)7.9 No Litigation Threatened.............................................. 37
(S)7.10 Effectiveness of Registration Statement............................... 37
(S)7.11 Credit Agreement...................................................... 37
(S)7.12 Loan from Purchasers.................................................. 37
(S)7.13 Opinions of Counsel................................................... 37
ARTICLE VIII
ADDITIONAL COVENANTS............................................... 38
(S)8.1 Board of Directors; Voting............................................ 38
(S)8.2 Sale of ECP Shares.................................................... 40
(S)8.3 ERISA Management Rights............................................... 41
(S)8.4 Limitations on Transactions with Affiliates........................... 42
(S)8.5 Limitation of Purchases of Common Stock.............................. 43
(S)8.6 Restrictions of Transfer.............................................. 43
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
ARTICLE IX
REGISTRATION RIGHTS................................................. 44
(S)9.1 Demand Registration.................................................. 44
(S)9.2 Piggy-back Registration.............................................. 46
(S)9.3 Indemnification by the Company....................................... 47
(S)9.4 Indemnification by Participating Persons............................. 48
(S)9.5 Notice of Claims, Etc................................................ 49
(S)9.6 Other Indemnification................................................ 50
(S)9.7 Contribution......................................................... 50
(S)9.8 Registration Covenants of the Company................................ 50
(S)9.9 Information.......................................................... 52
(S)9.10 Disposition.......................................................... 53
(S)9.11 Expenses............................................................. 53
(S)9.12 Participation in Offering............................................ 53
(S)9.13 Third Party Beneficiaries............................................ 53
(S)9.14 Confidentiality...................................................... 53
ARTICLE X
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION........................ 54
(S)10.1 Survival of Representations.......................................... 54
(S)10.2 Indemnification...................................................... 54
(S)10.3 Third Party Claims................................................... 55
(S)10.4 Exclusive Remedy..................................................... 56
ARTICLE XI
TERMINATION AND ABANDONMENT......................................... 56
(S)11.1 Termination.......................................................... 56
(S)11.2 Effect of Termination................................................ 57
(S)11.3 Term................................................................. 57
ARTICLE XII
MISCELLANEOUS....................................................... 57
(S)12.1 Knowledge of the Company............................................. 57
(S)12.2 Expenses............................................................. 57
(S)12.3 Governing Law........................................................ 57
(S)12.4 Jurisdiction; Agents for Service of Process.......................... 57
(S)12.5 Captions............................................................. 57
(S)12.6 Publicity............................................................ 57
(S)12.7 Notices.............................................................. 58
(S)12.8 Parties in Interest.................................................. 58
</TABLE>
(iv)
<PAGE>
<TABLE>
<S> <C>
(S)12.9 Counterparts........................................................ 58
(S)12.10 Entire Agreement.................................................... 58
(S)12.11 Amendments.......................................................... 58
(S)12.12 Severability........................................................ 59
(S)12.13 Third Party Beneficiaries........................................... 59
</TABLE>
(v)
<PAGE>
Exhibits
- --------
Exhibit A Purchasers
Exhibit B-1 Form of Opinion of Dechert Price & Rhoads
Exhibit B-2 Form of Opinion of James Hipolit, General Counsel of Parent
Exhibit B-3 Form of Tax Opinion of Dechert Price & Rhoads
Exhibit C-1 Form of Ronald L. King Employment Agreement
Exhibit C-2 Form of Michael Hughes Employment Agreement
Exhibit D Form of Note Purchase Agreement
Exhibit E Form of Corporation Separation Agreement
Exhibit F Form of Tax Sharing and Indemnification Agreement
Exhibit G Form of Benefits Sharing Agreement
Exhibit H-1 Form of Amended and Restated SP&I Certificate of Incorporation
Exhibit H-2 Form of Amended and Restated SP&I By-Laws
Exhibit I Form of Co-Investor Representation Letters
Exhibit J Form of Joinder Agreement
Exhibit K Form of Opinion of White & Case LLP
Schedules
- ---------
Schedule 3.3 Capital Stock
Schedule 3.4 Subsidiaries and Investments
Schedule 3.6 Books and Records
Schedule 3.7 Encumbrances
Schedule 3.9 Leases
Schedule 3.10 Material Contracts
Schedule 3.11 Consents and Approvals; Violations
Schedule 3.12 Litigation
Schedule 3.13 Tax Matters
Schedule 3.14 Liabilities
Schedule 3.15 Insurance Matters
Schedule 3.16 Intellectual Property
Schedule 3.18 Employment Relations
Schedule 3.19 Employee Benefits Matters
Schedule 3.20 Environmental Matters
Schedule 3.21 Interests in Clients, Supplies, etc.
Schedule 3.24 Certain Changes
Schedule 3.25 Year 2000 Matters
Schedule 5.1 Conduct of Business
Schedule 6.7 Certain Managers
Schedule 6.9 Purchasers' Approvals
Schedule 6.23 Guaranties to be Released
Schedule 7.4 Sellers' Approvals
(vi)
<PAGE>
STOCK SUBSCRIPTION AGREEMENT
STOCK SUBSCRIPTION AGREEMENT (this "Agreement") dated as of October
28, 1998, by and among Irex Corporation, a Pennsylvania corporation ("Parent"),
SPECIALTY PRODUCTS & INSULATION CO. a Pennsylvania corporation and a wholly
owned direct subsidiary of Parent (the "Company"; Parent and the Company are
sometimes referred to herein together as the "Selling Companies"), EVERCORE
CAPITAL PARTNERS L.P., EVERCORE CAPITAL PARTNERS (NQ) L.P., and EVERCORE CAPITAL
OFFSHORE PARTNERS L.P. (collectively "Purchasers").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Parent owns 100% of the issued and outstanding shares of the
common stock, par value $0.01 per share, of the Company ("Common Stock"); and
WHEREAS, Purchasers desire to subscribe for, and the Company desires
to issue, 7,113 shares (the "Shares") of Common Stock on the terms and subject
to the conditions set forth herein; and
WHEREAS, immediately prior to the consummation of the transactions
contemplated by this Agreement, Parent intends to distribute by means of a
dividend all of the shares of Common Stock owned by it to the shareholders of
Parent pro rata in accordance with their interests in Parent (the "Spin-Off");
and
WHEREAS, it is the mutual intention of the parties hereto that after
the consummation of the transactions contemplated hereby, that, after the
consummation of the transactions contemplated by this Agreement, Purchasers
will, collectively, own approximately 45% of the issued and outstanding Common
Stock, and the remaining shares of Common Stock will be owned by the
shareholders of Parent.
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PREMISES AND COVENANTS
CONTAINED HEREIN AND INTENDING TO BE LEGALLY BOUND HEREBY, IT IS AGREED:
ARTICLE I
DEFINITIONS
-----------
(S)1. Definitions. When used in this Agreement, the following terms
-----------
shall have the respective meanings specified therefor below (such meanings to be
equally applicable to both the singular and plural forms of the terms defined).
<PAGE>
"Affiliate" of any Person shall mean any Person directly or indirectly
---------
controlling, controlled by, or under common control with, such Person; provided
that, for the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or partnership interests, by contract or otherwise.
"Affiliate Transaction" shall have the meaning assigned to such term
---------------------
in Section 8.4.
"Agreement" shall have the meaning assigned to such term in the
---------
preamble to this Agreement.
"Balance Sheet" shall have the meaning assigned to such term in
-------------
Section 3.5.
"Balance Sheet Date" shall have the meaning assigned to such term in
------------------
Section 3.5.
"Benefits Sharing Agreement" shall have the meaning assigned to such
--------------------------
term in Section 6.14.
A "business day" shall mean any day, other than a Saturday, Sunday or
------------
a day on which banks located in New York, New York shall be authorized or
required by law to close.
"Cause" shall have the meaning assigned to such term in Section 8.1.
-----
"Closing" shall have the meaning assigned to such term in Section 2.3.
-------
"Closing Date" shall have the meaning assigned to such term in Section
------------
2.3.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
----
time to time, and the regulations promulgated and the rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement.
"Commission" shall mean the United States Securities and Exchange
----------
Commission or any other Federal agency administering the Securities Act, the
Exchange Act and other Federal securities laws.
"Common Stock" shall have the meaning assigned to such term in the
------------
first recital of this Agreement.
"Company" shall have the meaning assigned to such term in the preamble
-------
to this Agreement.
"Company Intellectual Property" shall have the meaning assigned to
-----------------------------
such term in Section 3.16.
"Company Options" shall have the meaning assigned to such term in
---------------
Section 3.3.
-2-
<PAGE>
"Company Property" shall mean any real property and improvements owned
----------------
(directly, indirectly, or beneficially), leased, used, operated or occupied by
the Company and its subsidiaries.
"Condition" of any Person shall mean the business, assets,
---------
liabilities, operations, results of operations or condition (financial or
otherwise) of such Person.
"Continuing Director" shall mean any Director (who is not an officer
-------------------
of the Company or a Person designated by Purchasers to serve as a Director of
the Company) who is either a Director of the Company immediately following the
Closing Date or is designated for election by the Continuing Directors or
elected by the Directors to the Board of Directors of the Company with the
affirmative vote of a majority of the Continuing Directors of the Company who
were Directors of the Company at the time of such nomination or election.
"Corporate Separation Agreement" shall have the meaning assigned to
------------------------------
such term in Section 6.12.
"Demanding Person" shall mean a Purchaser, any other ECP Person or a
----------------
Qualified Shareholder Group which has requested a Demand Registration pursuant
to Section 9.1(a) or 9.1(b) as the case may be.
"Demand Registration" shall mean a Purchaser Demand Registration or a
-------------------
Shareholder Demand Registration.
"ECP Person" shall mean each Purchaser, any Affiliate of any of them
----------
which acquires Registrable Securities from any such Purchaser, and any other
Person acquiring Registrable Securities from any ECP Person other than in an
offering registered under the Securities Act or in a sale made pursuant to Rule
144 under the Securities Act (or any successor provision), in each case for so
long as such Person holds Registrable Securities.
"Eligible Person" shall mean any Purchaser, any other ECP Person or
---------------
any Qualified Shareholder Group which such Qualified Shareholder Group has
previously identified itself to the Company.
"Employee Benefit Plans" shall have the meaning assigned to such term
----------------------
in Section 3.19(a).
"Environmental Claims" shall mean any and all administrative,
--------------------
regulatory or judicial actions, suits, written demands, demand letters, written
claims, liens, written notices of noncompliance or violation, investigations or
proceedings relating in any way to any Environmental Law or any permit issued
under any such Environmental Law, (for purposes of this definition, "Claims")
including, without limitation (i) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law and (ii)
any and all Claims, by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment.
-3-
<PAGE>
"Environmental Law" shall mean any federal, state or local statute,
-----------------
law, rule, regulation, ordinance or code or rule of common law in effect and in
each case as amended as of the date hereof and the Closing Date, and any
judicial or administrative interpretation thereof as of the date hereof and the
Closing Date, including any judicial or administrative order, consent decree or
judgment, relating to the environment, health, safety or Hazardous Materials,
including without limitation the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et
seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section
6901 et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C.
Section 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et
seq.; the Clean Air Act, 42 U.S.C. (S) 7401 et seq.; the Safe Drinking Water
Act, 42 U.S.C. (S) 300f et seq.; the Oil Pollution Act of 1990, 33 U.S.C.
(S)2701 et seq.; and their state and local counterparts and equivalents.
"ERISA" shall have the meaning assigned to such term in Section
-----
3.19(a).
"ERISA Affiliate" shall mean any corporation or trade or business
---------------
(whether or not incorporated) which is treated as a single employer with the
Company or any of its subsidiaries under Section 414 of the Code.
"ERISA Partnerships" shall have the meaning assigned to such term in
------------------
Section 8.3.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
-----------
amended, and the rules and regulations promulgated thereunder.
"Fee Letter" shall have the meaning assigned to such term in Section
----------
6.17.
"Hazardous Materials" shall mean (i) any petroleum or petroleum
-------------------
products, radioactive materials, urea formaldehyde foam insulation, transformers
or other equipment that contain dielectric fluid containing levels of
polychlorinated biphenyls, and radon gas; (ii) any chemicals, materials or
substances defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants," or words
of similar import, under any applicable Environmental Law; and (iii) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any governmental authority.
"Indemnified Party" shall have the meaning assigned to such term in
-----------------
Section 10.3.
"Indemnifying Party" shall have the meaning assigned to such term in
------------------
Section 10.3.
"Independent Director" shall mean (i) for purposes of approving an
--------------------
Affiliate Transaction with any Person, any Director of the Company who is not an
officer, director, general partner, member, shareholder, nominee or employee of
such Person (or any Affiliate of such Person) and (ii) for all other purposes,
any Director of the Company who is not an officer, employee or Significant
Shareholder of the Company.
"Intellectual Property" shall mean domestic and foreign patents,
---------------------
patent applications, registered and unregistered trademarks, trade names,
internet domain names
-4-
<PAGE>
and service marks, registered and unregistered copyrights, computer software
programs, data bases, inventions, trade secrets and proprietary information of
any type, whether or not written.
"Irex Notes" shall have the meaning assigned to such term in Section
----------
6.19.
"IRS" shall have the meaning assigned to such term in Section 3.19(c).
---
"Junior Notes" shall have the meaning assigned to such term in Section
------------
6.11.
"Liens" shall mean liens, security interests, options, rights of first
-----
refusal, easements, mortgages, charges, indentures, deeds of trust, rights of
way, restrictions on the use of real property, encroachments, licenses to third
parties, leases to third parties, security agreements, or any other encumbrances
and other restrictions or limitations on use of real or personal property or
irregularities in title thereto.
"Loss" shall have the meaning assigned to such term in Section 10.2.
----
"Note Purchase Agreement" shall have the meaning assigned to such term
-----------------------
in Section 6.11.
"Option Plan" shall have the meaning assigned to such term in Section
-----------
6.18.
"Options" shall have the meaning assigned to such term in Section 3.4.
-------
"Outstanding Voting Securities" means at any time the issued and
------------------------------
outstanding Voting Securities of the Company.
"Parent" shall have the meaning assigned to such term in the preamble
------
to this Agreement.
"Parent Indemnitee" shall have the meaning assigned to such term in
-----------------
Section 10.2.
"Participating Counsel" shall have the meaning assigned to such term
---------------------
in Section 9.8.
"Participating Person" shall mean a Demanding Person and/or an
-------------------
Eligible Person, as the context may require, who is participating in a
registration of securities being effected by the Company pursuant to Article IX
of this Agreement.
"PBGC" shall have the meaning assigned to such term in Section 3.19.
----
"Permit" shall mean any Federal, state, local, foreign or other
------
governmental or other third party permit (including occupancy permit),
certificate, license, consent and authorization held by the Company or its
subsidiaries.
"Permitted Liens" shall mean (i) Liens reflected in the Balance Sheet,
---------------
(ii) Liens for current taxes or levies on property not yet due and delinquent,
and (iii) Liens which, individually
-5-
<PAGE>
or in the aggregate, would not have a material adverse effect on the Condition
of the Company and its subsidiaries taken as a whole.
"Permitted Transfer" shall mean any Transfer or series of related
------------------
Transfers (i) pursuant to Article IX of this agreement or any other broadly
distributed underwritten offering of the Common Stock, (ii) in a transaction
pursuant to Section 8.2 of this Agreement or any other tender offer or merger,
in each case, in which the tendering party or acquiror offers to acquire 90% or
more of the issued and outstanding Common Stock and in which all holders of
Common Stock are entitled to participate on identical terms to the Purchasers,
(iii) of Common Stock effected on a national securities exchange or over the
facilities of an automated dealer quotation system, (iv) of an aggregate amount
of Common Stock not greater than 10% of the outstanding Common Stock; it being
understood that, for the avoidance of doubt, no more than 10% of the issued and
outstanding Common Stock may be Transferred in all Permitted Transfers pursuant
to this clause (iv), taken together, or (v) taking place after the fifth
anniversary of the Closing Date.
"Person" shall mean and include an individual, a partnership, a joint
------
venture, a corporation, a limited liability company, a limited liability
partnership, a trust, an incorporated organization and a government or any
department or agency thereof.
"Piggy-back Registration" shall have the meaning assigned to such term
-----------------------
in Section 9.2.
"Pre-Closing Periods" shall have the meaning assigned to such term in
-------------------
Section 3.13(b).
"Purchaser Demand Registration" shall have the meaning assigned to
-----------------------------
such term in Section 9.1
"Purchaser Indemnitee" shall have the meaning assigned to such term in
--------------------
Section 10.2.
"Purchasers" shall have the meaning assigned to such term in the
----------
preamble to this Agreement.
"Qualified Public Offering" shall mean an underwritten public offering
-------------------------
of Common Stock pursuant to an effective registration statement under the
Securities Act (other than (i) a registration on Forms S-8 or S-4 or any
successor form or any other registration relating to a special offering of
Common Stock to the Company's employees or security holders, or (ii) a
registration statement relating to a Unit Offering (as defined below)) covering
shares of Common Stock which (1) is consummated after the Closing Date (2)
generates at least $20 million in gross proceeds, (3) pursuant to which Common
Stock equal to or greater than 20% of the issued and outstanding Common Stock is
sold to the general public, and (4) pursuant to which the Common Stock is listed
on a national securities exchange. For purposes of this Agreement, "Unit
Offering" shall mean an underwritten public offering of a combination of debt
and Common Stock of the Company in which (x) not more than 10% of the gross
proceeds received from the sale of such
-6-
<PAGE>
securities is attributed to Common Stock, and (y) after giving effect to such
offering the Common Stock is not required to be registered under the Securities
Act.
"Qualified Shareholder Group" shall mean one or more shareholders of
---------------------------
the Company who, (i) collectively, are the beneficial holders of 10% or more of
the issued and outstanding shares of Common Stock, the disposition of which such
shares of Common Stock requires registration under the Securities Act or the
applicable rules and regulations thereunder (or any interpretation thereof by
the Commission staff) and (ii) have notified the Company that they constitute a
"Qualified Shareholder Group" and have provided the Company with the names or
identities of the members of such group and evidence reasonably satisfactory to
the Company that such group meets the qualifications set forth in the foregoing
clause (i).
"Records" shall have the meaning assigned to such term in Section 9.8.
-------
"Registrable Securities" shall mean the Common Stock and any
----------------------
securities of the Company which may be issued or distributed in respect thereof,
by way of dividend, stock split, or other distribution, recapitalization,
merger, consolidation, reclassification or other reorganization or otherwise. A
Registrable Security shall cease to be a Registrable Security when: (a) a
registration statement with respect to the sale of such security shall have
become effective under the Securities Act and such security shall have been
disposed of in accordance with such registration statement; (b) such security
shall have been distributed to the public pursuant to Rule 144 under the
Securities Act (or any successor provision); (c) such security shall have been
otherwise transferred, new certificates for such security not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent distribution of such security shall not require registration or
qualification of such security under the Securities Act or any similar state law
then in force; or (d) such security shall have ceased to be outstanding.
"Registration Statement" shall have the meaning assigned to such term
----------------------
in Section 9.8.
"Release" shall mean the disposing, discharging, injecting, spilling,
-------
leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing and
the like, into or upon any land or water or air, or otherwise entering into the
environment.
"Requesting Holders" shall have the meaning assigned to such term in
------------------
Section 9.2.
"Returns" shall have the meaning assigned to such term in Section
-------
3.13(a).
"Section 3.20(f) Breach" shall have the meaning assigned to such term
----------------------
in Section 10.2.
"Securities Act" shall mean the Securities Act of 1933, as amended and
--------------
the rules and regulations promulgated thereunder.
"Selling Companies" shall have the meaning ascribed to that term in
-----------------
the preamble to this Agreement.
-7-
<PAGE>
"Shares" shall have the meaning assigned to such term in the second
------
recital of this Agreement.
"Significant Shareholder" shall mean, with respect to any Person, any
-----------------------
other Person holding, directly or indirectly, beneficially or of record 5% or
more of the securities of the subject Person generally entitled to vote for the
election of directors; provided that any Person, for purposes of this definition
shall be deemed to beneficially own the securities held in trusts or custodial
accounts established under employee benefit plans established for the benefit of
such Person's employees.
"Spin-Off" shall have the meaning ascribed to that term in the
--------
preamble to this Agreement.
"Specified Taxes" shall mean any liability imposed on the Company or
---------------
its subsidiaries (a) under Treasury Regulations Section 1.1502-6 or any
analogous provision under state, local or foreign law with respect to any
taxable year or period to the extent such liability is not attributable to the
Tax Items of the Company or its subsidiaries; or (b) that results from an
adjustment to deductions for parent overhead expense allocations.
"Subsidiary" shall have the meaning assigned to such term in Section
----------
3.4.
"Subsidiary Options" shall have the meaning assigned to such term in
------------------
Section 3.4.
"Taxes" means all taxes, assessments, charges, duties, fees, levies or
-----
other governmental charges, including, without limitation, all Federal, state,
local, foreign and other income, franchise, profits, capital gains, capital
stock, transfer, sales, use, occupation, property, excise, severance, windfall
profits, stamp, license, payroll, withholding and other taxes, assessments,
charges, duties, fees, levies or other governmental charges of any kind
whatsoever (whether payable directly or by withholding and whether or not
requiring the filing of a Tax Return), all estimated taxes, deficiency
assessments, additions to tax, penalties and interest and shall include any
liability for such amounts as a result either of being a member of a combined,
consolidated, unitary or affiliated group or of a contractual obligation to
indemnify any person or other entity.
"Tax Item" shall mean any item of income, gain, loss, deduction,
--------
credit, recapture of credit, or any other item which may have the effect of
increasing or decreasing Taxes paid or payable.
"Tax Sharing Agreement" shall have the meaning assigned to such term
---------------------
in Section 6.13.
"Transaction" shall have the meaning assigned to such term in Section
-----------
8.2.
"Transaction Agreements" means this Agreement, the Note Purchase
----------------------
Agreement, the Junior Notes, the Corporate Separation Agreement, the Tax Sharing
Agreement, the Benefits Sharing Agreement and the Fee Letter.
-8-
<PAGE>
"Transfer" shall have the meaning specified in Section 8.6.
--------
"VEBAs" shall have the meaning assigned to such term in Section 3.19.
-----
"Voting Debt" shall have the meaning assigned to such term in Section
-----------
3.3.
"Voting Securities" means the Common Stock and all other securities of
-----------------
the Company having the power generally to vote for the election of directors.
"WARN" shall have the meaning assigned to such term in Section 3.18.
----
ARTICLE II
ISSUANCE OF SHARES
------------------
(S)2.1 Issuance of Shares. Subject to the terms and conditions set
------------------
forth in this Agreement, the Company agrees to sell to each Purchaser, and each
Purchaser severally agrees to purchase, on the Closing Date, the number of
Shares set forth opposite the name of such Purchaser on Exhibit A attached
---------
hereto.
(S)2.2 Price. In full consideration for the purchase by Purchasers
-----
of the Shares, Purchasers shall pay to the Company, on the Closing Date
simultaneously with the issuance of the Shares to Purchasers, an amount equal to
$15,353,125.98, by wire transfer of immediately available funds to the account
or accounts identified to Purchasers at least two business days prior to the
Closing Date. Upon payment of the purchase price, certificates representing the
number of Shares purchased by each Purchaser shall be issued to such Purchasers.
(S)2.3 Closing. The sale referred to in Section 2.1 (the "Closing")
-------
shall take place at 10:00 A.M. New York City time at the offices of White & Case
LLP on November 12, 1998, or at such other time and date (not later than January
31, 1999) as the parties hereto shall designate in writing. Such date is herein
referred to as the "Closing Date."
ARTICLE III
-----------
REPRESENTATIONS OF PARENT AND THE COMPANY
-----------------------------------------
(S)3. Representations of Parent and the Company. Parent and the
-----------------------------------------
Company represent and warrant, jointly and severally, as follows:
(S)3.1 Authorization and Validity; Enforceability. (a) Each of
------------------------------------------
Parent and the Company has the requisite corporate power and authority to
execute and deliver this Agreement and each other Transaction Agreement to which
it is a party and to perform its obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement and each other Transaction
Agreement to which it is a party by each of Parent and the Company and the
-9-
<PAGE>
performance by each of them of their respective obligations hereunder and
thereunder have been duly authorized and approved by such entity's Board of
Directors and, except for (i) the declaration by the Board of Directors of
Parent of the distribution of Common Stock in the Spin-Off, (ii) the declaration
by the Board of Directors of the Company of a distribution of an amount not to
exceed $10,500,000 (which amount shall be in cash; provided, that, $3,500,000 of
such distribution shall be made in an equivalent aggregate principal amount of
Irex Notes) by the Company to Parent as the sole shareholder of the Company and
(iii) the adoption of the Option Plan and the issuance thereunder of the
employee stock options contemplated hereby, no other corporate action on the
part of Parent or the Company is necessary to authorize the execution, delivery
and performance of this Agreement and each other Transaction Agreement to which
it is a party.
(b) This Agreement and each other Transaction Agreement to which it is
a party has been or will be, as the case may be, duly executed and delivered by
each of Parent and the Company and, assuming the due execution and delivery
hereof and thereof by the other parties thereto, this Agreement and each other
Transaction Agreement to which Parent or the Company is a party constitutes or,
in the case of the other Transaction Agreements to which Parent or the Company
are a party, will constitute when executed by Parent or the Company, the valid
and binding obligation of Parent or the Company, as the case may be, enforceable
against each of them in accordance with their terms, except to the extent that
their enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and to general equitable principles.
(S)3.2 Existence and Good Standing. (a) Parent is a corporation
---------------------------
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Parent has the power to own, lease and operate its
property and to carry on its business as now being conducted. Parent is duly
qualified to do business and is in good standing in each jurisdiction in which
the character or location of the properties owned, leased or operated by Parent
or the nature of the business conducted by Parent makes such qualification
necessary, except for such jurisdictions where the failure to be so qualified or
licensed and in good standing would not have a material adverse effect on (x)
the Condition of the Company and its subsidiaries taken as a whole or (y) the
ability of Parent or the Company to consummate the transactions contemplated by
this Agreement.
(b) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the Commonwealth of Pennsylvania. The Company
has the power to own, lease and operate its property and to carry on its
business as now being conducted. The Company is duly qualified to do business
and is in good standing in each jurisdiction in which the character or location
of the properties owned, leased or operated by the Company or the nature of the
business conducted by the Company makes such qualification necessary, except for
such jurisdictions where the failure to be so qualified or licensed and in good
standing would not have a material adverse effect on (x) the Condition of the
Company and its subsidiaries, taken as a whole or (y) the ability of the Company
to consummate the transaction contemplated by this Agreement.
(S)3.3 Capital Stock. (a) The Company has an authorized
-------------
capitalization consisting of (i) 15,000,000 shares of Common Stock, of which
10,000 shares are issued and outstanding as
-10-
<PAGE>
of the date hereof and 15,784 shares will be issued and outstanding immediately
after the Closing and no shares are or will be held in the Company's treasury
and (ii) 15,000,000 shares of preferred stock, par value $0.01 per share, of
which no shares are issued or outstanding. All such outstanding shares have been
duly authorized and validly issued and are fully paid and nonassessable and are
not subject to, nor were they issued in violation of, any preemptive rights.
Except as described above or as set forth on Schedule 3.3, no shares of capital
------------
stock of the Company are authorized, issued or outstanding and there are no
outstanding or authorized options, warrants, rights, subscriptions, claims of
any character, agreements, obligations, convertible or exchangeable securities,
or other commitments contingent or otherwise, relating to capital stock of the
Company, pursuant to which the Company is or may become obligated to issue or
purchase shares of Common Stock, any other shares of capital of the Company or
any securities convertible into, exchanged for, or evidencing the right to
subscribe for, any shares of the capital stock of the Company (the "Company
Options"). The Company has no authorized or outstanding bonds, debentures, notes
or other indebtedness the holders of which have the right to vote (or
convertible or exchangeable into or exercisable for securities having the right
to vote) with the shareholders of the Company or any of its subsidiaries on any
matter ("Voting Debt").
(b) On the Closing Date, after giving effect to the transactions
contemplated hereby, there shall be issued and outstanding 15,784 shares of
Common Stock and no shares of the Company's preferred stock. On the Closing
Date, the Shares will constitute at least 45% of the issued and outstanding
Common Stock on a fully-diluted basis. The issuance and delivery by the Company
of the Shares to Purchasers in accordance with the terms of this Agreement will
vest in Purchasers valid title thereto, free and clear of any and all Liens or
other adverse claims, except for restrictions on resale imposed by the
Securities Act and other applicable securities laws. The Shares, upon issuance
and delivery to Purchasers, will be duly authorized and validly issued, fully
paid and nonassessable and shall not be subject to, or have been issued in
violation of, any preemptive rights.
(S)3.4 Subsidiaries and Investments. (a) Set forth in Schedule 3.4
---------------------------- ------------
attached hereto is a list of each Person in which the Company owns, directly or
indirectly, any equity security (a "subsidiary"). Each subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation (as set forth on Schedule 3.4), and has
------------
all requisite power to own, lease and operate its property and to carry on its
business as now being conducted.
(b) Set forth on Schedule 3.4 is a list of jurisdictions in which each
-------------
subsidiary is qualified or licensed to do business. Each subsidiary is duly
qualified to do business and is in good standing in each jurisdiction in which
the character or location of the properties owned, leased or operated by such
subsidiary or the nature of the business conducted by such subsidiary make such
qualification necessary, except for such jurisdictions where the failure to be
so qualified or licensed and in good standing would not have a material adverse
effect on the Condition of the Company and its subsidiaries, taken as a whole.
(c) Each subsidiary has the capitalization set forth in Schedule 3.4.
------------
All of the outstanding shares of capital stock or other equity securities, as
the case may be, of each subsidiary have been duly authorized and validly
issued, are fully paid and nonassessable and are
-11-
<PAGE>
not subject to, nor were they issued in violation of, any preemptive rights, and
are owned, of record and beneficially, by the Company or a subsidiary of the
Company, free and clear of all Liens. There are no outstanding options,
warrants, rights, subscriptions, claims of any character, agreements,
obligations, convertible or exchangeable securities, or other commitments,
contingent or otherwise relating to the capital stock or other equity
securities, as the case may be, of any subsidiary of a Company, pursuant to
which such subsidiary, the Company or any other subsidiary of the Company is or
may become obligated to issue or purchase any shares of capital stock or other
equity securities of such subsidiary or any securities convertible into,
exchangeable for, or evidencing the right to subscribe for, any capital stock or
other equity securities of such subsidiary ("Subsidiary Options" and
collectively with the Company Options, the "Options") other than such rights
granted to the Company or a subsidiary of the Company. The subsidiaries of the
Company have no authorized or outstanding Voting Debt.
(d) Neither the Company nor any subsidiary owns, directly or
indirectly, any capital stock or other equity or ownership or proprietary
interest in any corporation, partnership, association, trust, joint venture or
other entity except as set forth on Schedule 3.4.
------------
(e) Except as set forth in Schedule 3.4 and except for restrictions
------------
imposed by applicable law, there are no restrictions of any kind which prevent
or restrict the payment of dividends by any of the Company's subsidiaries.
(S)3.5 Financial Statements and No Material Changes. (a) Parent and
--------------------------------------------
the Company have heretofore furnished Purchasers with the consolidated balance
sheets of the Company and its subsidiaries as of December 31, 1997, December 31,
1996, and December 31, 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for the years then ended, all certified by
Arthur Andersen, LLP, and the unaudited consolidated balance sheet of the
Company and its subsidiaries as at June 30, 1998, and the related unaudited
consolidated statements of income, shareholders' equity, and cash flows for the
six months then ended (the unaudited consolidated balance sheet of the Company
and its subsidiaries as at June 30, 1998, (the "Balance Sheet Date") is
hereinafter referred to as the "Balance Sheet"). Such financial statements,
including the footnotes thereto, except as indicated therein, have been prepared
in accordance with generally accepted accounting principles consistently
followed throughout the periods indicated.
(b) The audited balance sheet of the Company as of December 31, 1997,
fairly presents, in all material respects, the financial condition of the
Company and its subsidiaries at the date thereof and the related statements of
income, shareholders' equity, and cash flows fairly present, in all material
respects, the results of the operations of the Company and its subsidiaries and
the changes in their financial position for the period indicated.
(c) Subject to normal year-end adjustments, the Balance Sheet fairly
presents, in all material respects, the financial position of the Company and
its subsidiaries as of the date thereof and the related statements of income,
shareholders' equity, and cash flows fairly present, in all material respects,
the results of operations and cash flows of the Company and its subsidiaries and
the changes in their financial position for the period indicated. Such other
balance sheets of the Company referred to in (a) above fairly present, in all
material respects, the
-12-
<PAGE>
financial condition of the Company and its subsidiaries at the respective dates
thereof and the related statements of income, shareholders' equity, and cash
flows fairly present, in all material respects, the results of the operations of
the Company and its subsidiaries and the changes in their financial position for
the periods indicated. Since the Balance Sheet Date there has been no material
adverse change in the Condition of the Company or its subsidiaries, taken as a
whole.
(S)3.6 Books and Records. The respective minute books of Parent and
-----------------
the Company and its subsidiaries, as previously made available to Purchasers and
their representatives, contain accurate records of all meetings of, and
corporate action taken by the respective shareholders and Boards of Directors of
Parent and of the Company and each subsidiary of the Company (including action
taken by written consent). Except as set forth on Schedule 3.6 attached hereto,
------------
neither the Company nor any subsidiary has any of its records, systems,
controls, data or information recorded, stored, maintained, operated or
otherwise wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Company or a subsidiary.
(S)3.7 Title to Properties; Encumbrances. Except as set forth on
---------------------------------
Schedule 3.7 attached hereto and except for properties and assets reflected in
- ------------
the Balance Sheet, or acquired since the Balance Sheet Date, which have been
sold or otherwise disposed of in the ordinary course of business, the Company
and each subsidiary has good and valid title to (a) all of its properties and
assets (real and personal, tangible and intangible), including, without
limitation, all of the properties and assets reflected in the Balance Sheet,
except as indicated in the notes thereto and (b) all of the properties and
assets purchased by the Company or any subsidiary since the Balance Sheet Date;
in each case free and clear of all Liens except Permitted Liens. All of the
tangible personal property owned by the Company and used in its business is in
good operating condition and repair, ordinary wear and tear excepted, and, in
the aggregate, is adequate and suitable for the purposes for which it is
presently being used except for such deficiencies as would not have,
individually or in the aggregate, a material adverse effect on the Condition of
the Company and its subsidiaries, taken as a whole.
(S)3.8 Owned Real Property. Neither the Company nor any of its
-------------------
subsidiaries owns any real property.
(S)3.9 Leases. Schedule 3.9 attached hereto contains an accurate and
------ ------------
complete list of all leases to which the Company or any subsidiary is a party
(as lessee or lessor) with an annual rental obligation in excess of $25,000.
Each lease set forth on Schedule 3.9 (or required to be set forth on Schedule
------------ --------
3.9) is in full force and effect; all rents and additional rents due to date on
- ---
each such lease have been paid; in each case, the lessee has been in peaceable
possession since the commencement of the original term of such lease and is not
in default thereunder and no waiver, indulgence or postponement of the lessee's
obligations thereunder has been granted by the lessor; and there exists no event
of default or event, occurrence, condition or act (including the consummation of
the Spin-Off and the purchase of the Shares hereunder) of, or on the part of,
the Company or, to the knowledge of the Company, of, or on the part of, any
lessor or landlord under any such lease, which, with the giving of notice, the
lapse of time or the happening of any further
-13-
<PAGE>
event or condition, would become a default or event of default under any such
lease. Neither the Company nor any subsidiary has violated any of the terms or
conditions under any such lease in any material respect, and, to the knowledge
of the Company, all of the covenants to be performed by any other party under
any such lease have been fully performed. The property leased by the Company or
any subsidiary is in a state of good maintenance and repair and is adequate and
suitable for the purposes for which it is presently being used. The Company and
its subsidiaries have good and valid leasehold interests in all leased real
property described in each lease set forth in Schedule 3.9 (or required to be
------------
set forth in Schedule 3.9), free and clear of any and all Liens, except for
------------
Permitted Liens.
(S)3.10 Material Contracts. (a) Except as set forth on Schedule
------------------ --------
3.10 attached hereto, neither the Company nor any subsidiary is a party to or is
- ----
bound by:
(i) any agreement, contract or commitment relating to the
employment of any Person by the Company or any subsidiary pursuant to which such
Person is or may become entitled to receive aggregate compensation during the
current fiscal year in excess of $75,000, or any bonus, deferred compensation,
pension, profit sharing, stock option, employee stock purchase, retirement or
other employee benefit plan;
(ii) any agreement, indenture or other instrument which contains
restrictions with respect to payment of dividends or any other distribution in
respect of its capital stock;
(iii) any agreement, contract or commitment relating to capital
expenditures in excess of $50,000 individually or $500,000 in the aggregate;
(iv) any loan (other than (x) accounts receivable from trade debtors
in the ordinary course of business and (y) loans and advances to employees of
the Company not exceeding $100,000 in the aggregate) or advance to, or
investment in, any Person or any agreement, contract or commitment relating to
the making of any such loan, advance or investment;
(v) any agreement evidencing borrowings by the Company or any
subsidiary, including, but not limited to, loan and credit agreements,
promissory notes and other instruments of indebtedness, other than any such
agreements which do not involve an obligation of the Company and its
subsidiaries in excess of $100,000, individually, or $500,000 in the aggregate;
(vi) any guarantee or other contingent liability in respect of any
indebtedness or obligation of any Person (other than the endorsement of
negotiable instruments for collection in the ordinary course of business);
(vii) any management service, consulting or any other similar type
contract or agreement, other than any such contracts or agreements which do not
involve annual payments by the Company or its subsidiaries in excess of $100,000
individually or $500,000 in the aggregate;
(viii) any agreement, contract or commitment limiting the ability of
the Company or any subsidiary to engage in any line of business or to compete
with any Person;
-14-
<PAGE>
(ix) any agreement, contract or commitment with any officer or
director of the Company, with Parent or with any Affiliate of the Company (other
than a subsidiary of the Company);
(x) any agreement, contract or commitment not in the ordinary
course of business and involving total annual payments in excess of $100,000;
(xi) any written or, to the knowledge of the Company, oral warranty,
guaranty or other similar undertaking with respect to any contractual
performance extended by the Company or any subsidiary or any product sold,
resold or the sale of which was brokered by the Company or any subsidiary;
(xii) any supply contract, requirements contract, output contract or
distribution contract involving annual payments of $100,000;
(xiii) any agreement, contract or commitment which involves annual
payments of $100,000 or more and is not cancelable without penalty within 30
days;
(xiv) any other agreement, contract or commitment not described in
clauses (i) through (xiii) of this Section 3.10(a) which would have a material
adverse effect on the Condition of the Company and its subsidiaries, taken as a
whole; or
(xv) any amendment, modification or supplement in respect of, or any
written or, to the knowledge of the Company, oral agreement to amend, modify or
supplement, any of the foregoing.
(b) Except as set forth on Schedule 3.10, each contract or agreement
set forth on Schedule 3.10 (or required to be set forth on Schedule 3.10) is in
------------- -------------
full force and effect and there exists no material default or event of default
or event, occurrence, condition or act (including, without limitation, the
consummation of the Spin-Off and the purchase of the Shares hereunder) which,
with the giving of notice, the lapse of time or the happening of any other event
or condition, would become a material default or event of default thereunder
except for such defaults or events of default as would not have, individually or
in the aggregate, a material adverse effect on the Condition of the Company and
its subsidiaries taken as a whole. Except as set forth on Schedule 3.10, the
-------------
Company has no plan or expectation to amend, modify or supplement any agreement,
contract or commitment set forth on Schedule 3.10 (or required to be set forth
-------------
on Schedule 3.10) in any way that would materially affect the Condition of the
-------------
Company. Except as set forth on Schedule 3.10, neither the Company nor any
-------------
subsidiary has violated any of the terms or conditions of any contract or
agreement set forth on Schedule 3.10 (or required to be set forth on Schedule
------------- --------
3.10) in any material respect, and, to the knowledge of the Company, no other
- ----
party thereto has materially violated, or is in material violation of, any
covenant to be performed by such party under any such contract agreement.
(S)3.11 Consents and Approvals; No Violations. Other than as set
-------------------------------------
forth on Schedule 3.11 attached hereto, the execution and delivery of this
-------------
Agreement by each of Parent and the Company and the consummation by each of
Parent and the Company of the transactions
-15-
<PAGE>
contemplated hereby will not: (1) violate any provision of the articles of
incorporation or by-laws of Parent or the Company or any of their respective
subsidiaries; (2) violate any statute, ordinance, rule, regulation, order or
decree of any court or of any governmental or regulatory body, agency or
authority applicable to Parent or the Company or any of their respective
subsidiaries or by which any of their respective properties or assets may be
bound; (3) require Parent or the Company or any of their respective subsidiaries
to make any filing with or obtain any permit, consent or approval of or give any
notice to, any governmental or regulatory body, agency or authority; or (4)
result in a violation or breach of, conflict with, constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation, payment or acceleration) under, or result in the
creation of any Lien upon any of the properties or assets of Parent or the
Company or any of their respective subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
franchise, permit, agreement, lease, franchise agreement or other instrument or
obligation to which Parent or the Company or any of their respective
subsidiaries is a party, or by which it or any of their respective properties or
assets is bound except in the case of clauses (3) and (4) above, for such
violations, filings, permits, consents, approvals, notices, breaches or
conflicts which would not have a material adverse effect on (i) the Condition of
the Company and its subsidiaries, taken as a whole, or (ii) the ability of
Parent or the Company to consummate the transactions contemplated hereby or to
perform their obligations hereunder.
(S)3.12 Litigation. Except as set forth on Schedule 3.12 attached
---------- -------------
hereto and except with respect to environmental matters (which are covered in
Section 3.20), there is no action, suit, proceeding at law or in equity,
arbitration or administrative or other proceeding by or before (or to the
knowledge of the Company any investigation by) any governmental agency, pending,
or, to the knowledge of the Company, threatened, against or affecting the
Company or any of its subsidiaries, or any of their properties or rights which
would materially adversely affect the right or ability of the Company or any of
its subsidiaries to carry on their respective business as now conducted, or to
own their respective assets, or which would materially adversely affect the
Condition of the Company and its subsidiaries, taken as a whole; and the Company
does not know of any valid basis for any such action, proceeding or
investigation. Neither the Company nor any of its subsidiaries is subject to any
judgment, order or decree entered in any lawsuit or proceeding which would have
a material adverse effect on the Condition of the Company and its subsidiaries,
taken as a whole.
(S)3.13 Taxes. (a) Tax Returns. The Company has timely filed or
----- -----------
caused to be timely filed with the appropriate taxing authorities all returns,
statements, forms and reports for Taxes ("Returns") that are required to be
filed by, or with respect to, the Company and its subsidiaries on or prior to
the Closing Date. Such Returns, as filed, reflect reasonable tax filing
positions with respect to all Tax Items reflected or required to be reflected
thereon.
(b) Payment of Taxes. All Taxes and Tax liabilities of the Company
----------------
and its subsidiaries (A) shown to be due on the Returns that are required to be
filed by, or with respect to, the Company and its subsidiaries on or prior to
the Closing Date and (B) with respect to Taxes for which no Returns were filed
or were required to be filed, have been paid.
-16-
<PAGE>
(c) Other Tax Matters. (i) Except as set forth on Schedule 3.13,
----------------- -------------
neither the Company nor any of its subsidiaries has been the subject of an audit
or other examination of Taxes by the tax authorities of any nation, state or
locality nor has the Company or any of its subsidiaries received any notices
from any taxing authority relating to any issue which could affect the Tax
liability of the Company or any of its subsidiaries.
(ii) Except as set forth on Schedule 3.13, neither Parent nor the
-------------
Company, or any of its subsidiaries has, as of the Closing Date, (A) entered
into an agreement or waiver or been requested to enter into an agreement or
waiver extending any statute of limitations relating to the payment or
collection of Taxes of the Company or any of its subsidiaries or (B) is
presently contesting the Tax liability of the Company or any of its subsidiaries
before any court, tribunal or agency.
(iii) Except as set forth on Schedule 3.13, neither the Company nor
any of its subsidiaries has been included in any "consolidated," "unitary" or
"combined" Return provided for under the law of the United States, any foreign
jurisdiction or any state or locality with respect to Taxes for any taxable
period for which the statute of limitations has not expired.
(iv) All Taxes which the Company or any of its subsidiaries is (or
was) required by law to withhold or collect have been duly withheld or
collected, and have been timely paid over to the proper authorities to the
extent due and payable.
(v) Except as set forth on Schedule 3.13, there are no tax sharing,
-------------
allocation, indemnification or similar agreements in effect as between the
Company or any predecessor or affiliate thereof and any other party (including
Parent and any predecessors or affiliates thereof) under which Purchasers or the
Company or any of its subsidiaries could be liable for any Taxes or other claims
of any party.
(vi) Neither the Company nor any of its subsidiaries has applied
for, been granted, or agreed to any accounting method change for which it will
be required to take into account any adjustment under Section 481 of the Code or
any similar provision of the Code or the corresponding tax laws of any nation,
state or locality.
(vii) No election under Section 341(f) of the Code has been made or
shall be made prior to the Closing Date to treat the Company or any of its
subsidiaries as a consenting corporation, as defined in Section 341 of the Code.
(viii) Neither the Company nor any of its subsidiaries is a party to
any agreement that would require it to make any payment that would constitute an
"excess parachute payment" for purposes of Sections 280G and 4999 of the Code.
(ix) Except as a result of actions taken by the Company (whether
prior to or subsequent to the date hereof) that are prohibited by Section 6.1
and 6.2 of the Tax Sharing Agreement or as a result of the failure of the
Purchasers' representation in Section 4.10 of this Agreement to be true and
correct as of the date of this Agreement and as of the Closing Date, the Spin-
Off will qualify as a tax free distribution pursuant to Section 368 and/or
Section 355 of the
-17-
<PAGE>
Code and any analogous state income tax provisions; provided that
notwithstanding anything to the contrary contained herein, Parent and the
Company shall not be deemed to make this representation and warranty on the date
of this Agreement, but only on the date of, and only in the event of, the
consummation of the Spin-Off (which shall be the Closing Date); it being
expressly understood that such representation shall not be deemed to relate to
any period prior to the Closing Date.
(S)3.14 Liabilities. Except as set forth on Schedule 3.14, to the
----------- -------------
knowledge of the Company, neither the Company nor any of its subsidiaries has
any outstanding claims, liabilities or indebtedness, contingent or otherwise,
except as set forth in the Balance Sheet or referred to in the footnotes
thereto, other than liabilities incurred subsequent to the Balance Sheet Date in
the ordinary course of business not involving borrowings by the Company or any
subsidiary. Neither the Company nor any of its subsidiaries is in default in
respect of the terms or conditions of any indebtedness.
(S)3.15 Insurance. Set forth on Schedule 3.15 attached hereto is a
--------- -------------
complete list of insurance policies which the Company and its subsidiaries
maintain with respect to their businesses, properties or employees. Such
policies are in full force and effect and, to the knowledge of the Company, are
free from any right of termination on the part of the insurance carriers. Such
policies, with respect to their amounts and types of coverage, are adequate to
insure fully against risks to which the Company, its subsidiaries and their
property and assets are normally exposed in the operation of their respective
businesses. Since June 30, 1997, there has not been any material adverse change
in the Company's or any of its subsidiaries' relationship with its insurers or
in the premiums payable pursuant to such policies.
(S)3.16 Intellectual Properties. Except as otherwise set forth on
-----------------------
Schedule 3.16, the Company and its subsidiaries own, and in the six year period
- -------------
immediately prior to the date of this Agreement have owned, all right, title and
interest in, or have, and have had, valid licenses to use all Intellectual
Property used in the operation of the business of the Company and its
subsidiaries (the "Company Intellectual Property") including, without
limitation, exclusive rights to use, sell, transfer, assign and license the
same. Except as set forth on Schedule 3.16, each such item of Company
-------------
Intellectual Property which is owned by the Company has been duly registered
with, filed in, or issued by the appropriate domestic or foreign governmental
agency, to the extent required, and each such registration, filing and issuance
remains in full force and effect. Except as set forth on Schedule 3.16, no
-------------
claim adverse to the interests of the Company and its subsidiaries in the
Company Intellectual Property has been made or, to the knowledge of the Company,
threatened in litigation or otherwise and, to the knowledge of the Company, no
basis exists for such claim. To the knowledge of the Company, no Person has
infringed or otherwise violated the Company Intellectual Property. Except as
set forth on Schedule 3.16, no litigation is pending wherein the Company or any
-------------
of its subsidiaries is accused of infringing or otherwise violating the
Intellectual Property right of another, or of breaching a contract conveying
rights under Intellectual Property. No such claim has been asserted or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries, nor, to the knowledge of the Company, are there any facts that
would give rise to such a claim.
-18-
<PAGE>
(S)3.17 Compliance with Laws. Except with respect to environmental
--------------------
matters (which are covered in Section 3.20) each of the Company and its
subsidiaries is in compliance in all material respects with all applicable laws,
statutes, ordinances, regulations, orders, judgments and decrees of any
government or political subdivision thereof, whether Federal, state, or local
and whether domestic or foreign, or any agency or instrumentality thereof, or
any court or arbitrator, and has not received any written, or, to the knowledge
of the Company, oral notice that any violation of the foregoing is being or may
be alleged.
(S)3.18 Employment Relations Except as set forth on Schedule 3.18:
-------------------- -------------
(a) Each of the Company and its subsidiaries is in material compliance
with all federal, state or other applicable laws, respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and has not and is not engaged in any unfair labor practice.
(b) No unfair labor practice complaint against the Company or any of
its subsidiaries is pending before the National Labor Relations Board.
(c) There is no labor strike, slowdown or stoppage or material labor
dispute actually pending or, to the knowledge of the Company, threatened against
or involving the Company or any of its subsidiaries.
(d) To the knowledge of the Company, no representation question exists
respecting the employees of the Company or any of its subsidiaries.
(e) No grievance exists which would have a material adverse effect on
the Condition of the Company and its subsidiaries, taken as a whole.
(f) No collective bargaining agreement is in effect with respect to,
or is currently being negotiated by, the Company or any of its subsidiaries.
(g) Neither the Company nor any of its subsidiaries has experienced
any material labor difficulty during the last three years.
(h) There has not been any material adverse change in relations with
employees of the Company or any of its subsidiaries as a result of any
announcement of the transactions contemplated by this Agreement.
(i) There has been no, and will not be, any "layoff" or "plant
closing" as defined by the Worker Adjustment Retraining and Notification Act
("WARN") during the 90 days prior to the Closing Date.
(S)3.19 Employee Benefit Plans.
----------------------
(a) List of Plans. Set forth in Schedule 3.19(a) attached hereto is
------------- ----------------
an accurate and complete list of all domestic and foreign (i) "employee benefit
plans," within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended, and the rules
-19-
<PAGE>
and regulations thereunder ("ERISA"); (ii) bonus, stock option, stock purchase,
restricted stock, incentive, fringe benefit, "voluntary employees' beneficiary
associations" ("VEBAs") under Section 501(c)(9) of the Code, profit-sharing,
pension, or retirement, deferred compensation, medical, life, disability,
accident, salary continuation, accrued leave, vacation, sick pay, sick leave,
supplemental retirement and unemployment benefit plans, programs, arrangements,
commitments and/or practices (whether or not insured); and (iii) employment,
consulting, termination, and severance contracts or agreements; whether or not
any such plans, programs, arrangements, commitments, contracts, agreements
and/or practices (referred to in (i), (ii) or (iii) above) are in writing or are
otherwise exempt from the provisions of ERISA (but excluding in all cases any
"multiemployer plan" as defined in Section 3(37) of ERISA); that have been
established, maintained or contributed to (or with respect to which an
obligation to contribute has been undertaken) or with respect to which any
potential liability is borne by the Company or any of its subsidiaries or any
ERISA Affiliate with respect to any active, retired or former employees or
directors of the Company or its subsidiaries and, with respect to any such plan,
program, arrangement, commitment, contract, agreement and/or practice that is
subject to Title IV of ERISA, any active, retired or former employees or
directors of the Company, its subsidiaries or any ERISA Affiliate (including,
for this purpose and for the purpose of all of the representations in this
Section 3.19 any predecessors to the Company or to any of its subsidiaries)
("Employee Benefit Plans").
(b) Status of Plans. Except as otherwise disclosed on Schedule
--------------- --------
3.19(b), each Employee Benefit Plan (including any related trust) materially
- -------
complies in form with the requirements of all applicable laws, including,
without limitation, ERISA and the Code, and has at all times been maintained and
operated in material compliance with its terms and the requirements of all
applicable laws, including, without limitation, ERISA and the Code. Except as
otherwise disclosed on Schedule 3.19(b) no complete or partial termination of
any Employee Benefit Plan has occurred or is reasonably expected to occur, and
no proceedings have been instituted, and no condition exists and no event has
occurred that in any such case would constitute grounds, under Title IV of ERISA
to terminate, or appoint a trustee to administer, any Employee Benefit Plan.
Except as provided in the Benefits Sharing Agreement, neither the Company nor
any of its subsidiaries has any commitment, intention or understanding to
create, modify or terminate any Employee Benefit Plan. Except as required to
maintain the tax-qualified status of any Employee Benefit Plan intended to
qualify under Section 401(a) of the Code, no condition or circumstance exists
that would prevent the amendment or termination of any Employee Benefit Plan. No
event has occurred and no condition or circumstance has existed that would
result in a material increase in the benefits under or the expense of
maintaining any Employee Benefit Plan from the level of benefits or expense
incurred for the most recent fiscal year ended thereof. No Employee Benefit Plan
is a plan described in Section 4063(a) of ERISA.
(c) Liabilities. No Employee Benefit Plan subject to Section 412 of
-----------
the Code or Section 302 of ERISA has incurred any accumulated funding deficiency
within the meaning of Section 412 of the Code or Section 302 of ERISA,
respectively, or has applied for or obtained a waiver from the Internal Revenue
Service ("IRS") of any minimum funding requirement or an extension of any
amortization period under Section 412 of the Code or Section 303 or 304 of
ERISA. Except for payments of premiums to the Pension Benefit Guaranty
Corporation ("PBGC"), which have been timely paid in full, neither the Company
nor any of its subsidiaries
-20-
<PAGE>
has incurred any liability to the PBGC in connection with any Employee Benefit
Plan, or ceased operations at any facility or withdrawn from any such Employee
Benefit Plan in a manner which would subject it to liability under Section 4062,
4063 or 4064 of ERISA, or knows of any facts or circumstances that are
reasonably likely to give rise to any liability of the Company or any of its
subsidiaries to the PBGC under Title IV of ERISA that could reasonably be
anticipated to result in any claims being made against Purchasers by the PBGC.
Except as disclosed on Schedule 3.19(c), no Employee Benefit Plan
----------------
which is a "group health plan" (as such term is defined in Section 5000(b)(1) of
the Code or Section 607(1) of ERISA) is a "multiple employer welfare
arrangement," within the meaning of Section 3(40) of ERISA. Neither the Company
nor any of its subsidiaries maintains any Employee Benefit Plan which is an
"employee welfare benefit plan" (as such term is defined in Section 3(1) of
ERISA) that has provided any "disqualified benefit" (as such term is defined in
Section 4976(b) of the Code) with respect to which an excise tax could be
imposed.
Except as disclosed on Schedule 3.19(c), neither the Company nor any
----------------
of its subsidiaries maintains any Employee Benefit Plan (whether qualified or
non-qualified under Section 401(a) of the Code) providing for post-employment or
retiree health, life insurance and/or other welfare benefits and having unfunded
liabilities, and neither the Company nor any of its subsidiaries have any
obligation to provide any such benefits to any retired or former employees or
active employees following such employees' retirement or termination of service.
Except as disclosed on Schedule 3.19(c), neither the Company nor any of its
subsidiaries has any unfunded liabilities pursuant to any employee benefit
pension plan (as defined in Section 3(2) of ERISA) that is not intended to be
qualified under Section 401(a) of the Code.
Neither the Company nor any of its subsidiaries has incurred any
liability for any tax or excise tax arising under Chapter 43 of the Code, and,
to the knowledge of the Company, no event has occurred and no condition or
circumstance exists that could give rise to any such liability.
No asset of the Company or any of its subsidiaries is subject to any
lien arising under Section 302(f) of ERISA or Section 412(n) of the Code, and,
to the knowledge of the Company, no event has occurred and no condition or
circumstance exists that is reasonably likely to give rise to any such lien.
Neither the Company nor any of its subsidiaries has been required to provide any
security under Section 307 of ERISA or Section 401(a)(29) or 412(f) of the Code,
and, to the knowledge of the Company, no event has occurred and no condition or
circumstance exists that is reasonably likely to give rise to any such
requirement to provide any such security.
There are no actions, suits, claims or disputes pending, or, to the
knowledge of the Company, threatened or reasonably expected to be asserted
against or with respect to any Employee Benefit Plan or the assets of any such
plan (other than routine claims for benefits and appeals of denied routine
claims). No civil or criminal action brought pursuant to the provisions of
Title I, Subtitle B, Part 5 of ERISA is pending, threatened, or reasonably
expected to be asserted against the Company or any of its subsidiaries or any
fiduciary of any Employee Benefit Plan, in any case with respect to any Employee
Benefit Plan. Except as set forth on Schedule 3.19(c), no Employee Benefit Plan
----------------
or any fiduciary with respect thereto is currently under audit
-21-
<PAGE>
or, to the knowledge of the Company, under investigation or examination by any
governmental or quasi-governmental agency.
(d) Contributions. Full payment has been timely made of all amounts
-------------
which the Company or any of its subsidiaries is required, under applicable law
or under any Employee Benefit Plan or any agreement relating to any Employee
Benefit Plan to which the Company or any of its subsidiaries is a party, to have
paid as contributions or premiums thereto as of the last day of the most recent
fiscal year of such Employee Benefit Plan ended prior to the date hereof, except
to the extent that the failure to timely make such payments will not result in a
material liability. All such contributions and/or premiums have been fully
deducted for income tax purposes and no such deduction has been challenged or
disallowed by any governmental entity, and to the knowledge of the Company no
event has occurred and no condition or circumstance exists that is reasonably
likely to give rise to any such challenge or disallowance. Except as provided
in the Benefits Sharing Agreement, benefits under all Employee Benefit Plans are
as represented and have not been increased subsequent to the date as of which
documents have been provided.
(e) Plan Assets. Except as disclosed on Schedule 3.19(e), no Employee
-----------
Benefit Plan holds as an asset any interest in any annuity contract, guaranteed
investment contract or any other investment or insurance contract, policy or
instrument issued by an insurance company that, to the knowledge of the Company,
is or may be the subject of bankruptcy, conservatorship, insolvency,
liquidation, rehabilitation or similar proceedings.
(f) Tax Qualification. Each Employee Benefit Plan intended to be
-----------------
qualified under Section 401(a) of the Code has, as currently in effect, been
determined to be so qualified by the IRS or an application for a determination
letter will be submitted to the IRS no later than the end of the applicable
remedial amendment period as described in Section 401(b) of the Code. Each
trust established in connection with any Employee Benefit Plan which is intended
to be exempt from Federal income taxation under Section 501(a) of the Code has,
as currently in effect, been determined to be so exempt by the IRS or an
application for a determination letter will be submitted to the IRS no later
than the end of the applicable remedial amendment period as described in Section
401(b) of the Code. Each VEBA has been determined by the IRS to be exempt from
Federal income tax under Section 501(c)(9) of the Code. Since the date of each
most recent determination referred to in this paragraph (f), no event has
occurred and no condition or circumstance has existed that resulted or is
reasonably likely to result in the revocation of any such determination or that
would adversely affect the qualified status of any such Employee Benefit Plan or
the exempt status of any such trust or VEBA.
(g) Transactions. Except as disclosed on Schedule 3.19(g), no
------------
"reportable event" (as such term is defined in Section 4043 of ERISA) for which
the 30-day notice requirement has not been waived by the PBGC has occurred or is
reasonably expected to occur with respect to any Employee Benefit Plan. Neither
the Company nor any of its subsidiaries nor any of their respective directors,
officers, employees or, to the knowledge of the Company, other Persons who
participate in the operation of any Employee Benefit Plan, any Multiemployer
Plan or related trust or funding vehicle, has engaged in any transaction with
respect to any Employee Benefit Plan or breached any applicable fiduciary
responsibilities or obligations under Title I of
-22-
<PAGE>
ERISA that would subject any of them to a tax, penalty or liability for
prohibited transactions or breach of any obligations under ERISA or the Code or
would result in any claim being made under, by or on behalf of any such Employee
Benefit Plan by any party with standing to make such claim.
(h) Triggering Events. The execution of this Agreement and the
-----------------
consummation of the transactions contemplated hereby, do not constitute a
triggering event under any Employee Benefit Plan or arrangement, whether or not
legally enforceable, which (either alone or upon the occurrence of any
additional or subsequent event) will or may result in any payment (whether of
severance pay or otherwise), "parachute payment" (as such term is defined in
Section 280G of the Code), acceleration, vesting or increase in benefits to any
employee or former employee or director of the Company or any of its
subsidiaries. Except as set forth in Schedule 3.19(h), no Employee Benefit Plan
provides for the payment of severance, termination, change in control or
similar-type payments or benefits.
(i) Documents. Parent and the Company have delivered or caused
---------
to be delivered to Purchasers or their counsel true and complete copies of the
following documents in connection with each Employee Benefit Plan (where
applicable): (i) all Employee Benefit Plans as in effect on the date hereof,
together with all amendments thereto, including, in the case of any Employee
Benefit Plan not set forth in writing, a written description thereof; (ii) all
current summary plan descriptions, summaries of material modifications, and
material communications; (iii) all current trust agreements, declarations of
trust and other documents establishing other funding arrangements (and all
amendments thereto and the latest financial statements thereof); (iv) the most
recent IRS determination letter, obtained with respect to each Employee Benefit
Plan intended to be qualified under Section 401(a) of the Code or exempt under
Section 501(a) or 501(c)(9) of the Code; (v) the annual report on IRS Form 5500-
series or 990 for each of the last three years for each Employee Benefit Plan
required to file such form; (vi) the most recently prepared actuarial valuation
report for each Employee Benefit Plan covered by Title IV of ERISA; (vii) the
most recently prepared financial statements; (viii) all service provider
agreements, insurance contracts, annuity contracts, investment management
agreements, subscription agreements, participation agreements, and recordkeeping
agreements and collective bargaining agreements; and (ix) the most recent
response to auditors' reports for each Employee Benefit Plan.
(S)3.20 Environmental Laws and Regulations. Except as set forth on
----------------------------------
Schedule 3.20:
- -------------
(a) To the knowledge of the Company, Hazardous Materials have not
at any time been generated, used, treated, distributed, Released, sold or stored
on or from, or transported to or from, any Company Property or in connection
with any operations thereon by the Company, its subsidiaries or their respective
predecessors in interest, or by any other Person (including any previous owner
or occupant of any Company Property that is not a predecessor in interest of the
Company or its subsidiaries), in each of the foregoing cases in a manner which
has resulted, or is reasonably likely to result, in a material Environmental
Claim.
-23-
<PAGE>
(b) To the knowledge of the Company, the Company and its
subsidiaries are in material compliance with all applicable Environmental Laws
and the requirements of any permits issued under such Environmental Laws.
(c) To the knowledge of the Company, there are no past
unresolved, pending or threatened material Environmental Claims against the
Company, any of its subsidiaries or any Company Property.
(d) To the knowledge of the Company, there are no facts,
circumstances, conditions or occurrences regarding (i) the Company or its
subsidiaries or their respective predecessors in interest (which does not
include any previous owner or occupant of any Company Property that is not a
predecessor in interest of the Company or its subsidiaries), (ii) any operations
of the Company, its subsidiaries or their respective predecessors in interest
(which does not include any previous owner or occupant of any Company Property
that is not a predecessor in interest of the Company or its subsidiaries) or
(iii) any Company Property, that could reasonably be anticipated (x) to form the
basis of a material Environmental Claim against the Company, any of its
subsidiaries or any Company Property or assets or (y) to cause such Company
Property or assets to be subject to any restrictions on its ownership,
occupancy, use or transferability under any Environmental Law.
(e) To the knowledge of the Company, there are no underground
storage tanks owned or utilized at any time by the Company located on any
Company Property.
(f) From the commencement of the Company's business operations on
January 1, 1982 through the Closing Date, the Company has not installed, sold,
used, handled or removed asbestos-containing products which will result in a
claim at any time against the Company.
(S)3.21 Interests in Clients, Suppliers, Etc. Except as set forth in
-------------------------------------
Schedule 3.21 attached hereto, neither any officer nor director of the Company
- -------------
or any of its subsidiaries, Parent, nor any Affiliate of the Company (other than
a subsidiary of the Company) possesses, directly or indirectly, any financial
interest in, or is a director, officer or employee of, any Person which is a
client, supplier, customer, lessor, lessee, or competitor or potential
competitor of the Company or any of its subsidiaries. Ownership of securities
of a company whose securities are registered under the Exchange Act of 2% or
less of any class of such securities shall not be deemed to be a financial
interest for purposes of this Section 3.21.
(S)3.22 Compensation of Employees. Parent and the Company have
-------------------------
previously provided Purchasers with a schedule setting forth the names of all
Persons whose compensation from the Company or any of its subsidiaries for the
fiscal year ended on the Balance Sheet Date exceeded a base salary of $75,000
per annum.
(S)3.23 Permits. Parent and the Company have delivered or made
-------
available to Purchasers for inspection a true and correct copy of each Permit.
Each Permit required for the continued operation of the business of the Company
and its subsidiaries can be renewed. Any applications for the renewal of any
such Permit which are due prior to the Closing Date have been or will be timely
filed prior to the Closing Date. No proceeding to modify, suspend, revoke,
-24-
<PAGE>
withdraw, terminate or otherwise limit any such Permit is pending or, to the
knowledge of the Company, threatened and the Company does not know of any valid
basis for such proceeding. No administrative or governmental action has been
taken or, to the knowledge of the Company, threatened, in connection with the
expiration, continuance or renewal of any such Permit and the Company knows of
no valid basis for any such proceeding.
(S)3.24 No Changes Since Balance Sheet Date. Except as set forth in
-----------------------------------
Schedule 3.24 attached hereto, since the Balance Sheet Date, except as expressly
- -------------
permitted or required by this Agreement, neither the Company nor any of its
subsidiaries has (a) incurred any liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise), except in the ordinary
course of business consistent with past practice, (b) permitted any of its
assets to be subjected to any Lien (other than Permitted Liens), (c) sold,
transferred or otherwise disposed of any assets except in the ordinary course of
business consistent with past practice, or made any acquisition of all or any
part of the properties, capital stock or business of any other Person, (d) made
any capital expenditure or commitment therefor in excess of $50,000,
individually, or $500,000, in the aggregate, (e) declared or paid any dividend
or made any distribution on any shares of its capital stock, (f) redeemed,
purchased or otherwise acquired any shares of its capital stock, (g) granted or
issued any Option, with respect to any shares of its capital stock, (h) made any
bonus or profit sharing distribution or payment of any kind, (i) increased its
indebtedness for borrowed money, except current borrowings from banks in the
ordinary course of business, or made any loan to any Person, (j) written off as
uncollectible any notes or accounts receivable, except write-offs in the
ordinary course of business charged to applicable reserves, none of which
individually or in the aggregate is material to the Company and its
subsidiaries, (k) granted any increase in the rate of wages, salaries, bonuses
or other remuneration of any executive employee or other employees, except in
the ordinary course of business, consistent with past practice, (l) canceled or
waived any claims or rights of substantial value, (m) made any change in any
method of accounting or auditing practice, (n) otherwise conducted its business
or entered into any transaction, except in the usual and ordinary manner and in
the ordinary course of business, or (o) agreed, whether or not in writing, to do
any of the foregoing. To the knowledge of the Company, no fact or condition
exists or is contemplated or threatened which might cause any change described
in clauses (a) through (o) above in the future.
(S)3.25 Year 2000 Reprogramming. Except as set forth on Schedule
------------------------ --------
3.25, any reprogramming required to permit the proper functioning, in and
- ----
following the year 2000, of the Company's or any of its subsidiaries' (i)
computer systems and (ii) equipment containing embedded microchips (including
systems and equipment supplied by others) and the testing of all such systems
and equipment, as so reprogrammed, will be completed by April 1, 1999 except for
such instances of non-completion as will not have a material adverse effect on
the Condition of the Company and its subsidiaries, taken as a whole. The costs
to the Company and its subsidiaries of such reprogramming and testing and of the
reasonably foreseeable consequences of year 2000 (including, without limitation,
reprogramming errors and the failure of the management information systems and
equipment being provided to the Company by Parent) will not have a material
adverse effect on the Condition of the Company or any of its subsidiaries.
Except for such of the reprogramming referred to in the preceding sentence as
may be necessary, the computer and management information systems of the Company
and its subsidiaries are sufficient
-25-
<PAGE>
to permit the Company and its subsidiaries to conduct its business substantially
as it is conducted on the date hereof.
(S)3.26 Suppliers. (a) To the knowledge of the Company, there is no
---------
state of facts that might reasonably be expected to result in any supplier to
the Company or its subsidiaries failing to deliver or delaying the delivery of
goods, services or other products to the Company or its subsidiaries, except for
such failures or delays as would not, individually or in the aggregate have a
material adverse effect on the Condition of the Company or its subsidiaries,
taken as a whole and except for failures or delays relating to or caused by the
failure of such suppliers' computer or electronic equipment in and following the
year 2000.
(b) Neither Parent, the Company nor any of the Company's
subsidiaries has received any notice (whether written or, to the knowledge of
the Company, oral) from any supplier of the Company or its subsidiaries of
termination of a distribution agreement between the Company or any of its
subsidiaries and such supplier, or has any knowledge of the intent of any
supplier to give any such notice or has any reason to believe that any supplier
will give, or is contemplating giving, any such notice or proposing or
implementing any amendment or modification to an existing supply agreement or
arrangement which will have a material adverse effect on the Condition of the
Company and its subsidiaries, taken as a whole.
(S)3.27 Product Liability Claims. Neither Parent, the Company, nor
------------------------
any subsidiary of the Company has received any notice (whether written or, to
the knowledge of the Company, oral) from any customer or any Person using any
product of the Company or its subsidiary or supplied by the Company or any of
its subsidiaries, to return any products of, or supplied by, the Company or any
of its subsidiaries in material quantities, whether arising from an alleged
defect or shortcoming in any such product or otherwise, which in the aggregate
are greater than $100,000.
(S)3.28 Spin-Off. (a) No consent, approval, authorization or order,
--------
or filing or declaration with any court, governmental agency or self-regulatory
body is required in connection with the Spin-Off or in connection with the
taking by Parent or the Company of any action contemplated thereby, except as
have been obtained under the Securities Act, the Exchange Act and as may be
required under state securities or Blue Sky laws.
(b) No document filed with the Commission or provided to the
Company's shareholders in connection with the Spin-Off, including without
limitation any information statement provided to the Company's shareholders or
any Registration Statement on Form 10, as each such document may be amended or
supplemented from time to time, contains or will contain an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading.
(S)3.29 Brokers' or Finders' Fees. Except with respect to (x) the
-------------------------
fees payable to Snyder & Company (whose fees and expenses shall be paid by the
Company and shall not exceed $425,000) and (y) certain out-of-pocket expenses of
Legg Mason Wood Walker, Incorporated incurred in connection with the Company's
proposed initial public offering (which such expenses shall be paid by the
Company and shall not exceed $200,000), no agent, broker, person or firm acting
on behalf of either Parent or the Company is, or will be, entitled to any
commission or
-26-
<PAGE>
brokers' or finders' fees from any of the parties hereto, or from any Affiliate
of any of the parties hereto, in connection with any of the transactions
contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS OF PURCHASERS
-----------------------------
(S)4. Representations of Purchasers. Each Purchaser, severally and
-----------------------------
not jointly, represents and warrants as follows:
(S)4.1 Existence and Good Standing of Each Purchaser; Power and
--------------------------------------------------------
Authority. Each Purchaser is a limited partnership duly organized, validly
- ---------
existing and in good standing under the laws of the State of Delaware. Each
Purchaser has the partnership power and authority to enter into, execute and
deliver this Agreement and each other Transaction Agreement to which it is a
party and perform its obligations hereunder or thereunder, as the case may be.
The execution and delivery of this Agreement and each other Transaction
Agreement to which such Purchaser is a party by such Purchaser and the
performance by such Purchaser of its obligations hereunder and thereunder have
been duly authorized and approved by all required partnership action of such
Purchaser and no other partnership action on the part of such Purchaser is
necessary to authorize the execution, delivery and performance of this Agreement
and each other Transaction Agreement to which such Purchaser is a party. This
Agreement has been and each other Transaction Agreement to which such Purchaser
is a party will be duly executed and delivered by such Purchaser and, assuming
the due execution and delivery hereof and thereof by each other party hereto,
this Agreement constitutes, and each other Transaction Agreement to which such
Purchaser is a party, when so executed and delivered, will be a valid and
binding obligation of such Purchaser, enforceable against such Purchaser in
accordance with its terms, except to the extent that its enforceability may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws effecting the enforcement of creditors' rights generally and to
general equitable principles.
(S)4.2 Consents and Approvals; No Violations. The execution and
-------------------------------------
delivery of this Agreement by such Purchaser and the consummation by such
Purchaser of the transactions contemplated hereby will not: (1) violate any
provision of the Agreement of Limited Partnership of such Purchaser or the
operating agreement of any Purchaser that is a limited liability company; (2)
violate any statute, ordinance, rule, regulation, order or decree of any court
or of any governmental or regulatory body, agency or authority applicable to
such Purchaser or by which any of its properties or assets may be bound; (3)
require such Purchaser to make any filing with or obtain any permit, consent or
approval of or give any notice to, any governmental or regulatory body, agency
or authority; or (4) result in a violation or breach of, conflict with,
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation, payment or acceleration)
under, or result in the creation of any Lien upon any of the properties or
assets of such Purchaser under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, franchise, permit, agreement,
lease, franchise agreement or other instrument or obligation to which such
Purchaser is a party, or by which any of its properties or assets is bound
except in the case of clauses (3) and (4) above for such violations,
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<PAGE>
filings, permits, consents, approvals, notices, breaches or conflicts which
could not have a material adverse effect on the ability of such Purchaser to
consummate the transactions contemplated hereby or to perform its obligations
hereunder.
(S)4.3 Purchase for Investment. Each Purchaser will acquire the
-----------------------
Shares allocated to it on Exhibit A attached hereto for its own account for
---------
investment purposes only, and are not being purchased for subdivision,
fractionalization, resale or distribution in a transaction that would violate
the Securities Act or Exchange Act or any state "blue sky" laws. Each Purchaser
has no contract, undertaking, agreement or arrangement with any other Purchaser
or existing stockholder of the Company to sell, transfer or pledge to such other
Person or anyone else the Securities that such Purchaser is to purchase
hereunder or any part thereof in a transaction that would violate the Securities
Act or Exchange Act. Notwithstanding the foregoing, the disposition of such
Purchaser's property shall at all times remain within the sole control of such
Purchaser.
(S)4.4 Brokers' or Finders' Fees. Except for the fee payable to
-------------------------
Evercore Advisors, Inc. pursuant to the Fee Letter (which such fee shall be paid
by the Company), no agent, broker, person or firm acting on behalf of any
Purchaser is, or will be, entitled to any commission or brokers' or finders'
fees from any of the parties hereto, or from any Affiliate of the parties
hereto, in connection with any of the transactions contemplated by this
Agreement.
(S)4.5 Accredited Investors. Each Purchaser is an "accredited
--------------------
investor" (as such term is defined in Rule 501 promulgated under the Securities
Act).
(S)4.6 Sufficient Funds. Each Purchaser has sufficient funds, in
----------------
cash or available from approved sources of credit, to consummate the
transactions described herein.
(S)4.7 Restricted Securities. Each Purchaser understands that the
---------------------
Common Stock it is purchasing hereunder is characterized as a "restricted
security" under the federal securities laws inasmuch as it is being acquired
from the Company in a transaction not involving a public offering and that under
such laws and applicable regulations such Common Stock may not be resold without
registration under the Securities Act, except in certain limited instances. In
this connection, each Purchaser represents that it is familiar with Rule 144
promulgated by the Commission, as presently in effect, and understands the
resale limitations imposed thereby and by the Securities Act.
(S)4.8 Legend. Each Purchaser understands that each certificate
------
representing Common Stock purchased hereunder will be imprinted with a legend in
substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE TRANSFERRED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR WITH
AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS REASONABLY NOT REQUIRED.
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<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO THE
TERMS AND CONDITIONS OF THAT CERTAIN STOCK SUBSCRIPTION AGREEMENT
DATED AS OF OCTOBER 28, 1998, BY AND AMONG IREX CORPORATION, THE
COMPANY, EVERCORE CAPITAL PARTNERS L.P., EVERCORE CAPITAL PARTNERS
(NQ) L.P., AND EVERCORE CAPITAL OFFSHORE PARTNERS L.P., A COPY OF
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
THE SALE, TRANSFER OR OTHER DISPOSITION OF THE SECURITIES IS SUBJECT
TO THE TERMS OF SUCH AGREEMENT AND THE SECURITIES ARE TRANSFERABLE
ONLY UPON PROOF OF COMPLIANCE THEREWITH.
(S)4.9 Antitrust Compliance. No filing shall be required under the
--------------------
Hart-Scott-Rodino Antitrust Improvements Act in connection with the transactions
contemplated hereby.
(S)4.10 No Plan to Acquire Common Stock. Neither the Purchasers nor
-------------------------------
any Affiliate of Purchasers has any current plan or intention, and to the actual
knowledge of the Purchasers, no limited partner of any Purchaser has any current
plan or intention to acquire, directly or indirectly, stock of the Company;
provided, however, that (i) the acquisition by Purchasers of Shares pursuant to
this Agreement shall not result in the failure of this representation to be true
and correct, and (ii) any direct or indirect acquisition of capital stock of the
Company that does not cause subsection 355(e) of the Code to apply to the Spin-
Off (whereby the Common Stock would not be treated as qualified property for
purposes of subsection 355(c) of the Code) shall not result in the failure of
this representation to be true and correct; provided, further, that no Purchaser
shall have any obligation to make any inquiry whatsoever of its limited partners
in connection with the making of this representation.
ARTICLE V
CONDUCT OF BUSINESS; EXCLUSIVE DEALING; REVIEW
----------------------------------------------
(S)5.1 Conduct of Business of the Company. During the period from
----------------------------------
the date of this Agreement to the Closing Date, the Company shall, and shall
cause each of its subsidiaries to, and Parent shall cause the Company and each
of its subsidiaries to, conduct its or their respective operations only
according to its or their ordinary and usual course of business and to use its
or their best efforts to preserve intact its or their respective business
organizations, keep available the services of its or their officers and
employees and maintain satisfactory relationships with licensors, suppliers,
distributors, clients and others having business relationships with it or them.
Notwithstanding the immediately preceding sentence, prior to the Closing Date,
except (x) for the declaration of and payment of a distribution of an amount not
to exceed $10,500,000 (which amount shall be in cash; provided that, $3,500,000
of such distribution shall be made in an equivalent aggregate principal amount
of Irex Notes) by the Company to Parent as the sole shareholder of the Company,
(y) as is set forth on Schedule 5.1 attached hereto, and (z) as may be first
------------
approved in writing by Purchasers or as is otherwise specifically permitted or
required by this Agreement, Parent and the Company will cause (a) the Company's
and each of its subsidiaries'
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<PAGE>
respective articles of incorporation and by-laws to be maintained in their form
on the date of this Agreement, (b) subject to any existing agreement to which
the Company is a party and which is set forth on Schedule 3.10 and subject to
changes in the ordinary course of business consistent with part practices, the
compensation payable or to become payable by the Company and each of its
subsidiaries to any director, officer, employee or agent being paid $75,000 per
year or more on the Balance Sheet Date to be maintained at their levels on the
date of this Agreement, (c) the Company and each of its subsidiaries to refrain
from making any bonus, pension, retirement or insurance payment or arrangement
to or with any such Persons except those that may have already been accrued or
accrue in the ordinary course of business, (d) the Company and each of its
subsidiaries to refrain from entering into any contract or commitment except
contracts in the ordinary course of business, (e) the Company and each of its
subsidiaries not to authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
Options or otherwise) any stock of any class or any other securities, (f) the
Company and each of its subsidiaries to refrain from taking any of the actions
referred to in Section 3.24 and (g) commit or agree, whether or not in writing,
to do any of the foregoing. During the period from the date of this Agreement to
the Closing Date, Parent and the Company shall cause the Company to confer on a
regular and frequent basis with one or more designated representatives of
Purchasers to report material operational matters and to report the general
status of ongoing operations. Parent and the Company shall cause the Company and
each of its subsidiaries to notify Purchasers of any unexpected material
emergency or other material change in the normal course of its business or in
the operation of its properties and of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated) (other than such complaints, investigations or hearings as are
immaterial), adjudicatory proceedings, budget meetings or submissions involving
any material property of the Company and each of its subsidiaries, and to keep
Purchasers fully informed of such events and permit its representatives prompt
access to all materials prepared in connection therewith.
(S)5.2 Exclusive Dealing. During the period from the date of this
-----------------
Agreement to the earlier of the Closing Date or the date this Agreement is
terminated in accordance with its terms, none of Parent, the Company or any of
their respective affiliates, directors, officers, employees agents, accountants,
consultants, financial advisors, counsel or representatives (collectively
"representatives") shall (i) take any action to, directly or indirectly,
encourage, initiate, solicit, or engage in discussions or negotiations with, or
provide any information to, any entity or person other than Purchasers (and
their representatives) concerning any Alternate Transaction, (as defined below)
or (ii) otherwise take any action which would prejudice the ability of
Purchasers and their affiliates to complete the transactions contemplated
hereby. For purposes hereof, an "Alternate Transaction" shall mean (a) any
stock purchase, merger, consolidation, reorganization, change in organizational
form, spin-off, split-off, recapitalization, sale of equity interests or other
similar transaction involving the Company or any of the same involving Parent
which would prejudice the ability of Purchasers to complete the transactions
contemplated hereby, or (b) any sale of all or any significant portion of the
assets of the Company, or (c) any other transaction in respect of the Company
which results directly or indirectly, in a change of control of the Company, or
(d) any other transaction or series of transactions which has substantially
similar economic effects; in each such case, in which transaction Purchasers do
not participate, and other
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<PAGE>
than the Spin-Off and such other transactions as are permitted by this Agreement
and the Transaction Agreements.
(S)5.3 Review of the Company. Purchasers may, prior to the Closing
---------------------
Date, directly or through their representatives, review during regular business
hours upon reasonable notice to the Company or Parent, as the case may be, the
properties, books and records of Parent (solely to the extent that such records
relate to the Company, its subsidiaries or the transactions contemplated by this
Agreement or the Transaction Agreements), the Company and each of the Company's
subsidiaries and their financial and legal condition to the extent they deem
necessary or advisable to familiarize themselves with such properties and other
matters; provided, that such review shall not, (a) affect the representations
and warranties made by Parent and the Company in this Agreement or the remedies
of Purchasers for breaches of those representations and warranties, or (b)
interfere with the normal operation of the business of the Company and its
subsidiaries. Parent shall cause the Company and each of its subsidiaries to
permit Purchasers and their representatives to have, after the date of execution
of this Agreement, full access during regular business hours upon reasonable
notice to the Company or Parent, as the case may be, to the premises and to all
the books and records of the Company and its subsidiaries and to cause the
officers, employees, counsel, accountants, consultants and other representatives
of the Company and each of its subsidiaries to furnish Purchasers with such
financial and operating data and other information with respect to the business
and properties of the Company and its subsidiaries as Purchasers shall from time
to time reasonably request. In the event of termination of this Agreement,
Purchasers shall keep confidential any information obtained from Parent or the
Company or any subsidiary concerning their respective properties, operations and
business (unless readily ascertainable from public or published information or
trade sources or previously obtained by Purchasers from a source not under any
contractual or other legal obligation to keep such information confidential) and
at the request of Parent, shall return to the Company all copies of any
schedules, statements, documents or other written information obtained in
connection herewith and shall destroy all analyses or summaries thereof prepared
by Purchasers or their representatives. Parent and the Company shall deliver or
cause to be delivered to Purchasers such additional instruments, documents,
certificates and opinions as Purchasers may reasonably request for the purpose
of verifying the information set forth in this Agreement and on any Schedule
attached hereto.
(S)5.4 Best Efforts. Each of Parent, the Company and Purchasers
------------
shall cooperate and use its respective best efforts to take, or cause to be
taken, all appropriate actions, and to make, or cause to be made, all filings
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and the Transaction Agreements, including, without limitation, their respective
best efforts to obtain, prior to the Closing Date, all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with Parent or the Company as are necessary
for consummation of the transactions contemplated by this Agreement and the
Transaction Agreements and to fulfill the conditions to the sale contemplated
hereby.
-31-
<PAGE>
ARTICLE VI
CONDITIONS TO PURCHASERS' OBLIGATIONS
-------------------------------------
(S)6. Conditions to Purchasers' Obligations. The purchase of the
-------------------------------------
Shares by Purchasers on the Closing Date is conditioned upon satisfaction, at or
prior to the Closing, of the following conditions:
(S)6.1 Truth of Representations and Warranties. The representations
---------------------------------------
and warranties of each of Parent and the Company contained in this Agreement or
in any Schedule attached hereto shall be true and correct in all material
respects (except to the extent such representations and warranties contain a
"materiality", "material adverse effect" or similar qualification, in which case
they shall be true and correct in all respects) on and as of the Closing Date
with the same effect as though such representations and warranties had been made
on and as of such date, and Parent and the Company each shall have delivered to
Purchasers a certificate, dated the Closing Date, to such effect.
(S)6.2 Performance of Agreements. All of the agreements of each of
-------------------------
Parent and the Company to be performed prior to the Closing pursuant to the
terms of this Agreement shall have been duly performed in all material respects,
and Parent and the Company each shall have delivered to Purchasers a
certificate, dated the Closing Date, to such effect.
(S)6.3 Opinion of Parent's Counsel. (a) Parent shall have furnished
---------------------------
Purchasers with a favorable opinion, dated the Closing Date, of Dechert Price &
Rhoads, in form and substance satisfactory to Purchasers and their counsel, to
the effect set forth in Exhibit B-1 attached hereto and an opinion of James
-----------
Hipolit, Vice President and General Counsel of Parent, in form and substance
satisfactory to Purchasers and their counsel, to the effect set forth in Exhibit
-------
B-2 attached hereto.
- ---
(b) Parent shall have furnished Purchasers with a favorable tax
opinion, dated the date of the Spin-Off (which shall be the Closing Date) of
Dechert Price & Rhoads, tax counsel to Parent and the Company, in form and
substance satisfactory to Purchasers and their counsel, to the effect set forth
in Exhibit B-3 attached hereto.
-----------
(S)6.4 Good Standing and Other Certificates. (a) The Company shall
------------------------------------
have delivered to Purchasers (i) copies of the Company's articles of
incorporation and the certificate or articles of incorporation of each
subsidiary, including all amendments thereto, in each case certified by the
Secretary of State or other appropriate official of its jurisdiction of
incorporation, (ii) a certificate from the Secretary of State or other
appropriate official of their respective jurisdictions of incorporation to the
effect that each of the Company and its subsidiaries is in good standing or
subsisting in such jurisdiction and listing all charter documents of the Company
and such subsidiaries on file, (iii) a certificate as to the tax status of the
Company and each subsidiary from the appropriate official in its jurisdiction of
incorporation, (iv) a copy of the By-laws of the Company and each subsidiary
certified by the Secretary of the Company or of such subsidiary, as applicable,
as being true and correct and in effect on the Closing Date, and (v) copies of
resolutions of the Board of Directors of the Company authorizing the execution,
delivery and
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<PAGE>
performance of this Agreement, each of the other Transaction Agreements to which
such entity is a party and the consummation of each of the transactions
contemplated hereby and thereby (including, but not limited to the sale of the
Shares and the sale of the Junior Notes), certified by the Secretary of the
Company as being true and correct and in effect on the Closing Date.
(b) Parent shall have delivered to Purchasers (i) copies of
Parent's articles of incorporation, including all amendments thereto, in each
case certified by the Secretary of State of the Commonwealth of Pennsylvania,
(ii) a certificate from the Secretary of State of the Commonwealth of
Pennsylvania to the effect that Parent is in good standing or subsisting in such
jurisdiction and listing all charter documents of Parent on file, (iii) a
certificate as to the tax status of Parent from the appropriate official in its
jurisdiction of incorporation, (iv) a copy of the By-laws of Parent, certified
by the Secretary of Parent as being true and correct and in effect on the
Closing Date and (v) copies of resolutions of the Board of Directors of Parent
authorizing execution, delivery and performance of this Agreement and each of
the other Transaction Agreements and the consummation of each of the
transactions contemplated hereby and thereby (including, but not limited to the
Spin-Off, the sale of the Shares and the Sale of the Junior Notes), certified by
the Secretary of Parent as being true and correct and in effect on the Closing
Date.
(S)6.5 No Material Adverse Change. Prior to the Closing Date there
--------------------------
shall have been no material adverse change in the Condition of the Company and
its subsidiaries, taken as a whole, and Parent shall have delivered to
Purchasers a certificate, dated the Closing Date, to such effect.
(S)6.6 No Litigation Threatened. No action or proceedings shall have
------------------------
been instituted or, to the knowledge of any party, threatened before a court or
other government body or by any public authority to restrain or prohibit any of
the transactions contemplated hereby, and Parent shall have delivered to
Purchasers a certificate, dated the Closing Date, to such effect.
(S)6.7 Employment Agreements. (a) Each of Mr. Ronald L. King and
---------------------
the Company shall have executed and delivered an Employment Agreement
substantially in the form of Exhibit C-1 attached hereto and such Employment
-----------
Agreement shall be in full force and effect.
(b) Each of Mr. Michael J. Hughes and the Company shall have
executed and delivered an Employment Agreement substantially in the form of
Exhibit C-2 attached hereto and such Employment Agreement shall be in full force
- -----------
and effect.
(c) On the Closing Date, the Chief Executive Officer of the
Company shall have either (i) certified to Purchasers that each of the Persons
specified on Schedule 6.7 has been presented with a form of non-competition
------------
agreement (which form shall be reasonably acceptable to the Purchasers) and that
either such agreement has been executed and delivered by each such Person or
that he knows of no reason why each such Person will not execute such non-
competition agreement and remain in the employ of the Company after the Closing
Date or (ii) presented Purchasers with an alternate plan reasonably acceptable
to Purchasers regarding the replacement of each such Person who he has reason to
believe may refuse to sign such non-competition agreement or remain in the
employ of the Company after the Closing Date.
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<PAGE>
(S)6.8 Effectiveness of Registration Statement; Information
----------------------------------------------------
Statement. (a) The Company's Registration Statement on Form 10 with respect to
its Common Stock shall have become effective and (x) no stop order suspending
the effectiveness of such registration statement shall have been issued and no
proceedings for that purpose shall be pending or, to the knowledge of the
Company, threatened by the Commission and (y) no order suspending the
effectiveness of such registration statement or the qualification or
registration of the Common Stock under the Blue Sky laws of any jurisdiction
shall be in effect and no proceedings for that purpose shall be pending or, to
the knowledge of the Company, threatened by the Commission or the authorities of
any such jurisdiction.
(b) Parent shall have distributed to its shareholders an
information statement which substantially complies with the requirements of
Regulation 14C under the Exchange Act.
(S)6.9 Governmental Approvals. All governmental consents, waivers
----------------------
and approvals, if any, disclosed on any Schedule attached hereto or necessary to
permit the consummation of the transactions contemplated by this Agreement and
all third party consents, waivers and approvals, if any, disclosed on Schedule
--------
6.9 attached hereto shall have been received.
- ---
(S)6.10 Board of Directors. On the Closing Date, the Board of
------------------
Directors of the Company shall be composed of seven Directors and the Chairman
of the Board of Directors shall be Ronald L. King, or such other Person as shall
be acceptable to Purchasers in their sole discretion. Purchasers shall have
received evidence reasonably satisfactory to Purchasers that each of three
nominees specified by Purchasers at least two business days in advance of the
Closing Date shall have been elected as Directors of the Company, effective upon
the Closing.
(S)6.11 Note Purchase Agreement. The Company shall have executed and
-----------------------
delivered the Note Purchase Agreement and Standby Facility by and among
Purchasers and the Company in substantially the form of Exhibit D attached
---------
hereto (the "Note Purchase Agreement") in respect of the Company's Adjustable
Rate Junior Subordinated Pay-in-Kind Notes due 2007 (the "Junior Notes").
(S)6.12 Corporate Separation Agreement. Parent and the Company shall
------------------------------
have executed and delivered a Corporate Separation Agreement substantially in
the form of Exhibit E attached hereto (the "Corporate Separation Agreement").
---------
(S)6.13 Tax Sharing and Indemnification Agreement. Parent and the
-----------------------------------------
Company shall have executed and delivered a Tax Sharing and Indemnification
Agreement substantially in the form of Exhibit F attached hereto (the "Tax
---------
Sharing Agreement").
(S)6.14 Benefits Sharing Agreement. Parent and the Company shall
--------------------------
have executed and delivered a Benefits Sharing Agreement substantially in the
form of Exhibit G attached hereto (the "Benefits Sharing Agreement").
---------
(S)6.15 Certificate of Incorporation; By-Laws. (a) The Articles of
-------------------------------------
Incorporation of the Company shall have been amended and restated substantially
in the form of Exhibit H-1 attached hereto and shall be in full force and effect
-----------
as so amended and restated.
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<PAGE>
(b) The By-Laws of the Company shall have been amended and
restated substantially in the form of Exhibit H-2 attached hereto and shall be
-----------
in full force and effect as so amended and restated.
(S)6.16 Credit Agreement. The Company shall have entered into a new
----------------
senior credit facility on terms and conditions, and with lenders, reasonably
acceptable to Purchasers.
(S)6.17 Transaction Fee. Purchasers shall have received the
---------------
transaction fees specified in the Fee Letter by and among Purchasers and the
Company and dated of even date herewith (the "Fee Letter").
(S)6.18 Management Equity Participation. (a) Each of Messrs. Ronald
-------------------------------
L. King and Michael J. Hughes shall beneficially own shares of Common Stock with
a value equal to or greater than $75,000 each and Purchasers shall have received
evidence reasonably satisfactory to Purchasers of such ownership.
(b) The Company shall have adopted a Stock Option Plan (the
"Option Plan") in form and substance satisfactory to Purchasers and at least 75%
of the stock options issuable under the Option Plan shall have been issued on
terms and conditions and to Persons reasonably satisfactory to Purchasers.
(S)6.19 Loan from Parent. Parent shall have purchased at least
----------------
$3,500,000 aggregate principal amount of the Company's 10-1/2% Junior
Subordinated Notes due 2002 (the "Irex Notes"), on terms and conditions
reasonably satisfactory to Purchasers.
(S)6.20 Spin-Off. Parent shall have completed the Spin-Off.
--------
(S)6.21 Statutes. No statute, rule, regulation, executive order,
--------
decree or order of any kind shall have been enacted, entered, promulgated or
enforced by any court or governmental authority which prohibits the consummation
of the transactions contemplated by this Agreement or has the effect of making
them illegal.
(S)6.22 Proceedings. All proceedings to be taken in connection with
-----------
the transactions contemplated by this Agreement and all documents incident
thereto shall be satisfactory in form and substance to Purchasers and their
counsel, and Purchasers shall have received copies of all such documents and
other evidences as they or their counsel may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
(S)6.23 Guaranties. Parent shall have obtained the termination of,
----------
or the unconditional release of, the Company from all liability under any
indebtedness of Parent (or any guaranty, security agreement or other credit
support instrument entered into by the Company in respect thereof), including,
without limitation, the indebtedness or guaranties set forth on Schedule 6.23
-------------
attached hereto.
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<PAGE>
ARTICLE VII
CONDITIONS TO PARENT'S AND THE COMPANY'S OBLIGATIONS
----------------------------------------------------
(S)7. Conditions to Parent's and the Company's Obligations. The sale
----------------------------------------------------
of the Shares by the Company on the Closing Date and the performance of Parent's
and the Company's other obligations under this Agreement which are to be
performed on the Closing Date are conditioned upon satisfaction, at or prior to
such date, of the following conditions:
(S)7.1 Truth of Representations and Warranties. The representations
---------------------------------------
and warranties of Purchasers contained in this Agreement shall be true and
correct in all material respects (except to the extent such representations and
warranties contain a "materiality," "material adverse effect" or similar
qualification, in which case they shall be true and correct in all respects) on
and as of the Closing Date with the same effect as though such representations
and warranties had been made on and as of such date, and each Purchaser shall
have delivered to Parent a certificate of its general partner, dated the Closing
Date, to such effect.
(S)7.2 Performance of Agreements. All of the agreements of
-------------------------
Purchasers to be performed prior to the Closing pursuant to the terms of this
Agreement shall have been duly performed in all material respects, and each
Purchaser shall have delivered to Parent a certificate of its general partner,
dated the Closing Date, to such effect.
(S)7.3 Note Purchase Agreement. Each Purchaser shall have executed
-----------------------
and delivered the Note Purchase Agreement and Purchasers, collectively, shall
have purchased from the Company at least $3,500,000 aggregate principal amount
of Junior Notes on the terms and conditions set forth in the Note Purchase
Agreement.
(S)7.4 Governmental Approvals. All governmental consents, waivers
----------------------
and approvals, if any, disclosed on any Schedule attached hereto or necessary to
permit the consummation of the transactions contemplated by this Agreement and
all third party consents, waivers and approvals, if any, disclosed on Schedule
--------
7.4 attached hereto shall have been received.
- ---
(S)7.5 Option Plan. At least 75% of the stock options issuable
-----------
under the Option Plan shall have been issued on terms and conditions and to
Persons reasonably satisfactory to the Company.
(S)7.6 Statutes. No statute, rule, regulation, executive order,
--------
decree or order of any kind shall have been enacted, entered, promulgated or
enforced by any court or governmental authority which prohibits the consummation
of the transactions contemplated by this Agreement or has the effect of making
them illegal.
(S)7.7 Proceedings. All proceedings to be taken in connection with
-----------
the transactions contemplated by this Agreement and all documents incident
thereto shall be reasonably satisfactory in form and substance to Parent and its
counsel, and Parent shall have received copies of all such documents and other
evidences as they or their counsel may reasonably request
-36-
<PAGE>
in order to establish the consummation of such transactions and the taking of
all proceedings in connection therewith.
(S)7.8 Purchaser Documents. Each Purchaser shall have delivered to
-------------------
Parent (i) a copy of such Purchaser's certificate of limited partnership or
certificate of formation, including all amendments thereto, certified by the
Secretary of State or other appropriate official of its jurisdiction of
formation, and (ii) copies of resolutions of the general partner or managing
members of such Purchaser authorizing the execution, delivery and performance by
such Purchaser of this Agreement, each of the other Transaction Documents to
which such Purchaser is a party and the consummation of each of the transactions
contemplated hereby and thereby, certified by a member of such general partner
as being true and correct and in effect on the Closing Date.
(S)7.9 No Litigation Threatened. No action or proceedings shall
------------------------
have been instituted or, to the knowledge of any party, threatened before a
court or other governmental body or by any public authority to restrain or
prohibit any of the transactions contemplated hereby.
(S)7.10 Effectiveness of Registration Statement. The Company's
---------------------------------------
Registration Statement on Form 10 with respect to its Common Stock shall have
become effective and (x) no stop order suspending the effectiveness of such
registration statement shall have been issued and no proceedings for that
purpose shall be pending or, to the knowledge of the Company, threatened by the
Commission, and (y) no order suspending the effectiveness of such registration
statement or the qualification or registration of the Common Stock under the
Blue Sky laws of any jurisdiction shall be in effect and no proceedings for that
purpose shall be pending or, to the knowledge of the Company, threatened by the
Commission or the authorities of any such jurisdiction.
(S)7.11 Credit Agreement. The Company shall have entered into a new
----------------
senior credit facility on terms reasonably satisfactory to the Company.
(S)7.12 Loan from Purchasers. The Purchasers shall have purchased at
--------------------
least $3,500,000 aggregate principal amount of Junior Notes, on the terms set
forth in the Note Purchase Agreement.
(S)7.13 Opinions of Counsel. (a) Purchasers shall have furnished
-------------------
Parent with a favorable opinion, dated the Closing Date, of White & Case LLP, in
form and substance satisfactory to Parent and their counsel, to the effect set
forth in Exhibit K, attached hereto.
---------
(b) Parent shall have received a favorable tax opinion, dated the
date of the Spin-Off (which shall be the Closing Date) of Dechert Price &
Rhoads, tax counsel to Parent and the Company, in form and substance
satisfactory to Parent and its counsel, to the effect set forth in Exhibit B-2
-----------
attached hereto.
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<PAGE>
ARTICLE VIII
ADDITIONAL COVENANTS
--------------------
(S)8.1 Board of Directors; Voting. (a) The Board of Directors of
---------------------------
the Company shall be composed of seven directors. The number of Directors
constituting the Company's Board of Directors shall not be changed until the
earlier to occur of (x) the consummation of a Qualified Public Offering, (y)
such time as any Person acquires at least 90% of the issued and outstanding
Common Stock and (z) the fifth anniversary of the Closing Date; provided that
the Board of Directors, by a unanimous vote of each Continuing Director and each
Director who is a designee of Purchasers pursuant to Section 8.1, may alter the
size of the Board of Directors.
(b) At all times after the Closing Date, the Company agrees to
support the nomination of, and the Company's nominating committee (or any other
committee exercising a similar function), if any, shall recommend to the Board
of Directors that a number of Persons recommended by Purchasers be included in
the slate of nominees recommended by the Board of Directors to shareholders for
election as Directors at each annual meeting of shareholders of the Company
commencing with the next annual meeting of shareholders so that the number of
Directors who are designees of the Purchaser will be as follows: (a) so long as
Purchasers collectively own equal to or greater than 30% of the outstanding
Common Stock, three Persons; (b) so long as Purchasers collectively own equal to
or greater than 15% of the outstanding Common Stock and less than 30% of the
Common Stock, two Persons; (c) so long as Purchasers collectively own equal to
or greater than 5% of the outstanding Common Stock and less than 15% of the
outstanding Common Stock, one Person. The Company will solicit proxies and
consents from its shareholders for such nominees and will vote all management
proxies in favor of such nominees except for such proxies that specifically
indicate to the contrary. If any Director of the Company designated by any
Purchaser shall cease to be a Director of the Company for any reason whatsoever,
the Company shall promptly, upon the request of Purchasers, cause to be elected
to the Board of Directors, a Person designated by Purchasers to replace such
director; provided that, such Person may not be a Person who was previously
--------
removed as a Director of the Company for Cause.
(c) Prior to the third anniversary of the Closing Date, no
Purchaser shall, (x) without the written consent of a majority of the Continuing
Directors, seek to elect or cause to be elected more than three Directors
designated by, supported by or representative of Purchasers as directors of the
Company or (y) oppose the election of, nominate any candidate in place of,
support any candidate for election as a Director in place of, or fail to vote
all of the Shares of Common Stock owned by such Purchaser in favor of those
candidates nominated by the Continuing Directors of the Company; provided that
nothing contained herein shall prevent Purchasers from enforcing their rights
pursuant to subsections (a) and (b) of this Section 8.1. Notwithstanding the
foregoing, nothing contained in this Agreement shall be construed to prohibit
Purchasers from seeking to elect or causing to be elected such number of Persons
designated by Purchasers as Directors of the Company as is set forth below at
the annual meeting immediately following the anniversary of the Closing Date set
forth below:
-38-
<PAGE>
<TABLE>
<CAPTION>
ANNIVERSARY OF CLOSING DATE NUMBER OF
- --------------------------- ---------
DIRECTORS
---------
<S> <C>
Third.................................................... 4
Fourth................................................... 5
Fifth.................................................... 6
Sixth and thereafter..................................... 7
</TABLE>
The restrictions imposed by this Section 8.1(c) shall cease to have any effect
upon the first to occur of (x) the consummation of a Qualified Public Offering
and (y) such time as any Person acquires 90% of the issued and outstanding
Common Stock. Notwithstanding anything to the contrary contained herein, the
Chief Executive Officer of the Company (or any officer performing a similar
function) shall not be considered a designee of Purchasers for purposes of this
Section 8.1.
(d) At all times after the Closing Date at which Purchasers
beneficially own more than 10% of the Outstanding Voting Securities, the
Company, upon Purchasers' request and recommendation, shall ensure that at least
one director designated by Purchaser is a member of each committee of the Board
of Directors of the Company. If any such Committee shall consist of more than
four directors, the number of directors designated by Purchaser that shall be
appointed to such committee shall as nearly as practicable be approximately
proportionate to the number of Directors Purchasers are entitled to nominate as
Directors of the Company at that time.
(e) At all times after the Closing Date at which a Continuing Director
is entitled to be elected to the Board of Directors of the Company, the Company,
upon the Continuing Directors' request and recommendation, shall ensure that at
least one Continuing Director is a member of each committee of the Board of
Directors of the Company. If any such Committee shall consist of more than four
directors, the number of Continuing Directors appointed to such Committee shall
as nearly as practicable be approximately proportionate to the number of
Continuing Directors on the Board of Directors of the Company at that time.
(f) At any time prior to the earlier to occur of (x) the consummation
of a Qualified Public Offering and (y) such time as any Person acquires at least
90% of the issued and outstanding Common Stock, the Company agrees to support
the nomination of, and the Company's nominating committee (or any other
committee exercising a similar function), if any, shall recommend to the Board
of Directors that a number of Persons recommended by the Continuing Directors be
included in the slate of nominees recommended by the Board of Directors to the
shareholders for election as Directors at each annual meeting of the
shareholders of the Company commencing with the next annual meeting of
shareholders so that the number of Directors who are designees of the Continuing
Directors will be as follows:
-39-
<PAGE>
<TABLE>
<CAPTION>
ANNIVERSARY OF CLOSING DATE TOTAL NUMBER OF
- ---------------------------
CONTINUING
DIRECTORS
---------
<S> <C>
First....................................................... 3
Second...................................................... 3
Third....................................................... 2
Fourth...................................................... 1
Fifth and thereafter........................................ 0
</TABLE>
The Company will solicit proxies and consents from its shareholders for such
nominees and will vote all management proxies in favor of such nominees except
for such proxies that specifically indicate to the contrary. Each Purchaser
will vote all shares of Common Stock owned or controlled by such Purchaser in
favor of such nominees. If any Director of the Company designated by the
Continuing Directors shall cease to be a Director of the Company for any reason
whatsoever, Purchasers and the Company shall promptly, upon the request of the
Continuing Directors, cause to be elected to the Board of Directors of the
Company a Person designated by the Continuing Directors to replace such
Director, provided that such Person may not be a Person who was previously
removed as a Director of the Company for Cause. Notwithstanding anything to the
contrary contained herein, the Chief Executive Officer of the Company (or any
officer performing a similar function) shall not be considered a Continuing
Director for purposes of this Section 8.1
(g) Nothing in this Agreement shall prevent the Company's
shareholders from removing any Director for Cause. For purposes of this
Agreement, "Cause" shall mean any of the following, (i) a Director's conviction
of, any crime or offense involving monies or other property or any felony, crime
or any offense of moral turpitude; (ii) a Director's breach of any of his
fiduciary duties to the Company or its shareholders as determined by a judgment
of a court of competent jurisdiction, or making of a willful misrepresentation
or omission which breach or misrepresentation or omission has had a material
adverse effect on the Company's and its subsidiaries business, taken as a whole;
or (iii) a Director's violation of any non-competition or confidentiality
agreement with the Company.
(h) Immediately prior to the Closing Date, the Company's Chief
Executive Officer shall be a Director of the Company and shall be appointed as
the Chairman of the Board of Directors of the Company.
(i) The shareholders of the Company shall be express third party
beneficiaries of Sections 8.1(a), 8.1(c), 8.1(d), 8.1(e), 8.1(f) and 8.1(g) of
this Agreement.
(S)8.2 Sale of ECP Shares. (a) If, at any time prior to the
------------------
consummation of a Qualified Public Offering, Purchasers propose to effect the
sale of any Shares owned by them (other than (x) a transfer of Shares among the
Purchasers or to any Affiliate or limited partner of Purchasers, (y) a
distribution or sale of Shares on a pro rata basis by one or more Purchasers to
-40-
<PAGE>
its limited partners, or (z) a sale of Shares pursuant to Rule 144 under the
Securities Act or the provisions of Article IX hereof), Purchasers shall, as a
condition of such sale, cause the purchasers or other transferees of such Shares
to effect a transaction (a "Transaction") which provides the benefits of such
sale or transfer to all shareholders on the same terms, including, but not
limited to a merger or a tender offer for shares of Common Stock of the Company
open to all holders of Common Stock. Purchasers hereby agree that, in the event
that such a Transaction is made or otherwise effected, they will effect the sale
of any Shares proposed to be sold by them solely by participating in such
Transaction.
(b) In no event shall Purchasers receive special consideration in
connection with any sale contemplated by this Section 8.2 (other than fees
approved by the Board of Directors in accordance with Section 8.4(a)(i) of this
Agreement).
(c) The shareholders of the Company shall be express third party
beneficiaries of this Section 8.2.
(S)8.3 ERISA Management Rights. (a) (i) Subject to the last
-----------------------
sentence of this Section 8.3(a)(i), each of Evercore Capital Partners L.P. and
Evercore Capital Partners (NQ) L.P. (the "ERISA Partnerships") shall have the
right to designate one member of the board of directors of the Company. Such
right shall belong solely to, and shall be exercised exclusively by, the ERISA
Partnerships for their own benefit and for their own account. The ERISA
Partnerships' designated Directors shall have the right to serve as a member of
any and all committees of the Board of Directors of the Company. The
appointment and removal of the ERISA Partnerships' designated directors shall be
by written notice from the ERISA Partnerships to the Company and, upon the
delivery thereof at the Company's registered office or at any meeting of the
board of directors or any committee thereof, the Company will use its best
efforts to cause such appointment or removal. The directors appointed by the
ERISA Partnerships pursuant to this Section 8.3(a)(i) shall be included in (and
shall not be additional to) the Directors which the Purchasers are entitled to
nominate pursuant to Section 8.1 of this Agreement.
(ii) Notwithstanding anything to the contrary specified in Section
8.1 or this Section 8.3, to the extent that Purchasers reasonably believe that
it is necessary or advisable to preserve the status of the ERISA Partnerships as
"venture capital operating companies," or to otherwise ensure that the assets of
the ERISA partnerships are not considered "plan assets" for purposes of ERISA,
each ERISA Partnership shall have the right to appoint an observer who shall
have the right to attend all meetings of the Board of Directors of the Company
and shall have all rights of a Director of the Company (including, but not
limited to, the right to participate and be heard in meetings of the Board of
Directors) other than the right to vote on matters brought before the Board of
Directors; it being understood that, to the extent not prohibited by applicable
law, the ERISA Partnerships shall be represented on the Board of Directors of
the Company by Directors nominated by Purchasers pursuant to Section 8.1;
provided, that the ERISA Partnerships shall not be entitled to appoint any
observer pursuant to this Section 8.3(a)(ii) unless less than two designees of
Purchasers are serving as Directors of the Company pursuant to Section 8.1;
provided, further, that at any time the ERISA Partnerships have the right to
appoint an observer pursuant to this Section 8.3(a)(ii), the combined number of
Directors designated by,
-41-
<PAGE>
and observers appointed by, Purchasers (including, without limitation, the ERISA
Partnerships) shall not exceed two.
(b) The ERISA Partnerships shall have the right to receive, within
a reasonable time after their written request therefor, any information relating
to the Company or its subsidiaries or associated companies as they in their sole
discretion may require, including without limitation: (i) financial information
and statements, including a balance sheet, profit and loss and cash flow
statements of the Company and each of its subsidiaries; (ii) on an annual basis
or, if so requested, more frequent basis, budgets and cash flow forecasts and
projections of the Company and each of its subsidiaries; and (iii) such
additional financial or other information as the ERISA Partnerships may request;
and the ERISA Partnerships shall be entitled, upon reasonable notice during
regular business hours, to inspect and review the premises, books and records of
the Company, its subsidiaries or associated companies.
(c) The ERISA Partnerships shall have the right to meet on a
regular basis with the management personnel of the Company and its subsidiaries
from time to time and upon notice to the Company (or the applicable subsidiary)
for the purpose of consulting with, rendering advice, recommendations and
assistance to, and influencing the management of the Company (or its
subsidiaries) or obtaining information regarding the Company's or any of its
subsidiary's or associated companies' operations, activities and prospects and
expressing its views thereon.
(d) If counsel for the ERISA Partnerships concludes that the rights
granted to the ERISA Partnerships pursuant to this Article VIII should be
altered in order to preserve the qualification of each of the ERISA Partnerships
as a "venture capital operating company", or otherwise to ensure that the assets
of the ERISA Partnerships are not considered "plan assets" for purposes of
ERISA, the parties hereto agree to negotiate in good faith an amendment to this
Agreement that will effect such alteration in a manner reasonably acceptable to
the Company and the Purchasers.
(S)8.4 Limitations on Transactions with Affiliates. (a) The Company
-------------------------------------------
will not and will not permit its subsidiaries to, directly or indirectly, sell,
lease or otherwise transfer any of its properties or assets to, or purchase any
property or assets from, or enter into any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, Parent or any of
Parent's Affiliates (to the extent Section 8.1(e) remains in effect), any
Purchaser, any officer, director, Significant Shareholder, or Affiliate of the
Company or any Purchaser (each of the foregoing an "Affiliate Transaction")
except for (i) Affiliate Transactions which are conducted in good faith and on
terms that are no less favorable to the Company or the relevant subsidiary than
those which would have been available at such time in a transaction with an
independent third party on an arms' length basis and have been approved by a
majority of the Independent Directors of the Company or (ii) with respect to any
Affiliate Transaction involving (A) a change of control of the Company or a
substantial change in the Company's equity ownership, (B) a "Rule 13e-3
transaction" (as such term is defined pursuant to Rule 13e-3 under the Exchange
Act), (C) a sale of all or substantially all of the assets of the Company, (D)
any transaction contemplated by Section 8.2 of this Agreement or (E) any
transaction with substantially similar effects, any such transaction for which
the Company has obtained an opinion from a nationally recognized investment
banking firm (which firm shall be independent of Purchasers) that such Affiliate
-42-
<PAGE>
Transaction is fair to the shareholders of the Company or such subsidiary from a
financial point of view. Notwithstanding anything to the contrary contained
herein, the Company may continue and enter into agreements with Parent or any of
its subsidiaries relating to sales of materials which are conducted in good
faith and on terms that are no less favorable to the Company or the relevant
Company subsidiary than those which would have been available at the time in a
transaction with an independent third party on an arms' length basis; provided,
that, upon the request of any Director, any transaction or proposed series of
transactions involving aggregate sales or expenditures in excess of $5.0 million
shall require the approval of the Board of Directors of the Company in
accordance with clause (i) of the first sentence of this Section 8.1(a).
(b) The Company shall not enter into any management services or
similar type agreement with either Purchasers, Parent or any of their respective
Affiliates.
(c) The Continuing Directors shall have the right to enforce the
provisions of this Section 8.4 on behalf of the shareholders of the Company and
Purchasers, Parent and the Company hereby agree for the benefit of the
Continuing Directors not to raise any objection to the standing of such
Continuing Directors to enforce such provisions before any court of competent
jurisdiction. If, notwithstanding the foregoing, any court of competent
jurisdiction denies the Continuing Directors standing to assert such claims on
behalf of the shareholders of the Company, such shareholders may enforce this
Section 8.4 directly, as if express third-party beneficiaries hereof.
(S)8.5 Limitation of Purchases of Common Stock. For a period of two
----------------------------------------
years from the Closing Date, neither the Purchasers nor any Affiliate of the
Purchasers will acquire, directly or indirectly, any Common Stock or other
equity securities of the Company; provided, however, that (i) this covenant
shall not apply to the acquisition of Shares pursuant to this Agreement and (ii)
any other acquisition of Common Stock or other equity securities of the Company
shall not be a violation of this covenant if: (A) the acquisition does not cause
subsection 355(e) of the Code to apply to the Spin-off (whereby the Common Stock
would not be treated as qualified property for purposes of subsection 355(c) of
the Code) or (B) prior to such acquisition, a ruling from the IRS or an Opinion
of Counsel (in either case, which shall be in form and substance reasonably
satisfactory to Parent and upon which Parent can rely) is received as provided
in section 6.2(b) of the Tax Sharing Agreement.
(S)8.6 Restrictions of Transfer. (a) No Purchaser shall Transfer
------------------------
(as defined below) (other than in connection with a redemption or purchase by
the Company or any Permitted Transfer) any Common Stock unless the transferee of
such Transfer agrees to be bound by the terms and conditions of this Agreement
as if such transferee were a Purchaser hereunder by executing and delivering to
each of the Company and Parent a joinder to this Agreement in the form attached
hereto as Exhibit J. Any purported Transfer in violation of this Agreement
---------
shall be null and void and of no force and effect and the purported transferee
shall have no rights or privileges in or with respect to the Company. As used
herein, "Transfer" includes the making of any sale, exchange, assignment,
hypothecation, gift, security interest, pledge or other encumbrance, or any
contract therefor, any voting trust or other agreement or arrangement with
respect to the transfer of voting rights or any other beneficial interest in any
of the Common Stock, the creation of any other claim thereto or any other
transfer or disposition whatsoever,
-43-
<PAGE>
whether voluntary or involuntary, affecting the right, title, interest or
possession in or to such Common Stock.
(b) Prior to any proposed Transfer of any Common Stock (other than any
Permitted Transfer) the holder thereof shall give written notice to the Company
describing the manner and circumstances of the proposed Transfer accompanied by
either a Representation Letter substantially in the form of Exhibit I executed
---------
by the proposed transferee or a written opinion of counsel, addressed to the
Company and the transfer agent, if other than the Company, and reasonably
satisfactory in form and substance to each addressee, to the effect that the
proposed Transfer of the Securities may be effected without registration under
the Securities Act and applicable state securities laws.
(c) The Continuing Directors shall have the right to enforce the
provisions of this Section 8.6 on behalf of the shareholders of the Company and
Purchasers, Parent and the Company hereby agree for the benefit of the
Continuing Directors not to raise any objection to the standing of such
Continuing Directors to enforce such provisions before any court of competent
jurisdiction. If, notwithstanding the foregoing, any court of competent
jurisdiction denies the Continuing Directors standing to assert such claims on
behalf of the shareholders of the Company, such shareholders may enforce this
Section 8.6 directly, as if express third-party beneficiaries hereof.
ARTICLE IX
REGISTRATION RIGHTS
-------------------
(S)9.1 Demand Registration. (a) At any time after the second
-------------------
anniversary of the Closing Date, upon the written request of any ECP Person
(provided, that such request may only be made with the prior written approval of
Purchasers at any time that Purchasers own any Registrable Securities)
requesting that the Company effect the registration under the Securities Act of
all or any part of the Registrable Securities owned by such ECP Person and
specifying the intended method of disposition thereof, but subject to the
limitations set forth herein, the Company will promptly (but in no event more
than ten business days after the receipt of such request) give written notice of
such requested registration to all other ECP Persons, and the Company shall file
with the Commission as promptly as practicable after sending such notice, and
use its best efforts to cause to become effective, a registration statement
under the Securities Act registering the offering and sale of the Registrable
Securities which the Company has been so requested to register by the ECP
Persons, all to the extent necessary to permit the disposition (in accordance
with the intended method thereof as aforesaid) of the Registrable Securities so
to be registered (a "Purchaser Demand Registration"); provided, that (i) the
--------
Company need not effect a Demand Registration unless such Demand Registration
shall include the lesser of (x) 5% of the shares of Common Stock then
outstanding or (y) all shares of Common Stock beneficially owned by the
Demanding Persons requesting such Demand Registration, and (ii) the Company
shall not be required to effect more than one Demand Registration in any twelve-
month period.
-44-
<PAGE>
Notwithstanding anything to the contrary contained herein, the Company shall not
be required to be effect more than three Purchaser Demand Registrations.
(b) At any time after the earlier to occur of (i) the date which is
180 days after the consummation of a Qualified Public Offering and (ii) the
fourth anniversary of the Closing Date, upon the written request of any
Qualified Shareholder Group requesting that the Company effect the registration
under the Securities Act of all or any part of the Registrable Securities owned
by such Qualified Shareholder Group and specifying the intended method of
disposition thereof, but subject to the limitations set forth herein, the
Company will promptly (but in no event more than ten business days after the
receipt of such request) give written notice of such requested registration to
the Purchasers, and the Company shall file with the Commission as promptly as
practicable after sending such notice, and use its best efforts to cause to
become effective, a registration statement under the Securities Act registering
the offering and sale of the Registrable Securities which the Company has been
so requested to register by the Qualified Shareholder Group, all to the extent
necessary to permit the disposition (in accordance with the intended method
thereof as aforesaid) of the Registrable Securities so to be registered (a
"Shareholder Demand Registration"); provided, that (i) the Company need not
effect a Demand Registration unless such Demand Registration shall include the
lesser of (x) 5% of the shares of Common Stock then outstanding or (y) all
shares of Common Stock beneficially owned by the Demanding Persons requesting
such Demand Registration, and (ii) the Company shall not be required to effect
more than one Demand Registration in any twelve-month period. Notwithstanding
anything to the contrary contained herein, the Company shall not be required to
effect more than one Shareholder Demand Registration.
(c) If the requesting Demanding Person so elects (provided that, in
the case of a Purchaser Demand Registration, such election, including the choice
of underwriter, may only be made with the prior written approval of Purchasers
at any time Purchasers own any Registrable Securities), a requested registration
pursuant to this Section 9.1 shall be in the form of an underwritten offering
through underwriters which shall be investment banking firms of national
reputation designated by the Demanding Persons requiring such underwriting. If
a requested registration pursuant to this Section 9.1 involves an underwritten
offering and the managing underwriter advises the Company in writing that, in
its opinion, the number of securities requested to be included in such
registration (including securities of the Company which are not Registrable
Securities) exceeds the number which can be sold in such offering without a
significant adverse effect on the price, timing or distribution of the
Registrable Securities offered, the Company will (subject to the last sentence
of this paragraph) include in such registration only the Registrable Securities
requested to be included in such registration. In the event that the number of
Registrable Securities requested to be included in such registration exceeds the
number which, in the opinion of such managing underwriter, can be sold, then the
Company will include in such registration such lesser number of Registrable
Securities which is equal to the number which, in the opinion of the managing
underwriter, can be sold) which such Registrable Securities shall be allocated
among the Demanding Persons pro rata, in accordance with the relative number of
Registrable Securities each such Demanding Person has requested to be sold. In
the event that the number of Registrable Securities requested to be included in
such registration is less than the number which, in the opinion of the managing
underwriter, can be sold, the Company may include in such registration the
securities the Company or any other holder of the Company's securities
-45-
<PAGE>
proposes to sell up to the number of securities that, in the opinion of the
managing underwriter, can be sold without an adverse effect on the price, timing
or distribution of the Registrable Securities offered.
(d) The Company shall be entitled to postpone for a reasonable
period of time (not to exceed 120 days, which may not thereafter be extended)
the filing of any registration statement otherwise required to be prepared and
filed by it pursuant to Section 9.1(a) or Section 9.1(b) hereof if, at the time
it receives a request for such registration, the Board of Directors of the
Company determines in good faith that such offering will materially interfere
with a pending or contemplated financing, merger, sale of assets,
recapitalization or other similar corporate action of the Company, in which case
the Company shall have furnished to holders of Registrable Securities requesting
such registration certificate to that effect; provided, that the Company shall
not exercise the right to postpone registration pursuant to this Section 9.1(d)
more than once in any 12 month period. After such period of postponement the
Company shall effect such registration as promptly as practicable without
further request from the holders of Registrable Securities, unless such request
has been withdrawn.
(e) Notwithstanding the foregoing, the Company shall not be
obligated to file a registration statement at the request of any Demanding
Person if the Company and such Demanding Person shall have received an opinion
of counsel reasonably satisfactory in form and substance to such Demanding
Person and the Company to the effect that (i) the disposition of such
Registrable Securities in the manner proposed by such Demanding Person may be
effected without registration under the Securities Act or (ii) all such
Registrable Securities can then be sold during a single three month period
pursuant to Rule 144 under the Securities Act; provided, that in the case of (i)
and (ii) above, the Registrable Securities so disposed of would be unrestricted
with respect to resale under the Securities Act in the hands of a transferee who
is not an Affiliate of the Company.
(S)9.2 Piggy-back Registration. (a) If the Company shall at any
-----------------------
time propose to file a registration statement under the Securities Act for an
offering of securities of the Company (other than an offering relating to (i) a
business combination that is to be filed on Form S-4 under the Securities Act
(or any successor form thereto) or (ii) an employee benefit plan), the Company
shall provide prompt written notice of such proposal, in any event, not less
than 15 days before the anticipated filing date, to all Eligible Persons of its
intention to do so and of such Eligible Persons' rights under this Section 9.2.
The Company shall use its commercially reasonable efforts to include such number
of Registrable Securities in such registration statement which the Company has
been so requested to register by any Eligible Persons (a "Piggy-back
Registration"), which request shall be made to the Company within 15 days after
such Eligible Persons receive notice from the Company of such proposed
registration; provided, that (i) if, at any time after giving written notice of
its intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such securities, the Company may,
at its election, give written notice of such determination to each Eligible
Person and, thereupon, shall be relieved of its obligation to register any
Registrable Securities in connection with such registration (but not from its
obligation to pay the registration expenses referred to in Section 9.11 incurred
in connection therewith), and (ii) if such registration involves an underwritten
offering, all holders of Registrable Securities
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<PAGE>
requesting to be included in the Company's registration must sell their
Registrable Securities to the underwriters selected by the Company on the same
terms and conditions as apply to the Company, with such differences, including
any with respect to indemnification and liability insurance, as may be customary
or appropriate in combined primary and secondary offerings. Any Eligible Person
requesting inclusion in a registration pursuant to this Section 9.2 may elect,
in writing at least five days prior to the effective date of the registration
statement filed in connection with such registration, not to register such
securities in connection with such registration.
(b) If a registration pursuant to this Section 9.2 involves an
underwritten offering as to which any Eligible Person has requested a Piggy-back
Registration and the managing underwriter reasonably and in good faith advises
the Company in writing that, in its opinion, the number of securities to be
included in such registration exceeds the number which can be sold in such
offering without an adverse effect on the price, timing or distribution of such
offering, then (i) if such registration is a primary offering on behalf of the
Company, the number of securities which all holders of the Company's securities
requested to be included in such registration shall be reduced as necessary pro
rata in proportion to the relative number of securities requested by each such
holder to be included until the number of securities to be included in such
registration no longer exceeds the number which can be sold in such offering or
(ii) if such registration is a secondary registration on behalf of the holders
of the Company's securities other than Registrable Securities (the "Requesting
Holders"), (A) first, the number of securities which the Company seeks to
register, if any shall be reduced until the number of securities to be included
in such registration no longer exceeds the number which can be sold in such
offering, (B) second, the number of securities which the Company's security
holders other than the Requesting Holders requested to be included in such
registration shall be reduced as necessary pro rata in proportion to the
relative number of securities requested by each such holder to be included until
the number of securities to be included in such registration no longer exceeds
the number which can be sold in such offering and (C) third, the number of
securities which the Requesting Holders requested to be included in such
registration shall be reduced as necessary pro rata in proportion to the
relative number of securities requested by each such Requesting Holder until the
number of securities to be included in such registration no longer exceeds the
number which can be sold in such offering.
(c) No registration effected under this Section 9.2 shall be
deemed to have been effected pursuant to Section 9.1 hereof or shall release the
Company of its obligation to effect any registration upon request under Section
9.1 hereof.
(S)9.3 Indemnification by the Company. In the event of any
------------------------------
registration of the Registrable Securities under the Securities Act, the Company
shall, and hereby does, indemnify and hold harmless Purchasers, each other
Participating Person, each of their respective directors and officers, each
other Person who participates as an underwriter in the offering or sale of such
Registrable Securities and each other Person, if any, who controls any
Purchaser, any other Participating Person or any such underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to which
each such Purchaser, other Participating Person or any such director or officer
or underwriter 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
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commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which the Registrable Securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not misleading,
and the Company shall reimburse Purchasers, each other Participating Person and
each such director, officer, underwriter and controlling Person for any legal or
any other expenses reasonably incurred by them in connection with the
investigating or defending any such loss, claim, liability, action or
proceeding; provided, however, (a) that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, 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, preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information about any Purchaser or other Participating Person
furnished to the Company through an instrument duly executed by or on behalf of
such Purchaser or other Participating Person specifically stating that it is for
use in the preparation thereof, and (b) with respect to any untrue statement or
omission or alleged untrue statement or omission made in any preliminary
prospectus, or in any prospectus, as the case may be, the indemnity agreement
contained in this Section shall not apply to the extent that any such loss,
claim, damage, liability or expense results from the fact that a current copy of
the prospectus (or such amended or supplemental prospectus as the case may be)
was not sent or given to the Person asserting any such loss, claim, damage,
liability or expense at or prior to the written confirmation of the sale of the
Registrable Securities concerned to such Person if it is determined that the
Company has provided such prospectus and it was the responsibility of such
Participating Person to provide such person with a current copy of the
prospectus (or such amended or supplemental prospectus, as the case may be) and
such current copy of the prospectus (or such amended or supplemental prospectus,
as the case may be) would have cured the defect giving rise to such loss, claim,
damage, liability or expense. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of any Purchaser or
other Participating Person or any such director, officer or controlling Person
and shall survive the transfer of the Registrable Securities by any Purchaser.
(S)9.4 Indemnification by Participating Persons. The Company may
----------------------------------------
require, as a condition to including any Registrable Securities in any
registration statement filed pursuant to Section 9.1 or 9.2, that the Company
shall have received an undertaking satisfactory to it from each Participating
Person participating in such Registration to indemnify and hold harmless (in the
same manner and to the same extent as set forth in Section 9.3) the Company,
each director of the Company, each officer of the Company signing such
registration statement, each other Person who participates as an underwriter in
the offering or sale of such Registrable Securities and each other Person, if
any, who controls the Company or underwriter within the meaning of Section 15 of
the Securities Act and Section 20 of the Exchange Act with respect to any untrue
statement or alleged untrue statement in or omission or alleged omission from
such untrue statement in or omission or alleged omission from such registration
statement, any preliminary prospectus, final prospectus or summary prospectus
contained therein or any amendment or supplement thereto, if
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such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
about such Participating Person as a shareholder of the Company furnished to the
Company through an instrument duly executed by such Purchaser specifically
stating that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement; provided that, with respect to any untrue statement or omission or
--------
alleged untrue statement or omission made in any preliminary prospectus, or in
any prospectus, as the case may be, the indemnity agreement contained in this
Section shall not apply (x) to the extent that any loss, claim, damage,
liability or expense results from the fact that a current copy of the prospectus
(or such amended or supplemental prospectus, as the case may be) was not sent or
given to the Person asserting any such loss, claim, damage liability or expense
at or prior to the written confirmation of the sale of the Registrable
Securities concerned to such Person, if it is determined that such prospectus
(or such amended or supplemental prospectus) was not provided to such Person and
it was the responsibility of the Company to provide such Person with a
prospectus (or amended or supplemental prospectus) and such prospectus (or such
amended or supplemental prospectus) would have cured the effect giving rise to
such loss, claim, damage, liability or expense or (y) if the Participating
Person alleged to be the source of such untrue statement or omission or alleged
untrue statement or alleged omission has cured such defect in a writing supplied
to the Company prior to the delivery of such prospectus (or amended or
supplemental prospectus) and such prospectus (or amended or supplemental
prospectus) did not contain such revised or amended information. Such indemnity
shall remain in full force and effect, regardless of any investigation made by
or on behalf of the Company or any such director, officer or controlling Person
and shall survive the transfer by the seller of the securities of the Company
being registered.
(S)9.5 Notice of Claims, Etc. Promptly after receipt by an
----------------------
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Section 9.3 or 9.4, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party,
give notice to the latter of the commencement of such action; provided, however,
that the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under Section 9.3 or
9.4, except to the extent that the indemnifying party is materially prejudiced
by such failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
or the indemnified party may have defenses not available to the indemnifying
party in respect of such claim, the indemnifying party shall be entitled to
participate in and to assume the defense thereof, with counsel reasonable
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof. Whether or not the Indemnifying Party
assumes defense of the litigation, the indemnifying party shall not be subject
to any liability for any settlement made without its consent (but such consent
will not be unreasonably withheld, unreasonably conditioned, or unreasonably
delayed). An indemnifying party who is not entitled to, or elects not to assume
the defense of a claim shall not be obligated to pay the fees and expenses of
more than one counsel in any one jurisdiction, unless in the
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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. The indemnification required by this Article IX shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expenses, loss,
damage or liability is incurred.
(S)9.6 Other Indemnification. Indemnification similar to that
---------------------
specified in this Article IX (with appropriate modifications) shall be given by
the Company and Participating Person with respect to any required registration
or other qualifications of Registrable Securities under any federal or state law
or regulation of any governmental authority other than the Securities Act.
(S)9.7 Contribution. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnity agreement provided for in
this Article IX is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms in respect of any
liabilities suffered by an indemnified party referred to therein, each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such liabilities, in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and of the liable selling
shareholders on the other in connection with the statements or omissions which
resulted in such liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of the
liable selling shareholders (including, in each case, that of their respective
officers, directors, employees, agents and controlling Persons) on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company, on the
one hand, or by or on behalf of the selling shareholders, on the other, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(S)9.8 Registration Covenants of the Company. Subject to Section
-------------------------------------
9.14 of this Agreement, in the event that any Registrable Securities of any
Participating Persons are to be registered pursuant to Section 9.1 or 9.2, the
Company covenants and agrees that it shall use its best efforts to effect the
registration and cooperate in the sale of the Registrable Securities to be
registered and shall as expeditiously as possible:
(a) (i) prepare and file with the Commission a registration
statement with respect to the Registrable Securities (as well as any necessary
amendments or supplements thereto) (a "Registration Statement") and (ii) use its
best efforts to cause the Registration Statement to become effective; provided,
however, the Company may determine not to register the Securities as set forth
in Section 9.2(a);
(b) prior to the filing described above in Section 9.8(a), furnish
to all Participating Persons with copies of the Registration Statement and any
amendments or supplements thereto and any prospectus forming a part thereof, and
permit all Participating Persons to participate through one counsel (the
"Participating Counsel") in the preparation
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thereof and to request, through the Participating Counsel, the insertion therein
of specified information, such request not to be unreasonably denied;
(c) notify all Participating Persons, promptly after the Company shall
receive notice thereof, of the time when the Registration Statement becomes
effective or when any amendment or supplement or any prospectus forming a part
of the effective Registration Statement has been filed;
(d) notify the Participating Counsel promptly of any request by the
Commission for the amending or supplementing of the Registration Statement or
prospectus or for additional information and promptly deliver to the
Participating Counsel copies of any comments received from the Commission;
(e) (i) advise all Participating Persons after the Company shall
receive notice or otherwise obtain knowledge of the issuance of any order by the
Commission suspending the effectiveness of the Registration Statement or any
amendment thereto or of the initiation or threatening of any proceeding for such
purpose and (ii) promptly use its best efforts to prevent the issuance of any
stop order or to obtain its withdrawal promptly if a stop order should be
issued;
(f) (i) prepare and file with the Commission such amendments and
supplements to the Registration Statement and each prospectus forming a part
thereof as may be necessary to keep the Registration Statement continuously
effective for such period of time (which in no event shall exceed six months) as
the Participating Persons shall reasonably request and (ii) comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during such period
in accordance with the intended methods of disposition by such Participating
Persons set forth in the Registration Statement;
(g) furnish to all Participating Persons such number of copies of the
Registration Statement, each amendment and supplement thereto, the prospectus
included in the Registration Statement (including each preliminary prospectus)
and such other documents as such Participating Persons may reasonably request in
order to facilitate the disposition pursuant to such documents of the
Registrable Securities owned by such Participating Persons;
(h) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
determined by the underwriters after consultation with the Company and the
Participating Persons and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Participating Persons to
consummate the disposition in such jurisdictions of the Registrable Securities,
provided that the Company shall not be required to (i) qualify generally to do
business in any jurisdiction in which it would not otherwise be required to
qualify but for this Section 9.8(h), (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service or process in any such
jurisdiction;
(i) notify all Participating Persons, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
Company's becoming aware of the happening of any event as a result of which the
Registration Statement as then in effect would
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contain an untrue statement of material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and, at the request of the Participating Persons, prepare a
supplement or amendment to the Registration Statement which shall not, to the
Company's knowledge, contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(j) if the Common Stock is not then listed on a securities exchange,
use its best efforts, consistent with the then-current corporate structure of
the Company, to facilitate the listing of the Common Stock on a stock exchange
or the reporting of the Common Stock on NASDAQ, if the listing of such
securities is then permitted under the rules of such exchange;
(k) provide a transfer agent and registrar, which may be a single
entity, for all the Registrable Securities not later than the effective date of
the Registration Statement;
(l) in connection with an underwritten offering, enter into such
customary agreements (including an underwriting agreement in customary form) and
take all such other action, if any, as the Participating Persons or the
underwriters shall reasonably request in order to expedite or facilitate the
disposition of the Registrable Securities pursuant to this Article IX;
(m) (i) make available for inspection by the Participating Persons,
any underwriter participating in any disposition pursuant to the Registration
Statement and any attorney, accountant or other agent retained by the
Participating Persons or any such underwriter all relevant financial and other
records, pertinent corporate documents and properties of the Company and (ii)
cause the Company's officers, directors and employees to supply all relevant
information reasonably requested by such Participating Persons or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement.
(n) use its best efforts to cause the Registrable Securities covered
by the Registration Statement to be registered with or approved by such other
governmental authorities as my be necessary to enable all Participating Persons
to consummate the disposition of such Registrable Securities;
(o) cause the Company's independent public accountants to provide to
the underwriters, if any, and the selling holders, if permissible, a comfort
letter in customary form and covering such matters of the type customarily
covered by comfort letters; and
(p) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter in an underwritten offering.
(S)9.9 Information. The Company may require any Participating Person
-----------
with respect to such Participating Person's Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such Participating Person and the distribution of such securities as
the Company may from time to time reasonably request in writing and as is
reasonably necessary in order to effect such registration.
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(S)9.10 Disposition. Upon receipt of written notice from the Company
-----------
of the happening of any event of the kind described in clause (i) of Section
9.8, each Participating Person will forthwith discontinue disposition of its
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Participating Person's receipt of the copies
of the supplemented or amended prospectus contemplated by clause (i) of Section
9.8, and, if so directed by the Company, each Participating Person will deliver
to the Company (at the Company's expense) all copies, other than permanent file
copies then in Purchasers' possession, of the prospectus covering such
Registrable Securities that was in effect prior to such amendment or supplement.
In the event the Company shall give any such notice, the period set forth in
clause (f) of Section 9.8 shall be extended by the number of days during the
period from and including the date of the giving of such notice pursuant to
clause (i) of Section 9.8 to and including the date when each Participating
Person shall have received the copies of the supplemented or amended prospectus
contemplated by clause (i) of Section 9.8. Notwithstanding any of the
foregoing, the Company may discontinue any registration of its securities at any
time prior to the effective date of the registration statement relating thereto.
(S)9.11 Expenses. The Company shall pay all registration, filing and
--------
NASD fees and all fees and expenses of complying with securities or "blue sky"
laws; provided, however, that each Participating Person shall pay its pro rata
share of any commissions, fees, transfer taxes and fees and disbursements of
underwriters customarily paid by sellers of securities (based upon offering
proceeds to be received by it). The Company shall be responsible for the fees
and disbursements of counsel for the Company and of its independent public
accountants, the reasonable fees and disbursements of one counsel for the
Participating Persons and premiums and other costs of policies of insurance
against liabilities arising out of the public offering of the Registrable
Securities.
(S)9.12 Participation in Offering. No Person may participate in any
-------------------------
offering conducted hereunder unless such Person completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required in connection with the registration rights
described herein.
(S)9.13 Third Party Beneficiaries. Each shareholder of the Company
-------------------------
who is a member of a Qualified Shareholder Group shall be an express third party
beneficiary of this Article IX.
(S)9.14 Confidentiality. The Company shall have no obligation to
---------------
provide or make available confidential information to any Person pursuant to
this Article IX unless such Person executes and delivers to the Company an
agreement to keep such information confidential in form and substance reasonably
acceptable to the Company.
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ARTICLE X
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
--------------------------------------------
(S)10.1 Survival of Representations. Except (x) as set forth in
---------------------------
Section 10.2(c) and (y) for the representations and warranties of the Company
contained in Sections 3.13, 3.19 and, in relation to that certain real property
located at 265 Harrisburg Avenue, Lancaster, Pennsylvania, in Section 3.20,
(with respect to Section 3.20 solely) which such representations and warranties
shall survive for a period ending six months after the applicable statute of
limitations period, and the representations contained in Sections 3.1 and 3.3,
which will survive indefinitely, the respective representations and warranties
of Purchasers and the Selling Companies, including, but not limited to those in
Section 3.20 (other than in relation to that certain real property located at
265 Harrisburg Avenue, Lancaster, Pennsylvania), contained in this Agreement and
each other Transaction Agreement or in any Schedule attached hereto shall
survive the purchase and sale of the Shares pursuant to this Agreement until the
second anniversary of the Closing Date whereupon, other than with respect to
claims for indemnification pursuant to this Article X made prior to such date,
they shall terminate. Covenants, including, without limitation, those covenants
in Article VIII, shall survive the Closing under this Agreement.
(S)10.2 Indemnification. (a) Parent agrees, to indemnify and hold
---------------
Purchasers and their Affiliates and their respective officers, directors,
employees, agents and Affiliates and their respective successors and assigns
(each a "Purchaser Indemnitee") harmless on an after-tax basis from damages,
losses, liabilities, obligations, claims of any kind, interest or expenses
(excluding any attorneys' fees and expenses, other than reasonable attorney fees
and expenses incurred in connection with litigation with, or claims related to,
any Person not a party to this Agreement) ("Loss") suffered or paid, directly
or indirectly, through application of the Company's or Purchasers' assets or
otherwise, as a result of, in connection with or arising out of (i) the failure
of any representation or warranty made by Parent or the Company in this
Agreement or in any Schedule attached hereto (other than pursuant to Section
3.13 (Taxes)) or in any other Transaction Agreement to be true and correct in
all respects as of the date of this Agreement and as of the Closing Date
(without giving effect to any "materiality," "material adverse effect" or
similar qualification), (ii) all Taxes, losses, claims and expenses resulting
from, arising out of, or incurred with respect to, any claims that may be
asserted by any party based upon, attributable to, or resulting from the failure
of any representation or warranty made pursuant to Section 3.13 to be true and
correct as of the Closing Date; (iii) Specified Taxes; and (iv) any breach or
alleged breach by Parent or the Company of any of their covenants or agreements
contained herein or in any other Transaction Agreement; provided, that Parent
shall have no liability under Section 10.2(a)(i) unless the aggregate amount of
Losses indemnifiable under such Sections 10.2(a)(i) exceeds $500,000, and then
only for that portion of such aggregate Losses in excess of $250,000; provided,
further, that in no circumstances shall Parent's total liability under Sections
10.2(a)(i) exceed $10,500,000; provided, further, that Parent shall not be
liable for Taxes or other liabilities pursuant to clause (ii) or (iii) of this
sentence to the extent Parent has reimbursed the Company in respect of such
Taxes or other liabilities pursuant to the Tax Sharing Agreement; provided,
further, that Parent shall not be liable for a breach of a representation or
warranty pursuant to clause (i) of this sentence to the extent Parent has
reimbursed the Company in respect of the liability underlying such breach
pursuant to any other Transaction Agreement.
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(b) Purchasers agree to indemnify, defend and hold Parent and its
Affiliates and their respective officers, directors, employees, agents and
Affiliates (other than the Company and its subsidiaries) (each a "Parent
Indemnitee") harmless from Losses suffered or paid, directly or indirectly, as a
result of, in connection with or arising out of (i) the failure of any
representation or warranty made by Purchasers in this Agreement or in another
Transaction Agreement to be true and correct in all respects as of the date of
this Agreement and as of the Closing Date and (ii) any breach or alleged breach
by Purchasers of any of the covenants or agreements contained herein or in any
other Transaction Agreement; provided that Purchasers shall have no liability
under Section 10.2(b)(i) unless the aggregate amount of Losses indemnifiable
under Section 10.2(b)(i) exceeds $500,000 and then only for that portion of such
aggregate Losses in excess of $250,000; provided, further, that in no
circumstances shall Purchasers' total liability under Section 10.2(b)(i) exceed
$10,500,000.
(c) The obligations to indemnify and hold harmless pursuant to this
Section 10.2 (except with respect to Section 10.2(a)(iii)) shall survive the
consummation of the transactions contemplated by this Agreement for the time
periods set forth in (S)10.1, and with respect to Section 10.2(a)(iii), shall
survive for a period ending six months after the applicable statute of
limitations period, except for claims for indemnification asserted prior to the
end of such periods, which claims shall survive until final resolution thereof.
Notwithstanding anything to the contrary contained herein if a general liability
or products liability claim or claims which constitute or constitutes a breach
of the representation and warranty set forth in Section 3.20(f) (a "Section
3.20(f) Breach") is made within the two-year survival period set forth in
Section 10.1, the obligations of Parent to indemnify Purchaser for a Section
3.20(f) Breach shall be extended until such date as no other such general
liability or products liability claim or claims has or have been filed for a
period of one year since the filing of the most recent claim in respect of a
Section 3.20(f) Breach; provided, that no claim for which indemnity is provided
to the Company pursuant to the Corporate Separation Agreement shall cause an
extension of such survival period unless it is determined that such claim
relates at least in part to the activities of the Company after January 1, 1982.
(S)10.3 Third Party Claims. If a claim by a third party is made
------------------
against any Person entitled to indemnification pursuant to Section 10.2 or 10.3
hereof (an "Indemnified Party"), and if such party intends to seek indemnity
with respect thereto under this Article X, such Indemnified Party shall promptly
notify the party obligated to indemnify such Indemnified Party (the
"Indemnifying Party") of such claims; provided, that the failure to so notify
shall not relieve the Indemnifying Party of its obligations hereunder, except to
the extent that the Indemnifying Party is actually and materially prejudiced
thereby. The Indemnifying Party shall have 30 days after receipt of such notice
to assume the conduct and control, through counsel reasonably acceptable to the
Indemnified Party at the expense of the Indemnifying Party, of the settlement or
defense thereof; provided that (i) the Indemnifying Party shall permit the
Indemnified Party to participate in such settlement or defense through counsel
chosen by such Indemnified Party, provided that the fees and expenses of such
counsel shall be borne by such Indemnified Party and (ii) the Indemnifying Party
shall promptly assume and hold such Indemnified Party harmless from and against
the full amount of any Loss resulting therefrom. So long as the Indemnifying
Party is reasonably contesting any such claim in good faith, the Indemnified
Party shall not pay or settle any such claim. Notwithstanding the foregoing, the
Indemnified Party shall have the right to pay or settle any such claim, provided
that in such event it shall waive any right to indemnity
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therefor by the Indemnifying Party for such claim unless the Indemnifying Party
shall have consented to such payment or settlement. If the Indemnifying Party
does not notify the Indemnified Party within 30 days after the receipt of the
Indemnified Party's notice of a claim of indemnity hereunder that it elects to
undertake the defense thereof, the Indemnified Party shall have the right to
contest, settle or compromise the claim upon the prior written consent of the
Indemnifying Party (which consent shall not be unreasonably withheld,
unreasonably conditioned or unreasonably delayed) and shall not thereby waive
any right to indemnity therefor pursuant to this Agreement. The Indemnifying
Party shall not, except with the consent of the Indemnified Party, enter into
any settlement that does not include as an unconditional term thereof the giving
by the Person or Persons asserting such claim to all Indemnified Parties of an
unconditional release from all liability with respect to such claim or consent
to entry of any judgment.
(S)10.4 Exclusive Remedy. Absent fraud, the indemnification provided
----------------
in this Article X shall be the sole and exclusive remedy for monetary damages
available to Purchasers, the Company and Parent for breach of any of the terms,
conditions, representations, warranties, covenants, agreements and other
provisions of this Agreement; it being expressly understood that the operation
of this Section 10.4 shall not in any way limit the remedies available to any of
Purchasers, the Company or Parent under any other Transaction Agreement.
ARTICLE XI
TERMINATION AND ABANDONMENT
---------------------------
(S)11.1 Termination. This Agreement may be terminated and the
-----------
transactions contemplated hereby may be abandoned, at any time prior to the
Closing:
(a) by mutual consent of Parent, on the one hand, and of Purchasers,
on the other hand;
(b) by any Party if the Closing shall not have occurred by January
31, 1999; provided, that the right to terminate this Agreement under this
Section 11.1(b) shall not be available to any Party whose failure to fulfill any
obligation under this Agreement shall be the cause of the failure of the Closing
to occur on or before such date;
(c) by either Parent, on the one hand, or Purchasers, on the other
hand, if there has been a material breach of any covenant or a material breach
of any representation or warranty on the part of Purchasers or Parent,
respectively, provided, that any such breach of a covenant or representation or
warranty has not been cured within the earlier of (x) 10 business days following
receipt by the breaching party of written notice of such breach or (y) the date
which is two business days prior to the Closing Date;
(d) by any Party, if there shall be any law or regulation of any
competent authority that makes consummation of the transactions contemplated
hereby, illegal or otherwise prohibited or if any judgment, injunction, order or
decree of any competent authority prohibiting such transactions is entered and
such judgment, injunction, order or decree shall become final and non-
appealable.
-56-
<PAGE>
(S)11.2 Effect of Termination. In the event of the termination of
---------------------
this Agreement pursuant to Section 11.1 by Purchasers, on the one hand, or
Parent, on the other hand, written notice thereof shall forthwith be given to
the other parties specifying the provision hereof pursuant to which such
termination is made, and this Agreement shall be terminated and there shall be
no liability hereunder on the part of Purchasers or Parent, except that the
provisions of Section 5.3, Section 12.2, Section 12.4 and Section 12.6 shall
survive any termination of this Agreement. Nothing in this Section 11.2 shall
relieve any party of liability for any willful breach of this Agreement.
(S)11.3 Term. Unless earlier terminated pursuant to Section 11.1,
----
this Agreement (other than Article X which shall remain in effect for the
periods specified therein) shall remain effective for ten years from the Closing
Date; provided that, in the event that the Company consummates a Qualified
Public Offering, the provisions of Section 8.2 and 8.4 shall terminate on such
date as the Company consummates such Qualified Public Offering; provided,
further, that the provisions of Section 8.1 shall terminate upon any Person's
acquisition 100% of the issued and outstanding Common Stock.
ARTICLE XII
MISCELLANEOUS
-------------
(S)12.1 Knowledge of the Company. Where any representation or
------------------------
warranty contained in this Agreement is expressly qualified by reference to the
knowledge or belief of the Company or any subsidiary, such reference shall refer
to the actual knowledge of W. Kirk Liddell, Michael Hughes, Ronald L. King and
James E. Hipolit after reasonable inquiry.
(S)12.2 Expenses. The parties hereto shall pay all of their own
--------
expenses relating to the transactions contemplated by this Agreement, including,
without limitation, the fees and expenses of their respective counsel and
financial advisers.
(S)12.3 Governing Law. The interpretation and construction of this
-------------
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of New York applicable to agreements executed and to be performed solely
within such State.
(S)12.4 Jurisdiction; Agents for Service of Process. Any judicial
-------------------------------------------
proceeding brought against any of the parties to this Agreement on any dispute
arising out of this Agreement or any matter related hereto shall be brought in
the courts of the State of New York located in the Borough of Manhattan, or in
the United States District Court for the Southern District of New York, and, by
execution and delivery of this Agreement, each of the parties to this Agreement
accepts the exclusive jurisdiction of such courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement.
(S)12.5 Captions. The Article and Section captions used herein are
--------
for reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
(S)12.6 Publicity. Except as otherwise required by law, none of the
---------
parties hereto shall issue any press release or make any other public statement,
in each case relating to,
-57-
<PAGE>
connected with or arising out of this Agreement or the matters contained herein,
without obtaining the prior approval of Parent and Purchasers to the contents
and the manner of presentation and publication thereof.
(S)12.7 Notices. Any notice or other communication required or
-------
permitted under this Agreement shall be sufficiently given if delivered in
person or sent by telecopy or by registered or certified mail, postage prepaid,
addressed as follows: if to Parent, to Irex Corporation, 120 North Lime Street,
P.O. Box 1268, Lancaster, Pennsylvania 17603 (Fax No.: (717) 399-5193)
Attention: W. Kirk Liddell, with a copy to its counsel, Dechert Price & Rhoads,
4000 Bell Atlantic Tower, 1717 Arch Street, Philadelphia, Pennsylvania 19103
(Fax No.: (215) 994-2222) Attention: Christopher G. Karras, Esq.; if to the
Company, to Specialty Products & Insulation Co., 1097 Commercial Avenue, P.O.
Box 576, East Petersburg, Pennsylvania 17520-0576 (Fax No.: (717) 519-4096)
Attention: Mr. Ronald L. King, with a copy to its counsel, Dechert Price &
Rhoads, 4000 Bell Atlantic Tower, 1717 Arch Street, Philadelphia, Pennsylvania
19103 (Fax No.: (215) 994-2222) Attention: Christopher G. Karras, Esq.; and if
to any Purchaser, to such Purchaser at the address set forth on Exhibit A
---------
attached hereto, with a copy to its counsel White & Case LLP, 1155 Avenue of the
Americas, New York, NY 10036, (Fax No.: (212) 354-8113) Attention: William F.
Wynne, Jr., Esq., or such other address or number as shall be furnished in
writing by any such party, and such notice or communication shall be deemed to
have been given as of the date so delivered, sent by telecopier or mailed.
(S)12.8 Parties in Interest. This Agreement may not be transferred,
-------------------
assigned, pledged or hypothecated by any party hereto; provided, that the
Purchasers may, at any time prior to the Closing Date on three days' notice to
Parent and the Company, assign a portion of their interest in this Agreement to
a co-investment entity, the equityholders of which are limited partners,
employees or partners of Purchasers or their Affiliates; provided, further, that
if Purchasers make any such assignment, the transferee entity shall (i) make
each representation made by Purchasers under Article IV of this Agreement (it
being understood that if such transferee entity cannot make the representation
set forth in Section 4.5 of this Agreement, it shall in lieu thereof deliver
representation letters substantially in the form of Exhibit I attached hereto in
---------
respect of each holder of an equity interest in such transferee entity) and (ii)
a letter of joinder substantially in the form of Exhibit J hereto in respect of
---------
such transferee entity. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns.
(S)12.9 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which taken together shall constitute one instrument.
(S)12.10 Entire Agreement. This Agreement, including the other
----------------
documents referred to herein contains the entire understanding of the parties
hereto with respect to the subject matter contained herein and therein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
(S)12.11 Amendments. (a) This Agreement may not be changed orally,
----------
but only by an agreement in writing signed by Parent, the Company and Purchasers
(subject to the following). This Agreement may be terminated and any provision
of this Agreement may be waived,
-58-
<PAGE>
amended, supplemented or modified by written agreement of Parent, the Company
and Purchasers, without regard to whether any other third party is a beneficiary
(expressly or otherwise) of such provisions; provided, that after the Closing
Date, Parent's consent to any waiver, amendment, supplement or modification of
this Agreement shall be required only with respect to those provisions which,
before or after such modification, create any rights in, or obligation or
liability of Parent.
(b) Notwithstanding the foregoing, the Company shall not waive,
amend, supplement or modify Sections 8.1(a), 8.1(c), 8.1(e), 8.1(f), 8.1(g),
8.2, 8.4 (to the extent specified therein), or 8.6 (to the extent specified
therein), Article IX or, Section 12.11 and Section 12.13 of this Agreement in a
manner which is adverse to persons who are express third party beneficiaries
thereof without the affirmative vote of a majority of the Continuing Directors.
(S)12.12 Severability. In case any provision in this Agreement shall
------------
be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
(S)12.13 Third Party Beneficiaries. Each party hereto intends that
-------------------------
this Agreement shall not benefit or create any right or cause of action in or on
behalf of any Person other than the parties hereto other than as expressly set
forth herein, including Sections 8.1(a), 8.1(c), 8.1(e), 8.1(f), 8.1(g), 8.2,
8.4 (to the extent specified therein) and 8.6 (to the extent specified therein),
Article IX and Sections 12.11 and 12.13.
[Signature Pages Follow]
-59-
<PAGE>
IN WITNESS WHEREOF, each of Parent, the Company and each Purchaser has
caused its corporate name to be hereunto subscribed by its officer thereunto
duly authorized, all as of the day and year first above written.
IREX CORPORATION
By: /s/ W. Kirk Liddell
-----------------------------------
Name: W. Kirk Liddell
Title: President & CEO
SPECIALTY PRODUCTS & INSULATION CO.
By: /s/ Ronald King
-----------------------------------
Name: Ronald King
Title: President & CEO
EVERCORE CAPITAL PARTNERS L.P.
By Evercore Partners L.L.C., as
General Partner
By: /s/ David G. Offensend
-----------------------------------
Name: David G. Offensend
Title: Founding Partner
EVERCORE CAPITAL PARTNERS (NQ) L.P.
By Evercore Partners L.L.C., as
General Partner
By: /s/ David G. Offensend
-----------------------------------
Name: David G. Offensend
Title: Founding Partner
EVERCORE CAPITAL OFFSHORE
PARTNERS L.P.
By Evercore Partners L.L.C., as
General Partner
By: /s/ David G. Offensend
-----------------------------------
Name: David G. Offensend
Title: Founding Partner
<PAGE>
EXHIBIT B-1
[SUMMARY OF OPINION OF DECHERT PRICE & RHOADS]
[Capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned thereto in the Stock Subscription Agreement (the
"Subscription Agreement").
1. Each of Parent and the Company is a validly existing corporation in
good standing under the laws of the Commonwealth of Pennsylvania. Each of Parent
and the Company has all requisite corporate power to own, lease or operate its
properties and to carry on its business as now being conducted.
2. The Company has an authorized capitalization of (i) 30,000,000 shares
of capital stock consisting of 15,000,000 shares of Common Stock, $0.01 par
value, of which, after giving effect to the transactions contemplated by the
Subscription Agreement, 15,784 shares will be issued and outstanding and 2,905.8
shares will be reserved for issuance upon the exercise of outstanding options
and warrants, and (ii) 15,000,000 shares of Preferred Stock, $0.01 par value, of
which, after giving effect to the transactions contemplated by the Subscription
Agreement, no shares will be issued and outstanding. All such outstanding shares
of Common Stock will be duly authorized and validly issued and will be fully
paid and nonassessable and will not be subject to, nor will they have been
issued in violation of any preemptive right.
3. The Shares have been duly and validly authorized by all necessary
corporate action of the Company and, assuming the payment therefor by Purchasers
in accordance with the terms of the Subscription Agreement, will be validly
issued, fully paid, nonassessable and issued free of preemptive rights.
4. Each of Parent and the Company has the requisite corporate power and
authority to execute and deliver the Subscription Agreement, Note Purchase
Agreement, Junior Notes, Corporate Separation Agreement, Tax Sharing Agreement
and Benefits Sharing Agreement (the "Transaction Agreements"), in each case, to
which it is a party and to perform its obligations thereunder and to consummate
the transactions contemplated thereby.
5. Each Transaction Agreement to which Parent or the Company a party is
the valid and legally binding obligation of Parent or the Company, as
applicable, enforceable in accordance with its terms, except to the extent that
its enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, and similar laws affecting the enforcement of creditors' rights
generally and to general equitable principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
6. The Initial Notes (as such term is defined in the Note Purchase
Agreement) have been duly and validly authorized, executed and delivered by the
Company, and constitute the valid legally binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws
<PAGE>
affecting the enforcement of creditors' rights' generally and by general
equitable principles (regardless of whether the issue of such enforceability is
considered in a proceeding in equity or at law.
7. The Standby Notes and the Additional Notes (as such terms are defined
in the Note Purchase Agreement) have been duly and validly authorized by the
Company, and when duly executed and delivered by the Company, will constitute
the valid and legally binding obligations of the Company, and will be
enforceable against the Company in accordance with their terms except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(regardless of whether the issue of such enforceability is considered in a
proceeding in equity or at law.
8. Neither the execution and delivery by Parent or the Company of the
Transaction Agreements nor compliance with the terms and provisions thereof, (a)
will violate provisions of the Articles of Incorporation or By-Laws of the
Company or Parent or any of their respective subsidiaries; or (b) will violate
any Pennsylvania statute, ordinance, rule, regulation, order or decree of any
governmental or regulatory body, agency or authority applicable to Parent or the
Company.
9. Assuming the accuracy of Purchasers' representation in Section 4.9 of
the Subscription Agreement, no authorizations, consents or approvals of or
filings with any governmental agencies or authorities are required pursuant to
any statute, rule, regulation, order or decree of any public body, agency or
authority applicable to Parent or the Company in connection with the execution,
delivery and performance of the Transactions Agreements, except for such
authorizations, consents, approvals or filings listed on or referred to on
Schedule 3.11 to the Subscription Agreement.
10. The Form 10 (except for the financial statements, schedules and
statistical data included or incorporated by reference therein, as to which we
express no opinion) conforms in all material respects to the requirements of the
Exchange Act and the rules and regulations of the Commission thereunder.
11. The Company is not and will not become, as a result of the consummation
of the transactions contemplated by the Subscription Agreement, an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act.
12. The Company has effectively opted out of the provisions of Section 515
of the PBCL, Subchapters C, D and E of Chapter 25 of the PBCL, and, to the
extent permitted therein, Subchapters F, G and H of Chapter 25 of the PBCL. With
respect to Subchapter F, however, the opting out will have effect only after 18
months from [the date the Company filed its Amended and Restated Articles of
Incorporation] and the opting out will not have effect with
<PAGE>
respect to the purchase of the Shares by the Purchasers or subsequent "business
combinations" (as defined in Section 2554 of the PBCL) between the Company and
Purchasers. The requirements of Section 2555(1) of Subchapter F of Chapter 25 of
the PBCL have been satisfied with respect to any "business combination" between
the Company and Purchasers, provided that Purchasers remain "interested
shareholders" (as defined in Section 2553 of the PBCL) at all times prior to any
subsequent "business combination." The provisions of Subchapter G of Chapter 25
of the PBCL will not apply to any transaction between the Company and the
Purchasers, or any purchase by the Purchasers of capital stock of the Company.
Subchapter H of Chapter 25 of the PBCL will not apply to "any transfer of an
equity security" of the Company (as such phrase is used in Section 2571(b) of
the PBCL).
<PAGE>
EXHIBIT B-2
[FORM OF OPINION OF IREX CORPORATION]
[Capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned thereto in the Stock Subscription Agreement (the
"Subscription Agreement").
1. Each of Parent and the Company is a corporation duly organized under the
laws of the Commonwealth of Pennsylvania.
2. Assuming the accuracy of Purchasers' representation in Section 4.9 of
the Subscription Agreement, neither the execution and delivery by Parent or the
Company of the Subscription Agreement, Note Purchase Agreement, Junior Notes,
Corporate Separation Agreement, Tax Sharing Agreement and Benefits Sharing
Agreement, nor compliance with the terms and provisions thereof (a) will require
Parent or the Company or any of their respective subsidiaries to make any filing
with or obtain any permit, consent or approval of or give any notice to, any
governmental or regulatory body, agency or authority; or (b) will result in a
violation or breach of, conflict with, constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation, payment or acceleration) under, or result in the creation of any
Lien upon any of the properties or assets of Parent or the Company or any of
their respective subsidiaries under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, franchise, permit, agreement,
lease, franchise agreement or other instrument or obligation to which Parent or
the Company or any of their respective subsidiaries is a party and of which we
are aware, or by which it or any of their respective properties or assets is
bound and of which we are aware, except for such violations, filings, permits,
consents, approvals, notices, breaches or conflicts (x) listed or referred to on
Schedule 3.11 to the Subscription Agreement, and (y) which would not have a
material adverse effect on (i) the Condition of the Company and its
subsidiaries, taken as a whole, or (ii) the ability of Parent or the Company to
consummate the transactions contemplated hereby or to perform their obligations
hereunder.
<PAGE>
EXHIBIT B-3
SUMMARY OF TAX OPINION
(i) No gain or loss will be recognized by either Irex or SPI in connection
with the distribution by Irex of SPI common stock to the holders of Irex
common stock pursuant to the Spin-Off;
(ii) No gain or loss will be recognized by the holders of Irex common stock
(except to the extent that cash is received in lieu of fractional shares)
upon the receipt of the SPI common stock pursuant to the Spin-Off;
(iii) The tax basis of the shares of Irex common stock in the hands of each
holder of such stock will be allocated between the shares of SPI and Irex
common stock held by such shareholder following the Spin-Off in
proportion to their relative fair market values; and
(iv) The holding period of the shares of SPI common stock received by each
holder of shares of Irex common stock in the Spin-Off will include the
period during which the holder held the shares of Irex common stock with
respect to which the Spin-Off is made, provided that the shares of Irex
common stock are held as capital assets on the date of the Spin-Off.
<PAGE>
EXHIBIT C-1
Form of Ronald L. King Employment Agreement
-------------------------------------------
See Exhibit 10.5 to the Form 10.
<PAGE>
EXHIBIT C-2
Form of Michael Hughes Employment Agreement
-------------------------------------------
See Exhibit 10.6 to the Form 10.
<PAGE>
EXHIBIT D
Form of Note Purchase Agreement
-------------------------------
See Exhibit 10.8 to the Form 10.
<PAGE>
EXHIBIT E
Form of Corporate Separation Agreement
--------------------------------------
See Exhibit 10.1 to the Form 10.
<PAGE>
EXHIBIT F
Form of Tax Sharing and Indemnification Agreement
-------------------------------------------------
See Exhibit 10.2 to the Form 10.
<PAGE>
EXHIBIT G
Form of Benefits Sharing Agreement
----------------------------------
See Exhibit 10.3 to the Form 10.
<PAGE>
EXHIBIT H-1
Form of Amended and Restated SPI Certificate of Incorporation
-------------------------------------------------------------
See Exhibit 3.1 to the Form 10.
<PAGE>
EXHIBIT H-2
Form of Amended and Restated SPI Bylaws
---------------------------------------
See Exhibit 3.2 to the Form 10.
<PAGE>
EXHIBIT I
---------
[FORM OF REPRESENTATION LETTER]
Specialty Products & Insulation Co.
1097 Commercial Avenue
East Petersburg, Pennsylvania 17520
Ladies and Gentlemen:
I refer to that certain Stock Subscription Agreement, dated October
__, 1998 (the "Subscription Agreement"), by and among IREX Corporation ("IREX"),
Specialty Products & Insulation Company ("the Company"), and Evercore Capital
Partners L.P., Evercore Capital Partners (NQ) L.P., and Evercore Capital
Offshore Partners L.P. (such limited partnerships, collectively, the
"Purchasers") and that certain Note Purchase Agreement, dated as of November __,
1998 (the "Note Agreement" and, collectively with the Subscription Agreement,
the "Agreements"), by and among IREX Corporation ("IREX"), Specialty Products &
Insulation Company ("the Company"), and the Purchasers. Capitalized terms used
herein and not defined herein shall have the meanings assigned thereto in the
Purchase Agreement. [I have invested or plan to invest in [ECP Co-Investment
Vehicle] in connection with the above mentioned transactions.] [I have entered
into an agreement with respect to the acquisition of certain of the Shares held
by Purchasers.] I am aware that the representations, warranties and agreements
contained herein are being furnished to you in order for you to determine
whether Company Stock may be issued to me in accordance with the Agreements in
light of the requirements of the Securities Act of 1933, as amended (the
"Securities Act"). I understand that (a) you will rely on the representations,
warranties and agreements set forth herein for the purposes of such
determination, (b) the Company Stock and Notes will not be registered under the
Securities Act and will be issued to me pursuant to the exemption contained in
Section 4(2) of the Securities Act and/or Regulation D promulgated under the
Securities Act, and (c) the Company Stock cannot be transferred and must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is available.
With the above in mind, I hereby represent and warrant to you, and
agree with you, that:
1. My net worth and means of providing for my current needs and
personal contingencies are such that I can afford to bear the economic risk of
holding the Company Stock and Notes for an indefinite period of time.
2. [I have received from Purchasers or the Company and have reviewed
the following periodic reports and other documents in the form in which they
were filed or furnished to the Securities and Exchange Commission:
(a) The Company's registration statement on Form 10, dated
October __ , 1998;
(b) [IREX's] [the Company] report on Form 10-K for the year
ended [December 31, 1997];
<PAGE>
(c) IREX's report on Form 10-Q for the quarters ended [March 31,
1998, June 30, 1998 and September 30, 1998].]
[3. I [and my Purchaser's Representative (as defined below)] have
received from Purchasers or the Company, and have reviewed, the financial
statements of the Company and such other information regarding the Company as I
or he believes appropriate to make an informed investment decision.]
4. I have been granted the opportunity to ask questions of, and
receive answers from, representatives of the Company concerning the terms and
conditions of the transaction in which the Company Stock [and Notes] have been
issued or will be issued and have been given the opportunity to obtain any
additional information which I deem necessary to verify the accuracy of the
information supplied to me [and to request exhibits to the Company's filings
with the Securities and Exchange Commission].
5. I have accurately checked one of the following options:
I am an "accredited investor" as defined and marked
immediately below.
____ A bank, savings and loan association, trust
company, insurance company, investment company
(as defined in the Investment Company Act of
1940), pension or profit sharing trust, or other
financial institution or institutional buyer, or
broker-dealer, acting for ____ myself or in ____
a fiduciary capacity (check one).
____ A private business development company as defined
in Section 202(a) (22) of the Investment Advisers
Act of 1940.
____ An organization described in Section 501 (c) (3)
of the Internal Revenue Code, corporation, or
partnership with total assets in excess of
$5,000,000.
____ A director or executive officer of the Company.
____ A natural person whose net worth, individually,
or jointly with spouse, exceeds $1,000,000.
____ A natural person who had individually, and not
jointly with spouse, income in excess of $200,000
(or $300,000 when considered jointly with spouse)
in each of the two most recent years and who
reasonably expects an income in excess of
$200,000 in the current year.
<PAGE>
____ Although I am not an accredited investor, I have such
knowledge and experience in financial and business matters
that I am capable of evaluating the merits and risks of an
investment in Company Stock and Notes on the basis of my
investment experience, business experience, professional
experience and/or education.
____ I am not an accredited investor, but I have discussed with
my purchaser representative ("Purchaser Representative")
whether an investment by me in Company Stock and Notes is
appropriate in light of my financial circumstances and have
received the advice of such Purchaser Representative with
respect to the merits and risks of such an investment.
Together with such Purchaser Representative, and with the
benefit of his/her advice, I have such knowledge and
experience in financial and business matters that I am
capable of evaluating the merits and risks of an investment
in the Company Stock and Notes.
6. I agree to notify you promptly of any events or circumstances
occurring to me prior to the consummation of the transaction referred to above
of the Company Stock and Notes which would make any of the representations,
warranties, agreements, or other information set forth herein untrue or
inaccurate.
Very truly yours,
__________________________________________
Signature of Stockholder/Noteholder
__________________________________________
Print Stockholder's/Noteholder's Name
__________________________________________
Street Address
__________________________________________
City, State, Zip Code
__________________________________________
Telephone
__________________________________________
Social Security Number
Dated:
<PAGE>
EXHIBIT J
---------
[Form of Joinder Agreement]
[Date]
Reference is made to the Stock Subscription Agreement, dated as of
October ___, 1998, by and among Irex Corporation, SPI, Evercore Capital Partners
L.P., Evercore Capital Partners (NQ) L.P., Evercore Capital Offshore Partners
L.P. and [Co-Investment Vehicle] (the "Purchase Agreement"). Capitalized terms
not defined herein shall have the meaning for such terms set forth in the
Purchase Agreement. In consideration for the right to purchase shares of Common
Stock of Specialty Products & Insulation Co. ("SPI"), the undersigned hereby
agrees (i) to be legally bound by the Purchase Agreement as a "Purchaser"
thereunder, and (ii) that the Common Stock acquired by the undersigned shall be
subject to the terms and conditions affecting the "Common Stock" under the
Purchase Agreement.
[NAME OF TRANSFEREE]
By:______________________________
Name:
Title:
<PAGE>
Exhibit K
---------
[FORM OF OPINION OF WHITE & CASE LLP]
[Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned thereto in the Stock Subscription Agreement]
1. Each Purchaser is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Delaware. Each
Purchaser has all requisite partnership power to own, lease or operate its
properties and to carry on its business as now being conducted.
2. Each Purchaser has the requisite partnership power and authority
to execute and deliver the Stock Subscription Agreement and the Note Purchase
Agreement (the "Transaction Agreements") to which it is a party and to perform
its obligations thereunder and to consummate the transactions contemplated
thereby.
3. Each of the Transaction Agreements is the valid and legally
binding obligation of such Purchaser enforceable against each Purchaser in
accordance with its terms, except to the extent that its enforceability may be
subject to applicable bankruptcy, insolvency, reorganization, and similar laws
affecting the enforcement of creditors' rights generally and to general
equitable principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
4. Neither the execution and delivery by any Purchaser of the
Transaction Agreements nor compliance with the terms and provisions thereof, (a)
will violate the provisions of the Agreement of Limited Partnership of such
Purchaser; (b) will violate any statute, ordinance, rule, regulation, order or
decree of any governmental or regulatory body agency or authority applicable to
such Purchaser; (c) require such Purchaser to make any filing with or obtain any
permit, consent or approval of or give any notice to, any governmental or
regulatory body, agency or authority, or (d) will result in a violation or
breach of, conflict with, constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination cancellation,
payment or acceleration) under, or result in the creation of any Lien upon any
of the properties or assets of such Purchaser under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, franchise,
permit, agreement, lease, franchise agreement or other instrument or obligation
to which such Purchaser is a party and of which we are aware, or by which such
Purchaser or its respective properties or assets is bound and of which we are
aware except in the case of clauses (c) and (d) above, for such filings,
permits, consents, approvals, notices, breaches or conflicts which would not
have a material adverse effect on the ability of such Purchaser to consummate
the transactions contemplated by the Transaction Agreements or to perform its
obligations thereunder.
5. No authorizations, consents or approvals of or filings with any
governmental agencies or authorities are required pursuant to any statue, rule,
regulations order or decree of any public body, agency or authority applicable
to Purchaser in connection with the execution, delivery and performance of the
Transactions Agreements.
<PAGE>
EXHIBIT 3.1
[FORM OF AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SPECIALTY PRODUCTS & INSULATION CO.]
1. Name. The name of the corporation (hereinafter referred to as
----
the "Company") is Specialty Products & Insulation Co.
2. Registered Agent. The Company's registered office in the
----------------
Commonwealth is c/o CT Corporation. The registered office of CT Corporation
shall be deemed for venue and official publication purposes to be located in the
County of Lancaster, Pennsylvania.
3. Corporate Powers. The Company is incorporated under the
----------------
provisions of the Pennsylvania Business Corporation Law of 1988, as amended (the
"PBCL"). The Company shall have unlimited power to engage in and to do any
lawful act concerning any or all lawful business for which corporations may be
incorporated under the PBCL.
4. Term. The term for which the Company is to exist is perpetual.
----
5. Capital Stock. The aggregate number of shares of capital stock
-------------
which the Company shall have authority to issue is [thirty million] shares
divided into two classes, consisting of (i) [fifteen million] shares of
Preferred Stock, par value $.01 (the "Preferred Stock") and (ii) [fifteen
million] shares of Common Stock, par value $.01 (the "Common Stock").
The following is a statement of the designations, voting rights,
preferences, limitations, and the special rights granted to or imposed upon the
shares of each such class:
A. Preferred Stock.
---------------
(a) Issues in Series. Preferred stock may be issued from time to
----------------
time in one or more series, each such series to have the terms stated herein and
in the resolution of the Board of Directors providing for its issue. All shares
of any one series of Preferred Stock shall be identical, but shares of different
series of Preferred Stock need not rank equally or be identical except insofar
as provided by law.
(b) Creation of Series. The Board of Directors shall have authority
------------------
by resolution to cause to be created one or more series of Preferred Stock, and
to determine and fix with respect to each series, prior to the issuance of any
shares of the series to which such resolution relates:
(i) the distinctive designation of the series and the number of
shares which shall constitute the series, which number may be increased or
decreased (but not below the number of shares then outstanding) from time
to time by action of the Board of Directors;
<PAGE>
Page 2
(ii) the dividend rate and the times of payment of dividends on the
shares of the series, whether dividends shall be cumulative, and, if so,
form what date or dates;
(iii) the price or prices at which, and the terms and conditions on
which, the shares of the series may be redeemed at the option of the
Company;
(iv) whether or not the shares of the series shall be entitled to
the benefit of a retirement or sinking fund to be applied to the purchase
or redemption of such shares and, if so entitled, the amount of such fund
and the terms and provisions relative to the operation thereof;
(v) whether or not the shares of the series shall be convertible
into, or exchangeable for, shares of any other series of the same or any
other class or classes of stock of the Company, and if so convertible or
exchangeable, the conversion price or prices, or the rates of exchange, and
any adjustments thereof; if any, at which such conversion or exchange may
be made, and any other terms and conditions of such conversion or exchange;
(vi) the rights of the shares of the series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Company;
(vii) whether or not the shares of the series shall have priority
over or parity with or be junior to the shares of any other series or class
in any respect or shall be entitled to the benefit of limitations
restricting the issuance of shares of any other series or class having
priority over or being on a parity with the shares of such series in any
respect, or restricting the payment of dividends on, or the making of other
distributions in respect of shares of any other series or class ranking
junior to the shares of the series as to dividends or assets, or
restricting the purchase or redemption of the shares of any such junior
series or class, and the terms of any such restrictions;
(viii) whether the series shall have voting rights, in addition
to the voting rights provided by law, and if so, the terms of such voting
rights; and
(ix) any other designations, voting rights, preferences,
limitations, or special rights of that series.
B. Common Stock.
------------
(a) Dividends. Holders of Common Stock shall be entitled to
---------
receive such dividends as may be declared by the Board of Directors, except that
the Company will not declare, pay or set apart for payment any dividend on
shares of Common Stock (other than dividends payable in Common Stock), or
directly or indirectly make any distribution on, redeem, purchase or otherwise
acquire any such shares, if at the time of such action the Company is in default
with respect to any dividend due and payable on, or any sinking or purchase fund
requirement relating to, any shares of Preferred Stock senior in right to the
Common Stock.
<PAGE>
Page 3
No dividend (other than a dividend in capital stock ranking on a
parity with the Common Stock or cash in lieu of fractional shares with respect
to such stock dividend) shall be declared or paid on any share or shares of any
class of stock or series thereof ranking on a parity with the Common Stock in
respect of payment of dividends for any dividend period unless there shall have
been declared, for the same dividend period, like proportionate dividends on all
shares of Common Stock then outstanding.
(b) Distribution of Assets. In the event of voluntary or involuntary
----------------------
liquidation, dissolution, distribution of assets or winding up of the Company,
holders of Common Stock shall be entitled to receive pro rata on a share for
share basis (irrespective of series) all of the remaining assets of the Company
available for distribution to its stock after all amounts to which the holders
of Preferred Stock senior in right to the Common Stock are entitled have been
paid or set aside in cash for payment.
(c) Voting Rights. The Common Stock shall vote as a single class on
-------------
all matters. Except as otherwise required by law or provided in any certificate
creating any series of Preferred Stock, the holders of Common Stock shall be
entitled to one vote for each share thereof held.
6. Directors. (a) Number, Election and Term. The authorized
--------- -------------------------
number of Directors of the Company shall be not less than five (5) nor more than
fifteen (15) and the Board of Directors may, within the limits specified by this
paragraph and subject to the provisions of the Company's By-laws, increase or
decrease the exact number of Directors from time to time by resolution duly
adopted by such Board. No decrease in the number of Directors shall have the
effect of shortening the term of any incumbent Director. The Directors shall be
classified in respect to the time for which they shall severally hold office by
dividing them into three classes, each to be as nearly equal in number as
possible.
Each Director shall be elected for a term ending on the date of the
third annual meeting of shareholders following the annual meeting of
shareholders at which such Director was elected. At the annual meeting of
shareholders held in 1998, one class shall be originally elected for a term
expiring at the annual meeting of shareholders to be held in 1999, another class
shall be originally elected for a term expiring at the annual meeting of
shareholders to be held in 2000, and another class shall be originally elected
for a term expiring at the annual meeting of shareholders to be held in 2001,
with the members of each class to hold office until their successors are elected
and qualified. At each succeeding annual meeting of the shareholders of the
Company, the successors of the class of Directors whose term expires at that
meeting shall be elected by plurality vote of all votes cast at such meeting to
hold office for a term expiring at the annual meeting of shareholders held in
the third year following the year of their election.
(b) Vacancies. Vacancies in the Board of Directors, including
---------
vacancies resulting from an increase in the number of Directors, shall be filled
by a majority of the Directors then in office, though less than a quorum, and
each person so elected shall be a Director to serve for the balance of the
unexpired term and until his successor is duly elected and qualified.
<PAGE>
Page 4
(c) Removal. The entire Board of Directors, or any class of the
-------
Board, or any individual Director may be removed from office by the vote of
shareholders entitled to vote thereon only for cause. The amendment or repeal
of this provision shall not apply to any incumbent Director during the balance
of term for which he was elected.
(d) Cumulative Voting. Shareholders shall not have cumulative voting
-----------------
rights in the election of Directors.
(e) Inapplicability of Certain Directors Fiduciary Duty Provisions.
--------------------------------------------------------------
The provisions of Section 1715 (and to the extent applicable, Section 515) of
the PBCL shall not be applicable to the Company.
7. Opt-out. Subchapters C, D, E, F, G and H of Chapter of 25 of the
-------
PBCL shall not be applicable to the Company./1/
8. Amendment. The Company reserves the right, from time to time, to
---------
amend, alter or repeal any provision contained in these Restated Articles of
Incorporation in the manner now or hereafter provided by statute for the
amendment of articles of incorporation.
_________________
/1/ SPI will have to approve ECP's acquisition of Shares for purposes of
Subchapter F of Chapter 25 of PBCL.
<PAGE>
EXHIBIT 3.2
[FORM OF BYLAWS OF
SPECIALTY PRODUCTS & INSULATION CO.]
ARTICLE I
SHAREHOLDERS
------------
1.1. Meetings. (a) Place. Meetings of the shareholders shall be
-------- -----
held at such place as may be designated by the Board of Directors.
(b) Annual Meeting. An annual meeting of the shareholders for the
--------------
election of Directors and for other business shall be held at such time as may
be fixed by the Board of Directors, on the first Thursday of November in each
year (or if such is a legal holiday, on the next following business day), or on
such other day as may be fixed by the Board of Directors.
(c) Special Meetings. Special meetings of the shareholders may be
----------------
called at any time by the Chairman of the Board, the chief executive officer,
the president or by any two Directors.
(d) Notice. Written notice of the time and place of all meetings of
------
shareholders and of the general nature of the business to be transacted at each
special meeting of shareholders shall be given to each shareholder entitled to
vote at the meeting at least ten days and no more than fifty days before the
date of the meeting unless a greater period of notice is required by law in a
particular case.
(e) Quorum. The presence, in person or by proxy, of the holders of a
------
majority of the outstanding shares of stock of the Company entitled to vote on a
particular matter shall constitute a quorum for the purpose of considering such
matter. If a quorum is not present, no business shall be transacted except to
adjourn to a future time.
(f) Business at Meetings. Except as otherwise provided by applicable
--------------------
law, or in these Bylaws, the business which shall be conducted at any meeting of
the shareholders shall (a) have been specified in the written notice of the
meeting (or any supplement thereto) given by the Company, or (b) be brought
before the meeting at the direction of the Board of Directors, or (c) have been
specified in a written notice given to the Secretary of the Company, by or on
behalf of any shareholder of record on the record date for such meeting and who
shall continue to be entitled to vote thereat (the "Shareholder Notice"), in
accordance with the following requirements:
(1) each Shareholder Notice must be delivered to, or mailed and
received at, the principal executive offices of the Company (i) in the case
of a special meeting or an annual meeting that is called for a date that is
within 30 days before or after the anniversary date of the immediately
preceding annual meeting of the shareholders, not less than 60 days nor
more than 90 days prior to such anniversary date, and (ii) in the case of a
special meeting or an annual meeting that is called for a date that is not
within 30 days
<PAGE>
Page 2
before or after the anniversary date of the immediately preceding annual
meeting, not later than the close of business on the tenth day following
the day on which notice of the date of the meeting was mailed or public
disclosure of the date of the meeting was made, whichever occurs first; and
(2) each such Shareholder Notice must set forth (i) the name and
address of the shareholder who intends to bring the business before the
meeting; (ii) the general nature of the business which such shareholder
seeks to bring before the meeting and, if a specific action is to be
proposed, the text of the resolution or resolutions which the proposing
shareholder proposes that the shareholders adopt; and (iii) a
representation that the shareholder is a holder of record of the stock of
the Company entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to bring the business specified in the
Shareholder Notice before the meeting. The presiding officer of the meeting
may, in his or her sole discretion, refuse to acknowledge any business
proposed by a shareholder not made in compliance with the foregoing
procedure.
(g) Written Consent of Shareholders in Lieu of Meeting. Any action
--------------------------------------------------
required or permitted to be taken at a meeting of the shareholders or a class of
shareholders may be taken without a meeting upon the written consent of
shareholders who would have been entitled to cast the minimum number of votes
that would be necessary to authorize the action at a meeting at which all
shareholders entitled to vote thereon were present and voting, provided that an
action taken pursuant to this paragraph shall not become effective until at
least ten days' written notice of the action has been given to each shareholder
entitled to vote thereon who has not consented thereto.
ARTICLE II
DIRECTORS
---------
2.1. Number. The Board of Directors shall consist of such number of
------
members as determined in accordance with the Articles of Incorporation of the
Company; provided, that for so long as a Reduction Event has not occurred, the
--------
number of directors shall be seven.
2.2. Employee Directors. If the employment by the Company of any
------------------
person who is both a Director and an employee is terminated for any reason
whatsoever, such person shall be deemed to have tendered his resignation from
the Board of Directors on the date of such termination. The Board of Directors
shall accept or reject such resignation within 30 days after the date of
termination of employment.
2.3. Powers. Subject to the provisions of the Company's Articles of
------
Incorporation, the business of the Company shall be managed by the Board of
Directors which shall have all powers conferred by law and these bylaws,
including the power to regulate the internal affairs and business of the Company
in such manner as the Board may determine.
<PAGE>
Page 3
2.4. Meetings. (a) Place. Meetings of the Board of Directors shall
-------- -----
be held at such place as may be designated by the Board or in the notice of the
meeting.
(b) Regular Meetings. Regular meetings of the Board of Directors
----------------
shall be held at such times as the Board may designate by resolution. Notice of
regular meetings need not be given, provided that the date, time and location of
each regular meeting is clearly announced to all directors at the meeting of
directors immediately preceding such meeting.
(c) Special Meetings. Special meetings of the Board of Directors may
----------------
be called at any time by the chairman, the chief executive officer or the
president and shall be called by the president upon the written request of one-
quarter of the Directors. Written notice of the time and place of each special
meeting shall be given to each Director at least five days before the meeting.
(d) Quorum. A majority of all Directors in office (but not less than
------
five Directors) shall constitute a quorum for the transaction of business at any
meeting and, except as otherwise provided herein, the acts of a majority of the
Directors present at any meeting at which a quorum is present shall be the acts
of the Board of Directors; provided that, upon the occurrence of a Reduction
--------
Event (as defined in Section 2.4(h) of these By-laws), a majority of all
Directors in office shall constitute a quorum.
(e) Participation. One or more Directors may participate in a meeting
-------------
of the Board or a committee of the Board by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other.
(f) Informal Action. Any action which may be taken at a meeting of
---------------
the Directors or the Executive Committee or other committees of the Board of
Directors may be taken without a meeting if, prior or subsequent to the action,
written consents thereto signed by all of the Directors in office or members of
the committee, as the case may be, are filed with the secretary of the Company.
(g) Certain Matters. Anything to the contrary herein notwithstanding,
---------------
for so long as a Reduction Event (as defined in Section 2.4(h) of these By-laws)
has not occurred, the following matters shall require the affirmative vote of
two thirds (2/3) of the authorized number of Directors of the Company (but not
less than five Directors):
(A) any merger, consolidation, or recapitalization of the Company or
any sale of all or substantially all of the assets of the Company or any
transaction with substantially similar economic effect;
(B) any reclassification of the equity securities of the Company or
the issuance of any additional equity securities of the Company of any
class or series or of any securities of the Company which are, directly or
indirectly, exchangeable or exercisable for, or convertible into, equity
securities of the Company of any class or series (except pursuant to any
employee benefits plan which has been previously approved by the vote of
<PAGE>
Page 4
two thirds (2/3) of the authorized number of Directors (but not less than
five Directors) of the Company's Board of Directors or any stock
appreciation rights or similar plan);
(C) the sale, conveyance, or transfer or other disposition (whether
by sale of stock, or assets, merger, consolidation, recapitalization or
otherwise) of any subsidiary of the Company with assets or earning power
aggregating in excess of 10% of the Company's consolidated assets or income
from continuing operations (a "Major Subsidiary");
(D) the sale, conveyance, transfer or other disposition, in one
transaction or a series of related transactions, by the Company or any
subsidiary of the Company of assets aggregating more than 10% of the
consolidated assets or income from continuing operations of the Company;
(E) the appointment of each of the Chief Executive Officer,
President, Chief Financial Officer and Chief Operating Officer of the
Company and of any other person performing the functions customarily
performed by such officers, whether or not such person holds such title;
(F) any change in the number of Directors composing the Board of
Directors of the Company;
(G) any decision by the Company to enter any business or line of
business which is not substantially related to the business of the Company
as conducted by the Company on [__________________________]/1/;
(H) the acquisition (but not the manner of financing such
acquisition) by the Company of any equity interest in any entity or the
acquisition by the Company of any assets other than in the ordinary course
of business;
(I) the declaration of any dividend on, the making of any other
distribution on or any redemption or reclassification of any class or
series of equity securities of the Company (other than pursuant to the
terms of any certificate creating any series of Preferred Stock);
(J) any action which would cause the Company to cease to qualify as a
"venture capital operating company", as such term is defined under the
rules and regulations under this Employee Retirement Income Security Act of
1974, as amended;
(K) the commencement by the Company or any Major Subsidiary of any
proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, bankruptcy, relief of debtors, dissolution, insolvency
or liquidation or similar Federal, state or foreign law relating to the
Company or any Major Subsidiary, or the determination to
________________________
/1/ Insert Closing Date.
<PAGE>
Page 5
forbear or not contest any such proceeding commenced by any person or
entity other than the Company or its subsidiaries; and
(L) any amendment, modification, revocation, cancellation or
restatement of the Articles of Incorporation of the Company or of these By-
laws.
(h) Reduction Event. A "Reduction Event" shall occur upon any
---------------
shareholder of the Company or "group" (as such term is defined under Rule 13d-3
under the Exchange Act of 1934) of shareholders becoming the beneficial owner of
(as such term is defined under Rule 13d-3 under the Exchange Act) of a majority
of the voting power of the capital stock of the Company entitled to vote in the
election of directors; provided that no Reduction Event shall occur prior to
_______________, 2001./2/
2.5. Nominations. Nominations for the election of Directors may be
-----------
made by the Board of Directors, a committee appointed by the Board of Directors
or by any shareholder of record entitled to vote on the election of Directors
who is a shareholder at the record date of the meeting and also on the date of
the meeting on which Directors are to be elected; provided, however, that with
respect to a nomination made by a shareholder, such shareholder must provide
timely written notice to the secretary of the Company in accordance with the
following requirements:
(a) To be timely, a shareholder's notice must be delivered to, or
mailed and received at, the principal executive offices of the Company (i)
in the case of an annual meeting that is called for a date that is within
30 days before or after the anniversary date of the immediately preceding
annual meeting of shareholders, not less than 60 days nor more than 90 days
prior to such anniversary date, and (ii) in the case of an annual meeting
that is called for a date that is not within 30 days before or after the
anniversary date of the immediately preceding annual meeting, or in the
case of a special meeting of shareholders called for the purpose of
electing Directors, not later than the close of business on the tenth day
following the day on which notice of the date of the meeting was mailed or
public disclosure of the date of the meeting was made, whichever occurs
first; and
(b) Each such written notice must set forth: (i) the name and address
of the shareholder who intends to make the nomination; (ii) the name and
address of the person or persons to be nominated; (iii) a representation
that the shareholder is a holder of record of the stock of the Company
entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the
notice; (iv) a description of all arrangements or understandings, if any,
between the shareholder and each nominee and other person or persons
(naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; (v) such other information
regarding each nominee proposed by such
___________________
/2/ This date will be the third anniversary of the closing date.
<PAGE>
Page 6
shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission
(whether or not such rules shall then be applicable to the Company) had the
nominee been nominated, or intended to be nominated, by the Board of
Directors; and (vi) the consent of each nominee to serve as a Director of
the Company if so elected. The presiding officer at the meeting may refuse,
in his or her sole discretion, to acknowledge the nomination of any person
not made in compliance with the foregoing procedure.
2.6. Committees. The Board of Directors may by resolution adopted by
----------
the affirmative vote of a majority of the whole Board designate one or more
committees, each committee to consist of two or more Directors. Any such
committee, to the extent provided in such resolution, may exercise the authority
of the Board of Directors in the management of the business and affairs of the
Company; provided that no committee of the Board of Directors of the Company
shall exercise the authority of the Board of Directors in connection with any
matter described in Section 2.4(g) of these By-laws.
2.7. Limitation on Liability. A Director shall not be personally
-----------------------
liable for monetary damages for any action taken, or any failure to take any
action unless (i) the Director has breached or failed to perform the duties of
his office under Sections 1711-1718 of the Pennsylvania Business Corporation Law
(relating to fiduciary duty) and (ii) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. The provisions of
this Section 2.7 shall not apply to (i) the responsibility or liability of a
Director pursuant to any criminal statute or (ii) the liability of a Director
for the payment of taxes pursuant to local, state or federal law. Any repeal or
modification of this Section 2.7 shall be prospective only, and shall not
affect, to the detriment of any Director, any limitation on the personal
liability of a Director of the corporation existing at the time of such repeal
or modification.
2.8. Inapplicability of Certain Exercise of Powers Provision. The
-------------------------------------------------------
provisions Sections 313 and 1713 of Title 13 of the Pennsylvania Consolidated
Statuses shall not be applicable to the Company or any directors or officers of
the Company.
ARTICLE III
OFFICERS
--------
3.1. Election. At its first meeting after each annual meeting of the
--------
shareholders, the Board of Directors shall elect a chairman, president,
treasurer, secretary and such other officers as it deems advisable. Any number
of offices may be held by the same person.
3.2. Authority and Duties. The officers shall have such authority
--------------------
and perform such duties as may be determined by resolution of the Board of
Directors. Except as otherwise provided by Board resolution: (i) the chairman
shall preside at all meetings of the Board and the shareholders, (ii) the
president shall be the chief executive officer of the Company, shall have
general supervision over the business and operations of the Company, and may
perform any act and execute any instrument for the conduct of such business and
operations, (iii) the other officers
<PAGE>
Page 7
shall have the duties usually related to their offices, and (iv) the officers,
in the order determined by the Board, shall, in the absence of the president
because of his incapacity, physical or mental disability or other extended
illness, have the authority and perform the duties of the president.
ARTICLE IV
INDEMNIFICATION
---------------
4.1. Right to Indemnification. The Company shall indemnify any
------------------------
person who was or is a party, or is threatened to be made a party to any
threatened, pending, or completed action or proceeding, whether civil, criminal,
administrative, or investigative, by reason of the fact that such person is or
was a Director or officer of the Company or any subsidiary thereof, or is or was
serving at the request of the Company or any subsidiary thereof as a Director,
officer, employee, or agent of another domestic or foreign corporation for-
profit or not-for-profit, partnership, joint venture, trust or other enterprise,
against all liability, losses, expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action or proceeding, whether or not the indemnified
liability arises or arose from any threatened, pending or completed action by or
in the right of the Company or any subsidiary, to the extent that the power to
indemnify such person has been or may in the future be granted by statute and
that such person is not insured or otherwise indemnified.
4.2. Advance of Expenses. Expenses incurred by a Director or officer
-------------------
in defending any civil or criminal action, suit or proceeding described in
Section 4.1 hereof shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such person to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the Company.
4.3. Procedure for Determining Permissibility. The procedure for
----------------------------------------
effecting indemnification under the standards contained in this Article IV
(including the advance of expenses) shall be that set forth in Sections 1744 and
1745 of the Pennsylvania Business Corporation Law, provided that, if there has
been a change in control of the Company between the time of the action or
failure to act giving rise to the claim for indemnification and such claim, at
the option of the person seeking indemnification, the permissibility of
indemnification shall be determined by independent legal counsel selected
jointly by the Company and the person seeking indemnification. The reasonable
expenses of any Director or officer in prosecuting a successful claim for
indemnification, and the fees and expenses of any special legal counsel engaged
to determine permissibility of indemnification, shall be borne by the Company.
4.4. Contractual Obligations. The obligations of the Company to
-----------------------
indemnify a person under this Article IV, including the duty to advance
expenses, shall be considered a contract between the Company and such person,
and no modification or repeal of any provision of this Article IV shall affect,
to the detriment of such person, such obligations of the Company in connection
with a claim based on any act or failure to act occurring before such
modification or repeal.
<PAGE>
Page 8
4.5. Indemnification Not Exclusive; Inuring or Benefit. The
-------------------------------------------------
indemnification and advancement of expenses provided by this Article IV shall
not be deemed exclusive of any other right to which one indemnified may be
entitled under any agreement, vote of shareholders or otherwise, both as to
action in such person's official capacity and as to action in another capacity
while holding such office, and shall inure to the benefit of the heirs,
executors and administrators of any such person.
4.6. Insurance, Security and Other Indemnification. The Board of
---------------------------------------------
Directors shall have the power to (i) purchase and maintain, at the Company's
expense, insurance on behalf of the Company and others to the extent that power
to do so has not been prohibited by applicable law, (ii) create any fund of any
nature, whether or not under the control of a trustee, or otherwise secure any
of its indemnification obligations and (iii) give other indemnification to the
extent not prohibited by law.
ARTICLE V
STOCK CERTIFICATES
------------------
5.1. Stock Certificates. Every shareholder of record shall be
------------------
entitled to a stock certificate representing the shares held by him. Every stock
certificate shall bear the corporate seal (which may be a facsimile) and the
signature of the president or a vice-president and the secretary or an assistant
secretary or the treasurer or an assistant treasurer of the Company. Where a
certificate is signed by a transfer agent or registrar, the signature of any
corporate officer may be a facsimile.
5.2. Transfers. Transfers of stock certificates and the shares
---------
represented thereby shall be made on the books of the Company only by the
registered holder or by duly authorized attorney. Transfers shall be made only
on surrender of the stock certificate or certificates.
ARTICLE VI
FISCAL YEAR
-----------
The fiscal year of the corporation shall end on the 31st day of
December.
<PAGE>
Page 9
ARTICLE VII
AMENDMENTS
----------
These By-laws may be amended or repealed prior to the occurrence of a
Reduction Event at any regular or special meeting of the Board of Directors by
the vote of two-thirds of the authorized number of the Directors of the Company
(but no fewer than five Directors) or at any annual or special meeting of
shareholders by the vote of the holders of two-thirds of the outstanding stock
entitled to vote; provided that after the occurrence of a Reduction Event, these
--------
By-laws may be amended or repealed at any regular or special meeting by the vote
of a majority of the authorized number of Directors of the Company or at any
annual or special meeting of shareholders by a vote of the holders of a majority
of the outstanding stock entitled to vote. Notice of any such meeting of
shareholders shall set forth the proposed change.
<PAGE>
EXHIBIT 10.1
CORPORATE SEPARATION AGREEMENT
____________________
IREX CORPORATION,
ACandS, INC.,
CENTIN, LLC,
SPACECON, LLC
AND
SPECIALTY PRODUCTS & INSULATION CO.
November ___, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS.................................................................................................. 2
2. SPIN-OFF AND ECP SALE........................................................................................ 2
3. MANAGEMENT OF THE BUSINESSES................................................................................. 2
4. FINANCING ARRANGEMENTS....................................................................................... 2
5. INTERCOMPANY ACCOUNTS........................................................................................ 3
6. EMPLOYEE BENEFIT PLANS....................................................................................... 3
7. REAL ESTATE ARRANGEMENTS..................................................................................... 3
8. COMPUTER SUPPORT............................................................................................. 3
9. HEALTH INSURANCE............................................................................................. 6
10. LIABILITY AND WORKER'S COMPENSATION INSURANCE............................................................... 6
11. BONDS....................................................................................................... 7
12. TAX AGREEMENTS.............................................................................................. 7
13. CLOSING BALANCE SHEET AND SETTLEMENT ARRANGEMENTS........................................................... 7
14. TIME OF PAYMENTS............................................................................................ 8
15. OTHER SHARED ARRANGEMENTS................................................................................... 9
16. NO TIME LIMITATIONS ON ADJUSTMENTS.......................................................................... 9
17. INDEMNIFICATION............................................................................................. 9
</TABLE>
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<TABLE>
<S> <C>
16. NON-COMPETE................................................................................................ 10
19. OFFSET..................................................................................................... 11
20. CONFIDENTIALITY........................................................................................... 11
21. DISPUTE RESOLUTION......................................................................................... 12
22. ACCESS TO BOOKS AND RECORDS................................................................................ 12
23. MISCELLANEOUS.............................................................................................. 12
(a) Severability...................................................................................... 12
(b) No Third Party Beneficiaries...................................................................... 12
(c) Incorporation by Reference........................................................................ 12
(d) Notices........................................................................................... 13
(e) Entire Agreement.................................................................................. 13
(f) Governing Law; Jurisdiction....................................................................... 14
(g) Amendments, Waivers and Consents.................................................................. 14
(h) Effect of Headings................................................................................ 14
(i) Counterparts...................................................................................... 14
(j) Survival.......................................................................................... 14
(k) Assignment........................................................................................ 14
</TABLE>
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<PAGE>
CORPORATE SEPARATION AGREEMENT
------------------------------
THIS CORPORATE SEPARATION AGREEMENT ("Agreement"), made this ______ day of
October __, 1998, is between IREX CORPORATION, a Pennsylvania corporation
("Irex"), its wholly owned contracting subsidiaries, ACANDS, INC. a Delaware
corporation ("ACandS"), CENTIN, LLC, a Pennsylvania corporation ("CENTIN"),
SPACECON, LLC, a Delaware corporation ("Spacecon") (ACandS, CENTIN and Spacecon
are collectively referred to herein as the "Contracting Subsidiaries" and Irex,
ACandS, CENTIN and Spacecon, as the "Irex Group"), and SPECIALTY PRODUCTS &
INSULATION CO., a Pennsylvania corporation ("SPI").
WITNESSETH:
WHEREAS, Irex is a holding company which owns the Contracting Subsidiaries,
which are engaged in the specialty contracting business, and SPI, which is
engaged, directly and through its subsidiaries, in the distribution of
mechanical insulation and architectural products (the "Distribution Business");
WHEREAS, the Board of Directors of Irex has determined that it is in the
best corporate interest of Irex and its subsidiaries for SPI to operate as an
independent company;
WHEREAS, Irex shall accomplish the separation of SPI (the "Separation")
through a tax-free spin-off (the "Spin-off") of 100 percent of the common stock,
par value $.01 per share (the "Common Stock"), of SPI to the shareholders of
Irex;
WHEREAS, immediately preceding the Spin-off, SPI shall declare and pay to
Irex a special distribution (the "Special Dividend") in the amount of
$10,500,000 (which amount shall be paid $7,000,000 in cash and an aggregate
principal amount of $3,500,000 of SPI's 10-1/2% Junior Subordinated Notes due
2002) and immediately thereafter shall issue and sell [_____________] shares of
Common Stock to Evercore Capital Partners L.P., Evercore Capital Partners (NQ)
L.P. and Evercore Capital Offshore Partners L.P. (the "ECP Sale");
WHEREAS, the Irex Group and SPI wish to enter various arrangements
concerning their operations after the Separation, with such arrangements to be
made, to the extent possible, as though they were made on an arms-length basis;
and
WHEREAS, the Irex Group and SPI wish to enter into agreements relating to
the Separation, including agreements concerning previous participation in shared
or common arrangements and programs.
WHEREAS, SPI has entered into a Stock Subscription Agreement, dated as of
October __, 1998 (the "Subscription Agreement"), by and among Irex, SPI,
Evercore Capital Partners
<PAGE>
L.P., Evercore Capital Partners (NQ) L.P. and Evercore Capital Offshore Partners
L.P. (collectively, "Purchasers"), pursuant to which SPI will sell Common Stock
to Purchasers immediately following the Spin-Off.
NOW, THEREFORE, in consideration of the premises contained herein, and upon
the terms and conditions hereinafter set forth, each of the parties, intending
to be legally bound, agrees as follows:
1. Definitions. As used in this Agreement, the following terms shall have
-----------
the following meanings:
(a) "Closing Balance Sheet" shall mean the balance sheet of SPI as of
the Closing Date reflecting the Spin-off, the ECP Sale and the Special
Dividend and the transactions contemplated herein.
(b) "Closing Date" shall mean the closing date of the ECP Sale.
2. Spin-off and ECP Sale. The Irex Group and SPI acknowledge and agree
---------------------
that considerable cooperation among them will be necessary to effect the Spin-
off and the ECP Sale, and the parties agree to use their best efforts to effect
such transactions. Irex will pay all ongoing third-party expenses of SPI
incurred in connection with the Spin-off and the ECP Sale as they are billed,
including attorneys' and accountants' fees and expenses, filing fees, listing
fees, printing costs and similar items, and SPI will reimburse Irex for all such
third-party expenses of SPI on the Closing Date. The unpaid fees and expenses of
Snyder & Co. and Legg Mason Wood Walker Incorporated (not to exceed $625,000 in
the aggregate) shall be paid directly by SPI out of the proceeds of the ECP
Sale, and SPI shall reimburse Irex for any previous payments by Irex to such
investment bankers and financial advisors relating to the Spin-off and IPO.
3. Management of the Businesses. Irex and SPI each acknowledge that the
----------------------------
services of employees of the other party may be necessary after the Closing Date
in connection with the transition which will occur as part of the Separation.
Thus, each agrees, to the extent possible, to make its employees available to
the other in connection with such transition; provided, however, that (a) a
party shall not be required to unreasonably disrupt its own business in order to
provide such services and (b) to the extent that such services require a
significant commitment of an employee's time, the party receiving such service
shall reimburse the other party the reasonable value of such services. Neither
Irex nor SPI will seek reimbursement for the services of an employee unless it
has notified the other of its intention to seek such reimbursement, and of the
proposed rate of reimbursement, prior to performance of the services.
4. Financing Arrangements.
----------------------
(a) As of the Closing Date, the bank loans, letter of credit
commitments, surety agreements and other financial obligations of Irex
(collectively, the "Irex Financial
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<PAGE>
Commitments") shall be the sole responsibility of Irex, and SPI shall have no
liability under the Irex Financial Commitments. Irex shall obtain or cause to be
obtained all appropriate releases, terminations and satisfactions necessary to
fully release SPI from any and all liability in connection with the Irex
Financial Commitments from and after the Closing Date, including, without
limitation, under any guaranties, liens or security interests SPI may have
previously given, executed or granted in connection with the Irex Financial
Commitments.
(b) SPI shall be responsible for all funding arrangements relating to
its business beginning as of the Closing Date and Irex shall have no liability
in connect ion with such arrangements.
5. Accounts Receivable. Irex and SPI shall establish separate bank
-------------------
deposit accounts prior to the Closing Date. Notwithstanding any other provision
of this Agreement, if the Irex Group or SPI receives payment on an account
receivable of the other, it shall advise the other of such receipt within one
(1) business day of learning of the receipt, and shall remit payment to the
other within three (3) business days.
6. Employee Benefit Plans.
----------------------
Obligations concerning employee benefit plans shall be governed by the
Benefits Sharing Agreement, dated as of the date hereof, between Irex and SPI
(the "Benefits Sharing Agreement")..
7. Real Estate Arrangements.
------------------------
(a) From and after the Closing Date, SPI shall be entitled to
continue to occupy and use the premises presently occupied and used by SPI
located at 265 Harrisburg Avenue, Lancaster, Pennsylvania pursuant to the lease
agreement between Irex and SPI dated December 30, 1992, as amended, which Lease
shall continue in full force and effect in accordance with the terms and
conditions thereof.
(b) As of the Closing Date, SPI shall have vacated, and thereafter
shall have no right to occupy, any of Irex's premises located on Lime Street, in
Lancaster, Pennsylvania.
8. Computer Support. Subject to Section 8(l), Irex has provided, and
----------------
continues to provide, SPI with use of, access to and support for certain
computer resources consisting of: (i) Irex's computer mainframe and related
equipment and notes server, both out-sourced and in-sourced; (ii) Irex's
JDEdwards software applications, its communications software allowing remote
access to the JDEdwards system, its Lotus Notes server software and other
related software, both out-sourced and in-sourced; and (iii) programming and
communication services in connection with the software applications provided
(collectively, the "Computer System"). Applications available to SPI through the
Computer System include, but are not limited to, Address Book, Electronic Mail,
Accounts Receivable, Accounts Payable, General Ledger,
-3-
<PAGE>
Financial Reporting, Payroll, Fixed Assets, Inventory Management, Sales Order
Processing, Sales Analysis, Purchasing and Human Resources. For the period
provided for in this Agreement (the "Service Period"), Irex will continue to
provide SPI with such use, access and support, provided that Irex may outsource
hardware, software or support services currently provided in-house at its sole
discretion; provided further, that any such outsourcing shall meet the standard
-------- -------
set forth in Section 8(a) below. SPI will comply with the non-financial terms,
such as confidentiality obligations, of Irex's agreements with Computer System
vendors during the Service Period.
(a) During the Service Period, Irex warrants to SPI that the response
time, service specifications, and operating capacity of the Computer System will
be similar or better in all material respects than that available to SPI prior
to the Closing Date. To the extent that the vendor of the frame relay network
which Irex is installing provides Irex with guarantees concerning improved
response time, Irex will provide those guarantees to SPI.
(b) In the event that the Computer System at any time fails to
operate according to the warranted response time, service specifications or
operating capacity, Irex will employ its reasonable best efforts to timely
address the problem, giving due regard to the impact on SPI's business. Irex,
however, shall not be responsible for any loss to SPI resulting from failure of
the Computer System to operate according to warranty. Irex shall provide SPI
with the benefit of all representations, warranties and indemnities received by
SPI from software vendors and suppliers. SPI's sole remedy for such failure
shall be the correction of the failure and a reduction in its payments to Irex
for Computer Systems Costs (as defined herein) for the period of failure.
(c) In no event shall Irex be responsible for consequential or
incidental damages in connection with the Computer System. Irex shall make
available to SPI, or, if necessary, assert on behalf of SPI, any claim which may
be available against any Irex vendor for deficiencies in the service provided to
SPI, provided that SPI shall pay the cost of asserting such claim.
(d) During the Service Period, Irex shall (i) make available to SPI
any upgrades which Irex determines to accept or acquire from its vendors
concerning the Computer System, (ii) include SPI in the evaluation process of
any enhancements, modifications or new releases announced by its software
vendors, including access to the test environment prior to implementation
thereof, and (iii) give reasonable consideration to the interests of SPI in
making upgrade decisions. Irex will upgrade to all new releases, modifications
or enhancements necessary to maintain support from the vendor thereof.
(e) As compensation for the services provided by Irex under this
Section 8, SPI will pay Irex, on a monthly basis, (i) a pro rata share of Irex's
Computer System Costs (as defined herein) incurred in connection with services
provided by World Technology Services LLD ("WTS") or JDEdwards, and (ii) fifty
percent of Irex's remaining Computer System Costs. The pro rata share of WTS and
JDEdwards costs will be based on the ratio of SPI "concurrent users"
-4-
<PAGE>
(as defined by Irex's agreements with such vendors) to total "concurrent users."
In the event that a dispute arises concerning the amount of Computer System
Costs chargeable to SPI, Irex will continue to provide the computer services
specified in this Agreement while the dispute resolution procedure is pending.
Notwithstanding the foregoing, in the event SPI requests a service or upgrade
which Irex can reasonably obtain or provide but which Irex will not use, Irex
shall obtain or provide such service or upgrade and SPI shall pay the full cost
of such upgrade or service.
(f) Subject to Section 8(h), "Computer System Costs" shall mean all
costs incurred for the services of WTS or a replacement vendor of IBM AS 400
services, all costs for the use of JDEdwards software, and all other costs
attributable to operation of the MIS function as determined by the Irex
accounting system on a basis consistent with that used to allocate MIS costs on
the Closing Date, excluding the cost of programmers, whether in-house or third
party, except to the extent any programmer's time is attributable to work
substantially beneficial to both Irex and SPI, and excluding the cost of
telecommunications for field locations.
(g) SPI will also pay to Irex on a monthly basis the actual cost of
all programmers' time and field telecommunication costs attributable to its
projects or its locations. In-house programmers' time will be quoted to SPI at
hourly rates reasonably reflecting the compensation and overhead attributable to
each programmer. Third-party programmers' time, other than time included within
Computer System Costs, and field telecommunication costs will be charged at
invoiced cost. Programmers' time will not be charged to SPI unless it has been
authorized in writing by an individual designated by SPI to Irex as having the
responsibility to authorize such time. SPI will also reimburse Irex for the cost
of the materials, equipment and software purchased at SPI's request for use at
SPI's locations in connection with the Computer System. Costs chargeable to SPI
will not be included in Computer System Costs.
(h) Notwithstanding anything to the contrary contained herein, if at
any time during the Service Period, Irex and SPI are required to obtain separate
licenses from JDEdwards, each party will thereafter pay the JDEdwards fees
attributable to its own license, and JDEdwards fees shall thereafter be excluded
from Computer System Costs.
(i) Irex will acquire and maintain all software licenses necessary to
permit SPI's use of the Computer System, provided, however, that the actual cost
of any additional hardware required by SPI at field locations after the Closing
Date, and any software licenses required for installation of software directly
in such field units will be paid for by SPI.
(j) The parties understand and agree that the existing Computer
System is set up to service the number of field locations and volume of business
being performed by SPI, Irex, and other Irex subsidiaries as of the Closing
Date. In the event that SPI grows to the extent that the existing Computer
System must be significantly reconfigured to handle this growth, the pricing
provided for herein will be renegotiated to more fairly and accurately account
for such changed circumstances.
-5-
<PAGE>
(k) Irex understands that the software which WTS will use and the
JDEdwards upgrade Irex will install during 1998 are Year 2000 compliant, and
will resolve any remaining Year 2000 problems in the Computer System which are
not related to specific PC's or PC software. Irex will make available to SPI the
benefit of any Year 2000 warranties and certifications it receives from WTS,
JDEdwards and other vendors.
(l) The terms of this Section 8 (the "Computer Services Agreement")
shall extend for three (3) years from the Closing Date, provided that SPI shall
-------- ----
be entitled to terminate this Computer Services Agreement at any time after 18
months after the Closing Date upon six months prior written notice. If SPI
desires to continue with this Computer Services Agreement after the third
Service Period year, Irex and SPI will attempt in good faith to negotiate an
extension, provided that SPI will give Irex notice at least six months prior to
the end of the term whether or not it desires to negotiate such an extension.
9. Health Insurance. For periods prior to the Closing Date, Irex has
----------------
maintained health insurance programs covering employees of both Irex and its
subsidiaries, including SPI. The cost of these programs is determined in part by
the actual cost of claims, for which Irex receives periodic bills or credits.
SPI and Irex will share the costs and expenses of such programs as determined in
Sections 4.1(b) and 4.1(c) of the Benefits Sharing Agreement.
10. Liability and Worker's Compensation Insurance
---------------------------------------------
(a) Irex is the lead named insured on policies of liability insurance
(including general liability, automobile liability and worker's compensation
insurance) providing coverage for periods prior to the Closing Date for which
Irex's subsidiaries, including SPI, are also named insureds. The cost of these
programs is determined in part by the actual paid or incurred cost of claims.
After the Closing Date, Irex will provide administration for these policies.
(b) SPI will reimburse Irex for any increased cost after the Closing
Date associated with these policies which is attributable to SPI claims, and
Irex will refund to SPI any decreased cost after the Closing Date associated
with these policies which is attributable to SPI claims. These programs require
letters of credit or other collateral for unfunded incurred losses and unfunded
incurred but not reported losses ("IBNR"). SPI will also reimburse Irex for the
cost of any collateral required by unfunded SPI incurred losses and IBNR related
to SPI losses. Irex will keep SPI advised concerning the handling of SPI claims,
and will offer to SPI the exercise of settlement authority over SPI claims, to
the extent such authority is available to Irex under the policies. Irex will not
authorize settlement of any claims, the costs of which would be reimbursable by
SPI hereunder, in an amount exceeding the claims handler's authority established
in their existing Service Contracts without the approval of SPI. Nothing
contained in this section will require SPI to pay any claim or costs for which
it is indemnified pursuant to Section 17 herein.
-6-
<PAGE>
11. Bonds. Irex and SPI currently maintain bonds through a bonding program
-----
which provides bonding capacity for Irex and its subsidiaries, including SPI.
After the Closing Date, SPI will make required payments relating to the renewal
of bonds obtained for the benefit of SPI ("SPI Bonds") and the members of the
Irex Group will make required payments relating to the renewal of bonds for any
of them. Each of SPI and the Irex Group will use commercially reasonable best
efforts to implement separate and distinct bonding programs, independent of the
other. To the extent any member of the Irex Group is liable for any payment made
on an SPI Bond or SPI is liable for any payment made on an Irex bond or bond of
any other Irex subsidiary, the party for whose benefit the bond was obtained
shall indemnify the other party for any payments made on such bonds. Credits
received on bond premiums paid prior to the Closing Date will be returned to the
company for which the bond was obtained promptly, and in no event less than ten
(10) days after such credit is received.
12. Tax Agreements. Obligations of the parties with respect to taxes shall
--------------
be governed by the Tax Sharing and Indemnification Agreement, dated as of the
date hereof, between Irex and SPI.
13. Closing Balance Sheet and Settlement Arrangements.
-------------------------------------------------
(a) Prior to the Closing Date, but in no event more than three
business days prior to the Closing Date, the parties shall jointly prepare an
estimate of the inter-company accounts among the parties hereto, including, but
not limited to all amounts due between the parties as a result of the Special
Dividend, the Spin-off, the ECP Sale and any inter-company accounts receivable
(other than accounts receivable not yet due and payable in accordance with
customary terms between the parties) (the "Estimated Inter-company Accounts
Statement"), as of the Closing Date. Such Estimated Inter-Company Accounts
Statement shall show the net inter-company liability (or receivable) owed by SPI
to the Irex Group (or from the Irex Group to SPI) (the "Estimated Net Inter-
Company Amount") and will be prepared in accordance with the accounting policies
and practices (the "Accounting Principles") used to prepare the Balance Sheet
(as defined in the Subscription Agreement). If the Estimated Net Inter-company
Amount is reflected as a liability of SPI to the Irex Group, then SPI shall, on
the Closing Date, pay such amount to Irex. If the Estimated Net Inter-company
Amount is reflected as a receivable of SPI from the Irex Group, the Irex Group
shall, on the Closing Date, pay such amount to SPI.
(b) Promptly after the Closing Date, and in any event not later than
thirty (30) days following the Closing Date, Irex shall prepare and deliver to
SPI a statement of the inter-company accounts among the parties hereto,
including, but not limited to all amounts due between the parties as a result of
the Special Dividend, the Spin-off, the ECP Sale and any inter-company accounts
receivable (other than accounts receivable not yet due and payable in accordance
with customary terms between the parties) (the "Inter-company Accounts
Statement") as of the Closing Date. Such Inter-Company Accounts Statement shall
show the net inter-company liability (or receivable) owed by SPI to the Irex
Group (or from the Irex Group to SPI)
-7-
<PAGE>
(the "Net Inter-Company Amount") and will be prepared in accordance with the
Accounting Principles.
(c) After preparation of the Inter-company Accounts Statement, Irex
shall deliver the Inter-Company Accounts Statement to SPI and to SPI's
accountants (which firm shall be designated in writing to Irex prior to the
Closing Date) for review and SPI and SPI's accountants may make inquiries of
Irex and its accountants regarding questions concerning or disagreements with
the Inter-company Accounts Statement arising in the course of such review. SPI
and SPI's accountants shall complete their review of the Inter-company Accounts
Statement within thirty (30) days of the delivery of the Inter-company Accounts
Statement to SPI and SPI's accountants. Promptly following completion of its
review, SPI shall submit to Irex a letter regarding its concurrence or
disagreement with the accuracy of the Inter-company Accounts Statement. Unless
SPI delivers a letter disagreeing with the accuracy of the Inter-company
Accounts Statement within such thirty (30) day period, the Inter-company
Accounts Statement shall be binding upon the parties. Following delivery of such
letter, if SPI shall disagree as to the computation of any item in the Inter-
company Accounts Statement, Irex and SPI shall attempt promptly to resolve such
disagreement in good faith. If a resolution of such disagreement has not been
effected within fifteen (15) days (or longer, as mutually agreed by the parties)
after delivery of such letter, Irex and SPI shall submit such disagreement to an
accounting firm (independent of Irex and SPI) jointly selected by Irex and SPI.
The determination of such firm with respect to such disagreement and the
accuracy of the Inter-company Accounts Statement as a result shall be completed
within 120 days of the Closing Date and may be challenged only pursuant to
Section 21 hereof. The fees, costs and expenses of the independent accounting
firm selected in the event of a dispute shall be shared equally by Irex and SPI.
(d) If the Net Inter-company Amount, as finally determined pursuant
to Sections 13(c) and 21, reflects a liability of SPI to the Irex Group (after
taking into account all payments made by SPI to Irex or by Irex to SPI, as the
case may be, pursuant to Section 13(a)), then SPI shall be obligated to pay to
Irex the amount of any such liability with five (5) business days after the
final determination of the Net Inter-company Amount by wire transfer of
immediately available funds to an account designated in writing by Irex. If the
Net Inter-company Amount, as finally determined pursuant to Sections 13(c) and
21, reflects a receivable from the Irex Group payable to SPI (after taking into
account all payments made by SPI to Irex or by Irex to SPI, as the case may be,
pursuant to Section 13(a)), then Irex shall be obligated to pay to SPI the
amount of any such liability within five (5) business days after the final
determination of the Net Inter-company Amount by wire transfer of immediately
available funds to an account designated in writing by SPI.
14. Time of Payments. Unless otherwise specified herein, all payments
----------------
required of either party herein other than those relating to intercompany
account adjustments, or the Special Dividend, or the payment of expenses
associated with the Spin-off and the ECP Sale will be made within 30 days of the
date invoiced or otherwise requested. Amounts to be credited shall be paid
within 30 days of the date a refund is actually received, if from a third party,
or the date the
-8-
<PAGE>
amount of the credit is determined, if internal to SPI or the Irex Group. The
foregoing, however, shall not apply to payments or credits for materials
purchased by the Contracting Subsidiaries from SPI after the Closing Date, it
being understood and agreed that such purchases are outside the scope of this
agreement and will be independently provided for.
15. Other Shared Arrangements. The parties agree that, with respect to any
-------------------------
other shared or common arrangements which have not been identified and addressed
herein by the parties as of this date, they shall use their best efforts to
resolve such matters in a manner reasonably acceptable to the parties hereto
and consistent with the arrangements set forth herein.
16. No Time Limitations on Adjustments. The provisions herein pertaining
----------------------------------
to payments or credits for increased or decreased costs relating to liability
insurance, and health insurance will continue indefinitely, so long as any
claims covered by this Agreement are open.
17. Indemnification.
---------------
(a) SPI shall indemnify, hold harmless and defend Irex and the
Contracting Subsidiaries from any and all damages, loss, liability, cost or
expense, including attorneys fees, arising from or related to: (i) business
conducted by SPI on or after January 1, 1982; and (ii) the breach by SPI of any
representation, warranty or covenant of this Agreement, subject to any
limitations provided for herein.
(b) Each member of the Irex Group shall jointly and severally
indemnify, hold harmless and defend SPI from any and all loss, liability, cost
or expense, including attorneys' fees, arising from or related to (i) business
conducted by any of them at any time; (ii) any business conducted by any party
(or its predecessors in interest) to this Agreement prior to January 1, 1982;
and (iii) the breach by any of them of any representation, warranty or covenant
of this agreement, subject to any limitations provided for herein. Without
limiting the generality of the foregoing, each member of the Irex Group shall
indemnify, hold harmless and defend SPI from any and all damages, loss,
liability, cost or expense, including attorneys' fees, arising from or relating
to the installation, sale, use, handling or removal of asbestos-containing
products by any member of the Irex Group at any time and any liability any
member of the Irex Group has assumed concerning the sale, use handling or
removal of asbestos containing products. The parties agree that any asbestos-
related general liability or product liability claim against SPI shall be
included within this indemnity unless the claim is based on meritorious
allegations which constitute a Section 3.20(f) Breach (as defined in the
Subscription Agreement) or is based only on allegations which constitute such a
breach.
(c) The party seeking indemnity under this paragraph 17 (the
"Indemnified Party") shall provide the party from which indemnity is sought (the
"Indemnifying Party") with prompt notice of any notice, demand, claim, suit or
proceeding which may result in an indemnity obligation ("Indemnified Claim").
Upon receipt of such notice, the Indemnifying Party shall immediately undertake
the defense of such Indemnified Claim, and pay all out of pocket costs and
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<PAGE>
expenses associated therewith. The Indemnifying Party shall keep the Indemnified
Party informed of all developments concerning the Indemnified Claim, and shall
afford the Indemnified Party the opportunity, at the Indemnified Party's
expense, to associate counsel in the defense of the Indemnified Claim if it so
chooses. The Indemnified Party shall provide the Indemnifying Party with any
necessary cooperation in the defense of the Indemnified Claim. So long as it
agrees to make prompt payment, the Indemnifying Party may settle, compromise or
resolve the Indemnified Claim for any amount which it determines appropriate. No
delay in giving notice shall relieve a party of any liability hereunder unless
the party is materially and adversely affected by the delay.
(d) Nothing contained in subparagraph (a) and (b) above shall affect
the obligation of SPI, for warranties for materials sold by SPI to the
Contracting Subsidiaries. The warranties shall be as provided at the time of
sale, and shall be unaffected by this agreement.
18. Non-Compete; Non-Solicitation. (a) For a period of five (5) years from
-----------------------------
the Closing Date, the Irex Group, and any business or entity owned or controlled
in whole or in part by any of them shall not distribute any mechanical
insulation, acoustical ceiling, passive fire protection and related or ancillary
products in competition with SPI, and SPI and any business or entity owned or
controlled by it in whole or in part shall not engage in any insulation
contracting, interior finish contracting, asbestos, lead or hazardous material
abatement contracting, or any related specialty contracting in competition with
any member of the Irex Group. It shall not be a violation of this agreement for
any member of the Irex Group to continue any resale of materials which it is
conducting on the Closing Date from the same location and on the same scale, or
to make incidental or opportunistic sales of materials. The parties agree that
remedies at law are inadequate for a breach of this provision, and that, in
addition to any other available remedies, the party seeking to enforce this
provision may obtain an injunction against any breach hereof.
(b) For the period of three (3) years from the Closing Date, no
member of the Irex Group shall, without the prior written consent of SPI,
employ, solicit for employment or otherwise contract for the services of any
employee of SPI or any of its Affiliates (as defined below) at the time of this
Agreement, or who shall subsequently become an employee of SPI or any of its
Affiliates. For the period of three (3) years from the Closing Date, SPI shall
not, without the prior written consent of Irex, employ, solicit for employment
or otherwise contract for the services of any employee of the Irex Group or any
of its Affiliates at the time of this Agreement, or who shall subsequently
become an employee of a member of the Irex Group or any of its Affiliates.
Notwithstanding the foregoing, no party hereto shall be prohibited from
employing a person employed by another party hereto (or any Affiliate of such
party) if (x) such person responds to a general solicitation, by newspaper
advertisement or other means, which is not targeted solely at employees of such
other party or (y) such person has previously ceased to be employed by such
other party (or Affiliate of such party ) under circumstances which did not
involve a violation of this agreement.
(c) For the purposes of this Section 18, the term "Affiliate" shall
mean, with respect to any person or entity, any other person or entity which,
directly or indirectly, owns or is
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<PAGE>
owned by, or is under common ownership with, such person or entity. The term
"own" (including, with correlative meanings, "owned by" and "under common
ownership with") shall mean the ownership of 50% or more of the voting
securities (or their equivalent) of a particular entity.
19. Offset. In the event that any member of the Irex Group fails to pay an
------
obligation to SPI when due, SPI may offset any sum which it owes to any member
of the Irex Group against the unpaid obligation. In the event that SPI fails to
pay an obligation to any member of the Irex Group when due, any member of the
Irex Group may off set any sum which it owes SPI against the unpaid obligation.
20. Confidentiality. (a) Each of the parties, for itself and all of its
---------------
present or future Affiliates, hereby agrees that it and all present and future
Affiliates will not in any manner, directly or indirectly, singly or jointly,
intentionally or negligently disclose to any unauthorized party any Confidential
Proprietary Information of the other party. "Confidential Proprietary
Information" shall mean confidential information including, without limitation,
trade secrets, client lists and other confidential and proprietary client
information, marketing and business plans, pricing methods, methods of
recruiting procedures, innovative techniques and other confidential and
proprietary information of the other party. For the purposes of the foregoing,
Confidential Proprietary Information shall not include:
(i) information which is or becomes generally available to the
public other than as a result of a disclosure by a party;
(ii) information which was already known to a party on a
nonconfidential basis prior to being furnished to a party by another party;
(iii) information independently developed by a party; or
(iv) information which becomes available to a party on a
nonconfidential basis from another source if such source was not known to such
party to be subject to any prohibition against transmitting the information.
(b) If any of the parties hereto or any agent or representative of
any such party (a "Recipient Party"), is requested or required (by deposition,
interrogatory, request for documents, subpoena, civil investigative demand or
similar process), to disclose any Confidential Proprietary Information of
another party hereto, such party shall notify the party to whom such
Confidential Proprietary Information belongs so that such party may promptly
seek an appropriate protective order and/or take any other action to protect the
confidentiality of such Confidential Proprietary Information. In the event that
such a protective order is not obtained or that the party to which such
Confidential Proprietary Information belongs waives compliance with this
Section, (i) the Recipient Party may disclose to the tribunal or other person
only that portion of the Confidential Proprietary Information as the Recipient
Party is advised by its counsel is legally
-11-
<PAGE>
required to be disclosed and shall use its best efforts to obtain assurances
that such Confidential Proprietary Information shall be treated confidentially
and (ii) the Recipient party shall not be liable for such disclosure unless such
disclosure to such tribunal or other person was caused by or resulted from, a
previous disclosure by such Recipient Party which was not permitted pursuant to
this Agreement.
21. Dispute Resolution. All controversies or claims arising out of or
------------------
relating to this Agreement shall be settled in the first instance by non-binding
mediation between the parties using mutually agreeable professional mediation
services. Failing a resolution through mediation, the parties may bring a
judicial proceeding concerning such dispute solely in the courts of the
Commonwealth of Pennsylvania located in the County of Lancaster or in the United
States District Court for the Eastern District of Pennsylvania. By execution and
delivery of this Agreement, each of the parties to this Agreement accepts the
exclusive jurisdiction of such courts, and irrevocably agrees to be bound by any
final judgment rendered thereby in connection with this Agreement. The
interpretation and construction of this Agreement shall be governed by the laws
of the Commonwealth of Pennsylvania.
22. Access to Books and Records. Subject to the provisions of Section 20
---------------------------
herein, each party shall grant the other party reasonable access to its books
and records during regular business hours to allow the other party to provide
services under this Agreement, file tax returns, conduct litigation, or for any
other legitimate purpose. Irex will grant SPI such access to books and records
of Irex pertaining to insurance policies and programs, tax returns, computer
services and other relevant matters as is necessary for SPI to verify the
accuracy of billings to SPI pursuant to this Agreement.
23. Miscellaneous.
-------------
(a) Severability. If any provision of this Agreement is held invalid
------------
or unenforceable, either in its entirety or by virtue of its scope or
application to given circumstances, such provision shall thereupon be deemed
modified only to the extent necessary to render the same valid, or not
applicable to given circumstances, or excised from this Agreement, as the
situation may require, and this Agreement shall be construed and enforced as if
such provision had been included herein as so modified in scope or application
or had not been included herein, as the case may be.
(b) No Third Party Beneficiaries. Neither this Agreement nor any
----------------------------
provisions set forth herein is intended to, nor shall, create any rights nor
confer any benefits upon any person other than the parties hereto.
(c) Incorporation by Reference. The Exhibits to this Agreement
--------------------------
constitute integral parts of this Agreement and are hereby incorporated into
this Agreement by this reference. The text of the Exhibits shall prevail over
the description of such documents or the provisions hereof in this Agreement.
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<PAGE>
(d) Notices. All notices, demands, consents or other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been given when personally delivered, when sent by registered or certified mail,
return receipt requested, postage prepaid, or when sent via prepaid overnight
courier, addressed to their respective addresses as set forth below or to such
other place as the parties hereto shall specify by notice to the other parties
hereto given in the manner required above. Any notice, demand, consent or other
communication given hereunder in the manner required above shall be deemed to
have been effected and received as of the date hand-delivered or, if mailed,
three days after the date so mailed, or if sent via overnight courier, the next
business day.
If to any member of the Irex Group: Irex Corporation
120 North Lime Street
Lancaster, PA 17608
Attn: W.K. Liddell,
President and Chief Executive Officer
With a copy to: James E. Hipolit, Esquire
Sr. Vice President & General Counsel
Irex Corporation
120 North Lime Street
P. O. Box 1268
Lancaster, PA 17603
If to SPI: Specialty Products & Insulation Co.
1097 Commercial Avenue
P. O. Box 576
East Petersburg, PA 17520-0576
Attn: Ronald L. King, President
With a copy to: Wanda S. Whare, Esquire
Corporate Counsel
Specialty Products & Insulation Co.
1097 Commercial Avenue
P. O. Box 576
East Petersburg, PA 17520-0576
(e) Entire Agreement. All prior negotiations, discussions and
----------------
agreements of, by and between the parties and/or their representatives,
concerning the subject matter hereof, whether in writing or by parol, are herein
merged and engrossed, and except for this Agreement and the Benefit Sharing
Agreement and Tax Sharing and Indemnification Agreements and other agreements,
documents and instruments contemplated hereby and thereby, there are and shall
be
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<PAGE>
no other agreements and/or understandings by the parties other than as contained
herein or therein or in a subsequent amendment or rider executed by the parties
with all of the formalities hereto. All prior written or oral contracts,
agreements or arrangements between Irex and SPI with regard to management or
administrative services (to the extent such agreements are not contained herein)
are hereby terminated.
(f) Governing Law; Jurisdiction. This Agreement shall be governed by,
---------------------------
and construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania, as from time to time constituted and without regard to the
conflicts of laws principles thereof. Subject to Section 21, the parties agree
that any action brought in connection with this Agreement shall be maintained
only in the Court of Common Pleas of Lancaster County or the United States
District Court for the Eastern District of Pennsylvania, or a court to which an
appeal from any such court could be taken. The parties consent to the exclusive
personal jurisdiction of such courts for all such purposes.
(g) Amendments, Waivers and Consents. Any provision in this Agreement
--------------------------------
to the contrary notwithstanding, changes in or additions to this Agreement may
be made, and compliance with any covenant or provision herein set forth may be
omitted or waived, with the written consent of the parties hereto.
(h) Effect of Headings. The section headings contained herein are for
------------------
convenience of reference only and in no way shall they be held to nor shall they
affect the construction hereof.
(i) Counterparts. This Agreement may be executed in counterparts, all
------------
of which together shall constitute a single agreement.
(j) Survival. All agreements made by the parties in this Agreement,
--------
or in any certificates or other documents delivered pursuant hereto, shall
survive the Closing Date.
(k) Assignment. This Agreement shall not be assignable by either
----------
party without the prior written approval of the other party. To the extent
assignable, this Agreement shall be binding upon, and inure to the benefit of,
the parties hereto and their successors and assigns.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Corporate Separation
Agreement the day and year first above written.
IREX CORPORATION
By:________________________________________
Attest:____________________
Secretary
ACANDS, INC.
By:________________________________________
Attest:____________________
Secretary
CENTIN, LLC
By:________________________________________
Attest:____________________
Secretary
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<PAGE>
SPACECON, LLC
By:________________________________________
Attest:___________________
Secretary
SPECIALTY PRODUCTS &
INSULATION CO.
By:________________________________________
Attest:____________________
Secretary
-16-
<PAGE>
EXHIBIT 10.2
TAX SHARING AND INDEMNIFICATION AGREEMENT
-----------------------------------------
THIS IS A TAX SHARING AND INDEMNIFICATION AGREEMENT (the "Agreement"),
dated as of the Effective Date, made by and among Irex Corporation, a
Pennsylvania corporation ("IREX") on behalf of itself and each member of the
IREX Post-Distribution Group, Specialty Products & Insulation Co., a
Pennsylvania corporation ("SPI"), on behalf of itself and each member of the SPI
Group, and their respective successors.
Background
----------
A. IREX has determined to effect the Distribution;
B. IREX and SPI have received the Tax Opinion regarding the tax
treatment of the Distribution;
C. The parties are entering into this Agreement: to insure the
continuing effectiveness of the Tax Opinion; to provide for the parties'
respective liabilities for Taxes; to provide certain indemnities; and to provide
for various administrative matters relating to Taxes including: (1) the
preparation and filing of Tax Returns along with the payment of Taxes shown due
and payable thereon, (2) the retention and maintenance of relevant records
necessary to prepare and file appropriate Tax Returns, as well as the provision
for appropriate access to those records by the parties to this Agreement, (3)
the conduct of audits, examinations, and proceedings by appropriate governmental
entities which could result in a redetermination of Taxes, and (4) the
cooperation of all parties with one another in order to fulfill their duties and
responsibilities under this Agreement and under the Code and other applicable
law; and
D. It is the intent of the parties that, subject to certain
limitations specified herein in more detail, (i) IREX shall generally bear the
economic burden of Taxes imposed upon or attributable to the activities and
operations of IREX and its affiliates other than the members of the SPI Group,
including any Taxes attributable to the operations of IREX and its affiliates
that are due under any consolidated, combined or unitary Tax Return (or group
relief or similar arrangement) that includes one or more members of the SPI
Group and at least one member of the IREX Pre-Distribution Group (an "IREX
Consolidated Return") and (ii) the SPI Group shall generally bear the economic
burden of substantially all Taxes otherwise imposed upon or attributable to the
members of the SPI Group, including substantially all Taxes payable with respect
to an IREX Consolidated Return that are attributable to the income or operations
of a member of the SPI Group.
<PAGE>
Terms
-----
THEREFORE, in consideration of the mutual promises, covenants, and
conditions contained in this Agreement, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. As used in this Agreement (including the
introduction and Background section hereof), the following definitions apply
(such meanings to be equally applicable to both the singular and plural focus of
the terms involved):
ADJUSTMENT means any proposed or final change in the Tax Liability of
a taxpayer.
AFFILIATE means, when used with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with such Person.
AFFILIATED PERSON has the meaning ascribed to such term in the
Investment Company Act of 1940, as amended, and the rules and regulations
promulgated thereunder.
ASSOCIATES has the meaning ascribed to such term in the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
BENEFICIAL OWNERSHIP has the meaning ascribed to such term in the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
CODE means the Internal Revenue Code of 1986, as amended, and the
Treasury regulations promulgated thereunder, including any comparable successor
legislation.
CORPORATE SEPARATION AGREEMENT means the Corporate Separation
Agreement among IREX, SPI and their affiliates entered into as of _________,
1998 in connection with the Distribution.
DISTRIBUTION means the distribution of SPI common stock to the holders
of IREX common stock.
EFFECTIVE DATE means the date on which the Distribution occurs.
EVERCORE PURCHASE means the purchase by Evercore Capital Partners
L.P., Evercore Capital Partners (NQ) L.P. and Evercore Capital Offshore Partners
L.P. of the stock of SPI immediately following the Distribution
2
<PAGE>
FINAL DETERMINATION means the final resolution of any Tax matter. A
Final Determination shall result from the first to occur of:
1. the expiration of 30 days after the IRS' acceptance of a Waiver
of Restrictions on Assessment and Collection of Deficiency in Tax
and Acceptance of Overassessment on Form 870 or 870-AD (or any
successor comparable form) (the "Waiver"), except as to reserved
matters specified therein, or the expiration of 30 days after
acceptance by any other taxing authority of a comparable
agreement or form under the laws of any other jurisdiction,
including state, local, and foreign jurisdictions; unless, within
such period, the taxpayer gives notice to the other party to this
Agreement of the taxpayer's intention to attempt to recover all
or part of any amount paid pursuant to the Waiver by the filing
of a timely claim for refund;
2. a decision, judgment, decree, or other order by a court of
competent jurisdiction that is not subject to further judicial
review (by appeal or otherwise);
3. the execution of a closing agreement under Code section 7121, or
the acceptance by the IRS of an offer in compromise under Code
section 7122, or comparable agreements under the laws of any
other jurisdiction, including state, local, and foreign
jurisdictions; except as to reserved matters specified therein;
4. the expiration of the time for filing a claim for refund or for
instituting suit in respect of a claim for refund that was
disallowed in whole or part by the IRS or any other taxing
authority;
5. the expiration of the applicable statute of limitations; or
6. an agreement by the parties hereto that a Final Determination has
been made.
GROUP has the meaning ascribed to such term in the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
INDEMNIFIED LIABILITY is defined at Section 8.1.
INDEMNIFIED PARTY is any person that is entitled to a payment under
Article III or Article VII of this Agreement.
INDEMNIFYING PARTY is any party to the Agreement that owes a payment
to an Indemnified Party pursuant to Article III or Article VII of this
Agreement.
3
<PAGE>
IREX CONSOLIDATED RETURN has the meaning set forth in paragraph D of
the Background section hereof.
IREX GROUP means, as of any relevant date, IREX and its Subsidiaries,
determined as of such date.
IREX POST-DISTRIBUTION GROUP means the members of the IREX Group at an
applicable point in time following the Effective Date.
IREX PRE-DISTRIBUTION GROUP means the members of the IREX Group at any
applicable point in time prior to and including the Effective Date.
IRS means the U. S. Internal Revenue Service.
IRS INTEREST RATE means the rate of interest imposed from time to time
on underpayments of income tax pursuant to Code section 6621(a)(2).
MANAGEMENT PURCHASE means the issuance of SPI common stock to certain
management employees of SPI that will not, in the aggregate, exceed 140 shares
(determined on a post-Reverse Stock Split basis).
NON-PRIMARY PARTY is defined at Section 4.2(a).
OPINION OF COUNSEL means an opinion of independent tax counsel of
recognized national standing and experienced in the issues to be addressed and
otherwise reasonably acceptable to IREX, which sets forth an Unqualified Tax
Opinion in form and substance satisfactory to IREX.
PERSON means any natural person, corporation, business trust, joint
venture, association, company, partnership or government, or any agency or
political subdivision thereof.
PRE-CLOSING ACCRUAL has the meaning set forth in Section 2.4.
PRE-DISTRIBUTION DIVIDEND means the $10,490,000 dividend paid by SPI
to IREX prior to the Distribution.
PRIMARY PARTY is defined at Section 4.2(a).
PROCEEDING is defined at Section 9.2(a).
RECOVERABLE TAX ITEM means a Tax Item that is (i) reflected or
required on a Tax Return that is required to be filed on or prior to the
Effective Date and that, as filed, does not reflect a reasonable tax filing
position with respect to such Tax Item or (ii) a deduction for parent overhead
expense allocations.
4
<PAGE>
RESTRICTED PERIOD means the two year period following the Effective
Date.
REVERSE STOCK SPLIT means the reverse stock split of SPI entered into
in connection with the Distribution
SPI BUSINESS means the business of distributing and fabricating
mechanical insulation, architectural/acoustical products and specialty products.
SPI GROUP means SPI and its wholly-owned subsidiary, Richlar
Industries, Inc.
SPI RETURNS has the meaning set forth in Section 2.2 hereof.
STOCK PURCHASE AGREEMENT means the Stock Subscription Agreement by and
among IREX, SPI, Evercore Capital Partners L.P., Evercore Capital Partners (NQ)
L.P. and Evercore Capital Offshore Partners L.P. dated as of October __, 1998.
SUBSIDIARY means with respect to IREX or SPI, any Person of which IREX
or SPI, respectively, controls or owns, directly or indirectly, more than 50% of
the stock or other equity interest entitled to vote on the election of members
to the board of directors or similar governing body.
TAXES means all taxes assessments, charges, duties, fees, levies or
other governmental charges, including without limitation, all Federal, state,
local, foreign and other income, franchise, profits, capital gains, capital
stock , transfer, sales, use, occupation, property, excise, severance, windfall
profits, stamp, license, payroll, withholding and other taxes, assessments,
charges, duties, fees, levies or other governmental charges of any kind
whatsoever (whether payable directly or by withholding and whether or not
requiring the filing of a Tax Return), all estimated taxes, deficiency
assessments, additions to tax, penalties and interest and shall include any
liability for any such amounts as a result either of being a member or a
combined, consolidated, unitary or affiliated group or of a contractual
obligation to indemnify any person or other entity.
TAX BENEFIT means a reduction in the Tax Liability of a taxpayer for
any taxable period. Except as otherwise provided in this Agreement, a Tax
Benefit shall be deemed to have been realized or received from a Tax Item in a
taxable period only if and to the extent that the Tax Liability of the taxpayer
for such period, after taking into account the effect of the Tax Item on the Tax
Liability of such taxpayer in all other periods, is less than it would have been
if such Tax Liability were determined without regard to such Tax Item.
TAX ITEM means any item of income, gain, loss, deduction, credit,
recapture of credit, or any other item which may have the effect of increasing
or decreasing Taxes paid or payable. Without limiting the foregoing, Tax Items
of IREX shall include any income or gain that may be recognized by the IREX
Group in connection with the payment of the Pre-Distribution
5
<PAGE>
Dividend and any triggering of any excess loss account with respect to the stock
of SPI in connection with the Distribution.
TAX LIABILITY means the net amount of Taxes due and paid or payable
for any taxable period, determined after applying all tax credits and all
applicable carrybacks or carryovers for net operating losses, net capital
losses, unused general business tax credits (of the applicable corporation and,
in the case of an IREX Consolidated Return, the other members of the IREX Group
included in such Tax Return), or any other Tax Items arising from a prior or
subsequent taxable period, and all other relevant adjustments.
TAX OPINION means the opinion delivered by Dechert Price & Rhoads
regarding the federal income tax consequences of the Distribution to IREX and
the shareholders of IREX.
TAX RETURNS means all reports, estimates, declarations of estimated
tax, information statements and returns relating to, or required to be filed in
connection with any Taxes, including information returns or reports with respect
to backup withholding and other payments to third parties.
UNQUALIFIED TAX OPINION means an unqualified "will" opinion of tax
counsel to the effect that a transaction does not disqualify the Distribution
from qualifying for tax-free treatment for the shareholders of IREX and any
member of the IREX Group under Code Section 355, assuming that the Distribution
would have qualified for tax free treatment if such transaction did not occur.
An Unqualified Tax Opinion may rely upon, and assume the accuracy of, any
representations contained in the Tax Opinion, and any representations contained
in an officer's certificate delivered by an officer of IREX or SPI to such tax
counsel in connection with the delivery of such Unqualified Tax Opinion.
ARTICLE II
PREPARATION AND FILING OF TAX RETURNS
SECTION 2.1. IREX CONSOLIDATED RETURNS. IREX shall prepare and file,
or cause to be prepared and filed, all IREX Consolidated Returns. At least 45
days prior to the applicable filing deadline for any IREX Consolidated Return
that includes the income or operations of one or more members of the SPI Group,
IREX shall cause a draft of such return to be delivered to SPI together with a
reasonably detailed calculation of the portion of the Tax Liability for such
return that IREX has determined is attributable to the income or operations of
the members of the SPI Group.
SECTION 2.2. SPI RETURNS. SPI shall prepare and file, or cause to be
prepared and filed, all Tax Returns of or with respect to the members of the SPI
Group other than the IREX Consolidated Returns (the "SPI Returns").
6
<PAGE>
SECTION 2.3. TAXABLE PERIOD ENDS ON EFFECTIVE DATE. The members of the
SPI Group shall be included in the federal consolidated income tax return of the
IREX Group for the taxable year that included the Effective Date. In accordance
with Treasury Regulations (S)1.1502-76(b)(ii), the taxable year of the members
of the SPI Group shall end for all federal income tax purposes on the close of
the Effective Date. The allocation of Tax Items of the members of the SPI Group
between the consolidated federal income tax return of the IREX Group that
includes the Effective Date and the separate federal income tax return of the
SPI Group for the taxable period beginning on the date immediately following the
Effective Date shall be determined in accordance with Treasury Regulations
(S)1.1502-76(b)(2)(i), without an election to allocate Tax Items ratably
pursuant to Treasury Regulations (S)1.1502-76(b)(2)(ii). Unless prohibited under
applicable law, a taxable period of a member of the SPI Group that is included
in any other IREX Consolidated Return that includes the Effective Date shall end
on the Effective Date and Tax Items shall be allocated in a manner consistent
with the allocation of Tax Items for federal income tax purposes.
SECTION 2.4. SETTLEMENT OF PRE-CLOSING ACCRUAL FOR TAXES. The
intercompany accounts among the IREX Post-Distribution Group and the SPI Group
shall include an accrual for the parties' good faith estimate of the portion of
each Tax Liability for any IREX Consolidated Return that is attributable to the
members of the SPI Group for the period up to and including the Effective Date
(the "Pre-Closing Accrual"), and SPI shall pay to IREX the applicable portion of
the Pre-Closing Accrual at such time as the related Tax Liability is due and
payable.
ARTICLE III
PAYMENT OF TAXES UPON FILING AND UPON SUBSEQUENT ADJUSTMENT
SECTION 3.1. TAXES GENERALLY. Except as provided in Section 3.2 and
Section 3.3 of this Agreement:
(a) IREX and its Subsidiaries shall pay or cause to be paid and shall
indemnify and hold the members of the SPI Group harmless against all
Tax Liabilities that arise (I) under each IREX Consolidated Return (A)
to the extent attributable to the Tax Items of the members of the IREX
Group other than the members of the SPI Group, (B) to the extent
attributable to the Tax Items of the members of the SPI Group provided
that the Tax Liability attributable to such Tax Items does not exceed
the Pre-Closing Accrual for such Tax Liability, and (C) to the extent
that (i) the Tax Liability relates to a Recoverable Tax Item for
Federal income tax purposes or (ii) all Taxes shown to be due on IREX
Consolidated Returns filed on or prior to the Effective Date were not
paid; (II) under each SPI Return, to the extent that (A) the Tax Item
relates to a Recoverable Tax Item for state tax purposes, or (B) all
Taxes shown to be due on SPI Returns filed on or before the Effective
Date were not paid; or (III) because all Taxes (that relate to a
taxable period prior to and including the Effective Date) for which no
Tax Return was
7
<PAGE>
filed, or was required to be filed, were not paid. To the extent the
Pre-Closing Accrual for a Tax Liability specified in clause (I)(B) of
the preceding sentence exceeds the Tax Liability attributable to the
Tax Items of the members of the SPI Group, IREX shall promptly
reimburse SPI for such excess.
(b) Except to the extent that (I) there is a Tax Liability that relates to
a Recoverable Tax Item for (A) Federal income tax purposes (with
respect to IREX Consolidated Returns ) or (B) state tax purposes (with
respect to SPI Returns); (II) all Taxes shown to be due on IREX
Consolidated Returns filed on or before the Effective Date or SPI
Returns filed on or before the Effective Date were not paid; or (III)
all Taxes (that relate to a taxable period prior to and including the
Effective Date) for which no such Tax Return was filed, or was
required to be filed, were not paid, SPI shall pay or cause to be paid
and shall indemnify and hold IREX and the members of the IREX Post-
Distribution Group harmless against all Tax Liabilities that arise (i)
under each IREX Consolidated Return to the extent attributable to the
Tax Items of the members of the SPI Group and to the extent the Tax
Liability attributable to such Tax Items exceeds the Pre-Closing
Accrual for such Tax Liability and (ii) under each SPI Return.
Notwithstanding the foregoing provisions of this Section 3.1, the IREX
Post-Distribution Group shall be solely responsible for and shall indemnify and
hold the members of the SPI Group harmless against all Tax Liabilities of the
members of the SPI Group (or the portion of any Tax Liability of any IREX
Consolidated Return attributable to the members of the SPI Group) that arise as
a result of (i) an IREX Post-Distribution Group Member's failure to file or
failure to timely file a Tax Return that includes a taxable period of a member
of the SPI Group on or before the Effective Date or (ii) the Distribution
(except for Taxes resulting from actions taken by SPI that are prohibited by
Sections 6.1 and 6.2 or from actions taken by other Persons specified in Section
7.2).
SECTION 3.2. STRADDLE PERIODS. If a taxable period of a member of the
SPI Group includes the Effective Date but does not end on the Effective Date (as
otherwise generally provided under Section 2.3 of this Agreement), the
determination of Tax Liabilities up to and following the Effective Date
including the Pre-Closing Accrual amounts shall be determined as follows: (A) in
the case of personal property, real property and other ad valorem Taxes, on a
per diem basis, and (B) in the case of all other Taxes on an interim closing of
the books of the members of the SPI Group and an allocation of Tax Items as of
the close of the Effective Date in manner consistent with the allocation of Tax
Items for federal income tax purposes under Section 2.3.
SECTION 3.3. ADJUSTMENTS. If any Tax Return is examined by a taxing
authority and an Adjustment results from such examination, the party bearing
responsibility for such Taxes determined under Section 3.1 shall pay its share
of any additional Tax Liability resulting from the Adjustment, provided,
--------
however, that if the Adjustment that results in additional
- -------
8
<PAGE>
Tax Liability to one party also results in a Tax Benefit to the other party, the
party receiving such Tax Benefit, to the extent it is equal to or less than the
other party's additional Tax Liability, shall pay such Tax Benefit to such other
party within 30 days after such Tax Benefit is realized. Promptly after
receiving notice from the party having the Adjustment which results in
additional Tax Liability, the other party shall, to the extent permissible, make
a claim for any Tax Benefit resulting from such Adjustment, on an amended Tax
Return or in a formal or informal claim filed with the IRS, unless the amount of
such Tax Benefit is immaterial or unless otherwise agreed by the parties. If an
Adjustment could be governed by both this Section 3.3 and Articles VII, VIII, or
IX, those Articles will take precedence over this Section 3.3.
ARTICLE IV
COOPERATION AND EXCHANGE OF INFORMATION; AUDITS AND ADJUSTMENTS
SECTION 4.1. TAX RETURN INFORMATION.
(a) SPI shall, and shall cause each member of the SPI Group to,
provide IREX with all information and other assistance reasonably requested by
IREX to enable the members of the IREX Post-Distribution Group to prepare and
file IREX Consolidated Returns required to be filed by them pursuant to this
Agreement.
(b) IREX shall, and shall cause each appropriate member of the IREX
Post-Distribution Group to, provide SPI with all information and other
assistance reasonably requested by SPI to enable SPI to prepare and file SPI
Returns required to be filed by them pursuant to this Agreement.
SECTION 4.2. AUDITS AND ADJUSTMENTS.
(a) Whenever IREX or SPI receives in writing from the IRS or any
other taxing authority notice of an Adjustment that may give rise to a payment
from the other party under this Agreement or otherwise affect the other party's
Taxes, IREX or SPI, as the case may be, shall give written notice of the
Adjustment to the other party within thirty (30) days of becoming aware of the
Adjustment but in no case later than ten (10) days before IREX or SPI, as the
case may be, is required to respond to the IRS or other taxing authority. The
party primarily liable for any Tax Liability with respect to the Adjustment
under Section 3.1 or Section 3.3 (the "Primary Party") at its own expense shall
have primary control over all matters relating to the Adjustment that may give
rise to a payment obligation by the Primary Party, provided, however, that the
-------- -------
other party (the "Non-Primary Party") may settle, partially settle, or otherwise
resolve any controversy involving the Non-Primary Party's return to which the
particular Adjustment relates, so long as the Non-Primary Party does not settle,
partially settle, or otherwise resolve the controversy in a manner inconsistent
with the Primary Party's position, without prior written consent, which may not
be unreasonably withheld or delayed, from the Primary Party.
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(b) SPI agrees to reasonably cooperate with IREX, in the negotiation,
settlement, or litigation of any liability for Taxes of any member of the
IREX Post-Distribution Group.
(c) IREX agrees to reasonably cooperate with SPI in the negotiation,
settlement, or litigation of any liability for Taxes of any member of the
SPI Group.
(d) In the event of a conflict between the operation of this Section
4.2 and Articles VII, VIII, or IX, those Articles will take precedence over this
Section 4.2.
For purposes of this Article IV, the term "party" shall refer to any member of
the IREX Post-Distribution Group and any member of the SPI Group, as the case
may be.
ARTICLE V
RETENTION OF RECORDS; STATUTES OF LIMITATIONS
SECTION 5.1. RETENTION OF RECORDS. IREX and SPI agree to retain the
appropriate records that may affect the determination of the liability for Taxes
of any member of the IREX Group or the SPI Group, respectively, until such time
as there has been a Final Determination with respect to such liability for
Taxes. A party may satisfy its obligations under the preceding sentence by
allowing the other party to duplicate records at such second party's request and
expense.
SECTION 5.2. STATUTE OF LIMITATIONS. IREX and SPI will notify each
other in writing of any waivers or extensions of the applicable statute of
limitations that may affect the period for which any materials, records, or
documents must be retained.
ARTICLE VI
REPRESENTATIONS AND COVENANTS
SECTION 6.1. REPRESENTATIONS.
(a) SPI has reviewed the representations listed on Exhibit 6.1
attached hereto and, to the best of SPI's knowledge, those representations are
complete and accurate in all material respects. SPI shall comply in all material
respects with each such representation. Except as provided in Section 6.2(b), to
the extent such representation relates to future actions or events under its
control, SPI will not take any action during the Restricted Period that would
have caused such representation to be untrue if SPI had planned or intended to
take such action at the time such representation was made by or on behalf of
SPI.
(b) SPI hereby represents and warrants to IREX that SPI has no
intention to undertake any of the transactions set forth in Section 6.2(a)(ii)
nor does SPI have any intention to
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cease to engage in the active conduct of the trade or business (within the
meaning of Section 355(b)(2) of the Code) of the SPI Business.
(c) IREX hereby represents and warrants that it has timely filed all
Tax Returns required to be filed with respect to the members of the SPI Group.
SECTION 6.2. COVENANTS.
(a) SPI covenants and agree with IREX that after the Distribution and
during the Restricted Period:
(i) SPI will continue to engage in the SPI Business and will
continue to maintain a substantial portion of its assets and
business operations as they existed prior to the
Distribution; provided that the foregoing shall not be
--------
deemed to prohibit SPI from entering into or acquiring other
businesses or operations or from disposing of or shutting
down segments of the SPI Business so long as SPI continues
to engage in the SPI Business and continues to so maintain
such substantial portion of their assets and business
operations;
(ii) Except as provided in Section 6.2(b) and other than the
Evercore Purchase, neither SPI, nor any of its Affiliates
nor any of its or their respective directors, officers or
other representatives will undertake, authorize, approve,
recommend, permit, facilitate, or enter into any contract,
or consummate any transaction with respect to:
(1) the issuance of SPI common stock (including any
issuance pursuant to the exercise of options, warrants,
rights or securities exercisable for, or convertible
into, SPI common stock) in a single transaction or in a
series of related or unrelated transactions or
otherwise or in the aggregate which would exceed
(taking into account the issuance of SPI common stock
in the Evercore Purchase and other issuances of stock
following the Distribution) 46% of the aggregate voting
power or value of the outstanding SPI common stock
immediately following the Distribution and prior to the
Evercore Purchase;
(2) except with respect to the Reverse Stock Split, any
redemptions, repurchases or other acquisitions of
capital stock or other equity interest in SPI in a
single transaction or a series of related or unrelated
transactions, unless such
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redemptions, repurchases or other acquisition satisfy
the following requirements under Section 4.05(1)(b) of
Revenue Procedure 96-30:
(A) there is a "sufficient business purpose" for the
transaction,
(B) the stock to be purchased, redeemed or otherwise
acquired is widely held,
(C) the stock purchases or other acquisitions will be
made on the open market, and
(D) the amount of stock purchases, redemptions, or
other acquisitions in a single transaction or in a
series of related or unrelated transactions will
not equal or exceed an amount of stock
representing 20% of the outstanding stock of SPI
immediately following the Distributions.
(3) the dissolution, merger, or complete or partial
liquidation of SPI or any announcement of such action.
(b) Following the Distribution Date, SPI and its Affiliates may take
any action or engage in conduct otherwise prohibited by Sections 6.1(a) or
6.2(a) so long as prior to such action or conduct, as the case may be, IREX or
SPI receives (A) a ruling from the IRS in form and substance reasonably
satisfactory to IREX and upon which IREX can rely to the effect that the
proposed action or conduct, as the case may be, will not cause the Distributions
to fail to qualify for the tax treatment stated in the Tax Opinion, or (B) an
Opinion of Counsel in form and substance reasonably satisfactory to IREX and
upon which IREX can rely to the effect that the proposed action or conduct, as
the case may be, will not cause the Distribution to fail to qualify for the tax
treatment stated in the Tax Opinion. Notwithstanding the foregoing, nothing in
this Section 6.2(b) shall impose any restrictions on the activities of the SPI
Group after the Restricted Period.
ARTICLE VII
SPI INDEMNITY OBLIGATIONS
SECTION 7.1. SPI INDEMNITY. If SPI takes any action prohibited by
Article VI or violates a representation or covenant contained in Article VI, and
the Distribution fails to qualify for the tax treatment stated in the Tax
Opinion as a result of such action or violation, then the SPI shall indemnify
and hold harmless the IREX Post-Distribution Group against any and all Taxes
imposed upon or incurred by the IREX Post-Distribution Group as a result of the
failure.
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SECTION 7.2. TENDER OFFER OR PURCHASE OFFER. Notwithstanding anything
to the contrary set forth in this Agreement (but subject to the proviso at the
end of this Section 7.2), if, during the Restricted Period, any Person or Group
of Affiliated Persons or Associates acquires Beneficial Ownership of SPI common
stock (or any other class of outstanding SPI stock) or commences a tender or
other purchase offer for the capital stock of SPI or initiates any other form of
transaction to acquire directly or indirectly SPI capital stock, upon
consummation of which such Person or Group of Affiliated Persons or Associates
would acquire Beneficial Ownership of SPI common stock (or any other class of
outstanding SPI stock) such that the Distribution shall fail to qualify for the
tax treatment stated in the Tax Opinion primarily as a result of such
acquisition, tender or other purchase offer, or other form of transaction, then
SPI shall indemnify and hold harmless the IREX Post-Distribution Group against
any and all Taxes imposed upon or incurred by the IREX Post-Distribution Group
as a result of the failure of the Distribution to so qualify; provided, however,
any acquisition of SPI common stock pursuant to the Evercore Purchase or the
Management Purchase shall not be a violation of this Section 7.2 (and thus shall
not trigger the indemnity pursuant to this Section 7.2).
ARTICLE VIII
CALCULATION OF INDEMNITY AMOUNTS
SECTION 8.1. AMOUNT OF INDEMNITY. The amount indemnified against
under Article III and Article VII ("Indemnified Liability") for a tax based on
or determined with reference to income shall be deemed to be the amount of the
tax computed by multiplying (i) the taxing jurisdiction's highest marginal tax
rate applicable to taxable income of corporations such as the Indemnified Party
on income of the character subject to tax and indemnified against under Article
III and Article VII for the taxable period in which the Distribution occurs,
times (ii) the gain or income of the Indemnified Party which is subject to tax
in the taxing jurisdiction and indemnified against under Article III and Article
VII. All amounts payable under this Agreement shall be grossed-up, based on the
tax rate referred to in clause (i) of the preceding sentence, so that the
Indemnified Party is made whole on an after-tax basis.
ARTICLE IX
PROCEDURAL ASPECTS OF INDEMNITY
SECTION 9.1. GENERAL.
(a) If either the Indemnified Party or the Indemnifying Party receives
any written notice of deficiency, claim or adjustment or any other written
communication from a taxing authority that may result in an Indemnified
Liability, the party receiving such notice or communication shall promptly give
written notice thereof to the other party, provided that any delay by the
Indemnified Party in so notifying an Indemnifying Party shall not relieve the
Indemnifying Party of any liability hereunder, except to the extent (i) such
delay restricts the ability of the Indemnifying Party to contest the resulting
Indemnified Liability administratively or
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in the courts in accordance with Section 9.2 and (ii) the Indemnifying Party is
materially and adversely prejudiced by such delay.
(b) The parties hereto undertake and agree that from and after such
time as they obtain knowledge that any representative of a taxing authority has
begun to investigate or inquire into the Distribution (whether or not such
investigation or inquiry is a formal or informal investigation or inquiry), the
party obtaining such knowledge shall (i) notify the other party thereof,
provided that any delay by the Indemnified Party in so notifying the
Indemnifying Party shall not relieve the Indemnifying Party of any liability
hereunder (except to the extent (A) such delay restricts the ability of the
Indemnifying Party to contest the resulting Indemnified Liability
administratively or in the courts in accordance with Section 9.2 and (B) the
Indemnifying Party is materially and adversely prejudiced by such delay), (ii)
consult with the other party from time to time as to the conduct of such
investigation or inquiry, (iii) provide the other party with copies of all
correspondence with such taxing authority or any representative thereof
pertaining to such investigation or inquiry, and (iv) arrange for a
representative of the other party to be present at all meetings with such taxing
authority or any representative thereof pertaining to such investigation or
inquiry.
SECTION 9.2. CONTESTS.
(a) Provided that (i) an Indemnifying Party shall furnish the
Indemnified Party with evidence reasonably satisfactory to the Indemnified Party
of its ability to pay the full amount of the Indemnified Liability and (ii) such
Indemnifying Party acknowledges in writing that the asserted liability is an
Indemnified Liability, such Indemnifying Party shall assume and direct the
defense or settlement of any tax examination, administrative appeal, hearing,
arbitration, suit or other proceeding (each a "Proceeding") commenced, filed or
otherwise initiated or convened to investigate or resolve the existence and
extent of such liability.
(b) If the Indemnified Liability is grouped with other unrelated
asserted liabilities or issues in the Proceeding, the parties shall use their
respective best efforts to cause the Indemnified Liability to be the subject of
a separate proceeding. If such severance is not possible, the Indemnifying Party
shall assume and direct and be responsible only for the matters relating to the
Indemnified Liability.
(c) Notwithstanding the foregoing, if at any time during a Proceeding
controlled by an Indemnifying Party pursuant to Section 9.2(a) such Indemnifying
Party fails to provide evidence reasonably satisfactory to the Indemnified Party
of its ability to pay the full amount of the Indemnified Liability or the
Indemnified Party reasonably determines, after due investigation, that such
Indemnifying Party could not pay the full amount of the Indemnified Liability,
then the Indemnified Party may assume control of the Proceedings upon 7 days
written notice.
(d) In addition to the amounts referred to in Section 7.1, an
Indemnifying Party shall pay all out-of-pocket expenses and other costs related
to the Indemnified Liability, including
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but not limited to fees for attorneys, accountants, expert witnesses or other
consultants retained by such Indemnifying Party and/or the Indemnified Party. To
the extent that any such expenses and other costs have been or are paid by an
Indemnified Party, the Indemnifying Party shall promptly reimburse the
Indemnified Party therefor.
(e) An Indemnifying Party shall not pay (unless otherwise required by
a proper notice of levy and after prompt notification to the Indemnified Party
of receipt of notice and demand for payment), settle, compromise or concede any
portion of the Indemnified Liability without the written consent of the
Indemnified Party, which consent shall not be unreasonably withheld. An
Indemnifying Party shall, on a timely basis, keep the Indemnified Party informed
of all developments in the Proceeding and provide the Indemnified Party with
copies of all pleadings, briefs, orders, and other written papers.
(f) Any Proceeding which is not controlled or which is no longer
controlled by an Indemnifying Party pursuant to Section 9.2 shall be controlled
and directed exclusively by the Indemnified Party, and any related out-of-pocket
expenses and other costs incurred by the Indemnified Party, including but not
limited to, fees for attorneys, accountants, expert witnesses or other
consultants, shall be reimbursed by such Indemnifying Party. An Indemnified
Party will not be required to pursue the claim in federal district court, the
Court of Federal Claims or any state or foreign court if as a prerequisite to
such court's jurisdiction, the Indemnified Party is required to pay the asserted
liability unless the funds necessary to invoke such jurisdiction are provided by
such Indemnifying Party.
SECTION 9.3. TIME AND MANNER OF PAYMENT. An Indemnifying Party shall
pay to the Indemnified Party the amount of the Indemnified Liability and any
expenses or other costs indemnified against (less any amount paid directly by an
Indemnifying Party to the taxing authority) no less than seven (7) business days
prior to the date payment of the Indemnified Liability is to be made by any
party to the taxing authority (or, if applicable, to one or more IREX
shareholders). Such payment shall be paid by wire transfer of immediately
available funds to an account designated by the Indemnified Party by written
notice to an Indemnifying Party prior to the due date of such payment. If an
Indemnifying Party delays making payment beyond the due date hereunder, such
party shall pay interest on the amount unpaid at the IRS Interest Rate for each
day and the actual number of days for which any amount due hereunder is unpaid.
SECTION 9.4. REFUNDS. In connection with this Agreement, if an
Indemnified Party receives a refund in respect of amounts paid by an
Indemnifying Party to any taxing authority on its behalf, or should any such
amounts that would otherwise be refundable to the Indemnifying Party be applied
by the taxing authority to obligations of the Indemnified Party unrelated to an
Indemnified Liability, then such Indemnified Party shall, promptly following
receipt (or notification of credit), remit such refund and any related interest
to such Indemnifying Party.
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SECTION 9.5. COOPERATION. The parties shall cooperate with one
another in a timely manner in any administrative or judicial proceeding
involving any matter that may result in an Indemnified Liability.
ARTICLE X
RESOLUTION OF DISPUTES
SECTION 10.1 DISPUTES.
(a) Resolution of any and all disputes arising from or in connection
with this Agreement, whether based on contract, tort, statute or otherwise,
including, but not limited to, disputes in connection with claims by third
parties (collectively, "Disputes"), shall be subject to the provisions of this
Section 10.1; provided, however, that nothing contained herein shall preclude
either party from seeking or obtaining (i) injunctive relief or (ii) equitable
or other judicial relief to enforce the provisions hereof or to preserve the
status quo pending resolution of Disputes hereunder.
(b) Either party may give the other party written notice of any
Dispute not resolved in the normal course of business. The parties shall attempt
in good faith to resolve any Dispute promptly by negotiation of executive who
have authority to settle the controversy. Within 30 days after delivery of the
notice, the foregoing executives of both parties shall meet at a mutually
acceptable time and place, and thereafter as often as they reasonably deem
necessary for a period not to exceed 15 days, to attempt to resolve the Dispute.
All reasonable requests for information made by one party to the other will be
honored. If the parties do not resolve the Dispute within such 45 day period
(the "Initial Mediation Period"), the parties shall attempt in good faith to
resolve the Dispute by negotiation between (a) in the case of IREX, the Chief
Executive Officer, and (b) in the case of SPI, the Chief Executive Officer
(collectively, the "Designated Officers"). Such officers shall meet at a
mutually acceptable time and place (but in any event no later than 15 days
following the expiration of the Initial Mediation Period) and thereafter as
often as they reasonably deem necessary for a period not to exceed 15 days, to
attempt to resolve the Dispute.
(c) If the Dispute has not been resolved by negotiation within 75
days of the first party's notice, or if the parties failed to meet within 30
days of the first party's notice, or if the Designated Officers failed to meet
within 60 days of the first party's notice, either party may commence any
litigation or other procedure allowed by law.
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ARTICLE XI
GENERAL
SECTION 11.1. TERM OF THE AGREEMENT. This Agreement shall become
effective as of the Effective Date and, except as otherwise expressly provided
herein, shall continue in full force and effect indefinitely.
SECTION 11.2. INJUNCTIONS. The parties acknowledge 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 were otherwise
breached. The parties hereto shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof in any court having jurisdiction,
such remedy being in addition to any other remedy to which they may be entitled
at law or in equity.
SECTION 11.3. ASSIGNMENT. Neither of the parties may assign or
delegate any of its rights or duties under this Agreement without the prior
written consent of the other party, which consent will not be unreasonably
withheld. This Agreement shall be binding upon, and shall inure to the benefit
of, the parties hereto and their respective successors and permitted assigns.
SECTION 11.4. FURTHER ASSURANCES. Subject to the provisions hereof,
the parties hereto shall make, execute, acknowledge, and deliver such other
instruments and documents, and take all such other actions, as may be reasonably
required in order to effectuate the purposes of this Agreement and to consummate
the transactions contemplated hereby. Subject to the provisions hereof, each of
the parties shall, in connection with entering into this Agreement, performing
its obligations hereunder and taking any and all actions relating hereto, comply
with all applicable laws, regulations, orders, and decrees, and promptly provide
the other parties with all such information as they may reasonably request in
order to be able to comply with the provisions of this sentence.
SECTION 11.5. WAIVERS. No failure or delay on the part of the parties
in exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, preclude
any other or further exercise thereof or the exercise of any other right or
power. No modification or waiver of any provision of this Agreement nor consent
to any departure by the parties therefrom shall in any event be effective unless
the same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given.
SECTION 11.6. CHANGE OF LAW. If, due to any change in applicable law
or regulations or their interpretation by any court of law or other governing
body having jurisdiction subsequent to the date of this Agreement, performance
of any provision of this Agreement or any transaction contemplated thereby shall
become impracticable or impossible, the parties hereto shall use their best
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such provision.
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SECTION 11.7. CONFIDENTIALITY. Subject to any contrary requirement of
law and the right of each party to enforce its rights hereunder in any legal
action, each party agrees that it shall keep strictly confidential, and shall
cause its employees and agents to keep strictly confidential, any information
which it or any of its employees or agents may require pursuant to, or in the
course of performing its obligations under, any provision of this Agreement.
SECTION 11.8. HEADINGS. Descriptive headings are for convenience only
and shall not control or affect the meaning or construction of any provision of
this Agreement.
SECTION 11.9. COUNTERPARTS. For the convenience of the parties, any
number of counterparts of this Agreement may be executed by the parties hereto,
and each such executed counterpart shall be, and shall be deemed to be, an
original instrument.
SECTION 11.10. NOTICES. All notices, requests, claims and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery by
hand, by reputable overnight courier service, by facsimile transmission, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the addresses listed below:
IREX at: Irex Corporation
120 North Lime Street
Lancaster, Pennsylvania 17602
Attn.: General Counsel
Fax No. (717) 393-3872
SPI at: Specialty Products & Insulation Co.
1097 Commercial Avenue
P.O. Box 576
East Petersburg, PA 17520-0576
Attn.: Chief Financial Officer
Fax No. (717) 519-4046
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner. Notice given by hand shall be deemed
delivered when received by the recipient. Notice given by mail as set out above
shall be deemed delivered five (5) calendar days after the date the same is
mailed. Notice given by reputable overnight courier shall be deemed delivered
on the next following business day after the same is sent. Notice given by
facsimile transmission shall be deemed delivered on the day of transmission
provided telephone confirmation of receipt is obtained promptly after completion
of transmission.
SECTION 11.11. PRE-DISTRIBUTION EARNINGS AND PROFITS. IREX and SPI
agree to allocate pre-Distribution earnings and profits in accordance with
Treasury Regulation Section 1.312-10.
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SECTION 11.12. COSTS AND EXPENSES. Unless otherwise specifically
provided herein, each party agrees to pay its own costs and expenses resulting
from the fulfillment of its respective obligations hereunder.
SECTION 11.13. CANCELLATION OF PRIOR TAX ALLOCATION OR TAX-SHARING
AGREEMENTS. Except as otherwise expressly provided herein, on or prior to the
Effective Date, IREX shall cancel or cause to be canceled all agreements (other
than this Agreement) providing for the allocation or sharing of Taxes to which
any member of the SPI Group would otherwise be bound following the Distribution.
SECTION 11.14. INTEREST ON LATE PAYMENTS. If a party delays making
any payment beyond the due date hereunder, such party shall pay interest on the
amount unpaid at the IRS Interest Rate for each day and the actual number of
days for which any amount due hereunder is unpaid.
SECTION 11.15. GENERAL. This Agreement, including the attachments,
shall constitute the entire agreement between the parties hereto with respect to
the subject matter hereof and shall supersede all prior agreements and
undertakings, both written and oral, between the parties with respect to the
subject matter hereof and thereof. This Agreement may not be amended or modified
except (a) by an instrument in writing signed by, or on behalf of, the parties
or (b) by a waiver in accordance with Section 11.5. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
respective present and future subsidiaries, and nothing herein, express or
implied, is intended to or shall confer upon any third parties any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 11.16. GOVERNING LAW AND SEVERABILITY. This Agreement shall
be governed by, and construed in accordance with, the laws of the Commonwealth
of Pennsylvania, applicable to contracts executed in and to be performed
entirely within that state. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed by their respective officers, each of whom is duly authorized, all
as of the Effective Date.
IREX CORPORATION
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By: _____________________________
Name:
Title:
SPECIALTY PRODUCTS & INSULATION CO.
By: _____________________________
Name:
Title:
20
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TAX SHARING AND INDEMNIFICATION AGREEMENT
EXHIBIT 6.1
1. The Distribution is being carried out for the following corporate
business purposes:
a. Ronald L. King, President and Chief Executive Officer of SPI, and
Michael Hughes, Vice President and Chief Financial Officer of SPI ("Management")
and the Board of Directors of SPI (the "Board") have determined it is in the
best interests of SPI and its subsidiaries to raise equity capital through an
issuance of common stock, the proceeds of which would be used to reduce the
level of outstanding indebtedness of SPI and its subsidiaries and for other good
and valid corporate business purposes. The purchasers of SPI stock in the
Evercore Purchase (the "Evercore Purchasers") have indicated that the
Distribution is an essential pre-condition to the Evercore Purchase as the
Evercore Purchasers are unwilling to invest either directly in SPI while it is a
subsidiary of IREX or directly in IREX;
b. Management and the Board believe that the Distribution will give
SPI greater managerial, operational and financial flexibility to deal with their
independent operations;
c. Management and the Board believe that the Distribution will
improve SPI's ability to pursue and finance acquisitions and other business
opportunities;
d. Management and the Board believe that potential customers of SPI
will be more likely to purchase products from SPI if it operates independently
from IREX, whose business competes to some extent with the business of SPI's
customers; and
e. The Distribution will enable SPI to provide its management and
employees with incentive compensation that more directly reflects the success of
SPI.
The Distribution is motivated in whole or substantial part by one or
more of these business purposes.
2. Management has no current plan or intention to sell, exchange,
transfer by gift, or otherwise dispose of any stock of SPI after the
Distribution.
3. There is no current plan or intention to liquidate SPI, to merge SPI
with any other corporation, or to sell or otherwise dispose of the assets of SPI
after the transaction, except in the ordinary course of business.
4. The Evercore Purchase will be completed as soon as practical following
the Distribution and will, in all events, occur within one year after the date
of the Distribution.
<PAGE>
5. SPI has been directly engaged in the business of the distribution of
mechanical insulation and architectural products (the "Business") for over 5
years, and SPI employees have performed active and substantial operational and
management functions with respect to the Business continuously during that 5-
year period.
6. Other than (i) certain advances and intercompany accounts from members
of the IREX Group to the SPI Group that will be satisfied in full promptly
following the Distribution and the Evercore Purchase, (ii) amounts that may be
owing from time to time under the Corporate Separation Agreement, the Benefits
Sharing Agreement and the Tax Sharing Agreement (as those agreements are defined
in the Stock Purchase Agreement) and other obligations incurred in the ordinary
course of business on an arms' length basis and (iii) the Irex Notes (as defined
in the Stock Purchase Agreement), no intercorporate debt will exist between IREX
and SPI at the time of the Distribution, nor is there a current plan for such
intercompany debt to exist following the Distribution.
7. Payments made in connection with all continuing transactions between
any member of the SPI Group and any member of the Irex Post-Distribution Group
will be on terms that approximate fair market value based on terms and
conditions that are generally comparable to terms arrived at by the parties
bargaining at arms length.
8. SPI has no current plan or intention to issue, redeem or otherwise
engage in transactions with respect to its stock (other than pursuant to (i) the
Evercore Purchase, (ii) the Reverse Stock Split, (iii) options that may be
exercised under the Stock Option Plan (as defined in the Stock Purchase
Agreement), or (iv) the Management Purchase; provided, however, that this
representation shall not apply to transactions with respect to SPI stock that do
not cause subsection 355(e) of the Code to apply to the Distribution (whereby
the SPI common stock is not treated as qualified property for purposes of
subsection 355(c) of the Code).
9. The Reverse Stock Split is being undertaken by SPI to reduce the
number of SPI shareholders after the Distribution and to thereby reduce certain
securities regulation compliance costs. None of the cash being paid in lieu of
fractional shares represents separately bargained for consideration on behalf of
the IREX shareholders, and it is estimated that the total number of fractional
shares (in lieu of which, cash will be paid) will be less than 1.5% of the
number of SPI shares that would be outstanding after the Distribution if
fractional shares were issued in the Distribution.
<PAGE>
EXHIBIT 10.3
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BENEFITS SHARING AGREEMENT
BETWEEN
IREX CORPORATION AND SPECIALTY PRODUCTS & INSULATION CO.
DATED AS OF _________, 1998
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TABLE OF CONTENTS
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<S> <C>
ARTICLE I - DEFINITIONS..................................................... 1
ARTICLE II - ALLOCATION OF LIABILITIES....................................... 5
Section 2.1 IREX's Liability........................................... 5
Section 2.2 SPI's Liability............................................ 5
ARTICLE III - RETIREMENT PLANS............................................... 5
Section 3.1 Defined Benefit Plan....................................... 5
Section 3.2 Defined Contribution Plans................................. 6
Section 3.3 Multiemployer Plans........................................ 7
ARTICLE IV - WELFARE BENEFIT PLANS........................................... 8
Section 4.1 General Principles......................................... 8
Section 4.2 Establishment of Mirror Welfare Plans...................... 9
Section 4.3 Long Term Disability....................................... 9
Section 4.4 Post-retirement Medical Benefits........................... 9
Section 4.5 Vacation and Sick Pay Liabilities.......................... 10
Section 4.6 Vendor Contracts........................................... 10
Section 4.7 Unemployment Compensation.................................. 10
Section 4.8 Transfer of Certain Assets................................. 10
ARTICLE V - GENERAL.......................................................... 10
Section 5.1 Payment of and Accounting Treatment for Expenses and
Balance Sheet Amounts...................................... 11
Section 5.2 Accounting Adjustments..................................... 11
Section 5.3 Notices.................................................... 11
Section 5.4 Amendment and Waiver....................................... 11
Section 5.5 Sharing of Participant Information......................... 11
Section 5.6 Entire Agreement........................................... 11
Section 5.7 Parties in Interest........................................ 12
Section 5.8 No Third-Party Beneficiaries; No Termination of
Employment................................................. 12
Section 5.9 Right to Amend or Terminate Any Plans...................... 12
Section 5.10 Fiduciary and Related Matters.............................. 12
Section 5.11 Effect if Distribution Does Not Occur...................... 12
Section 5.12 Relationship of Parties.................................... 12
Section 5.13 Affiliates................................................. 13
Section 5.14 Requests for Internal Revenue Service Rulings and
Determinations and United States Department of Labor
Opinions................................................... 13
Section 5.15 Further Assurances and Consents............................ 13
Section 5.16 Severability............................................... 13
Section 5.17 Governing Law.............................................. 13
Section 5.18 Counterparts............................................... 14
Section 5.19 Disputes................................................... 14
</TABLE>
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<TABLE>
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Section 5.20 Interpretation............................................. 14
Section 5.21 Headings................................................... 14
</TABLE>
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<PAGE>
BENEFITS SHARING AGREEMENT
--------------------------
This is a BENEFITS SHARING AGREEMENT, dated as of October __, 1998 (the
"Agreement"), by and between IREX Corporation, a Pennsylvania corporation
(together with its successors and permitted assigns, "IREX"), and Specialty
Products & Insulation Co., a Pennsylvania corporation (together with its
successors and permitted assigns, "SPI") (collectively, the "Parties" or
individually, a "Party").
BACKGROUND
1. The Board of Directors of IREX has determined that it is in the
best interest of IREX and the stockholders of IREX to distribute (the
"Distribution") to the holders of IREX Common Stock (as defined herein) all of
the shares of SPI Common Stock (as defined herein).
2. IREX, SPI and certain of their affiliates have entered into a
Corporate Separation Agreement, of even date herewith (the "Distribution
Agreement"), and certain other agreements that will govern certain matters
relating to the Distribution and the relationship of IREX and SPI and their
respective subsidiaries and affiliates following the Distribution.
3. This Agreement sets forth the arrangements between the Parties
relating to employee benefits and compensation matters.
THEREFORE, in consideration of the foregoing premises and the mutual
agreements and covenants contained in this Agreement, the Parties hereby agree
as follows:
ARTICLE I
DEFINITIONS
Definitions. The following words and phrases used in this Agreement
-----------
shall have the meanings set forth below unless a different meaning is plainly
required by the context.
"Action" means any claim, demand, suit, counter suit, arbitration,
inquiry, proceeding or investigation by or before any Governmental Authority or
any arbitration or mediation tribunal, pending or threatened, known or unknown.
"ASO Contract" means an administrative services only contract, related
prior practice, or related understanding with a third-party administrator that
pertains to any IREX Welfare Plan.
"Close of the Distribution Date" means 11:59:59 P.M., Eastern Time, on
the Distribution Date.
"Code" means the Internal Revenue Code of 1986, as amended.
<PAGE>
"Distribution Agreement" is defined in the Background Section to this
Agreement.
"Distribution Date" means October ____, 1998.
"Employee" means any individual who maintains a common-law employee-
employer relationship with a designated Person.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESOP" means the IREX Corporation Employees' Stock Ownership Plan, as
amended.
"ESOP Trust" means the trust maintained pursuant to the Agreement for
Trust under the ESOP dated November 22, 1985 between IREX, W.K. Liddell and J.E.
Pinkerton, as amended.
"Former IREX Employee" means an individual who previously maintained a
common-law employee-employer relationship with IREX or a member of the IREX
Group whose employment terminated for any reason (including retirement) before
the Distribution Date and who, as of the Distribution Date, is not employed by
IREX, a member of the IREX Group or SPI.
"Former SPI Employee" means an individual who previously maintained a
common-law employee-employer relationship with SPI whose employment terminated
for any reason (including retirement) before the Distribution Date and who, as
of the Distribution Date, is not employed by SPI, IREX or a member of the IREX
Group.
"Governmental Authority" means any federal, state or local court,
government, department, commission, board, bureau, agency, official or other
regulatory, administrative or governmental authority, including, without
limitation, the United States Department of Labor, the Internal Revenue Service,
and the Pension Benefit Guaranty Corporation.
"Group Insurance Policy" means a group insurance policy issued under
any IREX Welfare Plan.
"HMO Agreements" means contracts, letter agreements, practices and
understandings with HMOs that provide medical services under the any IREX
Welfare Plans.
"HMO" means a health maintenance organization that provides benefits
under any IREX Welfare Plans.
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<PAGE>
"Immediately after the Distribution Date" means 12:00 A.M., Eastern
Time, on the day after the Distribution Date.
"IREX Common Stock" means the shares of capital stock, par value $1.00
per share, of IREX.
"IREX Director" means a person who is a member of the Board of
Directors of IREX on the Distribution Date.
"IREX Employee" means an individual who maintains a common-law
employee-employer relationship with IREX or any member of the IREX Group on the
Distribution Date.
"IREX Flex Plan" means the IREX Corporation Flexible Reimbursement
Accounts Plan, as amended.
"IREX Group" means the Subsidiaries of IREX, excluding SPI.
"IREX Savings Plan" means the IREX Corporation Employees' Savings
Incentive Plan, as amended.
"IREX Savings Plan Trust" means the trust maintained pursuant to the
Trust Agreement dated June 30, 1992 between IREX Corporation and Vanguard
Fiduciary Trust Company, as amended.
"Liabilities" means any and all losses, claims, charges, debts,
demands, actions, costs and expenses (including, without limitation,
administrative and related costs and expenses of any Plan, program or
arrangement), of any nature whatsoever, whether absolute or contingent, matured
or unmatured, liquidated or unliquidated, accrued or unaccrued, known or
unknown, whenever arising.
"Material Feature" means any feature of a Plan that could reasonably
be expected to be of material importance to the sponsoring employer or the
participants and beneficiaries of the Plan, which could include, without
limitation, depending on the type and purpose of the particular Plan, the class
or classes of employees eligible to participate in such Plan, the nature, type,
form, source, and level of benefits provided by the employer under such Plan and
the amount or level of contributions, if any, required to be made by
participants (or their dependents or beneficiaries) to such Plan or that is a
protected benefit, within the meaning of Code section 411(d)(6).
"Multiemployer Plans" mean all multiemployer plans as defined in ERISA
section 3(37) contributed to or required to be contributed to by IREX or any
member of the IREX Group.
"Non-Employer Stock Fund" is defined in Section 3.2(g)(ii) of this
Agreement.
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<PAGE>
"Participating Company" means any Person (other than an individual)
that is participating in a Plan sponsored by SPI, IREX or a member of the IREX
Group, as the context requires.
"Pension Plan" means the IREX Corporation Employees' Retirement Income
Plan, as amended.
"Pension Trust" means the IREX Corporation Employees' Retirement
Income Plan Trust dated September 5, 1985 between IREX and Provident National
Bank, as amended.
"Person" means an individual, a general or limited partnership, a
corporation, a trust, a joint venture, an unincorporated organization, a limited
liability entity, any other entity, or Governmental Authority.
"Plan" means any plan, policy, program, payroll practice, on-going
arrangement, contract, trust, insurance policy or other agreement or funding
vehicle, whether written or unwritten, providing benefits to IREX Employees,
Former IREX Employees, SPI Employees or Former SPI Employees.
"Retained Employees" means all IREX Employees and Former IREX
Employees.
"SPI Common Stock" means the outstanding shares of common stock, $.01
par value, of SPI.
"SPI Director" means a person who is a member of the Board of
Directors of SPI on the Distribution Date.
"SPI Employee" means an individual who maintains a common-law
employee-employer relationship with SPI on the Distribution Date.
"SPI Hourly Plan" means the Specialty Products and Insulation Co.
Defined Contribution Pension Plan for Hourly-Paid Employees.
"SPI Savings Plan" means the savings and retirement plan established
by SPI pursuant to Section 3.2(b).
"SPI Savings Plan Trust" means the trust to be established by SPI
pursuant to Section 3.2(c).
"Subsidiary" means, with respect to any specified Person, any
corporation or other legal entity of which such Person or any of its
Subsidiaries controls or owns, directly or indirectly, more than 50% of the
stock or other equity interest entitled to vote on the election of members to
the board of directors or similar governing body.
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<PAGE>
"Transferred Employees" means all SPI Employees and Former SPI
Employees.
"Welfare Plans" when immediately preceded by "IREX," means the welfare
benefit plans, programs, and policies listed in Part 1 of Appendix A to this
Agreement that are sponsored by IREX. When immediately preceded by "SPI,"
"Welfare Plans" means the welfare benefit plans, programs, and policies listed
in Part 2 of Appendix A to this Agreement that are sponsored by SPI.
ARTICLE II
ALLOCATION OF LIABILITIES
Section 2.1 IREX's Liability. Effective Immediately after the Distribution
----------------
Date and thereafter, IREX shall maintain responsibility to pay, perform, fulfill
and discharge, in accordance with their respective terms, all of the Liabilities
(regardless of when or where such Liabilities arose or arise or were or are
incurred) to or relating to the Retained Employees that arise out of or relate
to the employment relationship between IREX or any member of the IREX Group and
any Retained Employee, including but not limited to any Liabilities that arise
from the termination of such employment relationship. In addition, Immediately
after the Distribution Date and thereafter, IREX shall maintain responsibility
for the Liabilities to or relating to Transferred Employees specifically set
forth in Sections 3.1(c), 4.3 and 4.4.
Section 2.2 SPI's Liability. Subject to Sections 3.1(c). 4.3 and 4.4,
---------------
Immediately after the Distribution Date, SPI shall assume responsibility to pay,
perform, fulfill and discharge, in accordance with their respective terms, all
of the Liabilities (regardless of when or where such Liabilities arose or arise
or were or are incurred) to or relating to the Transferred Employees that arise
out of or relate to the employment relationship between IREX, any member of the
IREX Group or SPI and any Transferred Employee, including but not limited to any
Liabilities that arise from the termination of such employment relationship and
all Liabilities with respect to the SPI Savings Plan.
ARTICLE III
RETIREMENT PLANS
Section 3.1 Defined Benefit Plan.
--------------------
(a) Cease Benefit Accruals. Effective as of May 1, 1998, IREX amended the
----------------------
Pension Plan to cease all future benefit accruals. Thereafter, no IREX Employee,
SPI Employee or any other individual shall accrue additional benefits under the
Pension Plan.
(b) Pension Contribution. Prior to the Distribution Date, IREX shall make
--------------------
a contribution to the Pension Trust on behalf of SPI in the amount of $175,000.
Within five days
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<PAGE>
after the Distribution Date, SPI shall reimburse IREX for the full amount of
such Pension Trust contribution.
(c) Assumption of Liabilities. Effective Immediately after the
-------------------------
Distribution Date and thereafter, IREX shall retain all Liabilities with respect
to the Transferred Employees under the Pension Plan and except as provided in
Section 3.1(b), SPI shall have no further liability with respect to the Pension
Plan.
(d) PBGC Intervention. In the event that at any time the Pension Benefit
-----------------
Guaranty Corporation ("PBGC") or any other Governmental Authority asserts that
the Distribution may provide justification for the PBGC to seek termination of
the Pension Plan pursuant to ERISA section 4042 or otherwise asserts that the
transaction may increase unreasonably the long-run loss to the PBGC (within the
meaning of ERISA section 4042(a)(4)) with respect to the Pension Plan, IREX
shall indemnify and hold SPI harmless from any Liabilities related to the
resolution of such issues.
Section 3.2 Defined Contribution Plans.
--------------------------
(a) Plan Merger. Effective as of May 1, 1998, IREX merged the ESOP with
-----------
and into the IREX Savings Plan.
(b) Establishment of Mirror Savings Plans. Effective June 1, 1998, SPI
-------------------------------------
adopted the SPI Savings Plan, which is intended to be qualified under Code
section 401(a). The SPI Savings Plan will provide benefits to Transferred
Employees that are substantially similar in all Material Features to those
provided under the IREX Savings Plan immediately before the effective date of
the SPI Savings Plan.
(c) Establishment of Mirror Savings Trust. Effective May 28, 1998, SPI
-------------------------------------
established the SPI Savings Plan Trust with Vanguard Fiduciary Trust Company as
trustee. The SPI Savings Plan Trust will hold the assets of the SPI Savings Plan
and is intended to be exempt from taxation under Code section 501(a).
(d) Determination Letters. SPI has applied (or will as soon as practicable
---------------------
apply) to the Internal Revenue Service ("IRS") for a favorable determination
letter with respect to the tax-qualified status of the SPI Savings Plan, and SPI
shall make such amendments to the SPI Savings Plan as may be required by the IRS
in order for SPI to receive a favorable determination letter with respect to the
SPI Savings Plan.
(e) Transfer of IREX Savings Plan Assets.
------------------------------------
(i) Transfer of Assets to the SPI Savings Plan Trust. IREX has
------------------------------------------------
caused the accounts of the Transferred Employees under the IREX Savings Plan
that were held by the IREX Savings Plan Trust to be transferred to the SPI
Savings Plan and the SPI Savings Plan Trust, and SPI has caused such transferred
accounts to be accepted by such plan and trust. The
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<PAGE>
transfer of such accounts were made: (A) in kind, to the extent the assets
consisted of investments in IREX Common Stock or SPI Common Stock and (B)
otherwise in cash, interests in mutual funds, securities, or other property or
in a combination thereof, as IREX and SPI mutually agreed, and, to the extent
practicable, were invested initially in comparable investment options in the SPI
Savings Plans as such accounts were invested immediately before the date of
transfer. All outstanding loan balances of Transferred Employees under the IREX
Savings Plan were transferred with the underlying accounts.
(ii) Non-Employer Stock Funds. Effective Immediately after the
------------------------
Distribution Date, a SPI Common Stock fund shall be added as an investment
option to the IREX Savings Plan and the SPI Savings Plan shall provide for both
an IREX Common Stock fund and a SPI Common Stock fund as investment options. The
SPI Common Stock fund in the IREX Savings Plan and the IREX Common Stock fund in
the SPI Savings Plan are each referred to as a "Non-Employer Stock Fund" with
respect to the applicable Plan. The Parties intend that the appropriate Plan
fiduciaries will determine for what period of time the applicable Non-Employer
Stock Fund remains an investment option under their respective Plans.
(iii) Provision of Disclosure Materials Relating to Non-Employer
----------------------------------------------------------
Stock Funds. Each Party shall provide to the other Party in a timely manner such
- -----------
proxy statements, annual reports, and other materials with respect to the
Party's stock held in the Non-Employer Stock Fund under the Plan of the other
Party as may be reasonably requested by the other Party. In addition, each Party
agrees to provide reasonable cooperation to the other Party with respect to any
necessary or required valuation of the Party's stock held in the Non-Employer
Stock Fund under the Plan of the other Party.
(iv) Governmental Filings. IREX and SPI have made (or will make) any
--------------------
filings required under the Code or ERISA in connection with the transfer
described in this Section 3.2(g) in a timely manner.
(f) SPI Hourly Plan. Effective Immediately after the Distribution
---------------
Date and thereafter, SPI shall retain all Liabilities with respect to the SPI
Hourly Plan and neither IREX nor any member of the IREX Group shall have any
further Liability with respect to the SPI Hourly Plan.
Section 3.3 Multiemployer Plans. Effective Immediately after the
-------------------
Distribution Date and thereafter, IREX and the IREX Group shall retain all
Liabilities with respect to the Multiemployer Plans and shall indemnify and hold
SPI harmless from any such Liabilities.
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<PAGE>
ARTICLE IV
WELFARE BENEFIT PLANS
Section 4.1 General Principles.
------------------
(a) Assumption of Liabilities. Subject to Sections 4.3 and 4.4, effective
-------------------------
no later than January 1, 1999, all Transferred Employees shall cease coverage
under the IREX Welfare Plans and shall commence coverage under the SPI Welfare
Plans. SPI shall provide IREX 30 days advanced notice regarding the date upon
which coverage under the SPI Welfare Plans will commence (the "Commencement
Date"). All Liabilities with respect to the Transferred Employees and Retained
Employees under the IREX Welfare Plans shall be allocated between the Parties as
provided for in this Article IV.
(b) Health Insurance. Subject to Sections 4.3 and 4.4, effective November
----------------
1, 1998, all Liabilities with respect to Transferred Employees under any IREX
Welfare Plan (that constitutes a "group health plan" under Code section
4980B(g)) shall be the sole responsibility and liability of SPI and all
Liabilities with respect to Retained Employees under any such IREX Welfare Plan
shall be the sole responsibility and liability of IREX.
(c) Other Benefits and Expenses. Except as provided in Section 4.1(b), all
---------------------------
Liabilities with respect to Transferred Employees and Retained Employees under
any IREX Welfare Plan shall be allocated pro rata between the Parties based on
the size of their respective workforces in accordance with their historic
practice.
(d) Continuation of Elections. To the extent permitted by the applicable
-------------------------
insurance carrier, SPI shall cause the SPI Welfare Plans to recognize and
maintain all coverage and contribution elections made by Transferred Employees
under the IREX Welfare Plans in effect for the period immediately before the
Distribution Date and shall apply such elections under the SPI Welfare Plans for
the remainder of the period or periods for which such elections are by their
terms applicable. To the extent permitted by the applicable insurance carrier,
SPI shall provide coverage to Transferred Employees under the SPI Welfare Plans
without the need to undergo a physical examination or otherwise provide evidence
of insurability, and will recognize and maintain all irrevocable assignments and
elections made by Transferred Employees in connection with any life insurance
coverage under the IREX Welfare Plans and any predecessor plans.
(e) Continuation of Co-Payments. To the extent permitted by the applicable
---------------------------
insurance carrier, SPI shall cause the SPI Welfare Plans to recognize and give
credit for all amounts applied to deductibles, out-of-pocket maximums, and other
applicable benefit coverage limits for expenses that have been incurred by
Transferred Employees under the IREX Welfare Plans for the remainder of the
benefit limit year in which the Distribution Date occurs.
-8-
<PAGE>
(f) Continuation of Maximum Benefits. SPI shall cause the SPI Welfare
--------------------------------
Plans to recognize and give credit for all benefits paid to Transferred
Employees under the IREX Welfare Plans, before and during the benefit limit year
in which the Distribution Date occurs, for purposes of determining when such
persons have reached any lifetime maximum benefits under the SPI Welfare Plans.
(g) COBRA and HIPAA Obligations. For periods before the Commencement Date,
---------------------------
IREX shall be responsible for administering compliance with the continuation
coverage requirements for "group health plans" under Title X of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), and the
portability requirements under the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA"), with respect to Transferred Employees and
their beneficiaries and dependents. Effective as of the Commencement Date and
thereafter, Transferred Employees and their beneficiaries and dependents who
have incurred a "qualifying event" (as defined in Code section 4980B) on or
after January 1, 1998 shall be entitled to COBRA coverage under the SPI Welfare
Plans and SPI shall be solely responsible for administering compliance with such
COBRA and HIPAA requirements with respect to these persons.
(h) Subrogation. If either IREX or SPI recovers any amounts through
-----------
subrogation or otherwise for claims reimbursed to Transferred Employees and
their beneficiaries and dependents under any IREX Welfare Plan, the recovering
Party shall share with the other Party a pro rata portion of such recovery based
on the size of the respective workforces in accordance with their historic
practice.
Section 4.2 Establishment of Mirror Welfare Plans. Except as otherwise set
-------------------------------------
forth in this Article IV, SPI shall take all actions necessary or appropriate to
establish, as soon as practicable on or after the Distribution Date, but not
later than December 31, 1998, SPI Welfare Plans to provide each Transferred
Employee with benefits substantially similar in all Material Features to the
benefits provided to him or her under the IREX Welfare Plans immediately before
the Distribution.
Section 4.3 Long Term Disability. Notwithstanding any provision in this
--------------------
Agreement to the contrary, responsibility for the long-term disability benefits
of any Former SPI Employee who is receiving such benefits on the Distribution
Date shall continue to be provided under the appropriate IREX Welfare Plan and
shall remain the sole responsibility of IREX.
Section 4.4 Post-retirement Medical Benefits. Notwithstanding any provision
--------------------------------
in this Agreement to the contrary, responsibility for the post-retirement
medical benefits of any Former SPI Employee who is receiving such benefits on
the Distribution Date shall continue to be provided under the appropriate IREX
Welfare Plan and shall remain the sole responsibility of IREX.
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<PAGE>
Section 4.5 Vacation and Sick Pay Liabilities. Effective Immediately after
---------------------------------
the Distribution Date, SPI shall assume all accrued Liabilities for vacation,
sick leave and paid time off in respect of all Transferred Employees as of the
Distribution Date.
Section 4.6 Vendor Contracts.
----------------
(a) Pre-Distribution Date Negotiation. Before the Distribution Date, IREX
---------------------------------
shall take such steps as are necessary under each ASO Contract, Group Insurance
Policy and HMO Agreement in existence as of the date of this Agreement to permit
SPI to participate in the terms and conditions of such ASO Contract, Group
Insurance Policy or HMO Agreement beginning Immediately after the Distribution
Date.
(b) Terms of SPI Participation. IREX shall determine, and shall promptly
--------------------------
notify SPI of, the manner in which SPI's participation in the terms and
conditions of any ASO Contracts, Group Insurance Policies and HMO Agreements, as
set forth above is to be effectuated. SPI hereby authorizes IREX to act on its
behalf to extend to SPI the terms and conditions of the ASO Contracts, Group
Insurance Policies and HMO Agreements. SPI shall fully cooperate with IREX in
such efforts.
(c) Premium/Administration Rates. IREX and SPI shall use their reasonable
----------------------------
best efforts to cause each of the insurance companies, HMOs, paid provider
organizations and third-party administrators providing services and benefits
under the IREX Welfare Plans to maintain the premium and/or administrative
rates, based on the aggregate number of participants in both the IREX Welfare
Plans, and the SPI Welfare Plans after the Distribution Date.
Section 4.7 Unemployment Compensation. Effective Immediately after the
-------------------------
Distribution Date, SPI shall assume all Liabilities for Transferred Employees
related to any and all unemployment compensation matters under any law of any
state, territory, or possession of the U.S. or the District of Columbia and SPI
shall be fully responsible for the administration of all such claims. If SPI is
unable to assume any such Liability or the administration of any such claim
because of the operation of applicable state law or for any other reason, SPI
shall reimburse IREX for all such Liabilities.
Section 4.8 Transfer of Certain Assets. Following the Distribution Date,
--------------------------
IREX and SPI periodically shall determine the amount of claims made by any
Transferred Employee under the IREX Flex Plan that exceed such Transferred
Employee's actual contributions to the IREX Flex Plan. Thereafter, to the extent
that a Transferred Employee's claims exceed such Transferred Employee's actual
contributions SPI shall make a cash payment of such amount to IREX.
ARTICLE V
GENERAL
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<PAGE>
Section 5.1 Payment of and Accounting Treatment for Expenses and Balance
------------------------------------------------------------
Sheet Amounts.
- -------------
(a) Balance Sheet Amounts. Effective Immediately after the Distribution
---------------------
Date, SPI shall assume any balance sheet liability for any Liabilities assumed
by it under this Agreement with respect to any Transferred Employee. The
determination of any balance sheet liability to be assumed by SPI under this
Section 6.1(b) shall be determined by IREX consistent with past accounting
practices, consistently applied.
Section 5.2 Accounting Adjustments. Prior to the Distribution Date, SPI has
----------------------
established on its books for financial accounting purposes liabilities and
reserves for retirement, welfare and other employee benefit plan obligations
that will be retained or assumed by SPI under this Agreement, and IREX has
adjusted the liabilities and reserves on its books for financial accounting
purposes to take into account SPI' assumption or retention of liabilities under
this Agreement. Such adjustments have been made on an estimated basis. After the
Parties have finally calculated the actual liabilities under this Agreement,
each Party in accordance with their historic practices shall appropriately
adjust its liabilities and reserves to reflect the amount of the liabilities and
reserves that are properly allocable to that Party. Neither Party shall have any
obligation to make payments or transfer assets to the other Party with respect
to such adjustments.
Section 5.3 Notices. Any notice, demand, claim, or other communication
-------
under this Agreement shall be in writing and shall be given in accordance with
the provision for giving notice under the Distribution Agreement.
Section 5.4 Amendment and Waiver. This Agreement may not be altered or
--------------------
amended, nor may rights hereunder be waived, except by an instrument in writing
executed by the Party or Parties to be charged with such amendment or waiver. No
waiver of any terms, provision or condition of or failure to exercise or delay
in exercising any rights or remedies under this Agreement, in any one or more
instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, provision, condition, right or remedy or as a waiver of
any other term, provision or condition of this Agreement.
Section 5.5 Sharing of Participant Information. IREX and SPI shall share
----------------------------------
with each other and their respective agents and vendors (without obtaining
releases) all participant information necessary for the efficient and accurate
administration of each of their respective Plans. IREX and SPI and their
respective authorized agents shall, subject to applicable laws on
confidentiality, be given reasonable and timely access to, and may make copies
of, all information relating to the subjects of this Agreement in the custody of
the other Party, to the extent necessary for such administration.
Section 5.6 Entire Agreement. This Agreement, together with the
----------------
Distribution Agreement and the all other agreements between the Parties hereto
referred to therein (the
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<PAGE>
"Ancillary Agreements"), constitute the entire understanding of the Parties
hereto with respect to the subject matter hereof, superseding all negotiations,
prior discussions and prior agreements and understandings relating to such
subject matter. To the extent that the provisions of this Agreement are
inconsistent with the provisions of the Distribution Agreement or any Ancillary
Agreement, the provisions of this Agreement shall prevail.
Section 5.7 Parties in Interest. Neither of the Parties hereto may assign
-------------------
its rights or delegate any of its duties under this Agreement without the prior
written consent of each other Party (which consent shall not be unreasonably
withheld or delayed). This Agreement shall be binding upon, and shall inure to
the benefit of, the Parties hereto and their respective successors and permitted
assigns.
Section 5.8 No Third-Party Beneficiaries; No Termination of Employment. No
----------------------------------------------------------
provision of this Agreement or the Distribution Agreement shall be construed to
create any right, or accelerate entitlement, to any compensation or benefit
whatsoever on the part of any Transferred Employee or other future, present, or
former employee of IREX, the IREX Group or SPI. Without limiting the generality
of the foregoing, neither the Distribution nor the termination of the
Participating Company status of SPI shall cause any employee to be deemed to
have incurred a termination of employment which entitles such individual to the
commencement of benefits under any of the IREX Plans.
Section 5.9 Right to Amend or Terminate Any Plans. Nothing in this
-------------------------------------
Agreement other than those provisions specifically set forth herein to the
contrary shall preclude SPI, at any time after the Close of the Distribution
Date, from amending, merging, modifying, terminating, eliminating, reducing, or
otherwise altering in any respect any SPI Plan.
Section 5.10 Fiduciary and Related Matters. SPI acknowledges that
-----------------------------
Immediately after the Distribution Date IREX will not be a fiduciary with
respect to any SPI Plans. In addition, IREX acknowledges that Immediately after
the Distribution Date SPI will not be a fiduciary with respect to any IREX
Plans. The Parties each acknowledge that the other Party shall not be deemed to
be in violation of this Agreement if it fails to comply with any provisions
hereof based upon its good faith reasonable determination that to do so would
violate any applicable fiduciary duties or standards of conduct under ERISA or
other applicable law.
Section 5.11 Effect if Distribution Does Not Occur. If the Distribution
-------------------------------------
does not occur, then all actions and events that are, under this Agreement, to
be taken or occur effective as of the Close of the Distribution Date,
Immediately after the Distribution Date, or otherwise in connection with the
Distribution, shall not be taken or occur except to the extent specifically
agreed to in writing by SPI and IREX.
Section 5.12 Relationship of Parties. Nothing in this Agreement shall be
-----------------------
deemed or construed by the Parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
Parties, it being understood and agreed that no provision
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<PAGE>
contained herein, and no act of the Parties, shall be deemed to create any
relationship between the Parties other than the relationship set forth herein.
Section 5.13 Affiliates. Each of IREX and SPI shall cause to be performed,
----------
and hereby guarantees the performance of, all actions, agreements and
obligations set forth in this Agreement to be performed by their respective
affiliates, other than the other Party.
Section 5.14 Requests for Internal Revenue Service Rulings and
-------------------------------------------------
Determinations and United States Department of Labor Opinions. SPI shall
- -------------------------------------------------------------
cooperate fully with IREX on any issue relating to the transactions contemplated
by this Agreement for which IREX elects to seek a determination letter or
private letter ruling from the Internal Revenue Service or an advisory opinion
from the United States Department of Labor. IREX shall cooperate fully with SPI
with respect to any request for a determination letter or private letter ruling
from the Internal Revenue Service or advisory opinion from the United States
Department of Labor with respect to any of the SPI Plans relating to the
transactions contemplated by this Agreement.
Section 5.15 Further Assurances and Consents. In addition to the actions
-------------------------------
specifically provided for elsewhere in this Agreement, each of the Parties
hereto will use its reasonable efforts to (a) execute and deliver such further
instruments and documents and take such other actions as any other Party may
reasonably request in order to effectuate the purposes of this Agreement and to
carry out the terms hereof and (b) take, or cause to be taken, all actions, and
to do, or cause to be done, all things, reasonably necessary, proper or
advisable under applicable laws, regulations and agreements or otherwise to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation, using its reasonable efforts to obtain any
consents and approvals and to make any filings and applications necessary or
desirable in order to consummate the transactions contemplated by this
Agreement; provided that no Party hereto shall be obligated to pay any
consideration therefor (except for filing fees and other similar charges) to any
third Party from whom such consents, approvals and amendments are requested or
to take any action or omit to take any action if the taking of or the omission
to take such action would be unreasonably burdensome to the Party.
Section 5.16 Severability. The provisions of this Agreement are severable
------------
and should any provision hereof be void, voidable or unenforceable under any
applicable law, such provision shall not affect or invalidate any other
provision of this Agreement, which shall continue to govern the relative rights
and duties of the Parties as though such void, voidable or unenforceable
provision were not part hereof.
Section 5.17 Governing Law. Subject to U.S. federal law, this Agreement
-------------
shall be construed in accordance with, and governed by, the laws of the
Commonwealth of Pennsylvania, without regard to the conflicts of law rules of
such state.
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<PAGE>
Section 5.18 Counterparts. This Agreement may be executed in two or more
------------
counterparts each of which shall be deemed an original instrument, but all of
which together shall constitute but one and the same Agreement.
Section 5.19 Disputes. Resolution of any and all disputes arising from or
--------
in connection with this Agreement, whether based on contract, tort, statute or
otherwise, including, without limitation, disputes in connection with claims by
third Parties shall be exclusively governed by and settled in accordance with
provisions identical to those set forth in Section 21 of the Distribution
Agreement, which Section is hereby incorporated by this reference.
Section 5.20 Interpretation. Words in the singular shall be held to
--------------
include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires. The terms "hereof," "herein,"
and "herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement as a whole (including all Appendices
hereto) and not to any particular provision of this Agreement. The word
"including" and words of similar import when used in this Agreement shall mean
"including, without limitation," unless the context otherwise requires or unless
otherwise specified. The word "or" shall not be exclusive. References to any
"Article," "Schedule" or "Section," without more, are to Articles, Schedules and
Sections to or of this Agreement.
Section 5.21 Headings. The Article and Section headings contained in this
--------
Agreement are solely for the purpose of reference, are not part of the agreement
of the Parties hereto and shall not in any way affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed and delivered
this Agreement as of the day and year first above written.
IREX CORPORATION
By: _____________________________
Name
Title:
SPECIALTY PRODUCTS & INSULATION
CO.
By: _____________________________
Name:
Title:
-14-
<PAGE>
APPENDIX A - WELFARE BENEFIT PLANS
----------------------------------
I. PART 1 - IREX WELFARE PLANS
---------------------------
Healthcare Coverage (medical and dental)
Basic Life Insurance
Supplemental Life Insurance
Basic Long Term Disability Insurance
Additional Long Term Disability Coverage
Voluntary Accidental Death and Dismemberment (AD&D) Insurance
Business Travel Insurance
Benefit Options Program
Flexible Reimbursement Account for Healthcare Expenses
Flexible Reimbursement Account for Dependent Care Expenses
Sick Leave
Paid Time Off
Vacation
II. PART 2 - SPI WELFARE PLANS
--------------------------
Healthcare Coverage (medical and dental)
Basic Life Insurance
Supplemental Life Insurance
Basic Long Term Disability Insurance
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<PAGE>
Additional Long Term Disability Coverage
Voluntary Accidental Death and Dismemberment (AD&D) Insurance
Business Travel Insurance
Benefit Options Program
Flexible Reimbursement Account for Healthcare Expenses
Flexible Reimbursement Account for Dependent Care Expenses
Sick Leave
Paid Time Off
Vacation
-16-
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of ___________,1998, by and
between Specialty Products and Insulation Co. a Pennsylvania with an office at
1097 Commercial Avenue, East Petersburg, PA (the "Company") and Ronald L. King
an individual currently residing at ___________________________ (the
"Executive").
BACKGROUND
Irex Corporation, a Pennsylvania corporation ("Parent") owns 100% of the
issued and outstanding shares of common stock, par value $0.01 per share of the
Company (the "Common Stock"). Evercore Capital Partners, L.P. and Affiliates
("Evercore") desires to subscribe for, and the Company desires to issue shares
of the Common Stock pursuant to the terms and conditions of a Stock Subscription
Agreement dated ___________, 1998 (the "Subscription Agreement"). Immediately
before the consummation of the transactions contemplated by the Subscription
Agreement, Parent intends to distribute by means of a dividend, all of the
shares of Common Stock owned by it to shareholders of Parent, pro rata, in
accordance with their interests in the Parent (the "Spin-Off"). Following the
Spin-Off and the consummation of the transactions contemplated by the
Subscription Agreement, Evercore will own, directly or indirectly, approximately
45% of the issued and outstanding Common Stock, and the remainder will be owned
by the Parent's shareholders.
In contemplation of those transactions, the Company desires to employ the
Executive, and the Executive desires to accept that employment, on the terms and
conditions set forth herein.
Accordingly, the parties hereto, intending to be legally bound hereby, and
in consideration of the mutual covenants herein contained, agree as follows:
1. Employment.
----------
1.1. The Company employs the Executive, and the Executive accepts
such employment (the "Employment"), as President and Chief Executive Officer of
the Company. The Executive accepts the employment for the period and on the
terms and conditions set forth in this Agreement and agrees to perform such
duties as are from time to time reasonably assigned to him by the Board of
Directors of the Company (the "Board") and which are normally associated with
the position of President and Chief Executive Officer. In addition, the
Executive will be elected to, and will serve as a member of, the Board, without
any additional compensation, except as may be otherwise determined by the Board,
with the Executive abstaining from any vote on such additional compensation.
<PAGE>
1.2. During the Employment Term (as defined in Section 2), the
Executive will report directly to the Board or to such committees of the Board
as the Board shall from time to time specify.
1.3. During the Employment Term the Executive will devote his best
efforts and full business time, skill and attention to the performance of his
duties on behalf of the Company.
1.4. The Executive's duties under this Agreement shall be performed
from the Company's offices in East Petersburg, Pennsylvania or such other office
as the Board shall determine, provided that such office shall not be more than
50 miles from the Company's present offices without the Executive's consent.
2. Term of Employment. Unless earlier terminated pursuant to the
------------------
provisions of Section 4 hereof, the term of the Executive's employment hereunder
shall be for three years from the date hereof. At each anniversary of the date
hereof, the term of Executive's employment shall be extended for one additional
year unless, at least 90 days before that anniversary, the Company shall have
given the Executive written notice of its intention not to extend the term of
the Executive's employment, in which case the Executive's employment will
terminate at the end of the term of this Agreement as in effect on the date of
such notice. Any period during which this Agreement is in effect shall be
considered part of the "Employment Term".
3. Compensation and Benefits.
-------------------------
3.1. The Company agrees to pay, and the Executive agrees to accept,
as base compensation for all services to be rendered by the Executive under this
Agreement, a salary of $252,000. per annum (subject to such deductions and
withholdings as may be required by law or by further agreement with the
Executive) (the "Base Salary"), payable in arrears in equal semi-monthly
installments. The Base Salary may be increased from time to time in the
discretion of the Board. Any such increases shall be added to the Base Salary
then being paid to the Executive, and the sum thereof shall then become the Base
Salary for each successive year, until further adjusted in accordance with the
provisions of this Section 3. 1.
3.2. In addition to the Base Salary, subject to the terms and
conditions of the Company's Incentive Compensation Plan (the "Incentive Plan"),
during the term of this Agreement, the Executive shall be eligible to
participate in the Incentive Plan on terms and conditions no less favorable than
those in effect at the date hereof.
3.3. The Company shall also reimburse the Executive for all
reasonable and necessary expenses incurred by the Executive in connection with
the Employment, including without limitation, travel and lodging expenses, car
phone expenses and charges incurred for business entertainment. Such expenses
shall be reimbursed to
-2-
<PAGE>
the Executive by the Company after the Executive submits documentation to the
Company with respect to the reimbursable expenses incurred by him.
3.4. Additional Benefits. During the Employment Term, the Company
-------------------
shall provide the Executive with an automobile and shall reimburse the Executive
for the costs of automobile insurance and operating expenses attributable to
that automobile, as well as vacation, 401(k) matching, health, medical and
hospitalization, disability insurance and other fringe benefits no less
favorable, in each case, than those being provided to him under the Company's
plan's and arrangements in effect on the date hereof.
4. Termination.
-----------
4.1. The Company may terminate the Executive's employment at any time
for "Cause", in which event the Executive shall have no further rights under
this Agreement, except the right to receive the Base Salary up to the date of
termination by the Company of the Executive's employment hereunder, the right to
receive any vested benefits under any plan or arrangement described in Section
3.4 and the rights specified in Section 6 hereof. The Executive's employment
shall be deemed to have been terminated for "Cause" if his employment is
terminated for: (i) embezzlement, theft, or other misappropriation of any
property of more than nominal value of the Company or any Subsidiary; (ii) the
Executive's neglect of, or failure substantially to perform or comply with, his
duties, responsibilities and obligations as an officer of the Company (other
than any such failure resulting from his incapacity due to physical or mental
illness, as determined by a physician appointed by the Company) after a demand
for substantial performance is delivered to the Executive by the Board of
Directors of the Company which specifically identifies the manner in which such
Board believes that the Executive has not substantially performed his duties and
the Executive fails or refuses to remedy such failure to the reasonable
satisfaction of the Board within ninety (90) days after the receipt of such
notice; (iii) the Executive's willful breach of his restrictive covenants set
forth in this Agreement; (iv) any act which if the subject of a criminal
proceeding could reasonably result in a conviction for a felony; or (v) an act
or acts of dishonesty on the Executive's part intended to result or resulting in
substantial gain or personal enrichment to him at the expense of the Company.
4.2. In the event the Executive's employment is terminated without
"Cause", the Executive shall have the right to receive (a) an amount, equal to
three years' Base Salary, as in effect at the date of termination, plus three
years' anticipated Incentive Plan awards, ("anticipated Incentive Plan awards"
for any year shall be equal to 100% of the average of the Executive's awards
under the Incentive Plan for the previous three (3) years, or the period of his
actual employment if shorter), (b) continuation of the health, hospitalization
and medical care benefits in which the Executive is participating under Section
3.4 on the date of termination, for three years
-3-
<PAGE>
following the date of such termination, plus (c) any amounts due in accordance
with the terms of the Incentive Plan, and (d) all other benefits under Section
3.4 hereof which have accrued as of the date of termination. In addition, the
Executive shall be entitled to participate in awards made under the Incentive
Plan for the fiscal year in which the Executive is terminated without "Cause" in
amounts proportionate to the length of time the Executive was employed by the
Company in such fiscal year, and shall be entitled to the payments specified in
Section 6. The three years referred to in (a) and (b) above shall become one
year if by reason of notice given under Section 2, the Agreement expires at the
end of the Employment Term. The amount payable under (a) above shall be paid in
a lump sum within 15 days of the date of the Executive's termination without
"Cause."
4.3. In the event of the Executive's death during the Employment
Term, the Employment Term shall terminate automatically as of the date of the
Executive's death, and the Executive's executor, administrator or other legal
representative shall have no further rights hereunder, except the right to
receive (a) the Base Salary up to the date of the Executive's death, (b) any
amounts due under the Incentive Plan as of the date of death, including an award
for the year of death proportionate to the length of time the Executive was
employed by the Company in such fiscal year, (c) any other benefits under
Section 3.4 which have accrued as of the date of, or are payable on account of,
the Executive's death and (d) the amounts payable under Section 6 hereof.
4.4. The Executive may terminate this Agreement at any time by giving
the Board written notice of intent to terminate, delivered at least ninety (90)
calendar days prior to the effective date of such termination. In that event,
the Company shall pay the Executive his full Base Salary, at the rate then in
effect, through the effective date of termination, any amounts due but unpaid
under the Incentive Plan, all other benefits under Section 3.4 to which the
Executive has a vested right at that time and the payments to which Executive is
entitled under Section 6 hereof. In the event that the voluntary termination is
for Good Reason, the terms of Section 4.2 shall govern the parties' rights and
obligations hereunder. In addition, provided that the Executive resigns after
June 30 of the relevant fiscal year, the Executive shall be entitled to
participate in awards made under the Incentive Plan for the fiscal year in which
the Executive resigns in amounts proportionate to the length of time the
Executive was employed by the Company in such fiscal year.
4.5. At any time during the term of this Agreement, the Executive may
terminate this Agreement for Good Reason (as defined below) by giving the Board
ninety (90) calendar days written notice of intent to terminate, which notice
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for such termination. Upon termination the Company shall pay and provide
to the Executive the benefits set forth in Section 4.2 hereof (as if the
termination were an involuntary termination without Cause.) "Good Reason" shall
mean, without the Executive's
-4-
<PAGE>
express prior written consent, the occurrence of any one or more of the
following:(i) The failure at any time while this Agreement is in effect to
elect the Executive to the Board, (ii) The assignment of the Executive to duties
materially inconsistent with the Executive's authorities, duties,
responsibilities, and status (including titles and reporting requirements) as an
officer of the Company, or a material reduction or alteration in the nature or
status of the Executive's authorities, duties, or responsibilities from those in
effect as of the Effective Date (or as subsequently increased), other than an
insubstantial and inadvertent act that is remedied by the Company promptly after
receipt of notice thereof given by the Executive; (iii) The Company's requiring
the Executive to be based at a location in excess of fifty (50) miles from the
location of the Executive's principal job location or office as of the Effective
Date, except for required travel on the Company's business to an extent
substantially consistent with the Executive's present business obligations; (iv)
A reduction by the Company of the Executive's Base Salary as in effect on the
Effective Date, or as the same shall be increased from time to time; (v) An
intentional material reduction by the Company of the Executive's aggregate
incentive opportunities under the Company's incentive programs, as such
opportunities exist on the Effective Date, or as such opportunities may be
increased after the Effective Date. For this purpose, a reduction in the
Executive's incentive opportunities shall be deemed to have occurred in the
event his targeted annualized award opportunities and/or the degree of
probability of attainment of such annualized award opportunities, are materially
diminished from the levels and probability of attainment that existed as of the
Effective Date or as such opportunity and/or degree of probability have been
increased from time to time; provided, however, that notwithstanding the
foregoing, the Executive's Incentive opportunities shall not be deemed to have
been materially reduced by the adoption by the Board of any reasonable Company
budget after the Spin-Off; (vi) The failure of the Company to maintain the
Executive's relative level of coverage under the Company's employee benefit or
retirement plans, policies, practices, or arrangements in which the Executive
participates as of the Effective Date, both in terms of the amount of benefits
provided and the relative level of the executive's participation. For this
purpose, the Company may eliminate and/or modify existing programs and coverage
levels; provided, however, that the Executive's level of coverage under all such
programs must be at least as great as is such coverage provided to executives
who have the same or lesser levels of reporting responsibilities within the
Company's organization; (vii) The failure of the Company to obtain a
satisfactory agreement from any successor to the Company to assume and agree to
perform the Company's obligations under this Agreement. For this purpose,
successor shall mean the business enterprise(s) resulting from reorganization,
merger or consolidation involving the Company or any subsidiary of the Company
or sale or other disposition of all or substantially all of the assets of the
Company.
4.6. If, by reason of any illness, disability or incapacity, the
Executive is unable to perform his duties under this Agreement for a period of
ninety (90)
-5-
<PAGE>
consecutive days (or shorter periods aggregating to one hundred twenty (120)
days in any twelve month period) ("Disability"), the Company may terminate the
Employment Term as of the last day of such ninety (90) or one hundred twenty
(120) day period, as the case may be, or as of such other day thereafter,
provided the Executive remains unable to perform his duties hereunder. The
Executive or his duly appointed representative, if one is appointed, shall be
entitled to receive, within sixty (60) days after the date of such termination,
any amounts payable to the Executive pursuant to this Agreement, including
without limitation (i) a share of any Incentive Plan award for the fiscal year
of termination proportionate to the length of time the Executive was employed by
the Company in that fiscal year, and (ii) the provisions of Article 6.4 hereof
applicable in the case of the Executive's termination by the Company without
Cause. Notwithstanding the foregoing, (i) the Executive shall remain entitled
to any benefits to which he is entitled under the Company's short and long term
disability plans on account of his disability and (ii) if the Executive suffers
a Disability and his employment hereunder is not terminated, the Executive shall
be entitled to receive any amounts owing to him hereunder (including, without
limitation, the additional benefits outlined in Section 3.4), less any
disability insurance payments which Executive is entitled to receive under any
plans the premiums of which are paid for by the Company.
5. Non-Competition and Confidentiality.
------------------------------------
5.1. Covenant Not to Compete. The Executive covenants and agrees
-----------------------
that during the Employment Term and for a period equal in length to the period
taken into account in calculating the amount payable under Section 4.2
thereafter, he will not, directly or indirectly (whether as principal, agent,
proprietor, sales person, employee, consultant, independent contractor, officer,
director, investor, or otherwise), participate in the ownership, management,
operation, or control of, or have any interest of any nature whatsoever in any
organization, corporation, firm, or other business which is engaged in or which
proposes to engage in any business which is in competition with the business now
or hereafter operated and conducted by the Company in any geographic area where
Company has regularly serviced customers during the Employment Term. Without
limiting the foregoing, the Executive agrees that he will not, during the
Employment Term and for a period equal in length to the period taken into
account in calculating the amount payable under Section 4.2 thereafter, directly
or indirectly, divert or take away or attempt to divert or take away, by
soliciting, supplying, serving, advising, or otherwise, any customer or business
entity with which the Company did business during the Employment Term. It will
not be a violation of this provision for Executive to own shares in a widely
traded public company which competes with Company if the investment is passive
and the number of shares held is sufficiently small that Executive cannot
exercise any material influence or control over the management of the public
company.
-6-
<PAGE>
5.2. Covenant Not to Divulge Confidential Information. The Executive
------------------------------------------------
recognizes and acknowledges that he will, during the course of his employment by
the Company, have access to certain proprietary material and confidential
business information concerning the business and operations of the Company which
are valuable property of a confidential nature and which belong to the Company,
which is not public knowledge. The Executive covenants and agrees that he will
not during the Employment Term or at any time thereafter disclose to any person,
except in the regular course of business of the Company, or use in competition
with the Company any such proprietary material or confidential business
information.
6. REPURCHASE OF EQUITY INVESTMENTS. Upon termination of the Executive's
Employment hereunder, the Executive shall be entitled to the following payments:
6.1. Termination Other than for Cause. If the Executive's employment
--------------------------------
is terminated by the Company other than for Cause or is terminated by the
Executive with Good Reason, the Company will pay the Executive, within 15 days
following the Executive's termination, in exchange for (i) the total number of
shares of Common Stock owned by the Executive and (ii) the total number of
shares of Common Stock of the Company for which the Executive holds Regular
Options (as such term is defined in the Executive's Nonqualified Stock Option
Award Agreement (the "Award Agreement")) granted under the Company's 1998 Stock
Option Plan (the "Stock Option Plan"), whether or not vested or exerciseable
(the "Regular Option Shares"):
6.1.1. If the Common Stock of the Company is publicly traded on a
national stock exchange, an amount equal to the product of the
average closing price of the Common Stock on that exchange for
the 10 trading days immediately preceding the date of the
Executive's termination, less, in the case of Regular Option
Shares, the aggregate exercise price for those Regular Option
Shares. Notwithstanding the foregoing, if the Company's Common
Stock is publicly traded, and if at least 3 years have passed
after the Spin-Off, the Executive shall have the right, in
lieu of receiving the payment described above, to exercise all
of the Executive's Options under the Stock Option Plan and
sell the Executive's Common Stock, including shares acquired
by exercise of Options, on the public exchange, at a time or
times selected by the Executive.
6.1.2. If the Common Stock of the Company is not publicly traded, the
amount to be paid to the Executive shall be determined by:
-7-
<PAGE>
6.1.2.1. multiplying 6.1 times the Company's Adjusted
Consolidated EBITDA (as such term is defined in the
Note Purchase Agreement, dated as of November __,
1998, Between Specialty Products & Insulation Co.,
and Irex Corporation (the "Note Purchase
Agreement")) for the four (4) fiscal quarters most
recently ended to determine aggregate value;
6.1.2.2. subtracting from the aggregate value as determined
under clause 6.1.2.1, Indebtedness (as such term is
defined in the Note Purchase Agreement) and adding
cash and equivalents, in each case pro forma as of
the end of the most recent fiscal quarter, to
determine equity value;
6.1.2.3. dividing equity value, as determined in clause
6.1.2.2,. by the number of the Company's shares of
Common Stock on a fully diluted basis; and
6.1.2.4. multiplying that result in clause 6.1.2.3 by the
number of the Executive's shares of Common Stock and
Regular Options, provided that the amount payable
with respect to the Regular Options shall be reduced
by the aggregate exercise price for the Regular
Options.
6.1.3. In addition to the payments provided above, any Tranche A
Performance Options or Tranche B Performance Options to
purchase Company Common Stock granted under the Stock Option
Plan shall immediately vest, but shall become exercisable only
in the event of an Evercore Sale or Partial Evercore Sale, as
defined in the Award Agreement, provided that the relevant IRR
targets, as established by the Award Agreement, are satisfied.
When the Executive's Tranche A Performance Options or Tranche
B Performance Options become exercisable in accordance with
the Award Agreement, (a) if the Company's Common Stock is then
publicly traded, the Executive may exercise those options, or,
at the Executive's election, receive from the Company, in
cash, an amount equal to the difference between the aggregate
exercise price for such Options and the aggregate public
trading price of the Common Stock to be acquired upon exercise
of those Options or (b) if the Company's Common Stock is not
publicly traded, the Executive shall be entitled to be paid an
amount equal to the per
-8-
<PAGE>
share value of the Company's Common Stock, determined based
upon the consideration received by Evercore, less the option
exercise price, multiplied by the number of shares of Common
Stock for which the Executive holds such Options.
6.2. Termination for Cause. In the event of the Executive's
---------------------
termination of employment for Cause, the Company will pay the Executive, in
exchange for (i) the total number of shares of Common Stock owned by the
Executive and (ii) the total number of Regular Option Shares as defined in
Section 6.1, an amount equal to:
6.2.1. With respect to Common Stock, the lesser of the amount
determined under Section 6.1 or the Executive's cost and with
respect to Regular Options Shares granted under the Stock
Option Plan that have vested under the terms of that Plan and
the Award Agreement, the amount determined under Section 6.1
based on an EBITDA multiple of 6.1.
6.2.2. Notwithstanding the foregoing, if the Executive's termination
for "Cause" is on account of conduct specified in Section
4.1(i), (ii), (iii) or (v), all options including vested
Regular Options under the Stock Option Plan shall be forfeited
without payment hereunder.
6.3. Resignation. In the event of the Executive's resignation
-----------
without Good Reason, the Company will pay the Executive, in exchange for (i) the
total number of shares of Common Stock owned by the Executive and (ii) the total
number of Option Shares, an amount equal to:
6.3.1. With respect to Common Stock, and with respect to Regular
Options that have vested under the terms of the Stock Option
Plan and the Award Agreement, the amount determined under
Section 6.1, subject to the election contained therein if the
Common Stock is publicly traded.
6.3.2. With respect to the Tranche A Performance Options and the
Tranche B Performance Options that have vested under the terms
of the Stock Option Plan and the Award Agreement, the amount
determined under the Executive's Award Agreement and to be
payable at the time set forth in Section 6.1.3.
6.4. Death or Disability. In the event of (i) the Executive's
-------------------
death during the Employment Term or (ii) the termination of the Executive's
employment with the Company due to Disability (in accordance with Section 4.6 of
this Agreement), the Company will pay the Executive, in exchange for (i) the
total number of shares of
-9-
<PAGE>
Common Stock owned by the Executive and (ii) the total number of Option Shares,
an amount equal to:
6.4.1. With respect to Common Stock, and with respect to the Regular
Options that have vested under the terms of the Stock Option
Plan and the Award Agreement, the amount determined under
Section 6.1.2, subject to the election contained therein if
the Common Stock is publicly traded;
6.4.2. With respect to the Tranche A Performance Options and the
Tranche B Performance Options that have vested under the terms
of the Stock Option Plan and the Award Agreement, the amount
determined under the Executive's Award Agreement and to be
payable at the time set forth in Section 6.1.3.
6.5. Change of Control or Other Corporate Event. If within 12
------------------------------------------
months following the Executive's termination of employment hereunder, other than
for Cause or voluntarily by the Executive without Good Reason, the Company or
Evercore has:
6.5.1. begun substantive negotiations that result in the consummation
of transactions in which substantially all of the stock or
assets or the Company, or Evercore's equity position in the
Company, are sold within eighteen (18) months after
termination; or
6.5.2. an investment banking firm is engaged or performs initial due
diligence in connection with an initial public offering and
that offering is consummated within eighteen (18) months after
termination; then
6.5.3. the amount payable to the Executive under Section 6.1 shall be
recalculated and the Executive shall be entitled to receive
the increase, if any, of the amount that would have been
payable to Executive with respect to his shares of Common
Stock and Basic and Performance Option Shares if he had been
able to participate in any transaction described in 6.5.1 or
6.5.2, over the amount actually paid to Executive under
Section 6.1.
7. Section 280G Limitation. If any benefit or payment from the Company
-----------------------
to the Executive (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise) (a "Payment") shall be
determined to be an "Excess Parachute Payment," as defined in Code section
280G(b)(1), then the aggregate present value of amounts or benefits payable to
Executive pursuant to this Agreement ("Agreement Payments") shall be reduced
(but not below zero) to the
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Reduced Amount. The "Reduced Amount" shall be the greater of (i) the highest
aggregate present value of Agreement Payments that can be paid without causing
any payments or benefits hereunder to be an Excess Parachute Payment or (ii) the
largest portion, up to and including the total, of the Agreement Payments that
after taking into account all applicable state and Federal taxes (computed at
the highest applicable marginal rate) including any taxes payable pursuant to
Section 4999 of the Code, results in a greater after-tax benefit to the
Executive than the after-tax benefit to the Executive of the amount calculated
under (i) hereof (computed at the highest applicable marginal rate). For
purposes of this Section 8, present value shall be determined in accordance with
section 280G(d)(4) of the Code.
8. Dispute Resolution. During the Executive's lifetime, any good faith
------------------
dispute or controversy arising under or in connection with this Agreement shall
be settled by arbitration. Upon his death, the executors, administrators or
other legal representatives of the Executive or his estate shall have the right
and option to elect to have any good faith dispute or controversy arising under
or in connection with this Agreement settled by litigation or arbitration. To
the extent that a dispute or controversy is to be settled by arbitration, such
proceeding shall be conducted before a panel of three (3) arbitrators sitting in
a location selected by the Executive (or, after his death, the executors,
administrators or other legal representatives of the Executive or his estate)
within fifty (50) miles from the location of his principal place of employment,
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the award of the arbitrators in any court
having competent jurisdiction. All expenses of such litigation or arbitration,
including the reasonable fees and expenses of the legal representative for the
Executive (or, after his death, the executors, administrators or other legal
representatives of the Executive or his estate), and necessary costs and
disbursements incurred as a result of such dispute or legal proceeding, and any
prejudgment interest, shall be borne by the Company, unless the Company prevails
in such litigation or arbitration, in which case the Executive (or, after his
death, the executors, administrators or other legal representatives of the
Executive or his estate) shall be responsible for the fees and expenses of his
own legal representation.
9. Headings. The section headings of this Agreement are for convenience
--------
of reference only and are not to be considered in the interpretation of the
terms and conditions of this Agreement.
10. Notices. All notices and other communications required or permitted
-------
to be given under this Agreement shall be in writing and shall be deemed to have
been duly given (a) when delivered personally, (b) if sent by telecopy, when
receipt thereof is acknowledged at the telecopy number below, (c) the day
following the day on which the same has been delivered prepaid for overnight
delivery to a national air courier service
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<PAGE>
or (d) three business days following deposit in the United States Mail,
registered or certified, postage prepaid, in each case, addressed as follows:
If to the Company: Board of Directors
Specialty Products and Insulation, Co.
1097 Commercial Avenue
East Petersburg, PA
Attn: David G. Offensend
and
W. Kirk Lidell, Esq.
IREX Corporation
120 North Lime Street
P.O. Box 1548
Lancaster, PA 17603
with copies to:
Attn:
Telecopy:
If to the Executive:
Attn:
Telecopy:
with a copy to:
Attn:.
Telecopy
Any party may change the persons and address to which notices or other
communications are to be sent by given written notice of such change to the
other party in the manner provided herein for giving notice.
11. Waiver of Breach. No waiver by either party of any condition or of
----------------
the breach by the other of any term or covenant contained in this Agreement,
whether by conduct or otherwise, in any one or more instances shall be deemed or
construed as a further or continuing waiver of any such condition or breach or a
waiver of any other condition, or of the breach of any other term or covenant
set forth in this Agreement.
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<PAGE>
The failure of either party to exercise any right hereunder shall not bar the
later exercise thereof.
12. Binding Nature: Assignment. This Agreement shall inure to the benefit
--------------------------
of and be binding on the parties and their respective successors in interest,
and shall not be assignable by either party without the written consent of the
other; provided that nothing in this Section shall preclude the Executive from
designating a beneficiary to receive any benefit payable hereunder upon his
death, or the executors, administrators or other legal representatives of the
Executive or his estate from assigning any rights hereunder to which they become
entitled to the person or persons entitled thereto.
13. Governing Law. This Agreement is entered into and shall be construed
-------------
in accordance with the laws of the Commonwealth of Pennsylvania, without giving
effect to conflict of laws principles thereof requiring application of the
substantive laws of another jurisdiction.
14. Invalidity or Unenforceability. If any term or provision of this
------------------------------
Agreement is held to be invalid or unenforceable for any reason, such invalidity
or unenforceability shall not affect any other term or provision hereof and this
Agreement shall continue in full force and effect as if such invalid or
unenforceable term or provision (to the extent of the invalidity or
unenforceability) had not been contained herein.
15. Entire Agreement. This Agreement constitutes the full and complete
----------------
understanding and agreement of the Executive and the Company respecting the
subject matter hereof, and supersedes all prior understandings and agreements
concerning the subject matter hereof, oral or written, express or implied. This
Agreement may not be modified or amended orally, but only by an agreement in
writing, signed by the party against whom enforcement of any modification or
amendment is sought.
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<PAGE>
16. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall be deemed one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
RONALD L. KING
___________________________
SPECIALTY PRODUCTS & INSULATION, CO.
By:________________________
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<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of ___________,1998, by and
between Specialty Products and Insulation Co. a Pennsylvania with an office at
1097 Commercial Avenue, East Petersburg, PA (the "Company") and Michael J.
Hughes an individual currently residing at ___________________________ (the
"Executive").
BACKGROUND
Irex Corporation, a Pennsylvania corporation ("Parent") owns 100% of the
issued and outstanding shares of common stock, par value $0.01 per share of the
Company (the "Common Stock"). Evercore Capital Partners, L.P. and Affiliates
("Evercore") desires to subscribe for, and the Company desires to issue shares
of the Common Stock pursuant to the terms and conditions of a Stock Subscription
Agreement dated ___________, 1998 (the "Subscription Agreement"). Immediately
before the consummation of the transactions contemplated by the Subscription
Agreement, Parent intends to distribute by means of a dividend, all of the
shares of Common Stock owned by it to shareholders of Parent, pro rata, in
accordance with their interests in the Parent (the "Spin-Off"). Following the
Spin-Off and the consummation of the transactions contemplated by the
Subscription Agreement, Evercore will own, directly or indirectly, approximately
45% of the issued and outstanding Common Stock, and the remainder will be owned
by the Parent's shareholders.
In contemplation of those transactions, the Company desires to employ the
Executive, and the Executive desires to accept that employment, on the terms and
conditions set forth herein.
Accordingly, the parties hereto, intending to be legally bound hereby, and
in consideration of the mutual covenants herein contained, agree as follows:
1. Employment.
----------
1.1. The Company employs the Executive, and the Executive accepts
such employment (the "Employment"), as Chief Financial Officer. The Executive
accepts the employment for the period and on the terms and conditions set forth
in this Agreement and agrees to perform such duties as are from time to time
reasonably assigned to him by the Board of Directors of the Company (the
"Board") and which are normally associated with the position of Chief Financial
Officer
1.2. During the Employment Term (as defined in Section 2), the
Executive will report directly to the President, to the Board or to such
committees of the Board as the Board shall from time to time specify.
<PAGE>
1.3. During the Employment Term the Executive will devote his best
efforts and full business time, skill and attention to the performance of his
duties on behalf of the Company.
1.4. The Executive's duties under this Agreement shall be performed
from the Company's offices in East Petersburg, Pennsylvania or such other office
as the Board shall determine, provided that such office shall not be more than
50 miles from the Company's present offices without the Executive's consent.
2. Term of Employment. Unless earlier terminated pursuant to the
------------------
provisions of Section 4 hereof, the term of the Executive's employment hereunder
shall be for three years from the date hereof. At each anniversary of the date
hereof, the term of Executive's employment shall be extended for one additional
year unless, at least 90 days before that anniversary, the Company shall have
given the Executive written notice of its intention not to extend the term of
the Executive's employment, in which case the Executive's employment will
terminate at the end of the term of this Agreement as in effect on the date of
such notice. Any period during which this Agreement is in effect shall be
considered part of the "Employment Term".
3. Compensation and Benefits.
-------------------------
3.1. The Company agrees to pay, and the Executive agrees to accept,
as base compensation for all services to be rendered by the Executive under this
Agreement, a salary of $180,000. per annum (subject to such deductions and
withholdings as may be required by law or by further agreement with the
Executive) (the "Base Salary"), payable in arrears in equal semi-monthly
installments. The Base Salary may be increased from time to time in the
discretion of the Board. Any such increases shall be added to the Base Salary
then being paid to the Executive, and the sum thereof shall then become the Base
Salary for each successive year, until further adjusted in accordance with the
provisions of this Section 3. 1.
3.2. In addition to the Base Salary, subject to the terms and
conditions of the Company's Incentive Compensation Plan (the "Plan"), during the
term of this Agreement, the Executive shall be eligible to participate in the
Plan on terms and conditions no less favorable than those in effect at the date
hereof.
3.3. The Company shall also reimburse the Executive for all
reasonable and necessary expenses incurred by the Executive in connection with
the Employment, including without limitation, travel and lodging expenses, car
phone expenses and charges incurred for business entertainment. Such expenses
shall be reimbursed to the Executive by the Company after the Executive submits
documentation to the Company with respect to the reimbursable expenses incurred
by him.
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<PAGE>
3.4. Additional Benefits. During the Employment Term, the Company
-------------------
shall provide the Executive with an automobile and shall reimburse the Executive
for the costs of automobile insurance and operating expenses attributable to
that automobile, as well as vacation, 401(k) matching, health, medical and
hospitalization, disability insurance and other fringe benefits no less
favorable, in each case, than those being provided to him under the Company's
plan's and arrangements in effect on the date hereof.
4. Termination.
-----------
4.1. The Company may terminate the Executive's employment at any time
for "Cause", in which event the Executive shall have no further rights under
this Agreement, except the right to receive the Base Salary up to the date of
termination by the Company of the Executive's employment hereunder, the right to
receive any vested benefits under any plan or arrangement described in Section
3.4 and the rights specified in Section 6 hereof. The Executive's employment
shall be deemed to have been terminated for "Cause" if his employment is
terminated for: (i) embezzlement, theft, or other misappropriation of any
property of more than nominal value of the Company or any Subsidiary; (ii) the
Executive's neglect of, or failure substantially to perform or comply with, his
duties, responsibilities and obligations as an officer of the Company (other
than any such failure resulting from his incapacity due to physical or mental
illness, as determined by a physician appointed by the Company) after a demand
for substantial performance is delivered to the Executive by the Board of
Directors of the Company which specifically identifies the manner in which such
Board believes that the Executive has not substantially performed his duties and
the Executive fails or refuses to remedy such failure to the reasonable
satisfaction of the Board within ninety (90) days after the receipt of such
notice; (iii) the Executive's willful breach of his restrictive covenants set
forth in this Agreement; (iv) any act which if the subject of a criminal
proceeding could reasonably result in a conviction for a felony; or (v) an act
or acts of dishonesty on the Executive's part intended to result or resulting in
substantial gain or personal enrichment to him at the expense of the Company.
4.2. In the event the Executive's employment is terminated without
"Cause", the Executive shall have the right to receive (a) an amount, equal to
three years' Base Salary, as in effect at the date of termination, plus three
years' anticipated Plan bonus, ("anticipated Plan bonus" for any year shall be
equal to 100% of the average of his bonuses under the Plan for the previous
three (3) years, or the period of his actual employment if shorter), (b)
continuation of the health, hospitalization and medical care benefits in which
the Executive is participating under Section 3.4 on the date of termination, for
three years following the date of such termination , plus (c) any amounts due in
accordance with the terms of the Plan, and (d) all other benefits under Section
3.4 hereof which have accrued as of the date of termination. In addition, the
Executive shall be entitled to participate in awards made under the Plan for the
fiscal
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<PAGE>
year in which the Executive is terminated without "Cause" in amounts
proportionate to the length of time the Executive was employed by the Company in
such fiscal year, and shall be entitled to the payments specified in Section 7.
The three years referred to in (a) and (b) above shall become one year if by
reason of notice given under Section 2, the Agreement expires at the end of the
Employment Term. The amount payable under (a) above shall be paid in a lump sum
within 15 days of the date of the Executive's termination without "Cause."
4.3. In the event of the Executive's death during the Employment
Term, the Employment Term shall terminate automatically as of the date of the
Executive's death, and the Executive's executor, administrator or other legal
representative shall have no further rights hereunder, except the right to
receive (a) the Base Salary up to the date of the Executive's death, (b) any
amounts due under the Plan as of the date of death, including an award for the
year of death proportionate to the length of time the Executive was employed by
the Company in such fiscal year, (c) any other benefits under Section 3.4 which
have accrued as of the date of, or are payable on account of, the Executive's
death and (d) the amounts payable under Section 7 hereof.
4.4. The Executive may terminate this Agreement at any time by giving
the Board written notice of intent to terminate, delivered at least ninety (90)
calendar days prior to the effective date of such termination. In that event,
the Company shall pay the Executive his full Base Salary, at the rate then in
effect, through the effective date of termination, any amounts due but unpaid
under the Incentive Plan, all other benefits under Section 3.4 to which the
Executive has a vested right at that time and the payments to which Executive is
entitled under Section 6 hereof. In the event that the voluntary termination is
for Good Reason, the terms of Section 4.2 shall govern the parties' rights and
obligations hereunder. In addition, provided that the Executive resigns after
June 30 of the relevant fiscal year, the Executive shall be entitled to
participate in awards made under the Incentive Plan for the fiscal year in which
the Executive resigns in amounts proportionate to the length of time the
Executive was employed by the Company in such fiscal year.
4.5. At any time during the term of this Agreement, the Executive may
terminate this Agreement for Good Reason (as defined below) by giving the Board
ninety (90) calendar days written notice of intent to terminate, which notice
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for such termination. Upon termination the Company shall pay and provide
to the Executive the benefits set forth in Section 4.2 hereof (as if the
termination were an involuntary termination without Cause.) "Good Reason" shall
mean, without the Executive's express prior written consent, the occurrence of
any one or more of the following: (i)The assignment of the Executive to duties
materially inconsistent with the Executive's authorities, duties,
responsibilities, and status (including titles and reporting requirements) as an
officer of the Company, or a material reduction or alteration in the
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<PAGE>
nature or status of the Executive's authorities, duties, or responsibilities
from those in effect as of the Effective Date (or as subsequently increased),
other than an insubstantial and inadvertent act that is remedied by the Company
promptly after receipt of notice thereof given by the Executive; (ii) The
Company's requiring the Executive to be based at a location in excess of fifty
(50) miles from the location of the Executive's principal job location or office
as of the Effective Date, except for required travel on the Company's business
to an extent substantially consistent with the Executive's present business
obligations; (iii) A reduction by the Company of the Executive's Base Salary as
in effect on the Effective Date, or as the same shall be increased from time to
time; (iv) An intentional material reduction by the Company of the Executive's
aggregate incentive opportunities under the Company's incentive programs, as
such opportunities exist on the Effective Date, or as such opportunities may be
increased after the Effective Date. For this purpose, a reduction in the
Executive's incentive opportunities shall be deemed to have occurred in the
event his targeted annualized award opportunities and/or the degree of
probability of attainment of such annualized award opportunities, are materially
diminished from the levels and probability of attainment that existed as of the
Effective Date or as such opportunity and/or degree of probability have been
increased from time to time; provided, however, that notwithstanding the
foregoing, the Executive's Incentive opportunities shall not be deemed to have
been materially reduced by the adoption by the Board of any reasonable Company
budget after the Spin-Off; (v) The failure of the Company to maintain the
Executive's relative level of coverage under the Company's employee benefit or
retirement plans, policies, practices, or arrangements in which the Executive
participates as of the Effective Date, both in terms of the amount of benefits
provided and the relative level of the executive's participation. For this
purpose, the Company may eliminate and/or modify existing programs and coverage
levels; provided, however, that the Executive's level of coverage under all such
programs must be at least as great as is such coverage provided to executives
who have the same or lesser levels of reporting responsibilities within the
Company's organization; (vi) The failure of the Company to obtain a satisfactory
agreement from any successor to the Company to assume and agree to perform the
Company's obligations under this Agreement. For this purpose, successor shall
mean the business enterprise(s) resulting from reorganization, merger or
consolidation involving the Company or any subsidiary of the Company or sale or
other disposition of all or substantially all of the assets of the Company.
4.6. If, by reason of any illness, disability or incapacity, the
Executive is unable to perform his duties under this Agreement for a period of
ninety (90) consecutive days (or shorter periods aggregating to one hundred
twenty (120) days in any twelve month period) ("Disability"), the Company may
terminate the Employment Term as of the last day of such ninety (90) or one
hundred twenty (120) day period, as the case may be, or as of such other day
thereafter, provided the Executive remains unable to perform his duties
hereunder. The Executive or his duly appointed
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<PAGE>
representative, if one is appointed, shall be entitled to receive, within sixty
(60) days after the date of such termination, any amounts payable to the
Executive pursuant to this Agreement, including without limitation (i) a share
of any Incentive Plan award for the fiscal year of termination proportionate to
the length of time the Executive was employed by the Company in that fiscal
year, and (ii) the provisions of Article 6.4 hereof applicable in the case of
the Executive's termination by the Company without Cause. Notwithstanding the
foregoing, (i) the Executive shall remain entitled to any benefits to which he
is entitled under the Company's short and long term disability plans on account
of his disability and (ii) if the Executive suffers a Disability and his
employment hereunder is not terminated, the Executive shall be entitled to
receive any amounts owing to him hereunder (including, without limitation, the
additional benefits outlined in Section 3.4), less any disability insurance
payments which Executive is entitled to receive under any plans the premiums of
which are paid for by the Company.
5. Non-Competition and Confidentiality.
------------------------------------
5.1. Covenant Not to Compete. The Executive covenants and agrees
-----------------------
that during the Employment Term and for a period equal in length to the period
taken into account in calculating the amount payable under Section 4.2
thereafter, he will not, directly or indirectly (whether as principal, agent,
proprietor, sales person, employee, consultant, independent contractor, officer,
director, investor, or otherwise), participate in the ownership, management,
operation, or control of, or have any interest of any nature whatsoever in any
organization, corporation, firm, or other business which is engaged in or which
proposes to engage in any business which is in competition with the business now
or hereafter operated and conducted by the Company in any geographic area where
Company has regularly serviced customers during the Employment Term. Without
limiting the foregoing, the Executive agrees that he will not, during the
Employment Term and for a period equal in length to the period taken into
account in calculating the amount payable under Section 4.2 thereafter, directly
or indirectly, divert or take away or attempt to divert or take away, by
soliciting, supplying, serving, advising, or otherwise, any customer or business
entity with which the Company did business during the Employment Term. It will
not be a violation of this provision for Executive to own shares in a widely
traded public company which competes with Company if the investment is passive
and the number of shares held is sufficiently small that Executive cannot
exercise any material influence or control over the management of the public
company.
5.2. Covenant Not to Divulge Confidential Information. The Executive
------------------------------------------------
recognizes and acknowledges that he will, during the course of his employment by
the Company, have access to certain proprietary material and confidential
business information concerning the business and operations of the Company which
are valuable property of a confidential nature and which belong to the Company,
which is not public knowledge. The Executive covenants and agrees that he will
not during the
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<PAGE>
Employment Term or at any time thereafter disclose to any person, except in the
regular course of business of the Company, or use in competition with the
Company any such proprietary material or confidential business information.
6. REPURCHASE OF EQUITY INVESTMENTS. Upon termination of the Executive's
Employment hereunder, the Executive shall be entitled to the following payments:
6.1. Termination Other than for Cause. If the Executive's employment
--------------------------------
is terminated by the Company other than for Cause or is terminated by the
Executive with Good Reason, the Company will pay the Executive, within 15 days
following the Executive's termination, in exchange for (i) the total number of
shares of Common Stock owned by the Executive and (ii) the total number of
shares of Common Stock of the Company for which the Executive holds Regular
Options (as such term is defined in the Executive's Nonqualified Stock Option
Award Agreement (the "Award Agreement")) granted under the Company's 1998 Stock
Option Plan (the "Stock Option Plan"), whether or not vested or exerciseable
(the "Regular Option Shares"):
6.1.1. If the Common Stock of the Company is publicly traded on a
national stock exchange, an amount equal to the product of
the average closing price of the Common Stock on that
exchange for the 10 trading days immediately preceding the
date of the Executive's termination, less, in the case of
Regular Option Shares, the aggregate exercise price for
those Regular Option Shares. Notwithstanding the foregoing,
if the Company's Common Stock is publicly traded, and if at
least 3 years have passed after the Spin-Off, the Executive
shall have the right, in lieu of receiving the payment
described above, to exercise all of the Executive's Options
under the Basic Option Plan and sell the Executive's Common
Stock, including shares acquired by exercise of Options, on
the public exchange, at a time or times selected by the
Executive.
6.1.2. If the Common Stock of the Company is not publicly traded,
the amount to be paid to the Executive shall be determined
by:
6.1.2.1. multiplying 6.1 times the Company's Adjusted
Consolidated EBITDA (as such term is defined in
the Note Purchase Agreement, dated as of October
__, 1998, Between Specialty Products & Insulation
Co., and Irex Corporation (the "Note Purchase
Agreement")) for the four (4) fiscal quarters most
recently ended to determine aggregate value;
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<PAGE>
6.1.2.2. subtracting from the aggregate value as determined
under clause 6.1.2.1, Indebtedness (as such term
is defined in the Note Purchase Agreement) and
adding cash and equivalents, in each case pro
forma as of the end of the most recent fiscal
quarter, to determine equity value;
6.1.2.3. dividing equity value, as determined in clause
6.1.2.2,. by the number of the Company's shares of
Common Stock on a fully diluted basis; and
6.1.2.4. multiplying that result in clause 6.1.2.3 by the
number of the Executive's shares of Common Stock
and Regular Options, provided that the amount
payable with respect to the Regular Options shall
be reduced by the aggregate exercise price for the
Regular Options.
6.1.3. In addition to the payments provided above, any Tranche A
Performance Options or Tranche B Performance Options to
purchase Company Common Stock granted under the Stock Option
Plan shall immediately vest, but shall become exercisable
only in the event of an Evercore Sale or Partial Evercore
Sale, as defined in the Award Agreement, provided that the
relevant IRR targets, as established by the Award Agreement,
are satisfied. When the Executive's Tranche A Performance
Options or Tranche B Performance Options become exercisable
in accordance with the Award Agreement, (a) if the Company's
Common Stock is then publicly traded, the Executive may
exercise those options, or, at the Executive's election,
receive from the Company, in cash, an amount equal to the
difference between the aggregate exercise price for such
Options and the aggregate public trading price of the Common
Stock to be acquired upon exercise of those Options or (b)
if the Company's Common Stock is not publicly traded, the
Executive shall be entitled to be paid an amount equal to
the per share value of the Company's Common Stock,
determined based upon the consideration received by
Evercore, less the option exercise price, multiplied by the
number of shares of Common Stock for which the Executive
holds such Options.
6.2. Termination for Cause. In the event of the Executive's
---------------------
termination of employment for Cause, the Company will pay the Executive, in
exchange for (i) the total number of shares of Common Stock owned by the
Executive and (ii) the total number of Regular Option Shares as defined in
Section 6.1, an amount equal to:
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<PAGE>
6.2.1. With respect to Common Stock, the lesser of the amount
determined under Section 6.1 or the Executive's cost and with
respect to Regular Options Shares granted under the Stock
Option Plan that have vested under the terms of that Plan and
the Award Agreement, the amount determined under Section 6.1
based on an EBITDA multiple of 6.1.
6.2.2. Notwithstanding the foregoing, if the Executive's termination
for "Cause" is on account of conduct specified in Section
4.1(i), (ii), (iii) or (v), all options including vested
Regular Options under the Stock Option Plan shall be forfeited
without payment hereunder.
6.3. Resignation. In the event of the Executive's resignation
-----------
without Good Reason, the Company will pay the Executive, in exchange for (i) the
total number of shares of Common Stock owned by the Executive and (ii) the total
number of Option Shares, an amount equal to:
6.3.1. With respect to Common Stock, and with respect to Regular
Options that have vested under the terms of the Stock Option
Plan and the Award Agreement, the amount determined under
Section 6.1, subject to the election contained therein if the
Common Stock is publicly traded.
6.3.2. With respect to the Tranche A Performance Options and the
Tranche B Performance Options that have vested under the terms
of the Stock Option Plan and the Award Agreement, the amount
determined under the Executive's Award Agreement and to be
payable at the time set forth in Section 6.1.3.
6.4. Death or Disability. In the event of (i) the Executive's
-------------------
death during the Employment Term or (ii) the termination of the Executive's
employment with the Company due to Disability (in accordance with Section 4.6 of
this Agreement), the Company will pay the Executive, in exchange for (i) the
total number of shares of Common Stock owned by the Executive and (ii) the total
number of Option Shares, an amount equal to:
6.4.1. With respect to Common Stock, and with respect to the Regular
Options that have vested under the terms of the Stock Option
Plan and the Award Agreement, the amount determined under
Section 6.1.2, subject to the election contained therein if
the Common Stock is publicly traded;
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<PAGE>
6.4.2. With respect to the Tranche A Performance Options and the
Tranche B Performance Options that have vested under the terms
of the Stock Option Plan and the Award Agreement, the amount
determined under the Executive's Award Agreement and to be
payable at the time set forth in Section 6.1.3.
6.5. Change of Control or Other Corporate Event. If within 12
------------------------------------------
months following the Executive's termination of employment hereunder, other than
for Cause or voluntarily by the Executive without Good Reason, the Company or
Evercore has:
6.5.1. begun substantive negotiations that result in the consummation
of transactions in which substantially all of the stock or
assets or the Company, or Evercore's equity position in the
Company, are sold within eighteen (18) months after
termination; or
6.5.2. an investment banking firm is engaged or performs initial due
diligence in connection with an initial public offering and
that offering is consummated within eighteen (18) months after
termination; then
6.5.3. the amount payable to the Executive under Section 6.1 shall be
recalculated and the Executive shall be entitled to receive
the increase, if any, of the amount that would have been
payable to Executive with respect to his shares of Common
Stock and Basic and Performance Option Shares if he had been
able to participate in any transaction described in 6.5.1 or
6.5.2, over the amount actually paid to Executive under
Section 6.1.
7. Section 280G Limitation. If any benefit or payment from the Company
-----------------------
to the Executive (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise) (a "Payment") shall be
determined to be an "Excess Parachute Payment," as defined in Code section
280G(b)(1), then the aggregate present value of amounts or benefits payable to
Executive pursuant to this Agreement ("Agreement Payments") shall be reduced
(but not below zero) to the Reduced Amount. The "Reduced Amount" shall be the
greater of (i) the highest aggregate present value of Agreement Payments that
can be paid without causing any payments or benefits hereunder to be an Excess
Parachute Payment or (ii) the largest portion, up to and including the total, of
the Agreement Payments that after taking into account all applicable state and
Federal taxes (computed at the highest applicable marginal rate) including any
taxes payable pursuant to Section 4999 of the Code, results in a greater after-
tax benefit to the Executive than the after-tax benefit to the Executive of the
amount calculated under (i) hereof (computed at the highest applicable
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marginal rate). For purposes of this Section 8, present value shall be
determined in accordance with section 280G(d)(4) of the Code.
8. Dispute Resolution. During the Executive's lifetime, any good faith
------------------
dispute or controversy arising under or in connection with this Agreement shall
be settled by arbitration. Upon his death, the executors, administrators or
other legal representatives of the Executive or his estate shall have the right
and option to elect to have any good faith dispute or controversy arising under
or in connection with this Agreement settled by litigation or arbitration. To
the extent that a dispute or controversy is to be settled by arbitration, such
proceeding shall be conducted before a panel of three (3) arbitrators sitting in
a location selected by the Executive (or, after his death, the executors,
administrators or other legal representatives of the Executive or his estate)
within fifty (50) miles from the location of his principal place of employment,
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the award of the arbitrators in any court
having competent jurisdiction. All expenses of such litigation or arbitration,
including the reasonable fees and expenses of the legal representative for the
Executive (or, after his death, the executors, administrators or other legal
representatives of the Executive or his estate), and necessary costs and
disbursements incurred as a result of such dispute or legal proceeding, and any
prejudgment interest, shall be borne by the Company, unless the Company prevails
in such litigation or arbitration, in which case the Executive (or, after his
death, the executors, administrators or other legal representatives of the
Executive or his estate) shall be responsible for the fees and expenses of his
own legal representation.
9. Headings. The section headings of this Agreement are for convenience
--------
of reference only and are not to be considered in the interpretation of the
terms and conditions of this Agreement.
10. Notices. All notices and other communications required or permitted
-------
to be given under this Agreement shall be in writing and shall be deemed to have
been duly given (a) when delivered personally, (b) if sent by telecopy, when
receipt thereof is acknowledged at the telecopy number below, (c) the day
following the day on which the same has been delivered prepaid for overnight
delivery to a national air courier service or (d) three business days following
deposit in the United States Mail, registered or certified, postage prepaid, in
each case, addressed as follows:
If to the Company: Specialty Products and Insulation, Co.
_________________________
_________________________
Attn: ___________________
Telecopy:________________
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with copies to:
Attn:
Telecopy:
If to the Executive:
Attn:
Telecopy:
with a copy to:
Attn:.
Telecopy
Any party may change the persons and address to which notices or other
communications are to be sent by given written notice of such change to the
other party in the manner provided herein for giving notice.
11. Waiver of Breach. No waiver by either party of any condition or of
----------------
the breach by the other of any term or covenant contained in this Agreement,
whether by conduct or otherwise, in any one or more instances shall be deemed or
construed as a further or continuing waiver of any such condition or breach or a
waiver of any other condition, or of the breach of any other term or covenant
set forth in this Agreement. The failure of either party to exercise any right
hereunder shall not bar the later exercise thereof.
12. Binding Nature: Assignment. This Agreement shall inure to the
--------------------------
benefit of and be binding on the parties and their respective successors in
interest, and shall not be assignable by either party without the written
consent of the other; provided that nothing in this Section shall preclude the
Executive from designating a beneficiary to receive any benefit payable
hereunder upon his death, or the executors, administrators or other legal
representatives of the Executive or his estate from assigning any rights
hereunder to which they become entitled to the person or persons entitled
thereto.
13. Governing Law. This Agreement is entered into and shall be construed
-------------
in accordance with the laws of the Commonwealth of Pennsylvania, without giving
effect to conflict of laws principles thereof requiring application of the
substantive laws of another jurisdiction.
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<PAGE>
14. Invalidity or Unenforceability. If any term or provision of this
------------------------------
Agreement is held to be invalid or unenforceable for any reason, such invalidity
or unenforceability shall not affect any other term or provision hereof and this
Agreement shall continue in full force and effect as if such invalid or
unenforceable term or provision (to the extent of the invalidity or
unenforceability) had not been contained herein.
15. Entire Agreement. This Agreement constitutes the full and complete
----------------
understanding and agreement of the Executive and the Company respecting the
subject matter hereof, and supersedes all prior understandings and agreements
concerning the subject matter hereof, oral or written, express or implied. This
Agreement may not be modified or amended orally, but only by an agreement in
writing, signed by the party against whom enforcement of any modification or
amendment is sought.
16. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall be deemed one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
MICHAEL J. HUGHES
____________________________
SPECIALTY PRODUCTS & INSULATION, CO.
By:_________________________
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of ___________,1998, by and
between Specialty Products and Insulation Co. a Pennsylvania with an office at
1097 Commercial Avenue, East Petersburg, PA (the "Company") and _______________
an individual currently residing at ___________________________ (the "Manager").
The parties hereto, intending to be legally bound hereby, and in
consideration of the mutual covenants herein contained, agree as follows:
1. Employment.
----------
1.1. The Company employs the Manager, and the Manager accepts such
employment (the "Employment"), as Vice President - Regional Manager of the
Company. The Manager accepts the employment for the period and on the terms and
conditions set forth in this Agreement and agrees to perform such duties as are
from time to time reasonably assigned to him by the Company and which are
normally associated with the position of a Vice President - Regional Manager.
1.2. During the Employment Term (as defined in Section 2), the
Manager will report directly to the President or any executive officer or
officers designated by the President from time to time.
1.3. During the Employment Term the Manager will devote his best
efforts and full business time, skill and attention to the performance of his
duties on behalf of the Company.
1.4. The Manager's duties under this Agreement shall be performed
from the Company's offices in which the Manager is based on the date of this
Agreement or such other office as the Company shall determine, provided that
such office shall not be more than 50 miles from the Manager's present offices
without the Manager's consent.
2. Term of Employment. Unless earlier terminated pursuant to the
------------------
provisions of Section 4 hereof, the term of the Manager's employment hereunder
shall be for three years from the date hereof. This Agreement shall
automatically renew on the third anniversary of the date of this Agreement, and
on each anniversary thereafter, for a term of one year, unless the Company gives
the Manager sixty (60) days written notice to the contrary. Any period during
which this Agreement is in effect shall be considered part of the "Employment
Term".
<PAGE>
3. Compensation and Benefits.
-------------------------
3.1. The Company agrees to pay, and the Manager agrees to accept, as
base compensation for all services to be rendered by the Manager under this
Agreement, a salary of $________ per annum (subject to such deductions and
withholdings as may be required by law or by further agreement with the Manager)
(the "Base Salary"), payable in arrears in equal semi-monthly installments. The
Base Salary may be increased from time to time in the discretion of the Company.
Any such increases shall be added to the Base Salary then being paid to the
Manager, and the sum thereof shall then become the Base Salary for each
successive year, until further adjusted in accordance with the provisions of
this Section 3. 1.
3.2. In addition to the Base Salary, subject to the terms and
conditions of the Company's Incentive Compensation Plan (the "Plan"), during the
term of this Agreement, the Manager shall be eligible to participate in the Plan
on terms and conditions no less favorable than those in effect at the date
hereof.
3.3. The Company shall also reimburse the Manager for all reasonable
and necessary expenses incurred by the Manager in connection with the
Employment, including without limitation, travel and lodging expenses, car phone
expenses and charges incurred for business entertainment. Such expenses shall
be reimbursed to the Manager by the Company after the Manager submits
documentation to the Company with respect to the reimbursable expenses incurred
by him.
3.4. Additional Benefits. During the Employment Term, the Company
-------------------
shall provide the Manager with an automobile and shall reimburse the Manager for
the costs of automobile insurance and operating expenses attributable to that
automobile, as well as vacation, 401(k) matching, health, medical and
hospitalization, disability insurance and other fringe benefits no less
favorable, in each case, than those being provided to him under the Company's
plan's and arrangements in effect on the date hereof.
4. Termination.
-----------
4.1. The Company may terminate the Manager's employment at any time
for "Cause", in which event the Manager shall have no further rights under this
Agreement, except the right to receive the Base Salary up to the date of
termination by the Company of the Manager's employment hereunder, the right to
receive any vested benefits under any plan or arrangement described in Section
3.4 and the rights specified in Section 6 hereof. The Manager's employment shall
be deemed to have been terminated for "Cause" if his employment is terminated
for: (i) embezzlement, theft, or other misappropriation of any property of more
than nominal value of the Company or any Subsidiary; (ii) the Manager's neglect
of, or failure substantially to perform or comply with, his duties,
responsibilities and obligations as an officer of the
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Company (other than any such failure resulting from his incapacity due to
physical or mental illness, as determined by a physician appointed by the
Company) after a demand for substantial performance is delivered to the Manager
by the Company which specifically identifies the manner in which the Manager has
not substantially performed his duties and the Manager fails or refuses to
remedy such failure to the reasonable satisfaction of the Company within thirty
(30) days after the receipt of such notice; (iii) the Manager's breach of his
restrictive covenants set forth in this Agreement in any material respect; (iv)
any act which if the subject of a criminal proceeding could reasonably result in
a conviction for a felony; or (v) an act or acts of dishonesty on the Manager's
part intended to result or resulting in substantial gain or personal enrichment
to him at the expense of the Company.
4.2. In the event the Manager's employment is terminated without
"Cause", the Manager shall have the right to receive (a) a lump sum amount equal
to the Base Salary, as then in effect, plus his anticipated Incentive Plan
awards, ("anticipated Incentive Plan awards" shall be equal to 100% of the
average of the Managers awards under the Plan for the previous three (3) years,
or the period of his actual employment if shorter), for the greater of the
remainder of the Employment Term, or one year, (b) continuation of the health,
hospitalization and medical care benefits in which the Manager is participating
under Section 3.4 on the date of termination, for the greater of the remainder
of the Employment Term, or one year, plus (c) any amounts due in accordance with
the terms of the Incentive Plan, and (d) all other benefits under Section 3.4
hereof which have accrued as of the date of termination. In addition, the
Manager shall be entitled to participate in awards made under the Incentive Plan
for the fiscal year in which the Manager is terminated without "Cause" in
amounts proportionate to the length of time the Manager was employed by the
Company in such fiscal year, and shall be entitled to the payments specified in
Section 6. The amount payable under (a) above shall be paid in a lump sum
within 15 days of the Manager's termination without "Cause."
4.3. In the event of the Manager's death during the Employment Term,
the Employment Term shall terminate automatically as of the date of the
Manager's death, and the Manager's executor, administrator or other legal
representative shall have no further rights hereunder, except the right to
receive (a) the Base Salary up to the date of the Manager's death, (b) any
amounts due under the Incentive Plan as of the date of death, including an award
for the year of death proportionate to the length of time the Manager was
employed by the Company in such fiscal year, (c) any other benefits under
Section 3.4 which have accrued as of the date of, or are payable on account of,
the Manager's death and (d) the amounts payable under Section 6 hereof.
4.4. The Manager may terminate this Agreement at any time by giving
the Company written notice of intent to terminate, delivered at least ninety
(90) calendar days prior to the effective date of such termination. In that
event, the
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<PAGE>
Company shall pay the Manager his full Base Salary, at the rate then in effect,
through the effective date of termination, any amounts due but unpaid under the
Plan, all other benefits under Section 3.4 to which the Manager has a vested
right at that time and the payments to which Manager is entitled under Section 6
hereof. In the event that the voluntary termination is for Good Reason, the
terms of Section 4.2 shall govern the parties' rights and obligations hereunder.
4.5. At any time during the term of this Agreement, the Manager may
terminate this Agreement for Good Reason (as defined below) by giving the
Company ninety (90) calendar days written notice of intent to terminate, which
notice sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for such termination. Upon termination the Company shall pay and
provide to the Manager the benefits set forth in Section 4.2 hereof (as if the
termination were an involuntary termination without Cause.) "Good Reason" shall
mean, without the Manager's express prior written consent, the occurrence of any
one or more of the following:(i) The assignment of the Manager to duties
materially inconsistent with the Manager's authorities, duties,
responsibilities, or a material reduction or alteration in the nature or status
of the Manager's authorities, duties, or responsibilities from those in effect
as of the Effective Date (or as subsequently increased), other than an
insubstantial and inadvertent act that is remedied by the Company promptly after
receipt of notice thereof given by the Manager;(ii) The Company's requiring the
Manager to be based at a location in excess of fifty (50) miles from the
location of the Manager's principal job location or office as of the Effective
Date, except for required travel on the Company's business to an extent
substantially consistent with the Manager's present business obligations;(iii) A
reduction by the Company of the Manager's Base Salary as in effect on the
Effective Date, or as the same shall be increased from time to time;(iv) An
intentional material reduction by the Company of the Manager's aggregate
incentive opportunities under the Company's incentive programs, as such
opportunities exist on the Effective Date, or as such opportunities may be
increased after the Effective Date. For this purpose, a reduction in the
Manager's incentive opportunities shall be deemed to have occurred in the event
his targeted annualized award opportunities and/or the degree of probability of
attainment of such annualized award opportunities, are materially diminished
from the levels and probability of attainment that existed as of the Effective
Date or as such opportunity and/or degree of probability have been increased
from time to time provided, however, that notwithstanding the foregoing, the
Manager's Incentive opportunities shall not be deemed to have been materially
reduced by the adoption by the Board of any reasonable Company budget;(v) The
failure of the Company to maintain the Manager's relative level of coverage
under the Company's employee benefit or retirement plans, policies, practices,
or arrangements in which the Manager participates as of the Effective Date, both
in terms of the amount of benefits provided and the relative level of the
Manager's participation. For this purpose, the Company may eliminate and/or
modify existing programs and coverage levels; provided, however, that the
Manager's level of coverage under all such programs must
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<PAGE>
be at least as great as is such coverage provided to Managers who have the same
or lesser levels of reporting responsibilities within the Company's
organization;(vi) The failure of the Company to obtain a satisfactory agreement
from any successor to the Company to assume and agree to perform the Company's
obligations under this Agreement. For this purpose, successor shall mean the
business enterprise(s) resulting from reorganization, merger or consolidation
involving the Company or any subsidiary of the Company or sale or other
disposition of all or substantially all of the assets of the Company.
4.6. If, by reason of any illness, disability or incapacity, the
Manager is unable to perform his duties under this Agreement for a period of
sixty (60) consecutive days (or shorter periods aggregating to ninety (90) days
in any twelve month period) ("Disability"), the Company may terminate the
Employment Term as of the last day of such sixty (60) or ninety(90)day period,
as the case may be, or as of such other day thereafter, provided the Manager
remains unable to perform his duties hereunder. The Manager or his duly
appointed representative, if one is appointed, shall be entitled to receive,
within sixty (60) days after the date of such termination, any amounts payable
to the Manager pursuant to this Agreement, including without limitation (i) a
share of any Incentive Plan award for the fiscal year of termination
proportionate to the length of time the Manager was employed by the Company in
that fiscal year, and (ii) the provisions of Article 6.4 hereof applicable in
the case of the Manager's termination by the Company without Cause.
Notwithstanding the foregoing, (i) the Manager shall remain entitled to any
benefits to which he is entitled under the Company's short and long term
disability plans on account of his disability and (ii) if the Manager suffers a
Disability and his employment hereunder is not terminated, the Manager shall be
entitled to receive any amounts owing to him hereunder (including, without
limitation, the additional benefits outlined in Section 3.4), less any
disability insurance payments which Manager is entitled to receive under any
plans the premiums of which are paid for by the Company.
4.7. If the Agreement is not renewed pursuant to Section 2 and the
Manager continues to be employed by the Company as an "at-will" employee, the
Manager shall be entitled to six (6) months of severance benefits following the
subsequent termination of his employment by the Company unless such employment
is terminated for Cause.
5. Non-Competition and Confidentiality.
------------------------------------
5.1. Covenant Not to Compete. The Manager covenants and agrees that
-----------------------
while employed and thereafter for a period equal to (i) if the Manager's
employment is terminated for "Cause" by the Company or is voluntarily terminated
by the Manager, six (6) months, (ii) if the Agreement is not renewed and the
Manager's employment is thereafter terminated by the Company or the Manager for
any reason
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<PAGE>
other than "Cause," one (1) year or (iii) for any termination other than those
described in (i) or (ii), the greatest of (A) the remaining Employment Term, (B)
one year or (C) the period for which the Manager is receiving disability
benefits under any Company provided disability plan, he will not, directly or
indirectly (whether as principal, agent, proprietor, sales person, employee,
consultant, independent contractor, officer, director, investor, or otherwise),
participate in the ownership, management, operation, or control of, or have any
interest of any nature whatsoever in any organization, corporation, firm, or
other business which is engaged in or which proposes to engage in any business
which is in competition with the business now or hereafter operated and
conducted by the Company in any geographic area where Manager has regularly
serviced customers or otherwise regularly provided services to the Company
during the Employment Term. Without limiting the foregoing, the Manager agrees
that he will not, while employed and thereafter for the greater of the remaining
Employment Term or one year, directly or indirectly, divert or take away or
attempt to divert or take away, by soliciting, supplying, serving, advising, or
otherwise, any customer or business entity with which the Manager did business
on the Company's behalf during the Employment Term. It will not be a violation
of this provision for Manager to own shares in a widely traded public company
which competes with Company if the investment is passive and the number of
shares held is sufficiently small that Manager cannot exercise any material
influence or control over the management of the public company.
5.2. Covenant Not to Divulge Confidential Information. The Manager
------------------------------------------------
recognizes and acknowledges that he will, during the course of his employment by
the Company, have access to certain proprietary material and confidential
business information concerning the business and operations of the Company which
are valuable property of a confidential nature and which belong to the Company,
which is not public knowledge. The Manager covenants and agrees that he will
not during the Employment Term or at any time thereafter disclose to any person,
except in the regular course of business of the Company, or use in competition
with the Company any such proprietary material or confidential business
information.
6. REPURCHASE OF EQUITY INVESTMENTS. Upon termination of the Manager's
Employment hereunder, the Manager shall be entitled to the following payments:
6.1. Termination Other than for Cause. If the Manager's employment is
--------------------------------
terminated by the Company other than for Cause or is terminated by the Manager
with Good Reason, the Company will pay the Manager, within 15 days following the
Manager's termination, in exchange for (i) the total number of shares of Common
Stock owned by the Manager and (ii) the total number of shares of Common Stock
of the Company for which the Manager holds Regular Options (as such term is
defined in the Manager's Nonqualified Stock Option Award Agreement (the "Award
Agreement"))
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granted under the Company's 1998 Stock Option Plan (the "Stock Option Plan"),
whether or not vested or exerciseable (the "Regular Option Shares"):
6.1.1. If the Common Stock of the Company is publicly traded on a
national stock exchange, an amount equal to the product of
the average closing price of the Common Stock on that
exchange for the 10 trading days immediately preceding the
date of the Manager's termination, less, in the case of
Regular Option Shares, the aggregate exercise price for
those Regular Option Shares. Notwithstanding the foregoing,
if the Company's Common Stock is publicly traded, and if at
least 3 years have passed after the Spin-Off, the Manager
shall have the right, in lieu of receiving the payment
described above, to exercise all of the Manager's Options
under the Stock Option Plan and sell the Manager's Common
Stock, including shares acquired by exercise of Options, on
the public exchange, at a time or times selected by the
Manager.
6.1.2. If the Common Stock of the Company is not publicly traded,
the amount to be paid to the Manager shall be determined by:
6.1.2.1. multiplying 6.1 times the Company's Adjusted
Consolidated EBITDA (as such term is defined in
the Note Purchase Agreement, dated as of October
__, 1998, Between Specialty Products & Insulation
Co., and Irex Corporation (the "Note Purchase
Agreement")) for the four (4) fiscal quarters most
recently ended by 6.1 to determine aggregate
value;
6.1.2.2. subtracting from the aggregate value as determined
under clause 6.1.2.1, Indebtedness (as such term
is defined in the Note Purchase Agreement) and
adding cash and equivalents, in each case pro
forma as of the end of the most recent fiscal
quarter, to determine equity value;
6.1.2.3. dividing equity value, as determined in clause
6.1.2.2,. by the number of the Company's shares of
Common Stock on a fully diluted basis; and
6.1.2.4. multiplying that result in clause 6.1.2.3 by the
number of the Manager's shares of Common Stock and
Regular Options, provided that the amount payable
with respect to the Regular Options shall be
reduced by the aggregate exercise price for the
Regular Options.
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6.1.3. In addition to the payments provided above, any Tranche A
Performance Options or Tranche B Performance Options to
purchase Company Common Stock granted under the Stock Option
Plan shall immediately vest, but shall become exercisable
only in the event of an Evercore Sale or Partial Evercore
Sale, as defined in the Award Agreement, provided that the
relevant IRR targets, as established by the Award Agreement,
are satisfied. When the Manager's Tranche A Performance
Options or Tranche B Performance Options become exercisable
in accordance with the Award Agreement, (a) if the Company's
Common Stock is then publicly traded, the Manager may
exercise those options, or, at the Manager's election,
receive from the Company, in cash, an amount equal to the
difference between the aggregate exercise price for such
Options and the aggregate public trading price of the Common
Stock to be acquired upon exercise of those Options or (b)
if the Company's Common Stock is not publicly traded, the
Manager shall be entitled to be paid an amount equal to the
per share value of the Company's Common Stock, determined
based upon the consideration received by Evercore, less the
option exercise price, multiplied by the number of shares of
Common Stock for which the Manager holds such Options.
6.2. Termination for Cause. In the event of the Manager's
---------------------
termination of employment for Cause, the Company will pay the Manager, in
exchange for (i) the total number of shares of Common Stock owned by the Manager
and (ii) the total number of Regular Option Shares as defined in Section 6.1, an
amount equal to:
6.2.1. With respect to Common Stock, the lesser of the amount
determined under Section 6.1 or the Manager's cost and with
respect to Regular Options Shares granted under the Stock
Option Plan that have vested under the terms of that Plan
and the Award Agreement, the amount determined under Section
6.1 based on an EBITDA multiple of 6.1.
6.2.2. Notwithstanding the foregoing, if the Manager's termination
for "Cause" is on account of conduct specified in Section
4.1(i), (ii), (iii) or (v), all options including vested
Regular Options under the Stock Option Plan shall be
forfeited without payment hereunder.
6.3. Resignation. In the event of the Manager's resignation
-----------
without Good Reason, the Company will pay the Manager, in exchange for (i) the
total number
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of shares of Common Stock owned by the Manager and (ii) the total number of
Option Shares, an amount equal to:
6.3.1. With respect to Common Stock, and with respect to Regular
Options that have vested under the terms of the Stock Option
Plan and the Award Agreement, the amount determined under
Section 6.1, subject to the election contained therein if
the Common Stock is publicly traded.
6.3.2. With respect to the Tranche A Performance Options and the
Tranche B Performance Options that have vested under the
terms of the Stock Option Plan and the Award Agreement, the
amount determined under the Manager's Award Agreement and to
be payable at the time set forth in Section 6.1.3.
6.4. Death or Disability. In the event of (i) the Manager's
-------------------
death during the Employment Term or (ii) the termination of the Manager's
employment with the Company due to Disability (in accordance with Section 4.6 of
this Agreement), the Company will pay the Manager, in exchange for (i) the total
number of shares of Common Stock owned by the Manager and (ii) the total number
of Option Shares, an amount equal to:
6.4.1. With respect to Common Stock, and with respect to the
Regular Options that have vested under the terms of the
Stock Option Plan and the Award Agreement, the amount
determined under Section 6.1.2, subject to the election
contained therein if the Common Stock is publicly traded;
6.4.2. With respect to the Tranche A Performance Options and the
Tranche B Performance Options that have vested under the
terms of the Stock Option Plan and the Award Agreement, the
amount determined under the Manager's Award Agreement and to
be payable at the time set forth in Section 6.1.3.
7. Section 280G Limitation. If any benefit or payment from the Company
-----------------------
to the Manager (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise) (a "Payment") shall be determined
to be an "Excess Parachute Payment," as defined in Code section 280G(b)(1), then
the aggregate present value of amounts or benefits payable to Manager pursuant
to this Agreement ("Agreement Payments") shall be reduced (but not below zero)
to the Reduced Amount. The "Reduced Amount" shall be the greater of (i) the
highest aggregate present value of Agreement Payments that can be paid without
causing any payments or benefits hereunder to be an Excess Parachute Payment or
(ii) the largest
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portion, up to and including the total, of the Agreement Payments that after
taking into account all applicable state and Federal taxes (computed at the
highest applicable marginal rate) including any taxes payable pursuant to
Section 4999 of the Code, results in a greater after-tax benefit to the Manager
than the after-tax benefit to the Manager of the amount calculated under (i)
hereof (computed at the highest applicable marginal rate). For purposes of this
Section 8, present value shall be determined in accordance with section
280G(d)(4) of the Code.
8. DISPUTE RESOLUTION. During the Manager's lifetime, any good faith
dispute or controversy arising under or in connection with this Agreement shall
be settled by arbitration. Upon his death, the executors, administrators or
other legal representatives of the Manager or his estate shall have the right
and option to elect to have any good faith dispute or controversy arising under
or in connection with this Agreement settled by litigation or arbitration. To
the extent that a dispute or controversy is to be settled by arbitration, such
proceeding shall be conducted before a panel of three (3) arbitrators sitting in
a location selected by the Manager (or, after his death, the executors,
administrators or other legal representatives of the Manager or his estate)
within fifty (50) miles from the location of his principal place of employment,
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the award of the arbitrators in any court
having competent jurisdiction. All expenses of such litigation or arbitration,
including the reasonable fees and expenses of the legal representative for the
Manager (or, after his death, the executors, administrators or other legal
representatives of the Manager or his estate), and necessary costs and
disbursements incurred as a result of such dispute or legal proceeding, and any
prejudgment interest, shall be borne by the Company, unless the Company prevails
in such litigation or arbitration, in which case the Manager (or, after his
death, the executors, administrators or other legal representatives of the
Manager or his estate) shall be responsible for the fees and expenses of his
own legal representation.
9. Headings. The section headings of this Agreement are for convenience
--------
of reference only and are not to be considered in the interpretation of the
terms and conditions of this Agreement.
10. Notices. All notices and other communications required or permitted
-------
to be given under this Agreement shall be in writing and shall be deemed to have
been duly given (a) when delivered personally, (b) if sent by telecopy, when
receipt thereof is acknowledged at the telecopy number below, (c) the day
following the day on which the same has been delivered prepaid for overnight
delivery to a national air courier service or (d) three business days following
deposit in the United States Mail, registered or certified, postage prepaid, in
each case, addressed as follows:
-10-
<PAGE>
If to the Company: Specialty Products and Insulation, Co.
1097 Commercial Avenue
East Petersburg, PA
Attn: Ronald L. King, President
Telecopy:________________
If to the Manager:
Attn:
Telecopy:
Any party may change the persons and address to which notices or other
communications are to be sent by given written notice of such change to the
other party in the manner provided herein for giving notice.
11. Waiver of Breach. No waiver by either party of any condition or of
----------------
the breach by the other of any term or covenant contained in this Agreement,
whether by conduct or otherwise, in any one or more instances shall be deemed or
construed as a further or continuing waiver of any such condition or breach or a
waiver of any other condition, or of the breach of any other term or covenant
set forth in this Agreement. The failure of either party to exercise any right
hereunder shall not bar the later exercise thereof.
12. Binding Nature: Assignment. This Agreement shall inure to the benefit
--------------------------
of and be binding on the parties and their respective successors in interest,
and shall not be assignable by either party without the written consent of the
other; provided that nothing in this Section shall preclude the Manager from
designating a beneficiary to receive any benefit payable hereunder upon his
death, or the executors, administrators or other legal representatives of the
Manager or his estate from assigning any rights hereunder to which they become
entitled to the person or persons entitled thereto.
13. Governing Law. This Agreement is entered into and shall be construed
-------------
in accordance with the laws of the Commonwealth of Pennsylvania, without giving
effect to conflict of laws principles thereof requiring application of the
substantive laws of another jurisdiction.
14. Invalidity or Unenforceability. If any term or provision of this
------------------------------
Agreement is held to be invalid or unenforceable for any reason, such invalidity
or unenforceability shall not affect any other term or provision hereof and this
Agreement shall continue in full force and effect as if such invalid or
unenforceable term or provision (to the extent of the invalidity or
unenforceability) had not been contained herein.
-11-
<PAGE>
15. Entire Agreement. This Agreement constitutes the full and complete
----------------
understanding and agreement of the Manager and the Company respecting
the subject matter hereof, and supersedes all prior understandings and
agreements concerning the subject matter hereof, oral or written, express or
implied. This Agreement may not be modified or amended orally, but only by an
agreement in writing, signed by the party against whom enforcement of any
modification or amendment is sought.
16. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall be deemed one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
_______________
_____________________________
SPECIALTY PRODUCTS & INSULATION, CO.
By:_____________________________
-12-
<PAGE>
EXHIBIT 10.8
[Draft: (NEW YORK) October 17, 1998]
================================================================================
NOTE PURCHASE AGREEMENT
Dated as of November __, 1998
By and Among
SPECIALTY PRODUCTS & INSULATION CO.,
EVERCORE CAPITAL PARTNERS L.P.,
EVERCORE CAPITAL PARTNERS (NQ) L.P.,
And
EVERCORE CAPITAL OFFSHORE PARTNERS L.P.
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS............................................... 1
(S)1. Definitions............................................... 1
ARTICLE II THE COMMITMENTS........................................... 9
(S)2.01 The Commitments........................................... 9
(S)2.02 Minimum Amount of Each Purchase........................... 9
(S)2.03 Notes Issuable............................................ 9
(S)2.04 Pro Rata Borrowings....................................... 10
(S)2.05 Reduction of Commitments on Expiration of Commitment
Period................................................... 10
(S)2.06 Reduction of Commitments upon Redemption of Notes......... 10
(S)2.07 Use of Proceeds........................................... 10
(S)2.08 Approval of Acquisition................................... 11
(S)2.09 Election Notice........................................... 11
(S)2.10 Initial Notice of Borrowing............................... 12
(S)2.11 Notice of Borrowing....................................... 13
(S)2.12 Purchaser Acknowledgment.................................. 14
ARTICLE III THE NOTES................................................. 14
(S)3.01 Form and Dating........................................... 14
(S)3.02 Execution................................................. 14
(S)3.03 Registrar and Paying Agent................................ 14
(S)3.04 Transfer and Exchange..................................... 15
(S)3.05 Replacement Securities.................................... 15
(S)3.06 Outstanding Securities.................................... 16
(S)3.07 Treasury Notes............................................ 16
(S)3.08 Cancellation.............................................. 16
(S)3.09 Deposit of Moneys......................................... 16
(S)3.10 Restrictive Legends....................................... 16
(S)3.11 Persons Deemed Owners..................................... 17
(S)3.12 Record Date............................................... 17
ARTICLE IV ISSUANCE AND SALE OF INITIAL NOTES........................ 17
(S)4.01 Issuance and Sale of Initial Notes........................ 17
(S)4.02 Price..................................................... 17
(S)4.03 Closing................................................... 17
ARTICLE V ISSUANCE AND SALE OF STANDBY NOTES........................ 18
(S)5.01 Issuance and Sale of Standby Notes........................ 18
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(S)5.02 Price..................................................... 18
ARTICLE VI REDEMPTION................................................ 18
(S)6.01 Notices to Holders........................................ 18
(S)6.02 Selection of Notes To Be Redeemed......................... 18
(S)6.03 Notice of Redemption...................................... 19
(S)6.04 Effect of Notice of Redemption............................ 19
(S)6.05 Deposit of Redemption Price............................... 20
(S)6.06 Securities Redeemed in Part............................... 20
ARTICLE VII REPRESENTATIONS OF THE COMPANY............................ 20
(S) 7.01 Representations of the Company............................ 20
(S) 7.02 Representations of Each Purchaser......................... 22
ARTICLE VIII COVENANTS................................................. 24
(S)8.01 Payment of Notes.......................................... 24
(S)8.02 Reports................................................... 25
(S)8.03 Limitation on Dividends................................... 25
(S)8.04 Leverage.................................................. 25
(S)8.05 Limitation on Affiliate Transactions...................... 25
(S)8.06 Change of Control......................................... 26
(S)8.07 Further Instruments and Acts.............................. 27
(S)8.08 Taxes..................................................... 27
(S)8.09 Stay, Extension and Usury Laws............................ 27
(S)8.10 Corporate Existence....................................... 27
ARTICLE IX CONDITIONS PRECEDENT...................................... 27
(S)9.01 Conditions to Issuance and Sale of Initial Notes.......... 27
(S)9.02 Conditions to Issuance and Sale of Stand-By Notes......... 28
(S)9.03 Conditions Deemed Satisfied Under Certain Circumstances... 29
ARTICLE X DEFAULTS AND REMEDIES..................................... 29
(S)10.01 Events of Default......................................... 29
(S)10.02 Acceleration.............................................. 31
(S)10.03 Other Remedies............................................ 31
(S)10.04 Waiver of Past Defaults................................... 32
(S)10.05 Rights of Holders to Receive Payment...................... 32
ARTICLE XI SUBORDINATION............................................. 32
(S)11.01 Securities Subordinated to Senior Indebtedness............ 32
(S)11.02 No Payment on Notes in Certain Circumstances.............. 32
(S)11.03 Notes Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or
Reorganization of the Company............................ 33
(S)11.04 Payee to Be Subrogated to Rights of Holders of Senior
Indebtedness............................................. 35
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
(S)11.05 Obligations of the Company Unconditional................. 35
(S)11.06 Subordination Rights Not Impaired by Acts or Omissions
of the Company or Holders of Senior Indebtedness........ 36
(S)11.07 Article XI Not to Prevent Events of Default.............. 36
ARTICLE XII INDENTURE................................................ 36
(S)12.01 Indenture................................................ 36
ARTICLE XIII AMENDMENTS............................................... 36
(S)13.01 Without Consent of Holders............................... 36
(S)13.02 With Consent of Holders.................................. 37
(S)13.03 Revocation and Effect of Consents and Waivers............ 38
ARTICLE XIV MISCELLANEOUS............................................ 38
(S)14.01 Governing Law............................................ 38
(S)14.02 Jurisdiction; Agents for Service of Process.............. 38
(S)14.03 Captions................................................. 39
(S)14.04 Notices.................................................. 39
(S)14.05 Parties in Interest...................................... 39
(S)14.06 Counterparts............................................. 39
(S)14.07 Entire Agreement......................................... 39
(S)14.08 Severability............................................. 39
</TABLE>
EXHIBIT A Commitments
EXHIBIT B-1 Form of Initial Notice of Borrowing
EXHIBIT B-2 Form of Notice of Borrowing
EXHIBIT C Form of Acknowledgment
EXHIBIT D-1 Form of Tranche A Note
EXHIBIT D-2 Form of Tranche B Note
EXHIBIT D-3 Form of Tranche C Note
(iii)
<PAGE>
NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT (this "Agreement") dated as of November __,
1998, by and among SPECIALTY PRODUCTS & INSULATION CO., a Pennsylvania
corporation (the "Company") and EVERCORE CAPITAL PARTNERS L.P., EVERCORE CAPITAL
PARTNERS (NQ) L.P., and EVERCORE CAPITAL OFFSHORE PARTNERS L.P. (collectively
"Purchasers").
W I T N E S S E T H :
--------------------
WHEREAS, Irex Corporation, the Company and Purchasers are party to
that certain Stock Subscription Agreement, dated as of October __, 1998 (the
"Subscription Agreement"); and
WHEREAS, the execution and delivery of this Agreement is a condition
to the obligations of each of Irex Corporation, the Company and Purchasers under
the Subscription Agreement; and
WHEREAS, Purchasers wish to purchase and the Company wishes to issue
and sell $3,500,000 in aggregate principal amount of its Adjustable Rate Junior
Subordinated Pay-in-Kind Notes due 2007 and Purchasers wish to enter into a
commitment to purchase up to an aggregate of an additional $20,000,000 principal
amount of the Company's Adjustable Rate Junior Subordinated Pay-in-Kind Notes
due 2007, all on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, IT IS AGREED:
ARTICLE I
DEFINITIONS
-----------
(S)1. Definitions. When used in this Agreement, the following terms
-----------
shall have the respective meanings specified therefor below (such meanings to be
equally applicable to both the singular and plural forms of the terms defined).
"Acquisition Cost" shall mean, (a) with respect to any Approved
----------------
Acquisition which is accomplished through the acquisition of equity interests in
a Related Business, the aggregate cash purchase price paid for such equity
interests, plus the documented fees, costs and expenses incurred in consummating
such Approved Acquisition, plus the amount of Indebtedness assumed in connection
with such Approved Acquisition, plus the present value of all payments
associated with non-competition arrangements and earn-out obligations entered
into in connection with such Approved Acquisition, and (b) with respect to any
Approved Acquisition which is accomplished through the acquisition of assets
constituting a Related Business, the aggregate cash
<PAGE>
purchase price paid for such assets, plus the documented fees, costs and
expenses incurred in consummating such Approved Acquisition, plus the amount of
Indebtedness assumed in connection with such Approved Acquisition, plus the
present value of all payments associated with non-competition arrangements and
earn-out obligations entered into in connection with such Approved Acquisition,
minus all liabilities of the Related Business assumed by the Company or its
subsidiaries in connection with an Approved Acquisition, plus (or minus) an
amount equal to the amount by which the acquired net working capital assets of
the Related Business on the relevant Approved Acquisition Closing Date are less
than (or greater than) the Normalized Working Capital of such Related Business.
"Additional Notes" shall mean the Additional Tranche A Notes, the
----------------
Additional Tranche B Notes and/or the Additional Tranche C Notes, as the context
may require.
"Additional Tranche A Notes" shall mean any additional Tranche A Notes
--------------------------
issued in lieu of cash interest on the Tranche A Notes.
"Additional Tranche B Notes" shall mean any additional Tranche B Notes
--------------------------
issued in lieu of cash interest on the Tranche B Notes.
"Additional Tranche C Notes" shall mean any additional Tranche C Notes
--------------------------
issued in lieu of cash interest on the Tranche C Notes.
"Adjusted Consolidated EBITDA" means, with respect to any period of
----------------------------
time, the sum of (i) Consolidated EBITDA, (ii) with respect to any Related
Business acquired by the Company (including, but not limited to, any Approved
Acquisition) the EBITDA of such Related Business for such period of time or such
shorter period, as appropriate, which begins on the first day of the relevant
period of time and ends on the last day of the full fiscal quarter preceding the
date of the acquisition of such Related Business and (iii) the Pro Form
Adjustments.
"Affiliate" of any Person shall mean any Person directly or indirectly
---------
controlling, controlled by, or under common control with, such Person; provided
--------
that, for the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or partnership interests, by contract or otherwise.
"Affiliate Transaction" shall have the meaning assigned to such term
---------------------
in Section 8.05.
"Agent" shall mean the Paying Agent, the Registrar, and any co-paying
-----
agent or co-registrar.
"Agreement" shall have the meaning assigned to such term in the
---------
preamble hereto.
"Approved Acquisition" shall mean the acquisition of a Person,
--------------------
division of a Person or a collection of assets which are engaged or utilizable
in a Related Business (whether by
-2-
<PAGE>
acquisition of stock or assets, merger, consolidation, recapitalization or
otherwise), which such acquisition has been approved expressly in writing by
Purchasers in their sole discretion (subject to the provisions of Section 2.06
of this Agreement).
"Approved Acquisition Closing Date" shall mean the date on which an
---------------------------------
Approved Acquisition is consummated.
"Bankruptcy Event" shall have the meaning assigned to such term in
----------------
Section 11.03.
"Bankruptcy Law" shall mean Title 11, United States Code, as amended,
--------------
or any similar United States federal or state law relating to bankruptcy,
insolvency, receivership, winding-up, liquidation, reorganization or relief of
debtors or any amendment to, succession to or change in any such law.
"Borrowing" shall mean (x) the issuance and sale of the Initial Notes
---------
or (y) the issuance and sale of Stand-By Notes pursuant to this Agreement in
connection with an Approved Acquisition.
A "business day" shall mean any day, other than a Saturday, Sunday or
------------
a day on which banks located in New York, New York shall be authorized or
required by law to close.
"Calculation Date" shall mean each of [September 30, 1999], [September
----------------
30, 2000], and [September 30, 2001].
"Change of Control" shall mean the occurrence of any of the following
-----------------
events: (a) any sale, lease, exchange or other transfer (collectively, a
"Transfer") (in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company and its subsidiaries; or (b) the
acquisition by any Person or group of related or affiliated Persons (other than
Purchasers) of the power, directly or indirectly, to vote or direct the voting
of securities having more than 35% of the ordinary voting power for the election
of directors of the Company or of any direct or indirect holding company
thereof; provided that no Change of Control shall be deemed to occur pursuant to
this clause (b), so long as Purchasers own an amount of securities representing
a greater portion of such ordinary voting power than such Person or group of
related or affiliated Persons.
"Closing" shall have the meaning assigned to such term in Section
-------
4.03.
"Closing Date" shall have the meaning assigned to such term in Section
------------
4.03.
"Commission" shall mean the United States Securities and Exchange
----------
Commission or any other Federal agency administering the Securities Act of 1933,
as amended, the Exchange Act of 1934, as amended, and other Federal securities
laws.
"Commitment" shall mean with respect to any Purchaser, at any time the
----------
amount set forth opposite such Purchaser's name on Exhibit A hereto.
---------
-3-
<PAGE>
"Commitment Period" shall mean the period from the Closing Date until
-----------------
[September 30, 2001].
"Company" shall have the meaning assigned to such term in the preamble
-------
hereto.
"Condition" of any Person shall mean the business, assets,
---------
liabilities, operations, results of operations or condition (financial or
otherwise) of such Person.
"Consolidated EBITDA" shall mean, with respect to the Company and its
-------------------
subsidiaries for any period, EBITDA for the Company and its subsidiaries
determined in accordance with U.S. generally accepted accounting principles for
the period in question; provided, that the Consolidated EBITDA of the Company
for each of the four fiscal quarters immediately preceding the Closing Date
shall be deemed to be the amount set forth on Schedule I attached hereto.
----------
"Consolidated Indebtedness" shall mean the aggregate Indebtedness of
-------------------------
the Company and its subsidiaries on a consolidated basis, determined in
accordance with generally accepted accounting principals.
"Credit Agreement" shall mean [to come]
----------------
"Custodian" shall have the meaning assigned to such term in Section
---------
10.01.
"Default" shall mean any event that is, or after notice or passage of
-------
time or both, would be, an Event of Default.
"Drawing Date" shall mean each of [October 31, 1999], [October 31,
------------
2000] and [October 31, 2001], or, if any such day is not a business day, the
immediately preceding business day.
"EBITDA" shall mean, with respect to any Person for any period, the
------
sum, of (a) net income (or net loss), (b) interest expense, (c) income tax
expense, (d) depreciation expense, (e) amortization expense, and (f)
extraordinary or unusual losses deducted in calculating net income, minus
extraordinary or unusual gains included in calculating net income, in each case
for such Person determined in accordance with U.S. generally accepted accounting
principles for the period in question.
"Event of Default" shall have the meaning assigned to such term in
----------------
Section 10.01.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
-----------
amended, and the rules and regulations promulgated thereunder.
"Holder" shall mean the Purchasers and any transferee of any Note
------
pursuant to the terms of this Agreement.
"Indebtedness" shall mean, as to any Person, without duplication, (i)
------------
all indebtedness (including principal, interest, fees penalties and charges) of
such Person for borrowed money or for the deferred purchase price of property or
services evidenced by notes or other written obli-
-4-
<PAGE>
gations, (ii) the face amount of all letters of credit issued for the account of
such Person and all drafts drawn thereunder, (iii) the aggregate amount required
to be capitalized under leases with respect to which such Person is the lessee,
(iv) Indebtedness of other Persons assumed or guaranteed by such Person and (v)
renewals, extensions and refundings of such Indebtedness.
"Interest Payment Date" shall mean [March 31] and [September 30] of
---------------------
each year.
"Interest Rate" shall mean the Tranche A Rate, the Tranche B Rate or
-------------
the Tranche C Rate, as the case may be.
"Initial Notes" shall mean $3,500,000 aggregate principal amount of
-------------
Tranche A Notes, which such Tranche A Notes shall be issued and sold by the
Company and purchased by the Purchasers on the Closing Date.
"Initial Notice of Borrowing" shall have the meaning assigned to such
---------------------------
term in Section 2.10.
"Maturity Date" shall mean March 30, 2007.
-------------
"Net Funded Indebtedness" shall mean all Indebtedness of the Company
-----------------------
and its subsidiaries on a consolidated basis under the Credit Agreement minus
all cash and cash equivalents of the Company and its subsidiaries on a
consolidated basis.
"Normalized Working Capital" shall mean, with respect to any Person as
--------------------------
of any date, the average level of net working capital of such Person during the
four full fiscal quarters immediately preceding such determination date.
"Notes" shall mean the Adjustable Rate Junior Subordinated Pay-in-Kind
-----
Notes issued by the Company pursuant to this Agreement and shall include the
Tranche A Notes, the Tranche B Notes, the Tranche C Notes and any Additional
Notes issued in respect of any of them.
"Notice of Borrowing" shall have the meaning assigned to such term in
-------------------
Section 2.11.
"Paying Agent" shall have the meaning assigned to such term in Section
------------
3.03.
"Payment Blockage Period" shall have the meaning assigned to such term
-----------------------
in Section 11.02.
"Payment Default" shall have the meaning assigned to such term in
---------------
Section 11.02.
"Payment Notice" shall have the meaning assigned to such term in
--------------
Section 11.02.
"Person" shall mean and include an individual, a partnership, a joint
------
venture, a corporation, a limited liability company, a limited liability
partnership, a trust, an incorporated organization and a government or any
department or agency thereof.
-5-
<PAGE>
"Private Placement Legend" shall have the meaning assigned to such
------------------------
term in Section 3.10.
"Pro Forma Adjustments" means (i) any adjustments certified by the
---------------------
chief financial officer of the Company that would, in the reasonable
determination of the Company, satisfy the requirements of Rule 11-02(a) of
Regulation S-X of the Securities Act of 1933, as amended, if included in a
registration statement filed with the Commission and (ii) any other operating
expense reductions reasonably expected to result from the acquisition of a
Related Business, if such reductions are (1) set forth in reasonable detail in a
plan approved by and set forth in resolutions adopted by the Board of Directors
of the Company, and (2) limited to operating expenses specified in such plan
(and if any reductions are set forth in a range, the lowest amount of such
range) that would otherwise have resulted in the payment of cash within twelve
months after the date of the consummation of such transaction, net of any
operating expenses (other than extraordinary items, non-recurring or temporary
charges and other, similar one-time expenses) reasonably expected to be incurred
to implement such plan and that are to be paid in cash during such twelve-month
period, certified by the chief financial officer of the Company.
"Purchasers" shall have the meaning assigned to such term in the
----------
preamble hereto.
"Record Date" shall mean [March 15] and [September 15] of each year.
-----------
"Redemption Date" when used with respect to any Note, means the date
---------------
for the redemption of such Note pursuant to this Agreement and the notes by a
notice delivered pursuant to the terms of Section 4.01 of this Agreement.
"Registrar" shall have the meaning assigned to such term in Section
---------
3.03.
"Related Business" shall mean the business of (a) distributing and/or
----------------
fabricating mechanical insulation, architectural/acoustical products and related
specialty products to commercial and industrial end-users, (b) offering
customized fabrication, export and other value-added services related to such
products or (c) any other complementary business which is approved by the
Company's Board of Directors in its reasonable discretion.
"Residual Commitment Period" shall mean the Tranche B Commitment
--------------------------
Period and Tranche C Commitment Period.
"Residual Tranche Closing Date" shall mean [November 20, 2001].
-----------------------------
"Restricted Security" shall have the meaning assigned to such term in
-------------------
Rule 144(a)(3) under the Securities Act of 1933, as amended.
"Senior Indebtedness" shall mean any Indebtedness of the Company
-------------------
(including, but not limited to, (x) any Indebtedness under the Credit Agreement
and any related fees and other obligations thereunder and (y) any interest
accruing subsequent to the filing of a petition for bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law), whether outstanding on the
date of this Agreement or the issue date of any Note or hereafter created,
incurred or assumed, unless, in the
-6-
<PAGE>
case of any particular Indebtedness, the instrument creating or evidencing the
same or pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes.
Notwithstanding the foregoing, Senior Indebtedness shall not include any of the
following amounts (whether or not constituting Indebtedness as defined in this
Agreement), (i) any Indebtedness of the Company to a subsidiary or Affiliate of
the Company, (ii) Indebtedness to, or guaranteed by the Company on behalf of,
any director, officer or employee of the Company or any subsidiary (including,
without limitation, amounts owed for compensation), (iii) Indebtedness and other
amounts owing to trade creditors incurred in connection with obtaining goods,
materials or services, (iv) any liability for federal, state, local or other
taxes owed or owing by the Company and (v) any Indebtedness which is, by its
express terms, subordinated in right of payment to any other Indebtedness of the
Company; provided, that, with respect to the obligation of the Company in
respect of any Note, the obligation of the Company in respect of all other Notes
shall be pari passu.
---- -----
"Stand-By Closing Date" shall mean a Tranche A Closing Date or the
---------------------
Residual Tranche Closing Date as the case may be.
"Stand-By Notes" shall mean all Notes which are not Initial Notes or
--------------
Additional Notes.
"Subscription Agreement" shall have the meaning assigned to such term
----------------------
in the first recital hereto.
"Subsequent PIK Election" shall have the meaning assigned to such
-----------------------
terms in Section 8.01.
"subsidiary" shall have the meaning assigned to such term in Section
----------
7.03.
"Total Unallocated Amount" shall have the meaning assigned to such
------------------------
term in Section 2.11.
"Tranche A Closing Date" shall mean each of [November 20, 1999], and
----------------------
[November 20, 2000].
"Tranche A Commitment" with respect to any Purchaser as of any date,
--------------------
shall mean the amount of such Purchaser's Commitment, as such Tranche A
Commitment shall be reduced from time to time under Sections 2.05 and 2.06 of
this Agreement.
"Tranche A Commitment Period" shall mean the period commencing on the
---------------------------
Closing Date and ending on and including [September 30, 2000].
"Tranche A Notes" shall mean those Notes issued by the Company and
---------------
purchased by the Purchaser pursuant to the Tranche A Commitments.
"Tranche A Rate" shall mean 11.00% per annum.
--------------
-7-
<PAGE>
"Tranche B Allocation" shall have the meaning assigned to such term
--------------------
in Section 2.11.
"Tranche B Commitment" with respect to any Purchaser as of any date
---------------------
shall mean the amount of such Purchaser's Commitment minus the aggregate
principal amount of Tranche A Notes (other than Tranche A Notes which constitute
Additional Notes) purchased by such Purchaser pursuant to the terms of this
Agreement which are issued and outstanding on such date, as such Tranche B
Commitment shall be reduced from time to time under Sections 2.05 and 2.06 of
this Agreement.
"Tranche B Commitment Period" shall mean the period commencing on
---------------------------
[October 1, 2000], and ending on and including [March 31, 2001].
"Tranche B Notes" shall mean those Notes issued by the Company and
---------------
purchased by the Purchaser pursuant to the Tranche B Commitments.
"Tranche B Rate" shall mean 12.00% per annum, plus the Treasury
--------------
Spread.
"Tranche B Unallocated Amount" shall have the meaning assigned to such
----------------------------
term in Section 2.11.
"Tranche C Commitment" with respect to any Purchaser, as of any date,
--------------------
shall mean the amount of such Purchaser's Commitment minus the sum of (x) the
aggregate principal amount of Tranche A Notes (other than Tranche A Notes which
constitute Additional Notes) purchased by such Purchaser pursuant to the terms
of this Agreement which are issued and outstanding on such date and (y) the
aggregate principal amount of Tranche B Notes (other than Tranche B Notes which
constitute Additional Notes) purchased by such Purchaser pursuant to the terms
of this Agreement which are issued and outstanding on such date, as such Tranche
C Commitment shall be reduced from time to time under Sections 2.05 and 2.06 of
this Agreement.
"Tranche C Commitment Period" shall mean the period commencing on
---------------------------
[April 1, 2001], and ending on and including [September 30, 2001].
"Tranche C Notes" shall mean those Notes issued by the Company and
---------------
purchased by the Purchaser pursuant to the Tranche C Commitments.
"Tranche C Rate" shall mean 13.00% per annum, plus the Treasury
--------------
Spread.
"Treasury Spread" shall mean the difference, if any, between (a) the
---------------
difference between (i) 11.00% per annum and (ii) the Yield for United States
Treasury Notes with a maturity of seven years on [March 31, 2001] ( with respect
to the Tranche B Notes), or [September 30, 2001] (with respect to the Tranche C
Notes), and (b) the difference between (i) 11.00% per annum and (ii) the Yield
for United States Treasury Notes with a maturity of seven years on the Closing
Date.
"Yield" with respect to any United States Treasury Notes as of any
-----
determination date, shall mean the mean yield of such United States Treasury
Notes for the five trading days
-8-
<PAGE>
ending on and including the third trading day preceding such determination date,
as determined from daily yields published by the Federal Reserve Bank of New
York or, if no such publication is available, the average of the yield
quotations for such period for United States Treasury Notes of the appropriate
maturity as of 3:00 PM New York City time, received by the Purchaser from New
York dealers of United States Treasury Notes of recognized standing.
ARTICLE II
THE COMMITMENTS
---------------
(S)2.01 The Commitments. (a) The Tranche A Commitment. Subject to
--------------- ------------------------
and upon the terms and conditions set forth herein, each Purchaser severally
(and not jointly) agrees on the Closing Date and/or each Tranche A Closing Date
to purchase Tranche A Notes from the Company at a purchase price equal to 100%
of the aggregate principal amount of the Tranche A Notes so purchased; provided,
however, that the aggregate principal amount of Tranche A Notes (other than
Tranche A Notes which constitute Additional Notes) so purchased by any Purchaser
shall not, at any time, exceed the amount of such Purchaser's Tranche A
Commitment at such time.
(b) The Tranche B Commitment. Subject to and upon the terms and
------------------------
conditions set forth herein, each Purchaser severally (and not jointly) agrees
on the Residual Tranche Closing Date to purchase Tranche B Notes from the
Company at a purchase price equal to 100% of the aggregate principal amount of
the Tranche B Notes so purchased; provided, however, that the aggregate
principal amount of Tranche B Notes (other than Tranche B Notes which constitute
Additional Notes) so purchased by any Purchaser shall not exceed the amount of
such Purchaser's Tranche B Commitment.
(c) The Tranche C Commitment. Subject to and upon the terms and
------------------------
conditions set forth herein, each Purchaser severally (and not jointly) agrees
on the Residual Tranche Closing Date to purchase Tranche C Notes from the
Company at a purchase price equal to 100% of the aggregate principal amount of
the Tranche C Notes so purchased; provided, however, that the aggregate
principal amount of Tranche C Notes (other than Tranche C Notes which constitute
Additional Notes) so purchased by any Purchaser shall not exceed the amount of
such Purchaser's Tranche C Commitment.
(S)2.02 Minimum Amount of Each Purchase. The aggregate principal
-------------------------------
amount of Notes purchased by the Purchasers hereunder in each Borrowing shall be
in a minimum amount of $1,000,000, except that nothing set forth in this Section
2.02 shall prohibit the issuance of Additional Notes in lieu of cash interest
payable on any Notes as permitted by Section 8.01 hereof.
(S)2.03 Notes Issuable. The aggregate principal amount of Notes
--------------
which shall be issued and sold under this Agreement shall not exceed $23,500,000
plus, the aggregate amount of Additional Notes issued in lieu of cash interest
on any Notes as permitted by Section 8.01 hereof.
-9-
<PAGE>
(S)2.04 Pro Rata Borrowings. All Borrowings under this Agreement
-------------------
shall be made from the Purchasers pro rata on the basis of their Commitments.
It is understood that no Purchaser shall be responsible for any default by any
other Purchaser of its obligation to purchase Notes hereunder and that each
Purchaser shall be obligated to purchase the Notes required to be purchased by
it hereunder regardless of the failure of any other Purchaser to fulfill its
obligations under this Agreement.
(S)2.05 Reduction of Commitments on Expiration of Commitment Period.
------------------------------------------------------------
(a) Tranche A Commitment. Upon the expiration of the Tranche A Commitment
--------------------
Period, the Tranche A Commitments shall automatically, without action by the
Company or any Purchaser, be reduced to zero; provided that nothing contained in
this Section 2.05(a) shall prevent the Company from requiring Purchasers to
purchase Tranche A Notes (to the extent Purchasers would otherwise be required
to do so under this Agreement) in respect of Approved Acquisitions consummated
since the immediately preceding Calculation Date on the next succeeding Tranche
A Closing Date.
(b) Tranche B Commitment. Upon the expiration of the Tranche B
--------------------
Commitment Period, the Tranche B Commitments shall automatically, without action
by the Company or any Purchaser, be reduced to zero; provided that nothing
contained in this Section 2.05(b) shall prevent the Company from requiring
Purchasers to purchase Tranche B Notes (to the extent Purchasers would otherwise
be required to do so under this Agreement) in respect of Approved Acquisitions
consummated during the Tranche B Commitment Period on the Residual Tranche
Closing Date.
(c) Tranche C Commitment. Upon the expiration of the Tranche C
--------------------
Commitment Period, the Tranche C Commitments shall automatically, without action
by the Company or any Purchaser, be reduced to zero; provided, that nothing
contained in this Section 2.05(c) shall prevent the Company from requiring
Purchasers to purchase Tranche C Notes (to the extent Purchasers would otherwise
be required to do so under this Agreement) in respect of Approved Acquisitions
consummated during the Tranche C Commitment Period on the Residual Tranche
Closing Date.
(S)2.06 Reduction of Commitments upon Redemption of Notes. Upon the
-------------------------------------------------
redemption of any Notes pursuant to Article VI of this Agreement and Section 5
of the Notes, the Commitments shall be automatically, without any action by the
Company or any Purchaser, be reduced by an amount equal to the aggregate
principal amount of Notes so redeemed; provided, that such reduction shall be
applied proportionately to reduce the Commitment of each Purchaser hereunder.
(S)2.07 Use of Proceeds. (a) Initial Notes. The proceeds of the
--------------- -------------
issuance and sale by the Company of the Initial Notes may be used for the
general corporate purposes of the Company.
(b) Stand-By Notes. The proceeds of the issuance and sale by the
--------------
Company of any Stand-By Notes shall be used solely to pay up to 25% (but not
more than 25%) of the Acquisition Cost of an Approved Acquisition; provided the
Purchasers shall not be obligated to
-10-
<PAGE>
purchase Stand-By Notes unless the Company's pro forma ratio of Net Funded
Indebtedness to Consolidated EBITDA, after giving effect to the relevant
Approved Acquisition and all previous acquisitions of Related Business and the
use of proceeds of the Stand-By Notes to be sold on the relevant Stand-By
Closing Date, for the four full fiscal quarters immediately preceding the
relevant Standby-By Closing Date shall be in excess of 2.5:1, and then only to
the extent of that portion of the Company's pro forma Net Funded Indebtedness
which is in excess of the Company's Adjusted Consolidated EBITDA (after giving
effect to the relevant Approved Acquisition and all previous acquisitions of
Related Businesses and the use of proceeds of the Stand-By Notes to be sold on
the relevant Stand-By Closing Date) for the immediately preceding four full
fiscal quarters multiplied by 2.5.
(S)2.08 Approval of Acquisition. Purchasers shall not be entitled to
-----------------------
withhold their approval of any proposed acquisition solely because Purchasers
object to the Company's proposed sources or methods of financing for such
acquisition (including, without limitation, the issuance and sale of Notes
pursuant to this Agreement). The Company shall provide Purchasers with such
financial and other information (including, without limitation, historical and
pro forma financial statements, projections and legal accounting, business and
environmental due diligence reports) as Purchasers shall reasonably request in
order for Purchasers to determine whether to approve any such proposed
acquisition.
(S)2.09 Election Notice. On each Approved Acquisition Closing Date,
---------------
which occurs during the Commitment Period, the Company will deliver to
Purchasers a notice (an "Election Notice") which shall set forth:
(i) the Acquisition Cost of such Approved Acquisition;
(ii) the Net Funded Indebtedness of the Company on such Approved
Acquisition Closing Date after giving effect to such Approved Acquisition;
(iii) the Adjusted Consolidated EBITDA of the Company for the
immediately preceding four full fiscal quarters after giving effect to such
Approved Acquisition and all previous acquisitions of Related Businesses;
(iv) the pro forma ratio of Net Funded Indebtedness to Adjusted
Consolidated EBITDA of the Company and its subsidiaries for the immediately
preceding four full fiscal quarters after giving effect to such Approved
Acquisition and all previous acquisitions of Related Businesses;
(v) a statement either (x) that no Default or Event of Default
exists and is continuing with respect to the Notes, nor, based on the
information available to the Company at such time, will a Default or Event
of Default result from the issuance and sale of Stand-By Notes in an
aggregate principal amount specified in the Election Notice or (y)
specifying such Default or Event of Default;
-11-
<PAGE>
(vi) a statement (x) that all conditions set forth in Section
9.02 of this Agreement have been satisfied as of such Approved Acquisition
Closing Date or (y) specifying which such conditions have not been
satisfied; and
(vii) either (A) the amount of the Acquisition Cost which the
Company will require the Purchasers to fund through the acquisition of
Notes on the next succeeding Stand-By Closing Date (the "Election Amount"),
or (B) that the Company has elected not to specify an Election Amount with
respect to such Approved Acquisition; provided that the Election Amount
with respect to any Approved Acquisition shall not exceed the least of (x)
25% of the Acquisition Cost, (y) the amount by which (I) the pro forma Net
Funded Indebtedness of the Company on such Approved Acquisition Closing
Date after giving effect to such Approved Acquisition exceeds (II) the
Adjusted Consolidated EBITDA of the Company for the immediately preceding
four full fiscal quarters (after giving effect to such Approved Acquisition
and all previous acquisitions of Related Businesses) multiplied by 2.5 and
(z) the aggregate Commitments, minus the sum of (i) the aggregate
principal amount of all outstanding Notes (other than Additional Notes)
purchased by the Purchasers pursuant to this Agreement and (ii) the
aggregate of all Election Amounts, if any, specified in Election Notices
delivered since the later of the Closing Date or the immediately preceding
Stand-By Closing Date, as the case may be; provided, further, that no
Election Amount may be specified in any Election Notice which also
specifies a Default or Event of Default pursuant to clause (v)(y) of this
sentence or which does not specify that all of the conditions set forth in
Section 9.02 of this Agreement have been met on such Approved Acquisition
Closing Date.
If an Election Notice specifies an Election Amount, the Purchasers
shall be obligated on the next succeeding Stand-By Closing Date to purchase an
aggregate principal amount of Notes equal to such Election Amount; it being
understood that, if an Election Notice specifying an Election Amount is
delivered to Purchasers in connection with any Approved Acquisition, Purchasers
shall not be obligated to purchase Notes in respect of such Approved Acquisition
in excess of the Election Amount properly specified in such Election Notice.
Any Election Notice delivered with respect to an Approved Acquisition
which is consummated within the Tranche A Commitment Period which states an
Election Amount shall be deemed to require Purchasers to purchase an amount of
Tranche A Notes equal to the Election Amount. Any Election Notice delivered
with respect to an Approved Acquisition Closing Date which occurs within the
Tranche B Commitment Period which states an Election Amount shall be deemed to
require Purchasers to purchase an amount of Tranche B Notes equal to the
Election Amount stated in such election Notice. Any Election Notice delivered
with respect to an Approved Acquisition Closing Date which occurs within the
Tranche C Commitment Period which states an Election Amount shall be deemed to
require Purchasers to purchase an amount of Tranche C Notes equal to the
Election Amount stated in such election Notice.
(S)2.10 Initial Notice of Borrowing. Three business days before the
---------------------------
Closing Date, the Company, to the extent it wishes to make a Borrowing in
respect of the Initial Notes, shall notify Purchasers of such intent. Such
notice (the "Initial Notice of Borrowing") shall be substantially in the form of
Exhibit B-1 hereto and shall specify the aggregate principle amount of
- -----------
-12-
<PAGE>
Initial Notes to be issued and sold by the Company and purchased by Purchasers
pursuant to such Borrowing, the date of such Borrowing (which shall be Closing
Date) and the proposed use of proceeds of such Borrowing.
(S)2.11 Notice of Borrowing. (a) Prior to 11:00 A.M. New York City
-------------------
time on each Drawing Date, Borrower shall deliver a Notice of Borrowing to the
Purchasers in the form of Exhibit B-2 attached hereto (a "Notice of
-----------
Borrowing"). Such Notice of Borrowing shall be appropriately completed to
specify the aggregate principal amount of Notes to be issued and sold by the
Company and purchased by Purchasers pursuant to such Borrowing, whether such
Notes will be Tranche A Notes, Tranche B Notes or Tranche C Notes, the Stand-By
Closing Date to which such Notice of Borrowing relates and the proposed use of
proceeds of such Notes (which such use of proceeds shall be consistent with
Section 2.07 of this Agreement).
(b) The maximum amount of Notes which the Company may require
Purchasers to purchase pursuant to any Notice of Borrowing shall be equal to the
greater of (i) the aggregate of all Election Amounts specified in all Election
Notices delivered since the last Calculation Date or, if no Calculation Date has
yet occurred, the Closing Date, and (ii) the lesser of (x) 25% of the aggregate
Acquisition Cost of all Approved Acquisitions consummated since the last
Calculation Date or, if no Calculation Date has yet occurred, the Closing Date,
and (y) the amount by which (i) the Net Funded Indebtedness of the Company on
the immediately preceding Calculation Date after giving effect to any Approved
Acquisition consummated on such Calculation Date exceeds (ii) the Adjusted
Consolidated EBITDA of the Company for the immediately preceding four full
fiscal quarters (after giving effect to such Approved Acquisition and all
previous acquisitions of Related Businesses) multiplied by 2.5; provided that if
the Company has delivered an Election Notice with respect to any Approved
Acquisition, the Purchasers shall not be required to purchase Notes in respect
of such Approved Acquisition in an aggregate principal amount in excess of the
Election Amount specified in such Election Notice.
(c) The aggregate principal amount of Notes to be issued and sold by
the Company and purchased by Purchasers and which are not the subject of an
Election Notice specifying an Election Amount on the Residual Tranche Closing
Date (the "Total Unallocated Amount") shall be allocated among Tranche B Notes
and Tranche C Notes as set forth in this Section 2.11(c). The aggregate
principal amount of Tranche B Notes to be purchased by Purchasers on the
Residual Tranche Closing Date (the "Tranche B Allocation") shall be equal to the
aggregate principal amount of Notes to be purchased as specified in the relevant
Notice of Borrowing multiplied by a fraction, the numerator of which shall be
the aggregate maximum Election Amount possible under each Election Notice
delivered in respect of Approved Acquisitions consummated in the Tranche B
Commitment Period, which such Election Notices did not specify an Election
Amount and the denominator of which shall be the aggregate maximum Election
Amount possible under each Election Notice delivered in respect of Approved
Acquisitions consummated in the Residual Commitment Period, which such Election
Notices did not specify an Election Amount. The aggregate principal amount of
Tranche C Notes to be purchased by the Purchasers on the Residual Closing Date
shall be equal to the difference between the Total Unallocated Amount and the
Tranche B Allocation.
-13-
<PAGE>
(S)2.12 Purchaser Acknowledgment. Upon receiving an Election Notice
------------------------
which specifies an Election Amount and is in form and substance satisfactory to
them, Purchasers shall, at the request of the Company deliver to the Company
and/or any banking institution specified by the Company an Acknowledgment
substantially in the form of Exhibit C attached hereto. Such Acknowledgment
---------
shall contain the Purchasers irrevocable commitment to purchase on the next
succeeding Stand-By Closing Date an aggregate principal amount of Notes equal to
the Election Amount specified in the related Election Notice.
ARTICLE III
THE NOTES
---------
(S) 3.01 Form and Dating. The Tranche A Notes (and any Additional
---------------
Tranche A Notes) shall be substantially in the form of Exhibit D-1 hereto. The
-----------
Tranche B Notes (and any Additional Tranche B Notes) shall be substantially in
the form of Exhibit D-2 hereto. The Tranche C Notes (and any Additional Tranche
-----------
C Notes) shall be substantially in the form of Exhibit D-3 hereto. The
-----------
securities may have notations, legends or endorsements required by applicable
law, rule, regulation or usage. The Company shall approve the form of the Notes
and any notation, legend or endorsement on them. Each Note shall be dated the
date of its issuance.
The terms and provisions contained in the forms of the Notes annexed
hereto as Exhibits D-1, Exhibits D-2 and Exhibits D-3, shall constitute, and are
------------ ------------ ------------
hereby expressly made, a part of this Agreement and, to the extent applicable,
the Company and the Purchasers and each other Holder, by their execution and
delivery of this Agreement and/or their acceptance of any Notes, expressly agree
to such terms and provisions and to be bound thereby.
(S)3.02 Execution. (a) Two officers of the Company (one of whom
----------
shall be the Chief Executive Officer, President or any Vice-President of the
Company and the other of whom shall be a Secretary or Assistant Secretary of the
Company) shall sign (each of whom shall, in each case, have been duly authorized
by all requisite corporate actions) the Notes for the Company by manual or
facsimile signature.
(b) The Notes shall be issuable in fully registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof, except
that Additional Notes may be issued in denominations which are not integral
multiples of $1,000.
(S)3.03 Registrar and Paying Agent. (a) The Company shall maintain
--------------------------
an office or agency where (i) Notes may be presented for registration of
transfer or for exchange ("Registrar"), (ii) Notes may be presented for payment
("Paying Agent") and (iii) notices and demands to or upon the Company in respect
of the Notes and this Agreement may be served. The Registrar shall keep a
register of the Notes and of their transfer and exchange. The Company may
appoint one or more co-registrars and one or more additional paying agents. The
term "Paying Agent" includes any additional paying agent. The Company may
change any Paying Agent, Registrar or co-registrar without prior notice to any
Holder. The Company shall notify the Holders of the name and address of any
Agent not a party to this Agreement. If the Company
-14-
<PAGE>
fails to (or chooses not to) appoint or maintain another entity as Registrar or
Paying Agent, the Company shall act as such. The Company may act as Paying
Agent, Registrar or co-registrar. The Company shall enter into an appropriate
agency agreement with any Agent not a party to this Agreement. The agreement
shall implement the provisions of this Agreement that relate to such Agent. The
Company shall notify the Holders of the name and address of any such Agent.
(b) The Company shall serve as the initial Paying Agent and Registrar
of the Notes.
(c) Any of the Registrar, the Paying Agent or any other agent may
resign upon 30 days' notice to the Company. The office of the Paying Agent and
Registrar for purposes of this Section 3.03 shall initially be at the offices of
the Company, as set forth in Section 14.05.
(S)3.04 Transfer and Exchange. (a) No Notes may be sold,
---------------------
transferred or conveyed by the Holder thereof to any Person who is not a
Purchaser, an Affiliate of a Purchaser (including, without limitation any co-
investment vehicle permitted to be formed pursuant to the Agreements of Limited
Partnership of Purchasers) or a limited partner of a Purchaser without the
express written consent of the Board of Directors of the Company. In the event
that any Purchaser transfers any Notes pursuant to this Article III, it may, at
its option, transfer all or any portion of its Commitment to the transferee of
such Notes, and (x) such Purchaser shall thereafter have no obligation to the
Company with respect to the portion of such Commitment so transferred, and (y)
such transferee shall, thereafter, be deemed to be a Purchaser for all purposes
of this Agreement.
(b) Where Notes are presented to the Registrar or a co-registrar with
a request to register the transfer thereof or exchange them for an equal
principal amount of Notes of other denominations, the Registrar shall register
the transfer or make the exchange; provided, that any Note presented or
surrendered for registration of transfer or exchange shall be duly endorsed or
accompanied by a written instruction of transfer in form satisfactory to the
Registrar duly executed by the Holder thereof or his attorney duly authorized in
writing. To permit registrations of transfer and exchanges, the Company shall
issue Notes at the Registrar's request.
(c) The Company and the Registrar shall not be required (i) to issue,
to register the transfer of or to exchange Notes during a period beginning at
the opening of business on a business day 15 days before the day of any
selection of Notes for redemption pursuant to Article VI and ending at the close
of business on the day of selection, (ii) to register the transfer of or
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part or (iii) to register the
transfer or exchange of a Note between the Record Date and the next succeeding
Interest Payment Date.
(d) No service charge shall be made for any registration of a transfer
or exchange (except as otherwise expressly permitted herein).
(S)3.05 Replacement Securities. (a) If any mutilated Note is
----------------------
surrendered to the Registrar or the Company, or the Registrar or the Company
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, the Company shall issue and authenticate a replacement
-15-
<PAGE>
Note. If required by the Company, an indemnity bond must be supplied by the
Holder that is sufficient in the reasonable judgment of the Company to protect
the Company or any Agent from any loss which any of them may suffer if a Note is
replaced. The Company may charge a Holder for reasonable out-of-pocket expenses
in replacing a Note, including fees and expenses of counsel.
(b) Every replacement Note is an additional obligation of the Company
and shall be entitled to the benefits of this Agreement.
(S)3.06 Outstanding Securities. (a) The Notes outstanding at any
----------------------
time are all the Notes issued by the Company except for those cancelled by the
Company, those delivered to the Registrar for cancellation and those described
in this Section as not outstanding.
(b) If a Security is replaced pursuant to Section 3.05, it ceases to
be outstanding unless and until the Company receives proof satisfactory to it
that the replaced Note is held by a bona fide purchaser.
(c) If the principal amount of any Note is considered paid under
Section 8.01, it ceases to be outstanding and interest on it ceases to accrue.
(d) Subject to Section 3.07, a Note does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Note.
(S)3.07 Treasury Notes. In determining whether the Holders of the
--------------
required principal amount of Notes have concurred in any direction, waiver or
consent, Notes owned by the Company, any of its subsidiaries or any of their
respective controlled Affiliates shall be considered as though not outstanding.
(S)3.08 Cancellation. The Company and Paying Agent shall forward to
------------
the Registrar any Notes surrendered to them for registration of transfer,
exchange or payment. The Registrar shall cancel all Notes, if not already
cancelled, surrendered for registration of transfer, exchange, payment,
replacement or cancellation.
(S)3.09 Deposit of Moneys. Prior to 11:00 a.m. New York City time on
-----------------
each Interest Payment Date and on the Maturity Date, the Company shall have
deposited with the Paying Agent in trust for the Holders in immediately
available funds money (or subject to Section 8.01 of this Agreement, with
respect to the payment of interest only, at the Company's option, Additional
Notes) sufficient to make cash payments, if any, due on such Interest Payment
Date or on the Maturity Date, as the case may be, in a timely manner which
permits the Paying Agent to remit payment to the Holders such Interest Payment
Date or on the Maturity Date, as the case may be.
(S)3.10 Restrictive Legends. (a) Each Note that constitutes a
-------------------
Restricted Security shall bear the following legend (the "Private Placement
Legend"), on the face thereof unless otherwise agreed by the Company and the
Securityholder thereof:
-16-
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS THEREOF.
(b) General. By its acceptance of any Note bearing the Private
-------
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Agreement and in the Private Placement
Legend and agrees that it will transfer such Security only as provided in this
Agreement.
(S)3.11 Persons Deemed Owners. Prior to due presentment of a Note
---------------------
for registration of transfer, the Company, any Paying Agent, any Registrar and
any co-registrar may deem and treat the Person in whose name any Note shall be
registered upon the register of Notes kept by the Registrar as the absolute
owner of such Note (whether or not such Note shall be overdue and
notwithstanding any notation of the ownership or other writing thereon made by
anyone other than the Company, any Registrar or any co-registrar) for the
purpose of receiving payments of principal of or interest on such Note and for
all other purposes; and none of the Company, any Paying Agent, any Registrar or
any co-registrar shall be affected by any notice to the contrary.
(S)3.12 Record Date. The record date for purposes of determining the
-----------
identity of Holders entitled to vote or consent to any action by vote or consent
authorized or permitted under this Agreement shall be 30 days prior to the first
solicitation of such consent.
ARTICLE IV
ISSUANCE AND SALE OF INITIAL NOTES
----------------------------------
(S)4.01 Issuance and Sale of Initial Notes. Subject to the terms and
----------------------------------
conditions set forth in this Agreement, the Company agrees to issue and sell to
the Purchasers, and the Purchasers severally (and not jointly) agree to
purchase, on a pro rata basis in accordance with their relative Commitments, on
--- ----
the Closing Date the Initial Notes, such Notes to be issued in the names and
denominations specified by or on behalf of each Purchaser in a notice to be
delivered to the Company no later than the business day prior to the Closing
Date.
(S)4.02 Price. In full consideration for the issuance by the Company
-----
of the Initial Notes, Purchasers shall pay to the Company, on the Closing Date,
an aggregate of $3,500,000 by wire transfer of immediately available funds to
the account or accounts identified to the Purchasers at least two business days
prior to the Closing Date.
(S)4.03 Closing. The sale referred to in Section 4.01 (the
-------
"Closing") shall take place at 10:00 a.m. New York City time at the offices of
White & Case LLP on [October __,] 1998, or at such other time and date (not
later than [December 31, 1998]) as the parties hereto shall designate in
writing. Such date is herein referred to as the "Closing Date".
-17-
<PAGE>
ARTICLE V
ISSUANCE AND SALE OF STANDBY NOTES
----------------------------------
(S)5.01 Issuance and Sale of Standby Notes. Subject to the terms and
----------------------------------
conditions set forth in this Agreement, the Company agrees, from time to time,
to issue and sell to the Purchasers, and the Purchasers severally (and not
jointly) agree, from time to time, to purchase on a pro rata basis, in
accordance with their relative Commitments on the date specified in the relevant
Notice of Borrowing, the aggregate principal amount of Tranche A Notes, Tranche
B Notes or Tranche C Notes, as the case may be, specified in the Notice of
Borrowing, such Notes to be issued in the names and denominations specified by
or on behalf of each Purchaser in a notice to be delivered to the Company no
later than the business day prior to the applicable Stand-By Closing Date;
provided, that under no circumstances shall a Purchaser be obligated to purchase
any Stand-By Notes (other than Stand-By Notes which are Additional Notes) unless
on such Stand-By Closing Date, the Approved Acquisition to which the Notice of
Borrowing to which such Stand-By Notes relate is consummated.
(S)5.02 Price. In full consideration for the issuance by the Company
-----
of any Stand-By Notes, each Purchaser shall pay to the Company, on the
applicable Stand-By Closing Date, an amount in cash equal to 100% of the
aggregate principal amount of the Stand-By Notes purchased by such Purchaser
pursuant to this Agreement, by wire transfer to the account or accounts
identified to the Purchasers at least two business days prior to the applicable
Stand-By Closing Date.
ARTICLE VI
REDEMPTION
----------
(S)6.01 Notices to Holders. If the Company elects to redeem Notes
------------------
pursuant to paragraph 5 of the Notes, it shall notify the Holders in writing of
the Redemption Date and the principal amount of Holders to be redeemed.
The Company shall give each notice to the Holders provided for in this
Section at least 30 days but no more than 60 days before the Redemption Date
unless each Holder consents to a shorter period. Such notice shall be
accompanied by a certificate executed by an officer of the Company to the effect
that such redemption will comply with the conditions set forth in this Agreement
and in the Notes.
(S)6.02 Selection of Notes To Be Redeemed. In the case of any
---------------------------------
partial redemption of the Notes, selection of the Notes for redemption will be
made by the Company on a pro rata basis among the Holders and among tranches of
Notes. Notes may be redeemed in part in multiples of $1,000 principal amount
only. If any Note is to be redeemed in part only, the notice of redemption that
relates to such Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after any
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<PAGE>
redemption date, interest will cease to accrue on the Notes or part thereof
called for redemption as long as the Company has deposited with the Paying Agent
in trust for the benefit of the Holders funds in satisfaction of the redemption
price pursuant to this Agreement. Provisions of this Agreement that apply to
Notes called for redemption also apply to portions of Notes called for
redemption.
(S)6.03 Notice of Redemption. At least 30 days but not more than 60
--------------------
days before a date for redemption of Notes, the Company shall mail a notice of
redemption by first-class mail to each Holder of Notes to be redeemed, at such
Holder's registered address.
The notice shall identify the Notes to be redeemed and shall state:
(1) the Redemption Date;
(2) the redemption price and the amount of accrued interest, if any,
to be paid;
(3) the name and address of the Paying Agent;
(4) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(5) if fewer than all the Notes are to be redeemed, the identification
of the particular Notes (or portion thereof) to be redeemed, as well as the
aggregate principal amount of Notes to be redeemed and the aggregate
principal amount of Notes to be outstanding after such partial redemption;
(6) that, unless the Company defaults in making such redemption
payment or the Paying Agent is prohibited from making such payment pursuant
to the terms of this Agreement, interest on Notes (or portion thereof)
called for redemption ceases to accrue on and after the Redemption Date;
(7) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption
date upon surrender of such Note, a new Note or Notes in principal amount
equal to the unredeemed portion shall be issued; and
(8) the paragraph of the Notes and/or Section of this Agreement
pursuant to which the Notes called for redemption are being redeemed.
(S)6.04 Effect of Notice of Redemption. Once notice of redemption is
------------------------------
mailed, Notes called for redemption become due and payable on the designated
Redemption Date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Notes shall be paid at the redemption price
stated in the notice, plus accrued interest to the designated Redemption Date;
provided, that if any Redemption Date is after a regular Record Date and on or
prior to the Interest Payment Date, the accrued interest shall be payable to the
Holder of the redeemed Notes registered on the relevant Record Date. Failure to
give notice or any defect in the notice to any Holder shall not affect the
validity of the notice to any other Holder.
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<PAGE>
(S)6.05 Deposit of Redemption Price. (a) Prior to 11:00 a.m., New
---------------------------
York City time, on any Redemption Date, the Company shall deposit with the
Paying Agent in trust for the benefit of the Holders money sufficient to pay the
redemption price of and accrued interest on all Notes to be redeemed on such
Redemption Date.
(b) Except as set forth in the last sentence of this paragraph, on and
after any Redemption Date, interest ceases to accrue on the Notes or the
portions of Notes called for redemption. If a Note is redeemed on or after an
interest Record Date but on or prior to the related Interest Payment Date, then
any accrued and unpaid interest shall be paid to the Person in whose name such
Note was registered at the close of business on such Record Date. If any Note
called for redemption shall not be so paid upon surrender for redemption because
of the failure of the Company to comply with the preceding paragraph, interest
shall be paid on the unpaid principal, from the Redemption Date until such
principal is paid and, to the extent lawful, on any interest not paid on such
unpaid principal, in each case at the rate provided in the Notes and in Section
8.01.
(S)6.06 Securities Redeemed in Part. Upon surrender of a Note that
---------------------------
is redeemed in part, the Company shall execute for and in the name of the Holder
(at the Company's expense), a new Note equal in a principal amount to the
unredeemed portion of the Note surrendered.
ARTICLE VII
REPRESENTATIONS OF THE COMPANY
------------------------------
(S) 7.01 Representations of the Company. The Company hereby
------------------------------
represents, warrants and agrees as follows:
(a) Authorization and Validity; Enforceability. (i) The Company has
------------------------------------------
the requisite corporate power and authority to execute and deliver this
Agreement and each Note issued hereunder and to perform its obligations
hereunder and thereunder. The execution, delivery and performance of this
Agreement and each Note issued hereunder by the Company and the performance by
it of its obligations hereunder and thereunder have been, and will be, duly
authorized and approved by its Board of Directors and no other corporate action
on the part of the Company is necessary to authorize the execution, delivery and
performance of this Agreement and each Note issued hereunder by the Company, as
the case may be.
(ii) This Agreement and each Note issued hereunder by the Company has
been duly executed and delivered by the Company and, assuming the due execution
and delivery of this Agreement by the other parties hereto, this Agreement and
each Note issued hereunder by the Company constitutes, and will constitute, the
valid and binding obligation of the Company, as the case may be, enforceable
against it in accordance with their respective terms, except to the extent that
their enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and to general equitable principles.
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<PAGE>
(b) Existence and Good Standing. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. The Company has the power to own, lease and
operate its property and to carry on its business as now being conducted. The
Company is duly qualified to do business and is in good standing in each
jurisdiction in which the character or location of the properties owned, leased
or operated by the Company or the nature of the business conducted by the
Company makes such qualification necessary, except for such jurisdictions where
the failure to be so qualified or licensed and in good standing would not have a
material adverse effect on the Condition of the Company and its subsidiaries,
taken as a whole.
(c) Subsidiaries and Investments. (i) Each Person in which the
----------------------------
Company owns, directly or indirectly, any equity security (a "subsidiary") is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, and has all requisite power to own,
lease and operate its property and to carry on its business as now being
conducted.
(ii) Each subsidiary is duly qualified to do business and is in good
standing in each jurisdiction in which the character or location of the
properties owned, leased or operated by such subsidiary or the nature of the
business conducted by such subsidiary make such qualification necessary, except
for such jurisdictions where the failure to be so qualified or licensed and in
good standing would not have a material adverse effect on the Condition of the
Company and its subsidiaries, taken as a whole.
(iii) There are no restrictions of any kind which prevent or restrict
the payment of dividends by any of the Company's subsidiaries.
(d) Consents and Approvals; No Violations. The execution and
-------------------------------------
delivery of this Agreement by the Company, the execution, delivery and issuance
of the Notes and the consummation by the Company of the transactions
contemplated hereby (including, but not limited to, the execution, delivery and
issuance of any Additional Notes) will not: (1) violate any provision of the
certificate of incorporation, by-laws or partnership agreement (or other
organizational document) of the Company or any of its subsidiaries; (2) violate
any statute, ordinance, rule, regulation, order or decree of any court or of any
governmental or regulatory body, agency or authority applicable to the Company
or any of its subsidiaries or by which any of their respective properties or
assets may be bound; (3) require the Company or any of its subsidiaries to make
or obtain any filing with, or permit, consent or approval of, or give any notice
to, any governmental or regulatory body, agency or authority; or (4) result in a
violation or breach of, conflict with, constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation, payment or acceleration) under, or result in the creation of any
Lien upon any of the properties or assets of the Company or any of its
subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, franchise, permit, agreement, lease,
franchise agreement or other instrument or obligation to which the Company or
any of its subsidiaries is a party, or by which the Company or any of its
subsidiaries or any of their respective properties or assets is bound except in
the case of clauses (3) and (4) above, for such violations, filings, permits,
consents, approvals, notices, breaches or conflicts which would not have a
material adverse effect on the Condition of the Company and its subsidiaries.
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<PAGE>
(e) Litigation. There is no action, suit, proceeding at law or in
----------
equity, arbitration or administrative or other proceeding by or before (or to
the best knowledge of the Company any investigation by) any governmental or
other instrumentality or agency, pending, or, to the best knowledge of the
Company, threatened, against or affecting the Company or any of its
subsidiaries, or any of their properties or rights which would materially
adversely affect the right or ability of the Company or any of its subsidiaries
to carry on their respective business as now conducted, or to own their
respective assets, or which would materially adversely affect the Condition of
the Company and its subsidiaries, taken as a whole; and the Company does not
know of any valid basis for any such action, proceeding or investigation.
Neither the Company nor any of its subsidiaries is subject to any judgment,
order or decree entered in any lawsuit or proceeding which would have a material
adverse effect on the Condition of the Company and its subsidiaries, taken as a
whole.
(f) Compliance with Laws. Each of the Company and its subsidiaries is
--------------------
in compliance in all material respects with all applicable laws, statutes,
ordinances, regulations, orders, judgments and decrees of any government or
political subdivision thereof, whether Federal, state, or local and whether
domestic or foreign, or any agency or instrumentality thereof, or any court or
arbitrator, and has not received any notice that any violation of the foregoing
is being or may be alleged.
(g) Use of Proceeds. All proceeds of the issuance and sale of Notes
---------------
will be used solely in accordance with the terms of Section 2.07.
(h) Investment Company Act. Neither the Company nor any of its
----------------------
subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(S) 7.02 Representations of Each Purchaser. Each Purchaser, severally
---------------------------------
and not jointly, represents , warrants and agrees as to itself, as follows:
(a) Existence and Good Standing of Each Purchaser; Power and
--------------------------------------------------------
Authority. Each Purchaser is a limited partnership duly organized, validly
- ---------
existing and in good standing under the laws of the State of Delaware. Each
Purchaser has the partnership power and authority to enter into, execute and
deliver this Agreement and to perform its obligations hereunder. The execution
and delivery of this Agreement by such Purchaser and the performance by such
Purchaser of its obligations hereunder has been duly authorized and approved by
all required partnership action of such Purchaser and no other partnership
action on the part of such Purchaser is necessary to authorize the execution,
delivery and performance of this Agreement. This Agreement has been duly
executed and delivered by such Purchaser and, assuming the due execution and
delivery hereof by each other party hereto, this Agreement constitutes a valid
and binding obligation of such Purchaser, enforceable against such Purchaser in
accordance with its terms, except to the extent that its enforceability may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws effecting the enforcement of creditors' rights generally and to
general equitable principles.
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<PAGE>
(b) Consents and Approvals; No Violations. The execution and
-------------------------------------
delivery of this Agreement by such Purchaser and the consummation by such
Purchaser of the transactions contemplated hereby will not: (1) violate any
provision of the Agreement of Limited Partnership of such Purchaser; (2) violate
any statute, ordinance, rule, regulation, order or decree of any court or of any
governmental or regulatory body, agency or authority applicable to such
Purchaser or by which any of its properties or assets may be bound; (3) require
such Purchaser to make any filing with or obtain any permit, consent or approval
of or give any notice to, any governmental or regulatory body, agency or
authority; or (4) result in a violation or breach of, conflict with, constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation, payment or acceleration) under, or
result in the creation of any Lien upon any of the properties or assets of such
Purchaser under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, franchise, permit, agreement, lease, franchise
agreement or other instrument or obligation to which such Purchaser is a party,
or by which any of its properties or assets is bound except in the case of
clauses (3) and (4) above for such violations, filings, permits, consents,
approvals, notices, breaches or conflicts which could not have a material
adverse effect on the ability of such Purchaser to consummate the transactions
contemplated hereby or to perform its obligations hereunder.
(c) Purchase for Investment. Each Purchaser will acquire the Notes
-----------------------
to be purchased by it pursuant to its Commitment for its own account for
investment purposes only, and such notes are not being purchased for
subdivision, fractionalization, resale or distribution in a transaction that
would violate the Securities Act or Exchange Act or any state "blue sky" laws.
Each Purchaser has no contract, undertaking, agreement or arrangement with any
other Purchaser to sell, transfer or pledge to such other Person or anyone else
the Notes that such Purchaser is to purchase hereunder or any part thereof in a
transaction that would violate the Securities Act or Exchange Act.
Notwithstanding the foregoing, the disposition of such Purchaser's property
shall at all times remain within the sole control of such Purchaser.
(d) Accredited Investor. Each Purchaser is an "accredited investor"
-------------------
(as such term is defined in Rule 501 promulgated under the Securities Act).
(e) Restricted Securities. Each Purchaser understands that the Notes
---------------------
it is purchasing hereunder are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such Notes may not be resold without registration under
the Securities Act, except in certain limited instances. In this connection,
each Purchaser represents that it is familiar with Rule 144 promulgated by the
Commission, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.
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<PAGE>
ARTICLE VIII
COVENANTS
---------
(S)8.01 Payment of Notes. The Company shall promptly pay the
----------------
principal of, premium, if any, and interest on the Notes on the dates and in the
manner provided in the Notes and in this Agreement. Principal, premium, if any,
and interest shall be considered paid on the date due if on such date the Paying
Agent holds in trust for the Holders money sufficient to pay all principal and
interest then due and the Paying Agent is not prohibited from paying such money
to the Holders on that date pursuant to the terms of this Agreement. Interest
will be computed on the basis of a 360 day year comprised of twelve 30 day
months. Interest on Tranche A Notes (and any Additional Tranche A Notes) shall
be payable at the Tranche A Rate. Interest on Tranche B Notes (and on any
Additional Tranche B Notes) shall be payable at the Tranche B Rate. Interest on
Tranche C Notes (and on any Additional Tranche C Notes shall be payable at the
Tranche C Rate.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate
specified therefor in the relevant Note, and it shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace period) at the
same rate to the extent lawful.
Subject to the last two sentences of this paragraph, on each Interest
Payment Date, the Company may, at its option and in its sole discretion, in lieu
of the payment of interest in cash on the Notes, pay interest on all outstanding
Notes in whole, but not in part, through the issuance of Additional Notes in an
aggregate principal amount equal to the amount of interest that would be payable
with respect to such Notes, if such interest were paid in cash. The Company
shall notify the Holders in writing of its election to pay interest through the
issuance of Additional Notes not less than 10 nor more than 45 days prior to the
record date for an Interest Payment Date on which Additional Notes will be
issued. On each such Interest Payment Date, the Company shall issue and deliver
Additional Notes to each Holder on the relevant record date in the aggregate
principal amount required to pay such interest. Each Additional Note is an
additional obligation of the Company and shall be governed by, and entitled to
the benefits of, and shall be subject to the terms of, this Agreement and shall
be pari passu with and subject to the same terms (including the Interest Rate
from time to time payable thereon) as the Notes with respect to which such
Additional Notes were issued (except, as the case may be, with respect to the
issuance date and aggregate principal amount). In the event that the Company
elects in respect of any Interest Payment Date to pay interest through the
issuance of Additional Notes, interest on Tranche A Notes shall be paid in
Additional Tranche A Notes, interest on Tranche B Notes shall be paid in
Additional Tranche B Notes, and interest on Tranche C Notes shall be paid in
Additional Tranche C Notes, as the case may be. Interest in respect of the
Notes will be payable initially in Additional Notes. If at any time after the
Closing Date, the Company elects to pay interest in respect of the Notes in
cash, the Company may thereafter subsequently elect, in accordance with this
paragraph, to pay interest on the Notes in whole, but not in part, in Additional
Notes (a "Subsequent PIK Election"); provided that the Company shall not be
entitled to make more than three Subsequent PIK Elections with respect to the
Notes.
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<PAGE>
(S)8.02 Reports. (a) The Company shall provide to the Holders of
-------
the Notes, within 15 days after it files them with the Commission, copies of the
quarterly and annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the Commission may by
rules and regulations prescribe) which the Company files with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act.
(b) In the event that the Company is not required to file such reports
with the Commission pursuant to the Exchange Act, the Company will nevertheless
deliver such Exchange Act information to the Holders within 15 days after it
would have been required to file it with the Commission.
(S)8.03 Limitation on Dividends. The Company shall not, directly or
-----------------------
indirectly, declare or pay any dividend or make any distribution on or in
respect of its capital stock (including any payment in connection with any
merger or consolidation involving the Company) except dividends or distributions
payable in its capital stock or in options, warrants or other rights to purchase
such capital stock if there has occurred and is continuing a Default or Event of
Default in respect of any Notes.
(S)8.04 Leverage. The Company and its subsidiaries shall maintain a
--------
pro forma ratio of Consolidated Indebtedness to Adjusted Consolidated EBITDA of
the Company and its subsidiaries (after giving effect to all acquisitions of
Related Businesses during such periods) for the immediately preceding four full
fiscal quarters of not more than 4.00:1.00 as of the end of each fiscal quarter.
(S)8.05 Limitation on Affiliate Transactions. (a) The Company will
------------------------------------
not, and will not permit any of its subsidiaries to, directly or indirectly,
enter into or conduct any transaction or series of related transactions
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with or for the benefit of any Affiliate of the
Company, other than a wholly-owned subsidiary (an "Affiliate Transaction")
unless: (i) the terms of such Affiliate Transaction are no less favorable to the
Company or such subsidiary, as the case may be, than those that could be
obtained at the time of such transaction in arm's length dealings with a Person
who is not such an Affiliate; (ii) in the event such Affiliate Transaction
involves an aggregate amount in excess of $1,000,000, the terms of such
transaction have been approved by a majority of the members of the Board of
Directors of the Company and by a majority of the disinterested members of such
Board, if any (and such majority or majorities, as the case may be, determines
that such Affiliate Transaction satisfies the criteria in (i) above); and (iii)
in the event such Affiliate Transaction involves an aggregate amount in excess
of $5,000,000, the Company has received a written opinion from an independent
investment banking firm of nationally recognized standing that such Affiliate
Transaction is fair to the Company or such subsidiary, as the case may be, from
a financial point of view.
(b) The foregoing paragraph (a) shall not apply to (i) any dividend or
other distribution permitted to be made pursuant to the covenant described under
Section 8.03, (ii) any issuance of securities, or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, or any stock options and stock ownership plans for the
benefit of employees, officers and directors, consultants and advisors approved
by
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<PAGE>
the Board of Directors of the Company, (iii) loans or advances to employees
in the ordinary course of business of the Company or any of its subsidiaries in
aggregate amount outstanding not to exceed $50,000 to any employee or $500,000
in the aggregate at any time, (iv) any transaction between wholly-owned
subsidiaries, (v) indemnification agreements with, and the payment of fees and
indemnities to, directors, officers and employees of the Company and its
subsidiaries, in each case in the ordinary course of business, (vi) transactions
pursuant to agreements in existence on the Closing Date, (vii) any employment,
non-competition or confidentiality agreements entered into by the Company or any
of its subsidiaries with its employees in the ordinary course of business, and
(viii) the issuance of capital stock of the Company, and (ix) any reasonable and
customary investment banking fees, transaction fees or other similar fees paid
to Evercore Advisors, Inc. or its Affiliates which such fees have been approved
by a majority of the directors of the Company not affiliated with Purchasers.
(S)8.06 Change of Control. (a) Upon the occurrence of a Change of
-----------------
Control each Holder will have the right to require the Company to repurchase all
or any part of such Holder's Notes at a purchase price in cash equal to 100% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of repurchase (subject to the right of Holders of record on the relevant
Record Date to receive interest due on the relevant Interest Payment Date).
(b) Within 60 days following any Change of Control, unless the Company
has mailed a redemption notice with respect to all the outstanding Notes in
connection with such Change of Control, the Company shall mail a notice to each
Holder stating:
(i) that a Change of Control has occurred and that such Holder has
the right to require the Company to purchase such Holders' Notes at a
purchase price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to
the right of Holders' Notes of record on a record date to receive interest
on the relevant Interest Payment Date);
(ii) the repurchase date (which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed); and
(iii) the procedures determined by the Company, consistent with this
Agreement, that a Holder must follow in order to have its Notes
repurchased.
(c) Holders electing to have a Note repurchased will be required to
surrender the Note, to the Company at the address specified in the notice at
least 50 business days prior to the repurchase date. Holders will be entitled to
withdraw their election if the Company receives not later than three business
days prior to the repurchase date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the Note
which was delivered for repurchase by the Holder and a statement that such
Holder is withdrawing his election to have such Note purchased.
(d) On the repurchase date, all Notes repurchased by the Company under
this Section 8.06 shall be cancelled by the Company, and the Company shall pay
the repurchase price plus accrued and unpaid interest, if any, to the Holders
entitled thereto.
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<PAGE>
(S)8.07 Further Instruments and Acts. Upon request of the Holders,
----------------------------
the Company will execute and deliver such further instruments and do such
further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Agreement.
(S)8.08 Taxes. The Company shall pay, prior to delinquency, all
-----
material taxes, assessments, and governmental levies; provided, however, that
there shall not be required to be paid or discharged any such tax, assessment or
charge, the amount, applicability or validity of which is being contested in
good faith by appropriate proceedings and for which adequate provision has been
made or for which adequate reserves, to the extent required under generally
accepted accounting principles, have been taken.
(S)8.09 Stay, Extension and Usury Laws. The Company covenants (to
------------------------------
the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Agreement (including, but not limited to, the payment of the principal of or
interest on the Notes); and the Company (to the extent that it may lawfully do
so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it shall not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Holders, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
(S)8.10 Corporate Existence. The Company shall do or cause to be
-------------------
done all things necessary to preserve and keep in full force and effect its
corporate existence, and the corporate existence of each subsidiary, in
accordance with the respective organizational documents (as the same may be
amended from time to time) of each subsidiary and the rights (charter and
statutory), licenses and franchises of the Company and its subsidiaries;
provided, however, that the Company shall not be required to preserve any such
right, license or franchise, or the corporate, partnership or other existence of
any subsidiary, if the Board of Directors of the Company shall determine that
the preservation thereof is no longer desirable in the conduct of the business
of the Company and its subsidiaries, taken as a whole, and that the loss thereof
is not adverse in any material respect to the Holders.
ARTICLE IX
CONDITIONS PRECEDENT
--------------------
(S)9.01 Conditions to Issuance and Sale of Initial Notes. The
------------------------------------------------
obligations of the Purchasers to purchase the Initial Notes is subject to the
satisfaction of the following conditions:
(a) Truth of Representations and Warranties. The representations and
---------------------------------------
warranties of the Company contained in this Agreement and in the Subscription
Agreement shall be true and correct in all material respects (except to the
extent such representations and warranties contain a "materiality", "material
adverse effect" or similar qualification, in which case they shall be true and
correct in all respects) on and as of the Closing Date, and the Company each
shall have delivered to Purchasers a certificate, dated the Closing Date, to
such effect.
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(b) Performance of Agreements. All of the agreements of the Company
-------------------------
to be performed prior to the Closing Date pursuant to the terms of this
Agreement shall have been duly performed in all material respects, and the
Company shall have delivered to the Purchasers a certificate, dated the Closing
Date, to such effect.
(c) No Litigation Threatened. No action or proceedings shall have
------------------------
been instituted or threatened before a court or other government body or by any
public authority to restrain or prohibit any of the transactions contemplated
hereby, and the Company shall have delivered to Purchasers a certificate, dated
the Closing Date, to such effect.
(d) Initial Notice of Borrowing. Prior to the Closing Date,
---------------------------
Purchasers shall have received the Initial Notice of Borrowing with respect to
the Initial Notes, which such Initial Notice of Borrowing shall meet the
requirements of Section 2.10.
(e) No Default. On the Closing Date there shall exist no Default or
----------
Event of Default with respect to this Agreement or the Notes and the Company
shall have delivered to the Purchasers a certificate, dated the Closing Date, to
such effect.
(f) Subscription Agreement. The transactions contemplated to be
----------------------
consummated by all parties other than Purchasers under the Subscription
Agreement shall have been consummated on or prior to the Closing Date and each
condition to the performance of Purchasers' obligations under the Subscription
Agreement shall have been waived or satisfied in full.
(S)9.02 Conditions to Issuance and Sale of Stand-By Notes. The
-------------------------------------------------
obligations of the Purchasers to purchase any Stand-By Notes on any Stand-By
Closing Date is subject to the satisfaction of the following conditions (it
being understood that with respect to any Election Notice specifying an Election
Amount such conditions shall be deemed to be satisfied if they are satisfied as
of the date such Election Notice is delivered):
(a) Truth of Representations and Warranties. The representations and
---------------------------------------
warranties of the Company contained in this Agreement shall be true and
correct in all material respects (except to the extent such representations
contain a "materially", "material adverse effect" or similar qualification,
in which case they shall be true and correct in all respects) on and as of
the Stand-By Closing Date specified in the relevant Notice of Borrowing,
and the Company shall have delivered to the Purchasers a certificate, dated
the relevant Stand-By Closing Date, to such effect.
(b) Notice of Borrowing. Prior to the relevant Stand-By Closing Date,
-------------------
Purchasers shall have received a Notice of Borrowing with respect to the
Borrowing to be effected on such Stand-By Closing Date meeting the
requirements of Section 2.11.
(c) No Default. On the relevant Stand-By Closing Date there shall
----------
exist and be continuing no Default or Event of Default with respect to the
Notes, nor will such a Default or Event of Default result from the issuance
and sale of the relevant Stand-By Notes or the application of the proceeds
therefrom and the Company shall have delivered to Purchasers a certificate,
dated the relevant Stand-By Closing Date, to such effect.
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<PAGE>
(d) Approved Acquisition. The amount of Stand-By Notes issued and
--------------------
sold on any Stand-By Closing Date shall not exceed the lesser of (x) 25% of
the Acquisition Cost of an Approved Acquisition and (y) the amount by which
the Company's pro forma Net Funded Indebtedness is in excess of the
Company's Adjusted Consolidated EBITDA for the immediately preceding four
full fiscal quarters (after giving effect to such Approved Acquisition and
all previous acquisitions of Related Businesses) multiplied by 2.5.
Purchasers shall have received from the Company a certificate of the
President or Chief Financial Officer of the Company setting forth the use
of the proceeds from the issuance and sale of the Stand-By Notes and the
Acquisition Cost of the Approved Acquisition in connection with which the
Stand-By Notes are being issued.
(e) Leverage. The Company's pro forma ratio of Net Funded
--------
Indebtedness to Adjusted Consolidated EBITDA (after giving effect to the
relevant Approved Acquisition and all previous acquisitions of Related
Business and the use of proceeds of the Stand-By Notes to be sold on such
Stand-By Closing Date), for the four full fiscal quarters immediately
preceding the relevant Stand-By Closing Date shall be in excess of 2.5:1
and the Purchasers shall have received a certificate of the President or
the Chief Financial Officer of the Company to such effect.
(S) 9.03 Conditions Deemed Satisfied Under Certain Circumstances.
-------------------------------------------------------
For the avoidance of doubt, with respect to any Notes to be issued with respect
an Election Notice which specifies on an Election Amount, the conditions set
forth in Section 9.02 of this Agreement shall be deemed to be satisfied on the
relevant Stand-By Closing Date if such conditions were satisfied on Approved
Acquisition Closing Date specified in such Election Notice.
ARTICLE X
DEFAULTS AND REMEDIES
---------------------
(S)10.01 Events of Default. An "Event of Default" will occur under
-----------------
this Agreement and the Notes if:
(i) there shall be a default in the payment of any interest on any
Note when it becomes due and payable and such default shall continue for a
period of 30 days;
(ii) there shall be a default in the payment of the principal of
(or premium, if any, on) any Note on the Maturity Date, upon optional
redemption, upon required repurchase, upon declaration or otherwise;
(iii) the failure by the Company or any of its subsidiaries to
comply for 30 days after receiving notice of such noncompliance with any of
its obligations under Article VI
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<PAGE>
(in each case, other than a failure to purchase Notes, which shall
constitute an Event of Default under clause (ii) above);
(iv) Indebtedness of the Company or any subsidiary in excess of
[$_______]/1/ is not paid within any applicable grace period after its
stated maturity, upon mandatory or optional redemption or prepayment, upon
required repayment or otherwise, or is accelerated by the holders thereof
because of a default under the terms of such Indebtedness and such default
shall not have been cured or such acceleration rescinded after a 10-day
period;
(v) the Company or any subsidiary pursuant to or within the meaning
of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property;
(D) makes a general assignment for the benefit of its creditors;
(E) consents to or acquiesces in the institution of a bankruptcy
or an insolvency proceeding against it, or
(F) takes any corporate action to authorize or effect any of the
foregoing;
or takes any comparable action under any foreign laws relating to
insolvency;
(vi) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any subsidiary in an
involuntary case;
(B) appoints a Custodian of the Company or any subsidiary or for
any substantial part of the property of the Company or any of its
subsidiaries; or
________________________
/1/ This amount will track the judgment default in the Credit Facility.
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<PAGE>
(C) orders the winding up or liquidation of the Company or any
subsidiary; or any similar relief is granted under any foreign laws
and in each case the order, decree or relief remains unstayed and in
effect for 60 days; or
(vii) any judgment or decree for the payment of money in excess of
[$________]/2/ (to the extent not covered by insurance) is rendered against
the Company or a subsidiary and such judgment or decree shall remain
undischarged or unstayed for a period of 60 days after such judgment
becomes final and non-appealable.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Custodian" means any receiver, trustee, assignee,
liquidator, custodian or similar official under any Bankruptcy Law.
(S)10.02 Acceleration. If an Event of Default (other than an Event
------------
of Default specified in Section 10.01(v) or (vi)) occurs and is continuing, the
Holders of at least 25% in principal amount of all outstanding tranches of
Notes, voting as a single class, by notice to the Company may declare the
principal of and premium and accrued and unpaid interest, if any, on all the
Notes to be due and payable. Upon such declaration, such principal and premium
and accrued and unpaid interest shall be due and payable immediately. If an
Event of Default specified in Section 10.01(v) or (vi) occurs and is continuing,
the principal of and premium and accrued and unpaid interest on all the Notes
will become and be immediately due and payable without any declaration or other
act on the part of the Holders. The Holders of a majority in principal amount
of all outstanding, voting as a single class, may rescind an acceleration and
its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Default or Event
of Default or impair any right consequent thereto.
(S)10.03 Other Remedies. If an Event of Default occurs and is
--------------
continuing, the Holders may pursue any available remedy to collect the payment
of principal of or interest on the Notes or to enforce the performance of any
provision of the Notes or this Agreement. A delay or omission by any Holder in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. No remedy is exclusive of any other remedy. All available
remedies are cumulative to the extent permitted by law.
________________
/2/ This amount will track the judgment default in the Credit Facility.
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<PAGE>
(S)10.04 Waiver of Past Defaults. The Holders of a majority in
-----------------------
principal amount of all outstanding tranches of Notes, voting as a single class,
may waive an existing Default or Event of Default and its consequences except
(i) a Default or Event of Default in the payment of the principal of, premium,
if any, or interest on a Note or (ii) a Default or Event of Default in respect
of a provision that under Section 13.02 cannot be amended without the consent of
each Holder affected. When a Default or Event of Default is waived, it is
deemed cured, but no such waiver shall extend to any subsequent or other Default
or Event of Default or impair any consequent right.
(S)10.05 Rights of Holders to Receive Payment. Notwithstanding any
------------------------------------
other provision of this Agreement, right of any Holder to receive payment of
principal of and interest on the Notes held by such Holder, on or after the
respective due dates expressed in the Notes, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
ARTICLE XI
SUBORDINATION
-------------
(S)11.01 Securities Subordinated to Senior Indebtedness.
----------------------------------------------
Notwithstanding any other provision contained herein, each of the Company, for
itself and its successors, and each Holder and its successors and assigns, by
the acceptance of any Note, agrees that the payment of the principal of and
interest on and all other claims with respect to such Note is subordinated, to
the extent and in the manner provided in this Article XI, to the prior payment
in full of all Senior Indebtedness.
The provisions of this Article XI shall constitute a continuing offer
to all Persons who, in reliance upon such provisions, become holders of, or
continue to hold, Senior Indebtedness, and such provisions are made for the
benefit of the holders of Senior Indebtedness and shall be directly enforceable
by such holders.
(S)11.02 No Payment on Notes in Certain Circumstances. (a) No
--------------------------------------------
payment shall be made by the Company on account of the principal or interest
(except, if otherwise permissible under the terms of any Note, in the form of
Additional Notes) on any Note or to acquire any Note for cash or property, or on
account of the redemption provisions of this Note, (A) upon the maturity of any
Senior Indebtedness by lapse of time, acceleration (unless waived) or otherwise,
unless and until all principal of and interest on (including any post-petition
interest) such Senior Indebtedness and all other obligations in respect thereof
shall first be paid in full or such payment is duly provided for or (B) upon an
event of default in payment of any principal of, premium, if any, or interest on
any Senior Indebtedness when the same become due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or otherwise (a
"Payment Default"), unless and until such Payment Default has been cured or
waived or otherwise has ceased to exist.
(b) Upon the occurrence of an event of default (other than a Payment
Default) with respect to any Senior Indebtedness, as such event of default is
defined in the instrument
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<PAGE>
under which it is outstanding, permitting the holders (or any requisite
percentage thereof) to accelerate the maturity thereof or demand payment upon
written notice of such event of default which has been delivered by a holder (or
the requisite percentage thereof) of such Senior Indebtedness or by an
appropriate trustee, agent or representative for an issue of Senior Indebtedness
(a "Payment Notice"), then, unless and until such event of default shall have
been cured or waived or shall have otherwise ceased to exist, no payment shall
be made by the Company on account of the principal of or interest (except, if
otherwise permissible under the terms of any Note, in the form of Additional
Notes) on any Note or to acquire or repurchase any Note for cash or property, or
on account of the redemption provisions of this Note, in any such case.
Notwithstanding the foregoing, unless (i) the Senior Indebtedness in respect of
which such event of default exists has been declared due and payable in its
entirety within 89 days after the Payment Notice is delivered as set forth,
above (the "Payment Blockage Period"), and (ii) such declaration has not been
rescinded or waived, subject to paragraph (a) of this Section 11.02, the Company
shall be required to pay all sums not paid to a Holder during the Payment
Blockage Period due to the foregoing prohibitions and to resume all other
payments as and when due on any Note. Any number of Payment Notices may be
given; provided, that (A) not more than one Payment Notice shall be given within
a period of any 365 consecutive days and (B) no event of default that existed
upon the date of such Payment Notice or the commencement of such Payment
Blockage Period (whether or not such event of default is on the same issue of
Senior Indebtedness) shall be made the basis for the commencement of any other
Payment Blockage Period.
(c) In furtherance of the provisions of this Section 11.02, if,
notwithstanding the foregoing provisions of this Section 11.02, any payment or
distribution of assets of the Company on account of principal of or interest on
any Note or to acquire for cash, property or securities, or on account of the
redemption provisions of any Note shall be made by the Company and received by
any Holder at a time when such payment or distribution was prohibited by the
provisions of this Section 11.02, then, unless such payment or distribution is
no longer prohibited by this Section 11.02, such payment or distribution shall
be received and held in trust by such Holder for the benefit of the holders of
Senior Indebtedness of the Company, and shall be paid or delivered by such
Holder (subject to such contractual and legal priorities as may then exist among
the holders of Senior Indebtedness) to the holders of Senior Indebtedness of the
Company remaining unpaid or unprovided for or their representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any of such Senior Indebtedness of the Company may have been issued,
ratably according to the aggregate amounts on account of the Senior Indebtedness
of the Company held or represented by each, to the extent necessary to enable
payment in full (except as such payment otherwise shall have been provided for)
of all Senior Indebtedness of the Company remaining unpaid, after giving effect
to all concurrent payments and distributions and all provisions therefor to or
for the holders of such Senior Indebtedness, but only to the extent that as to
any holder of such Senior Indebtedness, as promptly as practical after learning
that such prohibited payment has been received by a Holder, such holder (or a
representative thereof) notifies such Holder of the amounts then due and owing
on such Senior Indebtedness, if any, held by such holder and only the amounts
specified in such notices to such Holder shall be paid to the holders of such
Senior Indebtedness.
(S)11.03 Notes Subordinated to Prior Payment of All Senior
-------------------------------------------------
Indebtedness on Dissolution, Liquidation or Reorganization of the Company. (a)
- -------------------------------------------------------------------------
Upon any distribution of assets
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<PAGE>
of the Company upon any dissolution, winding up, liquidation or reorganization
of the Company (whether in bankruptcy, insolvency or receivership proceedings or
upon any assignment for the benefit of creditors or otherwise) (each a
"Bankruptcy Event"):
(i) the holders of all Senior Indebtedness shall first be entitled
to receive payment in full of the principal and interest due or to become
due thereon and other amounts due on or in connection therewith before any
Holder is entitled to receive any payment on account of the principal of or
interest on, or any other claims with respect to, this Note;
(ii) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to which a
Holder would be entitled except for the provisions of this Article XI shall
be paid by the liquidating trustee or agent or other person making such a
payment or distribution, directly to the holders of Senior Indebtedness or
their representative, to the extent necessary to make payment in full
satisfactory to the holders of all Senior Indebtedness remaining unpaid,
after giving effect to any concurrent payment or distribution or provision
therefor to the holders of such Senior Indebtedness; and
(iii) notwithstanding the foregoing, if the holders of Senior
Indebtedness are required to disgorge, following a Bankruptcy Event, the
proceeds of any assets of the Company which are subject to such Bankruptcy
Event, and which proceeds were received by holders of Senior Indebtedness
prior to such Bankruptcy Event, due to a finding that the receipt of such
proceeds was preferential pursuant to the provisions of Section 547 of the
United States Bankruptcy Code, as amended or any similar provision of any
applicable Bankruptcy Law (a "Preference"), then the holders of Senior
Indebtedness or their representatives shall be entitled to recoup the
amount of such Preference from any and all payments or distributions of
assets of the Company previously made to or to be made to a Holder.
(b) If, notwithstanding the foregoing, any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, shall be received by any Holder on account of principal of or
interest on or any other claim with respect to any Note before all Senior
Indebtedness is paid in full, satisfactory to the holders of all Senior
Indebtedness remaining unpaid, such payment or distribution shall be received
and held in trust by such Holder for the benefit of the holders of the Senior
Indebtedness and shall be paid or delivered (subject to such contractual and
legal priorities as may then exist among the holders of such Senior
Indebtedness) by such Holder to the holders of the Senior Indebtedness remaining
unpaid or unprovided for or their representatives, or to the trustee or trustees
under any indenture pursuant to which any instruments evidencing any of such
Senior Indebtedness may have been issued, ratably according to the aggregate
amounts on account of the Senior Indebtedness held or represented by each, to
the extent necessary to enable payment in full of all Senior Indebtedness
remaining unpaid or unprovided for, after giving effect to all concurrent
payments and distributions and all provisions therefor to or for the holders of
such Senior Indebtedness as promptly and practical after learning that such
prohibited payment has been received by such Holder, such holder (or
representative thereof) notifies such Holder of the amounts then due and owing
on such Senior Indebted-
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<PAGE>
ness if any, held by such holder and only the amounts specified in such notices
to such Holder shall be paid to the holders of such Senior Indebtedness.
The Company shall give prompt written notice to such Holders of any
dissolution, winding up, liquidation or reorganization of the Company or
assignment for the benefit of creditors by the Company.
(S)11.04 Payee to Be Subrogated to Rights of Holders of Senior
-----------------------------------------------------
Indebtedness. Subject to the payment in full of all Senior Indebtedness, each
- ------------
Holder shall be subrogated to the rights of the holders of Senior Indebtedness
to receive payments or distributions of assets of the Company applicable to the
Senior Indebtedness until all amounts owing on the Notes shall be paid in full,
and for the purpose of such subrogation no such payments or distributions to the
holders of Senior Indebtedness by or on behalf of the Company or by or on behalf
of the Holders by virtue of this Article XI, which otherwise would have been
made to the Holders shall, as between the Company, the Holders and the Company's
creditors other than the holders of Senior Indebtedness, be deemed to be payment
by the Company to or on account of the Senior Indebtedness, it being understood
that the provisions of this Article XI are and are intended solely for the
purpose of defining the relative rights of the Holders, on the one hand, and the
holders of Senior Indebtedness, on the other hand.
If any payment or distribution to which any Holder would otherwise
have been entitled but for the provisions of this Article XI shall have been
applied, pursuant to the provisions of this Article XI, to the payment of
amounts payable under Senior Indebtedness of the Company, then Holder shall be
entitled to receive from the holders of such Senior Indebtedness any payments or
distributions received by such holders of Senior Indebtedness, in excess of the
amount sufficient to pay all amounts payable under or in respect of such Senior
Indebtedness in full.
(S)11.05 Obligations of the Company Unconditional. Nothing contained
----------------------------------------
in this Article XI or elsewhere in this Agreement or in any Note is intended to
or shall impair, as between the Company and the Holders, the obligation of the
Company, which is absolute and unconditional, to pay to the Holders the
principal of and interest on the Notes as and when the same shall become due and
payable in accordance with its terms, or is intended to or shall affect the
relative rights of the Holders and creditors of the Company other than the
holders of Senior Indebtedness, nor shall anything herein or therein prevent the
Holders from exercising all remedies otherwise permitted by applicable law upon
the occurrence of a Default or Event of Default under this Agreement or any
Note, subject to the rights, if any, under this Article XI of the holders of
Senior Indebtedness in respect of cash, property or securities of the Company
received upon the exercise of any such remedy. Upon any payment or distribution
of assets of the Company referred to in this Article XI, the Holders shall be
entitled to rely upon the delivery to it of any order or decree made by any
court of competent jurisdiction in which such dissolution, winding up,
liquidation or reorganization proceedings are pending, or a certificate of the
liquidating trustee or agent or other person making any distribution to the
Holders for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other Indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article XI.
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<PAGE>
(S)11.06 Subordination Rights Not Impaired by Acts or Omissions of
---------------------------------------------------------
the Company or Holders of Senior Indebtedness. No right of any present or
- ---------------------------------------------
future holders of any Senior Indebtedness to enforce subordination as provided
herein shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with the
terms of this Agreement or the Note regardless of any knowledge thereof which
any such holder may have or be otherwise charged with. The holders of Senior
Indebtedness may extend, renew, modify or amend the terms of the Senior
Indebtedness or any security therefor and release, sell or exchange such
security and otherwise deal freely with the Company, all without affecting the
liabilities and obligations of the Holders.
(S)11.07 Article XI Not to Prevent Events of Default. The failure to
-------------------------------------------
make a payment on account of principal of or interest on any Note reason of any
provision of this Article XI shall not be construed as preventing the occurrence
of an Event of Default under Section 10.01; provided, that all Senior
Indebtedness then or thereafter due or declared to be due shall first be paid in
full before the Holders are entitled to receive any payment from the Company of
principal of, or interest on or any other claim or amount with respect to this
Note or with respect to any purchase, acquisition or redemption of the Notes.
ARTICLE XII
INDENTURE
---------
(S)12.01 Indenture. The Company hereby acknowledges and agrees that,
---------
subject to the provisions of Section 3.40(a) hereof, the Purchasers (or any
subsequent Holder) may resell the Notes or a portion hereof in or outside the
United States. If the Notes or any portion thereof is sold by the Purchasers,
the Company hereby agrees to amend this Agreement and Notes and to enter into a
note purchase agreement, fiscal agency agreement and/or indenture, in each case
at such time as may be reasonably requested by the Purchasers and on such terms
and conditions as may be reasonably acceptable to the Purchasers.
ARTICLE XIII
AMENDMENTS
----------
(S)13.01 Without Consent of Holders. (a) The Company may amend this
--------------------------
Agreement or the Notes without notice to or consent of any Holder:
(1) to provide security for the Notes;
(2) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(3) to make any change that does not adversely affect the rights of
any Holder; or
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<PAGE>
(4) to surrender any right or power conferred upon the Company.
(b) After an amendment under this Section becomes effective, the
Company shall mail to the Holders a notice briefly describing such amendment.
However, the failure to give such notice to all Holders, or any defect therein,
shall not impair or affect the validity of an amendment under this Section.
(S)13.02 With Consent of Holders. (a) The Company may amend this
-----------------------
Agreement or the Notes with the consent of the Holders of at least a majority in
outstanding principal amount of all outstanding tranches of Notes, voting as a
single class, and any existing Default and its consequences (including, without
limitation, an acceleration of the Notes) or compliance with any provision of
this Agreement or the Notes may be waived with the consent of the Holders of a
majority in principal amount of, voting as a single class, all outstanding
tranches of Notes. Furthermore, subject to Section 10.04 or 10.05, the Holders
of a majority in aggregate principal amount of all outstanding tranches of
Notes, voting as a single class, may waive compliance in a particular instance
by the Company with any provision of this Agreement or the Notes. However,
without the consent of each Holder of a Note then outstanding, an amendment may
not:
(1) reduce the amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the rate of or extend the time for payment of interest on
any Note;
(3) reduce the principal of or change the Maturity Date of any Note;
(4) reduce the premium payable upon the repurchase of any Note or
change the time at which any Note may or shall be redeemed or repurchased in
accordance with this Agreement;
(5) make any Note payable in money other than that stated in the Note;
(6) modify or affect in any manner adverse to the Holders, the terms
and conditions of the obligation of the Company for the due and punctual
payment of the principal of or interest on Notes or to institute suit for
the enforcement of any payment on or with respect to the Notes;
(7) waive a Default or Event of Default in the payment of principal
of, premium, if any, or interest on, or redemption payment with respect to,
any Note (excluding any principal or interest due solely as a result of the
occurrence of a declaration of an Event of Default); or
(8) make any change in Section 10.04 or 10.05 or the third sentence of
this Section;
(9) amend, change or modify in any material respect the obligation of
the Company to make and consummate an offer pursuant to Section 8.05 of this
Agreement in
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<PAGE>
the event of a Change of Control or modify any of the provisions or
definitions with respect thereto;
(10) modify or change any provision of this Agreement or the related
definitions affecting the ranking of the Notes in a manner which adversely
affects the Holders; or
(11) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions.
(b) It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
(c) After an amendment under this Section becomes effective, the
Company shall mail to all Holders a notice briefly describing such amendment.
The failure to give such notice to all Holders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section.
(S)13.03 Revocation and Effect of Consents and Waivers. A consent to
---------------------------------------------
an amendment or a waiver by a Holder of a Note shall bind the Holder and every
subsequent Holder of that Note or portion of the Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent or waiver
is not made on the Note. After an amendment or waiver becomes effective, it
shall bind every Holder.
The Company shall fix a record date for the purpose of determining the
Holders entitled to give their consent or take any other action described above
or required or permitted to be taken pursuant to this Agreement. Upon the
fixing of a record date, then those Persons who were Holders at such record date
(or their duly designated proxies), and only those Persons, shall be entitled to
give such consent or to revoke any consent previously given or to take any such
action, whether or not such Persons continue to be Holders after such record
date. No such consent shall become valid or effective more than 120 days after
such record date.
ARTICLE XIV
MISCELLANEOUS
-------------
(S)14.01 Governing Law. The interpretation and construction of this
-------------
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of New York applicable to agreements executed and to be performed solely
within such State.
(S)14.02 Jurisdiction; Agents for Service of Process. Any judicial
-------------------------------------------
proceeding brought against any of the parties to this Agreement on any dispute
arising out of this Agreement or any matter related hereto may be brought in the
courts of the State of New York, or in the United States District Court for the
Southern District of New York, and, by execution and delivery of this Agreement,
each of the parties to this Agreement accepts the exclusive jurisdiction of such
courts, and irrevocably agrees to be bound by any judgment rendered thereby in
connec-
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<PAGE>
tion with this Agreement. The prevailing party or parties in any such litigation
shall be entitled to receive from the losing party or parties all costs and
expenses, including reasonable counsel fees, incurred by the prevailing party or
parties.
(S)14.03 Captions. The Article and Section captions used herein are
--------
for reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
(S)14.04 Notices. Any notice or other communication required or
-------
permitted under this Agreement shall be sufficiently given if delivered in
person or sent by telecopy or by registered or certified mail, postage prepaid,
addressed as follows: if to the Company, to Specialty Products & Insulation Co.,
1097 Commercial Avenue, P.O. Box 576, East Petersburg, Pennsylvania 17520-0576
(Fax No.: ________) Attention: Mr. Michael Hughes, with a copy to its counsel,
Dechert, Price & Rhoads, 4000 Bell Atlantic Tower, 1717 Arch Street,
Philadelphia, Pennsylvania 19103, Attention: Christopher G. Karras, Esq., (Fax
No.: (215) 994-2222); and if to any Purchaser, to such Purchaser at the address
set forth on Exhibit A attached hereto, with a copy to its counsel White & Case
---------
LLP, 1155 Avenue of the Americas, New York, NY 10036, Attention; William F.
Wynne, Jr., Esq., (Fax No.: (212) 354-8113), or such other address or number as
shall be furnished in writing by any such party, and such notice or
communication shall be deemed to have been given as of the date so delivered,
sent by telecopier or mailed.
(S)14.05 Parties in Interest. This Agreement may not be transferred,
-------------------
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
successors and permitted assigns.
(S)14.06 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which taken together shall constitute one instrument.
(S)14.07 Entire Agreement. This Agreement, including the other
----------------
documents referred to herein which form a part hereof, contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein and therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
(S)14.08 Severability. In case any provision in this Agreement shall
------------
be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
[Signature Pages Follow]
-39-
<PAGE>
IN WITNESS WHEREOF, the Company and each Purchaser has caused its
corporate name to be hereunto subscribed by its officer thereunto duly
authorized, all as of the day and year first above written.
SPECIALTY PRODUCTS & INSULATION CO.
By:______________________________________
Name:
Title:
EVERCORE CAPITAL PARTNERS L.P.
By Evercore Partners L.L.C., as
General Partner
By:______________________________________
Name:
Title:
EVERCORE CAPITAL PARTNERS (NQ) L.P.
By Evercore Partners L.L.C., as
General Partner
By:______________________________________
Name:
Title:
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<PAGE>
EVERCORE CAPITAL OFFSHORE
PARTNERS L.P.
By Evercore Partners L.L.C., as
General Partner
By:______________________________________
Name:
Title:
-41-
<PAGE>
EXHIBIT A
---------
COMMITMENTS
-----------
Purchaser Commitment
- --------- ----------
Evercore Capital Partners L.P.................................
65 East 55th Street
33rd Floor
New York, New York 10022
Attn: David G. Offensend
Evercore Capital Partners (NQ) L.P............................
65 East 55th Street
33rd Floor
New York, New York 10022
Attn: David G. Offensend
Evercore Capital Offshore Partners L.P........................
65 East 55th Street
33rd Floor
New York, New York 10022
Attn: David G. Offensend
<PAGE>
EXHIBIT B-1
-----------
FORM OF INITIAL NOTICE OF BORROWING
-----------------------------------
[________ __, ____]
Evercore Capital Partners L.P.
Evercore Capital Partners (NQ) L.P.
Evercore Capital Offshore Partners L.P.
65 East 55th Street
33rd Floor
New York, New York 10022
Attention: Mr. David G. Offensend
Ladies & Gentlemen:
The undersigned, Specialty Products & Insulation Co. (the "Company"),
refers to the Credit Agreement, dated as of November __, 1998, (as amended from
time to time, the "Agreement," the terms defined therein being used herein as
therein defined), among the undersigned and each of you, as Purchasers, and
hereby gives you notice, irrevocably, pursuant to Section 2.10 of the Agreement,
that the undersigned hereby requests a Borrowing under the Agreement, and in
that connection sets forth below the information relating to such Borrowing (the
"Proposed Borrowing") as required by Section 2.10 of the Agreement:
(i) The business day of the Proposed Borrowing is ____________.
(ii) The aggregate principal amount of the Notes to be issued and
sold in the Proposed Borrowing is $____________.
(iii) The Proposed Borrowing is to consist of Tranche A Notes.
(iv) The proposed use of proceeds of the Proposed Borrowing is
___________.
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 Article 7.01 of
the Agreement are true and correct, before and after giving effect to the
Proposed Borrowing and to the application of the proceeds thereof, as
though made on and as of such date; and
<PAGE>
Exhibit B-1
Page 2
(B) no Default or Event of Default under the Agreement has occurred
and is continuing, or would result from such Proposed Borrowing or from the
application of the proceeds thereof.
Very truly yours,
By_____________________________
Title:
<PAGE>
EXHIBIT B-2
-----------
FORM OF NOTICE OF BORROWING
---------------------------
[________ __, ____]
Evercore Capital Partners L.P.
Evercore Capital Partners (NQ) L.P.
Evercore Capital Offshore Partners L.P.
65 East 55th Street
33rd Floor
New York, New York 10022
Attention: Mr. David G. Offensend
Ladies & Gentlemen:
The undersigned, Specialty Products & Insulation Co. (the "Company"),
refers to the Credit Agreement, dated as of November __, 1998, (as amended from
time to time, the "Agreement," the terms defined therein being used herein as
therein defined), among the undersigned and each of you, as Purchasers, and
hereby gives you notice, irrevocably, pursuant to Section 2.10 of the Agreement,
that the undersigned hereby requests a Borrowing under the Agreement, and in
that connection sets forth below the information relating to such Borrowing (the
"Proposed Borrowing") as required by Section 2.10 of the Agreement:
(i) The business day of the Proposed Borrowing is ____________.
(ii) The aggregate principal amount of the Notes to be issued and
sold in the Proposed Borrowing is $____________.
(iii) The Proposed Borrowing is to consist of [Tranche A Notes]
[Tranche B Notes] [Tranche C Notes].
(iv) The proposed use of proceeds of the Proposed Borrowing is
___________. Such use of proceeds is consistent with Section 2.07 of the
Agreement.
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 Article 7.02 of
the Agreement are true and correct, before and after giving effect to the
Proposed Borrowing and to the application of the proceeds thereof, as
though made on and as of such date; and
<PAGE>
Exhibit B-2
Page 2
(B) no Default or Event of Default under the Agreement has occurred
and is continuing, or would result from such Proposed Borrowing or from the
application of the proceeds thereof.
Very truly yours,
By_____________________________
Title:
<PAGE>
EXHIBIT C
---------
FORM OF ACKNOWLEDGMENT
----------------------
[________ __, ____]
Specialty Products & Insulation Co.
1097 Commercial Avenue
P.O. Box 576
East Petersburg, PA 17520-0576
Attention: Chief Financial Officer
Ladies & Gentlemen:
Reference is made to that certain Note Purchase Agreement dated
November __, 1998, by and among you and us, as Purchasers, (as amended from time
to time, the "Agreement," the terms defined therein being used herein as
defined), and to that certain Election Notice dated as of [________ __, ____]
delivered by you in respect of the acquisition of ________________ (the
"Acquisition"). Such Election Notice specified an Election Amount of
$_____________ aggregate principal amount of [Tranche A Notes] [Tranche B Notes]
[Tranche C Notes]. This Acknowledgment is delivered pursuant to Section 2.12 of
the Agreement.
This Acknowledgment constitutes our confirmation that the Election
Notice is in proper form, that the Acquisition is an Approved Acquisition and
that in reliance upon the statements made therein (it being understood that we
have not made any independent investigation of the statements contained therein)
we hereby irrevocably commit to purchase an aggregate of [$_______] principal
amount of [Tranche A Notes] [Tranche B Notes] [Tranche C Notes] pro rata in
accordance with our Commitments on the Stand-By Closing Date immediately
following the date of this Acknowledgment.
[You are hereby authorized to deliver this Acknowledgment to any
banking institution in connection with a request for credit therefrom in
connection with the financing of any Approved Acquisition and we hereby
authorize any such banking institution to rely on the commitment contained
herein in extending credit to you in connection with any Approved Acquisition.]
Very truly yours,
EVERCORE CAPITAL PARTNERS L.P.
EVERCORE CAPITAL PARTNERS (NQ) L.P.
EVERCORE CAPITAL OFFSHORE PARTNERS L.P.
By Evercore Partners L.L.C., as General Partner
By____________________________________
Name:
Title:
<PAGE>
EXHIBIT D-1
-----------
FORM OF TRANCHE A NOTE
----------------------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS THEREOF
Dated: [______]/3/
No. ____ $________________/4/
SPECIALTY PRODUCTS & INSULATION CO.
__%/5/ Junior Subordinated Pay-in-Kind Tranche A Notes due 2007
SPECIALTY PRODUCTS & INSULATION CO., a Pennsylvania corporation (the "Company"),
for value received, promises to pay [_____________]/6/, or its registered
assigns, the principal sum of [__________]/7/ ($[_________])/8/ on March 30,
2007.
This is one of those certain Tranche A Notes described in that certain
Note Purchase Agreement dated November __, 1988 by and among the Company,
Evercore Capital Partners L.P., Evercore Capital Partners (NQ) L.P., and
Evercore Capital Offshore Partners L.P. (the "Agreement"). Capitalized terms
used herein have the meanings assigned to them in the Agreement unless otherwise
indicated.
____________________
/3/ Insert issue date
/4/ Insert principal amount in numerals
/5/ Insert applicable Interest Rate
/6/ Insert name of payee
/7/ Insert principal amount in words
/8/ Insert principal amount in numerals
<PAGE>
Exhibit D-1
Page 2
1. Interest. The Company promises to pay interest on the unpaid
principal amount of this Note at the rate and in the manner specified below.
The Company shall pay, in cash, interest on the principal amount of this Note at
the rate per annum of ___%/9/; provided, however, that, subject to the last two
sentences of this paragraph on each Interest Payment Date, the Company may, at
its option and in its sole discretion, in lieu of the payment of interest due in
cash on this Note, pay interest on this Note through the issuance of Additional
Notes in an aggregate principal amount equal to the amount of interest that
would be payable with respect to this Note, if such interest were paid in cash.
The Company shall notify the Holders in writing of its election to pay interest
on this Note through the issuance of Additional Notes not less than 10 nor more
than 45 days prior to the record date for the Interest Payment Date on which
Additional Notes will be issued. Additional Notes shall be governed by, and
entitled to the benefits of, the Agreement and shall be subject to the terms of
the Agreement and shall be subject to the same terms (including the Interest
Rate from time to time payable thereon) as this Note (except, as the case may
be, with respect to the issuance date and aggregate principal amount). The
Company will pay interest semiannually in arrears on March 31 and September 30
of each year (each an "Interest Payment Date"), commencing [March 31, 1999], or
if any such day is not a business day on the next succeeding business day.
Interest will be computed on the basis of a 360-day year consisting of twelve
30-day months. Interest shall accrue from the most recent Interest Payment Date
to which interest has been paid or, if no interest has been paid, from the date
of the original issuance of the Notes. To the extent lawful, the Company shall
pay interest on overdue principal at the rate of 2% per annum in excess of the
then applicable interest rate on the Notes; it shall pay interest on overdue
installments of interest (without regard to any applicable grace periods) at the
same rate to the extent lawful. In the event that the Company elects in respect
of any Interest Payment Date to pay interest through the issuance of Additional
Notes, interest on this Note shall be paid in Additional Tranche A Notes.
Interest in respect of this Note will be payable initially in Additional Tranche
A Notes. If at any time after the Closing Date, the Company elects to pay
interest in respect of the Notes in cash, the Company may thereafter
subsequently elect, in accordance with this paragraph, to pay interest on the
Notes in whole, but not in part, in Additional Tranche A Notes (a "Subsequent
PIK Election"); provided that the Company shall not be entitled to make more
--------
than three Subsequent PIK Elections with respect to the Notes.
2. Method of Payment. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the Record Date immediately preceding the Interest
Payment Date, even if such Notes are canceled after such Record Date and on or
before such Interest Payment Date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company shall pay principal,
premium, if any, and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts ("U.S. Legal
Tender"). However, the Company may pay principal, premium, if any, and interest
by its check payable in such U.S. Legal
_______________________
/9/ Insert applicable Interest Rate
<PAGE>
Exhibit D-1
Page 3
Tender. The Company may deliver any such interest payment to the Paying Agent or
to a Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, the Company will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without prior notice to any Holder.
4. Note Purchase Agreement. The Company issued the Notes pursuant to
the Agreement. The terms of the Notes include those stated in the Agreement.
The Notes are subject to all such terms, and Holders are referred to the
Agreement for a statement of such terms. The terms of the Agreement shall
govern any inconsistencies between the Agreement and this Note. The Initial
Notes and the Additional Notes are treated as a single class of securities under
the Agreement. The terms of the Notes include those stated in the Agreement.
5. Optional Redemption. The Notes will be redeemable, at the
Company's option, in whole or in part, at any time upon not less than 30 nor
more than 60 days' prior notice mailed by first-class mail to each holder's
registered address, at a redemption price equal to 100% of the principal amount
hereof, plus accrued and unpaid interest to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date):
6. Repurchase at Option of Holder. Section 8.05 of the Agreement
provides that upon the occurrence of a Change of Control (as defined in the
Agreement), and subject to the further limitations contained therein, the
Company will make an offer to purchase the Notes in accordance with procedures
set forth in the Agreement.
7. Selection and Notice of Redemption. In the case of any partial
redemption, selection of the Notes for redemption will be made by the Company in
compliance with the requirements of Section 6.02 of the Agreement. Securities
may be redeemed in part in multiples of $1,000 principal amount only. Notice of
redemption will be sent, by first class mail, postage prepaid, at least 30 days
but not more than 60 days prior to the date fixed for redemption to each holder
whose Notes are to be redeemed at the last address for such holder then shown on
the registry books. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after any redemption date, interest
will cease to accrue on the Notes or part thereof called for redemption as long
as the Company has deposited with the Paying Agent in trust for the Holders
funds in satisfaction of the redemption price pursuant to the Agreement.
8. Subordination. The Company's payment of the principal of and
interest on the Notes is subordinated and subject to the prior payment in full
of the Company's Senior Indebtedness as more fully set forth in the Agreement.
Each Holder of Notes by its acceptance hereof covenants and agrees that all
payments of the principal and interest on the Notes by the Company shall be
subordinated in accordance with Article XI of the Agreement and each Holder
accepts and agrees to be bound by such provisions.
<PAGE>
Exhibit D-1
Page 4
9. Denominations, Transfer, Exchange. The Notes (other than
Additional Notes) are in registered form without coupons in denominations of
$1,000 and integral multiples of $1,000. The transfer of Notes may be registered
and Notes may be exchanged as provided in the Agreement. The Registrar and the
Company may require a Holder among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Agreement. The Registrar need not exchange or register
the transfer of any Note or portion of a Note selected for redemption. Also, it
need not exchange or register the transfer of any Notes during a period
beginning at the opening of business on a business day 15 days before the day of
any selection of Notes to be redeemed and ending at the close of business on the
day of selection or during the period between a Record Date and the
corresponding Interest Payment Date.
10. Persons Deemed Owners. Prior to due presentment to the Registrar
or the Company for registration of the transfer of this Note, the Company and,
any Agent may deem and treat the Person in whose name this Note is registered as
its absolute owner for the purpose of receiving payment of principal of,
premium, if any, and interest on this Note and for all other purposes
whatsoever, whether or not this Note is overdue, and neither the Company nor any
Agent shall be affected by notice to the contrary. The registered Holder shall
be treated as its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions provided
in the Agreement, the Agreement or the Notes may be amended with the written
consent of the Holders of a majority in principal amount of all outstanding
tranches of the Notes, voting as a single class, and any existing Default or
Event of Default (except a payment default) may be waived with the consent of
the Holders of a majority in principal amount of all outstanding tranches of the
Notes, voting as a single class. Without the consent of any Holder, the
Agreement or the Notes may be amended to, among other things, cure any
ambiguity, defect or inconsistency, or to make any change that does not
adversely affect in any material respect the rights of any Holder.
12. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Holders of at least 25% in principal amount of all outstanding
tranches of the Notes, voting as a single class, by notice to the Company may
declare the principal of and accrued and unpaid interest, if any, on all the
Notes to be due and payable. Upon such a declaration, such principal and
accrued and unpaid interest shall be due and payable immediately. If an Event
of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Company occurs and is continuing, the principal of and
accrued and unpaid interest on all the Notes will become and be immediately due
and payable without any declaration or other act on the part of Any holders.
Under certain circumstances, the holders of a majority in principal amount of
all outstanding tranches of the Notes, voting as a single class, may rescind any
such acceleration with respect to the Notes and its consequences.
13. Restrictive Covenants. The Agreement imposes certain limitations
on the ability of the Company and its subsidiaries to, among other things, incur
additional Indebtedness, pay dividends or make certain other restricted
payments, consummate certain asset sales, enter into certain transactions with
affiliates, incur liens, create restrictions on the ability of a subsidiary to
pay dividends or make certain payments, sell or issue preferred stock of
subsidiaries to third
<PAGE>
Exhibit D-1
Page 5
parties, merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the assets of
the Company. Such limitations are subject to a number of important
qualifications and exceptions provided for in the Agreement.
14. Governing Law. The Laws of the State of New York shall govern
this Note, without regard to principles of conflict of laws.
The Company will furnish to any Holder upon written request and
without charge a copy of the Agreement. Request may be made to the Company at:
Specialty Products & Insulation Co., 1097 Commerce Avenue, P.O. Box 576, East
Petersburg, Pennsylvania 17520-0576, Attention: Secretary.
SPECIALTY PRODUCTS & INSULATION CO.
By________________________________________
Name:
Title:
By________________________________________
Name:
Title:
<PAGE>
EXHIBIT D-2
-----------
FORM OF TRANCHE B NOTE
----------------------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS THEREOF
DATED: [______]/10/
No. ____ $______________/11/
SPECIALTY PRODUCTS & INSULATION CO.
__%/12/ Junior Subordinated Pay-in-Kind Tranche B Notes due 2007
SPECIALTY PRODUCTS & INSULATION CO., a Pennsylvania corporation (the "Company"),
for value received, promises to pay [_____________]/13/, or its registered
assigns, the principal sum of [__________]/14/ ($[_________])/15/ on March 30,
2007.
This is one of those certain Tranche B Notes described in that certain
Note Purchase Agreement dated November __, 1988 by and among the Company,
Evercore Capital Partners L.P., Evercore Capital Partners (NQ) L.P., and
Evercore Capital Offshore Partners L.P. (the "Agreement"). Capitalized terms
used herein have the meanings assigned to them in the Agreement unless otherwise
indicated.
________________________
/10/ Insert issue date
/11/ Insert principal amount in numerals
/12/ Insert applicable Interest Rate
/13/ Insert name of payee
/14/ Insert principal amount in words
/15/ Insert principal amount in numerals
<PAGE>
Exhibit D-2
Page 2
1. Interest. The Company promises to pay interest on the unpaid
principal amount of this Note at the rate and in the manner specified below.
The Company shall pay, in cash, interest on the principal amount of this Note at
the rate per annum of ___%/16/; provided, however, that, subject to the last two
sentences of this paragraph on each Interest Payment Date, the Company may, at
its option and in its sole discretion, in lieu of the payment of interest due in
cash on this Note, pay interest on this Note through the issuance of Additional
Notes in an aggregate principal amount equal to the amount of interest that
would be payable with respect to this Note, if such interest were paid in cash.
The Company shall notify the Holders in writing of its election to pay interest
on this Note through the issuance of Additional Notes not less than 10 nor more
than 45 days prior to the record date for the Interest Payment Date on which
Additional Notes will be issued. Additional Notes shall be governed by, and
entitled to the benefits of, the Agreement and shall be subject to the terms of
the Agreement and shall be subject to the same terms (including the Interest
Rate from time to time payable thereon) as this Note (except, as the case may
be, with respect to the issuance date and aggregate principal amount). The
Company will pay interest semiannually in arrears on March 31 and September 30
of each year (each an "Interest Payment Date"), commencing [March 31, 1999], or
if any such day is not a business day on the next succeeding business day.
Interest will be computed on the basis of a 360-day year consisting of twelve
30-day months. Interest shall accrue from the most recent Interest Payment Date
to which interest has been paid or, if no interest has been paid, from the date
of the original issuance of the Notes. To the extent lawful, the Company shall
pay interest on overdue principal at the rate of 2% per annum in excess of the
then applicable interest rate on the Notes; it shall pay interest on overdue
installments of interest (without regard to any applicable grace periods) at the
same rate to the extent lawful. In the event that the Company elects in respect
of any Interest Payment Date to pay interest through the issuance of Additional
Notes, interest on this Note shall be paid in Additional Tranche B Notes.
Interest in respect of this Note will be payable initially in Additional Tranche
B Notes. If at any time after the Closing Date, the Company elects to pay
interest in respect of the Notes in cash, the Company may thereafter
subsequently elect, in accordance with this paragraph, to pay interest on the
Notes in whole, but not in part, in Additional Tranche B Notes (a "Subsequent
PIK Election"); provided that the Company shall not be entitled to make more
--------
than three Subsequent PIK Elections with respect to the Notes.
2. Method of Payment. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the Record Date immediately preceding the Interest
Payment Date, even if such Notes are canceled after such Record Date and on or
before such Interest Payment Date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company shall pay principal,
premium, if any, and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts ("U.S. Legal
Tender"). However, the Company may pay principal, premium, if any, and interest
by its check payable in such U.S. Legal
__________________________
/16/ Insert applicable Interest Rate
<PAGE>
Exhibit D-2
Page 3
Tender. The Company may deliver any such interest payment to the Paying Agent or
to a Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, the Company will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without prior notice to any Holder.
4. Note Purchase Agreement. The Company issued the Notes pursuant to
the Agreement. The terms of the Notes include those stated in the Agreement.
The Notes are subject to all such terms, and Holders are referred to the
Agreement for a statement of such terms. The terms of the Agreement shall
govern any inconsistencies between the Agreement and this Note. The Initial
Notes and the Additional Notes are treated as a single class of securities under
the Agreement. The terms of the Notes include those stated in the Agreement.
5. Optional Redemption. The Notes will be redeemable, at the
Company's option, in whole or in part, at any time upon not less than 30 nor
more than 60 days' prior notice mailed by first-class mail to each holder's
registered address, at a redemption price equal to 100% of the principal amount
hereof, plus accrued and unpaid interest to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date):
6. Repurchase at Option of Holder. Section 8.05 of the Agreement
provides that upon the occurrence of a Change of Control (as defined in the
Agreement), and subject to the further limitations contained therein, the
Company will make an offer to purchase the Notes in accordance with procedures
set forth in the Agreement.
7. Selection and Notice of Redemption. In the case of any partial
redemption, selection of the Notes for redemption will be made by the Company in
compliance with the requirements of Section 6.02 of the Agreement. Securities
may be redeemed in part in multiples of $1,000 principal amount only. Notice of
redemption will be sent, by first class mail, postage prepaid, at least 30 days
but not more than 60 days prior to the date fixed for redemption to each holder
whose Notes are to be redeemed at the last address for such holder then shown on
the registry books. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after any redemption date, interest
will cease to accrue on the Notes or part thereof called for redemption as long
as the Company has deposited with the Paying Agent in trust for the Holders
funds in satisfaction of the redemption price pursuant to the Agreement.
8. Subordination. The Company's payment of the principal of and
interest on the Notes is subordinated and subject to the prior payment in full
of the Company's Senior Indebtedness as more fully set forth in the Agreement.
Each Holder of Notes by its acceptance hereof covenants and agrees that all
payments of the principal and interest on the Notes by the Company shall be
subordinated in accordance with Article XI of the Agreement and each Holder
accepts and agrees to be bound by such provisions.
<PAGE>
Exhibit D-2
Page 4
9. Denominations, Transfer, Exchange. The Notes (other than
Additional Notes) are in registered form without coupons in denominations of
$1,000 and integral multiples of $1,000. The transfer of Notes may be registered
and Notes may be exchanged as provided in the Agreement. The Registrar and the
Company may require a Holder among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Agreement. The Registrar need not exchange or register
the transfer of any Note or portion of a Note selected for redemption. Also, it
need not exchange or register the transfer of any Notes during a period
beginning at the opening of business on a business day 15 days before the day of
any selection of Notes to be redeemed and ending at the close of business on the
day of selection or during the period between a Record Date and the
corresponding Interest Payment Date.
10. Persons Deemed Owners. Prior to due presentment to the Registrar
or the Company for registration of the transfer of this Note, the Company and,
any Agent may deem and treat the Person in whose name this Note is registered as
its absolute owner for the purpose of receiving payment of principal of,
premium, if any, and interest on this Note and for all other purposes
whatsoever, whether or not this Note is overdue, and neither the Company nor any
Agent shall be affected by notice to the contrary. The registered Holder shall
be treated as its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions provided
in the Agreement, the Agreement or the Notes may be amended with the written
consent of the Holders of a majority in principal amount of all outstanding
tranches of the Notes, voting as a single class, and any existing Default or
Event of Default (except a payment default) may be waived with the consent of
the Holders of a majority in principal amount of all outstanding tranches of the
Notes, voting as a single class. Without the consent of any Holder, the
Agreement or the Notes may be amended to, among other things, cure any
ambiguity, defect or inconsistency, or to make any change that does not
adversely affect in any material respect the rights of any Holder.
12. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Holders of at least 25% in principal amount of all outstanding
tranches of the Notes, voting as a single class, by notice to the Company may
declare the principal of and accrued and unpaid interest, if any, on all the
Notes to be due and payable. Upon such a declaration, such principal and
accrued and unpaid interest shall be due and payable immediately. If an Event
of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Company occurs and is continuing, the principal of and
accrued and unpaid interest on all the Notes will become and be immediately due
and payable without any declaration or other act on the part of Any holders.
Under certain circumstances, the holders of a majority in principal amount of
all outstanding tranches of the Notes, voting as a single class, may rescind any
such acceleration with respect to the Notes and its consequences.
13. Restrictive Covenants. The Agreement imposes certain limitations
on the ability of the Company and its subsidiaries to, among other things, incur
additional Indebtedness, pay dividends or make certain other restricted
payments, consummate certain asset sales, enter into certain transactions with
affiliates, incur liens, create restrictions on the ability of a subsidiary to
pay dividends or make certain payments, sell or issue preferred stock of
subsidiaries to third
<PAGE>
Exhibit D-2
Page 5
parties, merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the assets of
the Company. Such limitations are subject to a number of important
qualifications and exceptions provided for in the Agreement.
14. Governing Law. The Laws of the State of New York shall govern
this Note, without regard to principles of conflict of laws.
The Company will furnish to any Holder upon written request and
without charge a copy of the Agreement. Request may be made to the Company at:
Specialty Products & Insulation Co., 1097 Commerce Avenue, P.O. Box 576, East
Petersburg, Pennsylvania 17520-0576, Attention: Secretary.
SPECIALTY PRODUCTS & INSULATION CO.
By______________________________________
Name:
Title:
By______________________________________
Name:
Title:
<PAGE>
EXHIBIT D-3
-----------
FORM OF TRANCHE C NOTE
----------------------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS THEREOF
DATED: [______]/17/
No. ____ $________________/18/
SPECIALTY PRODUCTS & INSULATION CO.
__%/19/ Junior Subordinated Pay-in-Kind Tranche C Notes due 2007
SPECIALTY PRODUCTS & INSULATION CO., a Pennsylvania corporation (the "Company"),
for value received, promises to pay [_____________]/20/, or its registered
assigns, the principal sum of [__________]/21/ ($[_________])/22/ on March 30,
2007.
This is one of those certain Tranche C Notes described in that certain
Note Purchase Agreement dated November __, 1988 by and among the Company,
Evercore Capital Partners L.P., Evercore Capital Partners (NQ) L.P., and
Evercore Capital Offshore Partners L.P. (the "Agreement"). Capitalized terms
used herein have the meanings assigned to them in the Agreement unless otherwise
indicated.
____________________
/17/ Insert issue date
/18/ Insert principal amount in numerals
/19/ Insert applicable Interest Rate
/20/ Insert name of payee
/21/ Insert principal amount in words
/22/ Insert principal amount in numerals
<PAGE>
Exhibit D-3
Page 2
15. Interest. The Company promises to pay interest on the unpaid
principal amount of this Note at the rate and in the manner specified below.
The Company shall pay, in cash, interest on the principal amount of this Note at
the rate per annum of ___%/23/; provided, however, that, subject to the last two
sentences of this paragraph on each Interest Payment Date, the Company may, at
its option and in its sole discretion, in lieu of the payment of interest due in
cash on this Note, pay interest on this Note through the issuance of Additional
Notes in an aggregate principal amount equal to the amount of interest that
would be payable with respect to this Note, if such interest were paid in cash.
The Company shall notify the Holders in writing of its election to pay interest
on this Note through the issuance of Additional Notes not less than 10 nor more
than 45 days prior to the record date for the Interest Payment Date on which
Additional Notes will be issued. Additional Notes shall be governed by, and
entitled to the benefits of, the Agreement and shall be subject to the terms of
the Agreement and shall be subject to the same terms (including the Interest
Rate from time to time payable thereon) as this Note (except, as the case may
be, with respect to the issuance date and aggregate principal amount). The
Company will pay interest semiannually in arrears on March 31 and September 30
of each year (each an "Interest Payment Date"), commencing [March 31, 1999], or
if any such day is not a business day on the next succeeding business day.
Interest will be computed on the basis of a 360-day year consisting of twelve
30-day months. Interest shall accrue from the most recent Interest Payment Date
to which interest has been paid or, if no interest has been paid, from the date
of the original issuance of the Notes. To the extent lawful, the Company shall
pay interest on overdue principal at the rate of 2% per annum in excess of the
then applicable interest rate on the Notes; it shall pay interest on overdue
installments of interest (without regard to any applicable grace periods) at the
same rate to the extent lawful. In the event that the Company elects in respect
of any Interest Payment Date to pay interest through the issuance of Additional
Notes, interest on this Note shall be paid in Additional Tranche C Notes.
Interest in respect of this Note will be payable initially in Additional Tranche
C Notes. If at any time after the Closing Date, the Company elects to pay
interest in respect of the Notes in cash, the Company may thereafter
subsequently elect, in accordance with this paragraph, to pay interest on the
Notes in whole, but not in part, in Additional Tranche C Notes (a "Subsequent
PIK Election"); provided that the Company shall not be entitled to make more
--------
than three Subsequent PIK Elections with respect to the Notes.
16. Method of Payment. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the Record Date immediately preceding the Interest
Payment Date, even if such Notes are canceled after such Record Date and on or
before such Interest Payment Date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company shall pay principal,
premium, if any, and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts ("U.S. Legal
Tender"). However, the Company may pay principal, premium, if any, and interest
by its check payable in such U.S. Legal
_________________________
/23/ Insert applicable Interest Rate
<PAGE>
Exhibit D-3
Page 3
Tender. The Company may deliver any such interest payment to the Paying Agent or
to a Holder at the Holder's registered address.
17. Paying Agent and Registrar. Initially, the Company will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without prior notice to any Holder.
18. Note Purchase Agreement. The Company issued the Notes pursuant
to the Agreement. The terms of the Notes include those stated in the Agreement.
The Notes are subject to all such terms, and Holders are referred to the
Agreement for a statement of such terms. The terms of the Agreement shall
govern any inconsistencies between the Agreement and this Note. The Initial
Notes and the Additional Notes are treated as a single class of securities under
the Agreement. The terms of the Notes include those stated in the Agreement.
19. Optional Redemption. The Notes will be redeemable, at the
Company's option, in whole or in part, at any time upon not less than 30 nor
more than 60 days' prior notice mailed by first-class mail to each holder's
registered address, at a redemption price equal to 100% of the principal amount
hereof, plus accrued and unpaid interest to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date):
20. Repurchase at Option of Holder. Section 8.05 of the Agreement
provides that upon the occurrence of a Change of Control (as defined in the
Agreement), and subject to the further limitations contained therein, the
Company will make an offer to purchase the Notes in accordance with procedures
set forth in the Agreement.
21. Selection and Notice of Redemption. In the case of any partial
redemption, selection of the Notes for redemption will be made by the Company in
compliance with the requirements of Section 6.02 of the Agreement. Securities
may be redeemed in part in multiples of $1,000 principal amount only. Notice of
redemption will be sent, by first class mail, postage prepaid, at least 30 days
but not more than 60 days prior to the date fixed for redemption to each holder
whose Notes are to be redeemed at the last address for such holder then shown on
the registry books. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after any redemption date, interest
will cease to accrue on the Notes or part thereof called for redemption as long
as the Company has deposited with the Paying Agent in trust for the Holders
funds in satisfaction of the redemption price pursuant to the Agreement.
22. Subordination. The Company's payment of the principal of and
interest on the Notes is subordinated and subject to the prior payment in full
of the Company's Senior Indebtedness as more fully set forth in the Agreement.
Each Holder of Notes by its acceptance hereof covenants and agrees that all
payments of the principal and interest on the Notes by the Company shall be
subordinated in accordance with Article XI of the Agreement and each Holder
accepts and agrees to be bound by such provisions.
<PAGE>
Exhibit D-3
Page 4
23. Denominations, Transfer, Exchange. The Notes (other than
Additional Notes) are in registered form without coupons in denominations of
$1,000 and integral multiples of $1,000. The transfer of Notes may be registered
and Notes may be exchanged as provided in the Agreement. The Registrar and the
Company may require a Holder among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Agreement. The Registrar need not exchange or register
the transfer of any Note or portion of a Note selected for redemption. Also, it
need not exchange or register the transfer of any Notes during a period
beginning at the opening of business on a business day 15 days before the day of
any selection of Notes to be redeemed and ending at the close of business on the
day of selection or during the period between a Record Date and the
corresponding Interest Payment Date.
24. Persons Deemed Owners. Prior to due presentment to the Registrar
or the Company for registration of the transfer of this Note, the Company and,
any Agent may deem and treat the Person in whose name this Note is registered as
its absolute owner for the purpose of receiving payment of principal of,
premium, if any, and interest on this Note and for all other purposes
whatsoever, whether or not this Note is overdue, and neither the Company nor any
Agent shall be affected by notice to the contrary. The registered Holder shall
be treated as its owner for all purposes.
25. Amendments and Waivers. Subject to certain exceptions provided
in the Agreement, the Agreement or the Notes may be amended with the written
consent of the Holders of a majority in principal amount of all outstanding
tranches of the Notes, voting as a single class, and any existing Default or
Event of Default (except a payment default) may be waived with the consent of
the Holders of a majority in principal amount of all outstanding tranches of the
Notes, voting as a single class. Without the consent of any Holder, the
Agreement or the Notes may be amended to, among other things, cure any
ambiguity, defect or inconsistency, or to make any change that does not
adversely affect in any material respect the rights of any Holder.
26. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Holders of at least 25% in principal amount of all outstanding
tranches of the Notes, voting as a single class, by notice to the Company may
declare the principal of and accrued and unpaid interest, if any, on all the
Notes to be due and payable. Upon such a declaration, such principal and
accrued and unpaid interest shall be due and payable immediately. If an Event
of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Company occurs and is continuing, the principal of and
accrued and unpaid interest on all the Notes will become and be immediately due
and payable without any declaration or other act on the part of Any holders.
Under certain circumstances, the holders of a majority in principal amount of
all outstanding tranches of the Notes, voting as a single class, may rescind any
such acceleration with respect to the Notes and its consequences.
27. Restrictive Covenants. The Agreement imposes certain limitations
on the ability of the Company and its subsidiaries to, among other things, incur
additional Indebtedness, pay dividends or make certain other restricted
payments, consummate certain asset sales, enter into certain transactions with
affiliates, incur liens, create restrictions on the ability of a subsidiary to
pay dividends or make certain payments, sell or issue preferred stock of
subsidiaries to third
<PAGE>
Exhibit D-3
Page 5
parties, merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the assets of
the Company. Such limitations are subject to a number of important
qualifications and exceptions provided for in the Agreement.
28. Governing Law. The Laws of the State of New York shall govern
this Note, without regard to principles of conflict of laws.
The Company will furnish to any Holder upon written request and
without charge a copy of the Agreement. Request may be made to the Company at:
Specialty Products & Insulation Co., 1097 Commerce Avenue, P.O. Box 576, East
Petersburg, Pennsylvania 17520-0576, Attention: Secretary.
SPECIALTY PRODUCTS & INSULATION CO.
By________________________________________
Name:
Title:
By________________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.9
================================================================================
NOTE AGREEMENT
Dated as of November __, 1998
Between
SPECIALTY PRODUCTS & INSULATION CO.,
And
IREX CORPORATION
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - DEFINITIONS....................................................................................... 1
Section 1.1 Definitions............................................................................ 1
ARTICLE II - THE NOTES........................................................................................ 6
Section 2.1 Form and Dating........................................................................ 6
Section 2.2 Execution.............................................................................. 6
Section 2.3 Registrar and Paying Agent............................................................. 6
Section 2.4 Transfer and Exchange.................................................................. 7
Section 2.5 Replacement Securities................................................................. 7
Section 2.6 Outstanding Securities................................................................. 8
Section 2.7 Treasury Notes......................................................................... 8
Section 2.8 Cancellation........................................................................... 8
Section 2.9 Deposit of Moneys...................................................................... 8
Section 2.10 Restrictive Legends.................................................................... 8
Section 2.11 Persons Deemed Owners.................................................................. 9
Section 2.12 Record Date............................................................................ 9
ARTICLE III - ISSUANCE AND SALE OF NOTES..................................................................... 9
Section 3.1 Issuance of Notes..................................................................... 9
Section 3.2 Closing............................................................................... 9
ARTICLE IV - REDEMPTION...................................................................................... 9
Section 4.1 Notices to Holders.................................................................... 9
Section 4.2 Selection of Notes To Be Redeemed..................................................... 10
Section 4.3 Notice of Redemption.................................................................. 10
Section 4.4 Effect of Notice of Redemption........................................................ 11
Section 4.5 Deposit of Redemption Price........................................................... 11
Section 4.6 Securities Redeemed in Part........................................................... 11
ARTICLE V - REPRESENTATIONS OF THE COMPANY................................................................... 12
Section 5.1 Representations of the Company........................................................ 12
Section 5.2 Representations of Purchaser.......................................................... 14
ARTICLE VI - COVENANTS....................................................................................... 15
Section 6.1 Payment of Notes...................................................................... 15
Section 6.2 Reports............................................................................... 16
Section 6.3 Limitation on Dividends............................................................... 16
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 6.4 Leverage.............................................................................. 16
Section 6.5 Limitation on Affiliate Transactions.................................................. 17
Section 6.6 Change of Control..................................................................... 17
Section 6.7 Further Instruments and Acts.......................................................... 18
Section 6.8 Taxes................................................................................. 18
Section 6.9 Stay, Extension and Usury Laws........................................................ 18
Section 6.10 Corporate Existence................................................................... 19
ARTICLE VII - CONDITIONS PRECEDENT.......................................................................... 19
Section 7.1 Conditions to Issuance and Sale of Notes.............................................. 19
ARTICLE VIII - DEFAULTS AND REMEDIES........................................................................ 20
Section 8.1 Events of Default..................................................................... 20
Section 8.2 Acceleration.......................................................................... 22
Section 8.3 Other Remedies........................................................................ 22
Section 8.4 Waiver of Past Defaults............................................................... 22
Section 8.5 Rights of Holders to Receive Payment.................................................. 22
ARTICLE IX - SUBORDINATION.................................................................................. 22
Section 9.1 Securities Subordinated to Senior Indebtedness........................................ 22
Section 9.2 No Payment on Notes in Certain Circumstances.......................................... 23
Section 9.3 Notes Subordinated to Prior Payment of All Senior Indebtedness
on Dissolution, Liquidation or Reorganization of the Company.......................... 24
Section 9.4 Payee to Be Subrogated to Rights of Holders of Senior Indebtedness.................... 25
Section 9.5 Obligations of the Company Unconditional.............................................. 26
Section 9.6 Subordination Rights Not Impaired by Acts or Omissions of the
Company or Holders of Senior Indebtedness............................................. 27
Section 9.7 Article IX Not to Prevent Events of Default........................................... 27
[ARTICLE X - INDENTURE...................................................................................... 27
Section 10.1 Indenture............................................................................. 27
ARTICLE XI - AMENDMENTS..................................................................................... 27
Section 11.1 Without Consent of Holders............................................................ 27
Section 11.2 With Consent of Holders............................................................... 27
Section 11.3 Revocation and Effect of Consents and Waivers......................................... 29
ARTICLE XII - MISCELLANEOUS................................................................................. 29
Section 12.1 Governing Law......................................................................... 29
Section 12.2 Jurisdiction; Agents for Service of Process........................................... 29
Section 12.3 Captions.............................................................................. 30
Section 12.4 Notices............................................................................... 30
Section 12.5 Parties in Interest................................................................... 30
Section 12.6 Counterparts.......................................................................... 30
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
Section 12.7 Entire Agreement...................................................................... 30
Section 12.8 Severability.......................................................................... 30
</TABLE>
-iii-
<PAGE>
NOTE AGREEMENT
THIS NOTE AGREEMENT (this "Agreement"), dated as of November __, 1998,
is between SPECIALTY PRODUCTS & INSULATION CO., a Pennsylvania corporation (the
"Company") and IREX CORPORATION, a Pennsylvania corporation ("Purchaser").
W I T N E S S E T H :
--------------------
WHEREAS, Purchaser, the Company and Evercore Capital Partners L.P.,
Evercore Capital Partners (NQ) L.P. and Evercore Capital Offshore Partners L.P.
(collectively, "Evercore") are party to that certain Stock Subscription
Agreement, dated as of [October __, 1998] (the "Subscription Agreement"); and
WHEREAS, the execution and delivery of this Agreement is a condition
to the obligations of each of Purchaser, the Company and Evercore under the
Subscription Agreement; and
WHEREAS, the Company wishes to distribute to Purchaser, as its sole
shareholder, a dividend of $3,500,000 in aggregate principal amount of its
Adjustable Rate Junior Subordinated Pay-in-Kind Notes due 2007; and
WHEREAS, the Company, Purchaser and Evercore wish to set forth the
terms of such Notes herein.
NOW, THEREFORE, IT IS AGREED:
ARTICLE I
DEFINITIONS
-----------
Section 1.1 Definitions. When used in this Agreement, the following
-----------
terms shall have the respective meanings specified therefor below (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined).
"Additional Notes" shall mean any Notes issued in lieu of cash
----------------
interest on the Notes.
"Adjusted Consolidated EBITDA" means, with respect to any period of
----------------------------
time, the sum of (i) Consolidated EBITDA, (ii) with respect to any Related
Business acquired by the Company, the EBITDA of such Related Business for such
period of time or such shorter period, as appropriate, which begins on the first
day of the relevant period of time and ends on the last day of the full fiscal
quarter preceding the date of the acquisition of such Related Business and (iii)
the Pro Forma Adjustments.
<PAGE>
"Affiliate" of any Person shall mean any Person directly or indirectly
---------
controlling, controlled by, or under common control with, such Person; provided
--------
that, for the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or partnership interests, by contract or otherwise.
"Affiliate Transaction" shall have the meaning assigned to such term
---------------------
in Section 6.5.
"Agent" shall mean the Paying Agent, the Registrar, and any co-paying
-----
agent or co-registrar.
"Agreement" shall have the meaning assigned to such term in the
---------
preamble hereto.
"Bankruptcy Event" shall have the meaning assigned to such term in
----------------
Section 9.3.
"Bankruptcy Law" shall mean Title 11, United States Code, as amended,
--------------
or any similar United States federal or state law relating to bankruptcy,
insolvency, receivership, winding-up, liquidation, reorganization or relief of
debtors or any amendment to, succession to or change in any such law.
A "business day" shall mean any day, other than a Saturday, Sunday or
------------
a day on which banks located in New York, New York shall be authorized or
required by law to close.
"Change of Control" shall mean the occurrence of any of the following
-----------------
events: (a) any sale, lease, exchange or other transfer (collectively, a
"Transfer") (in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company and its subsidiaries; or (b) the
acquisition by any Person or group of related or affiliated Persons (other than
Evercore and its Affiliates) of the power, directly or indirectly, to vote or
direct the voting of securities having more than 35% of the ordinary voting
power for the election of directors of the Company or of any direct or indirect
holding company thereof; provided that no Change of Control shall be deemed to
occur pursuant to this clause (b), so long as Evercore and its Affiliates own an
amount of securities representing a greater portion of such ordinary voting
power than such Person or group of related or affiliated Persons.
"Closing" shall have the meaning assigned to such term in Section 3.2.
-------
"Closing Date" shall have the meaning assigned to such term in Section
------------
3.2.
"Commission" shall mean the United States Securities and Exchange
----------
Commission or any other Federal agency administering the Securities Act of 1933,
as amended, the Exchange Act of 1934, as amended, and other Federal securities
laws.
-2-
<PAGE>
"Company" shall have the meaning assigned to such term in the preamble
-------
hereto.
"Condition" of any Person shall mean the business, assets,
---------
liabilities, operations, results of operations or condition (financial or
otherwise) of such Person.
"Consolidated EBITDA" shall mean, with respect to the Company and its
-------------------
subsidiaries for any period, EBITDA for the Company and its subsidiaries
determined in accordance with U.S. generally accepted accounting principles for
the period in question; provided, that the Consolidated EBITDA of the Company
for each of the four fiscal quarters immediately preceding the Closing Date
shall be deemed to be the amount set forth on Schedule I attached hereto.
----------
"Consolidated Indebtedness" shall mean the aggregate Indebtedness of
-------------------------
the Company and its subsidiaries on a consolidated basis, determined in
accordance with generally accepted accounting principals.
"Credit Agreement" shall mean [to come]
----------------
"Custodian" shall have the meaning assigned to such term in Section
---------
8.1.
"Default" shall mean any event that is, or after notice or passage of
-------
time or both, would be, an Event of Default.
"EBITDA" shall mean, with respect to any Person for any period, the
------
sum, of (a) net income (or net loss), (b) interest expense, (c) income tax
expense, (d) depreciation expense, (e) amortization expense, and (f)
extraordinary or unusual losses deducted in calculating net income, minus
extraordinary or unusual gains included in calculating net income, in each case
for such Person determined in accordance with U.S. generally accepted accounting
principles for the period in question.
"Event of Default" shall have the meaning assigned to such term in
----------------
Section 8.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
-----------
amended, and the rules and regulations promulgated thereunder.
"Holder" shall mean the Purchaser and any transferee of any Note
------
pursuant to the terms of this Agreement.
"Indebtedness" shall mean, as to any Person, without duplication, (i)
------------
all indebtedness (including principal, interest, fees penalties and charges) of
such Person for borrowed money or for the deferred purchase price of property or
services evidenced by notes or other written obligations, (ii) the face amount
of all letters of credit issued for the account of such Person and all drafts
drawn thereunder, (iii) the aggregate amount required to be capitalized under
-3-
<PAGE>
leases with respect to which such Person is the lessee, (iv) Indebtedness of
other Persons assumed or guaranteed by such Person and (v) renewals, extensions
and refundings of such Indebtedness.
"Interest Payment Date" shall mean [March 31] and [September 30] of
---------------------
each year.
"Interest Rate" shall mean 10 1/2 % per annum.
-------------
"Maturity Date" shall mean [September 30, 2002].
-------------
"Net Funded Indebtedness" shall mean all Indebtedness of the Company
-----------------------
and its subsidiaries on a consolidated basis under the Credit Agreement minus
all cash and cash equivalents of the Company and its subsidiaries on a
consolidated basis.
"Normalized Working Capital" shall mean, with respect to any Person as
--------------------------
of any date, the average level of net working capital of such Person during the
four full fiscal quarters immediately preceding such determination date.
"Notes" shall mean the Adjustable Rate Junior Subordinated Pay-in-Kind
-----
Notes issued by the Company pursuant to this Agreement and shall include any
Additional Notes issued in respect thereof.
"Paying Agent" shall have the meaning assigned to such term in Section
------------
2.3.
"Payment Blockage Period" shall have the meaning assigned to such term
-----------------------
in Section 9.2.
"Payment Default" shall have the meaning assigned to such term in
---------------
Section 9.2.
"Payment Notice" shall have the meaning assigned to such term in
--------------
Section 9.2.
"Person" shall mean and include an individual, a partnership, a joint
------
venture, a corporation, a limited liability company, a limited liability
partnership, a trust, an incorporated organization and a government or any
department or agency thereof.
"Private Placement Legend" shall have the meaning assigned to such
------------------------
term in Section 3.10.
"Pro Forma Adjustments" means (i) any adjustments certified by the
---------------------
chief financial officer of the Company that would, in the reasonable
determination of the Company, satisfy the requirements of Rule 11-02(a) of
Regulation S-X of the Securities Act of 1933, as amended, if included in a
registration statement filed with the Commission and (ii) any other operating
expense reductions reasonably expected to result from the acquisition of a
Related Business, if such reductions are (1) set forth in reasonable detail in a
plan approved by and set forth in resolutions adopted by the Board of Directors
of the Company, and (2) limited to operating expenses specified in such plan
(and if any reductions are set forth in a range, the lowest amount
-4-
<PAGE>
of such range) that would otherwise have resulted in the payment of cash within
twelve months after the date of the consummation of such transaction, net of any
operating expenses (other than extraordinary items, non-recurring or temporary
charges and other, similar one-time expenses) reasonably expected to be incurred
to implement such plan and that are to be paid in cash during such twelve-month
period, certified by the chief financial officer of the Company.
"Purchaser" shall have the meaning assigned to such term in the
---------
preamble hereto.
"Record Date" shall mean [March 15] and [September 15] of each year.
-----------
"Redemption Date" when used with respect to any Note, means the date
---------------
for the redemption of such Note pursuant to this Agreement and the notes by a
notice delivered pursuant to the terms of Section 4.1 of this Agreement.
"Registrar" shall have the meaning assigned to such term in Section
---------
2.3.
"Related Business" shall mean the business of (a) distributing and/or
----------------
fabricating mechanical insulation, architectural/acoustical products and related
specialty products to commercial and industrial end-users, (b) offering
customized fabrication, export and other value-added services related to such
products or (c) any other complementary business which is approved by the
Company's Board of Directors in its reasonable discretion.
"Restricted Security" shall have the meaning assigned to such term in
-------------------
Rule 144(a)(3) under the Securities Act of 1933, as amended.
"Senior Indebtedness" shall mean any Indebtedness of the Company
-------------------
(including, but not limited to, (x) any Indebtedness under the Credit Agreement
and any related fees and other obligations thereunder and (y) any interest
accruing subsequent to the filing of a petition for bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law), whether outstanding on the
date of this Agreement or the issue date of any Note or hereafter created,
incurred or assumed, unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be senior in
right of payment to the Notes. Notwithstanding the foregoing, Senior
Indebtedness shall not include any of the following amounts (whether or not
constituting Indebtedness as defined in this Agreement), (i) any Indebtedness of
the Company to a subsidiary or Affiliate of the Company, (ii) Indebtedness to,
or guaranteed by the Company on behalf of, any director, officer or employee of
the Company or any subsidiary (including, without limitation, amounts owed for
compensation), (iii) Indebtedness and other amounts owing to trade creditors
incurred in connection with obtaining goods, materials or services, (iv) any
liability for federal, state, local or other taxes owed or owing by the Company
and (v) any Indebtedness which is, by its express terms, subordinated in right
of payment to any other Indebtedness of the Company; provided, that, with
respect to the obligation of the Company in respect of any Note, the obligation
of the Company in respect of all other Notes shall be pari passu.
---- -----
-5-
<PAGE>
"Subscription Agreement" shall have the meaning assigned to such term
----------------------
in the first recital hereto.
"Subsequent PIK Election" shall have the meaning assigned to such
-----------------------
terms in Section 6.1.
"subsidiary" shall have the meaning assigned to such term in Section
----------
7.1.
ARTICLE II
THE NOTES
---------
Section 2.1 Form and Dating. (a) The Notes (and any Additional Notes)
---------------
shall be substantially in the form of Exhibit A hereto. The securities may have
---------
notations, legends or endorsements required by applicable law, rule, regulation
or usage. The Company shall approve the form of the Notes and any notation,
legend or endorsement on them. Each Note shall be dated the date of its
issuance.
(b) The terms and provisions contained in the forms of the
Notes annexed hereto as Exhibit A, shall constitute, and are hereby expressly
---------
made, a part of this Agreement and, to the extent applicable, the Company and
the Purchaser and each other Holder, by their execution and delivery of this
Agreement and/or their acceptance of any Notes, expressly agree to such terms
and provisions and to be bound thereby.
Section 2.2 Execution. (a) Two officers of the Company (one of whom
---------
shall be the Chief Executive Officer, President or any Vice-President of the
Company and the other of whom shall be a Secretary or Assistant Secretary of the
Company) shall sign (each of whom shall, in each case, have been duly authorized
by all requisite corporate actions) the Notes for the Company by manual or
facsimile signature.
(b) The Notes shall be issuable in fully registered form
only, without coupons, in denominations of $1,000 and any integral multiple
thereof, except that Additional Notes may be issued in denominations which are
not integral multiples of $1,000.
Section 2.3 Registrar and Paying Agent. (a) The Company shall maintain
--------------------------
an office or agency where (i) Notes may be presented for registration of
transfer or for exchange ("Registrar"), (ii) Notes may be presented for payment
("Paying Agent") and (iii) notices and demands to or upon the Company in respect
of the Notes and this Agreement may be served. The Registrar shall keep a
register of the Notes and of their transfer and exchange. The Company may
appoint one or more co-registrars and one or more additional paying agents. The
term "Paying Agent" includes any additional paying agent. The Company may change
any Paying Agent, Registrar or co-registrar without prior notice to any Holder.
The Company shall notify the Holders of the name and address of any Agent not a
party to this Agreement. If the Company fails to (or chooses not to) appoint or
maintain another entity as Registrar or Paying Agent, the
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Company shall act as such. The Company may act as Paying Agent, Registrar or
co-registrar. The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Agreement. The agreement shall implement the
provisions of this Agreement that relate to such Agent. The Company shall
notify the Holders of the name and address of any such Agent.
(b) The Company shall serve as the initial Paying Agent and
Registrar of the Notes.
(c) Any of the Registrar, the Paying Agent or any other
agent may resign upon 30 days' notice to the Company. The office of the Paying
Agent and Registrar for purposes of this Section 2.3 shall initially be at the
offices of the Company, as set forth in Section 12.5.
Section 2.4 Transfer and Exchange. (a) No Notes may be sold,
---------------------
transferred or conveyed by the Holder thereof to any Person who is not an
Affiliate of Purchaser without the express written consent of the Board of
Directors of the Company.
(b) Where Notes are presented to the Registrar or a co-
registrar with a request to register the transfer thereof or exchange them for
an equal principal amount of Notes of other denominations, the Registrar shall
register the transfer or make the exchange; provided, that any Note presented or
surrendered for registration of transfer or exchange shall be duly endorsed or
accompanied by a written instruction of transfer in form satisfactory to the
Registrar duly executed by the Holder thereof or his attorney duly authorized in
writing. To permit registrations of transfer and exchanges, the Company shall
issue Notes at the Registrar's request.
(c) The Company and the Registrar shall not be required (i)
to issue, to register the transfer of or to exchange Notes during a period
beginning at the opening of business on a business day 15 days before the day of
any selection of Notes for redemption pursuant to Article VI and ending at the
close of business on the day of selection, (ii) to register the transfer of or
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part or (iii) to register the
transfer or exchange of a Note between the Record Date and the next succeeding
Interest Payment Date.
(d) No service charge shall be made for any registration of
a transfer or exchange (except as otherwise expressly permitted herein).
Section 2.5 Replacement Securities. (a) If any mutilated Note is
----------------------
surrendered to the Registrar or the Company, or the Registrar or the Company
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, the Company shall issue and authenticate a replacement Note. If required
by the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the reasonable judgment of the Company to protect the Company or
any Agent from any loss which any of them may suffer if a Note is replaced. The
Company may charge a Holder for reasonable out-of-pocket expenses in replacing a
Note, including fees and expenses of counsel.
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(b) Every replacement Note is an additional obligation of
the Company and shall be entitled to the benefits of this Agreement.
Section 2.6 Outstanding Securities. (a) The Notes outstanding at any
----------------------
time are all the Notes issued by the Company except for those cancelled by the
Company, those delivered to the Registrar for cancellation and those described
in this Section as not outstanding.
(b) If a Security is replaced pursuant to Section 2.5, it
ceases to be outstanding unless and until the Company receives proof
satisfactory to it that the replaced Note is held by a bona fide purchaser.
(c) If the principal amount of any Note is considered paid
under Section 6.1, it ceases to be outstanding and interest on it ceases to
accrue.
(d) Subject to Section 2.7, a Note does not cease to be
outstanding because the Company or an Affiliate of the Company holds the Note.
Section 2.7 Treasury Notes. In determining whether the Holders of the
--------------
required principal amount of Notes have concurred in any direction, waiver or
consent, Notes owned by the Company, any of its subsidiaries or any of their
respective controlled Affiliates shall be considered as though not outstanding.
Section 2.8 Cancellation. The Company and Paying Agent shall forward
------------
to the Registrar any Notes surrendered to them for registration of transfer,
exchange or payment. The Registrar shall cancel all Notes, if not already
cancelled, surrendered for registration of transfer, exchange, payment,
replacement or cancellation.
Section 2.9 Deposit of Moneys. Prior to 11:00 a.m. New York City time
-----------------
on each Interest Payment Date and on the Maturity Date, the Company shall have
deposited with the Paying Agent in trust for the Holders in immediately
available funds money (or, subject to Section 6.1 of this Agreement, with
respect to the payment of interest only, at the Company's option, Additional
Notes) sufficient to make cash payments, if any, due on such Interest Payment
Date or on the Maturity Date, as the case may be, in a timely manner which
permits the Paying Agent to remit payment to the Holders such Interest Payment
Date or on the Maturity Date, as the case may be.
Section 2.10 Restrictive Legends. (a) Each Note that constitutes a
-------------------
Restricted Security shall bear the following legend (the "Private Placement
Legend"), on the face thereof unless otherwise agreed by the Company and the
Holder thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE
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<PAGE>
SECURITIES ACT OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
THEREOF.
(b) General. By its acceptance of any Note bearing the
-------
Private Placement Legend, each Holder of such a Note acknowledges the
restrictions on transfer of such Note set forth in this Agreement and in the
Private Placement Legend and agrees that it will transfer such Security only as
provided in this Agreement.
Section 2.11 Persons Deemed Owners. Prior to due presentment of a Note
---------------------
for registration of transfer, the Company, any Paying Agent, any Registrar and
any co-registrar may deem and treat the Person in whose name any Note shall be
registered upon the register of Notes kept by the Registrar as the absolute
owner of such Note (whether or not such Note shall be overdue and
notwithstanding any notation of the ownership or other writing thereon made by
anyone other than the Company, any Registrar or any co-registrar) for the
purpose of receiving payments of principal of or interest on such Note and for
all other purposes; and none of the Company, any Paying Agent, any Registrar or
any co-registrar shall be affected by any notice to the contrary.
Section 2.12 Record Date. The record date for purposes of determining
-----------
the identity of Holders entitled to vote or consent to any action by vote or
consent authorized or permitted under this Agreement shall be 30 days prior to
the first solicitation of such consent.
ARTICLE III
ISSUANCE AND SALE OF NOTES
--------------------------
Section 3.1 Issuance of Notes. Subject to the terms and conditions set
-----------------
forth in this Agreement, the Company agrees to issue to Purchaser, and Purchaser
agrees to accept, on the Closing Date the Notes, such Notes to be issued in the
names and denominations specified by or on behalf of each Purchaser in a notice
to be delivered to the Company no later than the business day prior to the
Closing Date.
Section 3.2 Closing. The issuance referred to in Section 3.1 (the
-------
"Closing") shall take place at 10:00 a.m. New York City time at the offices of
White & Case LLP on [November __,] 1998, or at such other time and date (not
later than [January 31, 1999]) as the parties hereto shall designate in writing.
Such date is herein referred to as the "Closing Date."
ARTICLE IV
REDEMPTION
----------
Section 4.1 Notices to Holders. (a) If the Company elects to redeem
------------------
Notes pursuant to paragraph 5 of the Notes, it shall notify the Holders in
writing of the Redemption Date and the principal amount of Holders to be
redeemed.
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<PAGE>
(b) The Company shall give each notice to the Holders
provided for in this Section at least 30 days but no more than 60 days before
the Redemption Date unless each Holder consents to a shorter period. Such notice
shall be accompanied by a certificate executed by an officer of the Company to
the effect that such redemption will comply with the conditions set forth in
this Agreement and in the Notes.
Section 4.2 Selection of Notes To Be Redeemed. In the case of any
---------------------------------
partial redemption of the Notes, selection of the Notes for redemption will be
made by the Company on a pro rata basis. Notes may be redeemed in part in
multiples of $1,000 principal amount only. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after any redemption
date, interest will cease to accrue on the Notes or part thereof called for
redemption as long as the Company has deposited with the Paying Agent in trust
for the benefit of the Holders funds in satisfaction of the redemption price
pursuant to this Agreement. Provisions of this Agreement that apply to Notes
called for redemption also apply to portions of Notes called for redemption.
Section 4.3 Notice of Redemption. At least 30 days but not more than
--------------------
60 days before a date for redemption of Notes, the Company shall mail a notice
of redemption by first-class mail to each Holder of Notes to be redeemed, at
such Holder's registered address. The notice shall identify the Notes to be
redeemed and shall state:
(1) the Redemption Date;
(2) the redemption price and the amount of accrued
interest, if any, to be paid;
(3) the name and address of the Paying Agent;
(4) that Notes called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(5) if fewer than all the Notes are to be redeemed,
the identification of the particular Notes (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Notes to be redeemed
and the aggregate principal amount of Notes to be outstanding after such
partial redemption;
(6) that, unless the Company defaults in making such
redemption payment or the Paying Agent is prohibited from making such
payment pursuant to the terms of this Agreement, interest on Notes (or
portion thereof) called for redemption ceases to accrue on and after the
Redemption Date;
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<PAGE>
(7) if any Note is being redeemed in part, the portion
of the principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued; and
(8) the paragraph of the Notes and/or Section of this
Agreement pursuant to which the Notes called for redemption are being
redeemed.
Section 4.4 Effect of Notice of Redemption. Once notice of redemption
------------------------------
is mailed, Notes called for redemption become due and payable on the designated
Redemption Date and at the redemption price stated in the notice. Upon surrender
to the Paying Agent, such Notes shall be paid at the redemption price stated in
the notice, plus accrued interest to the designated Redemption Date; provided,
that if any Redemption Date is after a regular Record Date and on or prior to
the Interest Payment Date, the accrued interest shall be payable to the Holder
of the redeemed Notes registered on the relevant Record Date. Failure to give
notice or any defect in the notice to any Holder shall not affect the validity
of the notice to any other Holder.
Section 4.5 Deposit of Redemption Price. (a) Prior to 11:00 a.m., New
---------------------------
York City time, on any Redemption Date, the Company shall deposit with the
Paying Agent in trust for the benefit of the Holders money sufficient to pay the
redemption price of and accrued interest on all Notes to be redeemed on such
Redemption Date.
(b) Except as set forth in the last sentence of this
paragraph, on and after any Redemption Date, interest ceases to accrue on the
Notes or the portions of Notes called for redemption. If a Note is redeemed on
or after an interest Record Date but on or prior to the related Interest Payment
Date, then any accrued and unpaid interest shall be paid to the Person in whose
name such Note was registered at the close of business on such Record Date. If
any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the Redemption
Date until such principal is paid and, to the extent lawful, on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 6.1.
Section 4.6 Securities Redeemed in Part. Upon surrender of a Note that
---------------------------
is redeemed in part, the Company shall execute for and in the name of the Holder
(at the Company's expense), a new Note equal in a principal amount to the
unredeemed portion of the Note surrendered.
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<PAGE>
ARTICLE V
REPRESENTATIONS OF THE COMPANY
------------------------------
Section 5.1 Representations of the Company. The Company hereby
------------------------------
represents, warrants and agrees as follows:
(a) Authorization and Validity; Enforceability. (i) The
------------------------------------------
Company has the requisite corporate power and authority to execute and deliver
this Agreement and each Note issued hereunder and to perform its obligations
hereunder and thereunder. The execution, delivery and performance of this
Agreement and each Note issued hereunder by the Company and the performance by
it of its obligations hereunder and thereunder have been, and will be, duly
authorized and approved by its Board of Directors and no other corporate action
on the part of the Company is necessary to authorize the execution, delivery and
performance of this Agreement and each Note issued hereunder by the Company, as
the case may be.
(ii) This Agreement and each Note issued hereunder by
the Company has been duly executed and delivered by the Company and, assuming
the due execution and delivery of this Agreement by the other parties hereto,
this Agreement and each Note issued hereunder by the Company constitutes, and
will constitute, the valid and binding obligation of the Company, as the case
may be, enforceable against it in accordance with their respective terms,
except to the extent that their enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditor's rights generally and to general equitable principles.
(b) Existence and Good Standing. The Company is a
---------------------------
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Pennsylvania. The Company has the power to own, lease and
operate its property and to carry on its business as now being conducted. The
Company is duly qualified to do business and is in good standing in each
jurisdiction in which the character or location of the properties owned, leased
or operated by the Company or the nature of the business conducted by the
Company makes such qualification necessary, except for such jurisdictions where
the failure to be so qualified or licensed and in good standing would not have a
material adverse effect on the Condition of the Company and its subsidiaries,
taken as a whole.
(c) Subsidiaries and Investments. (i) Each Person in
----------------------------
which the Company owns, directly or indirectly, any equity security (a
"subsidiary") is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, and has all
requisite power to own, lease and operate its property and to carry on its
business as now being conducted.
(ii) Each subsidiary is duly qualified to do business
and is in good standing in each jurisdiction in which the character or location
of the properties owned, leased or operated by such subsidiary or the nature of
the business conducted by such subsidiary make such
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<PAGE>
qualification necessary, except for such jurisdiction where the failure to be so
qualified or licensed and in good standing would not have a material adverse
effect of the Condition of the Company and its subsidiaries, taken as a whole.
(iii) There are no restrictions of any kind which
prevent or restrict the payment of dividends by any of the Company's
subsidiaries.
(d) Consents and Approvals; No Violations. The execution
-------------------------------------
and delivery of this Agreement by the Company, the execution, delivery and
issuance of the Notes and the consummation by the Company of the transactions
contemplated hereby (including, but not limited to, the execution, delivery and
issuance of any Additional Notes) will not: (1) violate any provision of the
certificate of incorporation, by-laws or partnership agreement (or other
organizational document) of the Company or any of its subsidiaries; (2) violate
any statute, ordinance, rule, regulation, order or decree of any court or of any
governmental or regulatory body, agency or authority applicable to the Company
or any of its subsidiaries or by which any of their respective properties or
assets may be bound; (3) require the Company or any of its subsidiaries to make
or obtain any filing with, or permit, consent or approval of, or give any notice
to, any governmental or regulatory body, agency or authority; or (4) result in a
violation or breach of, conflict with, constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation, payment or acceleration) under, or result in the creation of any
Lien upon any of the properties or assets of the Company or any of its
subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, franchise, permit, agreement, lease,
franchise agreement or other instrument or obligation to which the Company or
any of its subsidiaries is a party, or by which the Company or any of its
subsidiaries or any of their respective properties or assets is bound except in
the case of clauses (3) and (4) above, for such violations, filings, permits,
consents, approvals, notices, breaches or conflicts which would not have a
material adverse effect on the Condition of the Company and its subsidiaries.
(e) Litigation. There is no action, suit, proceeding at
----------
law or in equity, arbitration or administrative or other proceeding by or before
(or to the best knowledge of the Company any investigation by) any governmental
or other instrumentality or agency, pending, or, to the best knowledge of the
Company, threatened, against or affecting the Company or any of its
subsidiaries, or any of their properties or rights which would materially
adversely affect the right or ability of the Company or any of its subsidiaries
to carry on their respective business as now conducted, or to own their
respective assets, or which would materially adversely affect the Condition of
the Company and its subsidiaries, taken as a whole; and the Company does not
know of any valid basis for any such action, proceeding or investigation.
Neither the Company nor any of its subsidiaries is subject to any judgment,
order or decree entered in any lawsuit or proceeding which would have a material
adverse effect on the Condition of the Company and its subsidiaries, taken as a
whole.
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<PAGE>
(f) Compliance with Laws. Each of the Company and its
--------------------
subsidiaries is in compliance in all material respects with all applicable laws,
statutes, ordinances, regulations, orders, judgments and decrees of any
government or political subdivision thereof, whether Federal, state, or local
and whether domestic or foreign, or any agency or instrumentality thereof, or
any court or arbitrator, and has not received any notice that any violation of
the foregoing is being or may be alleged.
(g) Investment Company Act. Neither the Company nor any
----------------------
of its subsidiaries is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
Section 5.2 Representations of Purchaser. Purchaser warrants and
----------------------------
agrees as follows:
(a) Existence and Good Standing of Purchaser; Power and
---------------------------------------------------
Authority. Purchaser is a corporation duly organized, validly existing and in
- ---------
good standing under the laws of the Commonwealth of Pennsylvania. Purchaser has
the corporate power and authority to enter into, execute and deliver this
Agreement and to perform its obligations hereunder. The execution and delivery
of this Agreement by Purchaser and the performance by Purchaser of its
obligations hereunder has been duly authorized and approved by all required
corporate action of Purchaser and no other corporate action on the part of
Purchaser is necessary to authorize the execution, delivery and performance of
this Agreement. This Agreement has been duly executed and delivered by Purchaser
and, assuming the due execution and delivery hereof by each other party hereto,
this Agreement constitutes a valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms, except to the extent
that its enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws effecting the enforcement of
creditors' rights generally and to general equitable principles.
(b) Consents and Approvals; No Violations. The execution
-------------------------------------
and delivery of this Agreement by Purchaser and the consummation by Purchaser of
the transactions contemplated hereby will not: (1) violate any provision of the
Purchaser's Articles of Incorporation or By-laws; (2) violate any statute,
ordinance, rule, regulation, order or decree of any court or of any governmental
or regulatory body, agency or authority applicable to such Purchaser or by which
any of its properties or assets may be bound; (3) require Purchaser to make any
filing with or obtain any permit, consent or approval of or give any notice to,
any governmental or regulatory body, agency or authority; or (4) result in a
violation or breach of, conflict with, constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation, payment or acceleration) under, or result in the creation of any
Lien upon any of the properties or assets of Purchaser under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
franchise, permit, agreement, lease, franchise agreement or other instrument or
obligation to which Purchaser is a party, or by which any of its properties or
assets is bound except in the case of clauses (3) and (4) above for such
violations, filings, permits, consents, approvals, notices, breaches or
conflicts
-14-
<PAGE>
which could not have a material adverse effect on the ability of Purchaser to
consummate the transactions contemplated hereby or to perform its obligations
hereunder.
(c) Acquisition for Investment. Purchaser will acquire
--------------------------
the Notes for its own account for investment purposes only, and such notes are
not being purchased for subdivision, fractionalization, resale or distribution
in a transaction that would violate the Securities Act or Exchange Act or any
state "blue sky" laws. Purchaser has no contract, undertaking, agreement or
arrangement with any other Purchaser to sell, transfer or pledge to such other
Person or anyone else the Notes that Purchaser is to purchase hereunder or any
part thereof in a transaction that would violate the Securities Act or Exchange
Act. Notwithstanding the foregoing, the disposition of Purchaser's property
shall at all times remain within the sole control of Purchaser.
(d) Accredited Investor. Purchaser is an "accredited
-------------------
investor" (as such term is defined in Rule 501 promulgated under the Securities
Act).
(e) Restricted Securities. Purchaser understands that the
---------------------
Notes acquiring hereunder are characterized as "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering and that under such laws and
applicable regulations such Notes may not be resold without registration under
the Securities Act, except in certain limited instances. In this connection,
Purchaser represents that it is familiar with Rule 144 promulgated by the
Commission, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.
ARTICLE VI
COVENANTS
---------
Section 6.1 Payment of Notes. (a) The Company shall promptly pay the
----------------
principal of, premium, if any, and interest on the Notes on the dates and in the
manner provided in the Notes and in this Agreement. Principal, premium, if any,
and interest shall be considered paid on the date due if on such date the Paying
Agent holds in trust for the Holders money sufficient to pay all principal and
interest then due and the Paying Agent is not prohibited from paying such money
to the Holders on that date pursuant to the terms of this Agreement. Interest
will be computed on the basis of a 360 day year comprised of twelve 30 day
months. Interest on Notes (and any Additional Notes) shall be payable at the
rate of 10 1/2% per annum.
(b) The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at the
rate specified therefor in the relevant Note, and it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest (without regard to any applicable grace period)
at the same rate to the extent lawful.
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<PAGE>
(c) On each Interest Payment Date, the Company may, at its
option and in its sole discretion, in lieu of the payment of interest in cash on
the Notes, pay interest on all outstanding Notes in whole, but not in part,
through the issuance of Additional Notes in an aggregate principal amount equal
to the amount of interest that would be payable with respect to such Notes, if
such interest were paid in cash. The Company shall notify the Holders in writing
of its election to pay interest through the issuance of Additional Notes not
less than 10 nor more than 45 days prior to the record date for an Interest
Payment Date on which Additional Notes will be issued. On each such Interest
Payment Date, the Company shall issue and deliver Additional Notes to each
Holder on the relevant record date in the aggregate principal amount required to
pay such interest. Each Additional Note is an additional obligation of the
Company and shall be governed by, and entitled to the benefits of, and shall be
subject to the terms of, this Agreement and shall be pari passu with and subject
to the same terms (including the Interest Rate from time to time payable
thereon) as the Notes with respect to which such Additional Notes were issued
(except, as the case may be, with respect to the issuance date and aggregate
principal amount). If at any time after the Closing Date, the Company elects to
pay interest in respect of the Notes in cash, the Company may thereafter
subsequently elect, in accordance with this paragraph, to pay interest on the
Notes in whole, but not in part, in Additional Notes (a "Subsequent PIK
Election"); provided that the Company shall not be entitled to make more than
three Subsequent PIK Elections with respect to the Notes.
Section 6.2 Reports. (a) The Company shall provide to the Holders of
-------
the Notes, within 15 days after it files them with the Commission, copies of the
quarterly and annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the Commission may by
rules and regulations prescribe) which the Company files with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act.
(b) In the event that the Company is not required to file
such reports with the Commission pursuant to the Exchange Act, the Company will
nevertheless deliver such Exchange Act information to the Holders within 15 days
after it would have been required to file it with the Commission.
Section 6.3 Limitation on Dividends. The Company shall not, directly or
-----------------------
indirectly, declare or pay any dividend or make any distribution on or in
respect of its capital stock (including any payment in connection with any
merger or consolidation involving the Company) except dividends or distributions
payable in its capital stock or in options, warrants or other rights to purchase
such capital stock if there has occurred and is continuing a Default or Event of
Default in respect of any Notes.
Section 6.4 Leverage. The Company and its subsidiaries shall maintain
--------
a pro forma ratio of Consolidated Indebtedness to Adjusted Consolidated EBITDA
of the Company and its subsidiaries (after giving effect to all acquisitions of
Related Businesses during such periods) for the immediately preceding four full
fiscal quarters of not more than 4.00:1.00 as of the end of each fiscal quarter.
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Section 6.5 Limitation on Affiliate Transactions. (a) The Company will
------------------------------------
not, and will not permit any of its subsidiaries to, directly or indirectly,
enter into or conduct any transaction or series of related transactions
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with or for the benefit of any Affiliate of the
Company, other than a wholly-owned subsidiary (an "Affiliate Transaction")
unless: (i) the terms of such Affiliate Transaction are no less favorable to the
Company or such subsidiary, as the case may be, than those that could be
obtained at the time of such transaction in arm's length dealings with a Person
who is not such an Affiliate; (ii) in the event such Affiliate Transaction
involves an aggregate amount in excess of $1,000,000, the terms of such
transaction have been approved by a majority of the members of the Board of
Directors of the Company and by a majority of the disinterested members of such
Board, if any (and such majority or majorities, as the case may be, determines
that such Affiliate Transaction satisfies the criteria in (i) above); and (iii)
in the event such Affiliate Transaction involves an aggregate amount in excess
of $5,000,000, the Company has received a written opinion from an independent
investment banking firm of nationally recognized standing that such Affiliate
Transaction is fair to the Company or such subsidiary, as the case may be, from
a financial point of view.
(b) The foregoing paragraph (a) shall not apply to (i) any
dividend or other distribution permitted to be made pursuant to the covenant
described under Section 6.3, (ii) any issuance of securities, or other payments,
awards or grants in cash, securities or otherwise pursuant to, or the funding
of, employment arrangements, or any stock options and stock ownership plans for
the benefit of employees, officers and directors, consultants and advisors
approved by the Board of Directors of the Company, (iii) loans or advances to
employees in the ordinary course of business of the Company or any of its
subsidiaries in aggregate amount outstanding not to exceed $50,000 to any
employee or $500,000 in the aggregate at any time, (iv) any transaction between
wholly-owned subsidiaries, (v) indemnification agreements with, and the payment
of fees and indemnities to, directors, officers and employees of the Company and
its subsidiaries, in each case in the ordinary course of business, (vi)
transactions pursuant to agreements in existence on the Closing Date, (vii) any
employment, non-competition or confidentiality agreements entered into by the
Company or any of its subsidiaries with its employees in the ordinary course of
business, and (viii) the issuance of capital stock of the Company, and (ix) any
reasonable and customary investment banking fees, transaction fees or other
similar fees paid to Evercore Advisors, Inc. or its Affiliates which such fees
have been approved by a majority of the directors of the Company not affiliated
with Evercore.
Section 6.6 Change of Control. (a) Upon the occurrence of a Change of
-----------------
Control, each Holder will have the right to require the Company to repurchase
all or any part of such Holder's Notes at a purchase price in cash equal to 100%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
date of repurchase (subject to the right of Holders of record on the relevant
Record Date to receive interest due on the relevant Interest Payment Date).
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<PAGE>
(b) Within 60 days following any Change of Control, unless the
Company has mailed a redemption notice with respect to all the outstanding Notes
in connection with such Change of Control, the Company shall mail a notice to
each Holder stating:
(i) that a Change of Control has occurred and that such
Holder has the right to require the Company to purchase such Holder's Notes at a
purchase price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any to the date of purchase (subject to the
right Holders' Notes of record on a record date to receive interest on the
relevant Interest Payment Date).
(ii) the repurchase date (which shall be no earlier than 30
days nor later than 60 days form the date such notice is mailed); and
(iii) the procedures determined by the Company, consistent
with this Agreement, that a Holder must follow in order to have its Notes
repurchased.
(c) Holders electing to have a Note repurchased will be required
to surrender the Note, to the Company at the address specified in the notice at
least 50 business days prior to the repurchase date. Holders will be entitled to
withdraw their election if the Company receives not later than three business
days prior to the repurchase date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the Note
which was delivered for repurchase by the Holder and a statement that such
Holder is withdrawing his election to have such Note purchased.
(d) On the repurchase date, all Notes repurchased by the Company
under this Section 6.6 shall be cancelled by the Company, and the Company shall
pay the repurchase price plus accrued and unpaid interest, if any, to the
Holders entitled thereto.
Section 6.7 Further Instruments and Acts. Upon request of the Holders, the
----------------------------
Company will execute and deliver such further instruments and do such further
acts as may be reasonably necessary or proper to carry out more effectively the
purpose of this Agreement.
Section 6.8 Taxes. The Company shall pay, prior to delinquency, all
-----
material taxes, assessments, and governmental levies; provided, however, that
there shall not be required to be paid or discharged any such tax, assessment or
charge, the amount, applicability or validity of which is being contested in
good faith by appropriate proceedings and for which adequate provision has been
made or for which adequate reserves, to the extent required under generally
accepted accounting principles, have been taken.
Section 6.9 Stay, Extension and Usury Laws. The Company covenants (to the
------------------------------
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time hereafter
in force, that may affect the covenants or the performance of this Agreement
(including, but not limited to, the payment of the principal of or interest on
the
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<PAGE>
Notes); and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Holders, but shall suffer and permit the
execution of every such power as though no such law has been enacted.
Section 6.10 Corporate Existence. The Company shall do or cause to be done
-------------------
all things necessary to preserve and keep in full force and effect its corporate
existence, and the corporate existence of each subsidiary, in accordance with
the respective organizational documents (as the same may be amended from time to
time) of each subsidiary and the rights (charter and statutory), licenses and
franchises of the Company and its subsidiaries; provided, however, that the
Company shall not be required to preserve any such right, license or franchise,
or the corporate, partnership or other existence of any subsidiary, if the Board
of Directors of the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders.
ARTICLE VII
CONDITIONS PRECEDENT
--------------------
Section 7.1 Conditions to Issuance and Sale of Notes. The obligations of
----------------------------------------
the Purchaser to purchase the Notes is subject to the satisfaction of the
following conditions:
(a) Truth of Representations and Warranties. The
---------------------------------------
representations and warranties of the Company contained in this Agreement and in
the Subscription Agreement shall be true and correct in all material respects
(except to the extent such representations and warranties contain a
"materiality", "material adverse effect" or similar qualification, in which case
they shall be true and correct in all respects) on and as of the Closing Date,
and the Company each shall have delivered to Purchaser a certificate, dated the
Closing Date, to such effect.
(b) Performance of Agreements. All of the agreements of the
-------------------------
Company to be performed prior to the Closing Date pursuant to the terms of this
Agreement shall have been duly performed in all material respects, and the
Company shall have delivered to the Purchaser a certificate, dated the Closing
Date, to such effect.
(c) No Litigation Threatened. No action or proceedings shall
------------------------
have been instituted or threatened before a court or other government body or by
any public authority to restrain or prohibit any of the transactions
contemplated hereby, and the Company shall have delivered to Purchaser a
certificate, dated the Closing Date, to such effect.
(d) No Default. On the Closing Date there shall exist no
----------
Default or Event of Default with respect to this Agreement or the Notes and the
Company shall have delivered to the Purchaser a certificate, dated the Closing
Date, to such effect.
(e)
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<PAGE>
(e) Subscription Agreement. The transactions contemplated to
----------------------
be consummated by all parties other than Purchaser under the Subscription
Agreement shall have been consummated on or prior to the Closing Date and each
condition to the performance of Purchaser's obligations under the Subscription
Agreement shall have been waived or satisfied in full.
ARTICLE VIII
DEFAULTS AND REMEDIES
---------------------
Section 8.1 Events of Default. An "Event of Default" will occur under this
Agreement and the Notes if:
(i) there shall be a default in the payment of any
interest on any Note when it becomes due and payable and such default shall
continue for a period of 30 days;
(ii) there shall be a default in the payment of the
principal of (or premium, if any, on) any Note on the Maturity Date, upon
optional redemption, upon required repurchase, upon declaration or otherwise;
(iii) the failure by the Company or any of its
subsidiaries to comply for 30 days after receiving notice of such noncompliance
with any of its obligations under Article IV (in each case, other than a failure
to purchase Notes, which shall constitute an Event of Default under clause (ii)
above);
(iv) Indebtedness of the Company or any subsidiary in
excess of [$_________]/1/ is not paid within any applicable grace period after
its stated maturity, upon mandatory or optional redemption or prepayment, upon
required repayment or otherwise, or is accelerated by the holders thereof
because of a default under the terms of such Indebtedness and such default shall
not have been cured or such acceleration rescinded after a 10-day period;
(v) the Company or any subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief
against it in an involuntary case;
________________
/1/ This amount will track the amount in the Credit Facility cross default.
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<PAGE>
(C) consents to the appointment of a Custodian
for it or for any substantial part of its property;
(D) makes a general assignment for the benefit of
its creditors;
(E) consents to or acquiesces in the institution
of a bankruptcy or an insolvency proceeding against it; or
(F) takes any corporate action to authorize or
effect any of the foregoing; or takes any comparable action under any foreign
laws relating to insolvency;
(vi) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any
subsidiary or for any substantial part of the property of the Company or any of
its subsidiaries; or
(C) orders the winding up or liquidation of the
Company or any subsidiary; or any similar relief is granted under any foreign
laws and in each case the order, decree or relief remains unstayed and in effect
for 60 days; or
(vii) any judgment or decree for the payment of money in
excess of [$______]/2/ to the extent not covered by insurance) is rendered
against the Comopany or a subsidiary and such judgment becomes final and non-
appealable.
The foregoing will constitute Events of Default whatever the
reason for any such Event of Default and whether it is voluntary or involuntary
or is effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body.
The term "Custodian" means any receiver, trustee, assignee,
liquidator, custodian or similar official under any Bankruptcy Law.
________________
/2/ This amount will track the judgment default in the Credit Facility.
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<PAGE>
Section 8.2 Acceleration. If an Event of Default (other than an Event of
------------
Default specified in Section 8.1(v) or (vi)) occurs and is continuing, the
Holders of at least 25% in principal amount of all outstanding Notes by notice
to the Company may declare the principal of and premium and accrued and unpaid
interest, if any, on all the Notes to be due and payable. Upon such declaration,
such principal and premium and accrued and unpaid interest shall be due and
payable immediately. If an Event of Default specified in Section 8.1(v) or (vi)
occurs and is continuing, the principal of and premium and accrued and unpaid
interest on all the Notes will become and be immediately due and payable without
any declaration or other act on the part of the Holders. The Holders of a
majority in principal amount of all outstanding, voting as a single class, may
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of acceleration. No such rescission shall affect any
subsequent Default or Event of Default or impair any right consequent thereto.
Section 8.3 Other Remedies. If an Event of Default occurs and is
--------------
continuing, the Holders may pursue any available remedy to collect the payment
of principal of or interest on the Notes or to enforce the performance of any
provision of the Notes or this Agreement. A delay or omission by any Holder in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. No remedy is exclusive of any other remedy. All available
remedies are cumulative to the extent permitted by law.
Section 8.4 Waiver of Past Defaults. The Holders of a majority in
-----------------------
principal amount of all outstanding Notes may waive an existing Default or Event
of Default and its consequences except (i) a Default or Event of Default in the
payment of the principal of, premium, if any, or interest on a Note or (ii) a
Default or Event of Default in respect of a provision that under Section 11.2
cannot be amended without the consent of each Holder affected. When a Default or
Event of Default is waived, it is deemed cured, but no such waiver shall extend
to any subsequent or other Default or Event of Default or impair any consequent
right.
Section 8.5 Rights of Holders to Receive Payment. Notwithstanding any
------------------------------------
other provision of this Agreement, right of any Holder to receive payment of
principal of and interest on the Notes held by such Holder, on or after the
respective due dates expressed in the Notes, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
ARTICLE IX
SUBORDINATION
-------------
Section 9.1 Securities Subordinated to Senior Indebtedness.
----------------------------------------------
Notwithstanding any other provision contained herein, each of the Company, for
itself and its successors, and each Holder
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<PAGE>
and its successors and assigns, by the acceptance of any Note, agrees that the
payment of the principal of and interest on and all other claims with respect to
such Note is subordinated, to the extent and in the manner provided in this
Article XI, to the prior payment in full of all Senior Indebtedness.
The provisions of this Article IX shall constitute a continuing offer
to all Persons who, in reliance upon such provisions, become holders of, or
continue to hold, Senior Indebtedness, and such provisions are made for the
benefit of the holders of Senior Indebtedness and shall be directly enforceable
by such holders.
Section 9.2 No Payment on Notes in Certain Circumstances. (a) No payment
--------------------------------------------
shall be made by the Company on account of the principal or interest (except, if
otherwise permissible under the terms of any Note, in the form of Additional
Notes) on any Note or to acquire any Note for cash or property, or on account of
the redemption provisions of this Note, (A) upon the maturity of any Senior
Indebtedness by lapse of time, acceleration (unless waived) or otherwise, unless
and until all principal of and interest on (including any post-petition
interest) such Senior Indebtedness and all other obligations in respect thereof
shall first be paid in full or such payment is duly provided for or (B) upon an
event of default in payment of any principal of, premium, if any, or interest on
any Senior Indebtedness when the same become due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or otherwise (a
"Payment Default"), unless and until such Payment Default has been cured or
waived or otherwise has ceased to exist.
(b) Upon the occurrence of an event of default (other than a
Payment Default) with respect to any Senior Indebtedness, as such event of
default is defined in the instrument under which it is outstanding, permitting
the holders (or any requisite percentage thereof) to accelerate the maturity
thereof or demand payment upon written notice of such event of default which has
been delivered by a holder (or the requisite percentage thereof) of such Senior
Indebtedness or by an appropriate trustee, agent or representative for an issue
of Senior Indebtedness (a "Payment Notice"), then, unless and until such event
of default shall have been cured or waived or shall have otherwise ceased to
exist, no payment shall be made by the Company on account of the principal of or
interest (except, if otherwise permissible under the terms of any Note, in the
form of Additional Notes) on any Note or to acquire or repurchase any Note for
cash or property, or on account of the redemption provisions of this Note, in
any such case. Notwithstanding the foregoing, unless (i) the Senior Indebtedness
in respect of which such event of default exists has been declared due and
payable in its entirety within 89 days after the Payment Notice is delivered as
set forth, above (the "Payment Blockage Period"), and (ii) such declaration has
not been rescinded or waived, subject to paragraph (a) of this Section 9.2, the
Company shall be required to pay all sums not paid to a Holder during the
Payment Blockage Period due to the foregoing prohibitions and to resume all
other payments as and when due on any Note. Any number of Payment Notices may be
given; provided, that (A) not more than one Payment Notice shall be given within
a period of any 365 consecutive days and (B) no event of default that existed
upon the date of such Payment Notice or the commencement of such Payment
Blockage Period (whether or not such event of default is on the same issue of
Senior
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<PAGE>
Indebtedness) shall be made the basis for the commencement of any other Payment
Blockage Period.
(c) In furtherance of the provisions of this Section 9.2, if,
notwithstanding the foregoing provisions of this Section 9.2, any payment or
distribution of assets of the Company on account of principal of or interest on
any Note or to acquire for cash, property or securities, or on account of the
redemption provisions of any Note shall be made by the Company and received by
any Holder at a time when such payment or distribution was prohibited by the
provisions of this Section 9.2, then, unless such payment or distribution is no
longer prohibited by this Section 9.2, such payment or distribution shall be
received and held in trust by such Holder for the benefit of the holders of
Senior Indebtedness of the Company, and shall be paid or delivered by such
Holder (subject to such contractual and legal priorities as may then exist among
the holders of Senior Indebtedness) to the holders of Senior Indebtedness of the
Company remaining unpaid or unprovided for or their representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any of such Senior Indebtedness of the Company may have been issued,
ratably according to the aggregate amounts on account of the Senior Indebtedness
of the Company held or represented by each, to the extent necessary to enable
payment in full (except as such payment otherwise shall have been provided for)
of all Senior Indebtedness of the Company remaining unpaid, after giving effect
to all concurrent payments and distributions and all provisions therefor to or
for the holders of such Senior Indebtedness, but only to the extent that as to
any holder of such Senior Indebtedness, as promptly as practical after learning
that such prohibited payment has been received by a Holder, such holder (or a
representative thereof) notifies such Holder of the amounts then due and owing
on such Senior Indebtedness, if any, held by such holder and only the amounts
specified in such notices to such Holder shall be paid to the holders of such
Senior Indebtedness.
Section 9.3 Notes Subordinated to Prior Payment of All Senior Indebtedness
------------------------------------------------------------
on Dissolution, Liquidation or Reorganization of the Company. (a) Upon any
- ------------------------------------------------------------
distribution of assets of the Company upon any dissolution, winding up,
liquidation or reorganization of the Company (whether in bankruptcy, insolvency
or receivership proceedings or upon any assignment for the benefit of creditors
or otherwise) (each a "Bankruptcy Event"):
(i) the holders of all Senior Indebtedness shall first be
entitled to receive payment in full of the principal and interest due or become
due thereon and other amounts due on or in connection therewith before any
Holder is entitled top receive any payment on account of the principal of or
interest on, or any other claims with respect to, this Note
(ii) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, to which a
Holder would be entitled except for the provisions of this Article IX shall be
paid by the liquidating trustee or agent or other person making such a payment
or distribution, directly to the holders of Senior Indebtedness or their
representative, to the extent necessary to make payment in full satisfactory to
the holders
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<PAGE>
of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution or provision therefor to the holders of such
Senior Indebtedness; and
(iii) notwithstanding the foregoing, if the holders of
Senior Indebtedness are required to disgorge, following a Bankruptcy Event, the
proceeds of any assets of the Company which are subject to such Bankruptcy
Event, and which proceeds were received by holders of Senior Indebtedness prior
to such Bankruptcy Event, due to a finding that the receipt of such proceeds was
preferential pursuant to the provisions of Section 547 of the United States
Bankruptcy Code, as amended or any similar provision of any applicable
Bankruptcy Law (a "Preference"), then the holders of Senior Indebtedness or
their representatives shall be entitled to recoup the amount of such Preference
from any and all payments or distributions of assets of the Company previously
made to or to be made to a Holder.
(b) If, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, shall be received by any Holder on account of principal
of or interest on or any other claim with respect to any Note before all Senior
Indebtedness is paid in full, satisfactory to the holders of all Senior
Indebtedness remaining unpaid, such payment or distribution shall be received
and held in trust by such Holder for the benefit of the holders of the Senior
Indebtedness and shall be paid or delivered (subject to such contractual and
legal priorities as may then exist among the holders of such Senior
Indebtedness) by such Holder to the holders of the Senior Indebtedness remaining
unpaid or unprovided for or their representatives, or to the trustee or trustees
under any indenture pursuant to which any instruments evidencing any of such
Senior Indebtedness may have been issued, ratably according to the aggregate
amounts on account of the Senior Indebtedness held or represented by each, to
the extent necessary to enable payment in full of all Senior Indebtedness
remaining unpaid or unprovided for, after giving effect to all concurrent
payments and distributions and all provisions therefor to or for the holders of
such Senior Indebtedness as promptly and practical after learning that such
prohibited payment has been received by such Holder, such holder (or
representative thereof) notifies such Holder of the amounts then due and owing
on such Senior Indebtedness if any, held by such holder and only the amounts
specified in such notices to such Holder shall be paid to the holders of such
Senior Indebtedness.
(c) The Company shall give prompt written notice to such Holders
of any dissolution, winding up, liquidation or reorganization of the Company or
assignment for the benefit of creditors by the Company.
Section 9.4 Payee to Be Subrogated to Rights of Holders of Senior
-----------------------------------------------------
Indebtedness. (a) Subject to the payment in full of all Senior Indebtedness,
- ------------
each Holder shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness until all amounts owing on the Notes shall
be paid in full, and for the purpose of such subrogation no such payments or
distributions to the holders of Senior Indebtedness by or on behalf of the
Company or by or on behalf of the Holders by virtue of this Article IX, which
otherwise would have been made to the Holders shall, as
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<PAGE>
between the Company, the Holders and the Company's creditors other than the
holders of Senior Indebtedness, be deemed to be payment by the Company to or on
account of the Senior Indebtedness, it being understood that the provisions of
this Article IX are and are intended solely for the purpose of defining the
relative rights of the Holders, on the one hand, and the holders of Senior
Indebtedness, on the other hand.
(b) If any payment or distribution to which any Holder would
otherwise have been entitled but for the provisions of this Article IX shall
have been applied, pursuant to the provisions of this Article IX, to the payment
of amounts payable under Senior Indebtedness of the Company, then Holder shall
be entitled to receive from the holders of such Senior Indebtedness any payments
or distributions received by such holders of Senior Indebtedness, in excess of
the amount sufficient to pay all amounts payable under or in respect of such
Senior Indebtedness in full.
Section 9.5 Obligations of the Company Unconditional. Nothing contained in
----------------------------------------
this Article IX or elsewhere in this Agreement or in any Note is intended to or
shall impair, as between the Company and the Holders, the obligation of the
Company, which is absolute and unconditional, to pay to the Holders the
principal of and interest on the Notes as and when the same shall become due and
payable in accordance with its terms, or is intended to or shall affect the
relative rights of the Holders and creditors of the Company other than the
holders of Senior Indebtedness, nor shall anything herein or therein prevent the
Holders from exercising all remedies otherwise permitted by applicable law upon
the occurrence of a Default or Event of Default under this Agreement or any
Note, subject to the rights, if any, under this Article IX of the holders of
Senior Indebtedness in respect of cash, property or securities of the Company
received upon the exercise of any such remedy. Upon any payment or distribution
of assets of the Company referred to in this Article IX, the Holders shall be
entitled to rely upon the delivery to it of any order or decree made by any
court of competent jurisdiction in which such dissolution, winding up,
liquidation or reorganization proceedings are pending, or a certificate of the
liquidating trustee or agent or other person making any distribution to the
Holders for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other Indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article IX.
Section 9.6 Subordination Rights Not Impaired by Acts or Omissions of the
-------------------------------------------------------------
Company or Holders of Senior Indebtedness. No right of any present or future
- -----------------------------------------
holders of any Senior Indebtedness to enforce subordination as provided herein
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Company or by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with the terms of
this Agreement or the Note regardless of any knowledge thereof which any such
holder may have or be otherwise charged with. The holders of Senior Indebtedness
may extend, renew, modify or amend the terms of the Senior Indebtedness or any
security therefor and release, sell or exchange such security and otherwise deal
freely with the Company, all without affecting the liabilities and obligations
of the Holders.
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<PAGE>
Section 9.7 Article IX Not to Prevent Events of Default. The failure to
-------------------------------------------
make a payment on account of principal of or interest on any Note reason of any
provision of this Article IX shall not be construed as preventing the occurrence
of an Event of Default under Section 10.1; provided, that all Senior
Indebtedness then or thereafter due or declared to be due shall first be paid in
full before the Holders are entitled to receive any payment from the Company of
principal of, or interest on or any other claim or amount with respect to this
Note or with respect to any purchase, acquisition or redemption of the Notes.
[ARTICLE X
INDENTURE
---------
Section 10.1 Indenture. The Company hereby acknowledges and agrees that,
---------
subject to the provisions of Section 2.4(a) hereof, the Purchaser (or any
subsequent Holder) may resell the Notes or a portion hereof in or outside the
United States. If the Notes or any portion thereof is sold by the Purchaser, the
Company hereby agrees to amend this Agreement and Notes and to enter into a note
purchase agreement, fiscal agency agreement and/or indenture, in each case at
such time as may be reasonably requested by the Purchaser and on such terms and
conditions as may be reasonably acceptable to the Purchaser.]
ARTICLE XI
AMENDMENTS
----------
Section 11.1 Without Consent of Holders. (a) The Company may amend this
---------------------------
Agreement or the Notes without notice to or consent of any Holder:
(1) to provide security for the Notes;
(2) to add to the covenants of the Company for the benefit of
the Holders or to surrender any right or power herein conferred upon the
Company;
(3) to make any change that does not adversely affect the rights
of any Holder; or
(4) to surrender any right or power conferred upon the Company.
(b) After an amendment under this Section becomes effective, the
Company shall mail to the Holders a notice briefly describing such amendment.
However, the failure to give such notice to all Holders, or any defect therein,
shall not impair or affect the validity of an amendment under this Section.
Section 11.2 With Consent of Holders. (a) The Company may amend this
-----------------------
Agreement or the Notes with the consent of the Holders of at least a majority in
outstanding principal amount of
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<PAGE>
all outstanding Notes and any existing Default and its consequences (including,
without limitation, an acceleration of the Notes) or compliance with any
provision of this Agreement or the Notes may be waived with the consent of the
Holders of a majority in principal amount of all outstanding Notes.
Furthermore, subject to Section 8.4 or 8.5, the Holders of a majority in
aggregate principal amount of all outstanding Notes may waive compliance in a
particular instance by the Company with any provision of this Agreement or the
Notes. However, without the consent of each Holder of a Note then outstanding,
an amendment may not:
(1) reduce the amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the rate of or extend the time for payment of
interest on any Note;
(3) reduce the principal of or change the Maturity Date of any
Note;
(4) reduce the premium payable upon the repurchase of any Note
or change the time at which any Note may or shall be redeemed or
repurchased in accordance with this Agreement;
(5) make any Note payable in money other than that stated in the
Note;
(6) modify or affect in any manner adverse to the Holders, the
terms and conditions of the obligation of the Company for the due and
punctual payment of the principal of or interest on Notes or to institute
suit for the enforcement of any payment on or with respect to the Notes;
(7) waive a Default or Event of Default in the payment of
principal of, premium, if any, or interest on, or redemption payment with
respect to, any Note (excluding any principal or interest due solely as a
result of the occurrence of a declaration of an Event of Default); or
(8) make any change in Section 8.4 or 8.5 or the third sentence
of this Section;
(9) amend, change or modify in any material respect the
obligation of the Company to make and consummate an offer pursuant to
Section 6.5 of this Agreement in the event of a Change of Control or modify
any of the provisions or definitions with respect thereto;
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<PAGE>
(10) modify or change any provision of this Agreement or the
related definitions affecting the ranking of the Notes in a manner which
adversely affects the Holders; or
(11) make any change in the amendment provisions which require
each Holder's consent or in the waiver provisions.
(b) It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
(c) After an amendment under this Section becomes effective, the
Company shall mail to all Holders a notice briefly describing such amendment.
The failure to give such notice to all Holders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section.
Section 11.3 Revocation and Effect of Consents and Waivers. (a) A consent
---------------------------------------------
to an amendment or a waiver by a Holder of a Note shall bind the Holder and
every subsequent Holder of that Note or portion of the Note that evidences the
same debt as the consenting Holder's Note, even if notation of the consent or
waiver is not made on the Note. After an amendment or waiver becomes effective,
it shall bind every Holder.
(b) The Company shall fix a record date for the purpose of
determining the Holders entitled to give their consent or take any other action
described above or required or permitted to be taken pursuant to this Agreement.
Upon the fixing of a record date, then those Persons who were Holders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall become valid or effective more than 120
days after such record date.
ARTICLE XII
MISCELLANEOUS
-------------
Section 12.1 Governing Law. The interpretation and construction of this
-------------
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of New York applicable to agreements executed and to be performed solely
within such State.
Section 12.2 Jurisdiction; Agents for Service of Process. Any judicial
-------------------------------------------
proceeding brought against any of the parties to this Agreement on any dispute
arising out of this Agreement or any matter related hereto may be brought in the
courts of the State of New York, or in the United States District Court for the
Southern District of New York, and, by execution and delivery of this Agreement,
each of the parties to this Agreement accepts the exclusive jurisdiction of such
courts, and irrevocably agrees to be bound by any judgment rendered thereby in
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<PAGE>
connection with this Agreement. The prevailing party or parties in any such
litigation shall be entitled to receive from the losing party or parties all
costs and expenses, including reasonable counsel fees, incurred by the
prevailing party or parties.
Section 12.3 Captions. The Article and Section captions used herein are
--------
for reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 12.4 Notices. Any notice or other communication required or
-------
permitted under this Agreement shall be sufficiently given if delivered in
person or sent by telecopy or by registered or certified mail, postage prepaid,
addressed as follows: if to the Company, to Specialty Products & Insulation Co.,
1097 Commercial Avenue, P.O. Box 576, East Petersburg, Pennsylvania 17520-0576
(Fax No.: (717) 519-4096) Attention: Mr. Michael Hughes, with a copy to its
counsel, Dechert, Price & Rhoads, 4000 Bell Atlantic Tower, 1717 Arch Street,
Philadelphia, Pennsylvania 19103, Attention: Christopher G. Karras, Esq., (Fax
No.: (215) 994-2222); and if to Purchaser at the address set forth on Exhibit A
---------
attached hereto, or such other address or number as shall be furnished in
writing by any such party, and such notice or communication shall be deemed to
have been given as of the date so delivered, sent by telecopier or mailed.
Section 12.5 Parties in Interest. This Agreement may not be transferred,
-------------------
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
successors and permitted assigns.
Section 12.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which taken together shall constitute one instrument.
Section 12.7 Entire Agreement. This Agreement, including the other
----------------
documents referred to herein which form a part hereof, contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein and therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
Section 12.8 Severability. In case any provision in this Agreement shall
------------
be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
[Signature Pages Follow]
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<PAGE>
IN WITNESS WHEREOF, the Company and each Purchaser has caused its
corporate name to be hereunto subscribed by its officer thereunto duly
authorized, all as of the day and year first above written.
SPECIALTY PRODUCTS & INSULATION CO.
By:______________________________________
Name:
Title:
IREX CORPORATION
By:______________________________________
Name:
Title:
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<PAGE>
EXHIBIT A
---------
[Form of Note]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS THEREOF.
Dated: November __, 1998
No._____ $3,500,000
SPECIALTY PRODUCTS & INSULATION CO.
10.5% Junior Subordinated Pay-in-Kind Notes due 2002
SPECIALTY PRODUCTS & INSULATION CO., a Pennsylvania corporation (the "Company"),
for value received, promises to pay Irex Corporation, or its registered assigns,
the principal sum of Three Million Five Hundred Thousand Dollars ($3,500,000) on
September 30, 2002.
This is the Note described in that certain Note Purchase Agreement,
dated November ___, 1988, by and among the Company (the "Agreement").
Capitalized terms used herein have the meanings assigned to them in the
Agreement unless otherwise indicated.
1. Interest. The Company promises to pay interest on the unpaid
principal amount of this Note at the rate and in the manner specified below.
The Company shall pay, in cash, interest on the principal amount of this Note at
the rate per annum of 10.5%; provided, however, that subject to the last two
sentences of this paragraph on each Interest Payment Date, the Company may, at
its option and in its sole discretion, in lieu of the payment of interest due in
cash on this Note, pay interest on this Note through the issuance of Additional
Notes in an aggregate principal amount equal to the amount of interest that
would be payable with respect to this Note, if such interest were paid in cash.
The Company shall notify the Holders in writing of its election to pay interest
on this Note through the issuance of Additional Notes not less than 10 nor more
than 45 days prior to the record date for the Interest Payment Date on which
Additional Notes will be issued. Additional Notes shall be governed by, and
entitled to the benefits of, the Agreement and shall be subject to the terms of
the Agreement and shall be subject to the same terms (including the Interest
Rate from time to time payable thereon) as this Note (except, as the case may
be, with respect to the issuance date and aggregate principal amount). The
Company will pay interest semiannually in arrears on March 31 and September 30
of each year (each an "Interest Payment Date"), commencing March 31, 1999, or if
any such day is not a business day on the next succeeding business day.
Interest will be computed on the basis of a 360-day year consisting of twelve
30-day months. Interest shall accrue from the most recent Interest Payment
<PAGE>
Exhibit A
---------
Page 2
------
Date to which interest has been paid or, if no interest has been paid, from the
date of the original issuance of the Notes. To the extent lawful, the Company
shall pay interest on overdue principal at the rate of 2% per annum in excess of
the then applicable interest rate on the Notes; it shall pay interest on overdue
installments of interest (without regard to any applicable grace periods) at the
same rate to the extent lawful. In the event that the Company elects in respect
of any Interest Payment Date to pay interest through the issuance of Additional
Notes, interest on this Note shall be paid in Additional Notes. Interest in
respect of this Note will be payable initially in Additional Notes. If at any
time after the Closing Date, the Company elects to pay interest in respect of
the Notes in cash, the Company may thereafter subsequently elect, in accordance
with this paragraph, to pay interest on the Notes in whole, but not in part, in
Additional Notes (a "Subsequent PIK Election"); provided that the Company shall
--------
not be entitled to make more than three Subsequent PIK Elections with respect to
the Notes.
2. Method of Payment. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the Record Date immediately preceding the Interest
Payment Date, even if such Notes are canceled after such Record Date and on or
before such Interest Payment Date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company shall pay principal,
premium, if any, and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts ("U.S. Legal
Tender"). However, the Company may pay principal, premium, if any, and interest
by its check payable in such U.S. Legal Tender. The Company may deliver any
such interest payment to the Paying Agent or to a Holder at the Holder's
registered address.
3. Paying Agent and Registrar. Initially, the Company will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without prior notice to any Holder.
4. Note Agreement. The Company issued the Note pursuant to the
Agreement. The terms of the Notes include those stated in the Agreement. The
Notes are subject to all such terms, and Holders are referred to the Agreement
for a statement of such terms. The terms of the Agreement shall govern any
inconsistencies between the Agreement and this Note. The Notes and the
Additional Notes are treated as a single class of securities under the
Agreement. The terms of the Notes include those stated in the Agreement.
5. Optional Redemption. The Notes will be redeemable, at the
Company's option, in whole or in part, at any time upon not less than 30 nor
more than 60 days' prior notice mailed by first-class mail to each holder's
registered address, at a redemption price equal to 100% of the principal amount
hereof, plus accrued and unpaid interest to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date):
<PAGE>
Exhibit A
---------
Page 3
------
6. Repurchase at Option of Holder. Section 6.6 of the Agreement
provides that upon the occurrence of a Change of Control (as defined in the
Agreement), and subject to the further limitations contained therein, the
Company will make an offer to purchase the Notes in accordance with procedures
set forth in the Agreement.
7. Selection and Notice of Redemption. In the case of any partial
redemption, selection of the Notes for redemption will be made by the Company in
compliance with the requirements of Section 6.02 of the Agreement. Securities
may be redeemed in part in multiples of $1,000 principal amount only. Notice of
redemption will be sent, by first class mail, postage prepaid, at least 30 days
but not more than 60 days prior to the date fixed for redemption to each holder
whose Notes are to be redeemed at the last address for such holder then shown on
the registry books. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after any redemption date, interest
will cease to accrue on the Notes or part thereof called for redemption as long
as the Company has deposited with the Paying Agent in trust for the Holders
funds in satisfaction of the redemption price pursuant to the Agreement.
8. Subordination. The Company's payment of the principal of and
interest on the Notes is subordinated and subject to the prior payment in full
of the Company's Senior Indebtedness as more fully set forth in the Agreement.
Each Holder of Notes by its acceptance hereof covenants and agrees that all
payments of the principal and interest on the Notes by the Company shall be
subordinated in accordance with Article IX of the Agreement and each Holder
accepts and agrees to be bound by such provisions.
9. Denominations, Transfer, Exchange. The Notes (other than
Additional Notes) are in registered form without coupons in denominations of
$1,000 and integral multiples of $1,000. The transfer of Notes may be registered
and Notes may be exchanged as provided in the Agreement. The Registrar and the
Company may require a Holder among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Agreement. The Registrar need not exchange or register
the transfer of any Note or portion of a Note selected for redemption. Also, it
need not exchange or register the transfer of any Notes during a period
beginning at the opening of business on a business day 15 days before the day of
any selection of Notes to be redeemed and ending at the close of business on the
day of selection or during the period between a Record Date and the
corresponding Interest Payment Date.
10. Persons Deemed Owners. Prior to due presentment to the Registrar
or the Company for registration of the transfer of this Note, the Company and,
any Agent may deem and treat the Person in whose name this Note is registered as
its absolute owner for the purpose of receiving payment of principal of,
premium, if any, and interest on this Note and for all other purposes
whatsoever, whether or not this Note is overdue, and neither the Company nor any
<PAGE>
Exhibit A
---------
Page 4
------
Agent shall be affected by notice to the contrary. The registered Holder shall
be treated as its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions provided in
the Agreement, the Agreement or the Notes may be amended with the written
consent of the Holders of a majority in principal amount of all outstanding
tranches of the Notes, voting as a single class, and any existing Default or
Event of Default (except a payment default) may be waived with the consent of
the Holders of a majority in principal amount of all outstanding tranches of the
Notes, voting as a single class. Without the consent of any Holder, the
Agreement or the Notes may be amended to, among other things, cure any
ambiguity, defect or inconsistency, or to make any change that does not
adversely affect in any material respect the rights of any Holder.
12. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Holders of at least 25% in principal amount of all outstanding
tranches of the Notes, voting as a single class, by notice to the Company may
declare the principal of and accrued and unpaid interest, if any, on all the
Notes to be due and payable. Upon such a declaration, such principal and
accrued and unpaid interest shall be due and payable immediately. If an Event
of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Company occurs and is continuing, the principal of and
accrued and unpaid interest on all the Notes will become and be immediately due
and payable without any declaration or other act on the part of any holders.
Under certain circumstances, the holders of a majority in principal amount of
all outstanding Notes, voting as a single class, may rescind any such
acceleration with respect to the Notes and its consequences.
13. Restrictive Covenants. The Agreement imposes certain limitations
on the ability of the Company and its subsidiaries to, among other things, incur
additional Indebtedness, pay dividends or make certain other restricted
payments, consummate certain asset sales, enter into certain transactions with
affiliates, incur liens, create restrictions on the ability of a subsidiary to
pay dividends or make certain payments, sell or issue preferred stock of
subsidiaries to third parties, merge or consolidate with any other person or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company. Such limitations are subject to
a number of important qualifications and exceptions provided for in the
Agreement.
14. Governing Law. The Laws of the State of New York shall govern
this Note, without regard to principles of conflict of laws.
<PAGE>
Exhibit A
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Page 5
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The Company will furnish to any Holder upon written request and
without charge a copy of the Agreement. Request may be made to the Company at:
Specialty Products & Insulation Co., 1097 Commerce Avenue, P.O. Box 576, East
Petersburg, Pennsylvania 17520-0576, Attention: Corporate Secretary.
SPECIALTY PRODUCTS & INSULATION CO.
By______________________________________
Name:
Title:
By______________________________________
Name:
Title:
