<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1998
REGISTRATION NO.-333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
HENRY COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 95-3618402
(STATE OR OTHER JURISDICTION 2952 (I.R.S. EMPLOYER
OF (PRIMARY STANDARD INDUSTRIAL IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>
SEE TABLE OF ADDITIONAL REGISTRANTS
---------------------
2911 SLAUSON AVENUE
HUNTINGTON PARK, CALIFORNIA 90255
(213) 583-5000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
--------------------------
JEFFREY A. WAHBA
CHIEF FINANCIAL OFFICER AND SECRETARY
HENRY COMPANY
2911 SLAUSON AVENUE
HUNTINGTON PARK, CALIFORNIA 90255
(213) 583-5000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
--------------------------
COPIES TO:
ROBERT B. KNAUSS, ESQ.
JUDITH T. KITANO, ESQ.
MUNGER, TOLLES & OLSON LLP
355 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071-1560
(213) 683-9100
--------------------------
Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT PRICE (1) FEE
<S> <C> <C> <C> <C>
10% Series B Senior Notes due 2008 $85,000,000 100% $85,000,000 $25,075
Guarantees of 10% Series B Senior Notes due
2008 of Henry Company by Monsey Products
Co., Kimberton Enterprises, Inc. and
Monsey Products of Arizona LLC -- -- -- (2)
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f)(2) under the Securities Act of 1933, as amended.
(2) No separate consideration will be received for the Guarantees. Pursuant to
Rule 457(n), no registration fee is required.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF PRIMARY STANDARD I.R.S. EMPLOYER
INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION
REGISTRANT ORGANIZATION CODE NUMBER NUMBER
- ----------------------------------------------- ------------------------ ------------------------- --------------------
<S> <C> <C> <C>
Monsey Products Co. Pennsylvania 2952 23-0887819
Kimberton Enterprises, Inc. Delaware 2952 51-0341834
Monsey Products of Arizona LLC Arizona 2952 86-0781792
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 21, 1998
PROSPECTUS
[LOGO]
OFFER TO EXCHANGE
10% SERIES B SENIOR NOTES DUE 2008 (WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED)
FOR ANY AND ALL OUTSTANDING 10% SERIES A SENIOR NOTES DUE 2008
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.
Henry Company, a California corporation (the "Company"), hereby offers, upon
the terms and conditions set forth in this Prospectus and the accompanying
letter of transmittal (the "Letter of Transmittal," which, together with this
Prospectus, constitutes the "Exchange Offer") to exchange up to $85,000,000
aggregate principal amount of its 10% Series B Senior Notes due 2008 (the
"Exchange Notes"), in an offering that has been registered under the Securities
Act of 1933, as amended (the "Securities Act") pursuant to a Registration
Statement on Form S-4 of which this Prospectus is a part, for an equal principal
amount of its issued and outstanding 10% Series A Senior Notes due 2008 (the
"Old Notes," and collectively with the Exchange Notes, the "Notes"), of which
$85,000,000 aggregate principal amount is outstanding as of the date hereof. See
"The Exchange Offer."
The Old Notes were originally issued and sold (the "Initial Offering") to BT
Alex. Brown Incorporated (the "Initial Purchaser") pursuant to a Purchase
Agreement, dated April 15, 1998 (the "Purchase Agreement"), among the Company,
certain of the Company's subsidiaries and the Initial Purchaser, on April 22,
1998 (the "Initial Issue Date"). The Initial Purchaser later resold the Old
Notes in reliance on Rule 144A and Regulation S under the Securities Act. The
Company, the Company's subsidiaries (except for the Company's Canadian
subsidiaries) and the Initial Purchaser also entered into a Registration Rights
Agreement, dated April 22, 1998 (the "Registration Rights Agreement") pursuant
to which the Company granted certain registration rights for the benefit of the
holders of the Old Notes. The Exchange Notes are being offered for exchange in
order to satisfy certain obligations of the Company under the Registration
Rights Agreement. The Exchange Notes will be obligations of the Company
evidencing the same indebtedness as the Old Notes and will be issued under and
entitled to the benefits of the Indenture, dated as of April 22, 1998 (the
"Indenture"), between the Company, the Company's subsidiaries (except for the
Company's Canadian subsidiaries) and U.S. Trust Company, N.A., as trustee (in
such capacity, the "Trustee") pursuant to which the Old Notes were issued. The
form and terms of the Exchange Notes are substantially identical in all material
respects to the Old Notes, except that the offer and exchange of the Exchange
Notes has been registered under the Securities Act, and therefore the Exchange
Notes will not be subject to certain transfer restrictions and registration
rights provisions applicable to the Old Notes. See "Description of the Exchange
Notes" and "The Exchange Offer-- Terms of the Exchange Offer."
The Company will accept for exchange any and all Old Notes that are properly
tendered in the Exchange Offer and not withdrawn on or prior to 5:00 p.m., New
York City time, on , 1998, unless the Exchange Offer is extended by
the Company (the "Expiration Date"). Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. However, the Exchange Offer is subject to certain
customary conditions which may be waived by the Company. Old Notes may be
tendered only in denominations of $1,000 and any integral multiple thereof. The
Company has agreed to pay the expenses of the Exchange Offer. See "The Exchange
Offer." There will be no cash proceeds to the Company from the Exchange Offer
and no underwriter is being used in connection with this Exchange Offer. See
"Use of Proceeds."
The Exchange Notes will be available initially only in book-entry form. See
"The Exchange Offer--Book-Entry Transfer." Old Notes may be tendered only in
denominations of $1,000 and any integral multiple thereof.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 19 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY HOLDERS IN EVALUATING THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
THE DATE OF THIS PROSPECTUS IS JULY , 1998
(COVER CONTINUES ON FOLLOWING PAGE)
<PAGE>
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") the Company believes that a holder who exchanges
Old Notes for Exchange Notes pursuant to the Exchange Offer may offer for
resale, resell and otherwise transfer such Exchange Notes without compliance
with the registration and prospectus delivery requirements of the Securities
Act, provided, that (i) such Exchange Notes are acquired in the ordinary course
of such holder's business, (ii) such holder is not engaged in, and does not
intend to engage in, a distribution of such Exchange Notes and has no
arrangement with any person to participate in the distribution of such Exchange
Notes, and (iii) such holder is not an affiliate of the Company (as defined
under Rule 405 of the Securities Act). However, the staff of the Commission has
not considered the Exchange Offer in the context of a no-action letter and there
can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other circumstances.
A holder who exchanges Old Notes for Exchange Notes pursuant to the Exchange
Offer with the intention to participate in a distribution of the Exchange Notes
may not rely on the staff's position enunciated in any no-action letter and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "The Exchange Offer" and
"Plan of Distribution." A broker-dealer may use this Prospectus, as it may be
amended or supplemented from time to time, in connection with the resale of
Exchange Notes it has received in exchange for Old Notes if the Old Notes were
acquired as a result of market-making activities or other trading activities.
The Company has agreed that, beginning on the Expiration Date and ending on the
close of business on the 180th day following the Expiration Date, it will make
this Prospectus available to any broker-dealer to use in connection with any
such resale or for such shorter period as will terminate when all Old Notes
acquired by broker-dealers for their own accounts as a result of market-making
activities or other trading activities have been exchanged for Exchange Notes
and resold by such broker-dealers. See "Plan of Distribution." EXCEPT AS
DESCRIBED IN THIS PARAGRAPH, THIS PROSPECTUS MAY NOT BE USED FOR ANY OFFER, SALE
OR OTHER TRANSFER OF EXCHANGE NOTES.
Prior to this Exchange Offer, there has been no public market for the Old
Notes or the Exchange Notes. The Old Notes have traded in the National
Association of Securities Dealers, Inc. Private Offerings, Resales and Trading
through Automated Linkages ("PORTAL") market. The Company does not intend to
list the Exchange Notes on any securities exchange or NASDAQ. There can be no
assurance that an active market for the Exchange Notes will develop. If a public
market were to develop, the Exchange Notes could trade at prices that may be
higher or lower than their principal amount at maturity. See "Risk
Factors--Absence of Public Market for the Exchange Notes."
Interest on the Exchange Notes will be payable semi-annually in arrears on
April 15 and October 15 of each year, (each an "Interest Payment Date"),
commencing on the first such date following their date of issuance. Interest on
the Exchange Notes will accrue from April 22, 1998 and interest on the Old Notes
exchanged for Exchange Notes in the Exchange Offer will cease to be payable upon
issuance of the Exchange Notes. The Exchange Notes will be redeemable, in whole
or in part, at the option of the Company on or after April 15, 2003, at the
redemption prices set forth herein, plus accrued and unpaid interest to the date
of redemption. In addition, at any time prior to April 15, 2001, the Company
may, at its option, redeem up to 35% of the sum of (i) the initial aggregate
principal amount of the Notes issued in the Initial Offering and (ii) the
respective initial aggregate principal amounts of the Notes issued under the
Indenture after the Initial Issue Date, on one or more occasions with the net
cash proceeds of one or more Public Equity Offerings (as defined) at a
redemption price equal to 110% of the principal amount thereof, plus accrued and
unpaid interest thereon, to the redemption date; PROVIDED, HOWEVER, that
immediately after giving effect to such redemption, at least 65% of the sum of
(i) the initial aggregate principal amount of the Notes issued in the Initial
Offering and (ii) the respective initial aggregate principal amounts of the
Notes issued under the Indenture after the Initial Issue Date remain
outstanding.
The Exchange Notes will be general unsecured senior obligations of the
Company and will rank PARI PASSU in right of payment with all unsubordinated
indebtedness of the Company and will rank senior in right of payment with all
existing and future subordinated indebtedness of the Company. The Exchange Notes
will be unconditionally guaranteed (the "Guarantees") on a senior basis by the
Company's current and certain future wholly-owned subsidiaries (the
"Guarantors"), but not by its Canadian subsidiaries. The Guarantees will be
general unsecured obligations of the Guarantors and will rank PARI PASSU in
right of payment with all existing and future unsubordinated indebtedness of the
Guarantors and will rank senior in right of payment to all existing and future
subordinated obligations of the Guarantors. The Exchange Notes will be
effectively subordinated in right of payment to all secured indebtedness of the
Company to the extent of the assets secured by such indebtedness. The Guarantees
will be effectively subordinated to all secured indebtedness of the Guarantors.
The Exchange Notes will also be structurally subordinated to all existing and
future indebtedness and other liabilities of the Company's Canadian
subsidiaries.
Upon a Change of Control (as defined), each holder of the Exchange Notes
will have the right to require the Company to repurchase such holder's Exchange
Notes at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of repurchase. In addition, the Company
will be obligated to offer to repurchase the Exchange Notes at 100% of their
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase in the event of certain Asset Sales (as defined). See "Description
of the Exchange Notes."
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any securities other that those to which it
relates.
<PAGE>
AVAILABLE INFORMATION
The Company and the Guarantors have filed jointly with the Commission a
Registration Statement on Form S-4 under the Securities Act, with respect to the
Exchange Notes offered by this Prospectus. For the purposes hereof, the term
"Registration Statement" means the original Registration Statement and any and
all amendments thereto. This Prospectus does not contain all of the information
set forth in the Registration Statement and the schedules and exhibits to which
reference hereby is made. Each statement made in this Prospectus concerning a
document filed as an exhibit to the Registration Statement is qualified in its
entirety by reference to such exhibit for a complete statement of its
provisions. Any interested party may inspect the Registration Statement and its
exhibits, without charge, at the public reference facilities of the Commission
at its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at its regional office at 500 W. Madison St., Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th floor, New York,
New York 10007. Any interested party may obtain copies of all or any portion of
the Registration Statement and its exhibits at prescribed rates from the Public
Reference Section of the Commission at its principal office at Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549.
Following the Effective Date of the Registration Statement, the Company will
be subject to the periodic reporting and other information requirements of the
Exchange Act. The Company has agreed that, whether or not it is required to do
so by the rules and regulations of the Commission (and within 15 days of the
date that is or would be prescribed thereby), for so long as any of the Notes
remain outstanding, it will furnish to the holders thereof and file with the
Commission (unless the Commission will not accept such a filing) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's independent
auditors and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports. All
reports filed with the Commission will be available on the Commission's web site
at http://www.sec.gov. In addition, for so long as any of the Notes remain
outstanding, the Company has agreed to make available, upon request, to any
prospective purchaser of the Notes and beneficial owner of the Notes in
connection with the sale thereof the information required by Rule 144A(d)(4)
under the Securities Act. Information may be obtained from the Company at 2911
Slauson Avenue, Huntington Park, California 90255 (telephone number: (213)
583-5000), Attention: Corporate Secretary.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE UNIFORM
SECURITIES ACT WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER
RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE
FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION
MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR
QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR
TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE
PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE
PROVISIONS OF THIS PARAGRAPH.
i
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE UNITED STATES
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). ALL STATEMENTS
OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS,
INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE COMPANY'S COMPETITVE
STRENGTHS, BUSINESS STRATEGY, FUTURE FINANCIAL POSITION, BUDGETS, PROJECT COSTS
AND PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, ARE
FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-LOOKING STATEMENTS GENERALLY
CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY,"
"WILL," "EXPECT," "SHOULD," "INTEND," "ESTIMATE," "ANTICIPATE," "BELIEVE," OR
"CONTINUE" OR THE NEGATIVE THEREOF OR VARIATIONS THEREON OR SIMILAR TERMINOLOGY.
ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH
FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH
EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY
STATEMENTS") ARE DISCLOSED UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS, INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION WITH THE
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS. ALL SUBSEQUENT WRITTEN
AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY, OR PERSONS
ACTING ON ITS BEHALF, ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE
CAUTIONARY STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY
OR REVISE ANY FORWARD-LOOKING STATEMENTS.
ii
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE COMBINED FINANCIAL
STATEMENTS OF HENRY COMPANY AND THE CONSOLIDATED FINANCIAL STATEMENTS OF MONSEY
BAKOR, INCLUDING, IN EACH CASE, THE NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. AS USED IN THIS PROSPECTUS, UNLESS OTHERWISE STATED (I) "HENRY
COMPANY" REFERS TO HENRY COMPANY PRIOR TO THE ACQUISITION (AS DEFINED), "MONSEY
BAKOR" REFERS TO MONSEY PRODUCTS CO. AND ITS SUBSIDIARIES PRIOR TO THE
ACQUISITION, AND THE "COMPANY" REFERS TO THE COMBINED ENTITY FOLLOWING THE
ACQUISITION, (II) ALL REFERENCES TO FINANCIAL STATEMENT BALANCES OR OTHER
AMOUNTS ARE DETERMINED IN ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES AND (III) REFERENCES TO "PRO FORMA BASIS" MEANS THE
APPLICATION OF THE PRO FORMA ADJUSTMENTS DESCRIBED UNDER THE HEADING "UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL DATA." THE MARKET SHARE, MARKET POSITION
AND OTHER INDUSTRY DATA CONTAINED HEREIN RELATING TO THE ROOF PRODUCTS, ROOF
COATINGS AND RELATED INDUSTRIES HAVE BEEN DERIVED FROM INDUSTRY AND OTHER
SOURCES AVAILABLE TO THE COMPANY, INCLUDING MANAGEMENT'S INDUSTRY EXPERIENCE.
WHILE MANAGEMENT BELIEVES THAT ITS ESTIMATES DERIVED FROM SUCH DATA ARE
REASONABLE, NO ASSURANCES CAN BE GIVEN AS TO THE ACCURACY THEREOF.
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
<TABLE>
<S> <C>
Old Notes.............................. On April 22, 1998, the Company issued and sold
$85,000,000 aggregate principal amount of its Old
Notes to BT Alex. Brown as Initial Purchaser. The
Initial Purchaser subsequently offered and resold
the Old Notes to Qualified Institutional Buyers (as
defined in Rule 144A under the Securities Act)
pursuant to Rule 144A under the Securities Act, to
a limited number of institutional investors that
are Accredited Investors (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities
Act) and in offshore transactions complying with
Rule 903 or Rule 904 of Regulation S under the
Securities Act.
Exchange Notes......................... Up to $85,000,000 aggregate principal amount of the
Company's 10% Series B Senior Notes due 2008. The
form and terms of the Exchange Notes and the Old
Notes are substantially identical in all material
respects, except that the offer of the Exchange
Notes will have been registered under the
Securities Act and therefore, the Exchange Notes
will not be subject to certain transfer
restrictions and registration rights and related
provisions requiring an increase in the interest
rate payable on the Old Notes under certain
circumstances if the Company defaults with respect
to its registration requirements under the
Registration Rights Agreement will not be
applicable to the Old Notes.
Exchange Offer......................... Pursuant to the terms and conditions of the
Exchange Offer, the Company is offering to exchange
$1,000 principal amount (and any integral multiple
thereof) of Exchange Notes for each $1,000
principal amount (and any integral multiple
thereof) of Old Notes. See "The Exchange Offer" for
a description of the procedures for tendering Old
Notes. In connection with the Initial Offering, the
Company entered into the Registration
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Rights Agreement which grants holders of the Old
Notes certain exchange and registration rights. The
Exchange Offer is intended to satisfy the Company's
obligations under the Registration Rights
Agreement. The date of acceptance for exchange of
the Old Notes will be the first business day
following the Expiration Date. As of the date of
this Prospectus, $85,000,000 in aggregate principal
amount of Old Notes are outstanding.
Expiration Date........................ The Exchange Offer will expire at 5:00 p.m., New
York City time, on 1998, or such later
date
and time to which it is extended by the Company.
See
"The Exchange Offer--Expiration Date; Extension;
Amendment."
Resale................................. Subject to the receipt of certain representations
by holders in the Letter of Transmittal, the
Company believes that the Exchange Notes issued
pursuant to the Exchange Offer generally will be
freely transferable by the holders thereof without
registration or any prospectus delivery requirement
under the Securities Act, except that a "dealer" or
any of the Company's affiliates, as such terms are
defined under the Securities Act, that exchanges
Old Notes held for its own account may be required
to deliver copies of this Prospectus in connection
with any resale of the Exchange Notes issued in
exchange for such Old Notes. See "The Exchange
Offer--Resale of the Exchange Notes" and "Plan of
Distribution."
Consequences or Failure to Exchange Old
Notes Pursuant to the Exchange
Offer................................ Following the consummation of the Exchange Offer,
holders of Old Notes not tendered will not have any
further registration rights and the Old Notes will
continue to be subject to certain restrictions on
transfer. In general, the Old Notes may not be
offered or sold, unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws. Failure to comply with such requirements in
such instance may result in such holder incurring
liability under the Securities Act for which such
holder is not indemnified by the Company. See "The
Exchange Offer--Consequences of Failure to
Exchange."
Accrued Interest on the Exchange Notes
and the Old Notes.................... Each Exchange Note will bear interest from the
Initial Issue Date. Holders of Old Notes whose Old
Notes are accepted for exchange will be deemed to
have waived the right to receive any payment in
respect of interest on the Old Notes accrued from
April 22, 1998 until the date of the issuance of
the Exchange Notes. Consequently, holders who
exchange their Old Notes for Exchange Notes will
receive the same interest payment on October 15,
1998 (the first interest payment date with respect
to the Old
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Notes and the Exchange Notes) that they would have
received had they not accepted the Exchange Offer.
Untendered Old Notes that are not exchanged for
Exchange Notes pursuant to the Exchange Offer will
continue to bear interest at a rate of 10% per
annum after the Expiration Date.
Termination............................ The Company may terminate the Exchange Offer if it
determines that its ability to proceed with the
Exchange Offer could be materially impaired due to
any legal or governmental action, any new law,
statute, rule or regulation or any interpretation
by the staff of the Commission of any existing law,
statute, rule or regulation. Holders of Old Notes
will have certain rights against the Company under
the Registration Rights Agreement should the
Company fail to consummate the Exchange Offer. See
"The Exchange Offer--Conditions."
Procedures for Tendering Old Notes..... Each Holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with such Old Notes and any other required
documentation to U.S. Trust Company, N.A., as
Exchange Agent (the "Exchange Agent"), at the
address set forth herein and therein, or effect a
tender of Old Notes pursuant to the procedure for
book-entry transfer as provided for herein. By
executing the Letter of Transmittal, each holder
will represent to the Company that, among other
things, the Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary
course of business of the person receiving such
Exchange Notes, whether or not such person is the
holder, that neither the holder nor any such other
person has an arrangement or understanding with any
person to participate in the distribution of such
Exchange Notes and, except as otherwise disclosed
in writing to the Company, that neither the holder
nor any such other person is an "affiliate," as
defined in Rule 405 under the Securities Act, of
the Company. If the tendering holder is a
broker-dealer (whether or not it is also an
"affiliate") that will receive Exchange Notes for
its own account in exchange for Old Notes that were
acquired as a result of market-making activities or
other trading activities, it will be required to
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
See "Plan of Distribution." To comply with the
securities laws of certain jurisdictions, it may be
necessary to qualify for sale or register the
Exchange Notes prior to offering or selling such
Exchange Notes. The Company does not currently
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
intend to take any action to register or qualify
the Exchange Notes for resale in any such
jurisdictions.
Special Procedures for Beneficial
Owners............................... Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender such Old Notes in the Exchange Offer should
contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on such owner's own behalf, such
owner must, prior to completing and executing the
Letter of Transmittal and delivering such owner's
Old Notes, either make appropriate arrangements to
register ownership of the Old Notes in such owner's
name or obtain a properly completed bond power from
the registered holder. The transfer of record
ownership may take considerable time and may not be
able to be completed prior to the Expiration Date.
Guaranteed Delivery Procedures......... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date must
tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer-- Guaranteed Delivery Procedures."
Withdrawal Rights...................... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Old Notes and Delivery of
Exchange Notes....................... Subject to certain conditions (as summarized above
in "Termination" and described more fully in "The
Exchange Offer--Conditions" and "The Exchange
Offer-- Procedures for Tendering"), the Company
will accept for exchange any and all Old Notes that
are validly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration
Date. The Exchange Notes issued pursuant to the
Exchange Offer will be delivered promptly following
the Expiration Date. Any Old Notes not accepted for
exchange for any reasons will be returned without
expense to the tendering holder thereof as promptly
as practicable after the expiration or termination
of the Exchange Offer. See "The Exchange
Offer--Terms of the Exchange Offer."
Use of Proceeds........................ There will be no proceeds to the Company from the
issuance of the Exchange Notes pursuant to the
Exchange Offer. Of the approximately $85.0 million
of gross proceeds received by the Company from the
sale of the Old Notes, approximately $46.0 million
was used to pay the aggregate consideration in the
Acquisition.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Approximately $25.3 million was used to repay
existing bank debt of the Company and its
subsidiaries, approximately $5.0 million was used
to retire existing subordinated debt of the
Company, approximately $4.2 million was used to pay
fees and expenses in connection with the
transactions, and the remaining amounts were used
for general corporate purposes.
Exchange Agent......................... The Trustee is also the Exchange Agent. The address
of the Exchange Agent is: U.S. Trust Company, N.A.
c/o United States Trust Company of New York, P.O.
Box 841, Peter Cooper Station, New York, New York
10276-0841, Attention: Corporate Trust and Agency
Services.
The address for deliveries by overnight is:
U.S. Trust Company, N.A., c/o United States Trust
Company of New York, 770 Broadway, 13th Floor, New
York, New York 10006, Attention: Corporate Trust
and Agency Services.
Hand deliveries should be made to:
U.S. Trust Company, N.A. c/o United States Trust
Company of New York, 11 Broadway, Lower Level, New
York, New York 10006, Attention: Corporate Trust
and Agency Services.
For information with respect to the Exchange Offer,
the telephone number for the Exchange Agent is
(800) 225-2398 and the facsimile number for the
Exchange Agent is (212) 420-6504, Attention:
Customer Service.
Accounting Treatment................... No gain or loss for accounting purposes will be
recognized by the Company upon the consummation of
the Exchange Offer. See "The Exchange
Offer--Accounting Treatment."
Certain U.S. Federal Income Tax
Consequences......................... Generally, the exchange pursuant to the Exchange
Offer will not result in any income, gain or loss
to the holders of the Notes or the Company for
federal income tax purposes. See "Certain U.S.
Federal Income Tax Considerations."
</TABLE>
------------------------
5
<PAGE>
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
The form and terms of the Exchange Notes and the Old Notes are substantially
identical in all material respects, except that the offer of the Exchange Notes
is registered under the Securities Act and, therefore, the Exchange Notes will
not be subject to certain transfer restrictions, registration rights and related
provisions requiring an increase in the interest rate on the Old Notes under
certain circumstances if the Company defaults with respect to its registration
requirements under the Registration Rights Agreement applicable to the Old
Notes. See "Description of the Exchange Notes."
<TABLE>
<S> <C>
Exchange Notes Offered....... $85,000,000 aggregate principal amount of 10% Series B
Senior Notes due 2008.
Maturity Date................ April 15, 2008.
Interest Payment Dates....... Interest on the Exchange Notes will accrue from the last
Interest Payment Date on which interest was paid on the Old
Notes that are accepted for exchange or, if no interest has
been paid on the Old Notes, from April 22, 1998, as the case
may be, at the rate of 10% per annum payable semiannually in
arrears on each April 15 and October 15, commencing October
15, 1998. Holders of Old Notes whose Old Notes are accepted
for exchange will be deemed to have waived the right to
receive any payment in respect of interest on such Old Notes
accrued from April 22, 1998 to the date of the issuance of
the Exchange Notes. Consequently, holders who exchange their
Old Notes for Exchange Notes will receive the same interest
payment on October 15, 1998 (the first interest payment date
with respect to the Old Notes and the Exchange Notes) that
they would have received had they not accepted the Exchange
Offer.
Optional Redemption.......... The Exchange Notes will be redeemable, in whole or in part,
at the option of the Company on or after April 15, 2003, at
the redemption prices set forth herein, plus accrued and
unpaid interest to the date of redemption. In addition, at
any time on or prior to April 15, 2001, the Company may, at
its option, redeem up to 35% of the sum of (i) the initial
aggregate principal amount of the Notes issued in the
Initial Offering and (ii) the respective initial aggregate
principal amounts of the Notes issued under the Indenture
after the Initial Issue Date, on one or more occasions with
the net cash proceeds of one or more Public Equity Offerings
at a redemption price equal to 110% of the principal amount
thereof, plus accrued and unpaid interest thereon, to the
redemption date; PROVIDED, HOWEVER, that immediately after
giving effect to such redemption, at least 65% of the sum of
(i) the initial aggregate principal amount of the Notes
issued in the Initial Offering and (ii) the respective
initial aggregate principal amounts of the Notes issued
under the Indenture after the Initial Issue Date remain
outstanding. See "Description of the Exchange Notes--
Redemption."
Ranking...................... The Exchange Notes will be general unsecured senior
obligations of the Company and will rank PARI PASSU in right
of payment with all existing and future unsubordinated
indebtedness of the Company and will rank senior in right of
payment to all existing and future subordinated indebtedness
of the Company. The Exchange Notes will be effectively
subordinated in right of payment to all secured
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
indebtedness of the Company to the extent of the assets
secured by such indebtedness. The Exchange Notes will also
be structurally subordinated to all existing and future
indebtedness and other liabilities of the Company's Canadian
subsidiaries. As of June 30, 1998 the Company had
approximately $0.3 million of unsecured indebtedness and
$3.9 million of secured indebtedness outstanding which
includes approximately $3.3 million (Canadian $4.9 million)
of secured indebtedness of the Company's Canadian
subsidiaries.
Change of Control............ Upon a Change of Control, each holder of Exchange Notes will
have the right, subject to certain conditions, to require
the Company to repurchase such holder's Exchange Notes at a
price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of
repurchase. See "Description of the Exchange Notes-- Change
of Control."
Certain Covenants............ The Indenture governing the Exchange Notes contains certain
covenants that limit the ability of the Company and its
subsidiaries to, among other things, incur additional
indebtedness, pay dividends or make investments and certain
other restricted payments, consummate certain asset sales,
enter into certain transactions with affiliates, incur
liens, impose restrictions on the ability of a subsidiary to
pay dividends or make certain payments to the Company and
its subsidiaries, 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. In addition, under certain circumstances, the
Company is required to offer to purchase the Exchange Notes,
in whole or in part, at a purchase price equal to 100% of
the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase, with the
proceeds of certain Asset Sales (as defined in the
Indenture). All of such covenants are subject to certain
qualifications and exceptions. See "Description of the
Exchange Notes--Certain Covenants."
Guarantees................... The Exchange Notes will be guaranteed on a senior basis by
the Guarantors. The Guarantees will be a general unsecured
obligation of the Guarantors and will rank PARI PASSU in
right of payment with all existing and future unsubordinated
indebtedness of the Guarantors and will rank senior in right
of payment to all existing and future subordinated
obligations of the Guarantors. The Guarantees will be
effectively subordinated in right of payment to all existing
and future secured indebtedness of the Guarantors. As of
June 30, 1998, on a pro forma basis, the Guarantors would
have had approximately $0.2 million of secured indebtedness.
See "Description of the Exchange Notes--Guarantees."
Exchange Offer; Registration
Rights..................... In the event that applicable law or interpretations of the
staff of the Commission do not permit the Company to effect
this Exchange Offer or if certain holders of the Old Notes
notify the Company that they are not permitted to
participate in, or would not receive freely transferable
Exchange Notes pursuant to, the Exchange Offer, or if the
Company has not consummated the Exchange Offer within 185
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
days after the Initial Issue Date, under certain
circumstances, the Company will cause to become effective a
registration statement (the "Shelf Registration Statement")
with respect to the resale of the Old Notes and to keep the
Shelf Registration Statement effective for a period of two
years from the date of original issuance of the Old Notes or
such shorter period that will terminate when Old Notes
covered by the Shelf Registration Statement have been sold
pursuant thereto or can be sold pursuant to Rule 144(k). The
interest rate on the Old Notes is subject to increase under
certain circumstances if the Company defaults with respect
to its registration obligations under the Registration
Rights Agreement. See "The Exchange Offer."
Lack of Prior Market for the
Exchange Notes............. The Old Notes are eligible for trading in the PORTAL Market.
The Exchange Notes will be new securities for which there is
currently no established trading market, and none may
develop. Although the Initial Purchaser is making a market
in the Old Notes and has indicated to the Company that it
currently intends to make a market in the Exchange Notes, as
permitted by applicable laws and regulations, it is under no
obligation to do so; and such market-making could be
discontinued at any time without notice, at the sole
discretion of the Initial Purchaser. In addition, such
market making activities may be limited during the Exchange
Offer and the pendency of a Shelf Registration Statement.
Accordingly, no assurance can be given that an active
trading market for the Exchange Notes will develop or, if
such a market develops, as to the liquidity of such market.
If the Exchange Notes are traded after their initial
issuance, they may trade at a discount from their initial
offering price, depending upon prevailing interest rates,
the market for similar securities, the performance of the
Company and certain other factors.
</TABLE>
For additional information regarding the Exchange Notes, see "Description of
the Exchange Notes."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating the Exchange Offer.
8
<PAGE>
THE COMPANY
On April 22, 1998, Henry Company completed the acquisition (the
"Acquisition") of Monsey Products Co., a Pennsylvania corporation, and its
subsidiaries, d/b/a Monsey Bakor (together, "Monsey Bakor"). The Acquisition was
consummated simultaneously with the Initial Offering and the refinancing of the
Company's bank credit facilities.
Management believes that the combination of Henry Company and Monsey Bakor
has created the largest North American manufacturer and marketer of roof coating
and roof cement products. Henry Company believes that it is already the largest
manufacturer of roof coatings and roof cements in the western United States.
Monsey Bakor is currently a leading manufacturer of roof coatings, adhesives and
membranes with its strongest markets in the eastern United States and Canada.
Henry Company and Monsey Bakor have 65 and 59 years of experience in the roofing
products industry, respectively. After giving effect to the Transactions (as
defined), the Company would have had pro forma net sales of approximately $180.6
million and pro forma combined EBITDA (as defined) of approximately $15.5
million for the fiscal year ended December 31, 1997 and pro forma net sales of
approximately $37.7 million and pro forma combined EBITDA (as defined) of
approximately $1.7 million for the three months ended March 31, 1998.
HENRY COMPANY. Henry Company, founded in 1933, is a construction materials
company focusing primarily on products for roofing, sealing and paving
applications. Henry Company develops, manufactures and markets three separate
but related product lines: roof and driveway coatings and paving products;
polyurethane foam for roofing and commercial uses; and sealants for construction
and marine uses. Henry Company has developed strong brand awareness and is
recognized by its customers as a quality leader in many of its product lines.
Beginning in 1988, Henry Company's management focused on expanding the Henry
brand from its Southern California base through the purchase of regional roof
coatings manufacturers and distributors in contiguous regions--the Southwest,
the Northwest, Northern California and the Rocky Mountain region. In each of
these regions Henry Company has been successful in introducing the Henry brand
and becoming a market share leader. Regional plants to support production and
distribution needs have also allowed Henry Company to become a low cost producer
in each of these regions while becoming recognized as a quality leader.
MONSEY BAKOR. Monsey Bakor has served the U.S. and Canadian building
products markets for over 50 years. Monsey Bakor is a leading manufacturer and
distributor of a broad spectrum of building products for residential and
commercial use with a product line consisting of roof coatings, adhesives and
membranes and waterproofing and air barrier systems as well as specialized
industrial emulsions. Monsey Bakor has manufactured and distributed its products
under the Monsey trade name since the founding of Monsey Products Co. in 1939.
In March 1996, Monsey Products Co. expanded its operations by acquiring a
Canadian competitor, Bakor Holdings, Inc., and thereafter has sold the majority
of its products under the "Monsey Bakor" brand. The predecessor company to Bakor
Holdings, Inc. had been founded in 1931. Monsey Bakor's headquarters is located
in Kimberton, Pennsylvania, 35 miles northwest of Philadelphia.
COMPETITIVE STRENGTHS
The Company believes that the following competitive strengths will
contribute to the Company's opportunities for future growth.
LEADING MARKET POSITIONS
The Company believes that it is the largest manufacturer of roof coatings
and roof cements in North America. Henry Company believes that it is already the
largest such manufacturer in the western United States. Monsey Bakor is a
leading manufacturer of roof coatings, adhesives and membranes in the eastern
9
<PAGE>
United States and Canada. Management believes that Monsey Bakor is also the
major producer of wax-based emulsions for the gypsum board industry, with a
dominant share of the market.
ESTABLISHED BRAND NAMES AND REPUTATION
The Company has significant brand name recognition within the roofing and
building products industries across each of its core product lines, with popular
brand names such as "Henry," "Monsey," "Bakor" and
"Wet-Patch-Registered Trademark-." The Company believes that these brands have
established a reputation for reliability and high quality in the industry.
BREADTH OF GEOGRAPHIC COVERAGE
The Company has manufacturing and distribution facilities strategically
located throughout the United States and eastern Canada. This broad geographic
coverage is advantageous as roof coatings products are heavy relative to their
value, and it is therefore often uneconomic to transport such products more than
500 miles from their place of manufacture. The Company's dispersed facilities
position it to better serve national and larger regional customers. Broad
geographic product distribution capability is important to many of the Company's
customers, particularly the mass merchandisers and roofing wholesalers, which
are increasingly being consolidated into large national companies.
STRONG CUSTOMER RELATIONSHIPS IN MULTIPLE DISTRIBUTION CHANNELS
Through Henry Company's and Monsey Bakor's 65 and 59 years of operations,
respectively, the Company has developed many long-standing relationships with
key customers in multiple distribution channels. The Company intends to continue
to distribute its products through mass merchandisers such as Home Depot,
HomeBase, Lowe's Home Improvement Warehouse and Eagle Hardware and Garden;
co-ops such as Ace Hardware and True-Value Hardware; roofing wholesalers such as
ABC Supply, Allied Building Products and Cameron Ashley Building Products; and
directly to the "industrial-commercial-institutional" market. Selling through
multiple distribution channels is intended to maximize the Company's market
penetration and reduce its reliance upon the success of any one distribution
channel. As evidence of the Company's strong customer relationships, Henry
Company was named a "1997 Partner of the Year" by Home Depot.
LOW COST PRODUCER
The Company believes that it is one of the lowest cost producers in the roof
coatings and roof cements industry. Raw material costs are the single largest
portion of finished product costs. Due to the size of its manufacturing
operations relative to its competition, management believes that the Company
will be positioned to purchase raw materials more efficiently than many of its
competitors. Furthermore, management believes that its proprietary manufacturing
processes for certain of its products will generate further cost advantages.
EXPERIENCED MANAGEMENT TEAM
The Company has assembled a strong and experienced management team at both
the corporate and operating levels. More than 75% of the senior managers of the
Company have over 10 years of experience in the roofing products industry. In
addition, senior management of Henry Company has been responsible for
successfully acquiring and integrating seven companies since 1988.
TECHNICAL AND FORMULA DEVELOPMENT
The Company has developed an array of products that it believes are
recognized as among the highest quality products in their segments, including
Henry 208 Wet Patch-Registered Trademark- roof cement and Monsey Bakor's
10
<PAGE>
industrial wax emulsions. The Company also believes that it generally allocates
greater resources to research and development than any of its roof coatings and
roof cements competitors.
BUSINESS STRATEGY AND KEY BENEFITS OF THE ACQUISITION
The Company's business strategy is to increase its product penetration,
create national brands from its core products, further expand its roof systems
business, continue to strive to be the lowest cost producer of roof coatings and
roof cements and pursue attractive opportunities for strategic acquisitions.
INCREASED PRODUCT PENETRATION OF CUSTOMER ACCOUNTS AND CREATION OF NATIONAL
BRANDS
The Company intends to increase the depth of its product offerings to a
number of its major customers and also intends to cross-sell products to
customers of its two predecessor companies. The Company expects that roof
coatings and roof cements bearing the Henry brand will be sold to a number of
Monsey Bakor's accounts in the eastern United States, some of whom already have
a relationship with Henry Company in the western United States. Likewise,
products bearing the Monsey Bakor name will be introduced into western United
States accounts with whom Henry Company has existing relationships.
As a result, the Company will carry two national branded lines of roof
coatings and roof cements products, with "Henry" positioned as the premium line
and "Monsey Bakor" positioned as the value line. National brands are situated to
take advantage of national advertising, marketing and distribution programs with
mass merchandisers and other national customers. The Company will also continue
to support several of its regional brands that have a strong local following.
NORTH AMERICAN EXPANSION OF ROOF SYSTEMS AND BUILDING ENVELOPE SEGMENTS
Henry Company has developed a successful roof systems business in the
western United States, while Monsey Bakor has created substantial demand for its
Building Envelope System-Registered Trademark- concept, particularly in Canada.
As a result of the Acquisition, the Company believes that it has a highly
competitive product offering in the roofing systems market which it believes to
have a size in excess of $1 billion. With national manufacturing and sales
support, the Company believes that it can leverage its reputation for high
quality and expand its product offerings in this segment throughout North
America.
CONTINUED ENHANCEMENT OF LOW-COST MANUFACTURING AND DISTRIBUTION
OPPORTUNITIES
The Company will continue to strive to be the lowest cost producer of roof
coatings and roof cements, and will target purchasing and manufacturing
efficiencies.
Henry Company and Monsey Bakor purchase many of the same raw materials, some
of which are obtained from the same vendors. The Company expects that the
combination of purchasing functions will enable it to take advantage of
increased volume discounts and should reduce freight costs and produce savings
from each company's current negotiated raw material prices.
The Company believes that both Henry Company and Monsey Bakor lead the roof
coatings and roof cements industry in developing high quality products with low
cost formulations. The Acquisition will allow the sharing of product formula
processes benefitting the product lines of both companies. The Company intends
to apply certain of each company's proprietary processes to the other company's
products with a view towards reducing manufacturing costs and increasing product
quality.
SELECTIVE EXPANSION THROUGH STRATEGIC ACQUISITIONS
Henry Company has pursued acquisition opportunities that have complemented
and expanded its core business or have enabled it to enter into new markets.
Over the past ten years, Henry Company has
11
<PAGE>
made the following acquisitions in order to grow regionally and/or build on its
core competencies in roofing and asphalt technology:
<TABLE>
<CAPTION>
PRIMARY BENEFITS
ACQUISITION YEAR LOCATION OF THE ACQUISITION
- ---------------------------------- --------- ---------------------------------- ----------------------------------
<S> <C> <C> <C>
Resin Technology Company 1988 Ontario, California Expanded the roofing line into
polyurethane foam
Star Systems 1988 Los Angeles, California Expanded the white roof coatings
line
GEO Industries 1988 El Paso, Texas Expanded the roof coatings
business in the Southwest
K.T. Snyder Co. and related 1990 Houston, Texas Combined asphalt technology with
entities existing tape sealants business
and expanded the roof coatings
business in the Southwest
Gilsonite, Inc. 1992 Portland, Oregon and Auburn, Further expanded the roof coatings
Washington business in the Northwest
World Asphalt Company 1994 Sacramento, California Further expanded the roof coatings
business in Northern California
and established the pavings
business
American Blackline 1997 Denver, Colorado Further expanded the roof coatings
business in the Rocky Mountain
region
Monsey Products Co. 1998 Eastern United States and Canada Extension of the Company's
business into Eastern markets
</TABLE>
The Company competes in most of the larger markets within the United States
and Canada, but management believes that certain opportunities still exist for
strategic acquisitions on a smaller scale that could allow it to leverage its
well recognized brand names, achieve cost reductions and further enhance
geographic manufacturing and distribution capabilities. Strategic acquisitions
could also allow the Company to expand the depth of its product offerings
through its existing distribution network.
ADDITIONAL BENEFITS OF THE ACQUISITION
In addition to the potential benefits previously discussed, the Company
believes that the Acquisition will provide it with additional synergies and
opportunities to reduce costs and increase overall profitability. See
"Business--Additional Benefits of the Acquisition" for a detailed discussion of
the following potential benefits:
- Rationalization of manufacturing, research and development operations and
regulatory functions
- Reduction in overhead and administration expense
- Enhanced vertical integration opportunities
- Consolidation of sales and marketing operations
- Decreased seasonality and weather-related cyclicality
12
<PAGE>
INDUSTRY OVERVIEW
The bulk of the Company's products compete in the roofing market which the
National Roofing Contractors Association estimates was a $19.6 billion market in
the United States in 1996. The largest segment of the industry is commercial
reroofing which accounts for approximately 53% of total revenues in the U.S.
roofing industry and is the primary segment in which the Company's products are
sold. Of the types of roofing systems included within this segment, the second
largest portion of sales is estimated to be generated by built-up-roofing
systems, with 29% of U.S. commercial reroofing sales, followed by modified
bitumen systems, which account for 23% of such sales. The Company's products are
focused on these two types of roofing systems. The Company also competes in the
sprayed polyurethane foam subsegment which, although still relatively small with
an estimated 1996 market size of $0.4 billion, has been one of the fastest
growing segments in the commercial reroofing market. See "Industry Overview."
THE TRANSACTIONS
On April 22, 1998, Henry Company acquired all of the outstanding stock of
Monsey Bakor for a purchase price of $42.75 million, and also paid an additional
$3.25 million to certain selling stockholders of Monsey Bakor for noncompetition
agreements. Two former Monsey Bakor executive officers entered into employment
agreements with Henry Company and now serve as officers of the Company. The
Acquisition will be accounted for using the purchase method of accounting. See
"The Transactions."
Effective at the closing of the Acquisition, Joseph T. Mooney, Jr., the
Chairman of the Board of Monsey Bakor, purchased shares of redeemable
convertible preferred stock of the Company, convertible into 22,500 shares of
common stock of the Company (the "Common Stock") (representing a 9% economic
interest in the Company on a fully diluted basis). Also effective at the closing
of the Acquisition, Frederick H. Muhs, a director of the Company, purchased
27,500 shares of Common Stock (representing an 11% economic interest in the
Company on a fully diluted basis.) In connection with the Transactions, the
Company repaid in full subordinated indebtedness of $5.0 million held by Warner
W. Henry, the Company's Chief Executive Officer. See "The Transactions" and
"Certain Transactions."
Concurrently with the closing of the Acquisition and the Initial Offering,
Henry Company's bank credit line and Monsey Bakor's U.S. bank credit line were
repaid and replaced with a $35.0 million credit facility, $25.0 million of which
is available in accordance with a borrowing base and is to be used for working
capital and $10.0 million of which may be used for capital expenditures. The
Acquisition was funded solely from the proceeds of the Initial Offering and no
amounts obtained under the New Bank Credit Facility were used therefor.
The Initial Offering, the New Bank Credit Facility, the Acquisition, the
Reinvestment (as defined), the Equity Issuance (as defined), the repayment of
debt and the other transactions contemplated thereby are referred to
collectively herein as the "Transactions."
The Company is incorporated in California and has its principal executive
offices at 2911 Slauson Avenue, Huntington Park, California 90255. The Company's
telephone number is (213) 583-5000.
------------------------
13
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The summary historical combined statement of operations and balance sheet
data for Henry Company set forth below as of and for each of the years in the
three year period ended December 31, 1997 were derived from the Henry Company
Combined Financial Statements and notes thereto that have been audited by
Coopers & Lybrand L.L.P., independent accountants, and whose report thereon is
included elsewhere in this Prospectus. The summary interim combined financial
information as of March 31, 1998 and for the three months ended March 31, 1997
and 1998 has been derived from the unaudited combined financial statements of
Henry Company. In the opinion of management, the unaudited combined financial
statements include all adjustments, consisting only of normal recurring
accruals, necessary for the fair presentation of the financial information for
such periods. Results for the interim periods are not necessarily indicative of
the results for the full fiscal year.
The summary historical consolidated statement of operations and balance
sheet data for Monsey Bakor set forth below as of and for each of the years in
the three year period ended December 31, 1997 were derived from Monsey Bakor's
Consolidated Financial Statements and notes thereto that have been audited by
Ernst & Young LLP, independent auditors, and whose report thereon is included
elsewhere in this Prospectus. The summary interim consolidated financial
information as of March 31, 1998 and for the three months ended March 31, 1997
and 1998 has been derived from the unaudited consolidated financial statements
of Monsey Bakor. In the opinion of management, the unaudited consolidated
financial statements include all adjustments, consisting only of normal
recurring accruals, necessary for the fair presentation of the financial
information for such periods. Results for the interim periods are not
necessarily indicative of the results for the full fiscal year.
The summary unaudited pro forma combined statements of operations, other
financial data and financial ratios of the Company for the year ended December
31, 1997 and the three months ended March 31, 1998 set forth below give effect
to the Transactions as if they had occurred as of January 1, 1997 and January 1,
1998, respectively. The summary unaudited pro forma combined balance sheet data
as of March 31, 1998 gives effect to the Transactions as if they had occurred at
such date. The summary unaudited pro forma combined financial data do not
purport to represent what the Company's results of operations actually would
have been if the Transactions had occurred as of such date and are not
necessarily indicative of future operating results or of financial position.
The following summary historical combined and consolidated financial data
and unaudited pro forma combined financial data should be read in conjunction
with "Unaudited Pro Forma Condensed Combined Financial Data," "Selected
Historical Combined Financial Data of Henry Company," "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Henry Company,"
"Selected Historical Consolidated Financial Data of Monsey Bakor," "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Monsey Bakor" and the Combined Financial Statements of Henry Company and the
Consolidated Financial Statements of Monsey Bakor, including, in each case, the
notes thereto, appearing elsewhere in this Prospectus.
14
<PAGE>
SUMMARY HISTORICAL COMBINED FINANCIAL DATA OF HENRY COMPANY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
YEAR ENDED DECEMBER 31,
------------------------------------- ----------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA(1):
Net sales......................................... $ 61,059 $ 59,186 $ 67,424 $ 11,976 $ 14,934
Cost of sales..................................... 42,290 40,867 46,413 8,496 9,816
----------- ----------- ----------- ----------- -------
Gross profit.............................. 18,769 18,319 21,011 3,480 5,118
Operating expenses:
Selling, general and administrative........... 17,518 16,934 17,509 3,572 4,185
Amortization of intangibles................... 703 183 137 34 27
----------- ----------- ----------- ----------- -------
Operating income (loss)................... 548 1,202 3,365 (126) 906
Interest expense.................................. 1,454 1,475 1,465 352 322
Interest and other income, net.................... (402) (345) (321) (92) (21)
----------- ----------- ----------- ----------- -------
Income (loss) before provision for
taxes................................... (504) 72 2,221 (386) 605
Provision for income taxes(2)..................... -- 1 33 -- 9
----------- ----------- ----------- ----------- -------
Net income (loss)......................... $ (504) $ 71 $ 2,188 $ (386) $ 596
----------- ----------- ----------- ----------- -------
----------- ----------- ----------- ----------- -------
OTHER FINANCIAL DATA:
Capital expenditures.............................. $ 1,389 $ 1,449 $ 801 $ 247 $ 356
Depreciation and amortization (including
amortization of intangibles).................... 1,907 1,645 1,469 339 343
EBITDA(3)......................................... 2,857 3,192 5,155 305 1,270
Cash flows provided by (used in):
Operating activities............................ 2,224 1,171 4,781 695 1,021
Investing activities............................ (1,342) (783) (949) (436) (355)
Financing activities............................ (785) (258) (4,013) (310) (603)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------------------- -----------------
1995 1996 1997 1998
----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA(1):
Cash and cash equivalents.................................. $ 170 $ 300 $ 119 $ 183
Working capital............................................ 2,699 5,121 7,204 7,333
Total assets............................................... 30,730 31,204 30,418 30,012
Long-term debt, including current maturities, and
borrowings on line of credit............................. 17,619 17,416 13,748 13,241
Total shareholders' equity................................. 2,863 2,934 5,122 5,719
</TABLE>
15
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF MONSEY BAKOR
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA(4):
Net sales.............................................. $ 79,636 $ 108,584 $ 113,175 $ 21,620 $ 22,738
Cost of sales.......................................... 59,641 79,428 83,082 16,580 17,495
----------- ----------- ----------- ----------- -----------
Gross profit................................... 19,995 29,156 30,093 5,040 5,243
Operating expenses:
Selling general and administrative................. 17,818 23,513 24,444 5,693 5,679
Accounting method change--non-cash environmental
charge........................................... -- -- 3,639 3,639 --
Amortization of intangibles........................ 120 283 353 78 116
----------- ----------- ----------- ----------- -----------
Operating income (loss)........................ 2,057 5,360 1,657 (4,370) (552)
Interest expense....................................... 1,217 1,557 1,576 346 303
Other income, net...................................... (81) (564) (390) (61) (61)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes.............. 921 4,367 471 (4,655) (794)
Income tax expense (benefit)........................... 385 1,537 187 (1,848) (289)
----------- ----------- ----------- ----------- -----------
Net income (loss).............................. $ 536 $ 2,830 $ 284 $ (2,807) $ (505)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
OTHER FINANCIAL DATA(4):
Capital expenditures................................... $ 1,280 $ 1,225 $ 2,610 $ 780 $ 240
Depreciation and amortization (including amortization
of intangibles)...................................... 1,873 2,482 2,566 643 629
EBITDA(3).............................................. 4,011 8,406 8,185 (27) 138
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used in):
Operating activities................................. 1,968 4,026 6,197 (4,769) (6,911)
Investing activities................................. (1,280) (2,786) (2,905) (820) (250)
Financing activities................................. (739) (636) (4,443) 4,893 8,102
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------------------- -----------------
1995 1996 1997 1998
----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA(4):
Cash....................................................... $ 770 $ 1,375 $ 213 $ 1,169
Working capital............................................ 218 3,281 488 271
Total assets............................................... 31,052 46,192 46,217 53,803
Long-term debt, including current maturities, and
borrowings on lines of credit............................ 12,361 15,620 11,742 19,844
Total shareholders' equity................................. 10,673 18,160 17,142 16,652
</TABLE>
16
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................................... $ 180,599 $ 37,672
Cost of sales........................................................... 129,495 27,311
-------- --------
Gross profit.......................................................... 51,104 10,361
Operating expenses:
Selling, general and administrative..................................... 39,829 9,614
Accounting method change--non-cash environmental charge................. 3,639 --
Amortization of intangibles............................................. 2,943 765
-------- --------
Operating income...................................................... 4,693 (18)
Interest expense........................................................ 8,702 2,162
Interest and other income, net.......................................... (711) (82)
-------- --------
Loss before benefit for taxes......................................... (3,298) (2,098)
Benefit for income taxes................................................ (609) (632)
-------- --------
Net loss.............................................................. $ (2,689) $ (1,466)
-------- --------
-------- --------
OTHER FINANCIAL DATA:
Capital expenditures.................................................... $ 3,411 $ 596
Depreciation and amortization (including amortization of intangibles)... 6,488 1,594
EBITDA(5)............................................................... 15,464 1,658
FINANCIAL RATIOS:
Ratio of debt to EBITDA................................................. 5.7x 13.2x
Ratio of EBITDA to interest expense..................................... 1.8x 0.8x
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
--------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................................................... $ 8,473
Working capital.................................................................................... 31,561
Total assets....................................................................................... 125,323
Long-term debt, including current maturities, and borrowings on
lines of credit.................................................................................. 87,806
Redeemable convertible preferred stock............................................................. 1,439
Total shareholders' equity......................................................................... 7,719
</TABLE>
17
<PAGE>
NOTES TO SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(1) The combined financial statements of Henry Company consist of Henry Company
and Warner Development Company of Texas, both companies under common
control. All significant intercompany accounts and transactions have been
eliminated. Upon the closing of the Acquisition, Warner Development Company
of Texas was merged with and into Henry Company.
(2) Henry Company was operated as a subchapter "S" corporation under the
Internal Revenue Code (the "Code"). As a result, Henry Company did not incur
federal and state income taxes (except with respect to certain states) and,
accordingly, the provision for income taxes only includes the applicable
state income tax. Federal and state income taxes (except with respect to
certain states) on the income of Henry Company have been incurred and paid
directly by the shareholders of Henry Company. It has been the policy of
Henry Company to make periodic distributions to the shareholders in respect
of such tax liabilities. Henry Company expects to pay distributions for the
shareholders' 1997 tax liabilities during 1998, which are expected to total
approximately $850. Upon completion of the Transactions, the Company
converted to a "C" Corporation under the Code and will subsequently pay all
tax obligations of the Company to the appropriate taxing authorities.
(3) EBITDA, as defined in the Indenture, represents net earnings before taking
into consideration taxes on earnings, interest expense, depreciation and
amortization, and non-recurring, non-cash charges, less any cash expended
that funds a non-recurring, non-cash charge. While EBITDA should not be
construed as a substitute for operating earnings, net earnings, or cash
flows from operating activities in analyzing operating performance,
financial position or cash flows, EBITDA has been included because it is
commonly used by certain investors and analysts to analyze and compare
companies on the basis of operating performance, leverage and liquidity and
to determine a company's ability to service debt.
(4) On March 15, 1996, Monsey Products Co. acquired all of the outstanding
common stock of Bakor Holdings, Inc., in exchange for $1,837 plus 1,002,000
shares of its common stock valued at $5,357. The transaction was accounted
for as a purchase. The consolidated statements of operations reflect the
results of operations of Bakor Holdings, Inc. from the date of its
acquisition. On a pro forma basis, assuming that the acquisition of Bakor
Holdings, Inc. occurred on January 1, 1996, net sales for 1996 would have
been $112,276, net income would have been $2,486, and EBITDA, as defined,
would have been $8,384.
(5) Pro forma combined EBITDA represents EBITDA as defined in Note (3) above,
adjusted to reflect (i) reimbursement for administrative services provided
by Henry Company to an affiliate, as the Company will be reimbursed for
providing such services after January 1, 1998 pursuant to an administrative
services agreement between Henry Company and such affiliate ($1,124 on an
annual basis); and (ii) a reduction in compensation paid to shareholders and
certain members of management of Monsey Bakor in excess of the amount to be
paid under new employment agreements as a result of the Acquisition ($1,000
on an annual basis).
18
<PAGE>
RISK FACTORS
HOLDERS OF OLD NOTES SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS IN
ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS BEFORE
PARTICIPATING IN THE EXCHANGE OFFER OR MAKING AN INVESTMENT IN THE EXCHANGE
NOTES.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
the Old Notes may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to
the Securities Act and applicable state securities laws. The Company believes
that, based upon interpretations contained in letters issued to third parties by
the staff of the SEC, Exchange Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by each holder thereof (other than a broker-dealer, and any such
holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such Exchange
Notes are acquired in the ordinary course of such holder's business and such
holder has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes.
In the event the Exchange Offer is consummated, the Company will not be
required to register the transfer of the Old Notes under the Securities Act or
any applicable securities laws. In such event, holders of Old Notes seeking
liquidity in their investment would have to rely on exemptions to the
registration requirements under such laws. The Old Notes currently may be sold
to "Qualified Institutional Buyers" and to a limited number of other
institutional "Accredited Investors" (as defined in Rule 144A and Rule 501(a)
(1) (2) (3) or (7) under the Securities Act, respectively) and in offshore
transactions complying with Rule 903 or Rule 904 of Regulation S under the
Securities Act or pursuant to another available exemption under the Securities
Act without registration under the Securities Act. To the extent that Old Notes
are tendered and accepted in the Exchange Offer, the reduction in the principal
amount of Old Notes outstanding could have an adverse effect upon, and increase
the volatility of the market price for, the untendered and tendered but
unaccepted Old Notes.
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT
As a result of the Transactions, the Company has consolidated indebtedness
that is substantial in relation to the book value of its shareholders' equity.
As of March 31, 1998, Henry Company had approximately $13.2 million of debt (the
sum of long-term debt, including subordinated debt to a shareholder, current
maturities of long-term debt, notes payable and capitalized lease obligations)
and approximately $5.7 million book value of shareholders' equity. As of March
31, 1998, on a pro forma basis after giving effect to the assumptions described
in "Unaudited Pro Forma Condensed Combined Financial Data," the Company would
have had total indebtedness of $87.8 million, $7.7 million book value of
shareholders' equity, and $1.4 million of redeemable convertible preferred
stock. For the year ended December 31, 1997 and the three months ended March 31,
1998, on a pro forma basis (after giving effect to such assumptions), the
Company's earnings would have been insufficient to cover fixed charges. The
dollar amount of the deficiency would have been $3.3 million and $2.1 million,
respectively. See "Capitalization" and "Unaudited Pro Forma Condensed Combined
Financial Data."
The significant borrowings required to finance the Acquisition have had
several important consequences for both the Company and the holders of the
Notes, including but not limited to the following: (i) a substantial portion of
the Company's cash flow from operations must be dedicated to debt service and
will not be available for other purposes; (ii) the Company's ability to obtain
additional financing in the future for working capital, acquisitions, capital
expenditures or to refinance the Notes may be significantly
19
<PAGE>
impaired and (iii) the Company's substantial leverage may make it more
vulnerable to economic downturns and limit its ability to withstand competitive
pressures or to take advantage of business opportunities.
The Company's ability to make cash payments with respect to the Notes and to
satisfy its other debt obligations will depend on its future operating
performance, which will be affected by financial, business, competitive, general
economic and other factors, many of which are beyond the Company's control.
Based upon current levels of operations and anticipated cost savings and future
growth, the Company believes that its expected cash flow from operations,
together with available borrowings under the New Bank Credit Facility and its
other sources of liquidity, will be adequate to meet its anticipated
requirements for working capital, scheduled principal and interest payments,
lease payments and capital expenditures. As of June 30, 1998, the Company had up
to $35.0 million available for borrowing under the New Bank Credit Facility,
subject to compliance with the conditions precedent thereunder including as to
borrowing base. There can be no assurance, however, that the Company's business
will continue to generate cash flow at or above current levels or that estimated
cost savings or anticipated growth can be achieved. If the Company is unable to
service its indebtedness, it will be forced to adopt an alternative strategy
that may include actions such as reducing or delaying capital or research and
development expenditures, selling assets, restructuring or refinancing its
indebtedness or seeking additional equity capital. There can be no assurance
that any of these strategies can be effected on satisfactory terms, if at all.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations of Henry Company--Liquidity and Capital Resources" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Monsey Bakor--Liquidity and Capital Resources."
CONSEQUENCES OF THE ACQUISITION
Achieving the full benefits from combining Henry Company and Monsey Bakor,
and capturing the efficiencies and cost reductions that management expects to
result from the Acquisition, will require the integration of plants and product
lines, the coordination of each company's sales efforts and the implementation
of appropriate operational, financial and managerial systems and controls.
Additionally, maximizing the benefits to be achieved from the Acquisition will
require the integration of each company's manufacturing, engineering,
administrative, finance and sales and marketing organizations. There can be no
assurance that Henry Company will be able to integrate the operations of Monsey
Bakor successfully. The combination will require substantial attention from
Henry Company's management team, which has limited or no experience integrating
the operations of companies the size of Monsey Bakor. Business, competitive,
financial, general economic and other factors, many of which will be beyond the
control of management, will affect the timing and ultimate success of the
integration of Monsey Bakor and the realization of benefits from the
Acquisition. The diversion of management's attention from day-to-day operations
to the integration of Monsey Bakor, as well as any other difficulties which may
be encountered in the transition and integration process, could adversely affect
the Company's business, financial condition or results of operations.
The Acquisition presents the Company with other business challenges
generally associated with acquisitions including the management of a much larger
enterprise. Although the Company expects that the business operations of Henry
Company and Monsey Bakor will not be adversely affected by the Acquisition,
there can be no assurance that unexpected difficulties will not arise that may
have a material adverse effect upon the Company. If the Company's management is
unable to manage growth effectively, the quality of the Company's products and
its business, financial condition or results of operations could be materially
adversely affected.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The credit agreement for the New Bank Credit Facility contains various
restrictive covenants and prohibits the Company from prepaying the Notes. The
credit agreement also requires the Company to maintain specified financial
ratios and satisfy certain financial tests. The New Bank Credit Facility
includes covenants relating to minimum current ratios, minimum tangible net
worth, minimum fixed charge ratios,
20
<PAGE>
maximum leverage ratio and limitations on capital expenditures, investments,
indebtedness, liens, dividends, sales of assets, guarantee obligations,
prepayments of other indebtedness, mergers, acquisitions or sales of assets,
change in business activities, affiliate transactions, issuance of equity and
certain corporate activities. The Company's ability to meet such financial
ratios and tests may be affected by events beyond its control. There can be no
assurance that the Company will meet such tests. A breach of any of these
covenants could result in an event of default under the New Bank Credit
Facility. If such an event of default occurs, the lenders could elect to declare
all amounts borrowed under the New Bank Credit Facility, together with accrued
interest, to be immediately due and payable and to terminate all commitments
under the New Bank Credit Facility. If the Company were unable to repay all
amounts declared due and payable, the lenders could proceed against the
collateral granted to them to satisfy the indebtedness and other obligations due
and payable. The accounts receivable and inventory of the Company and certain
capital assets financed thereby have been pledged as security under the New Bank
Credit Facility. If the New Bank Credit Facility indebtedness were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay in full such indebtedness and the other indebtedness of the
Company, including the Notes. In addition, the Indenture also restricts the
ability of the Company, among other things, to incur additional indebtedness,
incur liens, pay dividends or make certain other restricted payments or
investments, consummate certain asset sales, enter into certain transactions
with affiliates, impose restrictions on the ability of a subsidiary to pay
dividends or make certain payments to the Company or any of its subsidiaries,
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. See "Description of the Credit Facilities" and "Description of the
Exchange Notes--Certain Covenants."
EFFECTIVE AND STRUCTURAL SUBORDINATION OF NOTES
The Notes will be general unsecured obligations of the Company and will rank
PARI PASSU in right of payment with all unsubordinated indebtedness of the
Company and will rank senior in right of payment to all subordinated
indebtedness of the Company. The Notes will be unconditionally guaranteed by the
Guarantors. The Guarantees will be a general unsecured obligation of the
Guarantors and will rank PARI PASSU in right of payment with all unsubordinated
indebtedness of the Guarantors and will rank senior in right of payment to all
subordinated indebtedness of the Guarantors. However, the Notes will be
effectively subordinated to all secured indebtedness of the Company to the
extent of the assets secured by such indebtedness and will also be effectively
subordinated to all secured indebtedness of the Guarantors. The Notes will also
be structurally subordinated to all existing and future indebtedness and other
liabilities of the Company's Canadian subsidiaries.
The Notes will not be secured by any of the assets of the Company and its
subsidiaries. Indebtedness incurred under the New Bank Credit Facility will be
secured by liens against the accounts receivable and inventory of the Company
and certain capital assets financed thereby. In the event of a default on such
secured indebtedness, or a bankruptcy, liquidation or reorganization of the
Company and its subsidiaries, such assets will be available to satisfy
obligations with respect to the secured indebtedness before any payment
therefrom will be made on the Notes. Similarly, in the event of a default under
any indebtedness of the Company's Canadian subsidiaries, or a bankruptcy,
liquidation or reorganization of any of such subsidiaries, the assets of such
subsidiaries will be available to satisfy obligations with respect to such
indebtedness before any payment therefrom will be made on the Notes.
ABILITY TO ACHIEVE ANTICIPATED COST SAVINGS OR REVENUE GROWTH
The statements concerning potential cost savings and revenue growth
contained in this Prospectus are forward-looking statements that are based on
estimates and assumptions made by the Company's management. Although believed to
be reasonable, such statements are inherently uncertain, and results are
difficult to predict. Therefore, undue reliance should not be placed upon such
statements. The following important factors, among others, could cause the
Company not to achieve the results contemplated herein (principally those set
forth in "Business--Business Strategy and Key Benefits of the Acquisition" and
"Business--Additional Benefits of the Acquisition") or otherwise cause the
Company's business, financial
21
<PAGE>
condition or results of operations to be adversely affected in future periods:
(i) loss of key customers or continued or increased competitive pressures; (ii)
changes in customer spending levels; (iii) unanticipated costs related to the
Acquisition and the integration of the companies; (iv) absence of inclement
weather; (v) loss or retirement of key members of management; (vi) increases in
interest rates or the Company's cost of borrowing or a default under any
material debt agreement; (vii) unavailability of funds for capital expenditures
or research and development; (viii) changes in governmental, environmental or
other regulations or (ix) changes in general economic conditions.
Additionally, references to annualized synergies as discussed in "Unaudited
Pro Forma Condensed Combined Financial Data--Notes to Unaudited Pro Forma
Condensed Combined Financial Statements" reflect the Company's estimates as to
annualized synergies that the Company believes will be realized as a result of
the Acquisition. These annualized synergies consist of a combination of selling,
general and administrative expense cost savings and production cost reductions.
Annualized cost savings and cost reductions are estimated to be $1.8 million.
One time costs associated with achieving these synergies are estimated to be
$0.8 million. The Company expects to realize these synergies once the
integration process is completed, which is expected to occur within 18 months
following the consummation of the Acquisition. Although the Company believes its
estimate of the cost savings and production cost reductions and the time
required to implement these cost savings to be reasonable, such savings and cost
reductions, and the time required to realize those savings and cost reductions,
are difficult to estimate. Undue reliance, therefore, should not be placed on
such estimates. There can be no assurance that any of these cost savings and
cost reductions will actually be realized or, if realized, will be realized to
the extent estimated by the Company. Further, there can be no assurance that
these cost savings and production cost reductions will be realized as quickly as
the Company currently estimates. Moreover, there can be no assurance that the
costs of achieving such synergies will not exceed the Company's estimates of
those costs. As a result, such synergies are excluded from the computation of
pro forma combined EBITDA and from the Unaudited Pro Forma Condensed Combined
Financial Statements. See "Prospectus Summary--Summary Unaudited Pro Forma
Combined Financial Data," "Unaudited Pro Forma Condensed Combined Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations of Henry Company" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Monsey Bakor."
FLUCTUATION OF RAW MATERIAL COST
The Company utilizes a number of raw materials in its manufacturing
processes, some of which have historically fluctuated in price at particular
times. These price fluctuations have been based on such factors as the capacity
of the raw material supply chain, demand in the market, weather, general
economic factors and the availability of alternative raw materials. Raw
materials utilized by the Company that have historically experienced some price
fluctuation include asphalt, aluminum paste, rubber and certain diisocynates,
among others. For example, asphalt, which is a byproduct of crude oil refining,
has fluctuated in price with changes in worldwide crude oil prices and capacity
and with changes in the supply and demand in the oil, gasoline and fossil fuel
markets. Significant increases in asphalt prices or in the prices of other raw
materials, if not offset by product price increases, could have a material
adverse impact on the profit of the Company. There can be no assurance that the
Company will be able to pass any future cost increases through to its customers
in the form of price increases. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Henry Company--Inflation and
Raw Material Costs" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Monsey Bakor--Inflation and Raw Material
Costs" and "Business--Business of the Company--Henry Coatings
Division--Manufacturing" and "Business--Business of the Company--Monsey Bakor
Division--Manufacturing."
IMPACT OF WEATHER
Because many of the Company's products are designed to patch or fix damaged
roofs, the Company's revenues are affected by weather conditions. Sales of
roofing products have historically tended to increase
22
<PAGE>
in areas which have experienced severe weather. The results of severe weather or
the anticipation of severe weather motivate property owners to undertake
required roof maintenance or to replace an old or worn roof. The absence of
inclement weather in some or all of the Company's markets could have an adverse
impact on the Company's business, financial condition or results of operations.
PRODUCT LIABILITY AND ASBESTOS LITIGATION
The Company's business entails an inherent risk of product liability claims,
including a particular risk with respect to chrysotile asbestos-containing
products that the Company manufactures. Although some roofing products
manufacturers have switched to an exclusively non-asbestos line, some of the
leading firms in the industry continue to use chrysotile asbestos in at least
some of their products. The Company believes that its use of chrysotile asbestos
fibers, which are encapsulated by asphalt in the manufacturing process, is in
accordance with applicable laws. However, Monsey Bakor has been named as a
defendant in suits alleging certain asbestos-related injuries. Although Monsey
Bakor has not paid any amounts in judgment or settlement of any asbestos-related
claim to date, there can be no assurance that any such claim will not in the
future result in a material adverse judgment against, or settlement by, the
Company. Other than these asbestos-related claims, no material product liability
claims are currently pending against Henry Company or Monsey Bakor. However,
there can be no assurance that such claims will not arise in the future. The
costs of defending the pending asbestos-related suits are currently funded by a
joint defense arrangement among Monsey Bakor's insurance carriers and the
Company believes such insurance coverage is adequate. However, neither Henry
Company nor Monsey Bakor is covered by insurance for asbestos-related claims for
injuries that are alleged to have arisen after 1985.
Both Henry Company and Monsey Bakor separately maintain product liability
insurance for non-asbestos claims in the amount of $11,000,000 each. However,
there can be no assurance that the product liability coverage maintained by the
Company will be adequate to cover product liability claims or that the
applicable insurer will be solvent at the time of any required payment. In
addition, there can be no assurance that the Company will be able to maintain
its product liability coverage on current or otherwise acceptable terms. A
product liability or asbestos-related claim that results in a judgment or
settlement in excess of the Company's insurance coverage, or a material judgment
or settlement for an asbestos-related claim for injuries alleged to have arisen
after 1985, would have a material adverse effect on the Company. See
"Business--Business of the Company--Henry Coatings Division--Manufacturing" and
"Business-- Litigation."
CONTROLLING SHAREHOLDERS
The Company's stock is controlled by current management. Warner W. Henry,
the Company's Chief Executive Officer, owns shares of Class A Common Stock of
the Company and warrants to purchase additional shares of such stock and Common
Stock of the Company representing 74.7% of the voting power on a fully exercised
and fully diluted basis. As a result of his ownership, Mr. Henry is able to
direct the election of a majority of the board of directors of the Company and
therefore direct the management and policies of the Company. Furthermore, the
remaining shares of the Company's capital stock are owned by Carol Henry (the
wife of Mr. Henry); trusts benefitting Mr. and Mrs. Henry's children; Joseph T.
Mooney, Jr., the former Chairman of the Board of Monsey Bakor, who is now a Vice
Chairman of the Board and an executive officer of the Company; and Frederick H.
Muhs, a director of the Company. The interests of these shareholders may differ
from the interests of holders of the Notes. See "Shareholders."
RELIANCE ON KEY PERSONNEL
The Company's future success will depend to a significant extent on its
executive officers and other key management personnel. In addition, the success
of any acquisitions by the Company (including the Acquisition) may depend, in
part, on the Company's ability to retain management personnel of the acquired
companies. Although the Company has employment agreements with several of its
executive officers and key personnel, including its President, Monsey Bakor's
former Chairman of the Board and the
23
<PAGE>
former President of Monsey Bakor's Canadian operations, there can be no
assurance that the Company will be able to retain its executive officers and key
personnel or attract additional qualified management in the future. Although the
Company is the beneficiary under key-person life insurance policies on the lives
of the Company's President and Chief Operating Officer and Monsey Bakor's former
Chairman of the Board (who has become a Vice Chairman of the Board and an
executive officer of the Company following the Acquisition), there can be no
assurance that the proceeds of these policies would be adequate to compensate
the Company for the loss of services due to the death of these individuals. See
"Management."
COMPETITION
The roofing products and roofing systems industries are highly competitive
in most product categories and geographic regions. Competition is largely based
on quality, service, price and distribution capabilities. The Company competes
for retail and wholesale business with both large national manufacturers and
smaller regional producers. In certain circumstances, due primarily to factors
such as freight rates and customer preference for local brands, manufacturers
with better access to certain geographic markets may have a competitive
advantage in such markets. In addition, many of the Company's competitors within
the roofing products industry have greater financial, marketing, distribution,
management and other resources than the Company, and as the industry
consolidates, the Company's competitors may further enhance these resources. The
Company also believes that excess capacity in the roofing products and roofing
systems industry, especially during slow periods for the industry, could result
in downward pricing pressure and intensified competition. Given these factors,
there can be no assurance that the Company will be able to continue to compete
successfully against existing or new competitors, and the failure to do so would
have a material adverse effect on the Company's business, financial condition
and results of operations.
ENVIRONMENTAL MATTERS
The past and present business operations of the Company and the past and
present ownership and operation of real property by the Company are subject to
extensive and changing federal, state, local and foreign environmental laws and
regulations pertaining to the discharge of materials into the environment, the
handling, storage, treatment and disposal of wastes (including solid and
hazardous wastes), the remediation of releases of toxic or hazardous materials
or otherwise relating to health, safety and protection of the environment
("Environmental Laws"). As such, the nature of the Company's operations as well
as previous operations by others at real property owned, leased or used by the
Company, expose the Company to the risk of claims under Environmental Laws, and
there can be no assurance that material costs or liabilities will not be
incurred in connection with such claims. Based on its experience to date, the
Company does not expect such claims or the costs of compliance with the scope or
enforcement of Environmental Laws to have a material impact on its earnings or
competitive position. The Company believes that it is in substantial compliance
with applicable Environmental Laws. No assurance can be given, however, that the
discovery of presently unknown environmental conditions, changes in the scope or
enforcement of Environmental Laws or their interpretation, or other
unanticipated events will not give rise to expenditures or liabilities that may
have a material adverse effect on the Company's business, financial condition or
results of operations. Monsey Bakor has been named as a potentially responsible
party in litigation concerning contamination at a former waste-oil recycling
facility used by it in Douglassville, Pennsylvania. Monsey Bakor is also a party
to a consent decree issued by the Federal Environmental Protection Agency
relating to remediation of contamination at its corporate headquarters. It is
sharing remediation costs with a former owner of the facility that is also a
party to the consent decree. Based on currently available information, the
Company believes that neither this litigation nor this remediation will have a
material adverse effect on the Company's business, financial condition or
results of operations. See "Business--Litigation" and "Business--Environmental
Matters."
GOVERNMENTAL REGULATION AND PERMITS
The Company is subject to regulation under various federal, state and local
laws, including laws regulating its manufacturing operations and laws relating
to employee health and safety. Permits are
24
<PAGE>
required for operation of the Company's business, and such permits are subject
to renewal, modification and, in certain circumstances, revocation by
governmental authorities. The loss of certain of such permits could have a
material adverse effect on the Company's business, financial condition or
results of operations. The Company expects to incur ongoing capital and
operating costs and administrative expenses to maintain compliance with its
permits and with applicable laws and regulations. The Company cannot predict the
legislation or regulations that may be enacted in the future or how existing or
future laws or regulations will be administered or interpreted. Compliance with
new laws or regulations, as well as more vigorous enforcement policies of the
regulatory agencies or stricter interpretation of existing laws, may require
additional expenditures by the Company, some or all of which may be material.
LIMITATIONS ON REPURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon a Change of Control, each holder of Notes will have certain rights to
require the Company to repurchase all or a portion of such holder's Notes. See
"Description of the Exchange Notes--Change of Control." If a Change of Control
were to occur, there can be no assurance that the Company would have sufficient
funds to pay the repurchase price for all Notes tendered by the holders thereof
and such failure would result in an event of default under the Indenture. In
addition, a Change of Control would constitute a default under the New Bank
Credit Facility and is otherwise restricted by the New Bank Credit Facility and
may be prohibited or limited by, or create an event of default under, the terms
of other agreements relating to borrowings which the Company may enter into from
time to time, including other agreements relating to secured indebtedness. If
the Company's obligations under the New Bank Credit Facility or any other
secured indebtedness of the Company were accelerated due to a default
thereunder, the lenders thereunder would have a priority claim on the proceeds
from the sale of the collateral securing such indebtedness.
FRAUDULENT CONVEYANCE
If the Company or any Guarantor received less than reasonably equivalent
value in exchange for the Company's issuance of the Notes or, as the case may
be, its Guarantees, or the incurrence of liabilities pursuant thereto, the Notes
or such Guarantees, or any payments made in respect thereof, could be avoided
under federal or applicable state fraudulent transfer law, regardless of whether
the Company or any Guarantors were subject to any bankruptcy or insolvency
proceedings. In particular, to the extent that any Guarantors become liable for
any obligations of the Company in excess of the value actually received by the
Guarantors, the relevant Guarantees could be subject to avoidance as a
fraudulent transfer if, at the time of, or as a result of, either the issuance
of such Guarantees or any payment thereafter, (i) the Guarantors were or became
insolvent, (ii) the Guarantors had unreasonably small capital to conduct their
business as then conducted or contemplated to be conducted or (iii) the
Guarantors were unable or were rendered unable, to meet their probable
liabilities as they matured and became due and payable. If any Guarantees are
avoided, the holders of the Notes could lose the benefit of the Guarantees, and
the holders could also be required to return to the Guarantors the amount of any
payment or other property received in respect of the Notes.
The Indenture provides that certain future subsidiaries of the Company will
be required to guarantee the Notes. If certain bankruptcy or insolvency
proceedings are initiated by or against the new subsidiaries within 90 days (or,
possibly, one year) after any such guaranty, grant or assignment, or if any
Guarantor incurs obligations under its Guarantees in anticipation of insolvency,
all or a portion of the affected Guarantees could be avoided as a preferential
transfer under federal bankruptcy or applicable state law. In addition, a court
could require holders to return all payments made under any such Guarantees
within such 90 day period (or, possibly, one year) as preferential transfers.
The Company believes that it received equivalent value at the time the
indebtedness represented by the Notes was incurred. In addition, the Company
does not believe that the Company and the Guarantors, as a result of the
issuance of the Notes and the related Guarantees, (i) are insolvent or were
rendered insolvent under the foregoing standards, (ii) are engaged in a business
or transaction for which their
25
<PAGE>
remaining assets constitute unreasonably small capital or (iii) intend to incur,
or believe that they will incur, debts beyond their ability to pay such debts as
they mature. These beliefs are based on the Company's and the Guarantors'
operating history, net worth and management's analysis of internal cash flow
projections and estimated values of assets and liabilities of such entities at
the time of the Initial Offering and the Exchange Offer. There can be no
assurance, however, that a court passing on these issues would make the same
determination.
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Old Notes are designated for trading in the PORTAL Market, the National
Association of Securities Dealers' screen-based automated market for trading of
securities eligible for resale under Rule 144A. The Company does not intend to
apply for listing of the Exchange Notes on any securities exchange or the NASDAQ
National Market. There can be no assurance as to the liquidity of any market
that may develop for the Exchange Notes, the ability of holders of the Exchange
Notes to sell their Exchange Notes, or the price at which holders would be able
to sell their Exchange Notes. Future trading prices of the Exchange Notes will
depend on many factors, including, among other things, prevailing interest
rates, the Company's operating results and the market for similar securities.
The Company has been advised by the Initial Purchaser that, following the
completion of the Exchange Offer, the Initial Purchaser intended to make a
market in the Exchange Notes. However, the Initial Purchaser is not obligated to
do so or to continue to do so and any market-making activities with respect to
the Exchange Notes may be discontinued at any time without notice. In addition,
such market-making activity will be subject to the limits imposed by the
Securities Act and the Exchange Act, and may be limited during the Exchange
Offer and the pendency of any shelf registration statement. Accordingly, no
assurance can be given that an active trading market for the Exchange Notes will
develop or, if such a market develops, as to the liquidity of such market. If
the Exchange Notes are traded after their initial issuance, they may trade at a
discount from their initial offering price, depending upon prevailing interest
rates, the market for similar securities, the performance of the Company and
certain other factors. The liquidity of, and trading market for, the Exchange
Notes may be adversely affected by general declines in the market for similar
securities. Such a decline may adversely affect such liquidity and trading
markets independent of the financial performance of, and prospects for, the
Company.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expect," "should," "may," "will," "continue" and "estimate," and
words of similar import, constitute "forward-looking statements." Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions, both domestic and foreign; industry
and market capacity; demographic changes; existing government regulations and
changes in, or the failure to comply with, government regulations; liability and
other claims asserted against the Company; competition; the loss of any
significant customers; changes in operating strategy or development plans; the
ability to attract and retain qualified personnel; the significant indebtedness
of the Company after the Transactions; the availability and terms of capital to
fund the expansion of the Company's business; and other factors referenced in
this Prospectus. Certain of these factors are discussed in more detail elsewhere
in this Prospectus, including, without limitation, under the captions
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Henry Company," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Monsey Bakor" and "Business." Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update
factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
26
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay the expenses of the Exchange Offer. No underwriter is
being used in connection with the Exchange Offer. In consideration for issuing
the Exchange Notes as contemplated in this Prospectus, the Company will receive
in exchange Old Notes in like principal amount, the terms of which are identical
to the Exchange Notes except that (i) the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) the Exchange Notes registered
hereunder will not be entitled to any rights under the Registration Rights
Agreement, including but not limited to the contingent increase in the interest
rate provided for therein. The Old Notes surrendered in exchange for the
Exchange Notes will be retired and canceled and cannot be reissued. Accordingly,
the issuance of the Exchange Notes will not result in any increase in the
indebtedness of the Company.
The proceeds received by the Company from the sale of the Old Notes and the
issuance of additional equity in the Company in connection with the Initial
Offering of approximately $87.6 million were used as follows: (i) approximately
$46.0 million to pay the purchase price for the Acquisition, (ii) approximately
$25.3 million to repay existing debt of the Company and Monsey Bakor, (iii) $5.0
million to repay subordinated debt of the Company, (iv) approximately $4.2
million to pay expenses related to the Acquisition and the other Transactions
and (v) approximately $7.1 million as an addition to working capital of the
Company.
27
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
On April 22, 1998, the Company issued $85.0 million aggregate principal
amount of Old Notes to the Initial Purchaser. In connection with the issuance
and sale of the Old Notes, the Company entered into the Registration Rights
Agreement with the Initial Purchaser, which obligated the Company to (i) file
the Registration Statement of which this Prospectus is a part for the Exchange
Offer within 90 days after April 22, 1998, the date the Old Notes were issued,
(ii) use its best efforts to cause the Registration Statement to become
effective within 150 days after the Issue Date, and (iii) consummate the
Exchange Offer within 185 days of the Initial Issue Date. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Exchange Offer is being made
pursuant to the Registration Rights Agreement to satisfy the Company's
obligations thereunder.
Based on existing interpretations by the staff of the Commission, the
Company believes that a holder who exchanges Old Notes for Exchange Notes
pursuant to the Exchange Offer may offer for resale, resell and otherwise
transfer such Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act; provided, that (i) such
Exchange Notes are acquired in the ordinary course of such holder's business,
(ii) such holder is not engaged in, and does not intend to engage in, a
distribution of such Exchange Notes and has no arrangement with any person to
participate in the distribution of such Exchange Notes, and (iii) such holder is
not an affiliate of the Company (as defined under Rule 405 of the Securities
Act). However, the staff of the Commission has not considered the Exchange Offer
in the context of a no-action letter and there can be no assurance that the
staff of the Commission would make a similar determination with respect to the
Exchange Offer as in such other circumstances. A holder who exchanges Old Notes
for Exchange Notes pursuant to the Exchange Offer with the intention to
participate in a distribution of the Exchange Notes may not rely on the staff's
position enunciated in any no-action letter and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution." The Letter of Transmittal states that by so acknowledging and by
delivering a Prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of Exchange Notes (other than a resale of an
unsold allotment from the original sale of the Notes) received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date (as defined), if
requested by a Participating Broker-Dealer (as defined), it will use its best
efforts to keep the Exchange Registration Statement continuously effective or
until each Participating Broker Dealer shall have resold all Exchange Notes
acquired in the Exchange Offer, and that any Participating Broker Dealer may
deliver this Prospectus in connection with any such resale. See "Plan of
Distribution."
In the event that applicable interpretations of the staff of the Commission
would not permit the Company to effect the Exchange Offer or, if for any other
reason the Exchange Offer is not consummated on or prior to October 25, 1998,
the Company has agreed to use its best efforts to cause to become effective a
shelf registration statement (the "Shelf Registration Statement") with respect
to the resale of the Old Notes and to keep the Shelf Registration Statement
effective until two years after the date of the initial sale of the Old Notes or
until all the Old Notes covered by the Shelf Registration Statement have been
sold pursuant to such Shelf Registration Statement.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept any and all
28
<PAGE>
Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue a principal amount at
maturity of Exchange Notes in exchange for an equal principal amount at maturity
of outstanding Old Notes validly tendered pursuant to the Exchange Offer and not
withdrawn prior to the Expiration Date. Old Notes may only be tendered in
integral multiples at maturity of $1,000. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer.
The terms of the Exchange Notes and the Old Notes are substantially
identical in all material respects, except that (i) the exchange will be
registered under the Securities Act and, therefore, the Exchange Notes will not
bear legends restricting the transfer of such Exchange Notes, and (ii) holders
of the Exchange Notes will not be entitled to any of the registration rights of
holders of Old Notes under the Registration Rights Agreement, which rights will
terminate upon the consummation of the Exchange Offer. See "Description of the
Exchange Notes." The Exchange Notes will evidence the same indebtedness as the
Old Notes. The Exchange Notes will be issued under and entitled to the benefits
of the Indenture pursuant to which the Old Notes were issued such that the
Exchange Notes and Old Notes will be treated as a single class of debt
securities under the Indenture.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange Notes
in the Exchange Offer will be required to make certain representations,
including that (i) any Exchange Notes to be received by such holder will be
acquired in the ordinary course of its business, (ii) that at the time of the
consummation of the Exchange Offer such holder will have no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes in violation of the
provisions of the Securities Act, (iii) that such holder is not an affiliate (as
defined in Rule 405 under the Securities Act) of the Company or any Subsidiary
Guarantor, (iv) if such holder is not a broker-dealer, that it is not engaged
in, and does not intend to engage in, the distribution of the Exchange Notes and
(v) if such holder is a broker-dealer (a "Participating Broker-Dealer") that
will receive Exchange Notes for its own account in exchange for Old Notes that
were acquired as a result of market-making activities or other trading
activities, that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of an unsold allotment from the
original sales of Old Notes) with this Prospectus. Under the Registration Rights
Agreement, the Company is required to allow Participating Broker-Dealers (and
other persons, if any, subject to similar prospectus delivery requirements) to
use this Prospectus in connection with the resale of such Exchange Notes,
provided, however, the Company shall not be required to amend or supplement this
Prospectus for a period exceeding 180 days after the consummation of the
Exchange Offer. In addition, under the Registration Rights Agreements, Old Notes
held by (i) the Initial Purchaser which may have the status of an unsold
allotment in an initial distribution or (ii) holders who are otherwise not
entitled to participate in the Exchange Offer may, upon request of such holders
to the Company prior to the consummation of the Exchange Offer, be exchanged,
simultaneously with the exchange of Old Notes in the Exchange Offer, for
unregistered notes ("Private Exchange Notes") identical to the Exchange Notes,
except for transfer restrictions thereon.
In the event the Exchange Offer is consummated on or before October 25,
1998, the Company will not be required to file a shelf registration statement to
register any Old Notes, and the interest rate on such Old Notes will remain at
its initial level of 10% per annum. The Exchange Offer shall be deemed to have
been consummated upon the Company's having exchanged, pursuant to the Exchange
Offer, Exchange Notes for all Old Notes that have been properly tendered and not
withdrawn by the Expiration Date. In such event, holders of Old Notes not
participating in the Exchange Offer who are seeking liquidity in their
investment would have to rely on exemptions to registration requirements under
the securities laws, including the Securities Act. Following the Exchange Offer,
holders of Private Exchange Notes and holders of Exchange Notes that may not be
sold without restriction under state and federal securities laws (other than
solely due to the holder's status as an affiliate of the Company) shall continue
to have certain rights to require the Company to register such notes as set
forth in the Registration Rights Agreement. If the Company fails to register
such notes in accordance with the Registration Rights Agreement, the Company
29
<PAGE>
must pay, as liquidated damages, additional interest on such notes as set forth
in the Registration Rights Agreement ("Additional Interest") until its
registration obligations thereunder are satisfied.
As of the date of this Prospectus, $85.0 million aggregate principal amount
at maturity of the Old Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is being sent to all registered holders of the Old Notes
as of July , 1998 (the "Record Date").
Holders of Old Notes do not have any appraisal or dissenters' rights under
the California General Corporation Law or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the provisions of the Registration Rights Agreement and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Old Notes which are not tendered and were not prohibited
from being tendered for exchange in the Exchange Offer will remain outstanding
and continue to accrue interest and to be subject to transfer restrictions, but
will not be entitled to any rights or benefits under the Registration Rights
Agreement.
Upon satisfaction or waiver of all the conditions to the Exchange Offer, the
Company will accept, promptly after the Expiration Date, all Old Notes properly
tendered and not withdrawn and will issue Exchange Notes in exchange therefor
promptly after acceptance of the Old Notes. For purposes of the Exchange Offer,
the Company shall be deemed to have accepted properly tendered Old Notes for
exchange when, as and if, the Company has given oral or written notice thereof
to the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purposes of receiving the Exchange Notes from the Company.
In all cases, issuance of Exchange Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents; PROVIDED, HOWEVER, that
the Company reserves the absolute right to waive any defects or irregularities
in the tender or conditions of the Exchange Offer. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount at
maturity than the holder desires to exchange, such unaccepted or nonexchanged
Old Notes or substitute Old Notes evidencing the unaccepted portion, as
appropriate, will be returned without expense to the tendering holder thereof as
promptly as practicable after the expiration or termination of the Exchange
Offer.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See "The Exchange Offer--Fees and Expenses."
EXPIRATION DATE; EXTENSION; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
1998 (35 days following the commencement of the Exchange Offer),
unless the Company, in its sole discretion, extends the Exchange Offer, in which
case the term "Expiration Date" will mean the latest date and time to which the
Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, prior to 9:00 a.m., New York City time, on the
next business day after the then Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "The Exchange
Offer--Conditions" shall not have been satisfied, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent or (ii) to
amend the terms of the Exchange Offer. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable
30
<PAGE>
by oral or written notice thereof to the registered holders. If the Exchange
Offer is amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of Old Notes of such amendment.
Without limiting the manner in which the Company may choose to make a public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from April 22, 1998 at the rate of 10%
per annum, payable semi-annually in arrears, in cash, on April 15 and October 15
of each year, commencing October 15, 1998. Holders of Old Notes whose Old Notes
are accepted for exchange will be deemed to have waived the right to receive any
payment in respect of interest on the Old Notes accrued from April 22, 1998
until the date of the issuance of the Exchange Notes. Consequently, holders who
exchange their Old Notes for Exchange Notes will receive the same interest
payment on October 15, 1998 (the first interest payment date with respect to the
Old Notes and the Exchange Notes) that they would have received had they not
accepted the Exchange Offer.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to exchange any Exchange Notes for any Old Notes, and may terminate
or amend the Exchange Offer before the acceptance of any Old Notes for exchange,
if: (i) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer which seeks
to restrain or prohibit the Exchange Offer or, in the Company's judgment, would
materially impair the ability of the Company to proceed with the Exchange Offer,
or (ii) any law, statute, rule or regulation is proposed, adopted or enacted, or
any existing law, statute, rule, order or regulation is interpreted, by any
government or governmental authority which, in the Company's judgment, would
materially impair the ability of the Company to proceed with the Exchange Offer,
or (iii) the Exchange Offer or the consummation thereof would otherwise violate
or be prohibited by applicable law.
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of holders who tendered such Old
Notes to withdraw their tendered Old Notes, or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn. If the Company's waiver constitutes a
material change to the Exchange Offer, the Company will promptly disclose such
waiver by means of a prospectus supplement that will be distributed to the
registered holders, and the Company will extend the Exchange Offer for a period
of five to ten business days, depending upon the significance of the waiver and
the manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such five to ten business day period.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The Company's failure at any time to
exercise any of the foregoing rights will not be deemed a waiver of any such
right, and each such right will be deemed an ongoing right which may be asserted
at any time and from time to time. Any determination by the Company concerning
the events described above will be final and binding on all parties. NO VOTE OF
THE COMPANY'S SECURITY HOLDERS IS REQUIRED TO EFFECT THE EXCHANGE OFFER AND NO
SUCH VOTE (OR PROXY THEREFOR) IS BEING SOUGHT HEREBY.
31
<PAGE>
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must (i) complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes (unless such tender is being effected pursuant to the procedure for
book-entry transfer described below) and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date,
or (ii) comply with the guaranteed delivery procedures described below. Delivery
of all documents must be made to the Exchange Agent at its address set forth
herein. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with the resale of
such Exchange Notes. See "Plan of Distribution."
The tender of Old Notes by a holder as set forth below will constitute an
agreement between such holder and the Company in accordance with the terms and
subject to the conditions set forth in this Prospectus and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner(s) whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering such
owner's Old Notes, either make appropriate arrangement to register ownership of
the Old Notes in such owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal (described
below), as the case may be, must be guaranteed by an "eligible guarantor
institution" (banks, stockbrokers, savings and loan association and credit
unions with membership in an approved signature guarantee medallion program),
pursuant to Rule 17Ad-15 under the Exchange Act (an "Eligible Institution")
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution.
If a person other than the registered holder of any Old Notes listed therein
signs the Letter of Transmittal, such Old Notes must be endorsed or accompanied
by a properly completed bond power, signed by such registered holder as such
registered holder's name appears on such Old Notes, with the signature thereon
guaranteed by an Eligible Institution. If the Letter of Transmittal or any Old
Notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and unless waived by the Company, evidence satisfactory to the Company
of their authority to so act must be submitted with the Letter of Transmittal.
The Company will determine, in its sole discretion, all questions as to the
validity, form, eligibility (including time of receipt), acceptance of tendered
Old Notes and withdrawal of tendered Old Notes and the Company's determination
will be final and the Company reserves the absolute right to reject any and
32
<PAGE>
all Old Notes not properly tendered or any Old Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date or, as set forth above under "The Exchange
Offer--Conditions," to terminate the Exchange Offer and, to the extent permitted
by applicable law, to purchase Old Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
could differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the Exchange Notes to be acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of such holder, (ii) such
holder has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes
and (iii) such holder is not an "affiliate," as defined in Rule 405 under the
Securities Act, of the Company, or that if it is an "affiliate," it will comply
with applicable registration and prospectus delivery requirements of the
Securities Act.
BOOK-ENTRY TRANSFER
Promptly following the date of this Prospectus, the Exchange Agent will make
a request to establish an account with respect to the Old Notes at the
book-entry transfer facility for the Old Notes, DTC, for purposes of the
Exchange Offer. Any financial institution that is a participant in DTC's systems
may make book-entry delivery of Old Notes by causing DTC to transfer such Old
Notes into the Exchange Agent's account with respect to the Old Notes in
accordance with DTC's procedures for such transfer. Although delivery of Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at DTC, an appropriate Letter of Transmittal with any required signature
guarantee and all other required documents must in each case be transmitted to
and received and confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or (iii) who cannot complete the procedures for book-entry
transfer of Old Notes to the Exchange Agent's account with DTC prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) On or prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution (by facsimile transmission, mail or hand delivery)
a properly completed and duly executed notice of guaranteed delivery
substantially in the form provided by the Company (the "Notice of Guaranteed
Delivery"), setting forth the name and address of the holder, the
certificate number(s) of such Old Notes (if possible) and the principal
amount at maturity of Old Notes tendered, stating that
33
<PAGE>
the tender is being made thereby and guaranteeing that, within five trading
days after the Expiration Date, (i) the Letter of Transmittal (or facsimile
thereof) together with the certificates) representing the Old Notes and any
other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent, or (ii) that book-entry
transfer of such Old Notes into the Exchange Agent's account at DTC will be
effected and confirmation of such book-entry transfer will be delivered to
the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificates) representing all tendered
Old Notes in proper form for transfer and all other documents required by
the Letter of Transmittal, or confirmation of book-entry transfer of the Old
Notes into the Exchange Agent's account at DTC, are received by the Exchange
Agent within five business trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, the Exchange Agent
must receive at its address set forth herein a telegram, telex, facsimile
transmission or letter indicating notice of withdrawal prior to 5:00 p.m., New
York City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having tendered the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount at maturity of such Old
Notes), (iii) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accomplished by documents of
transfer sufficient to have the Trustee with respect to the Old Notes register
the transfer of such Old Notes into the name of the person withdrawing the
tender and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. If Old Notes have been
tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawn Old Notes or otherwise comply with DTC's procedures. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Old Notes so withdrawn will be deemed not
to have been validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes which have been tendered but which are not
accepted for payment will be returned to the holder thereof without cost to such
holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under "Exchange
Offer--Procedures for Tendering" at any time prior to the Expiration Date.
UNTENDERED OLD NOTES
Holders of Old Notes whose Old Notes are not tendered or are tendered but
not accepted in the Exchange Offer will continue to hold such Old Notes and will
be entitled to all the rights and preferences and subject to the limitations
applicable thereto under the Indenture. Following consummation of the Exchange
Offer, the holders of Old Notes will continue to be subject to the existing
restrictions upon transfer contained in the legend thereon. In general, the Old
Notes may not be offered for resale or resold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The Company
will have no further obligations to such holders, other than the Initial
Purchaser, to provide for the registration under the Securities Act of the Old
Notes held by them after the Expiration Date. To the Extent that Old Notes are
34
<PAGE>
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Old Notes could be adversely affected.
EXCHANGE AGENT
U.S. Trust Company, N.A. has been appointed as Exchange Agent of the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notices of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
<TABLE>
<S> <C>
BY MAIL: BY HAND:
U.S. Trust Company, N.A. U.S. Trust Company, N.A.
c/o United States Trust Company of New York c/o United States Trust Company of New York
P.O. Box 841, Peter Cooper Station 111 Broadway, Lower Level
New York, New York 10276-0841 New York, New York 10006
Attn: Corporate Trust and Agency Services Attn: Corporate Trust and Agency Services
BY OVERNIGHT EXPRESS: FACSIMILE TRANSMISSION:
U.S. Trust Company, N.A. U.S. Trust Company, N.A.
c/o United States Trust Company of New York c/o United States Trust Company of New York
770 Broadway, 13th Floor (212) 420-6504
New York, New York 10006 TO CONFIRM RECEIPT:
Attn: Corporate Trust and Agency Services Tel: (800) 225-2398:
</TABLE>
Delivery to an address other than as set forth above or transmission of
instructions via facsimile to a number other than as set forth above will not
constitute a valid delivery.
FEES AND EXPENSES
The Company will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, officers and regular employees of
the Company and its affiliates may make additional solicitation by facsimile
transmission, telephone or in person.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The Company will pay the cash expenses to be incurred in connection with the
Exchange Offer. Such expenses include registration fees, fees and expenses of
the Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
The Company will pay any and all transfer taxes applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, satisfactory evidence of the payment of the amount of any such
transfer taxes must be submitted with the Letter of Transmittal (whether imposed
on the registered holder or any other person). Certificates representing
Exchange Notes will not be issued to such persons until satisfactory evidence of
the payment of such taxes, or an exemption therefrom, is submitted. Upon
consummation of the Exchange Offer, holders that were not prohibited from
participating in the Exchange Offer and did not tender their Old Notes will not
have any registration rights under the Registration Rights Agreement with
respect to such nontendered Old Notes and, accordingly, such Old Notes will
continue to be subject to the restrictions on transfer contained in the legend
thereon as a consequence of the issuance of the Old Notes pursuant to
35
<PAGE>
exemptions from or in transactions not subject to, the registration requirements
of the Securities Act and applicable state securities laws. In general, the Old
Notes may not be offered for resale or resold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The Company
does not intend to register the Old Notes under the Securities Act. The Exchange
Notes may not be offered or sold unless they have been registered or qualified
for sale under applicable state securities laws or an exemption from
registration or qualification is available and is complied with. The
Registration Rights Agreement requires the Company to register the Exchange
Notes in any jurisdiction requested by the holders, subject to certain
limitations. To the extent the Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Old Notes could be adversely affected. See "Risk Factors-- Consequences of
Failure to Exchange."
RESALE OF THE EXCHANGE NOTES
Under existing interpretation of the staff of the Commission contained in
several no-action letters to third parties, the Exchange Notes would in general
be freely transferable after the Exchange Offer without further registration
under the Securities Act. However, any purchaser of Old Notes who intends to
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes (i) would not be able to rely on the interpretation of the staff of the
Commission, (ii) will not be able to tender its Old Notes in the Exchange Offer
and (iii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the Notes
unless such sale or transfer is made pursuant to an exemption from such
requirements. By executing the Letter of Transmittal, each holder of the Old
Notes will represent that (i) it is not an affiliate of the Company or if such
holder is an "affiliate," that such holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable,
(ii) any Exchange Notes to be received by it were acquired in the ordinary
course of its business and (iii) at the time of commencement of the Exchange
Offer, it had no arrangement with any person to participate in the distribution
(within the meaning of the Securities Act) of the Exchange Notes. In addition,
in connection with any resales of Exchange Notes, any broker-dealer (a
"Participating Broker-Dealer") who acquired the Notes for its own account as a
result of market-making or other trading activities must deliver a prospectus
meeting the requirements of the Securities Act. The Commission has taken the
position that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes (other than a resale of an
unsold allotment from the original sale of the Old Notes) with the prospectus
contained in the Exchange Offer Registration Statement. Under the Registration
Rights Agreement, the Company is required to allow Participating Broker-Dealers
and other persons, if any, subject to similar prospectus delivery requirements
to use this Prospectus as it may be amended or supplemented from time to time,
in connection with the resale of such Exchange Notes.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded in the Company's accounting records at
the same carrying value as the Old Notes as reflected in the Company's
accounting records on the date of the exchange. Accordingly, the Company will
recognize no gain or loss for accounting purposes upon the consummation of the
Exchange Offer. The expenses of the Exchange Offer will be amortized over the
remaining term of the Exchange Notes.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
36
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material United States federal
income tax considerations generally applicable to initial holders of the Old
Notes who purchased the Old Notes at their "issue price" (the first price at
which a substantial amount of the Old Notes sold for money to the public (not
including bond houses, brokers or similar persons or organizations acting in the
capacity of underwriters, placement agents or wholesalers)), and who exchange
their Old Notes for the Exchange Notes pursuant to the Exchange Offer. This
summary is based upon provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations, rulings and decisions currently in
effect, all of which are subject to change (possibly with retroactive effect).
The discussion does not purport to deal with all aspects of U.S. federal income
taxation that may be relevant to particular investors in light of their
particular circumstances (for example, to persons holding Notes as part of a
conversion transaction or as part of a hedge or hedging transaction, or as a
position in a straddle for tax purposes), nor does it discuss the U.S. federal
income tax considerations applicable to certain types of investors subject to
special treatment under the federal income tax laws (for example, insurance
companies, tax-exempt organizations, and financial institutions or
broker-dealers). In addition, the discussion does not consider the effect of any
foreign, state, local, gift, estate or other tax laws that may be applicable to
a particular investor. Except as specifically provided below with respect to
Non-U.S. Holders (as defined below), the discussion is limited to U.S. Holders
(as defined below). The discussion assumes that investors hold the Notes as
"capital assets" within the meaning of Section 1221 of the Code.
As used herein, the term "U.S. Holder" means any beneficial owner of a Note
that is, for U.S. federal income tax purposes, (i) a citizen or resident (as
defined in Section 7701(b)(1) of the Code) of the United States, (ii) a
corporation or other entity taxable as a corporation created or organized in or
under the laws of the United States or of any political subdivision thereof,
(iii) an estate or trust described in Section 7701(a)(30) of the Code, or (iv) a
person whose worldwide income or gain is otherwise subject to U.S. federal
income taxation on a net income basis. The term also includes certain former
citizens and certain former long-term residents of the United States. A
"Non-U.S. Holder" means any beneficial owner of a Note that is not a U.S.
Holder.
The Company intends to treat the Notes as indebtedness and not as equity for
U.S. federal income tax purposes, and the U.S. federal income tax considerations
described below are based on that characterization. Such treatment, however, is
not binding on the Internal Revenue Service (the "IRS") (or the courts), and
there can be no assurance that the IRS would not argue (or that a court would
not hold) that the Notes should be treated as equity for such purposes.
Prospective investors considering the Exchange Offer should consult their
tax advisors with regard to the application of the U.S. federal income tax laws
to their particular situations as well as any tax consequences arising under
other federal tax laws or the laws of any state, local or foreign taxing
jurisdiction.
TAXATION OF THE NOTES
INTEREST ON A NOTE
A holder of a Note will be required to report interest earned on the Note as
ordinary interest income for U.S. federal income tax purposes in accordance with
such holder's method of accounting for U.S. federal income tax purposes.
DISPOSITION OF A NOTE
A holder's tax basis for a Note generally will be such holder's purchase
price for the Note. Upon the sale or other disposition of a Note, a holder
generally will recognize capital gain or loss equal to the difference (if any)
between the amount realized (other than amounts attributable to accrued but
unpaid stated interest, which will be taxable as ordinary income) and such
holder's tax basis in the Note.
37
<PAGE>
EXCHANGE OFFER
The exchange of an Old Note for an Exchange Note pursuant to the Exchange
Offer will not constitute a taxable exchange for U.S. federal income tax
purposes.
CERTAIN CONSEQUENCES TO NON-U.S. HOLDERS
Subject to the discussion of backup withholding below, a Non-U.S. Holder
generally will not be subject to U.S. federal income or withholding tax on
payments of interest on a Note, provided that: (i) the holder is not (A) the
actual or constructive owner of 10 percent or more of the total voting power of
all voting stock of the Company or (B) a controlled foreign corporation related,
directly or indirectly, to the Company through stock ownership; (ii) such
interest payments are not effectively connected with the conduct by the Non-U.S.
Holder of a trade or business within the United States; and (iii) the Company or
its paying agent receives certain information from the holder (or a financial
institution that holds the Notes in the ordinary course of its trade or
business) certifying that such holder is a Non-U.S. Holder. Subject to the
discussion of backup withholding below, a Non-U.S. Holder generally will not be
subject to U.S. federal income tax or withholding tax on gains from the sale or
other disposition of a Note, provided that: (i) such gains are not effectively
connected with the conduct by the Non-U.S. Holder of a trade or business within
the United States; and (ii) such Non-U.S. Holder is not an individual who is
present in the United States for 183 days or more in the taxable year of
disposition and meets certain other requirements.
If a Non-U.S. Holder is engaged in a trade or business in the United States,
and if interest or gain (if any) on a Note is effectively connected with the
conduct of such trade or business, then among other things, the Non-U.S. Holder
will generally be subject to regular U.S. federal income taxation on interest
and any gain on the Note in the same manner as if it were a U.S. Holder.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A holder of a Note may be subject to backup withholding at a rate of 31% on
certain payments with respect to a Note, unless such holder (i) is a corporation
or comes within certain other exempt categories, or (ii) provides a correct
taxpayer identification number, certifies as to its exemption from backup
withholding, and otherwise complies with the backup withholding rules. Certain
penalties may be imposed by the IRS on a holder that is required to supply
information but does not do so in the proper manner.
A Non-U.S. Holder generally will be exempt from backup withholding and
information reporting requirements, but may be required to comply with certain
certification and identification procedures in order to obtain such an
exemption.
Holders should consult their tax advisors regarding the application of
information reporting and backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available. The amount of any backup withholding from a payment to
a holder will be allowable as a credit against such holder's U.S. federal income
tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the IRS.
FINAL REGULATIONS
The Treasury Department recently issued final regulations relating to
withholding, information reporting and backup withholding that unify current
certification procedures and forms and clarify reliance standards (the "Final
Regulations"). As promulgated, the Final Regulations would generally apply to
all payments made on or after January 1, 1999. The Treasury Department and the
IRS recently announced their intention to issue amended regulations that would
generally extend the date of applicability of certain requirements of the Final
Regulations to payments made on or after January 1, 2000.
Holders should consult their tax advisors regarding the effect, if any, the
Final Regulations will have upon their acquisition, ownership and disposition of
Notes.
38
<PAGE>
THE TRANSACTIONS
THE ACQUISITION
Pursuant to the Stock Purchase Agreement (the "Acquisition Agreement") dated
as of February 27, 1998, between the stockholders of Monsey Bakor and Henry
Company, Henry Company acquired all of the outstanding stock of Monsey Bakor for
a purchase price of $42.75 million (the "Acquisition"). Henry Company paid an
additional $3.25 million to certain selling stockholders of Monsey Bakor for
noncompetition agreements. The total cost of the Acquisition (including payments
for the noncompetition agreements) was $46.0 million (the "Purchase Price"). The
closing of the Acquisition occurred on April 22, 1998.
The Acquisition Agreement contained provisions customary for transactions of
its type, such as representations and warranties with respect to the history,
condition, operations and ownership of Monsey Bakor, covenants with respect to
the conduct of Monsey Bakor's operations prior to the consummation of the
Acquisition and indemnities from the selling shareholders regarding certain of
Monsey Bakor's obligations and liabilities. The Acquisition Agreement also
contained various closing conditions including the receipt of all necessary
consents and approvals and the continued accuracy of representations and
warranties contained in the Acquisition Agreement.
The Company will account for the Acquisition as a purchase. The aggregate
acquisition costs will be allocated to the tangible and intangible assets
acquired and liabilities assumed by the Company based on their respective fair
values as of the acquisition date. The Company believes that the Purchase Price
was in excess of the fair value of the net assets acquired, resulting in
goodwill.
Effective at the closing of the Acquisition, Joseph T. Mooney, Jr., the
former Chairman of the Board of Monsey Bakor, purchased 22,500 shares of Henry
Company redeemable convertible preferred stock for $600,000 (the
"Reinvestment"), convertible into 22,500 shares of Henry Company Common Stock
(9% of the economic interest in the Company on a fully diluted basis), and also
obtained rights to purchase sufficient shares of Common Stock of Henry Company
to prevent dilution of Mr. Mooney's ownership percentage in the event Henry
Company capital stock is purchased pursuant to outstanding warrants held by the
Warner W. Henry Living Trust (the "Henry Warrants") and outstanding rights held
by Mr. Muhs, a director of the Company. Mr. Mooney has the right to require the
Company to repurchase one-sixth of his capital stock each year over a five-year
period beginning January 1, 2004 (except that the last one-sixth would be
repurchased July 1, 2008) for an aggregate purchase price of $3.0 million and
such capital stock would also be repurchased upon Mr. Mooney's death, in which
event the purchase would be funded by the proceeds from the key person life
insurance policies the Company holds on Mr. Mooney's life. The Company is also
providing indemnity to Mr. Mooney in connection with certain aspects of the
Reinvestment. See "Management--Executive and Director Compensation."
Effective at the closing of the Acquisition, Frederick H. Muhs, a director
of the Company, purchased 27,500 shares of Common Stock of the Company for $2.0
million in cash (11% of the economic interest in the Company on a fully diluted
basis) (the "Equity Issuance"). Mr. Muhs was also granted rights to purchase
sufficient shares of Common Stock of the Company to prevent dilution of Mr.
Muhs' ownership percentage in the event of the exercise of outstanding warrants
or the outstanding rights held by Mr. Mooney.
In connection with the Transactions, Henry Company repaid in full
subordinated indebtedness of $5.0 million held by Warner W. Henry. See "Certain
Transactions."
Upon the consummation of the Acquisition, two former Monsey Bakor executive
officers entered into employment agreements with Henry Company to serve as
officers of the Company. See "Management-- Employment Agreements and
Compensation Arrangements."
REFINANCING
At the closing of the Acquisition the Company repaid the existing bank
credit lines of Henry Company and Monsey Bakor (other than Monsey Bakor's
Canadian line of credit) and entered into an amended and restated $35.0 million
credit facility (the "New Bank Credit Facility"), $25.0 million of which is
available in accordance with a borrowing base and will be used for working
capital and $10.0 million of which may be used for capital expenditures. For
further information, see "Description of the Credit Facilities."
39
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Henry Company and
Monsey Bakor, at March 31, 1998, and the combined capitalization of the Company
on a pro forma basis after giving effect to the Transactions described in "The
Transactions" and the Initial Offering as if they had occurred at March 31,
1998. This table should be read in conjunction with the Combined Financial
Statements of Henry Company and notes thereto, the Consolidated Financial
Statements of Monsey Bakor and notes thereto, and "Unaudited Pro Forma Condensed
Combined Financial Data" and notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------------------
HISTORICAL
HISTORICAL MONSEY PRO FORMA
HENRY COMPANY BAKOR ADJUSTMENTS PRO FORMA
------------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents.................. $ 183 $ 1,169 $ 7,121(1) $ 8,473
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Total debt, including current portion:
Existing bank credit facilities.......... $ 7,427 $ 19,693 $ (25,256)(2) $ 1,864
Existing notes payable................... 791 151 -- 942
New Bank Credit Facility(3).............. -- -- -- --
Existing subordinated shareholder debt... 5,023 -- (5,023)(4) --
The Notes................................ -- -- 85,000(5) 85,000
------------- ----------- ----------- -----------
Total debt............................. 13,241 19,844 54,721 87,806
Redeemable convertible preferred stock..... -- -- 1,439(6) 1,439
Shareholders' equity:
Common stock(7).......................... 2,854 2,505 (2,505)(8) 2,854
Additional paid-in capital............... 2,682 7,152 (5,152)(8) 4,682
Cumulative translation adjustment........ -- (588) 588(9) --
Retained earnings........................ 183 7,583 (7,583)(9) 183
------------- ----------- ----------- -----------
Total shareholders' equity................. 5,719 16,652 (14,652) 7,719
------------- ----------- ----------- -----------
Total.................................. $ 18,960 $ 36,496 $ 41,508 $ 96,964
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
</TABLE>
- ------------------------
(1) Represents the net cash proceeds received upon the issuance of the Old Notes
and the application thereof and the issuance of stock to Joseph T. Mooney.
Jr. and Frederick H. Muhs, as follows:
<TABLE>
<CAPTION>
Proceeds from the Old Notes....................................... $ 85,000
<S> <C>
Proceeds from the issuance of redeemable convertible preferred
stock............................................................ 600
Proceeds from the issuance of Common Stock........................ 2,000
Acquisition Purchase Price........................................ (46,000)
Cash paid to retire existing Henry Company bank debt.............. (7,427)
Cash paid to retire Monsey Bakor U.S. bank debt................... (17,829)
Cash paid to retire existing Henry Company subordinated
shareholder debt................................................. (5,023)
Financing fees related to the Old Notes and other costs related to
the Transactions................................................. (4,200)
---------
$ 7,121
---------
---------
</TABLE>
40
<PAGE>
(2) Reflects the retirement of existing Henry Company and Monsey Bakor bank
debt, excluding Monsey Bakor Canadian bank debt which will remain
outstanding following the Transactions.
(3) The New Bank Credit Facility consists of a $25,000 revolving credit facility
and a $10,000 capital expenditure facility. The actual amounts outstanding
under the revolving credit facility will depend in part on fluctuations of
the Company's working capital needs and will be subject to a borrowing base.
Borrowings under the New Bank Credit Facility are secured by a first
priority lien on the Company's accounts receivable, inventory, the assets
financed under the capital expenditure facility and certain other assets.
See "Description of the Credit Facilities."
(4) Reflects the retirement of Henry Company subordinated shareholder debt.
(5) Reflects the issuance of the Old Notes.
(6) Represents the issuance of 22,500 shares of redeemable convertible preferred
stock in the Company to Joseph T. Mooney, Jr. The Company is obligated, upon
the exercise of Mr. Mooney's put option, to redeem the stock for cash in
annual amounts of $500 beginning in 2004 and aggregating $3,000, or for
$3,000 upon the death of Mr. Mooney. The shares are convertible into shares
of Common Stock. The fair value recorded represents the estimated present
value of the redemption payments.
(7) Does not include the Henry Warrants and the related rights to purchase
Common Stock of Henry Company. See "The Transactions" and "Shareholders."
(8) Represents the elimination of the historical common stock and additional
paid-in-capital of Monsey Bakor to reflect the Acquisition, net of the
issuance of 27,500 shares of the Company's Common Stock to Frederick H. Muhs
for $2,000 in cash.
(9) Represents the elimination of the historical Monsey Bakor cumulative
translation adjustment and retained earnings to reflect the Acquisition.
41
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following unaudited pro forma condensed combined balance sheet and the
unaudited pro forma condensed combined statements of operations illustrate the
effects of the Transactions.
The following unaudited pro forma condensed combined balance sheet as of
March 31, 1998 assumes that the Transactions were consummated on March 31, 1998
and the following unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1997 and for the three months ended
March 31, 1998 assume that the Transactions occurred at January 1, 1997, and
January 1, 1998, respectively.
The Acquisition will be accounted for as a purchase, with the assets
acquired and the liabilities assumed being recorded at estimated fair market
value. The adjustments included in the unaudited pro forma condensed combined
financial statements represent the Company's preliminary determination of the
Purchase Price allocation based upon available information and there can be no
assurance that the actual adjustments will not differ significantly from the pro
forma adjustments reflected in the pro forma financial information.
The unaudited pro forma condensed combined financial statements are not
necessarily indicative of the results that would have occurred if the
Transactions had been consummated as of the indicated dates or that may occur in
the future. The unaudited pro forma condensed combined financial statements
should be read in conjunction with the historical financial statements of Henry
Company and Monsey Bakor, together with the related notes thereto, included
elsewhere in this Prospectus.
The following information should be read in conjunction with "Unaudited Pro
Forma Condensed Combined Financial Data," "Selected Historical Combined
Financial Data of Henry Company," "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Henry Company," "Selected
Historical Consolidated Financial Data of Monsey Bakor," "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Monsey Bakor," the Combined Financial Statements of Henry Company and the
Consolidated Financial Statements of Monsey Bakor, including, in each case, the
notes thereto, and other financial information appearing elsewhere in this
Prospectus.
42
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
HENRY COMPANY MONSEY BAKOR ADJUSTMENTS COMBINED
--------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 183 $ 1,169 $ 7,121(1) $ 8,473
Accounts receivable--trade.......................... 9,255 14,477 -- 23,732
Inventories......................................... 6,097 9,188 -- 15,285
Receivables from affiliates......................... 2,496 -- -- 2,496
Other current assets................................ 1,529 613 -- 2,142
------- ------------- ----------- -----------
Total current assets.............................. 19,560 25,447 7,121 52,128
Property and equipment, net......................... 5,512 22,200 -- 27,712
Intangibles, net.................................... 686 3,262 34,387(2) 38,335
Notes receivable.................................... 2,146 -- -- 2,146
Other assets........................................ 2,108 2,894 -- 5,002
------- ------------- ----------- -----------
Total assets...................................... $ 30,012 $ 53,803 $ 41,508 $ 125,323
------- ------------- ----------- -----------
------- ------------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under lines of credit.................... $ 3,646 $ 11,299 $ (13,081)(3) $ 1,864
Accounts payable.................................... 5,513 8,139 -- 13,652
Accrued expenses.................................... 2,426 2,486 -- 4,912
Current maturities of long-term debt................ 642 3,252 (3,755)(3) 139
------- ------------- ----------- -----------
Total current liabilities......................... 12,227 25,176 (16,836) 20,567
Long-term debt...................................... 3,930 5,293 76,580(4) 85,803
Subordinated shareholder debt....................... 5,023 -- (5,023)(5) --
Environmental reserve............................... -- 3,503 -- 3,503
Deferred income taxes and other liabilities......... 3,113 3,179 -- 6,292
------- ------------- ----------- -----------
Total liabilities................................. 24,293 37,151 54,721 116,165
Redeemable convertible preferred stock................ -- -- 1,439(6) 1,439
Shareholders' equity:
Common stock........................................ 2,854 2,505 (2,505)(7) 2,854
Additional paid in capital.......................... 2,682 7,152 (5,152)(7) 4,682
Cumulative translation adjustment................... -- (588) 588(8) --
Retained earnings................................... 183 7,583 (7,583)(8) 183
------- ------------- ----------- -----------
Total shareholders' equity........................ 5,719 16,652 (14,652) 7,719
------- ------------- ----------- -----------
Total liabilities and shareholders' equity........ $ 30,012 $ 53,803 $ 41,508 $ 125,323
------- ------------- ----------- -----------
------- ------------- ----------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements
43
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
HENRY COMPANY MONSEY BAKOR ADJUSTMENTS COMBINED
--------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales........................................... $ 67,424 $ 113,175 $ 180,599
Cost of goods sold.................................. 46,413 83,082 $ --(9) 129,495
------- ------------- ----------- -----------
Gross profit...................................... 21,011 30,093 51,104
Selling, general and administrative................. 17,509 24,444 --(9) 39,829
(1,124) 10)
(1,000) 11)
Accounting method change--non-cash environmental
charge............................................ -- 3,639 -- 3,639
Amortization of intangibles......................... 137 353 2,453 (12 2,943
------- ------------- ----------- -----------
Operating income.................................. 3,365 1,657 (329) 4,693
Other expense (income):
Interest expense.................................. 1,465 1,576 8,500 (13 8,702
(2,839) 14)
Interest and other income, net.................... (321) (390) -- (711)
------- ------------- ----------- -----------
Income (loss) before provision for taxes.......... 2,221 471 (5,990) (3,298)
Provision (benefit) for income taxes................ 33 187 (1,678) 15) (609)
849 (16
------- ------------- ----------- -----------
Net income (loss)................................. $ 2,188 $ 284 $ (5,161) $ (2,689)
------- ------------- ----------- -----------
------- ------------- ----------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements
44
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
HENRY COMPANY MONSEY BAKOR ADJUSTMENTS COMBINED
--------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales........................................... $ 14,934 $ 22,738 $ 37,672
Cost of goods sold.................................. 9,816 17,495 $ --(9) 27,311
------- ------------- ----------- -----------
Gross profit...................................... 5,118 5,243 10,361
Selling, general and administrative................. 4,185 5,679 --(9) 9,614
(250) 11)
Amortization of intangibles......................... 27 116 622 (12 765
------- ------------- ----------- -----------
Operating income (loss)........................... 906 (552) (372) (18)
Other expense (income):
Interest expense.................................. 322 303 2,125 (13 2,162
(588) 14)
Interest and other income, net.................... (21) (61) -- (82)
------- ------------- ----------- -----------
Income (loss) before provision (benefit) for
taxes........................................... 605 (794) (1,909) (2,098)
Provision (benefit) for income taxes................ 9 (289) (583) 15) (632)
231 (16
------- ------------- ----------- -----------
Net income (loss)................................. $ 596 $ (505) $ (1,557) $ (1,466)
------- ------------- ----------- -----------
------- ------------- ----------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements
45
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(1) Represents the net cash proceeds received upon the issuance of the Old
Notes and the application thereof and the issuance of stock to Joseph T.
Mooney, Jr. and Frederick H. Muhs, as follows:
<TABLE>
<S> <C>
Proceeds from the Old Notes........................................ $ 85,000
Proceeds from the issuance of redeemable convertible preferred
stock............................................................ 600
Proceeds from the issuance of Common Stock......................... 2,000
Acquisition Purchase Price......................................... (46,000)
Cash paid to retire existing Henry Company bank debt............... (7,427)
Cash paid to retire Monsey Bakor U.S. bank debt.................... (17,829)
Cash paid to retire existing Henry Company subordinated shareholder
debt............................................................. (5,023)
Financing fees related to the Old Notes and other costs related to
the Transactions................................................. (4,200)
---------
$ 7,121
---------
---------
</TABLE>
(2) Reflects the increase in intangible assets as a result of the Acquisition.
The total consideration and direct transaction costs are as follows:
<TABLE>
<S> <C>
Cash paid at closing for Monsey Bakor stock and noncompetition
agreements....................................................... $ 46,000
Fair value of redeemable convertible preferred stock in excess of
cash received.................................................... 839
Financing fees related to the Notes and other costs related to the
Transactions..................................................... 4,200
---------
Total consideration and costs.................................. 51,039
Less: Monsey Bakor's net assets................................ 16,652
---------
$ 34,387
---------
---------
</TABLE>
The actual allocation of the Purchase Price will be based on the estimated
fair value of Monsey Bakor's net tangible and intangible assets at the date
of purchase. For purposes of the unaudited pro forma condensed combined
balance sheet, the preliminary Purchase Price allocation has been estimated
as follows:
<TABLE>
<CAPTION>
AMORTIZABLE
AMOUNT LIFE
--------- -----------
<S> <C> <C>
Excess of cost over the estimated fair value of net assets acquired... $ 28,587 15 years
Noncompetition agreements............................................. 3,250 10 years
Financing fees........................................................ 2,550 10 years
---------
$ 34,387
---------
---------
</TABLE>
(3) Represents the retirement of existing Henry Company bank debt and Monsey
Bakor bank debt excluding Monsey Bakor Canadian bank debt which remained
outstanding following the Transactions.
(4) Records the issuance of $85,000 of the Old Notes, net of $8,420 in
retirement of Henry Company and Monsey Bakor U.S. bank debt.
46
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 (CONTINUED)
(DOLLARS IN THOUSANDS)
(5) Represents the retirement of Henry Company subordinated shareholder debt.
(6) Represents the issuance of 22,500 shares of redeemable convertible
preferred stock in the Company to Joseph T. Mooney, Jr. The Company is
obligated, upon the exercise of Mr. Mooney's put option, to redeem the
stock for cash in annual amounts of $500 beginning in 2004 and aggregating
$3,000, or for $3,000 upon the death of Mr. Mooney. The shares are
convertible into shares of Common Stock. The fair value recorded represents
the estimated present value of the redemption payments.
(7) Represents the elimination of the historical common stock and additional
paid-in-capital of Monsey Bakor to reflect the Acquisition, net of the
issuance of 27,500 shares of Common Stock in the Company to Frederick H.
Muhs for $2,000 in cash.
(8) Represents the elimination of the historical Monsey Bakor cumulative
translation adjustment and retained earnings to reflect the Acquisition.
(9) Management of the Company has identified annualized synergies consisting of
a combination of selling, general and administrative expense cost savings
and production cost reductions. Annualized cost savings and cost reductions
estimated at $1,800 may be achieved by the Company as a result of the
integration of the operations of Henry Company and Monsey Bakor. One-time
costs associated with achieving these synergies are estimated at $800. The
Company expects to realize these synergies once the integration process is
completed, which is expected to occur within 18 months following the
consummation of the Acquisition. However, there can be no assurance that
any of these cost savings will actually be realized, or that the costs to
achieve such cost savings will not exceed Company estimates. As a result,
such synergies are excluded from the unaudited pro forma condensed combined
financial statements.
(10) Reflects administrative services fee for the reimbursement of certain
administrative services provided by Henry Company to an affiliate. After
January 1, 1998, Henry Company will be reimbursed monthly for services
provided to the affiliate pursuant to an administrative services
agreement.
(11) Reverses compensation paid to previous shareholders and certain members of
management of Monsey Bakor in excess of amounts to be paid under new
employment agreements as a result of the Acquisition.
(12) Reflects amortization for intangible assets created as a result of the
Acquisition. The total pro forma amortization also takes into
consideration the evaluation of existing Monsey Bakor intangible assets
and is computed using lives ranging from 10 to 15 years on a straight-line
basis.
(13) Reflects interest expense related to the issuance of the Old Notes.
(14) Reflects interest expense on debt retired from the issuance of the Old
Notes.
(15) Reflects the tax effect of the pro forma adjustments, excluding $1,763 and
$449 of nondeductible amortization of intangibles related to the
Acquisition for the year ended December 31, 1997 and the three months
ended March 31, 1998, respectively.
(16) Records the pro forma Federal and state provision for income taxes for
Henry Company assuming the conversion from subchapter "S" Corporation to
"C" Corporation status under the Code in connection with the Transactions.
47
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL DATA OF HENRY COMPANY
The following selected historical combined financial data of Henry Company
as of December 31, 1996 and 1997 and for each of the years in the three year
period ended December 31, 1997 have been derived from the Henry Company Combined
Financial Statements and notes thereto that have been audited by Coopers &
Lybrand L.L.P., independent accountants, whose report thereon is included
elsewhere in this Prospectus. The following selected historical combined
financial data as of December 31, 1993, 1994 and 1995 and for each of the two
years in the two year period ended December 31, 1994 have been derived from the
audited Henry Company combined financial statements not included herein. The
summary interim combined financial data as of March 31, 1998 and for the three
months ended March 31, 1997 and 1998 has been derived from the unaudited
combined financial statements of Henry Company. In the opinion of management,
the unaudited combined financial statements include all adjustments, consisting
only of normal recurring accruals, necessary for the fair presentation of the
financial information for such periods. Results for the interim periods are not
necessarily indicative of the results for the full fiscal year. The following
data set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Henry Company,"
the Combined Financial Statements of Henry Company and notes thereto and the
other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS
DATA(1):
Net sales.......................... $52,983 $51,163 $61,059 $59,186 $67,424 $11,976 $14,934
Cost of sales...................... 35,550 35,206 42,290 40,867 46,413 8,496 9,816
------- ------- ------- ------- ------- ------- -------
Gross profit..................... 17,433 15,957 18,769 18,319 21,011 3,480 5,118
Operating expenses:
Selling, general and
administrative................. 15,272 14,849 17,518 16,934 17,509 3,572 4,185
Amortization of intangibles...... 1,104 858 703 183 137 34 27
------- ------- ------- ------- ------- ------- -------
Operating income (loss)........ 1,057 250 548 1,202 3,365 (126) 906
Interest expense................... 765 1,158 1,454 1,475 1,465 352 322
Interest and other income, net..... (49) (589) (402) (345) (321) (92) (21)
------- ------- ------- ------- ------- ------- -------
Income (loss) before provision
for taxes...................... 341 (319) (504) 72 2,221 (386) 605
Provision for income taxes(2)...... 5 -- -- 1 33 -- 9
------- ------- ------- ------- ------- ------- -------
Net income (loss)................ $ 336 $ (319) $ (504) $ 71 $ 2,188 $ (386) $ 596
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Pro forma provision (benefit) for
income taxes(3).................. $ 135 $ (127) $ (200) $ 29 $ 882 $ (154) $ 240
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Pro forma net income (loss)(3)..... $ 206 $ (192) $ (304) $ 43 $ 1,339 $ (232) $ 365
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
OTHER FINANCIAL DATA:
Capital expenditures............... $ 3,736 $ 1,745 $ 1,389 $ 1,449 $ 801 $ 247 $ 356
Depreciation and amortization
(including amortization of
intangibles)..................... 1,961 1,954 1,907 1,645 1,469 339 343
EBITDA(4).......................... 3,067 2,793 2,857 3,192 5,155 305 1,270
Ratio of earnings to fixed
charges(5)....................... 1.4x --(6) --(6) 1.0x 1.9x --(6) 2.1x
Cash flows provided by (used in):
Operating activities............. 944 (206) 2,224 1,171 4,781 695 1,021
Investing activities............. (3,783) (2,915) (1,342) (783) (949) (436) (355)
Financing activities............. 2,536 3,348 (785) (258) (4,013) (310) (603)
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
----------------------------------------------------- -----------
1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA(1):
Cash and cash equivalents......................... $ 298 $ 74 $ 170 $ 300 $ 119 $ 183
Working capital................................... 4,938 4,236 2,699 5,121 7,204 7,333
Total assets...................................... 26,643 29,247 30,730 31,204 30,418 30,012
Long-term debt, including current maturities, and
borrowings on lines of credit................... 14,614 18,329 17,619 17,416 13,748 13,241
Total shareholders' equity........................ 3,687 3,368 2,863 2,934 5,122 5,719
</TABLE>
(FOOTNOTES APPEAR ON FOLLOWING PAGE)
48
<PAGE>
- --------------------------
(1) The combined financial statements of Henry Company consist of Henry Company
and Warner Development Company of Texas, both companies under common
control. All significant intercompany accounts and transactions have been
eliminated. Upon the closing of the Acquisition, Warner Development Company
of Texas was merged with and into Henry Company.
(2) Henry Company was operated as a subchapter "S" Corporation under the Code.
As a result, Henry Company did not incur Federal and state income taxes
(except with respect to certain states) and, accordingly, the provision for
income taxes only includes the applicable state income tax. Federal and
state income taxes (except with respect to certain states) on the income of
Henry Company have been incurred and paid directly by the shareholders of
Henry Company. It has been the policy of Henry Company to make periodic
distributions to the shareholders in respect of such tax liabilities. Henry
Company expects to pay the distributions for the shareholders' 1997 tax
liabilities during 1998, which are expected to total approximately $850.
Upon completion of the Transactions, the Company converted to a "C"
Corporation under the Code and will subsequently pay all tax obligations of
the Company to the appropriate taxing authorities.
(3) As described in Note (2) above, Henry Company was operated as a Subchapter
"S" Corporation for the historical years presented. The pro forma provision
(benefit) for income taxes and pro forma net income (loss) reflect the
results as if Henry Company were operated as a "C" Corporation for the
historical periods presented.
(4) EBITDA, as defined in the Indenture, represents net earnings before taking
into consideration taxes on earnings, interest expense, depreciation and
amortization, and non-recurring, non-cash charges, less any cash expended
that funds a non-recurring, non-cash charge. While EBITDA should not be
construed as a substitute for operating earnings, net earnings, or cash
flows from operating activities in analyzing operating performance,
financial position or cash flows, EBITDA has been included because it is
commonly used by certain investors and analysts to analyze and compare
companies on the basis of operating performance, leverage and liquidity and
to determine a company's ability to service debt.
(5) For purposes of this ratio, "earnings" consist of earnings before income
taxes and fixed charges and "fixed charges" consist of interest expense and
the portion of rents representative of an interest factor. The ratio of
earnings to fixed charges is computed by adding earnings before income taxes
and fixed charges and dividing by fixed charges.
(6) The earnings were insufficient to cover fixed charges for these periods. The
amount of the deficiencies were $319 and $504 in 1994 and 1995,
respectively, and $386 for the three months ended March 31, 1997.
49
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF HENRY COMPANY
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE COMBINED FINANCIAL STATEMENTS OF
HENRY COMPANY, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS.
GENERAL
Henry Company is a construction materials company focusing primarily on
products for roofing, sealing and paving applications. Henry Company develops,
manufactures and markets three separate but related product lines: roof and
driveway coatings and paving products through the Henry Coatings Division,
polyurethane foam for roofing and commercial uses through the Resin Technology
Company and sealants for construction and marine uses through the Henry Sealants
Division.
Henry Company has seven manufacturing and distribution facilities located
throughout the Northwest, West and Southwest. Six of these facilities have been
acquired or built as a result of acquisitions made since 1988. From 1988 to
1997, Henry Company purchased the operations of seven regional manufacturers in
its industry and integrated them into its operations. For the year ended
December 31, 1997, Henry Company generated $2.2 million of net income from net
sales of $67.4 million.
LACK OF SENSITIVITY TO BUSINESS CYCLES
Although the construction of new residential and commercial properties, and,
therefore, new roofs, is influenced by the demand for such properties and by
various economic factors that influence such demand, including interest and
employment rates and the general economic climate, management estimates that
over 70% of Henry Company's roofing business is derived from the roof repair and
replacement market. This market is far more influenced by the wear-and-tear of
the customer's roof and by various events such as severe weather conditions or
other factors necessitating roof repair or replacement. Under such
circumstances, it has been Henry Company's experience that customers often view
the purchase of roofing products as a necessity rather than as a postponable
event.
CORPORATE ORGANIZATION--TAX STATUS
Henry Company was operated as a subchapter "S" Corporation under the Code.
As a result, Henry Company did not incur Federal and state income taxes (except
with respect to certain states) and, accordingly, the provision for income taxes
only includes the applicable state income tax. Federal and state income taxes
(except with respect to certain states) on the income of Henry Company have been
incurred and paid directly by the shareholders of Henry Company. It has been the
policy of Henry Company to make periodic distributions to the shareholders with
respect to such tax liabilities. Henry Company expects to pay the distributions
for the shareholders' 1997 tax liability during 1998, which are expected to
total approximately $0.9 million. Upon completion of the Transactions, the
Company converted to a "C" Corporation under the Code and will subsequently pay
all tax obligations of the Company to the appropriate taxing authorities.
50
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
net sales represented by certain items reflected in the Henry Company historical
combined financial statements.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED MARCH
YEAR ENDED DECEMBER 31 31,
---------------------------------------------------------------------- -----------
1995 1996 1997 1997
---------------------- ---------------------- ---------------------- -----------
% OF % OF % OF
AMOUNT SALES AMOUNT SALES AMOUNT SALES AMOUNT
----------- --------- ----------- --------- ----------- --------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 61.1 100.0% $ 59.2 100.0% $ 67.4 100.0% $ 12.0
Cost of sales........................ 42.3 69.3 40.9 69.1 46.4 68.8 8.5
----- --------- ----- --------- ----- --------- -----
Gross profit....................... 18.8 30.7 18.3 30.9 21.0 31.2 3.5
Selling, general and
administrative..................... 17.5 28.7 16.9 28.6 17.5 26.0 3.6
Amortization of intangibles.......... 0.7 1.1 0.2 0.3 0.1 0.2 --
----- --------- ----- --------- ----- --------- -----
Operating income (loss)............ 0.6 0.9 1.2 2.0 3.4 5.0 (0.1)
Interest expense..................... 1.5 2.4 1.5 2.5 1.5 2.2 0.4
Interest and other income, net....... (0.4) (0.7) (0.4) (0.6) (0.3) (0.4) (0.1)
----- --------- ----- --------- ----- --------- -----
Net income (loss).................. $ (0.5) (0.8)% $ 0.1 0.1% $ 2.2 3.2% $ (0.4)
----- --------- ----- --------- ----- --------- -----
----- --------- ----- --------- ----- --------- -----
<CAPTION>
1998
----------------------
% OF % OF
SALES AMOUNT SALES
--------- ----------- ---------
<S> <C> <C> <C>
Net sales............................ 100.0% $ 14.9 100.0%
Cost of sales........................ 70.9 9.8 65.7
--------- ----- ---------
Gross profit....................... 29.1 5.1 34.3
Selling, general and
administrative..................... 29.8 4.2 28.0
Amortization of intangibles.......... 0.3 -- 0.2
--------- ----- ---------
Operating income (loss)............ (1.0) 0.9 6.1
Interest expense..................... 2.9 0.3 2.2
Interest and other income, net....... (0.7) -- (0.1)
--------- ----- ---------
Net income (loss).................. (3.2)% $ 0.6 4.0%
--------- ----- ---------
--------- ----- ---------
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Henry Company's revenues increased to $67.4 million in 1997, an
increase of $8.2 million, or 13.9%, from $59.2 million for the prior year. This
increase was primarily due to forecasted rainfall in excess of annual averages,
which resulted in increased sales in both the professional and retail roofing
business as property owners in California and Arizona repaired roofs during the
third and fourth quarters of 1997 in anticipation of significant rainfall. The
increase in revenues was also attributable to Henry Company's increased market
penetration into contiguous regions.
GROSS PROFIT. Gross profit increased to $21.0 million for 1997, an increase
of $2.7 million, or 14.8%, from $18.3 million for 1996. This increase was
primarily due to increased revenues, but also reflects an increase in Henry
Company's gross profit margin to 31.2% from 30.9% in the prior year. This
increase in gross profit margin was primarily attributable to a higher
proportion of revenues from the sales of roof patching cement, which
historically has had higher gross profit margins than other roof coatings lines
and polyurethane foam applications. This increase in gross profit margin was
partially offset by decreased revenues from certain higher-margin segments of
the sealants business.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expense as a percentage of revenue decreased to 26.0% in 1997 from 28.6% in
1996. The decrease was primarily due to Henry Company's ability to service
increased revenues without proportionately increasing administrative costs.
Selling, general and administrative expense increased to $17.5 million in 1997,
an increase of $0.6 million, or 3.6% from $16.9 million in 1996. The increase
was primarily due to incremental selling, general and administrative expenses
associated with Henry Company's continued expansion into the roofing systems
business as well as increased overhead related to the hiring of additional
employees in connection with the overall growth of Henry Company.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles decreased slightly
to $0.1 million in 1997 as compared to $0.2 million in 1996. This expense
represents amortization expense related to an acquisition completed in February
of 1994.
OPERATING INCOME. Operating income increased to $3.4 million in 1997, an
increase of $2.2 million, or 183.3%, from $1.2 million in 1996. Operating income
as a percentage of revenue increased to 5.0% in 1997
51
<PAGE>
from 2.0% in the prior year, primarily due to higher gross profit margins and
lower operating expenses as a percentage of revenues.
INTEREST EXPENSE. Interest expense remained flat from 1996 and relates
principally to interest expense on Henry Company's debt utilized to fund the
working capital needs of the Company.
NET INCOME. Net income was $2.2 million in 1997, an increase of $2.1
million, from $0.1 million in 1996 due primarily from increased revenues. Net
income as a percentage of revenues increased to 3.2% in 1997, from a nominal
return in 1996, due primarily to an increase of net sales in 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES. Henry Company's revenues decreased to $59.2 million in 1996, a
decrease of $1.9 million as compared to 1995. This decrease was primarily due to
the bankruptcy filing of the largest customer of the Resin Technology Company,
accounting for $2.0 million in decreased revenues.
GROSS PROFIT. Henry Company's gross profit decreased to $18.3 million, a
decrease of $0.5 million. Gross profit decreased 2.7% while sales decreased 3.1%
reflecting increased sales of products with higher gross margins.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses as a percentage of revenue decreased slightly to 28.6% in 1996 compared
to 28.7% in 1995. Selling, general and administrative expenses decreased to
$16.9 million in 1996, a decrease of $0.6 million from $17.5 million in 1995.
The decrease was attributable to a $0.3 million reduction in administrative
expense and a $0.3 million reduction in selling expense. The decrease was
primarily due to staff reductions and reduced incentive compensation paid by
Henry Company.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles decreased to $0.2
million in 1996, a decrease of $0.5 million, or 71.4% from $0.7 million in 1995.
The decrease reflects lower amortization expense as a portion of the intangible
became fully amortized.
OPERATING INCOME. Operating income increased to $1.2 million in 1996, an
increase of $0.6 million, or 100.0%, from $0.6 million in 1995. Operating income
as a percentage of revenue increased to 2.0% in 1996 from 0.9% in the prior
year, primarily due to the reduction in selling, general and administrative
expense and reduced amortization expense on intangible assets.
INTEREST EXPENSE. Interest expense remained constant from 1995 and relates
principally to interest expenses on Henry Company's debt utilized to fund the
working capital needs of Henry Company.
NET INCOME. Net income was $0.1 million in 1996, an increase of $0.6
million from a loss of $0.5 million in 1995. The increase was due primarily to
lower selling, general and administrative expenses and reduced amortization
expense on intangible assets.
FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1997
NET SALES. The Company's revenues increased to $14.9 million for the
quarter ended March 31, 1998, an increase of $2.9 million, or 24.2% from $12.0
million for the quarter ended March 31, 1997. The increase was primarily due to
rainfall in excess of annual averages, which resulted in increased sales in both
the professional and retail roofing business as property owners repaired leaking
roofs. The increase in revenues was also attributable to Henry Company's
increased market penetration into contiguous regions.
GROSS PROFIT. The Company's gross profit increased to $5.1 million for the
quarter ended March 31, 1998, an increase of $1.6 million, or 45.7%, from $3.5
million for the quarter ended March 31, 1997. The increase was primarily due to
the increase in revenues, but also reflects an increase in Henry Company's gross
profit margin to 34.3% in the first quarter of 1998 from 29.1% in the first
quarter of the prior year.
52
<PAGE>
The increase was primarily attributable to a higher proportion of revenues from
the sales of roof patching cement, which historically has higher gross profit
margins than other roof coatings lines and polyurethane foam applications.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses as a percentage of revenue decreased to 28.0% for the quarter ended
March 31, 1998 from 29.8% for the quarter ended March 31, 1997. The decrease was
primarily due to Henry Company's ability to service increased revenues without
proportionately increasing administrative costs. Selling, general and
administrative expenses increased to $4.2 million for the quarter ended March
31, 1998, an increase of $0.6 million, or 16.7% from $3.6 million for the
quarter ended March 31, 1997. The increase was primarily due to incremental
selling and general and administrative expenses associated with the Company's
continued expansion into the roofing systems business as well as increased
overhead related to the hiring of additional employees in connection with the
overall growth of Henry Company.
OPERATING INCOME. Operating income increased to $0.9 million for the
quarter ended March 31, 1998, an increase of $1.0 million, from a loss of $0.1
million for the quarter ended March 31, 1997. Operating income as a percentage
of revenue increased to 6.1% for the quarter ended March 31, 1998, from 1.0% of
the operating loss for the quarter ended March 31, 1997, primarily due to higher
gross profit margins and lower operating expenses as a percentage of revenues.
INTEREST EXPENSE. Interest expense for the quarter ended March 31, 1998
decreased slightly from the quarter ended March 31, 1997 and relates principally
to interest expense on Henry Company's debt utilized to fund the working capital
needs of the Company.
NET INCOME. Net income was $0.6 million for the quarter ended March 31,
1998, an increase of $1.0 million, from a loss of $0.4 million for the quarter
ended March 31, 1997. Net income as a percentage of revenues increased to 4.0%
for the quarter ended March 31, 1998, from a loss of 3.2% for the quarter ended
March 31, 1997, due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Henry Company's historical capital requirements have been primarily for
working capital, capital expenditures and acquisitions. Henry Company's primary
sources of capital to finance such needs have been cash flow from operations and
borrowings under bank credit facilities. Concurrently with the consummation of
the Initial Offering and the Acquisition, the Company entered into the New Bank
Credit Facility which provides for $25.0 million which is available in
accordance with a borrowing base and is to be used for working capital, and
$10.0 million which may be used for capital expenditures. As of March 31, 1998
the outstanding balances were $3.6 million for the revolving line of credit,
$3.4 million for the term facility and $0.4 million for the capital expenditure
facility. See "Description of the Credit Facilities."
Henry Company had $5.0 million of shareholder subordinated debt outstanding
as of March 31, 1998, which the Company repaid upon completion of the
Transactions.
During 1997, Henry Company sold certain property with a net book value of
$1.9 million to an affiliate in exchange for a note of $1.9 million. The
previously existing receivable from such affiliate decreased to $4.1 million in
1997, a decrease of $0.2 million from $4.3 million in 1996. The decrease was
primarily attributable to payments of $2.1 million from the affiliate during
1997, the effect of which was offset in part by Henry Company's sale of the
property.
CASH FLOWS 1997 COMPARED TO 1996
Henry Company's cash flows from operations were $4.8 million and $1.2
million in 1997 and 1996, respectively. The increase from 1996 to 1997 of $3.6
million was primarily attributable to increased profits resulting from increased
revenues of $8.2 million during 1997. Net cash used in investing activities
during
53
<PAGE>
1997 and 1996 was $0.9 million and $0.8 million, respectively. Additions for
capital expenditures for 1997 and 1996 were $0.8 million and $1.4 million,
respectively. Net cash used in financing activities during 1997 and 1996 was
$4.0 million and $0.3 million, respectively. The increase of $3.7 million from
1996 to 1997 was primarily due to payments applied to the revolving line of
credit. Scheduled principal payments on debt were $0.6 million and $0.4 million
for 1997 and 1996, respectively.
CASH FLOWS THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1997
The Company's cash flows from operations were $1.0 million and $0.7 million
for the quarter ended March 31, 1998 and 1997, respectively. The increase from
March 31, 1997 to March 31, 1998 of $0.3 million was primarily attributable to
increased profits which resulted from increased revenues of $2.9 million during
the quarter ended March 31, 1998. Net cash used in financing activities during
the quarters ended March 31, 1998 and 1997 was $0.6 million and $0.3 million,
respectively. The increase of $0.3 million, from the quarter ended March 31,
1997 was primarily due to payments applied to the revolving line of credit. Net
cash used in investing activities of $0.4 million during each of the quarters
ended March 31, 1998 and 1997 was comprised primarily of capital expenditures of
$0.4 million and $0.2 million, respectively, and the acquisition of a business
for $0.1 million during the quarter ended March 31, 1997.
Henry Company believes that the net proceeds from the Initial Offering,
together with available cash, cash generated from operations and available
borrowings under the New Bank Credit Facility, will be sufficient to finance
working capital, capital expenditures, acquisitions, lease payments and
scheduled principal and interest payments for the next twelve months. There can
be no assurance, however, that such resources will be sufficient to meet the
Company's anticipated working capital, capital expenditure and acquisition
financing requirements or that the Company will not require additional financing
within this time frame.
SEASONALITY
Henry Company's business is seasonal. Many of Henry Company's top selling
products relate to patching roof leaks. Roof leaks are often not detected in the
West and Southwest until the rainy season arrives, which typically occurs from
November to February. Retailers and distributors begin to build inventories of
these products during the fall in anticipation of consumer demand during the
rainy season. As a result, sales for Henry Company tend to begin climbing in
July of each year and continue climbing until November of each year.
Do-it-yourself and contractor sales of roof patching products increase if rain
in the West and Southwest exceeds average levels. These increased sales deplete
existing retail and wholesale inventories and require retailers and distributors
to order additional product. If rainfall in the West and Southwest is below
average levels the build-up of these inventories by retailers in the fall may be
adequate to last for much of the rainy season without reordering product.
Consequently, the third and fourth calendar quarters have traditionally
represented the highest level of sales during the year.
INFLATION AND RAW MATERIAL COSTS
During the past several years, the general rate of inflation has been
relatively low and has not had a significant impact on Henry Company's results
of operations. Henry Company purchases raw materials, including asphalt,
aluminum paste, rubber and certain diisocynates among others, that are subject
to price fluctuations. Prices have also tended to fluctuate based on such
factors as the capacity of the respective supply chains, demand in the market,
weather, general economic factors and the availability of alternative raw
materials. Historically, for example, there have been periods of significant and
rapid asphalt, aluminum paste, rubber and diisocynate price changes, both upward
and downward, with a concurrent short-term impact on Henry Company's operating
margins. Henry Company has historically mitigated the long-term effects of these
fluctuations by passing through price increases to its customers, although there
is no assurance that the Company will be able to do so in the future.
Significant increases in raw material prices could have a material adverse
impact on the profit of the Company.
54
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." The standard establishes guidelines for the reporting and
display of comprehensive income and its components in financial statements.
Henry Company has adopted the provisions of SFAS No. 130 as of March 31, 1998,
however, there was no impact to Henry Company as there are no elements of
comprehensive income not included in Henry Company's operating results.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information." The standard requires that
publically-held companies disclose "operating segments" based on the way
management disaggregates the company for making internal operating decisions.
The new rules will be effective for Henry Company's December 31, 1998 financial
statements. Henry Company has not evaluated the impact, if any, of the new
standard.
YEAR 2000 MODIFICATIONS
Henry Company is not highly dependent on its internal computer systems, and
does not, as a general matter, interact electronically with its customers or
suppliers. Henry Company is currently reviewing its computer systems in order to
evaluate what, if any, corrections or modifications may be necessary for the
year 2000.
55
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF MONSEY BAKOR
The following selected historical consolidated financial data of Monsey
Bakor as of December 31, 1996 and 1997 and for each of the years in the three
year period ended December 31, 1997 have been derived from Monsey Bakor's
Consolidated Financial Statements and notes thereto that have been audited by
Ernst & Young LLP, independent auditors, and whose report thereon is included
elsewhere in this Prospectus. The following Selected Historical Consolidated
Financial Data as of December 31, 1993, 1994 and 1995 and for each of the two
years in the two year period ended December 31, 1994 have been derived from the
audited Monsey Bakor Consolidated Financial Statements not included herein. The
interim consolidated financial data as of March 31, 1998 and for the three
months ended March 31, 1997 and 1998 has been derived from the unaudited
consolidated financial statements of Monsey Bakor. In the opinion of management,
the unaudited consolidated financial statements include all adjustments,
consisting only of normal recurring accruals, necessary for the fair
presentation of the consolidated financial information for such periods. Results
for the interim periods are not necessarily indicative of the results for the
full fiscal year. The following data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Monsey Bakor," the Consolidated Financial
Statements of Monsey Bakor and notes thereto, and the other financial
information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
----------------------------------------------------- ENDED MARCH 31,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:(1)
Net sales................................... $ 74,936 $ 80,750 $ 79,636 $ 108,584 $ 113,175 $ 21,620 $ 22,738
Cost of sales............................... 54,512 58,281 59,641 79,428 83,082 16,580 17,495
--------- --------- --------- --------- --------- ----------- ---------
Gross profit............................ 20,424 22,469 19,995 29,156 30,093 5,040 5,243
Operating expenses:
Selling, general and administrative....... 19,098 19,578 17,818 23,513 24,444 5,693 5,679
Accounting method change--non-cash
environmental charge.................... -- -- -- -- 3,639 3,639 --
Amortization of intangibles............... -- -- 120 283 353 78 116
--------- --------- --------- --------- --------- ----------- ---------
Operating income (loss)................. 1,326 2,891 2,057 5,360 1,657 (4,370) (552)
Interest expense............................ 706 1,141 1,217 1,557 1,576 346 303
Other income, net........................... (626) (151) (81) (564) (390) (61) (61)
--------- --------- --------- --------- --------- ----------- ---------
Income (loss) before income taxes....... 1,246 1,901 921 4,367 471 (4,655) (794)
Income tax expense (benefit)................ 484 649 385 1,537 187 (1,848) (289)
--------- --------- --------- --------- --------- ----------- ---------
Net income (loss)....................... $ 762 $ 1,252 $ 536 $ 2,830 $ 284 $ (2,807) $ (505)
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
OTHER FINANCIAL DATA:
Capital expenditures........................ $ 2,080 $ 1,770 $ 1,280 $ 1,225 $ 2,610 $ 780 $ 240
Depreciation and amortization (including
amortization of intangibles).............. 1,522 1,631 1,873 2,482 2,566 643 629
EBITDA(2)................................... 3,474 4,673 4,011 8,406 8,185 (27) 138
Ratio of earnings to fixed charges(3)....... 2.5x 2.5x 1.7x 3.4x 1.3x --(4) --(4)
Cash flows provided by (used in):
Operating activities...................... 774 3,281 1,968 4,026 6,197 (4,769) (6,911)
Investing activities...................... (1,629) (2,540) (1,280) (2,786) (2,905) (820) (250)
Financing activities...................... 1,204 (993) (739) (636) (4,443) 4,893 8,102
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
----------------------------------------------------- -----------
1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- -----------
(DOLLARS IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA(1):
<S> <C> <C> <C> <C> <C> <C> <C>
Cash........................................ $ 1,073 $ 821 $ 770 $ 1,375 $ 213 $ 1,169
Working capital............................. 2,340 1,133 218 3,281 488 271
Total assets................................ 30,357 31,402 31,052 46,192 46,217 53,803
Long-term debt, including current
maturities, and borrowings on lines of
credit.................................... 13,314 12,821 12,361 15,620 11,742 19,844
Total shareholders' equity.................. 9,665 10,417 10,673 18,160 17,142 16,652
</TABLE>
- ------------------------------
(1) On March 15, 1996, Monsey Products Co. acquired all of the outstanding
common stock of Bakor Holdings, Inc. in exchange for $1,837 plus 1,002,000
shares of its common stock valued at $5,357. The transaction was accounted
for as a purchase. The consolidated statements of operations reflect the
results of operations of Bakor Holdings, Inc. from the date of its
acquisition. On a pro forma basis, assuming that the acquisition of Bakor
Holdings, Inc. occurred on January 1, 1996, net sales for 1996 would have
been $112,276, net income would have been $2,486, and EBITDA, as defined,
would have been $8,384.
(2) EBITDA, as defined in the Indenture, represents net earnings before taking
into consideration taxes on earnings, interest expense, depreciation and
amortization and non-recurring, non-cash charges, less any cash expended
that funds a non-recurring, non-cash charge. While EBITDA should not be
construed as a substitute for operating earnings, net earnings, or cash
flows from operating activities in analyzing operating performance,
financial position or cash flows, EBITDA has been included because it is
commonly used by certain investors and analysts to analyze and compare
companies on the basis of operating performance, leverage and liquidity and
to determine a company's ability to service debt.
(3) For purposes of this ratio, "earnings" consists of earnings before income
taxes and fixed charges and "fixed charges" consists of interest expense and
the portion of rents representative of an interest factor. The ratio of
earnings to fixed charges is computed by adding earnings before income taxes
and fixed charges and dividing by fixed charges.
(4) Earnings were insufficient to cover fixed charges. The amounts of the
deficiencies were $408 and $354 at March 31, 1997 and 1998, respectively.
57
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF MONSEY BAKOR
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE CONSOLIDATED FINANCIAL STATEMENTS
OF MONSEY BAKOR, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS
PROSPECTUS.
GENERAL
On March 15, 1996 Monsey Products Co. acquired all of the outstanding stock
of Bakor Holdings, Inc. ("Bakor"). Following the acquisition, the consolidated
company continued its operations under the name "Monsey Bakor." The consolidated
results of operations reflect the results of Monsey Bakor from the date of the
Bakor acquisition.
Monsey Bakor has ten manufacturing and distribution facilities in North
America with seven located in the United States and three located in Canada.
Monsey Products Co. acquired the three Canadian facilities which were formerly
owned by Bakor, in March, 1996. For the year ended December 31, 1997, Monsey
Bakor generated $0.3 million in net income (excluding the after-tax impact of
the accounting method change, net income would have been $2.4 million) from net
sales of $113.2 million.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
net sales represented by certain items reflected in Monsey Bakor's Historical
Consolidated Financial Statements.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
---------------------------------------------------------------------------------- -----------
1995 1996 1997 1997
-------------------------- -------------------------- -------------------------- -----------
AMOUNT % OF SALES AMOUNT % OF SALES AMOUNT % OF SALES AMOUNT
----------- ------------- ----------- ------------- ----------- ------------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 79.6 100.0% $ 108.6 100.0% $ 113.2 100.0% $ 21.6
Cost of sales...................... 59.6 74.9 79.4 73.1 83.1 73.4 16.6
----- ----- ----------- ----- ----------- ----- -----
Gross profit..................... 20.0 25.1 29.2 26.9 30.1 26.6 5.0
Operating expenses:
Selling, general and
administrative................. 17.8 22.4 23.5 21.6 24.4 21.6 5.7
Accounting method change-non-cash
environmental charge........... -- -- -- -- 3.6 3.2 3.6
Amortization of intangibles...... 0.1 0.1 0.3 0.3 0.4 0.3 0.1
----- ----- ----------- ----- ----------- ----- -----
Operating income (loss)........ 2.1 2.6 5.4 5.0 1.7 1.5 (4.4)
Interest expense................... 1.2 1.5 1.6 1.5 1.6 1.4 0.3
Other income, net.................. -- -- (0.6) (0.6) (0.4) (0.3) (0.1)
----- ----- ----------- ----- ----------- ----- -----
Income (loss) before income
taxes.......................... 0.9 1.1 4.4 4.1 0.5 0.4 (4.6)
Income tax expense (benefit)....... 0.4 0.5 1.6 1.5 0.2 0.1 (1.8)
----- ----- ----------- ----- ----------- ----- -----
Net income (loss)................ $ 0.5 0.6% $ 2.8 2.6% $ 0.3 0.3% $ (2.8)
----- ----- ----------- ----- ----------- ----- -----
----- ----- ----------- ----- ----------- ----- -----
<CAPTION>
1998
--------------------------
% OF SALES AMOUNT % OF SALES
------------- ----------- -------------
<S> <C> <C> <C>
Net sales.......................... 100.0% $ 22.7 100.0%
Cost of sales...................... 76.7 17.5 76.9
----- ----------- -----
Gross profit..................... 23.3 5.2 23.1
Operating expenses:
Selling, general and
administrative................. 26.3 5.7 25.0
Accounting method change-non-cash
environmental charge........... 16.8 -- --
Amortization of intangibles...... 0.4 0.1 0.5
----- ----------- -----
Operating income (loss)........ (20.2) (0.6) (2.4)
Interest expense................... 1.6 0.3 1.3
Other income, net.................. (0.3) (0.1) (0.2)
----- ----------- -----
Income (loss) before income
taxes.......................... (21.5) (0.8) (3.5)
Income tax expense (benefit)....... (8.5) (0.3) (1.3)
----- ----------- -----
Net income (loss)................ (13.0%) $ (0.5) (2.2%)
----- ----------- -----
----- ----------- -----
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Revenues increased $4.6 million to $113.2 million from $108.6
million, an increase of 4.2%. Sales to retailers declined $2.0 million, or 4.0%,
due to volume declines partially offset by price increases. Industrial,
commercial and institutional sales increased $3.2 million, or 9.2%, as pricing
and mix improvements exceeded volume declines. Sales of industrial emulsions
grew $3.7 million, or 23.0%, on higher volumes.
58
<PAGE>
GROSS PROFIT. Gross profit increased $0.9 million to $30.1 million from
$29.2 million, an increase of 3.1% due to increased revenues. Gross profit
margin declined slightly from 26.9% to 26.6% due to higher material and overhead
costs.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses as a percentage of sales remained constant at 21.6%. Selling, general
and administrative expense increased $0.9 million to $24.4 million in 1997 from
$23.5 million in 1996 due to higher delivery and sales commissions partially
offset by lower administrative expenses.
AMORTIZATION EXPENSE. Amortization expense increased due principally to
having a full year's amortization in 1997 related to the acquisition of Bakor in
1996.
ACCOUNTING METHOD CHANGE--NON-CASH ENVIRONMENTAL CHARGE. In 1997, Monsey
Bakor adopted a new accounting policy for environmental remediation liabilities
as required under American Institute of Certified Public Accountants Statement
of Position (96-1) which resulted in a non-cash, pretax charge of $3.6 million.
This charge related to the operation and maintenance of a remedial action plan
at one of Monsey Bakor's facilities under a cost sharing agreement between
Monsey Bakor and another potentially responsible party that previously occupied
the property. See "Business--Environmental Matters." Monsey Bakor's 1997 cash
contribution under the cost sharing agreement was $67,000. Previously, Monsey
Bakor charged such contributions to expense in the period in which the
expenditures were incurred.
OPERATING INCOME. Operating income decreased to $1.7 million in 1997 from
$5.4 million in 1996. Excluding the impact of the accounting method change,
operating income declined $0.1 million, or 1.9%, as operating cost increases
exceeded gross margin increases.
INTEREST EXPENSE AND OTHER INCOME. Interest expense remained flat with
1996. Other income declined due to lower gains on the sale of assets in 1997.
INCOME TAXES. The effective income tax rate increased to 39.7% in 1997 as
compared to 35.2% in 1996. This increase was principally attributable to higher
levels of non-deductible expenses in Canada.
NET INCOME. Net income declined $2.5 million to $0.3 million in 1997 as
compared to $2.8 million in 1996. Excluding the after-tax impact of the
accounting method change of $2.1 million, net income declined $0.4 million.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Comparisons are affected by the acquisition of Bakor on March 15, 1996 which
substantially increased Monsey Bakor's revenues and expenses in 1996.
NET SALES. Revenues increased $29.0 million of which $19.1 million was due
to the acquisition of Bakor in 1996. Other increases totaled $9.9 million.
Retail and industrial, commercial and institutional sales increased $4.3 million
and $3.3 million, respectively, on higher volumes and pricing. These products
were favorably impacted by harsh winter conditions in 1996 throughout the East
and Midwest. Sales of speciality emulsions increased $3.7 million which was
offset by declines of sales of other products of $1.4 million.
GROSS PROFIT. Gross profit increased $9.2 million of which $6.1 million was
due to the acquisition of Bakor in 1996. The balance of the increase of $3.1
million was due to sales increases. Margins were flat as compared to 1995.
SELLING, GENERAL AND ADMINISTRATIVE. Operating expenses increased $5.9
million of which $4.7 million was due to the acquisition of Bakor in 1996.
Operating expenses as a percentage of sales declined to 21.9% in 1996 from 22.5%
in 1995. This was a result of stronger revenues in 1996 and expense control
initiatives made in 1995.
59
<PAGE>
OPERATING INCOME. Operating income increased $3.3 million of which $1.5
million was due to the acquisition of Bakor in 1996. The balance of the increase
of $1.8 million was due to increased gross profit margins and improvements of
operating expenses as a percentage of net sales.
INTEREST EXPENSE AND OTHER INCOME. Interest expense increased by $0.4
million of which $0.2 million was due to the acquisition of Bakor in 1996 and
the balance of $0.2 million was due to higher borrowing levels. Other income
increased principally due to gains on the sale of a subsidiary in 1996.
INCOME TAXES. The effective income tax rate decreased to 35.2% in 1996 as
compared to 41.8% in 1995. This decrease was attributable to the usage of
Canadian net operating loss carryforwards, lower levels of non-deductible
expenses and higher state income taxes.
NET INCOME. Net income increased $2.3 million of which $1.0 million was due
to the acquisition of Bakor in 1996. Increased operating income was principally
responsible for the balance of this improvement.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1997
NET SALES. Revenues increased $1.1 million to $22.7 million from $21.6
million, an increase of 5.1% principally due to volume increases and improved
pricing.
GROSS PROFIT. Gross profit increased $0.2 million to $5.2 million from $5.0
million, an increase of 4.0% due to increased revenues and a slight decrease in
margin.
OPERATING EXPENSES. Selling, general and administrative expenses remained
flat at $5.7 million while declining as a percentage of sales from 26.3% to
25.0%. This is primarily due to increased revenues and expense controls.
Monsey Bakor adopted a new accounting policy for environmental remediation
liabilities as required under an AICPA Statement of Position (96-1) in 1997.
Adoption of the new accounting standard resulted in a non-cash, pretax charge of
$3.6 million relating to the operation and maintenance of a remedial action plan
at one of Monsey Bakor's facilities under a cost sharing agreement executed with
another participating responsible party that previously occupied the property.
Previously, such contributions were charged to expense in the period in which
the expenditures were incurred.
OPERATING LOSS. Operating loss improved to $0.6 million in 1998 as compared
to $4.4 million in 1997. Excluding the impact of the accounting method change,
operating losses declined $0.2 million due to the factors described above.
INTEREST EXPENSE AND OTHER INCOME. Interest expense and other income
remained flat with 1997.
NET LOSS. Net loss improved to $0.5 million in 1998 as compared to $2.8
million 1997, due to increased volumes and the accounting method change in 1997.
Excluding the after tax impact of the accounting method change of $2.1 million,
net loss declined 0.2 million due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Monsey Bakor's historical capital requirements have been primarily for
working capital and capital expenditures. Primary sources of support for these
needs have been cash flow from operations and borrowings under bank credit
facilities. Monsey Bakor has a domestic line of credit, aggregating $13.0
million, subject to availability of qualifying collateral, and a term facility
with a bank. Monsey Bakor's Canadian operations are financed with a separate
bank line of credit, aggregating Canadian $6.0 million (U.S. $4.4 million)
subject to availability of qualifying collateral, as well as two term loans
aggregating Canadian $0.9 million (U.S. $0.6 million). Outstanding balances at
March 31, 1998 were $4.0 million (Canadian $5.8 million) and $7.3 million under
the Canadian and domestic credit facilities, respectively.
60
<PAGE>
CASH FLOWS 1997 COMPARED TO 1996
Operating cash flows were $6.2 million and $4.0 million in 1997 and 1996,
respectively. The increase of $2.2 million from 1996 to 1997 is attributable to
changes in working capital. Net cash used in financing activities was $4.4
million and $0.6 million for 1997 and 1996, respectively. The increase in 1997
was due to increased payments on lines of credit of $1.4 million, a decrease in
payments on term debt of $1.4 million and 1996 term debt borrowings of $3.8
million. Cash used in investing activities was $2.9 million and $2.8 million for
1997 and 1996, respectively. Investment in plant and equipment increased $1.4
million to $2.6 million in 1997. In 1996, Monsey Products Co. acquired Bakor for
stock and $1.8 million in cash.
CASH FLOWS THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1997
Monsey Bakor's cash flows used in operations were $6.9 million and $4.8
million for the quarters ended March 31, 1998 and 1997, respectively. The
increase was attributable primarily to increased working capital requirements in
1998. Net cash provided by financing activities was $8.1 million and $4.9
million for the quarters ended March 31, 1998 and 1997, respectively. The
increase in 1998 was attributable to increased borrowings on lines of credit to
fund working capital requirements. Cash used in investing activities was $0.3
million and $0.8 million for the quarters ended March 31, 1998 and 1997,
respectively. The decrease was primarily attributable to decreased investment in
plant and equipment by $0.5 million in 1998 compared to the quarter ended March
31, 1997.
SEASONALITY
Monsey Bakor's business is seasonal. Many of Monsey Bakor's products are
roofing or paving products which are best applied in dry, warm periods. Monsey
Bakor's sales are focused in the Eastern, Midwest and Southern regions of the
United States and in Canada resulting in significant seasonal declines during
the winter. Retailers and distributors begin to build inventories of these
products in March and Monsey Bakor's business is typically strongest from June
through October.
INFLATION AND RAW MATERIAL COSTS
During the past several years, the general rate of inflation has been
relatively low and has not had a significant impact on Monsey Bakor's results of
operations. Monsey Bakor purchases raw materials, including asphalt, aluminum
paste, rubber and certain diisocynates among others, that are subject to price
fluctuations. Prices have also tended to fluctuate based on such factors as the
capacity of the supply chain, demand in the market, weather, general economic
factors and the availability of alternative raw materials. Historically, for
example, there have been periods of significant and rapid asphalt, aluminum
paste, rubber and diisocynate price changes, both upward and downward, with a
concurrent short-term impact on Monsey Bakor's operating margins. Monsey Bakor
has historically mitigated the long-term effects of these fluctuations by
passing through price increases to its customers, although there is no assurance
that the Company will be able to do so in the future. Significant increases in
raw material prices could have a material adverse impact on the profit of the
Company.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information." SFAS 130 establishes standards for
reporting comprehensive income. Monsey Bakor adopted SFAS 130 in 1998, which had
no impact on net income or shareholders' equity at March 31, 1998. SFAS 130
requires foreign currency translation adjustments, which prior to adoption were
reported separately in shareholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform with the requirements of SFAS 130.
SFAS 131 establishes standards for annual and interim disclosures of
operating segments, products and services, geographic areas and major customers.
The new rules will be effective for Monsey Bakor's
61
<PAGE>
December 31, 1998 financial statements. Monsey Bakor is in the process of
evaluating the disclosure requirements of SFAS 131, the adoption of which will
have no impact of Monsey Bakor's results of operations or financial condition.
YEAR 2000 MODIFICATIONS
Monsey Bakor is not highly dependent on its internal computer systems, and
does not, as a general matter, interact electronically with its customers or
suppliers. Monsey Bakor is currently reviewing its computer systems in order to
evaluate what, if any, corrections or modifications may be necessary for the
year 2000.
62
<PAGE>
INDUSTRY OVERVIEW
The bulk of the Company's products compete in the roofing market which the
National Roofing Contractors Association ("NRCA") estimates was a $19.6 billion
market in the United States in 1996, an increase of approximately 7% over
estimated 1995 U.S. revenues. Further, the NRCA estimates that the reroofing
segment of this market accounts for 77% of total roofing industry revenues while
the remainder is from new construction. The Company's products are heavily
oriented to the reroofing segment of the market. The roofing market is also
segmented between commercial and residential markets. The commercial market
accounted for an estimated 71% of the U.S. revenues in the roofing industry
while residential purchases were estimated at 29%. The Company's products are
used both in the commercial and residential segments, although the commercial
market accounts for the majority of the Company's roofing sales.
The largest subsegment of the industry is the commercial reroofing segment
which accounts for an estimated 53% of the total U.S. roofing industry revenues
and is the primary segment in which the Company's products are sold. The NRCA
further divides this segment into types of roofing systems. The second largest
system in this segment is built-up-roofing which the NRCA estimates accounts for
29% of the sales in the commercial reroofing market. The next largest category
is the modified bitumen segment which accounts for an estimated 23% of the
market. The Company's products are focused on these two segments. The Company
also competes in the sprayed polyurethane foam subsegment which was one of the
fastest growing segments in this market in 1996, although it is still relatively
small with an estimated market size of $0.4 billion in 1996.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
RE-ROOFING
<S> <C> <C> <C> <C> <C>
1996 Size: $4.7 1996 Size: $10.4
billion billion
Asphalt Shingles 63.5% Asphalt Shingles 6.9%
Cement/Wood Shingles 4.1% Sprayed Polyurethane 3.4%
Built-up Roofing 6.8% Built-up Roofing 29.0%
Modified Bitumen 7.5% Modified Bitumen 23.0%
Other 2.1% Other 4.0%
Concrete/Clay Tile 2.1% Metal 2.5%
Metal 3.2% Single-Ply 31.2%
Slates 3.0%
Single-Ply 7.7%
New Construction
Residential Commercial
Asphalt Shingles 57.0% Single Ply 37.0%
Cement/Wood Shingles 4.4% Sprayed Polyurethane 2.5%
Built-up Roofing 4.8% Built-up Roofing 24.6%
Modified Bitumen 5.6% Modified Bitumen 21.2%
Other 2.6% Other 3.1%
Concrete/Clay Tile 7.6% Asphalt Shingles 7.7%
Metal 4.2% Metal 3.9%
Slates 5.1%
Single-Ply 8.7%
</TABLE>
Source: National Roofing Contractors Association 1996-1997 Annual Market Survey.
63
<PAGE>
BUSINESS
Management believes that the combination of Henry Company and Monsey Bakor
has created the largest North American manufacturer and marketer of roof coating
and roof cement products. Henry Company believes that it is already the largest
manufacturer of roof coatings and roof cements in the western United States.
Monsey Bakor is a leading manufacturer of roof coatings, adhesives and membranes
with its strongest markets in the eastern United States and Canada. Henry
Company and Monsey Bakor have 65 and 59 years of experience in the roofing
products industry, respectively. After giving effect to the Transactions, the
Company would have had pro forma net sales of approximately $180.6 million and
pro forma combined EBITDA (as defined) of approximately $15.5 million for the
fiscal year ended December 31, 1997 and pro forma net sales of approximately
$37.7 million and pro forma combined EBITDA (as defined) of approximately $1.7
million for the three months ended March 31, 1998.
HISTORY
Henry Company was founded as a roofing company in 1933 by Warner White Henry
(the father of Henry Company's current Chairman and CEO) and has since been a
leader in the industry. Henry Company's commitment to research and development
has led to numerous breakthroughs in mastic, asphalt and reflective coating
technologies. Henry Company has developed strong brand awareness and is
recognized by its customers as a quality leader in many of its product lines.
Henry Company operated The W.W. Henry Company, a national manufacturer of
flooring and construction adhesives, until its sale to Armstrong World
Industries in October 1986. Subsequently, Henry Company operated as an
independent, largely Southern California-based roof coatings manufacturer.
Beginning in 1988, management focused on expanding the Henry brand through the
purchase of regional roof coatings manufacturers and distributors in contiguous
regions. GEO Industries, located in El Paso, Texas, was purchased in 1988 and
Gilsonite, Inc., headquartered in Portland, Oregon, was purchased in 1992. World
Asphalt Company, located in Elk Grove, California (near Sacramento), was
purchased in 1994 and the operations of American Blackline, located in Denver,
Colorado, were purchased in the first quarter of 1997 (although the Denver
facility has since been closed). In each of these regions Henry Company has been
successful in introducing the Henry brand and becoming a market share leader.
With regional plants and other facilities to support production and distribution
needs, Henry Company has become a low cost producer in each of these regions
while becoming recognized as a quality leader.
Monsey Bakor has served the U.S. and Canadian building products markets for
over 50 years. Monsey Bakor is a leading manufacturer and distributor of a broad
spectrum of building products for residential and commercial uses with a product
line consisting of roof coatings, adhesives and membranes, waterproofing and air
barrier systems as well as specialized industrial emulsions. Monsey Bakor has
manufactured and distributed its products under the Monsey trade name since the
founding of Monsey Products Co. in 1939. In March 1996, Monsey Products Co.
expanded its operations by acquiring a Canadian competitor, Bakor Holdings,
Inc., and thereafter has sold the majority of its products under the "Monsey
Bakor" brand. The predecessor company to Bakor Holdings, Inc. had been formed in
1931. Monsey Bakor's corporate headquarters is located in Kimberton,
Pennsylvania, 35 miles northwest of Philadelphia. Also located at the Kimberton
facility is Monsey Bakor's largest manufacturing operation and warehouse, as
well as technical and training centers.
64
<PAGE>
MAP OF THE COMPANY'S MANUFACTURING AND DISTRIBUTION FACILITIES
[LOGO]
The map above does not include over 20 public warehouse distribution facilities
that the Company utilizes throughout the United States, Canada and
internationally.
65
<PAGE>
COMPETITIVE STRENGTHS
The Company believes that the following competitive strengths will
contribute to the Company's opportunities for future growth.
LEADING MARKET POSITIONS
The Company believes that it is the largest manufacturer of roof coatings
and roof cements in North America. Henry Company believes that it is already the
largest such manufacturer in the western United States. Monsey Bakor is a
leading manufacturer of roof coatings, adhesives and membranes in the eastern
United States and Canada. Management believes that Monsey Bakor is also the
major producer of wax-based emulsions for the gypsum board industry, with a
dominant share of the market.
ESTABLISHED BRAND NAMES AND REPUTATION
The Company has significant brand name recognition within the roofing and
building products industries across each of its core product lines, with popular
brand names such as "Henry," "Monsey," "Bakor" and
"Wet-Patch-Registered Trademark-." The Company believes that these brands have
established a reputation for reliability and high quality in the industry.
BREADTH OF GEOGRAPHIC COVERAGE
The Company has manufacturing and distribution facilities strategically
located throughout the United States and eastern Canada. This broad geographic
coverage is advantageous as roof coatings products are heavy relative to their
value, and it is therefore often uneconomic to transport such products more than
500 miles from their place of manufacture. The Company's dispersed facilities
position it to better serve national and larger regional customers. Broad
geographic product distribution capability is important to many of the Company's
customers, particularly the mass merchandisers and roofing wholesalers, which
are increasingly being consolidated into large national companies.
STRONG CUSTOMER RELATIONSHIPS IN MULTIPLE DISTRIBUTION CHANNELS
Through Henry Company's and Monsey Bakor's 65 and 59 years of operations,
respectively, the Company has developed many long-standing relationships with
key customers in multiple distribution channels. The Company intends to continue
to distribute its products through mass merchandisers such as Home Depot,
HomeBase, Lowe's Home Improvement Warehouse and Eagle Hardware and Garden; co-
ops such as Ace Hardware and True-Value Hardware; roofing wholesalers such as
ABC Supply, Allied Building Products and Cameron Ashley Building Products; and
directly to the "industrial-commercial-institutional" market. Selling through
multiple distribution channels is intended to maximize the Company's market
penetration and reduce its reliance upon the success of any one distribution
channel. As evidence of the Company's strong customer relationships, Henry
Company was named a "1997 Partner of the Year" by Home Depot.
LOW COST PRODUCER
The Company believes that it is one of the lowest cost producers in the roof
coatings and roof cements industry. Raw material costs are the single largest
portion of finished product costs. Due to the size of its manufacturing
operations relative to its competition, management believes that the Company
will be positioned to purchase raw materials more efficiently than many of its
competitors. Furthermore, management believes that its proprietary manufacturing
processes for certain of its products will generate further cost advantages.
66
<PAGE>
EXPERIENCED MANAGEMENT TEAM
The Company has assembled a strong and experienced management team at both
the corporate and operating levels. More than 75% of the senior managers of the
Company have over 10 years of experience in the roofing products industry. In
addition, senior management of Henry Company has been responsible for
successfully acquiring and integrating seven companies since 1988.
TECHNICAL AND FORMULA DEVELOPMENT
The Company has developed an array of products that it believes are
recognized as among the highest quality products in their segments, including
Henry 208 Wet Patch-Registered Trademark- roof cement and Monsey Bakor's
industrial wax emulsions. The Company also believes that it generally allocates
greater resources to research and development than any of its roof coatings and
roof cements competitors.
BUSINESS STRATEGY AND KEY BENEFITS OF THE ACQUISITION
The Company's business strategy is to increase its product penetration,
create national brands from its core products, further expand its roof systems
business, continue to strive to be the lowest cost producer of roof coatings and
roof cements and pursue attractive opportunities for strategic acquisitions.
INCREASED PRODUCT PENETRATION OF CUSTOMER ACCOUNTS AND CREATION OF NATIONAL
BRANDS
The Company intends to increase the depth of its product offerings to a
number of its major customers and also intends to cross-sell products to
customers of its two predecessor companies. The Company expects that roof
coatings and roof cements bearing the Henry brand will be sold to a number of
Monsey Bakor's accounts in the eastern United States, some of whom already have
a relationship with Henry Company in the western United States. Likewise,
products bearing the Monsey Bakor name will be introduced into western United
States accounts with whom Henry Company has existing relationships.
As a result, the Company will carry two national branded lines of roof
coatings and roof cements products, with "Henry" positioned as the premium line
and "Monsey Bakor" positioned as the value line. National brands are situated to
take advantage of national advertising, marketing and distribution programs with
mass merchandisers and other national customers. The Company will also continue
to support several of its regional brands that have a strong local following.
NORTH AMERICAN EXPANSION OF ROOF SYSTEMS AND BUILDING ENVELOPE SEGMENTS
Henry Company has developed a successful roof systems business in the
western United States, while Monsey Bakor has created substantial demand for its
Building Envelope System-Registered Trademark- concept, particularly in Canada.
As a result of the Acquisition, the Company believes that it has a highly
competitive product offering in the roofing systems market which it believes to
have a size in excess of $1 billion. With national manufacturing and sales
support, the Company believes that it can leverage its reputation for high
quality and expand its product offerings in this segment throughout North
America.
CONTINUED ENHANCEMENT OF LOW-COST MANUFACTURING AND DISTRIBUTION
OPPORTUNITIES
The Company will continue to strive to be the lowest cost producer of roof
coatings and roof cements, and will target purchasing and manufacturing
efficiencies.
Henry Company and Monsey Bakor purchase many of the same raw materials, some
of which are obtained from the same vendors. The Company expects that the
combination of purchasing functions will enable it to take advantage of
increased volume discounts and should reduce freight costs and produce savings
from each company's current negotiated raw material prices.
67
<PAGE>
The Company believes that both Henry Company and Monsey Bakor lead the roof
coatings and roof cements industry in developing high quality products with low
cost formulations. The Acquisition will allow the sharing of product formula
processes benefitting the product lines of both companies. The Company intends
to apply certain of each company's proprietary processes to the other company's
products with a view towards reducing manufacturing costs and increasing product
quality.
SELECTIVE EXPANSION THROUGH STRATEGIC ACQUISITIONS
Henry Company has pursued acquisition opportunities that have complemented
and expanded its core business or have enabled it to enter into new markets.
Over the past ten years, Henry Company has made the following acquisitions in
order to grow regionally and/or build on its core competencies in roofing and
asphalt technology:
<TABLE>
<CAPTION>
PRIMARY BENEFITS
ACQUISITION YEAR LOCATION OF THE ACQUISITION
- ----------------------------------------------- --------- --------------- ---------------------------------------
<S> <C> <C> <C>
Resin Technology Company 1988 Ontario, Expanded the roofing line into
California polyurethane foam
Star Systems 1988 Los Angeles, Expanded the white roof coatings line
California
GEO Industries 1988 El Paso, Texas Expanded the roof coatings business in
the Southwest
K.T. Snyder Co. and related entities 1990 Houston, Texas Combined asphalt technology with
existing tape sealants business and
expanded the roof coatings business in
the Southwest
Gilsonite, Inc. 1992 Portland, Further expanded the roof coatings
Oregon and business in the Northwest
Auburn,
Washington
World Asphalt Company 1994 Sacramento, Further expanded the roof coatings
California business in Northern California and
established the pavings business
American Blackline 1997 Denver, Further expanded the roof coatings
Colorado business in the Rocky Mountain region
Monsey Products Co. 1998 Eastern United Extension of the Company's business
States and into Eastern Markets
Canada
</TABLE>
The Company competes in most of the larger markets within the United States
and Canada, but management believes that certain opportunities still exist for
strategic acquisitions on a smaller scale that could allow it to leverage its
well recognized brand names, achieve cost reductions and further enhance
geographic manufacturing and distribution capabilities. Strategic acquisitions
could also allow the Company to expand the depth of its product offerings
through its existing distribution network.
68
<PAGE>
ADDITIONAL BENEFITS OF THE ACQUISITION
In addition to the potential benefits previously discussed, the Company
believes that the Acquisition will provide it with a number of additional
synergies and opportunities to reduce costs and increase overall profitability.
RATIONALIZATION OF MANUFACTURING, RESEARCH AND DEVELOPMENT OPERATIONS AND
REGULATORY FUNCTIONS
Although Henry Company believes that the combination of its manufacturing
operations with those of Monsey Bakor is strategically complementary and will
provide efficient coverage of North America, there will be some overlap of
operations. The Company expects to close one manufacturing operation without
losing significant cost and freight advantages and may close additional
facilities. Further efficiencies are also expected with the consolidation of
related functions such as research and development and environmental and
regulatory compliance.
REDUCTION IN OVERHEAD AND ADMINISTRATION EXPENSES
The Company believes that internal savings in certain overhead functions
such as accounting, finance, management information systems and administration
could be realized through the integration and centralization of these functions.
The combination of insurance programs, external accounting and audit functions,
benefit and 401(k) plans, tax preparation and telephone and communication
systems, among others, are also expected to generate cost savings.
VERTICAL INTEGRATION OPPORTUNITIES
Henry Company currently purchases products from third party manufacturers
that are also produced by Monsey Bakor, such as roll roofing and other sheet
membranes for the coatings and sealants business. It is anticipated that Henry
Company will procure a portion of these products from Monsey Bakor's current
operations, eliminating the cost of an intermediary markup.
CONSOLIDATION OF SALES AND MARKETING OPERATIONS
Both companies currently service a number of common regional or national
accounts in the retail and wholesaler segments. Coordinated management of these
accounts should produce cost savings while increasing service and will also
provide a more effective national brand strategy. Rationalization of regional
sales representation will reduce some overlap that currently exists. Certain
marketing expenses for such items as trade shows and advertising will also be
consolidated to save money on a combined basis.
DECREASED SEASONALITY AND WEATHER-RELATED CYCLICALITY
The peak buying season for roof coatings products in the eastern and western
parts of the country tend to be complimentary. The peak season in eastern North
America tends to be from May until September, while the peak season in western
North America tends to be from September until February. The Company believes
that the Acquisition will help level the sales volumes throughout the year which
should improve overall efficiencies. In addition, management believes that the
demand for roof coating products in the eastern and western United States is
affected by annual weather patterns that appear to produce extreme weather in
the eastern or western parts of the country, but not in both, in any given
winter. Therefore, management believes that annual sales performance based on a
diversified national enterprise may show less volatility from year to year.
69
<PAGE>
BUSINESS OF THE COMPANY
The Company is a construction materials company focusing primarily on
products for roofing, sealing and paving applications. Henry Company develops,
manufactures and markets three separate but related product lines: roof and
driveway coatings and paving products through the Henry Coatings Division,
polyurethane foam for roofing and commercial uses through the Resin Technology
Company, and sealants for construction and marine uses through the Henry
Sealants Division. The Company continues to manufacture Monsey Bakor's product
line of roof coatings, adhesives and membranes, waterproofing and air barrier
systems and specialized industrial emulsions through its Monsey Bakor Division.
HENRY COATINGS DIVISION
The Coatings Division accounted for the bulk of Henry Company's 1997 net
sales. The Coatings Division is headquartered in Huntington Park, California and
produces coatings products at its Elk Grove and Huntington Park, California,
Portland, Oregon, El Paso, Texas and Auburn, Washington facilities.
PRODUCTS
Henry Company's products include mastics and cements for sealing
applications, asphalt protective coatings, aluminum and white reflective
coatings, self-adhesive roofing membranes, driveway maintenance and paving
products, and other specialty coatings. Henry Company's products are sold in a
variety of containers for various customer markets, from 55-gallon drums for the
professional market to one gallon cans and 11 oz. cartridges that are primarily
sold to retail customers.
Henry Company's top selling roof mastics are marketed under the names Henry
208 and Henry 204. Henry 208 Wet Patch-Registered Trademark- roof cement is a
leading product in the western United States for sealing leaks on wet surfaces.
Henry 204 plastic roof cement is used to seal and patch leaks in asphalt, metal,
masonry and composition roofs in dry weather.
Henry Company's protective coatings are used to coat various roofing
surfaces and are used as a base coat with other Henry products. A leading
product in this category is Henry 107 Asphalt Emulsion.
Henry Company's leading reflective coatings include Henry 287
Solar-Flex-Registered Trademark- white acrylic roof coating, and Henry 220
Alumi-Top-Registered Trademark- fibered aluminum roof coating. The Coatings
Division's reflective roof coatings reflect solar heat and ultra-violet rays and
are intended to decrease roof and interior temperatures and prolong roof life.
Driveway maintenance and paving products are used for the asphalt highway
market and the preventative maintenance of asphalt parking lots and driveways.
Henry Company produces polymerized asphalt, an asphalt binder that is a key
ingredient of paving asphalts. Other key products include polymer modified
DuraSeal-Registered Trademark-, a coating with exceptional resistance to
ultra-violet radiation, physical abrasion and moisture. Henry Company also
manufactures and sells a number of coatings for specialty purposes such as for
wood preservation and agricultural purposes.
MANUFACTURING
Henry Company produces its roof and driveway coatings from four
manufacturing plants utilizing a controlled mixing process. Asphalt cutback
(asphalt that has been further liquified through the addition of various
solvents) is pumped into large mixers located in the plants from separate
storage tanks located in adjacent tank farms. Depending on the end product,
additives or fillers are mixed into the asphalt to enhance certain qualities. In
addition, some of Henry Company's products are enhanced with cellulose or
chrysotile asbestos fibers which significantly increase the strength and
durability of the product. The final product is then discharged from mixers into
cartridges, pails, drums or bulk tankers.
The Company, as well as many of its competitors, uses fibers such as
chrysotile asbestos in its production process. Management believes that its use
of chrysotile asbestos is in accordance with
70
<PAGE>
regulations of the Occupational Safety and Health Administration ("OSHA"). OSHA
requires that chrysotile asbestos fibers not be exposed to an open-air
environment. In Henry Company's production process the cellulose or chrysotile
asbestos fiber is pumped through a negative pressure fluffer that separates the
fibers for optimal dispersion in the product mixture. The fibers are then mixed
into and fully encapsulated by the asphalt. Once encapsulated the fibers are
"locked" into the asphalt cutback and cannot be physically separated from the
product. OSHA and other regulatory bodies have determined that encapsulation
renders the chrysotile asbestos harmless. The Environmental Protection Agency
("EPA") does not regulate or enforce any special procedures for the application
of chrysotile asbestos-containing roof coatings or sealants.
Management believes that chrysotile asbestos-fibered roofing cements have
better application quality and durability as compared to those containing
chrysotile asbestos substitutes. The primary industries that currently continue
to use chrysotile asbestos are those manufacturing chrysotile asbestos-cement
pipe and shingles, automobile brake pads, gaskets and roof coatings and
sealants. Although chrysotile asbestos-cement pipe and shingles are no longer
manufactured in the United States, these products are still currently sold in
various parts of the country. Domestic manufacturers of brake pads, gaskets and
roof coatings used roughly 22,000 tons of chrysotile asbestos in 1996, because
of its strength, durability and heat resistance. Although some roofing products
manufacturers have switched to an exclusively non-asbestos line, some of the
leading firms in the industry continue to use asbestos in at least some of their
products.
SALES, MARKETING AND DISTRIBUTION
Henry Company's marketing strategy is to position the Henry brand as the
high end, premium-quality product. Henry Company focuses on selling through the
Henry Company brand in both the retail and roofing wholesale segments. When
necessary or requested by customers, however, Henry Company markets its
Henry-branded products with one of its lower-priced brands, such as Gilsonite,
GEO or Roofer's Choice. These lower-priced brands are utilized in particular
regions and channels of distribution, although nearly 75% of the Coatings
Division's sales are made under the Henry brand name.
The Coatings Division utilizes two primary channels of distribution--the
retail segment, primarily marketing to "do-it-yourself" customers and the
roofing wholesaler segment, marketing to professional roofing contractors. The
retail segment is made up of mass merchandisers such as Home Depot, HomeBase and
Eagle Hardware and retail chains or co-ops such as Ace Hardware and True-Value
Hardware. The professional roofing wholesale segment is made up of roofing
wholesalers such as ABC Supply, Cameron Ashley Building Products and Allied
Building Products, each of which has roofing wholesale yards located throughout
the country and competes with regional and local roofing wholesalers such as
Structural Materials, South Coast Shingle or Ford Wholesale. The Division's
remaining sales are for particular manufacturing applications and to overseas
customers.
Over the last ten years Henry Company has expanded significantly from its
Southern California base. Although Southern California remains its largest
region, Henry Company believes it is also the market share leader in the
Northern California, Northwest, Rocky Mountain and Southwest regions. In line
with its strategy to grow through regional expansion eastward, Henry Company
achieved its largest percentage sales increases over the last two years in the
Rocky Mountain and Midwest regions. Currently, Henry Company actively markets
its products to all regions west of the Mississippi River, including Hawaii,
Alaska and western Canada, and sells small amounts of product into the eastern
United States and internationally.
Henry Company has established its dominant brand awareness in the western
United States and particularly in California through its over sixty-year
presence in the marketplace. Henry Company has developed consumer-oriented
packaging for its products in reflex blue containers and the "wall of Henry
blue" that customers see at major retailers and wholesalers has become a
distinctive Henry Company marketing characteristic. Henry Company supports its
product offerings with product usage illustrations, advertising and a variety of
point-of-purchase tools. For example, Henry Company has developed an
71
<PAGE>
interactive television display for placement in retail stores that assists
customers in assessing their needs and directs them to Henry Company products.
These units are placed among Henry brand products on store shelves and have
contributed to an increase in sales compared with retail stores without the
interactive displays. Henry Company has also sought to improve customer
awareness and use of its products through its Internet website which provides
customers with detailed product catalogs, specifications and how-to information.
ROOFING SYSTEMS
Henry Company has developed a profitable roofing systems segment for
one-stop commercial roofing or reroofing or roofing maintenance with warranty
protection. Henry Company personnel work with architects, building owners and
contractors to develop custom specifications utilizing Henry Company products
for the design, construction and maintenance of commercial roofs. An important
component of Henry Company's roof systems program's success is that building
owners are assured that Henry Company will stand behind the roof from beginning
to end. The Henry Company sales consultant will write a custom specification for
the roof and the roofing system will be applied by a Henry Company-approved
contractor generally using Henry Company products. A Henry Company technical
inspector will inspect the roof application during installation and regular
follow-up inspections and in some instances maintenance will be performed
throughout the life of the warranty. Henry Company offers 20-year warranties on
its reroofing systems and 5-year warranties on its maintenance systems
calculated on a fee per square-foot basis. Since its inception, expenses for
warranty claims experience has been very low. In part, this is due to Henry
Company's continuing inspection program. Henry Company roofing systems have been
applied throughout the western United States on corporate buildings for
customers as diverse as Sun Maid Raisins and Warner Brothers Studios. Management
believes that the roofing systems business represents a significant growth
opportunity.
RESIN TECHNOLOGY DIVISION
The Resin Technology Company ("RTC") was founded as an independent company
in 1982 and produces polyurethane foam products for roofing and other industrial
applications as a Henry Company division. RTC also sells coating products
manufactured for it by third parties for application on foam. The acquisition of
RTC in 1988 has enabled Henry Company to offer a broader range of roofing
products to meet the needs of the commercial and residential roofing markets.
PRODUCTS
RTC's primary product categories are polyurethane foam and coatings.
Polyurethane foam has two liquid components--resin and hardener--which are mixed
together in a spray unit during application. A chemical reaction causes the
liquid to expand many times in thickness creating a rigid layer of closed-cell
foam. In roofing applications, this foam is strong enough to be walked on
minutes after the application. The result is a seamless barrier against water
penetration that is durable and easy to maintain. In roofing applications, an
elastomeric coating must be applied as protection against the sun's ultraviolet
radiation. RTC sells acrylic, urethane, silicone and polyurea coatings.
RTC's products offer users several advantages, including a seamless barrier
that minimizes the likelihood of leaks versus other types of roofing
applications. Polyurethane foam also provides superior insulation
characteristics that can reduce energy costs, particularly in either relatively
cool or warm climates. It is relatively light in weight and is therefore
particularly adaptable to large arenas or other structures that may benefit from
a lighter weight roof. Furthermore, it can be applied directly over an existing
roof, potentially avoiding the costly "tear-offs" that may be required with
other roofing systems.
RTC's products are also used in a number of original equipment manufacturer
applications. The insulation and weight characteristics of polyurethane foam
make it an integral part of the thermal panel, spa and packaging industries,
among others.
72
<PAGE>
MANUFACTURING
RTC manufactures all of its polyurethane foam products in its Ontario,
California manufacturing facility. Its polyurethane resin system is made up of
two components: a hardening agent that is purchased by Henry Company and resin
that is manufactured in the Ontario facility. Raw materials are automatically
pumped from one or more of the 11 raw material storage tanks within the
facility, blended and then poured into 55-gallon drums, tote capsules or bulk
tanker trucks. The production process is highly automated. The bulk of RTC's
coatings products for polyurethane foam applications are produced by a
third-party manufacturer also located in Ontario. Henry Company believes that it
derives its success in the polyurethane foam market from its superior
understanding of technology and Henry Company has secured a number of original
equipment manufacturer accounts because of its ability to produce product for a
customer's very specific technical requirements.
SALES, MARKETING AND DISTRIBUTION
The Resin Technology Company sells primarily to roofing contractors and
original equipment manufacturers in the western United States. RTC's roofing
products are sold directly to pre-qualified contractors experienced in applying
and spraying polyurethane foam onto roofs. Sales to original equipment
manufacturers include those to spa equipment manufacturers and management
believes it is the leading supplier to this market. RTC also supplies
manufacturers in many other industries including those producing freezer panels,
thermal food transportation equipment, boat floatation and packaging products.
RTC's remaining sales are made to several distributors, particularly in the
Northwest and upper Midwest, regions that are not as geographically accessible
as the West and Southwest. In addition, RTC exports some product to the Pacific
Rim and to Europe.
RTC supports its sales efforts with a sales staff organized according to
market segment and regional location. Henry Company believes that RTC's
marketing advantages are based on a commitment to technical development and
customer support and also believes that RTC has captured a number of original
equipment manufacturer accounts from its competitors by efficiently responding
to the customer's technical requirements. In both the roofing and original
equipment manufacturer segments Henry Company provides just-in-time delivery
capability which is essential in time and labor-sensitive roofing applications.
HENRY SEALANTS DIVISION
Henry Company acquired three related distributors of preformed sealants in
1990: K.T. Snyder Company; Diplomatic Marine Inc.; and
Synko-flex-Registered Trademark- Products, which have since been amalgamated
into what is now the Henry Sealants Division. These acquisitions were made in
part to leverage Henry Company's expertise in manufacturing asphalt-based
products and also to provide future manufacturing and distribution locations for
its roof coatings business.
In 1997, Henry Company formed a joint venture with J-K Polysource to sell
and manufacture O-ring gaskets to manufacturers of concrete pipe. This operation
is based in Henry Company's Houston, Texas facility and allows Henry Company
sales personnel to offer a broader array of products to its current customer
base.
PRODUCTS
The Sealants Division has three distinct product categories: sealants for
construction applications; hatch cover sealants for ocean freighters; and
preformed adhesive waterstops for expansion joint applications on construction
projects.
RAM-NEK-Registered Trademark-, a preformed plastic gasket for precast
concrete structures, was developed in 1955 and was the first product designed
for this particular use. This asphalt-based, self-sealing, instant-bonding
73
<PAGE>
gasket provides watertight sealing for joints such as those on underground
concrete drainage and manhole structures or on precast vault structures used in
the underground installation of power and telephone utility lines. The
RAM-NEK-Registered Trademark- trade name is also used for the Sealants
Division's marine sealants products which were also the first products of their
types when introduced to the marine industry in 1968. These products are used
for sealing hatch covers on ships to prevent water damage to cargoes that can
occur in heavy seas. RAM-NEK's-Registered Trademark- unique marine tape design
allows the tape to stretch as the ship bends and turns in heavy seas.
Synko-flex-Registered Trademark-, a preformed plastic adhesive waterstop, is
used as a construction joint sealant in poured-in-place concrete structures.
Henry Company believes this product allows for an easier, more reliable and more
efficient sealing method than the traditional PVC-type waterstop.
Synko-flex-Registered Trademark- is used in waste water treatment plants,
highway tunnels and airport terminals as well as in many other major
construction projects.
MANUFACTURING
The Sealants Division manufactures various water resistant tape sealants
products in its Houston facility which Henry Company constructed in 1991. In the
manufacturing process, various raw materials including asphalt and clay are
heated, mixed and then extruded onto release paper. The product is then cooled,
a top layer of paper is added and then the product is automatically cut to a
specific length. Finished products will vary as to raw material content and size
depending on the particular tape sealants application.
SALES, MARKETING AND DISTRIBUTION
The Sealants Division's products were the first used for their particular
application in all three of the Division's market segments. Management believes
that the RAM-NEK-Registered Trademark- trade name is widely recognized
throughout the concrete pipe and marine supply industries. The Division
warehouses product at its Houston facility and at other Henry facilities or at
several public warehouses located throughout the world. Due to the size and
weight of tape sealants, freight expense considerations are an important element
of a customer's buying decision. Henry Company therefore provides its customers
with regional access to less-than-truckload quantities at its various regional
warehouses. Henry Company has been successful in linking ship owners with marine
suppliers so that RAM-NEK-Registered Trademark- can be delivered on board a ship
docked in over one hundred ports worldwide, generally within a few hours.
Division sales also benefit because marine hatch cover sealants are in many
cases required to obtain insurance for particular ocean-going cargoes.
Synko-flex-Registered Trademark- is used on a variety of construction projects,
most often when specified by the architect. The Sealants Division sales force
focuses on identifying projects appropriate for its products and then educating
and assisting architects in specifying the particular Henry Company product.
MONSEY BAKOR DIVISION
Monsey Bakor is one of the leading manufacturers and distributors in North
America of roofing products with a line that includes coatings, cements,
adhesives, and modified bitumen membranes, as well as pavement maintenance,
air-barrier, waterproofing and speciality products. Traditional Monsey Bakor
products include rubberized asphalt, elastomeric roof systems and professional
grade roof cements and coatings. Monsey Bakor pioneered the Building Envelope
System-Registered Trademark- (the "skin" of a building) which integrates many of
these products for use on all of the exterior surfaces of a building. Monsey
Bakor is also a world leader in highly specialized emulsions for the gypsum
industry and manufactures wax-based emulsions in several plants using
proprietary and patented processes.
ROOFING PRODUCTS
Roofing products represent the majority of Monsey Bakor's total revenues and
are the foundation for the Building Envelope System-Registered Trademark-.
Monsey Bakor's roofing products can be classified into two major categories:
modified bitumen roofing systems, and roof maintenance coatings, cements and
adhesives.
74
<PAGE>
Modified bitumen was developed in Europe in the 1950s as an improvement to
traditional built-up-roofing systems. Although similar to built-up-roofing
systems, modified bitumen systems are more versatile, less susceptible to
environmental stresses and can be applied to both steep and low-slope surfaces.
Modified bitumen was brought to the United States in the 1970s by European
manufacturers and in over twenty years modified bitumen systems have become one
of the fastest growing segments of the United States roofing market because of
their specifications, light weight and versatility.
Monsey Bakor's modified bitumen flagship product, "MODIFIEDPLUS" is sold to
industrial, commercial and institutional customers. Monsey Bakor's coatings,
cements and adhesives are also used in roofing systems. MBA GOLD MODIFIED
BITUMEN MEMBRANE ADHESIVE binds membranes to substrates and is designed
specifically to be used with MODIFIEDPLUS or other asphalt coated membranes.
MONSEY BAKOR ELASTOMERIC FLASHING CEMENT is used to repair leaks in asphalt or
modified bitumen membranes and bond with MODIFIEDPLUS membranes for vertical
wall applications, flashings, projections and edge detail work. Monsey Bakor
also produces a full line of coatings, cements and adhesives formulated
especially for contractors under the brand PRO-GRADE. Specific products include
variations of roof cement, plastic cement, flashing cement, tile cement,
modified bitumen adhesive, cold process adhesive and roof repair. PRO-GRADE also
includes a line of reflective aluminum roof coatings and white acrylic roof
coatings which help reduce a roof's temperature, retarding the deterioration
process and prolonging the life of the roofing material.
The MONSEY BAKOR METALSHIELD ELASTOMERIC ROOF SYSTEM is an economical
alternative to a complete metal roof replacement, at approximately 50% less cost
per square foot versus other reroofing alternatives. METALSHIELD ELASTOMERIC
ROOF SYSTEM is an elastomeric polymer latex-based roof coating designed to
provide a pliable, monolithic, weather resistant roof system. The METAL SHIELD
ELASTOMERIC ROOF SYSTEM is specifically designed for use over existing
corrugated steel, standing seam or metal roof substrate. Monsey Bakor also
produces flashing compounds under the brand name METALSHIELD to be used in
conjunction with the METALSHIELD ELASTOMERIC ROOF COATING.
INDUSTRIAL EMULSIONS
Monsey Bakor's industrial emulsions are used as coating, sizing,
strengthening and moisture-proofing additives by manufacturers of fiber products
such as gypsum wallboard, insulation board, gaskets, paper board, and glass
fibers. Monsey Bakor's primary emulsion product, wax-based industrial emulsions,
are specifically used by manufacturers of gypsum wallboards. Management believes
that Monsey Bakor is the major producer for this market with a dominant market
share. Sales of industrial emulsions have increased in recent years partially
due to increased environmental restrictions on volatile organic compound
emissions, which has created a demand for emulsion-based products over
solvent-based products. Monsey Bakor's wax-based emulsions are manufactured with
proprietary and patented processes that management believes contributes to
higher margins relative to those of competitors.
AIR BARRIERS
Monsey Bakor's air barrier systems are designed to reduce air flows through
exterior walls of buildings. The movement of air into a building (infiltration)
and out of a building (exfiltration) is caused by pressure differences produced
by wind, chimney effect and pressurization. If air flows through a building and
exfiltrates, it can deposit moisture on the cold masonry cladding, causing brick
or stone to undergo major changes due to moisture absorption. This dampness can
cause dimensional changes and accelerate the deterioration process.
Moisture-laden air from a humidified building can also develop into ice under
freezing conditions, causing displacement of the exterior masonry cladding,
corrosion, and lower energy efficiency. In 1986, Canada required air barriers in
all buildings as an amendment to the National Building Code. In the United
States, however, there is no national standard and the air barrier market
remains in its infancy.
75
<PAGE>
Monsey Bakor is the only company that produces both air barrier designs:
modified bitumen sheets and liquid. The advantage of a prefabricated modified
bitumen sheet is that it provides a flexible air barrier membrane capable of
bridging construction gaps and absorbing deflection. Monsey Bakor manufactures
four variants of BLUESKIN-REGISTERED TRADEMARK- differentiated by application
method. BLUESKIN-REGISTERED TRADEMARK- can be heat fused, self-adhered, or
embedded in adhesive. Adhesive-applied BLUESKIN-REGISTERED TRADEMARK- is often
used as a thru-wall flashing. AIR-BLOC 21 and 21 FR are liquid barriers designed
to be trowel-applied over blocks or concrete and AIR-BLOC 06 is an elastomeric
trowel or spray-applied membrane designed for masonry blocks. Monsey Bakor's
line of air barriers can be installed into existing buildings on either internal
or external walls or in the construction of new buildings.
SPECIALTY PRODUCTS
Monsey Bakor's specialty products include protective coatings for a variety
of industrial and commercial applications, such as specialty asphalt coatings to
protect wood, metal, mortar or thermal insulation. Monsey Bakor manufactures
undercoatings for mobile homes, as well as both solvent and water-based
rust-proofing products for the automobile industry. Monsey Bakor provides
specially formulated products to tractor trailer and mobile home manufacturers.
Monsey Bakor also produces three categories of pavement sealers and a broad
range of paint products for interior and exterior use.
MANUFACTURING
Monsey Bakor's products can be segmented into six product groups for
purposes of describing the manufacturing process. Of Monsey Bakor's ten
manufacturing facilities, eight produce essentially the same product groups. The
exceptions are the two Canadian facilities located in Petrolia, Ontario and
Mirabel, Quebec, which produce membranes and specialty adhesives, respectively.
Monsey Bakor's product groups are as follows:
- Cold applied liquid coatings, cements and adhesives
- Asphalt, coal tar and wax emulsions
- Acrylic-based roof and insulation coatings
- Hot melt rubberized asphalt roofing and waterproofing products (Ville St.
Pierre, Quebec only)
- Styrene-butadiene-styrene ("SBS") modified bitumen membranes, air barrier
and waterproofing membranes (Petrolia, Ontario only)
- Specialty adhesives (Mirabel, Quebec only)
The production process for cold applied coatings, cements and adhesives is
basically a controlled mixing process. Asphalt cutback and additional solvents
are pumped from separate storage tanks located in the tank farm into large
mixers. Depending on the end product, additives or fillers such as neoprene
modifiers or SBS polymers are mixed into the asphalt to enhance certain
qualities. In addition, some of Monsey Bakor's products are enhanced with
cellulose or chrysotile asbestos fibers which significantly increase the
strength and durability of the product. The final product is then discharged
from the mixers into drums, pails or bulk tankers.
Asphalt, coal tar and wax emulsions are manufactured with a slight variation
to the above process. These emulsions are manufactured in high speed colloid
mills which combine the base material (asphalt, coal tar or wax) with a water
and clay mixture. The resulting product is an emulsion which "suspends" the base
material. From the colloid mill, the mixture enters an emulsion storage tank,
from which the product is either packaged or moved to another mixer. The second
mixer blends the emulsion with various additives or mineral fillers. The final
product is usually loaded into bulk tankers for shipment to industrial
end-users.
76
<PAGE>
Acrylic-based roof and insulation coatings, as well as specialty paint
products, are manufactured in high-speed dispersing equipment and packaged in
drums or standard metal pails. Many of the specialty paint products include
additives in order to create a textured finish.
Hot melt rubberized asphalt roofing and waterproofing products are blended
in special temperature controlled mixers and packaged for easy handling at the
job site. These products are currently made only at the Ville St. Pierre, Quebec
facility.
In contrast to the batch production process for the products discussed
above, the production process for roofing and other membrane products is a
continuous process. The three primary products are SBS modified bitumen roofing
membranes, BLUESKIN-REGISTERED TRADEMARK- air-barrier membranes, and
EAVEGUARD-REGISTERED TRADEMARK- waterproofing membranes. These products are
manufactured at the Petrolia, Ontario facility which has three membrane
production lines. The process for roofing membranes begins with rolls of
fiberglass or polyester reinforcement which is unwound and saturated with
modified bitumen. The bitumen-saturated reinforcement then proceeds through a
thickness adjuster and excess liquid bitumen is scraped off. One side of the
membrane may then be coated with granules similar to those found on residential
shingles. If not coated with granules, both sides of the membrane are covered
with a polyfilm which prevents the modified bitumen from bonding when the
membrane is rolled prior to packaging. The membrane then proceeds through a
cooling process, after which it is cut, rolled, taped, and packed onto skids.
The production process for BLUESKIN-REGISTERED TRADEMARK- and
EAVEGUARD-REGISTERED TRADEMARK- is similar, but these products are manufactured
on a steel belt as they do not have a reinforcement matting.
The key materials used in the production of roofing and pavement products
are asphalt, mineral spirits, various fibers, resins, and polyester and glass
matting. For the production of industrial emulsions, the primary material is
refined wax. These raw materials are generally available on a regional basis and
supply disruptions are very rare. The Company maintains multiple sourcing
arrangements for all of its key materials and has experienced low price
volatility over the past several years. In addition to raw materials, packaging
supplies represent a meaningful portion of production cost.
SALES, MARKETING AND DISTRIBUTION
The majority of Monsey Bakor's revenues are derived from the sale of roofing
products in the United States. The Company believes that significant additional
revenue synergies remain to be achieved between U.S. and Canadian operations.
For example, Monsey Bakor has been working to increase the sale of Canadian
manufactured modified bitumen membranes in the United States. Although an
established product in Canada, modified bitumen membranes are a new product for
Monsey Bakor in the United States and have considerable sales growth potential.
Monsey Bakor employs a variety of distribution channels and marketing
strategies, including sales to distributors and retail outlets and direct sales
to end-users such as original equipment manufacturers and professional
contractors. Monsey Bakor's customer base is diversified, including
"do-it-yourself" retailers such as Lowe's Home Improvement Warehouse, Builders
Square and Hechinger Company, commercial distributors and original equipment
manufacturers such as U.S. Gypsum. No one customer accounted for more than 10%
of Monsey Bakor's sales and the top ten customers represent approximately 26% of
total sales.
Monsey Bakor's primary retail distribution channel is through large format
do-it-yourself retailers and other retailers such as Agway and Sears and account
for approximately 48% of total sales. The majority of the products sold through
this channel are coatings, adhesives and sealants mainly sold in prepackaged
containers. Monsey Bakor's two most popular products sold through this channel
are aluminum roof coatings and driveway sealants. Monsey Bakor has built strong
relationships with retailers such as Lowe's Home Improvement Warehouse,
Hechinger Company, Agway, Sears and Builders Square. The strategic location of
Monsey Bakor's 10 production facilities near major markets allows it to provide
nearly "just-in-time" delivery while limiting the need for significant finished
goods inventories.
77
<PAGE>
The second major segment of customers for Monsey Bakor's roofing,
air-barrier and waterproofing products is the
"industrial-commercial-institutional" market. These customers include the
general contractors, sub-contractors and other professionals who operate in the
roofing and construction industries. The sales and marketing process for the
industrial-commercial-institutional market is substantially more complex than
for the retail market because the "project specifier" and the ultimate purchaser
are often not the same in the industrial-commercial-institutional market. The
industrial-commercial-institutional market is composed of a sequence of decision
makers including building owners, architects and engineers (project specifiers),
general contractors, sub-contractors, and distributors. A core element of Monsey
Bakor's marketing strategy has been to invest significant resources toward
hiring technically proficient salespeople, and providing them with intensive
training to enable them to communicate with customers at each level of the
decision process. Monsey Bakor's sales representatives and independent
representatives invest significant time and resources educating architects as to
the specifications and attributes of Monsey Bakor's products--especially the
specialty products. The goal is to have the architect design Monsey Bakor's
products (or at a minimum the "specifications") into the plans for a commercial
project, increasing the probability that the general contractor or
sub-contractor will select a Monsey Bakor product or system when they receive
the design specifications.
Monsey Bakor's industrial emulsions are sold almost exclusively to original
equipment manufacturers in bulk form. Monsey Bakor's wax based emulsions are
sold primarily to manufacturers of gypsum wallboard such as U.S. Gypsum and
National Gypsum. Monsey Bakor supplies approximately 70 of the estimated 85
plants in North America that produce gypsum board and also supplies plants in
Europe. Monsey Bakor's line of specialty products such as undercoatings for
mobile homes and rust proofing products for the auto industry are also sold
directly to manufacturers.
EMPLOYEES
As of March 31, 1998, Henry Company and Monsey Bakor together employed
approximately 601 persons, the majority of whom were involved in production and
distribution, with the balance engaged in administration, sales and clerical
work. Of these employees, approximately 498 were employed in the United States
and 103 in Canada. Approximately 46 employees located in Huntington Park,
California, 27 employees in Kimberton, Pennsylvania, 10 employees in Rock Hill,
South Carolina, 30 employees in Ville St. Pierre, Quebec and 2 employees in
Mirabel, Quebec are unionized and covered by collective bargaining agreements.
These collective bargaining agreements expire on June 30, 2000, March 31, 2000,
February 3, 2001, June 30, 1999 and February 28, 2000, respectively. The Company
believes that its relationship with its employees is good. Neither Henry Company
nor Monsey Bakor has experienced a work stoppage at any of its facilities in
over 20 years.
78
<PAGE>
PROPERTIES
The Company's operations are conducted at the owned or leased facilities
described below:
<TABLE>
<CAPTION>
FACILITY
LOCATIONS PRODUCTS MANUFACTURED/PRINCIPAL USE SQUARE FOOTAGE OWNED/LEASED
- ------------------------ -------------------------------------------------------- -------------- -------------
<S> <C> <C> <C>
UNITED STATES
Huntington Park, - Solvent and emulsion-based bituminous coatings 95,478 Leased
California - Mastics
- Pavement/driveway sealers
- Asphalt emulsions
- Acrylic coatings
Sacramento (Elk Grove), - Solvent and emulsion-based bituminous coatings 18,871 Leased
California - Mastics
- Pavement/driveway sealers
- Asphalt emulsions
El Paso, Texas - Solvent and emulsion-based bituminous coatings 10,583 Owned
- Mastics
- Pavement/driveway sealers
- Asphalt emulsions
Portland, Oregon - Solvent and emulsion-based bituminous coatings 55,735 Leased
- Mastics
- Pavement/driveway sealers
- Asphalt emulsions
- Acrylic coatings
Seattle (Auburn), - Distribution center 12,500 Leased
Washington - Asphalt emulsions
Ontario, California - Polyurethane foam 13,330 Leased
- Coatings for polyurethane foam
Houston, Texas - Asphalt tape sealants 44,000 Owned
Kimberton, Pennsylvania - Solvent and emulsion-based bituminous coatings 147,400 Owned
- Mastics
- Pavement sealers
- Asphalt and wax industrial emulsions
Indianapolis, Indiana - Solvent and emulsion-based bituminous coatings 63,000 Owned
- Mastics
- Pavement sealers
- Asphalt and wax industrial emulsions
Waterford, New York - Solvent and emulsion-based bituminous coatings 120,000 Owned
- Mastics
- Pavement sealers
- Acrylic and solvent-based coatings
Rock Hill, South - Solvent and emulsion-based bituminous coatings 40,000 Owned
Carolina - Mastics
- Pavement sealers
- Asphalt and wax industrial emulsions
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
FACILITY
LOCATIONS PRODUCTS MANUFACTURED/PRINCIPAL USE SQUARE FOOTAGE OWNED/LEASED
- ------------------------ -------------------------------------------------------- -------------- -------------
<S> <C> <C> <C>
Garland, Texas - Solvent and emulsion-based bituminous coatings 76,500 Owned
- Mastics
- Pavement sealers
- Asphalt and wax industrial emulsions
- Acrylic coatings
Bartow, Florida - Solvent based bituminous coatings 34,000 Owned
- Mastics
- Pavement sealers
- Acrylic coatings
Kingman, Arizona - Solvent and emulsion-based bituminous coatings 39,275 Owned
- Mastics
- Pavement sealers
- Asphalt and wax industrial emulsions
- Acrylic coatings
CANADA
Petrolia, Ontario - Roofing membranes 58,500 Owned
- Waterproofing
- Air barriers
- Protection/Recovery Board
Mirabel, Quebec - Insulation additives and coatings 6,100 Owned
- Liquid air barrier membranes
- Specialty primers
Ville St. Pierre - Insulating coatings and adhesives 44,000 Owned
(Montreal), Quebec - Air barriers
- Solvent and emulsion-based bituminous coatings
- Road emulsions
- Asphalt and wax industrial emulsions
</TABLE>
The Company also owns or leases smaller sales and administration facilities
in Costa Mesa, California, Irvington, New Jersey and Mississauga, Ontario. In
addition, the Company owns a small facility in Troy, New York that it leases to
a third party. The Company believes that its facilities are in good operating
condition and are adequate to meet anticipated future requirements.
LITIGATION
In the ordinary course of business, the Company is periodically named as a
defendant in a variety of product liability lawsuits including "slip and fall"
claims relating to pavement sealants and claims for alleged product failure. The
Company does not believe these cases will have a material adverse effect on the
Company's business, financial condition or results of operations.
Monsey Bakor has been identified as a participating responsible party by the
EPA under the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, in litigation in the Federal District Court for the
Eastern District of Pennsylvania. Monsey Bakor's involvement with the property,
a former waste oil recycling facility in Douglassville, Pennsylvania, was
limited to the temporary storage and treatment of certain solvents on the site.
A proposed consent decree covering the EPA's alleged response costs has been
negotiated with the EPA which would fix the responsibility for Monsey Bakor and
approximately 150 other potentially responsible parties who were determined to
be
80
<PAGE>
responsible for a minor portion of such costs. Monsey Bakor's portion of this
settlement would be approximately $372,000.
As of December 17, 1997, Monsey Bakor was a party to 58 state court cases
alleging certain asbestos-related injuries. There were two new cases filed in
1997 and four cases were filed each in 1996 and 1995. The Company believes that
its use of chrysotile asbestos fibers, which are encapsulated by asphalt in the
manufacturing process, is in accordance with applicable laws. Although Monsey
Bakor has not paid any amounts in judgment or settlement of any asbestos-related
claim to date, there can be no assurance that any such claim will not in the
future result in a material adverse judgment against, or settlement by, the
Company. The costs of these suits are currently funded by a joint-defense
arrangement among Monsey Bakor's insurance carriers and the Company believes
that such insurance coverage is adequate. However, neither Henry Company nor
Monsey Bakor is covered by insurance for asbestos-related claims for injuries
that are alleged to have arisen after 1985. The Company does not believe that
the outcome of these suits will have a material adverse effect on the Company's
business, financial condition or results of operations.
ENVIRONMENTAL MATTERS
The Company is subject to extensive and changing Environmental Laws with
which it believes it is in substantial compliance. However, there can be no
assurance that the discovery of presently unknown environmental conditions or
changes in the scope, interpretation or enforcement of Environmental Laws will
not have a material adverse effect on the Company's business, financial
condition or results of operations.
Monsey Bakor's Kimberton facility was formerly occupied by a pharmaceutical
manufacturer whose operations resulted in groundwater contamination identified
on the site and surrounding area. The contaminant of concern was
trichloroethylene which required various remedial activities, including the
provision of alternate water supplies to users in the surrounding area and a
groundwater treatment program. Remedial work is being completed under a consent
decree the EPA negotiated in 1990 with the pharmaceutical manufacturer and
Monsey Bakor and a confidential cost sharing agreement between these two
companies. Monsey Bakor's costs under the consent decree in 1995, 1996 and 1997
were approximately $60,000, $63,000 and $67,000, respectively, and are not
expected to be significantly different during 1998 and 1999. Effective January
1, 1997, the Company adopted a new accounting pronouncement, American Institute
of Certified Public Accountants' Statement of Position 96-1, Environmental
Remediation Liabilities, relating to this consent decree and cost-sharing
agreement. Upon adoption, Monsey Bakor recorded a charge against operations and
accrued as a liability the entire expected costs to it of the remedial work over
the remaining term of the consent decree and cost-sharing agreement. Costs paid
under the consent decree and cost-sharing agreement of $67,000 in 1997 reduced
the liability to $3.6 million at December 31, 1997.
Under current Federal and state regulatory programs, the Company is
obligated to upgrade, replace or close all non-complying underground storage
tanks that it owns or operates to meet certain corrosion protection and
overfill/spill containment standards on or before December 22, 1998. The Company
estimates that the capital expenditures required to comply with these regulatory
programs for the remainder of the 1998 fiscal year and for the 1999 fiscal year
will not be material or have a material adverse effect on the Company's earnings
or competitive position. Such estimates, however, are based on factors and
assumptions that are subject to change, including modifications of regulatory
requirements, detection of unanticipated environmental conditions or other
currently unexpected circumstances.
81
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding each of the
Company's directors and executive officers as of June 30, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Warner W. Henry(1)(2)............ 60 Chairman of the Board and Chief Executive Officer
Joseph T. Mooney, Jr.(1)......... 63 Vice Chairman of the Board
Paul H. Beemer(1)(2)............. 75 Vice Chairman of the Board
Richard B. Gordinier(1)(2)....... 56 President, Chief Operating Officer and Director
Jeffrey A. Wahba(1)(2)........... 41 Chief Financial Officer, Secretary and Director
S. Duncan Moffat................. 50 President--Henry Coatings Division
James Doose...................... 50 President--Resin Technology Company
John R. Enright.................. 58 President--Henry Sealants Division
Larry A. Karasiuk................ 52 President--Monsey Bakor Canada
Norman F. Nickerson.............. 58 Vice President of Sales--Monsey Bakor U.S.
Frederick H. Muhs(1)............. 59 Director
Carol F. Henry................... 59 Director
Donald H. Ford................... 91 Director
Terrill M. Gloege(2)............. 62 Director
</TABLE>
- ------------------------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
WARNER W. HENRY has been Chairman of the Board, Chief Executive Officer and
a director of Henry Company or its parent since 1974, and had served in various
sales and sales management positions with Henry Company from 1963 to 1974. Mr.
Henry also serves on the board or is an Overseer of the following organizations:
The Employers Group, Hoover Institution, Los Angeles Music Center Opera and the
Los Angeles Chamber Orchestra. Mr. Henry received his B.A. in Economics and
M.B.A. from Stanford University.
JOSEPH T. MOONEY, JR. Mr. Mooney has served as a Vice Chairman of the Board
of the Company since the closing of the Acquisition. Mr. Mooney began his career
with Monsey Bakor in 1960 and previously served as Chairman of the Board and
President of Monsey Bakor from 1972 to 1998, where his responsibilities included
major strategic decisions regarding product and equipment purchases as well as
oversight of all of Monsey Bakor's financial operations. Mr. Mooney received a
B.S. from Villanova University.
PAUL H. BEEMER has served as Vice Chairman of Henry Company since 1983, and
as a director of Henry Company or its parent since 1964. Mr. Beemer began with
Henry Company in 1947, holding various technical and sales management positions,
and has also served as General Manager and President. Mr. Beemer was responsible
for the formulation and development of a number of Henry Company's key products
and continues to serve in a part-time technical consulting role. Mr. Beemer
received a B.S. from Loyola University (Los Angeles).
82
<PAGE>
RICHARD B. GORDINIER has been President and a director of Henry Company
since 1988. From 1985 to 1988, Mr. Gordinier was President of Van De Kamp Dutch
Bakers. From 1979 to 1984, Mr. Gordinier served as President of the
International Division of Max Factor and Co., and from 1964 to 1979 held senior
management positions at Estee Lauder, Procter and Gamble Co. and Bristol-Myers
Squibb Co. Mr. Gordinier is currently a director of The Raymond Company and
Lawry's Restaurants, Inc. Mr. Gordinier received a B.S. in Civil Engineering
from Princeton University.
JEFFREY A. WAHBA has been Chief Financial Officer, Secretary and a director
of Henry Company since 1986. From 1984 to 1985, Mr. Wahba served as Chief
Financial Officer of Vault Corporation. From 1980 to 1984, Mr. Wahba was with
Max Factor and Co. and served as Controller of the International Division. Mr.
Wahba received a B.S. in Industrial Engineering and an M.S. in Industrial
Engineering and Engineering Management from Stanford University, as well as an
M.B.A. from the University of Southern California.
S. DUNCAN MOFFAT has served as President--Henry Coatings Division since
1997. From 1992 to 1997, Mr. Moffat was Senior Vice President of Coatings
Operations for Henry Company, and from 1989 to 1992 served as Director of West
Coast Operations for Esselte Pendaflex Corporation. Prior to that time, Mr.
Moffat served in various operations management capacities for Procter and Gamble
Co. Mr. Moffat received a B.S. in Mechanical Engineering from Princeton
University.
JAMES DOOSE has been the President of the Resin Technology Company since
1994. Mr. Doose and a partner founded the Resin Technology Company in 1982. Mr.
Doose served as Executive Vice President of the Resin Technology Company from
1982 to 1994. From 1973 to 1982, Mr. Doose was with Reichold Chemical Company in
various sales and technical positions. Mr. Doose received a B.S. in Chemistry
from California Polytechnic University at Pomona.
JOHN R. ENRIGHT has served as President--Henry Sealants Division, since
1993. From 1983 to 1992, Mr. Enright was Vice President of Sales and held other
management positions with Lennox Industries. From 1976 to 1983, Mr. Enright held
various sales management positions with Wallace Silversmiths Inc. Mr. Enright
received a B.S. in Business Management from San Jose State University.
LARRY A. KARASIUK Mr. Karasiuk has served as President--Monsey Bakor Canada
since the closing of the Acquisition. Mr. Karasiuk served as the President of
Bakor Holdings, Inc. and as the President of Monsey Bakor's Canadian operations
beginning in 1991. From 1982 to 1991, Mr. Karasiuk was the Vice President of
Marketing and Sales with the predecessor company of Bakor Holdings, Inc.,
Bakelite Thermosets Building Materials Division. Prior to that time, Mr.
Karasiuk served in various management positions with Hunter Douglas, a
subsidiary of Alcan. Mr. Karasiuk attended Simon Fraser University and York
University. Upon the closing of the Acquisition, Mr. Karasiuk will serve as
President--Monsey Bakor Canada.
NORMAN F. NICKERSON Mr. Nickerson has served as Vice President of
Sales--Monsey Bakor U.S. since the closing of the Acquisition. Mr. Nickerson
served as Vice President of Sales of Monsey Bakor from 1985 to 1998. From 1979
to 1985, Mr. Nickerson was General Manager of Monsey Bakor's Southeastern
division. From 1972 to 1979, Mr. Nickerson was General manager of Cosmicoat,
Inc. Mr. Nickerson received his B.A. in History from Allegheny College.
FREDERICK H. MUHS has been a director of Henry Company since 1996. Since
1991, Mr. Muhs has been a private investor and business consultant. From 1963 to
1990, Mr. Muhs held various positions in the investment and investment banking
operations of the Prudential Insurance Company of America, including as Managing
Director for its Prudential Bache Securities, Inc. subsidiary. Mr. Muhs received
a B.A. in Economics and an M.B.A. from Stanford University.
CAROL F. HENRY has been a director of Henry Company since 1970. She is
currently involved with several civic and charitable organizations. Mrs. Henry
received a B.A. and M.A. in Education from Stanford University.
83
<PAGE>
DONALD H. FORD has been director of Henry Company since 1958. From 1933 to
the present, Mr. Ford has practiced law with the law firm of Overton, Lyman and
Prince in Los Angeles, California. Mr. Ford received a B.S. in Commerce from
Oregon State University and a J.D. from the University of Michigan.
TERRILL M. GLOEGE has been a director of Henry Company since 1993. He is
currently the Chief Financial Officer of the Carson Companies. Mr. Gloege is
currently a director of Dominguez Services Corporation, a water services utility
company. Mr. Gloege received a B.S. from the United States Coast Guard Academy
and an M.B.A. from Stanford University.
The Company's bylaws provide that the Board of Directors of the Company
shall consist of nine directors. The number of authorized directors may be
increased or decreased from time to time by an amendment to the bylaws adopted
by the Board of Directors or by the Company's shareholders. Directors are
elected at each annual meeting of the Company's shareholders to hold office
until the next annual meeting and until their successors have been elected and
qualified. Executive officers are appointed by the Board of Directors and serve
at the Board's discretion, subject to any contracts of employment with the
Company.
Warner W. Henry and Carol F. Henry are husband and wife.
BOARD COMMITTEES
The Executive Committee is comprised of Warner W. Henry, Paul H. Beemer,
Joseph T. Mooney, Jr., Richard B. Gordinier and Frederick H. Muhs. Jeffrey A.
Wahba serves as Secretary of the Executive Committee without a vote. The
Executive Committee has the full authority of the Board of Directors, except
with respect to the approval of any action for which shareholder approval is
required by law or for certain other fundamental corporate actions, which
require the act of the full Board. The Audit Committee is comprised of Warner W.
Henry, Paul H. Beemer, Richard B. Gordinier, Terrill M. Gloege and Jeffrey A.
Wahba. The Audit Committee oversees the activities of Henry Company's
independent accountants.
EXECUTIVE AND DIRECTOR COMPENSATION
The Company's directors do not receive any cash compensation for service on
the Board of Directors or any Committee thereof, but directors may be reimbursed
for certain expenses in connection with attendance at board and committee
meetings.
Henry Company does not have a compensation committee or other Board
committee performing equivalent functions. Executive and employee compensation
is determined by Richard B. Gordinier. Annual increases in compensation for Mr.
Gordinier are determined by the Executive Committee of the Board without the
participation of Mr. Gordinier and increases in Mr. Henry's annual compensation
is determined by the Executive Committee without the participation of Mr. Henry.
During the 1997 fiscal year, Messrs. Henry, Beemer, Gordinier and Wahba
participated in deliberations of the Executive Committee regarding compensation
of Henry Company executive officers. No executive officer of the Company serves
as a member of the Board of Directors of any other entity which has one or more
members serving as a member of the Company's Board of Directors.
Paul H. Beemer is compensated for consulting advisory services pursuant to a
consulting agreement with the Company. Mr. Beemer provides the Company with a
certain number of hours of consulting advisory services each quarter for
compensation of $100,000 per year. Mr. Beemer may also provide additional
services which are compensated at the rate of $105 per hour. The consulting
agreement also contains a noncompetition clause restricting Mr. Beemer's
employment or service with a business entity that competes with the Company in
its present or future marketing areas. Mr. Beemer's consulting agreement expired
June 30, 1998, but has been extended by the Company. In fiscal year 1997, Mr.
Beemer received $112,705 in compensation under his consulting agreement.
Through The Muhs Company, Inc., Frederick H. Muhs provides certain business
and financial consulting services to Henry Company. Henry Company pays The Muhs
Company, Inc. a retainer of $3,000 per month for these services. See "Certain
Transactions."
84
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning compensation
received for services rendered to Henry Company in all capacities during the
fiscal year ended December 31, 1997 by Henry Company's Chief Executive Officer
and each of Henry Company's five other most highly compensated executive
officers whose annual salary and bonus for the year ended December 31, 1997
exceeded $100,000 (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION OTHER INCENTIVE
--------------------------------- ANNUAL PLAN ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMP.(1) LTIP PAYOUT COMPENSATION
- ---------------------------------------------------- --------- ---------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Warner W. Henry .................................... 1997 $ 330,000 $ -- $ 21,450 -- --
Chairman of the Board and
Chief Executive Officer
Richard B. Gordinier ............................... 1997 245,415 122,523 23,888 -- 30,187(2)
President and Chief
Operating Officer
James Doose ........................................ 1997 229,400 3,000 -- -- --
President--Resin Technology Company
Jeffrey A. Wahba ................................... 1997 151,400 29,000 11,381 11,168(3) 12,494(4)
Chief Financial Officer,
Vice President and Secretary
John R. Enright .................................... 1997 154,500 31,000 4,295 -- --
President--Henry Coatings Division
James T. Nelligan(5)................................ 1997 149,000 33,000 11,450 -- --
</TABLE>
- ------------------------
(1) "Other Annual Compensation" represents contributions to the accounts of the
Named Executive Officers under Henry Company's Nonqualified Executive
Deferral Plan and Profit Sharing / 401(k) Plan. See "Management--Executive
Deferral Plan" and "Management--Profit Sharing/401(k) Plan."
(2) Included in this amount is $17,937 of debt owed to and forgiven by Henry
Company and $12,250 in annual compensation as result of the difference
between the market rate and actual interest rate on certain loans from Henry
Company. See "Management--Employment Agreements and Compensation
Arrangements" and "Certain Transactions."
(3) Represents incentive plan compensation payments received in 1997 and earned
as follows: $5,629 in 1995 and $5,539 in 1996. See "Management--Employment
Agreements and Compensation Arrangements."
(4) Represents an elected payout from Henry Company's Executive Deferral Plan
for contributions to such plan by Mr. Wahba and Henry Company of $2,400 and
$7,487, respectively, which were made in 1992. The remainder of $2,607
represents interest earned on the contributed amounts.
(5) James T. Nelligan was the former President of Henry Company's Coatings
Division. Mr. Nelligan's employment with the Company terminated on March 31,
1998.
85
<PAGE>
WARRANT GRANTS IN LAST FISCAL YEAR
The following table provides certain information regarding warrants to
purchase shares of Henry Company's capital stock granted to any Named Executive
Officer during the year ended December 31, 1997:
WARRANT GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES WARRANTS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
WARRANTS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED FISCAL YEAR (2) DATE VALUE(3)
- ----------------------------------------------------- ----------- --------------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Warner W. Henry...................................... 400,000(1) 100 $ 12.94 9/30/12 $ 44,000
</TABLE>
- ------------------------
(1) On October 1, 1997 Henry Company granted the Warner W. Henry Living Trust
warrants to purchase an aggregate of 400,000 shares of Henry Company capital
stock, consisting of 12,000 shares of Class A Common Stock and 388,000
shares of Common Stock (the "Henry Warrants"). The Henry Warrants expire on
September 30, 2012 and may be exercised in whole or in part at variable and
increasing exercise prices over the term of the Henry Warrants. The current
and maximum exercise prices of the Henry Warrants for both Class A Common
Stock and Common Stock are $12.94 and $38.82 per share, respectively. Warner
W. Henry is the trustee of the Warner W. Henry Living Trust and may be
assumed to have beneficial ownership of the Henry Warrants and shares
purchasable upon exercise of the Henry Warrants. The Henry Warrants were
issued as further consideration for certain loans made to Henry Company by
Mr. Henry.
(2) The warrants have an exercise price that exceeded the fair value of the
capital stock at the date of grant.
(3) The grant date present value of each warrant is estimated at 11 CENTS using
the Black-Scholes pricing model with the following assumptions: risk-free
rate of return of 6.0%, expected warrant life of 15 years; forfeiture rate
of zero (0); volatility of 20%; no expected dividends; and no adjustments
for non-transferability.
EXECUTIVE DEFERRAL PLAN
Henry Company has adopted an Executive Deferral Plan (the "Plan") to allow
certain management personnel and highly compensated employees to defer a portion
of their annual salary and bonus to be paid at a future date chosen by them or
upon their retirement, death, disability or termination of employment.
Participants in the Plan are selected by an administrative committee (the "Plan
Committee") appointed by the Board of Directors which establishes eligibility
qualifications and manages and administers the Plan. To participate in the Plan
for any year, a participant must make an irrevocable election to defer at least
$2,000 to a maximum of 100% of his or her base salary and bonus for such year
prior to the beginning of the year for which the salary and bonus relate. For
each Plan year Henry Company may contribute to each participant's account at the
Plan Committee's discretion. Deferred amounts are credited with interest at the
September "Moody's Seasoned Corporate Bond" rate that is published prior to the
end of the Plan year preceding the Plan year for which the rate is used.
Participants are at all times fully vested in their deferred compensation
accounts except in the event of a termination of their employment, in which case
participants are vested to only a percentage of any Company contributions that
have been made, calculated according to the executive's number of years of
employment. At the time of deferral, participants may elect to receive future
short-term payouts with respect to each year's deferral, payable in a lump sum
not prior to the sixth Plan year following such deferral. Amounts payable to a
participant pursuant to the Plan are unfunded amounts to be paid from the
general assets of the Company and are at all times subject to the risk of the
Company's business. The Company funds the Plan with whole life insurance
policies. The policies are held by a trust that ensures funding of employee
benefits upon a change of control, a change in management or a change in the
Company's financial condition.
86
<PAGE>
PROFIT SHARING/401(K) PLAN
Henry Company's Profit Sharing / 401(k) Plan, as amended and restated as of
January 1, 1995 (the "401(k) Plan") is a qualified profit sharing plan with a
401(k) feature covering all employees of Henry Company and its affiliates who
have completed one year of service and attained the age of 21. Participants in
the 401(k) Plan may contribute up to 15% of their annual compensation to the
401(k) Plan through salary deferral. In addition, Henry Company may make annual
discretionary matching contributions not to exceed 10% of a participant's annual
compensation. Participating employees are 100% vested in participant
contributions and become vested to a certain percentage of any Henry Company
discretionary matching contributions according to the employee's years of
service with Henry Company or its affiliates.
EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS
Henry Company has entered into employment agreements with Mr. Gordinier, Mr.
Doose, Mr. Enright, Mr. Mooney and Mr. Karasiuk, and into incentive compensation
agreements with Mr. Enright and Mr. Wahba.
Mr. Gordinier's employment agreement entitles him to a base salary and a
bonus, subject to annual review by the Executive Committee of the Board of
Directors, and to certain other benefits, including reimbursement of certain
club memberships. In fiscal year 1997, Mr. Gordiner's base salary was $245,415
and his bonus was $122,523. Mr. Gordinier is also entitled to a bonus if a
distribution of money or assets is made to the shareholders of the Company. If a
distribution is made because of a sale of the Company, Mr. Gordinier would
receive 10% of the sale amount in excess of $5,895,595, reduced by $200,000 and
the outstanding balance of any outstanding loans to Mr. Gordinier (the
"Reduction Amount"). In connection with Mr. Gordiner's employment, Henry Company
has loaned him a total of $175,000 of loans which do not bear interest. As of
December 31, 1997, the aggregate amount outstanding under these loans was
$175,000. If Mr. Gordinier voluntarily terminates his employment or if the
Company terminates his employment for any reason other than "for cause" (as
defined in the employment agreement), Mr. Gordinier is entitled to a one-year
severance payment equal to his then salary and guaranteed bonus and a
termination award (the "Termination Award"). The Termination Award is equal to
10% of the amount by which the fair market value of the Company exceeds
$5,895,595, such fair market value to be determined by appraisal, subject to
reduction by the Reduction Amount. The Company maintains a life insurance policy
on the life of Mr. Gordinier in the amount of $2,000,000 to assist in funding
the Termination Award. The Termination Award is payable in four equal annual
installments, with the unpaid balance bearing interest at the Bank of America
prime rate existing on the due date of the first installment. Mr. Gordinier's
employment agreement automatically renews annually, unless terminated earlier by
either party.
Mr. Doose's employment agreement provides for a base salary, subject to
annual cost-of-living and discretionary increases. For 1997, Mr. Doose's base
salary was $229,400. Mr. Doose also receives annual bonuses based on the net
operating profits of, and on the return on capital employed at, RTC. If Mr.
Doose is terminated without cause, he is entitled to base compensation plus the
bonus calculated on net operating profits for the remaining term of the
agreement. The agreement contains a covenant restricting Mr. Doose from
competing with Henry Company for two years after the termination of employment.
Mr. Doose's employment agreement terminates January 1, 2004.
Pursuant to his employment agreement, Mr. Enright receives an annual base
salary, currently $154,500, subject to annual discretionary increases, and an
annual incentive bonus based upon certain agreed-upon objectives. During the
term of Mr. Enright's employment, and for twelve months following termination,
Mr. Enright has agreed not to directly or indirectly compete with or engage in a
business competitive with the Company. Mr. Enright's employment agreement is
automatically extended for additional one-year terms each July 1, unless
terminated sooner.
87
<PAGE>
Mr. Enright's incentive compensation agreement provides for deferred
compensation based upon an increase in the net book value of the Henry Sealants
Division. This amount is payable to Mr. Enright upon his termination or the
Division's cessation of operations (the "Termination Date"), although the
Company may accelerate the benefit in the event of Mr. Enright's death or
disability. Beginning January 1, 1998, Mr. Enright will receive annually 25% of
the deferred benefit amount that would be payable if the Termination Date had
occurred as of the end of the previous fiscal year. In addition, if Henry
Company sells all or substantially all of the assets of the Henry Sealants
Division, Mr. Enright is entitled to an amount equal to the greater of the
deferred benefit amount as of the month preceding such sale or an amount based
on the excess of the amount of sales proceeds over the Division's initial book
value.
Henry Company has entered into an incentive compensation agreement with Mr.
Wahba providing for additional compensation to Mr. Wahba upon the termination of
his employment, Henry Company's liquidation or cessation of business, or a
change of control of Henry Company. Such compensation is based upon the
cumulative operating profit for certain Henry Company divisions from a starting
date in 1988 or 1990. A portion of the deferred benefit amount may be paid to
Mr. Wahba following each fiscal year. In addition, Mr. Wahba is entitled to
receive a payment based on the excess of the amount of proceeds received from
the sale of a Henry Company division over an initial defined book value for that
division.
Mr. Mooney is a Vice Chairman of the Board of the Company with an annual
base salary of $350,000, subject to annual review. The term of Mr. Mooney's
employment agreement is for two years from the closing of the Acquisition. With
respect to the capital stock of the Company that was purchased by Mr. Mooney in
connection with the Acquisition, Mr. Mooney has the right to require the Company
to repurchase one-sixth of such capital stock each year over a five-year period
beginning January 1, 2004 (except that the last one-sixth would be repurchased
July 1, 2008) for an aggregate purchase price of $3.0 million. Such capital
stock would also be repurchased upon Mr. Mooney's death, in which event the
purchase would be funded by the proceeds from the key person life insurance
policies the Company holds on Mr. Mooney's life. See "The Transactions" and
"Management--Key Person Life Insurance."
Mr. Karasiuk is employed as the President of the Company's Monsey Bakor
division with an annual base salary of Canadian $250,000, subject to annual
review. Mr. Karasiuk is also entitled to an annual bonus of up to 50% of his
base salary in the discretion of the Company's Board of Directors. The term of
Mr. Karasiuk's employment agreement is for three years from the closing of the
Acquisition.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation authorize the indemnification of
Company officers and directors to the fullest extent permissible under
California law. Subject to the Articles of Incorporation and California law, the
Bylaws provide that Henry Company shall indemnify each of its directors and
officers against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that any person is or was a Company director or officer. The
Company intends to purchase director's and officer's liability insurance
following the Acquisition.
KEY PERSON LIFE INSURANCE
Henry Company currently maintains a term life insurance policy in the amount
of $2,000,000 on the life of Richard B. Gordinier, under which Henry Company is
the sole beneficiary. The Company also maintains whole life insurance policies
in the amount of $7,770,000 on the life of Joseph T. Mooney, Jr., under which
the Company is the sole beneficiary.
88
<PAGE>
SHAREHOLDERS
The following sets forth information regarding beneficial ownership of the
Common Stock and the Class A Common Stock of the Company as of July 21, 1998.
Henry Company believes that persons and entities named in the table have sole
voting and investment power with respect to all shares of Class A Common Stock
and Common Stock shown as beneficially owned by them, subject to community
property laws, where applicable. There is no established public trading market
for any class of Henry Company's equity securities. See "The Transactions."
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
BENEFICIAL OWNERSHIP OF
COMMON STOCK CLASS A COMMON STOCK TOTAL VOTING
--------------------------------- -------------------------- POWER(1)(2)(3)(4)(5)
NAME AND ADDRESS NUMBER OF NUMBER OF ---------------------
OF BENEFICIAL OWNER SHARES PERCENT(1)(2)(3) SHARES PERCENT PERCENT
- --------------------------- ------------ ------------------- ------------- ----------- ---------------------
<S> <C> <C> <C> <C> <C>
Warner W. Henry, Trustee,
Warner W. Henry Living
Trust(6)................... 388,000(1) 53.0% 18,000(4) 100.0% 74.7%
2911 Slauson Ave.
Huntington Park, CA
90255
Terrill M. Gloege as
Trustee of the William
Warner Henry Trust
established under the Henry
Trust dated 9/17/93........ 64,106 8.8 -- -- 4.7
2911 Slauson Ave.
Huntington Park, CA
90255
Terrill M. Gloege as
Trustee of the Catherine
Anne Henry Trust
established under the Henry
Trust dated 9/17/93........ 64,106 8.8 -- -- 4.7
2911 Slauson Ave.
Huntington Park, CA
90255
Terrill M. Gloege as
Trustee
of the Michael Andrew Henry
Trust established under the
Henry Trust dated
9/17/93.................... 64,106 8.8 -- -- 4.7
2911 Slauson Ave.
Huntington Park, CA
90255
Frederick H. Muhs.......... 82,500 (2) 11.3 -- -- 6.1
Joseph T. Mooney, Jr....... 67,500 (3) 9.2 -- -- 5.0
Carol F. Henry............. 1,682 0.2 -- -- 0.1
<CAPTION>
TOTAL ECONOMIC
INTEREST(1)(2)(3)(4)
NAME AND ADDRESS ---------------------
OF BENEFICIAL OWNER PERCENT
- --------------------------- ---------------------
<S> <C>
Warner W. Henry, Trustee,
Warner W. Henry Living
Trust(6)................... 54.1%
2911 Slauson Ave.
Huntington Park, CA
90255
Terrill M. Gloege as
Trustee of the William
Warner Henry Trust
established under the Henry
Trust dated 9/17/93........ 8.6
2911 Slauson Ave.
Huntington Park, CA
90255
Terrill M. Gloege as
Trustee of the Catherine
Anne Henry Trust
established under the Henry
Trust dated 9/17/93........ 8.6
2911 Slauson Ave.
Huntington Park, CA
90255
Terrill M. Gloege as
Trustee
of the Michael Andrew Henry
Trust established under the
Henry Trust dated
9/17/93.................... 8.6
2911 Slauson Ave.
Huntington Park, CA
90255
Frederick H. Muhs.......... 11.0
Joseph T. Mooney, Jr....... 9.0
Carol F. Henry............. 0.2
</TABLE>
- ------------------------------
(1) Assumes exercise of the Henry Warrants to purchase 388,000 shares of Common
Stock which expire on September 30, 2012. The warrants may be exercised in
whole or in part at variable exercise prices which increase over the term of
the warrant. The current and maximum exercise prices for such Common Stock
is $12.94 and $38.82 per share, respectively. See "Management-- Executive
and Director Compensation."
(2) Assumes the exercise of Mr. Muhs' right to purchase up to 55,000 shares of
Common Stock in amounts sufficient to maintain his current percentage of
economic interest in the Company following the exercise of any of the Henry
Warrants (and the purchase of shares of Common Stock by Mr. Mooney pursuant
to his similar rights).
(3) Assumes the conversion of Mr. Mooney's redeemable convertible preferred
stock into 22,500 shares of Common Stock and the exercise of Mr. Mooney's
right to purchase up to 45,000 shares of Common Stock in amounts sufficient
to maintain his current percentage of economic interest in the Company
following the exercise of any of the Henry Warrants (and the purchase of
shares of Common Stock by Mr. Muhs pursuant to his similar right).
(4) Assumes exercise of the Henry Warrants to purchase 12,000 shares of Class A
Common Stock which expire on September 30, 2012. The warrants may be
exercised in whole or in part at variable exercise prices which increase
over the term of the warrants. The current and maximum exercise prices for
such Class A Common Stock is $12.94 and $38.82 per share, respectively. See
"Management--Executive and Director Compensation."
(5) The Common Stock and the Class A Common Stock vote together as a single
class. However, each share of Class A Common Stock entities the holder to 35
votes on all matters for which there is a vote, while each share of Common
Stock entitles the holder to one vote on all such matters.
(6) Warner W. Henry is the trustee of the Warner W. Henry Living Trust and may
be assumed to have beneficial ownership of all shares and warrants held by
the trust. Amount shown does not include 1,682 shares owned by Carol Henry,
as to which shares Mr. Henry disclaims beneficial ownership.
89
<PAGE>
CERTAIN TRANSACTIONS
The Company leases its Huntington Park headquarters and certain operating
equipment from a family trust and living trust for which Warner W. Henry is the
trustee pursuant to three separate real property leases and one equipment lease.
These leases expire in 2002, 2006 and 2016. The total rent paid in 1997 for the
Huntington Park leases was approximately $424,904. The Company leases additional
property at its Huntington Park headquarters from Alamo Development Company.
Frederick H. Muhs, a director of the Company, is a shareholder of Alamo
Development Company along with certain other members of his family. The Company
currently pays rent of $5,330 per month pursuant to this lease which is subject
to annual adjustments to reflect changes in the Bank of America prime rate. The
lease expires February 28, 2002 and provides for the Company's option to
purchase the property upon six months written notice. The Company also leases
certain warehouse facilities in Irvington, New Jersey, from Sea Jay, Inc. The
shareholders of Sea Jay, Inc. are Joseph T. Mooney, Jr. and certain of his
family members. The Company currently pays rent of $2,333 per month pursuant to
this lease which expires December 31, 1999. The Company has the option to extend
the lease for five additional consecutive one year terms at increasing annual
rental amounts. The Company believes that the rent paid under the above leases
represent substantially fair market value and that the other terms and
conditions of the leases are commercially reasonable.
Henry Company has made loans to Richard B. Gordinier for personal reasons
pursuant to various loan agreements and promissory notes originated at various
times since 1988 for one year terms that were subsequently extended for
successive one year terms. The loans currently bear interest at Bank of
America's prime rate, currently 8.5%, and may be prepaid without penalty. As of
December 31, 1997, an aggregate of $376,428 was outstanding on these loans. In
addition, Mr. Gordinier has received $175,000 of non-interest bearing loans in
connection with his employment. See "Management--Employment Agreements and
Compensation Arrangements."
Warner Henry previously loaned approximately $5.0 million to Henry Company
on a subordinated basis. The indebtedness accrued interest at a variable rate
based on Bank of America's prime rate. As of December 31, 1997, the accrued
interest on this indebtedness was $36,774. The Company repaid this indebtedness
in full at the closing of the Acquisition.
Mr. Muhs has purchased 27,500 shares of Common Stock of the Company for $2.0
million in cash at the closing of the Acquisition. Mr. Muhs was also granted
rights to purchase sufficient shares of Common Stock of the Company to prevent
dilution of Mr. Muhs' ownership percentage in the event of the exercise of the
Henry Warrants and outstanding rights held by Mr. Mooney.
Henry Company performs certain administrative services for an affiliate,
Henry II Company, a California corporation, pursuant to an administrative
services agreement that provides for payments from Henry II Company to Henry
Company. These payments are expected to total $1.1 million in 1998. Henry II
Company's shareholders are Warner W. Henry, Carol Henry, and certain trusts for
the benefit of their children.
At December 31, 1997, Henry Company sold certain property with a net book
value of $1.9 million to Henry II Company in exchange for a note of $1.9
million. The note bears interest at the prime rate, is repayable in a lump sum
at any time up to December 31, 2002, and is secured by an interest in the
property. In addition, at December 31, 1997 Henry II Company owed $2.2 million
for working capital advances net of payments to Henry Company of $2.1 million in
1997.
Henry Company receives business and financial consulting services from The
Muhs Company, Inc., of which Frederick H. Muhs, a director of the Company, is
the President and controlling shareholder. Henry Company paid $33,000 for these
services in 1997. See "Management--Executive and Director Compensation."
Joseph T. Mooney, Jr. and certain of his family members are the shareholders
of Sea Jay, Inc. Monsey Bakor sold approximately $39,000 of product to Sea Jay
in fiscal year 1997.
The Company is a party to employment and consulting agreements with certain
directors and officers of the Company. See "Management."
90
<PAGE>
DESCRIPTION OF THE CREDIT FACILITIES
THE NEW BANK CREDIT FACILITY
Concurrently with the consummation of the Transactions, the Company entered
into a credit agreement providing for a new $35.0 million credit facility (the
"New Bank Credit Facility"). The New Bank Credit Facility allows the Company to
obtain revolving credit loans for working capital in an aggregate amount
outstanding of up to $25.0 million subject to a borrowing base, plus $10.0
million for capital expenditures. Working capital loans under the New Bank
Credit Facility bear interest at the lender's prime rate or at a LIBOR-based
rate, and capital expenditure loans bear interest at slightly higher rates than
the working capital loans.
The New Bank Credit Facility terminates on the fifth anniversary of the
consummation of the Acquisition. As of December 31, 1997, on a pro forma basis,
the Company would have had an estimated $17.2 million available under the
working capital facility. Amounts become available under the capital expenditure
facility in connection with the purchase of a qualifying asset. If the
Acquisition had closed on December 31, 1997, the Company's borrowings under the
New Bank Credit Facility would have totaled approximately $0.0 million. As of
June 30, 1998, such borrowings totaled approximately $ 0.2 million.
The obligations of the Company under the New Bank Credit Facility are
secured by a first priority lien on the Company's accounts receivable,
inventory, the assets financed under the capital expenditure facility and
certain other assets. The Notes are effectively subordinated to the obligations
under the New Bank Credit Facility.
The New Bank Credit Facility contains various covenants that restrict the
Company from taking various actions and that require that the Company achieve
and maintain certain levels of performance as measured by certain financial
ratios. The New Bank Credit Facility includes covenants relating to minimum
current ratio, minimum tangible net worth, minimum fixed charge ratio, maximum
leverage ratio and limitations on capital expenditures, investments,
indebtedness, liens, dividends, sales of assets, guarantee obligations,
prepayments of other indebtedness, mergers, acquisitions or sales of assets.
change in business activities, affiliate transactions, issuance of equity and
certain corporate activities. The New Bank Credit Facility also prohibits the
Company from prepaying the Exchange Notes.
The New Bank Credit Facility contains customary events of default, including
nonpayment of principal, interest or fees, violation of covenants, inaccuracy of
representations or warranties in any material respect, default under certain
other indebtedness, bankruptcy, material judgments and liabilities and change of
control.
CANADIAN CREDIT FACILITIES
The holding company for the Company's Canadian subsidiaries has financed its
and its subsidiaries' working capital needs as of December 31, 1997 through a
Canadian $6.0 million (approximately U.S. $4.4 million) secured credit facility
guaranteed by its Canadian subsidiaries. Borrowings under this facility are
subject to a borrowing base, and the principal thereunder is due upon demand.
The facility bears interest at National Bank of Canada's prime rate.
In addition, a Canadian subsidiary of the Company had approximately $0.4
million (Canadian $0.6 million) outstanding at December 31, 1997 pursuant to a
secured term loan facility which matures in 2000. Another Canadian subsidiary
had approximately $0.2 million (Canadian $0.3 million) of term indebtedness
outstanding at December 31, 1997 which was retired in February 1998.
91
<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes will be issued under an indenture (the "Indenture"),
dated as of April 22, 1998 by and among the Company, the Guarantors and U.S.
Trust Company, N.A., as Trustee (the "Trustee"). The following summary of
certain provisions of the Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of
the Indenture, including the definitions of certain terms therein and those
terms made a part of the Indenture by reference to the TIA as in effect on the
date of the Indenture. A copy of the Indenture may be obtained from the Company
or the Initial Purchaser. The definitions of certain capitalized terms used in
the following summary are set forth below under "--Certain Definitions." For
purposes of this section, references to the "Company" include only the Company
and not its Subsidiaries.
The Exchange Notes will be senior unsecured obligations of the Company,
ranking PARI PASSU in right of payment with all other senior unsecured
obligations of the Company.
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as paying agent and registrar for the Exchange Notes. The
Exchange Notes may be presented for registration or transfer and exchange at the
offices of the Registrar, which initially will be the Trustee's corporate trust
office. The Company may change any paying agent and registrar without notice to
holders of the Exchange Notes (the "Holders"). The Company will pay principal
(and premium, if any) on the Exchange Notes at the Trustee's corporate office in
New York, New York. At the Company's option, interest may be paid at the
Trustee's corporate trust office or by check mailed to the registered address of
Holders. Any Exchange Notes that remain outstanding after the completion of the
Exchange Offer, together with the Exchange Notes issued in connection with the
Exchange Offer, will be treated as a single class of securities under the
Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Indenture is limited in aggregate principal amount to $150,000,000, of
which $85,000,000 has been issued as Old Notes, some or all of which may be
exchanged for Exchange Notes. will be issued in the Exchange Offer. The Exchange
Notes will mature on April 15, 2008. Additional amounts may be issued in one or
more series from time to time subject to the limitations set forth under
"--Certain Covenants-- Limitation on Incurrence of Additional Indebtedness" and
restrictions contained in the New Bank Credit Facility. Interest on the Exchange
Notes will accrue at the rate of 10% per annum and will be payable semiannually
in cash on each April 15 and October 15 commencing on October 15, 1998, to the
persons who are registered Holders at the close of business on April 1 and
October 1, respectively, immediately preceding the applicable interest payment
date. The Exchange Notes will bear interest from April 22, 1998 at the rate of
10% per annum, payable semi-annually in arrears, in cash, on April 15 and
October 15 of each year, commencing October 15, 1998. Holders of Old Notes whose
Old Notes are accepted for exchange will be deemed to have waived the right to
receive any payment in respect of interest on the Old Notes accrued from April
22, 1998 until the date of the issuance of the Exchange Notes. Consequently,
holders who exchange their Old Notes for Exchange Notes will receive the same
interest payment on October 15, 1998 (the first interest payment date with
respect to the Old Notes and the Exchange Notes) that they would have received
had they not accepted the Exchange Offer.
The Exchange Notes will not be entitled to the benefit of any mandatory
sinking fund.
REDEMPTION
OPTIONAL REDEMPTION.
The Exchange Notes will be redeemable, at the Company's option, in whole at
any time or in part from time to time, on and after April 15, 2003, upon not
less than 30 nor more than 60 days' notice, at the
92
<PAGE>
following redemption prices (expressed as percentages of the principal amount
thereof) if redeemed during the twelve-month period commencing on April 15 of
the year set forth below, plus, in each case, accrued and unpaid interest
thereon, if any, to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2003.............................................................................. 105.000%
2004.............................................................................. 103.333%
2005.............................................................................. 101.667%
2006 and thereafter............................................................... 100.000%
</TABLE>
OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS.
At any time, or from time to time, on or prior to April 15, 2001, the
Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings (as defined below) to redeem up to 35% of the sum of (i) the
initial aggregate principal amount of the Notes issued in the Initial Offering
and (ii) the respective initial aggregate principal amounts of the Notes issued
under the Indenture after the Initial Issue Date, at a redemption price equal to
110% of the principal amount thereof plus accrued and unpaid interest thereon,
if any, to the date of redemption; PROVIDED, HOWEVER, that at least 65% of the
sum of (i) the initial aggregate principal amount of the Notes issued in the
Initial Offering and (ii) the respective initial aggregate principal amounts of
the Notes issued under the Indenture after the Initial Issue Date remains
outstanding immediately after any such redemption. In order to effect the
foregoing redemption with the proceeds of any Public Equity Offering, the
Company shall make such redemption not more than 120 days after the consummation
of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time,
selection of such Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which such Notes are listed or, if such Notes are not then listed on a national
securities exchange, on a PRO RATA basis, by lot or by such method as the
Trustee shall deem fair and appropriate; PROVIDED, HOWEVER, that no Notes of a
principal amount of $1,000 or less shall be redeemed in part; PROVIDED, FURTHER,
that if a partial redemption is made with the proceeds of a Public Equity
Offering, selection of the Notes or portions thereof for redemption shall be
made by the Trustee only on a PRO RATA basis or on as nearly a PRO RATA basis as
is practicable (subject to DTC procedures), unless such method is otherwise
prohibited. Notice of redemption shall be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each Holder of Notes to
be redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Company has deposited with the paying agent funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
GUARANTEES
Each Guarantor unconditionally guarantees, on a senior basis, jointly and
severally, to each Holder and the Trustee, the full and prompt performance of
the Company's obligations under the Indenture and the Notes, including the
payment of principal of and interest on the Notes. The obligations of each
Guarantor are limited to the maximum amount which, after giving effect to all
other contingent and fixed
93
<PAGE>
liabilities of such Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under the Indenture, will result in the obligations of
such Guarantor under the Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law. Each Guarantor that makes a
payment or distribution under a Guarantee shall be entitled to a contribution
from each other Guarantor in an amount PRO RATA, based on the net assets of each
Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor that is a Wholly Owned Restricted Subsidiary of the
Company without limitation, or with other Persons upon the terms and conditions
set forth in the Indenture. See "--Certain Covenants--Merger, Consolidation and
Sale of Assets." In the event all of the Capital Stock of a Guarantor is sold by
the Company and the sale complies with the provisions set forth in "--Certain
Covenants--Limitation on Asset Sales," the Guarantor's Guarantee will be
released.
CHANGE OF CONTROL
The Indenture will provide that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued interest to the date of purchase.
Within 30 days following the date upon which the Change of Control occurred,
the Company must send, by first class mail, a notice to each Holder, with a copy
to the Trustee, which notice shall govern the terms of the Change of Control
Offer. Such notice shall state, among other things, the purchase date, which
must be no earlier than 30 days nor later than 60 days from the date such notice
is mailed, other than as may be required by law (the "Change of Control Payment
Date"). Holders electing to have an Note purchased pursuant to a Change of
Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
its Restricted Subsidiaries to incur additional Indebtedness, to grant Liens on
its property, to make Restricted Payments and to make Asset Sales may also make
more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require redemption or repurchase of the Notes, and
there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such redemption or repurchase. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout of
the Company or any of its Subsidiaries by the management of the Company. While
such restrictions cover a wide variety of arrangements which have traditionally
been used to effect highly leveraged transactions, the Indenture may not afford
the Holders of Notes protection in all circumstances from the adverse aspects of
a highly leveraged transaction, reorganization, restructuring, merger or similar
transaction.
94
<PAGE>
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS.
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume, guarantee, acquire, become
liable, contingently or otherwise, with respect to, or otherwise become
responsible for payment of (collectively, "incur") any Indebtedness (other than
Permitted Indebtedness); PROVIDED, HOWEVER, that if no Default or Event of
Default shall have occurred and be continuing at the time of or as a consequence
of the incurrence of any such Indebtedness, the Company or any of its Guarantors
may incur Indebtedness (including, without limitation, Acquired Indebtedness) if
on the date of the incurrence of such Indebtedness, after giving effect to the
incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company
is greater than 2.0 to 1.0.
The Company will not, and will not permit any Guarantor to, incur any
Indebtedness which by its terms (or by the terms of any agreement governing such
Indebtedness) is subordinated in right of payment to any other Indebtedness of
the Company or such Guarantor, as the case may be, unless such Indebtedness is
also by its terms (or by the terms of any agreement governing such Indebtedness)
made expressly subordinate in right of payment to the Notes or the Guarantee of
such Guarantor, as the case may be, pursuant to subordination provisions that
are substantively identical to the subordination provisions of such Indebtedness
(or such agreement) that are most favorable to the holders of any other
Indebtedness of the Company or such Guarantor, as the case may be.
LIMITATION ON RESTRICTED PAYMENTS.
The Company will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make
any distribution (other than dividends or distributions payable in Qualified
Capital Stock of the Company) on or in respect of shares of the Company's
Capital Stock to holders of such Capital Stock, (b) purchase, redeem or
otherwise acquire or retire for value any Capital Stock of the Company or any
warrants, rights or options to purchase or acquire shares of any class of such
Capital Stock, (c) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund payment,
any Indebtedness of the Company or a Guarantor that is subordinate or junior in
right of payment to the Notes or a Guarantee, as the case may be, or (d) make
any Investment (each of the foregoing actions set forth in clauses (a), (b), (c)
and (d), other than Permitted Investments, being referred to as a "Restricted
Payment"), if at the time of such Restricted Payment or immediately after giving
effect thereto, (i) a Default or an Event of Default shall have occurred and be
continuing or (ii) the Company is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant or (iii) the
aggregate amount of Restricted Payments (including such proposed Restricted
Payment) made subsequent to the Issue Date shall exceed the sum of: (w) 50% of
the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income
shall be a loss, minus 100% of such loss) of the Company earned subsequent to
the Issue Date and on or prior to the date the Restricted Payment occurs (the
"Reference Date") (treating such period as a single accounting period); plus (x)
100% of the aggregate net cash proceeds received by the Company from any Person
(other than a Subsidiary of the Company) from
95
<PAGE>
the issuance and sale subsequent to the Issue Date and on or prior to the
Reference Date of Qualified Capital Stock of the Company; plus (y) to the extent
not otherwise included in Consolidated Net Income of the Company, an amount
equal to the net reduction in Investments (other than reductions in Permitted
Indebtedness) in Unrestricted Subsidiaries resulting from dividends, interest
payments, repayments of loans or advances, or other transfers of cash, in each
case, to the Company or to any Wholly Owned Restricted Subsidiary of the Company
from Unrestricted Subsidiaries, or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries (in each case valued as provided in the
definition of "Investment"), not to exceed, in the case of an Unrestricted
Subsidiary, the amount of Investments previously made by the Company or any
Restricted Subsidiary of the Company in such Unrestricted Subsidiary and which
were treated as a Restricted Payment under the Indenture; plus (z) without
duplication of any amounts included in clause (iii)(x) above, 100% of the
aggregate net cash proceeds of any equity contribution received by the Company
from a holder of the Company's Capital Stock (excluding, in the case of clauses
(iii)(x) and (z), any net cash proceeds from a Public Equity Offering to the
extent used to redeem the Notes).
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within 60
days after the date of declaration of such dividend if the dividend would have
been permitted on the date of declaration; (2) if no Default or Event of Default
shall have occurred and be continuing, the acquisition of any shares of Capital
Stock of the Company, either (i) solely in exchange for shares of Qualified
Capital Stock of the Company or (ii) through the application of net proceeds of
a substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company; (3) if no Default
or Event of Default shall have occurred and be continuing, the acquisition of
any Indebtedness of the Company or a Guarantor that is subordinate or junior in
right of payment to the Notes or a Guarantee, as the case may be, either (i)
solely in exchange for shares of Qualified Capital Stock of the Company, or (ii)
through the application of net proceeds of a substantially concurrent sale for
cash (other than to a Subsidiary of the Company) of (A) shares of Qualified
Capital Stock of the Company or (B) Refinancing Indebtedness; (4) so long as no
Default or Event of Default shall have occurred and be continuing, (i)
repurchases by the Company of Common Stock of the Company (or rights to acquire
such Common Stock) from employees of the Company or any of its Subsidiaries or
their authorized representatives upon the death, disability or termination of
employment of such employees, or as otherwise required by existing employment
agreements, in an aggregate amount not to exceed $500,000 in any calendar year
and $3,000,000 in the aggregate (PROVIDED that, notwithstanding the foregoing
$500,000 per year limitation, on or after April 22, 2003, the Company may
repurchase Common Stock of the Company (or rights to acquire such Common Stock)
through the issuance of indebtedness subordinated in right of payment to the
Notes in an aggregate principal amount of not more than $3,000,000 less the
aggregate amount of Restricted Payments made pursuant to this clause (4) prior
to the date of such issuance, which indebtedness shall provide for no payments
of principal in excess of $500,000 per year prior to the repayment in full of
the Notes) plus (ii) the aggregate cash proceeds from any payments on life
insurance policies for which the Company or its Subsidiaries is the beneficiary
with respect to any employees, officers or directors of the Company and its
Subsidiaries which proceeds are used to purchase the Common Stock of the Company
held by any such employees, officers or directors. In determining the aggregate
amount of Restricted Payments made subsequent to the Issue Date in accordance
with clause (iii) of the immediately preceding paragraph, amounts expended
pursuant to clauses (1), (2)(ii), (3)(ii)(A), and (4)(i) shall be included in
such calculation.
The amount of any non-cash Restricted Payment shall be the fair market
value, on the date such Restricted Payment is made, of the assets or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to such Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the Board
of Directors of the Company whose resolution with respect thereto shall be
delivered to the Trustee, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
96
<PAGE>
national standing if such fair market value exceeds $10,000,000. Not later than
50 days after the end of any fiscal quarter (100 days in the case of the last
fiscal quarter of the fiscal year) during which any Restricted Payment in made,
the Company shall deliver to the Trustee an officers' certificate stating that
all Restricted Payments made during such fiscal quarter were permitted and
setting forth the basis upon which the calculations required by this covenant
were computed, together with a copy of any opinion or appraisal required by the
Indenture.
LIMITATION ON ASSET SALES.
The Company will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless (i) the Company or the applicable Restricted
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the fair market value of the assets sold or otherwise
disposed of (as determined in good faith by the Company's Board of Directors),
(ii) at least 75% of the consideration received by the Company or the Restricted
Subsidiary, as the case may be, from such Asset Sale shall be in the form of
cash or Cash Equivalents and is received at the time of such disposition;
PROVIDED that the provisions of this clause (ii) shall not apply to an Asset
Sale to the extent comprised of real property; and (iii) upon the consummation
of an Asset Sale, the Company shall apply, or cause such Restricted Subsidiary
to apply, the Net Cash Proceeds relating to such Asset Sale within 360 days of
receipt thereof either (A) to prepay any Indebtedness under the New Bank Credit
Facility and, in the case of any Indebtedness under any Revolving Credit
Facility, effect a permanent reduction in the availability under such Revolving
Credit Facility, (B) to make an investment in properties and assets that replace
the properties and assets that were the subject of such Asset Sale or in
properties and assets that will be used in the business of the Company and its
Subsidiaries as existing on the Issue Date or in businesses reasonably related
thereto ("Replacement Assets"), or (C) a combination of prepayment and
investment permitted by the foregoing clauses (iii)(A) and (iii)(B). On the
361st day after an Asset Sale or such earlier date, if any, as the Board of
Directors of the Company or of such Restricted Subsidiary determines not to
apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses
(iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net
Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which
have not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding
sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company or
such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds
Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor
more than 45 days following the applicable Net Proceeds Offer Trigger Date, from
all Holders on a PRO RATA basis, that amount of Notes equal to the Net Proceeds
Offer Amount at a price equal to 100% of the principal amount of the Notes to be
purchased, plus accrued and unpaid interest thereon, if any, to the date of
purchase; PROVIDED, HOWEVER, that if at any time any non-cash consideration
received by the Company or any Restricted Subsidiary of the Company, as the case
may be, in connection with any Asset Sale is converted into or sold or otherwise
disposed of for cash (other than interest received with respect to any such
non-cash consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this covenant. The Company may defer the Net Proceeds
Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to
or in excess of $5,000,000 resulting from one or more Asset Sales (at which
time, the entire unutilized Net Proceeds Offer Amount, and not just the amount
in excess of $5,000,000, shall be applied as required pursuant to this
paragraph).
Notwithstanding the immediately preceding paragraph, the Company and its
Restricted Subsidiaries will be permitted to consummate an Asset Sale without
complying with such paragraph to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; PROVIDED that any consideration not
constituting Replacement Assets received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two preceding paragraphs.
97
<PAGE>
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender Notes in an amount
exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be
purchased on a PRO RATA basis (based on amounts tendered). A Net Proceeds Offer
shall remain open for a period of 20 business days or such longer period as may
be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with this covenant,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under this covenant by
virtue thereof.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES.
The Company will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to (a) pay dividends or make any other
distributions on or in respect of its Capital Stock; (b) make loans or advances
or to pay any Indebtedness or other obligation owed to the Company or any other
Restricted Subsidiary of the Company; or (c) transfer any of its property or
assets to the Company or any other Restricted Subsidiary of the Company, except
for such encumbrances or restrictions existing under or by reason of: (1)
applicable law; (2) the Indenture; (3) customary non-assignment provisions of
any contract or any lease governing a leasehold interest of any Restricted
Subsidiary of the Company; (4) any instrument governing Acquired Indebtedness,
which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person or the properties or
assets of the Person so acquired; (5) agreements existing on the Issue Date to
the extent and in the manner such agreements are in effect on the Issue Date
(including the New Bank Credit Facility); or (6) an agreement governing
Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred
pursuant to an agreement referred to in clause (2), (4) or (5) above; PROVIDED,
HOWEVER, that the provisions relating to such encumbrance or restriction
contained in any such Indebtedness are no less favorable to the Company in any
material respect as determined by the Board of Directors of the Company in their
reasonable and good faith judgment than the provisions relating to such
encumbrance or restriction contained in agreements referred to in such clause
(2), (4) or (5).
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES.
The Company will not permit any of its Restricted Subsidiaries that is not a
Guarantor to issue any Preferred Stock (other than to the Company or to a Wholly
Owned Restricted Subsidiary of the Company) or permit any Person (other than the
Company or a Wholly Owned Restricted Subsidiary of the Company) to own any
Preferred Stock of any Restricted Subsidiary of the Company that is not a
Guarantor.
LIMITATION ON LIENS.
The Company will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or permit or
suffer to exist any Liens of any kind against or upon any property or assets of
the Company or any of its Restricted Subsidiaries whether owned on the Issue
Date or acquired after the Issue Date, or any proceeds therefrom, or assign or
otherwise convey any right to receive income or profits therefrom unless (i) in
the case of Liens securing Indebtedness that is expressly subordinate or junior
in right of payment to the Notes or any Guarantee, the Notes and such Guarantee,
as the case may be, are secured by a Lien on such property, assets or proceeds
that is senior in priority to such Liens and (ii) in all other cases, the Notes
and the Guarantees are equally and ratably secured, except for
98
<PAGE>
(A) Liens existing as of the Issue Date to the extent and in the manner such
Liens are in effect on the Issue Date; (B) Liens securing Indebtedness under the
New Bank Credit Facility or the Canadian Credit Facility; (C) Liens securing the
Notes and the Guarantees; (D) Liens in favor of the Company or a Wholly Owned
Restricted Subsidiary of the Company on assets of any Restricted Subsidiary of
the Company; (E) Liens securing Refinancing Indebtedness which is incurred to
Refinance any Indebtedness which has been secured by a Lien permitted under the
Indenture and which has been incurred in accordance with the provisions of the
Indenture; PROVIDED, HOWEVER, that such Liens (A) are no less favorable to the
Holders and are not more favorable to the lienholders with respect to such Liens
than the Liens in respect of the Indebtedness being Refinanced and (B) do not
extend to or cover any property or assets of the Company or any of its
Restricted Subsidiaries not securing the Indebtedness so Refinanced; and (F)
Permitted Liens.
MERGER, CONSOLIDATION AND SALE OF ASSETS.
The Company will not, in a single transaction or series of related
transactions, consolidate or merge with or into any Person, or sell, assign,
transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or
otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Company's Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless: (i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company and of the Company's Restricted
Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be
a corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia and (y) shall expressly assume,
by supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes, the Indenture and the Registration
Rights Agreement on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction), the Company or such
Surviving Entity, as the case may be, (1) shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction and (2) shall be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"--Limitation on Incurrence of Additional Indebtedness" covenant; (iii)
immediately before and immediately after giving effect to such transaction and
the assumption contemplated by clause (i)(2)(y) above (including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred and any Lien granted in connection with or in
respect of the transaction), no Default or Event of Default shall have occurred
or be continuing; and (iv) the Company or the Surviving Entity shall have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with the
applicable provisions of the Indenture and that all conditions precedent in the
Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the Company
in accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which the
99
<PAGE>
Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture and the Notes with the same effect as if such
surviving entity had been named as such.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture in connection
with any transaction complying with the provisions of the "--Limitation on Asset
Sales" covenant) will not, and the Company will not cause or permit any
Guarantor to, consolidate with or merge with or into any Person other than the
Company or any other Guarantor unless: (i) the entity formed by or surviving any
such consolidation or merger (if other than the Guarantor) or to which such
sale, lease, conveyance or other disposition shall have been made is a
cor-poration organized and existing under the laws of the United States or any
State thereof or the District of Columbia; (ii) such entity assumes by
supplemental indenture all of the obligations of the Guarantor on the Guarantee;
(iii) immediately after giving effect to such transaction, no Default or Event
of Default shall have occurred and be continuing; and (iv) immediately after
giving effect to such transaction and the use of any net proceeds therefrom on a
PRO FORMA basis, the Company could satisfy the provisions of clause (ii) of the
first paragraph of this covenant. Any merger or consolidation of a Guarantor
with and into the Company (with the Company being the surviving entity) or
another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company
need only comply with clause (iv) of the first paragraph of this covenant.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of its Affiliates (each an "Affiliate
Transaction"), other than (x) Affiliate Transactions permitted under paragraph
(b) below and (y) Affiliate Transactions on terms that are no less favorable
than those that might reasonably have been obtained in a comparable transaction
at such time on an arm's-length basis from a Person that is not an Affiliate of
the Company or such Restricted Subsidiary. All Affiliate Transactions (and each
series of related Affiliate Transactions which are similar or part of a common
plan) involving aggregate payments or other property with a fair market value in
excess of $500,000 shall be approved by a majority of non-interested directors
of the Board of Directors of the Company or such Restricted Subsidiary, as the
case may be, such approval to be evidenced by a Board Resolution stating that
such majority of non-interested directors of the Board of Directors have
determined that such transaction complies with the foregoing provisions. If the
Company or any Restricted Subsidiary of the Company enters into an Affiliate
Transaction (or a series of related Affiliate Transactions related to a common
plan) that involves an aggregate fair market value of more than $5,000,000, the
Company or such Restricted Subsidiary, as the case may be, shall, prior to the
consummation thereof, obtain a favorable opinion as to the fairness of such
transaction or series of related transactions to the Company or the relevant
Restricted Subsidiary, as the case may be, from a financial point of view, from
an Independent Financial Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary of the Company as determined in good faith by the Company's Board of
Directors or senior management; (ii) transactions exclusively between or among
the Company and any of its Wholly Owned Restricted Subsidiaries or exclusively
between or among such Wholly Owned Restricted Subsidiaries, provided such
transactions are not otherwise prohibited by the Indenture; (iii) any agreement
as in effect as of the Issue Date or any amendment thereto or any transaction
contemplated thereby (including pursuant to any amendment thereto) in any
replacement agreement thereto so long as any such amendment or replacement
agreement is not more disadvantageous to the Holders in any material respect
than the original agreement as in effect on the Issue Date; and (iv) Restricted
Payments permitted by the Indenture.
100
<PAGE>
ADDITIONAL SUBSIDIARY GUARANTEES.
If the Company or any of its Restricted Subsidiaries transfers or causes to
be transferred, in one transaction or a series of related transactions, any
property to any Restricted Subsidiary (other than a Foreign Subsidiary) that is
not a Guarantor, or if the Company or any of its Restricted Subsidiaries shall
organize, acquire or otherwise invest in another Restricted Subsidiary (other
than a Foreign Subsidiary) having total assets with a book value in excess of
$500,000, then such transferee or acquired or other Restricted Subsidiary shall
(i) execute and deliver to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of the Company's obligations
under the Notes and the Indenture on the terms set forth in the Indenture and
(ii) deliver to the Trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such Restricted
Subsidiary and constitutes a legal, valid, binding and enforceable obligation of
such Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a
Guarantor for all purposes of the Indenture.
CONDUCT OF BUSINESS.
The Company and its Restricted Subsidiaries will not engage in any
businesses which are not the same, similar or related to the businesses in which
the Company and its Restricted Subsidiaries are engaged on the Issue Date.
REPORTS TO HOLDERS.
The Indenture will provide that the Company will deliver to the Trustee
within 15 days after the filing of the same with the Commission, copies of the
quarterly and annual reports and of the information, documents and other
reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will
also comply with the other provisions of TIA Section 314(a).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days;
(ii) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Notes tendered pursuant
to a Change of Control Offer or a Net Proceeds Offer);
(iii) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period of
30 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Notes
(except in the case of a default with respect to the "Merger, Consolidation
and Sale of Assets" covenant, which will constitute an Event of Default with
such notice requirement but without such passage of time requirement);
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount of
any Indebtedness of the Company or any Restricted Subsidiary of the Company,
or the acceleration of the final stated maturity of any such Indebtedness if
the aggregate principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to
pay principal at final maturity or which has been accelerated, aggregates
$2,500,000 or more at any time;
101
<PAGE>
(v) one or more judgments in an aggregate amount in excess of $2,500,000
shall have been rendered against the Company or any of its Restricted
Subsidiaries and such judgments remain undischarged, unpaid or unstayed for
a period of 60 days after such judgment or judgments become final and
non-appealable;
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(vii) any of the Guarantees ceases to be in full force and effect or any
of the Guarantees is declared to be null and void and unenforceable or any
of the Guarantees is found to be invalid or any of the Guarantors denies its
liability under its Guarantee (other than by reason of release of a
Guarantor in accordance with the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above) shall occur and be continuing, the Trustee or the Holders of at
least 25% in principal amount of outstanding Notes may declare the principal of
and accrued interest on all the Notes to be due and payable by notice in writing
to the Company and the Trustee specifying the respective Event of Default and
that it is a "notice of acceleration" (the "Acceleration Notice"), and the same
shall become immediately due and payable. If an Event of Default specified in
clause (vi) above occurs and is continuing, then all unpaid principal of, and
premium, if any, and accrued and unpaid interest on all of the outstanding Notes
shall IPSO FACTO become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder.
The Indenture will provide that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description above
of Events of Default, the Trustee shall have received an officers' certificate
and an opinion of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
102
<PAGE>
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for (i) the rights of Holders to
receive payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments are due, (ii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payments, (iii) the rights, powers, trust, duties and immunities of
the Trustee and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, reorganization and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders cash in U.S. dollars, non-callable U.S. government obligations, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default under the
Indenture or any other material agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and (ix) certain other customary
conditions precedent are satisfied. Notwithstanding the foregoing, the opinion
of counsel required by clause (ii) above with respect to a Legal Defeasance need
not be delivered if all Notes not therefore delivered to the Trustee for
cancellation
103
<PAGE>
(x) have become due and payable, or (y) will become due and payable on the
maturity date within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Company.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Guarantors and the Trustee, without the
consent of the Holders, may amend the Indenture for certain specified purposes,
including curing ambiguities, defects or inconsistencies, so long as such change
does not, in the opinion of the Trustee, adversely affect the rights of any of
the Holders in any material respect. In formulating its opinion on such matters,
the Trustee will be entitled to rely on such evidence as it deems appropriate,
including, without limitation, solely on an opinion of counsel. Other
modifications and amendments of the Indenture may be made with the consent of
the Holders of a majority in principal amount of the then outstanding Notes
issued under the Indenture, except that, without the consent of each Holder
affected thereby, no amendment may: (i) reduce the amount of Notes whose Holders
must consent to an amendment; (ii) reduce the rate of or change or have the
effect of changing the time for payment of interest, including defaulted
interest, on any Notes; (iii) reduce the principal of or change or have the
effect of changing the fixed maturity of any Notes, or change the date on which
any Notes may be subject to redemption or repurchase, or reduce the redemption
or repurchase price therefor; (iv) make any Notes payable in money other than
that stated in the Notes; (v) make any change in provisions of the Indenture
protecting the right of each Holder to receive payment of principal of and
interest on such Note on or after the due date thereof or to bring suit to
enforce such payment, or permitting Holders of a majority in principal amount of
Notes to waive Defaults or Events of Default; (vi) after the Company's
obligation to purchase Notes arises thereunder, amend, change or modify in any
material respect the obligation of the Company to make and consummate a Change
of Control Offer in the event of a Change of Control or make and consummate a
Net Proceeds Offer with respect to any Asset Sale that has been consummated or
modify any of the provisions or definitions with respect thereto; (vii) modify
or change any provision of the Indenture or the related definitions affecting
the ranking of the Notes or any Guarantee in a manner which adversely affects
the Holders; or (viii) release any Guarantor from any of its obligations under
its Guarantee or the Indenture otherwise than in accordance with the terms of
the Indenture.
104
<PAGE>
GOVERNING LAW
The Indenture will provide that it, the Notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be required
thereby.
THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the Trustee
will exercise such rights and powers vested in it by the Indenture, and use the
same degree of care and skill in its exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs. The Indenture and
the provisions of the TIA contain certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payments of
claims in certain cases or to realize on certain property received in respect of
any such claim as security or otherwise. Subject to the TIA, the Trustee will be
permitted to engage in other transactions; PROVIDED that if the Trustee acquires
any conflicting interest as described in the TIA, it must eliminate such
conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Subsidiaries or assumed in connection with the acquisition of assets from
such Person and in each case not incurred by such Person in connection with, or
in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company or such acquisition, merger or consolidation.
"AFFILIATE" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"ASSET ACQUISITION" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary
of the Company, or shall be merged with or into the Company or any Restricted
Subsidiary of the Company, or (b) the acquisition by the Company or any
Restricted Subsidiary of the Company of the assets of any Person (other than a
Restricted Subsidiary of the Company) which constitute all or substantially all
of the assets of such Person or comprise any division or line of business of
such Person or any other properties or assets of such Person other than in the
ordinary course of business.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Wholly Owned Restricted Subsidiary of the
Company of (a) any Capital Stock of any Restricted Subsidiary of the Company; or
(b) any other property or assets of the Company or any Restricted Subsidiary of
the Company other than in the ordinary course of business;
105
<PAGE>
PROVIDED, HOWEVER, that Asset Sales shall not include (i) a transaction or
series of related transactions for which the Company or its Restricted
Subsidiaries receive aggregate consideration of less than $500,000 and (ii) the
sale, lease, conveyance, disposition or other transfer of all or substantially
all of the assets of the Company as permitted under the "Merger, Consolidation
and Sale of Assets" covenant.
"BOARD OF DIRECTORS" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to the Trustee.
"CANADIAN CREDIT FACILITY" means the Credit Agreement dated as of February
27, 1995, between Bakor Holdings Inc. and National Bank of Canada, together with
the related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder (PROVIDED that such
increase in borrowings is permitted by the "Limitation on Incurrence of
Additional Indebtedness" covenant above) or adding Restricted Subsidiaries of
the Company as additional borrowers or guarantors thereunder) all or any portion
of the Indebtedness under such agreement or any successor or replacement
agreement and whether by the same or any other agent, lender or group of
lenders.
"CAPITAL STOCK" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person, and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank or (with respect to any Restricted Subsidiary)
any foreign country in which such Restricted Subsidiary is principally located,
having at the date of acquisition thereof combined capital and surplus of not
less than $250,000,000; (v) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in clause (iv)
above; (vi) in the case of any foreign Restricted Subsidiary, Investments: (a)
in direct obligations of the sovereign nation (or any agency thereof) in which
such foreign Restricted Subsidiary is organized or is conducting a substantial
amount of business or in obligations fully and unconditionally guaranteed by
such sovereign nation (or any agency thereof), (b) of the type and maturity
described in clauses (i) through (v) above of foreign obligors, which
Investments or obligors (or the parents of such obligors) have ratings described
in such clauses or equivalent ratings from
106
<PAGE>
comparable foreign rating agencies or (c) of the type and maturity described in
clauses (i) through (v) above of foreign obligors (or the parents of such
obligors), which Investments or obligors (or the parents of such obligors), are
not rated as provided in such clauses or in clause (vi) (b) but which are, in
the reasonable judgment of the Company, comparable in investment quality to such
Investments and obligors (or the parents of such obligors); and (vii)
investments in money market funds which invest substantially all their assets in
securities of the types described in clauses (i) through (vi) above.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), together with any Affiliates thereof (whether
or not otherwise in compliance with the provisions of the Indenture); (ii) the
approval by the holders of Capital Stock of the Company of any plan or proposal
for the liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); (iii) any Person or Group
(other than the Permitted Holders) shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 50% of
the aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company; or (iv) the replacement of a majority of the Board
of Directors of the Company over a two-year period from the directors who
constituted the Board of Directors of the Company at the beginning of such
period, and such replacement shall not have been approved by a vote of at least
a majority of the Board of Directors of the Company then still in office who
either were members of such Board of Directors at the beginning of such period
or whose election as a member of such Board of Directors was previously so
approved.
"CHANGE OF CONTROL OFFER" has the meaning set forth under "--Change of
Control."
"CHANGE OF CONTROL PAYMENT DATE" has the meaning set forth under "--Change
of Control."
"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of, such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"CONSOLIDATED EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent
Consolidated Net Income has been reduced thereby, (A) all income taxes of such
Person and its Restricted Subsidiaries paid or accrued in ac-cordance with GAAP
for such period (other than income taxes attributable to extraordinary, unusual
or nonrecurring gains or losses or taxes attributable to sales or dispositions
outside the ordinary course of business), (B) Consolidated Interest Expense and
(C) Consolidated Non-cash Charges (1) LESS any non-cash items increasing
Consolidated Net Income for such period (but not including non-cash income
recognized under the Company's warranty programs where such income reflects cash
already or simultaneously received by the Company), and (2) LESS any cash
payments made pursuant to the accounting method change "-non-cash environmental
charge," all as determined on a consolidated basis for such Person and its
Restricted Subsidiaries in accordance with GAAP.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a PRO
FORMA basis for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness of such Person or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the
107
<PAGE>
ordinary course of business for working capital purposes pursuant to working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four
Quarter Period and (ii) any asset sales or other distribution or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of such Person or one of its
Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (provided that such Consolidated EBITDA shall be included
only to the extent includable pursuant to the definition of "Consolidated Net
Income") attributable to the assets which are the subject of the Asset
Acquisition or asset sale or other disposition during the Four Quarter Period)
occurring during the Four Quarter Period or at any time subsequent to the last
day of the Four Quarter Period and on or prior to the Transaction Date, as if
such asset sale or other disposition or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired Indebtedness) occurred
on the first day of the Four Quarter Period. If such Person or any of its
Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a
third Person, the preceding sentence shall give effect to the incurrence of such
guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such
Person had directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the Transaction
Date; (2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the Transaction Date will be deemed to have
been in effect during the Four Quarter Period; and (3) notwithstanding clause
(1) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Qualified Capital
Stock) or any Guarantor paid, accrued or scheduled to be paid or accrued during
such period times (y) a fraction, the numerator of which is one and the
denominator of which is one minus the then current effective consolidated
federal, state and local tax rate of such Person, expressed as a decimal.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and amortization or write-off
of deferred financing costs, (b) the net costs under Interest Swap Obligations,
(c) all capitalized interest and (d) the interest portion of any deferred
payment obligation; and (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such Person
and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any Person, for any period,
the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; PROVIDED that there shall be excluded therefrom (a) after-tax gains
or losses from Asset Sales or abandonments or reserves relating thereto, (b)
after-tax items classified as extraordinary or nonrecurring gains, (c) the net
income of any Person acquired in a "pooling of interests" transaction accrued
prior to the date it becomes a Restricted Subsidiary of the referent Person or
is merged or consolidated with the referent Person or any Restricted Subsidiary
of the referent Person,
108
<PAGE>
(d) the net income (but not loss) of any Restricted Subsidiary of the referent
Person to the extent that the declaration of dividends or similar distributions
by that Restricted Subsidiary of that income is restricted by a contract,
operation of law or otherwise, (e) the net income of any Person, other than a
Restricted Subsidiary of the referent Person, except to the extent of cash
dividends or distributions paid to the referent Person or to a Wholly Owned
Restricted Subsidiary of the referent Person by such Person, (f) any restoration
to income of any contingency reserve, except to the extent that provision for
such reserve was made out of Consolidated Net Income accrued at any time
following the Issue Date, (g) income or loss attributable to discontinued
operations (including, without limitation, operations disposed of during such
period whether or not such operations were classified as discontinued), and (h)
in the case of a successor to the referent Person by consolidation or merger or
as a transferee of the referent Person's assets, any earnings of the successor
corporation prior to such consolidation, merger or transfer of assets.
"CONSOLIDATED NET WORTH" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"DEFAULT" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the Notes.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"FAIR MARKET VALUE" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"FOREIGN SUBSIDIARY" means any Subsidiary of the Company which (i) is not
organized under the laws of the United States, any state thereof or the District
of Columbia and (ii) conducts substantially all of its business operations in a
country other than the United States of America.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
109
<PAGE>
"GUARANTOR" means (i) the domestic Subsidiaries of the Company on the Issue
Date and (ii) each of the Company's Restricted Subsidiaries that in the future
executes a supplemental indenture in which such Restricted Subsidiary agrees to
be bound by the terms of the Indenture as a Guarantor; provided that any Person
constituting a Guarantor as described above shall cease to constitute a
Guarantor when its respective Guarantee is released in accordance with the terms
of the Indenture.
"INDEBTEDNESS" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue by 90 days or
more or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted), (v) all Obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all Obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any lien on any property or asset
of such Person, the amount of such Obligation being deemed to be the lesser of
the fair market value of such property or asset or the amount of the Obligation
so secured, (viii) all Obligations under currency agreements and interest swap
agreements of such Person, (ix) all Obligations for Preferred Stock of a
Guarantor and all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Preferred Stock or Disqualified
Capital Stock being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price, but excluding
accrued dividends, if any. For purposes hereof, the "maximum fixed repurchase
price" of any Preferred Stock of any Guarantor or Disqualified Capital Stock
which does not have a fixed repurchase price shall be calculated in accordance
with the terms of such Preferred Stock or Disqualified Capital Stock as if such
Preferred Stock or Disqualified Capital Stock were purchased on any date on
which Indebtedness shall be required to be determined pursuant to the Indenture,
and if such price is based upon, or measured by, the fair market value of such
Preferred Stock or Disqualified Capital Stock, such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the issuer
of such Preferred Stock or Disqualified Capital Stock.
"INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"INVESTMENT" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of the "Limitation on
Restricted Payments" covenant, (i) "Investment" shall include and be valued at
the fair market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is
110
<PAGE>
designated an Unrestricted Subsidiary and shall exclude the fair market value of
the net assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any
Investment shall be the original cost of such Investment plus the cost of all
additional Investments by the Company or any of its Restricted Subsidiaries,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment, reduced by the
payment of dividends or distributions in connection with such Investment or any
other amounts received in respect of such Investment; PROVIDED that no such
payment of dividends or distributions or receipt of any such other amounts shall
reduce the amount of any Investment if such payment of dividends or
distributions or receipt of any such amounts would be included in Consolidated
Net Income. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Common Stock of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, the Company no longer owns, directly or indirectly, 50% of the
outstanding Common Stock of such Restricted Subsidiary, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Common Stock of such Restricted Subsidiary
not sold or disposed of.
"ISSUE DATE" means the date of original issuance of the Notes.
"LEGAL DEFEASANCE" has the meaning set forth under "--Legal Defeasance and
Covenant Defeasance."
"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Restricted Subsidiaries from such Asset Sale net of
(a) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account any
reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c) repayment of Indebtedness that
is required to be repaid in connection with such Asset Sale and (d) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"NET PROCEEDS OFFER" has the meaning set forth under "--Certain
Covenants--Limitations on Asset Sales."
"NET PROCEEDS OFFER AMOUNT" has the meaning set forth under "--Certain
Covenants--Limitations on Asset Sales."
"NET PROCEEDS OFFER PAYMENT DATE" has the meaning set forth under "--Certain
Covenants--Limitations on Asset Sales."
"NET PROCEEDS OFFER TRIGGER DATE" has the meaning set forth under "--Certain
Covenants--Limitations on Asset Sales."
"NEW BANK CREDIT FACILITY" means the Amended and Restated Financing and
Security Agreement dated as of April 22, 1998, between the Company and
NationsBank, N.A., together with the related documents thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity
111
<PAGE>
of, refinancing, replacing or otherwise restructuring (including increasing the
amount of available borrowings thereunder (PROVIDED that such increase in
borrowings is permitted by the "Limitation on Incurrence of Additional
Indebtedness" covenant above) or adding Restricted Subsidiaries of the Company
as additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"PERMITTED HOLDER" means Warner W. Henry, and each of his immediate family
members, the Warner W. Henry Living Trust, trustees of the Warner W. Henry
Living Trust or trusts, entities or arrangements for the benefit of the
foregoing persons and entities.
"PERMITTED INDEBTEDNESS" means, without duplication, each of the following:
(i) Indebtedness under the Notes issued in the Offering and the
Guarantees thereof;
(ii) Indebtedness incurred pursuant to the New Bank Credit Facility in
an aggregate principal amount at any time outstanding not to exceed
$25,000,000 and Indebtedness incurred pursuant to the Canadian Credit
Facility in an aggregate principal amount at any time outstanding not to
exceed Canadian $8,000,000, in each case, less any required permanent
repayments (which are accompanied by a corresponding permanent commitment
reduction) thereunder; and additional Indebtedness incurrred pursuant to a
capital expenditure facility under the New Bank Credit Facility in an
aggregate principal amount at any time outstanding not to exceed
$10,000,000.
(iii) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
(iv) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any of its Restricted Subsidiaries and Interest Swap
Obligations of any Restricted Subsidiary of the Company covering
Indebtedness of such Restricted Subsidiary; PROVIDED, HOWEVER, that such
Interest Swap Obligations are entered into to protect the Company and its
Restricted Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the Indenture to the extent the notional
principal amount of such Interest Swap Obligation does not exceed the
principal amount of the Indebtedness to which such Interest Swap Obligation
relates;
(v) Indebtedness under Currency Agreements; PROVIDED that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of the Company and its Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the Company
to the Company or to a Wholly Owned Restricted Subsidiary of the Company for
so long as such Indebtedness is held by the Company or a Wholly Owned
Restricted Subsidiary of the Company, in each case subject to no Lien held
by a Person other than the Company or a Wholly Owned Restricted Subsidiary
of the Company; PROVIDED that if as of any date any Person other than the
Company or a Wholly Owned Restricted Subsidiary of the Company owns or holds
any such Indebtedness or holds a Lien in respect of such Indebtedness, such
date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the issuer of such Indebtedness;
(vii) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary
of the Company for so long as such Indebtedness is held by a Wholly Owned
Restricted Subsidiary of the Company, in
112
<PAGE>
each case subject to no Lien; PROVIDED that (a) any Indebtedness of the
Company to any Wholly Owned Restricted Subsidiary of the Company is
unsecured and subordinated, pursuant to a written agreement, to the
Company's obligations under the Indenture and the Notes and (b) if as of any
date any Person other than a Wholly Owned Restricted Subsidiary of the
Company owns or holds any such Indebtedness or any Person holds a Lien in
respect of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the Company;
(viii) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in
the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; PROVIDED, HOWEVER, that such Indebtedness is
extinguished within five business days of incurrence;
(ix) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with self-
insurance or similar requirements in the ordinary course of business;
(x) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary of the Company providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred in connection
with the disposition of any business, assets or Restricted Subsidiary, other
than guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition; PROVIDED that the maximum aggregate liability in
respect of all such Indebtedness shall at no time exceed the gross proceeds
actually received by the Company and the Restricted Subsidiary in connection
with such disposition;
(xi) Refinancing Indebtedness; and
(xii) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $10,000,000 at
any one time outstanding.
"PERMITTED INVESTMENTS" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted Subsidiary of the Company, (ii) Investments in the Company by any
Restricted Subsidiary of the Company; PROVIDED that any Indebtedness evidencing
such Investment is unsecured and subordinated, pursuant to a written agreement,
to the Company's obligations under the Notes and the Indenture; (iii)
investments in cash and Cash Equivalents; (iv) loans and advances to employees
and officers of the Company and its Restricted Subsidiaries in the ordinary
course of business for bona fide business purposes not in excess of $1,000,000
at any one time outstanding; (v) Currency Agreements and Interest Swap
Obligations entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' businesses and otherwise in compliance with the
Indenture; (vi) Investments in Unrestricted Subsidiaries not to exceed
$2,500,000 at any one time outstanding; PROVIDED that such Unrestricted
Subsidiary is engaged in a business or businesses which are the same, similar or
related to the businesses in which the Company and its Restricted Subsidiaries
are engaged on the Issue Date; (vii) Investments in securities of trade
creditors or customers received pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such trade creditors or
customers; (viii) Investments made by the Company or its Restricted Subsidiaries
as a result of consideration received in connection with an Asset Sale made in
compliance with the "Limitation on Asset Sales" covenant; (ix) Investments by
the Company or a Wholly Owned Restricted Subsidiary of the Company not in excess
of $500,000 at any one time outstanding in any partnership, joint venture,
limited liability partnership, limited liability company or similar entity of
which (A) at least 50% of the capital accounts, distribution rights, total
equity and voting interests or general or limited partnership interests, as
applicable, are owned or controlled, directly or indirectly, by the Company or a
Wholly Owned Restricted Subsidiary of the Company whether
113
<PAGE>
in the form of membership, general, special or limited partnership interests or
otherwise and (B) the Company or any Wholly Owned Restricted Subsidiary of the
Company is a controlling general partner, member or manager or otherwise
controls such entity which is engaged in a business or businesses which are the
same, similar or related to the businesses in which the Company and its
Restricted Subsidiaries are engaged on the Issue Date; and (x) additional
Investments not to exceed $2,500,000 at any one time outstanding.
"PERMITTED LIENS" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to
GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obliga-tions
(exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company or
any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; PROVIDED that such Liens do not extend to any property or assets
which is not leased property subject to such Capitalized Lease Obligation;
(vii) purchase money Liens to finance property or assets of the Company
or any Restricted Subsidiary of the Company acquired in the ordinary course
of business; PROVIDED, HOWEVER, that (A) the related purchase money
Indebtedness shall not exceed the cost of such property or assets and shall
not be secured by any property or assets of the Company or any Restricted
Subsidiary of the Company other than the property and assets so acquired and
(B) the Lien securing such Indebtedness shall be created within 90 days of
such acquisition;
(viii) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off;
114
<PAGE>
(xi) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries;
(xii) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xiii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods;
(xiv) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xv) Liens securing Indebtedness under Currency Agreements; and
(xvi) Liens securing Acquired Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant; PROVIDED
that (A) such Liens secured such Acquired Indebtedness at the time of and
prior to the incurrence of such Acquired Indebtedness by the Company or a
Restricted Subsidiary of the Company and were not granted in connection
with, or in anticipation of, the incurrence of such Acquired Indebtedness by
the Company or a Restricted Subsidiary of the Company and (B) such Liens do
not extend to or cover any property or assets of the Company or of any of
its Restricted Subsidiaries other than the property or assets that secured
the Acquired Indebtedness prior to the time such Indebtedness became
Acquired Indebtedness of the Company or a Restricted Subsidiary of the
Company and are no more favorable to the lienholders than those securing the
Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness
by the Company or a Restricted Subsidiary of the Company.
"PERSON" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"PREFERRED STOCK" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"REFINANCE" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix) or (xi) of the
definition of Permitted Indebtedness), in each case that does not (1) result in
an increase in the aggregate principal amount of Indebtedness of such Person as
of the date of such proposed Refinancing (plus the amount of any premium
required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred by the Company
in connection with such Refinancing) or (2) create Indebtedness with (A) a
Weighted Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier
than the final maturity of the Indebtedness being Refinanced; PROVIDED that (x)
if such Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if
such Indebtedness being Refinanced is subordinate or junior to the Notes, then
such Refinancing Indebtedness shall be subordinate to the Notes at least to the
same extent and in the same manner as the Indebtedness being Refinanced.
"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
115
<PAGE>
"REVOLVING CREDIT FACILITY" means one or more revolving credit facilities
under the New Bank Credit Facility or the Canadian Credit Facility.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"SIGNIFICANT SUBSIDIARY" shall have the meaning set forth in Rule 1.02(w) of
Regulation S-X under the Securities Act.
"SUBSIDIARY", with respect to any Person, means (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person or (ii) any other
Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"UNRESTRICTED SUBSIDIARY" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The
Board of Directors may designate any Subsidiary (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; PROVIDED that (x) the Company certifies to the
Trustee that such designation complies with the "Limitation on Restricted
Payments" covenant and (y) each Subsidiary to be so designated and each of its
Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (x) immediately after giving effect to
such designation, the Company is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
116
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
("Participating Broker-Dealer") pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in connection with resales of
Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired as a result of market-making activities or other trading activities.
The Company has agreed that, for a period of 180 days after the Expiration Date,
it will make this Prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale, or such
shorter period as will terminate when all Old Notes acquired by broker dealers
for their own account as a result of market making activities or other trading
activities has been exchanged for Exchange Notes and resold by such broker
dealers. In addition, until , 1998 (90 days after the date of this
Prospectus), all dealers effecting transactions in the Exchange Notes may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
Participating Broker-Dealers. Exchange Notes received by Participating
Broker-dealer for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer or the purchasers of any
such Exchange Notes. Any Participating Broker-dealer that resells Exchange Notes
that were received by it for its own account pursuant to the Exchange Offer and
any broker or dealer that participates in a distribution of such Exchange Notes
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of Exchange Notes and any commission or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, or such shorter period
as will terminate when all Old Notes acquired by broker dealers for their own
account as a result of market making activities or other trading activities has
been exchanged for Exchange Notes and resold by such broker dealers, the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer (including the reasonable expenses of
one counsel for the holders of the Notes) other than commissions or concessions
of any brokers or dealers and will indemnify the Initial Purchaser and the
holders of the Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
117
<PAGE>
TRANSFER RESTRICTIONS ON OLD NOTES
Unless and until an Old Note is exchanged for an Exchange Note pursuant to
the Exchange Offer, it will bear a legend substantially similar to the following
effect 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 OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (a)(1), (2), (3), OR (7) UNDER
THE SECURITIES ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL
NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY THEREOF OR ANY
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH
TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER)
TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY),
(D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM
THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS
AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS
AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON"
HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
118
<PAGE>
BOOK ENTRY; DELIVERY AND FORM
The Old Notes and the related Guarantees were initially, and the Exchange
Notes and the related Guarantees will be, represented by one or more permanent
global certificates in definitive, fully registered form (the "Global Notes").
The Global Notes will be deposited on the Issue Date with, or on behalf of, The
Depository Trust Company, New York, New York ("DTC") and registered in the name
of a nominee of DTC (except such Old Notes or Exchange Notes, if any, that are
issued in certificated form as described below).
Notes (i) originally purchased by or transferred to "foreign purchasers"
(persons other than U.S. Persons) or (ii) held by QIBs or other institutional
Accredited Investors who elect to take physical delivery of their certificates
instead of holding their interests through a Global Note (and which are thus
ineligible to trade through DTC (collectively referred to herein as the
"Non-Global Purchasers") will be issued in registered form (the "Certificated
Security"). Upon the transfer to a QIB or another institutional Accredited
Investor of any Certificated Security initially issued to a Non-Global
Purchaser, such Certificated Security will, unless the transferee requests
otherwise or the Global Notes have previously been exchanged in whole for
Certificated Securities, be exchanged for an interest in a Global Note.
THE GLOBAL NOTES. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Notes, DTC or its
custodian will credit, on its internal system, the principal amount of Notes of
the individual beneficial interests represented by such Global Notes to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Notes will be shown on, and the
transfer of such ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
Such accounts initially will be designated by or on behalf of the Initial
Purchaser and ownership of beneficial interests in the Global Notes will be
limited to persons who have accounts with DTC ("participants") or persons who
hold interests through participants. Holders may hold their interests in the
Global Notes directly through DTC if they are participants in such system, or
indirectly through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Notes for all purposes
under the Indenture. No beneficial owner of an interest in the Global Notes will
be able to transfer that interest except in accordance with DTC's procedures, in
addition to those provided for under the Indenture with respect to the Notes.
Payments of the principal of, premium (if any), interest (including
Liquidated Damages) on, the Global Notes will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest (including Liquidated Damages) on the
Global Notes, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Notes as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of beneficial interests in
the Global Notes held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
119
<PAGE>
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in a Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Notes
for Certificated Securities, which it will distribute to its participants and
which will bear the legends referred to under the heading "Transfer
Restrictions."
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers. dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED SECURITIES. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, Certificated Securities will be issued
in exchange for the Global Notes, which certificates will bear the legends
referred to under the heading "Transfer Restrictions."
120
<PAGE>
LEGAL MATTERS
The validity of the Exchange Notes offered by the Company hereby were passed
upon for the Company by Munger, Tolles & Olson LLP, Los Angeles, California. The
validity of the issuance of the Guarantees offered by Monsey Products Co.,
Kimberton Enterprises, Inc. and Monsey Products of Arizona LLC were passed upon
for those companies by John D. O'Keefe, Esq., Philadelphia, Pennsylvania.
EXPERTS
The combined financial statements of Henry Company as of December 31, 1996
and 1997 and for each of the three years in the period ended December 31, 1997,
appearing in this Prospectus and Registration Statement, have been audited by
PricewaterhouseCoopers LLP, independent accountants, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Monsey Products Co., T/A Monsey
Bakor at December 31, 1996 and 1997 and for each of the three years in the
period ended December 31, 1997, appearing in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
121
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
COMBINED FINANCIAL STATEMENTS OF HENRY COMPANY PAGE
- ----------------------------------------------------------------------------------------------------------- -----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Combined Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998 (unaudited).................... F-3
Combined Statements Of Operations for each of the years in the three year period ended December 31, 1997
and the three months ended March 31, 1997 and 1998 (unaudited)............................................ F-4
Combined Statements Of Shareholders' Equity for each of the years in the three year period ended December
31, 1997 and for the three months ended March 31, 1998 (unaudited)........................................ F-5
Combined Statements Of Cash Flows for each of the years in the three year period ended December 31, 1997
and for the three months ended March 31, 1997 and 1998 (unaudited)........................................ F-6
Notes To Combined Financial Statements..................................................................... F-7
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS OF MONSEY BAKOR
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Report of Independent Auditors............................................................................. F-17
Consolidated Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998 (unaudited)................ F-18
Consolidated Statements of Operations for each of the years in the three year period ended December 31,
1997 and the three months ended March 31, 1997 and 1998 (unaudited)....................................... F-19
Consolidated Statements of Shareholders' Equity for each of the years in the three year period ended
December 31, 1997 and for the three months ended March 31, 1998 (unaudited)............................... F-20
Consolidated Statements of Cash Flows for each of the years in the three year period ended December 31,
1997 and for the three months ended March 31, 1997 and 1998 (unaudited)................................... F-21
Notes to Consolidated Financial Statements................................................................. F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Henry Company
Huntington Park, California
We have audited the accompanying combined balance sheets of Henry Company as of
December 31, 1996 and 1997, and the related combined statements of operations,
shareholders' equity, and cash flows for each of the years in the three year
period ended December 31, 1997. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 combined financial position of the Henry Company as
of December 31, 1996 and 1997, and the combined results of their operations and
their cash flows for each of the years in the three year period ended December
31, 1997, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 9, 1998
F-2
<PAGE>
HENRY COMPANY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
------------- ------------- MARCH 31,
-------------
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents......................................... $ 300,162 $ 118,857 $ 182,562
Trade accounts receivable, net of allowance for doubtful accounts
of $141,786 and $161,365 for 1996 and 1997, respectively........ 9,146,272 10,368,904 9,255,458
Inventories....................................................... 5,924,765 5,882,262 6,097,122
Receivables from affiliate........................................ 4,297,773 2,264,341 2,495,665
Notes receivable.................................................. 408,838 448,721 458,354
Prepaid expenses and other current assets......................... 839,451 1,197,167 1,070,824
------------- ------------- -------------
Total current assets........................................ 20,917,261 20,280,252 19,559,985
Property and equipment, net......................................... 7,957,535 5,483,188 5,512,488
Cash surrender value of life insurance, net......................... 992,501 1,658,305 1,973,034
Noncompetition agreements, net...................................... 765,438 702,091 686,255
Notes receivable.................................................... 363,396 299,654 282,650
Note receivable from affiliate...................................... -- 1,863,072 1,863,072
Other............................................................... 207,588 131,085 135,104
------------- ------------- -------------
Total assets................................................ $ 31,203,719 $ 30,417,647 $ 30,012,588
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable.................................................. $ 5,148,271 $ 4,846,131 $ 5,513,661
Accrued expenses.................................................. 2,941,580 3,622,011 2,426,494
Notes payable, current portion.................................... 644,796 638,199 642,480
Borrowings under line of credit................................... 7,061,528 3,970,381 3,645,802
------------- ------------- -------------
Total current liabilities................................... 15,796,175 13,076,722 12,228,437
Notes payable....................................................... 4,286,840 4,116,345 3,929,336
Deferred warranty revenue........................................... 1,833,430 2,002,569 1,999,307
Deferred compensation............................................... 930,349 1,076,187 1,113,239
Subordinated shareholder debt....................................... 5,422,555 5,023,466 5,023,477
------------- ------------- -------------
Total liabilities........................................... 28,269,349 25,295,289 24,293,796
Commitments and contingencies (Note 5)
Common stock........................................................ 2,853,669 2,853,669 2,853,669
Additional paid-in capital.......................................... 2,682,152 2,682,152 2,682,152
Accumulated deficit................................................. (2,601,451) (413,463) 182,971
------------- ------------- -------------
Total shareholders' equity.................................. 2,934,370 5,122,358 5,718,792
------------- ------------- -------------
Total liabilities and shareholders' equity.................. $ 31,203,719 $ 30,417,647 $ 30,012,588
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE>
HENRY COMPANY
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------- ----------------------------
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 61,059,484 $ 59,186,000 $ 67,423,603 $ 11,975,943 $ 14,933,512
Cost of sales........................ 42,290,227 40,866,724 46,412,828 8,495,989 9,815,800
------------- ------------- ------------- ------------- -------------
Gross profit..................... 18,769,257 18,319,276 21,010,775 3,479,954 5,117,712
Operating expenses:
Selling, general and
administrative..................... 17,518,731 16,934,453 17,508,108 3,571,739 4,184,502
Amortization of intangibles........ 703,003 182,693 137,241 34,310 26,840
------------- ------------- ------------- ------------- -------------
Operating income (loss).......... 547,523 1,202,130 3,365,426 (126,095) 906,370
Other expense (income):
Interest expense................... 1,453,946 1,474,899 1,464,665 352,468 322,169
Interest and other income, net..... (402,257) (344,841) (320,547) (92,122) (21,180)
------------- ------------- ------------- ------------- -------------
Income (loss) before provision
for income taxes................. (504,166) 72,072 2,221,308 (386,441) 605,381
Provision for income taxes........... -- 1,081 33,320 -- 8,947
------------- ------------- ------------- ------------- -------------
Net income (loss)................ $ (504,166) $ 70,991 $ 2,187,988 $ (386,441) $ 596,434
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE>
HENRY COMPANY
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994................... 200,100 $ 2,853,669 $ 2,682,152 $ (2,168,276) $ 3,367,545
Net loss................................... -- -- -- (504,166) (504,166)
--------- ------------ ------------ ------------- ------------
Balance, December 31, 1995................... 200,100 2,853,669 2,682,152 (2,672,442) 2,863,379
Net income................................. -- -- -- 70,991 70,991
--------- ------------ ------------ ------------- ------------
Balance, December 31, 1996................... 200,100 2,853,669 2,682,152 (2,601,451) 2,934,370
Net income................................. -- -- -- 2,187,988 2,187,988
--------- ------------ ------------ ------------- ------------
Balance, December 31, 1997................... 200,100 2,853,669 2,682,152 (413,463) 5,122,358
Net income (loss) (unaudited).............. -- -- -- 596,434 596,434
--------- ------------ ------------ ------------- ------------
Balance, March 31, 1998 (unaudited).......... 200,100 $ 2,853,669 $ 2,682,152 $ 182,971 $ 5,718,792
--------- ------------ ------------ ------------- ------------
--------- ------------ ------------ ------------- ------------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE>
HENRY COMPANY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ (504,166) $ 70,991 $ 2,187,988 $ (386,441) $ 596,434
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization...................... 1,439,595 1,582,974 1,404,361 323,027 326,718
Provision for doubtful accounts.................... 698,628 178,963 179,374 43,789 29,717
Noncompetition and goodwill amortization........... 467,428 61,716 65,014 16,254 16,252
Interest on subordinated shareholder debt.......... 343,033 377,205 345,441 92,678 95,207
(Gain) loss on disposal of property and
equipment........................................ 19,610 (45,611) 2,278 -- (5,500)
Changes in operating assets and liabilities, net of
assets acquired:
Accounts receivable.............................. (2,573,847) (300,283) (1,402,006) 1,889,029 1,083,728
Inventories...................................... 479,595 (508,358) 64,126 513,027 (231,324)
Receivables from affiliates...................... (1,031,664) (265,047) 2,033,432 (289,418) (214,860)
Notes receivable................................. 496,272 271,888 23,859 10,652 7,371
Cash surrender value of life insurance........... (242,748) (129,479) (665,804) (144,160) (314,729)
Other assets..................................... 227,520 (408,237) (150,535) (221,201) 126,343
Accounts payable and accrued expenses............ 2,219,245 (132,985) 378,293 (1,207,360) (527,988)
Deferred warranty revenue........................ 185,363 210,441 169,138 30,723 (3,261)
Deferred compensation............................ 202 206,603 145,838 24,418 37,052
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities.... 2,224,066 1,170,781 4,780,797 695,017 1,021,161
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures................................. (1,389,094) (1,448,693) (801,239) (247,073) (356,018)
Proceeds from the disposal of property and
equipment.......................................... 47,046 666,224 50,874 -- 5,500
Acquisition of business, net of cash acquired........ -- -- (134,779) (134,779) --
Investment in affiliate.............................. -- -- (64,189) (54,701) (4,435)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities........ (1,342,048) (782,469) (949,333) (436,553) (354,953)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under line-of-credit
agreement.......................................... 1,100,000 (738,472) (3,091,147) (56,138) (324,579)
Repayments under note payable agreements............. (937,650) (437,266) (604,370) (161,389) (187,882)
Borrowings under note payable agreements............. -- 1,908,333 427,278 -- 5,154
Payments on subordinated shareholder debt............ (641,380) (827,947) (744,530) (92,531) (95,196)
Payments under capital lease obligations............. (306,415) (162,950) -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities........ (785,445) (258,302) (4,012,769) (310,058) (602,503)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................ 96,573 130,010 (181,305) (51,594) 63,705
Cash and cash equivalents at beginning of period....... 73,579 170,152 300,162 300,162 118,857
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period............. $ 170,152 $ 300,162 $ 118,857 $ 245,588 $ 182,562
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE>
HENRY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts of Henry Company and
Warner Development Company of Texas (the "Company"), both companies under common
ownership and control. All significant intercompany accounts and transactions
have been eliminated.
The Company is a manufacturer of materials for the construction industry
focusing primarily on roofing, sealing and paving applications. The Company
develops, manufactures and distributes the following related product lines:
roof/driveway coatings and paving products, polyurethane foam for roofing and
commercial uses, and sealants for the construction and marine industries.
REVENUE RECOGNITION
Revenues are recognized when products are shipped. The Company has
established programs which, under specified conditions, allow customers to
return products. The Company establishes liabilities for estimated returns and
allowances at the time of shipment. In addition, accruals for customer discounts
and returns are recorded when revenues are recognized.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Under the Company's cash management system, checks issued but not presented
to banks frequently result in overdraft balances for accounting purposes and are
included in "Accounts Payable" in the accompanying balance sheet. At December
31, 1996 and 1997, these overdraft balances amounted to $355,089 and $1,488,003,
respectively.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market.
Cost is determined using standard cost which approximates actual costs on a
first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Leasehold improvements are
amortized on a straight-line basis over the remaining lease term, or the asset's
estimated useful life, whichever is shorter. All other depreciable assets are
depreciated using the double-declining-balance method or the straight-line
method, over the assets' estimated useful lives.
Estimated useful lives are as follows:
<TABLE>
<S> <C>
Buildings..................................... 25 to 30 years
Machinery and equipment....................... 10 years
Office furniture and equipment................ 5 years
Automotive equipment.......................... 3 to 5 years
Primary term of
Leasehold improvements........................ lease
Other......................................... 5 years
</TABLE>
F-7
<PAGE>
HENRY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Additions, major renewals and betterments are capitalized, while repair and
maintenance costs are expensed as incurred. Upon sale or retirement of property
and equipment, the cost and accumulated depreciation are removed from the
appropriate accounts and any gain or loss is included in income in the year the
asset was disposed.
INCOME TAXES
The Company elected to be taxed under Section 1361 of the Internal Revenue
Code as an S Corporation. Under these provisions, the Company does not pay
federal corporate income taxes on its taxable income. Instead, the shareholders
are individually liable for federal income taxes based on the Company's taxable
income. This election is also valid for state income tax reporting. However, a
provision for state income taxes is required based on a 1.5% state income tax
rate, and this state tax provision is included in the provision for income taxes
in the accompanying combined statements of operations.
NONCOMPETITION AGREEMENT
A noncompetition agreement related to the acquisition of World Asphalt
Paving has been recorded at the present value of the future payments under the
agreement and is being amortized over the life of the agreement using the
straight-line method. The statement of operations includes amortization and
imputed interest related to this noncompetition agreement.
DEFERRED WARRANTY REVENUE
The Company offers its customers an optional separately purchased warranty
program for its Henry commercial roofing systems. Revenue from the warranty
program is recognized over the 20 year warranty period. Warranty repair expenses
under the program are charged to expense as incurred.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include all costs associated
with marketing and distributing the Company's products. Also included in
selling, general and administrative expenses are research and development costs.
Research and development costs incurred in developing and improving product
formulas are charged to expense in the year incurred. Total research and
development costs were $321,811, $320,961 and $320,275 for the years ended
December 31, 1995, 1996 and 1997, respectively. Total research and development
costs were $75,055 and $77,194 for the three months ended March 31, 1997 and
1998, respectively (unaudited).
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to concentration
of credit risk consist primarily of cash and cash equivalents and trade
receivables. The Company currently maintains substantially all of its day-to-day
operating cash balances with major financial institutions. At times, cash
balances may be in excess of Federal Depository Insurance Corporation ("FDIC")
insurance limits. Cash equivalents principally consist of money market funds on
deposit with major financial institutions.
Concentration of credit risk with respect to trade receivables is derived
from the Company's largest customer, which represents approximately 13% and 15%
at December 31, 1996 and 1997, respectively, and 14% (unaudited) at March 31,
1998 of the Company's trade accounts receivable. This customer also
F-8
<PAGE>
HENRY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
accounted for approximately 12% of net sales in fiscal years 1995 and 1996 and
15% of net sales in fiscal year 1997, and 12% and 24% of net sales for the three
months ended March 31, 1997 and 1998, respectively (unaudited). However, the
majority of the Company's customers are geographically diverse roofing
distributors and contractors located in the western United States, which limits
the extent of trade credit risk. The Company also maintains credit insurance
that provides substantial reimbursement for actual credit losses relating to its
Henry Coatings Division. In addition, the Company controls credit risk through
credit approvals, credit limits and monitoring procedures.
THE VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments" ("SFAS No. 107"), requires disclosure of fair
value information about most financial instruments both on and off the balance
sheet, if it is practicable to estimate. SFAS No. 107 excludes certain financial
instruments, such as certain insurance contracts and all non-financial
instruments from its disclosure requirements. A financial instrument is defined
as a contractual obligation that ultimately ends with the delivery of cash or an
ownership interest in an entity. Disclosures regarding the fair value of
financial instruments are derived using external market sources, estimates using
present value or other valuation techniques. Cash, accounts receivable, accounts
payable, accrued liabilities and short-term debt are reflected in the financial
statements at fair value because of the short-term maturity of these
instruments. The fair value of long-term debt approximates its carrying value.
The Company has issued a standby letter of credit relating to their business
insurance and is contingently liable for approximately $490,000. The standby
letter of credit is in force for the term of the insurance policy, and reflects
a fair value based on the condition of its purpose.
USE OF 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LONG-LIVED ASSETS
The carrying value of long-lived assets is periodically reviewed by
management, and impairment losses, if any, are recognized when the expected
nondiscounted future operating cash flows derived from such assets are less than
their carrying value. During the year ended December 31, 1996, the Company
adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" ("SFAS No. 121"). SFAS No. 121 requires
that long-lived assets and certain identifiable intangible assets to be held and
used be reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount of such assets may not be recoverable. The adoption
of SFAS No. 121 did not have any impact on the financial position, results of
operations or cash flows of the Company.
F-9
<PAGE>
HENRY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ADVERTISING AND PROMOTION COSTS
All costs associated with advertising and promoting products are expensed in
the year incurred and are included in selling, general and administrative
expenses. Advertising and promotion expenses were $623,589, $485,069 and
$579,250 for 1995, 1996 and 1997, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income." The standard establishes guidelines for the reporting and
display of comprehensive income and its components in financial statements. The
Company has adopted the provisions of SFAS No. 130 as of March 31, 1998,
however, there was no impact to the Company as there are no elements of
comprehensive income not included in the Company's operating results.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information." The standard requires that
publically-held companies dislose "operating segments" based on the way
management disaggregates the company for making internal operating decisions.
The new rules will be effective for the Company's December 31, 1998 financial
statements. The Company has not evaluated the impact, if any, of the new
standard.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying interim combined balance sheet as of March 31, 1998 and the
combined statements of operations, combined statement of changes in
shareholders' equity and combined cash flows for the three months ended March
31, 1997 and 1998 together with the related notes are unaudited and include all
adjustments, consisting of only normal recurring adjustments, which the Company
considers necessary to present fairly in all material respects, the financial
position, the results of operations and cash flows for the three months ended
March 31, 1997 and 1998. Results for the three months ended March 31, 1997 and
1998 are not necessarily indicative of results for an entire year. Certain
information in footnote disclosures has been condensed or omitted in accordance
with interim reporting requirements.
2. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
------------ ------------ MARCH 31,
------------
1998
------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials....................................... $ 2,133,565 $ 2,232,684 $ 2,477,412
Finished goods...................................... 3,791,200 3,649,578 3,619,710
------------ ------------ ------------
$ 5,924,765 $ 5,882,262 $ 6,097,122
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-10
<PAGE>
HENRY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1997
-------------- -------------- MARCH 31,
--------------
1998
--------------
(UNAUDITED)
<S> <C> <C> <C>
Buildings.................................... $ 2,572,513 $ 463,375 $ 463,375
Machinery and equipment...................... 8,984,603 10,129,940 10,173,075
Office furniture and equipment............... 2,352,896 2,344,253 2,346,295
Automotive equipment......................... 1,595,398 1,447,456 1,427,536
Leasehold improvements....................... 3,008,308 3,047,521 3,053,561
Other........................................ 313,360 330,695 330,695
-------------- -------------- --------------
18,827,078 17,763,240 17,794,537
Less, accumulated depreciation and
amortization................................ 12,341,532 13,207,170 13,511,331
-------------- -------------- --------------
6,485,546 4,556,070 4,283,206
Land......................................... 472,162 472,162 472,162
Construction-in-progress..................... 999,827 454,956 757,120
-------------- -------------- --------------
$ 7,957,535 $ 5,483,188 $ 5,512,488
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
F-11
<PAGE>
HENRY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE:
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
------------- ------------- MARCH 31,
-------------
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
Line of credit borrowings, at the bank's prime
interest rate (8.75% at December 31, 1996 and
1997).......................................... $ 7,061,528 $ 3,970,381 $ 3,645,802
Term note payable to bank, with interest at 9%
at December 31, 1996 and 1997, interest payable
monthly, principal payable in monthly
installments of $41,667, due in fiscal year
1999........................................... 3,958,333 3,499,996 3,374,995
Term note payable to bank, with interest at 9%,
interest and principal payable quarterly,
principal installments of $31,250, due in
fiscal year 1999............................... -- 427,278 405,914
Term note payable, with interest at 9.25% at
December 31, 1996 and 1997, interest and
principal payable quarterly, principal
installments of $31,250, due in fiscal year
1999........................................... 456,250 331,250 300,000
Term note payable to third party, with interest
at 8.0% at December 31, 1996 and 1997,
principal and interest payable monthly in
installments of $4,705, due in fiscal year
2013........................................... 511,287 495,147 490,907
Other........................................... 5,766 873 --
------------- ------------- -------------
11,993,164 8,724,925 8,217,618
Less, current maturities........................ 7,706,324 4,608,580 4,288,282
------------- ------------- -------------
$ 4,286,840 $ 4,116,345 $ 3,929,336
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
As of December 31, 1997, the Company had a $10,000,000 line of credit
facility, a $4,000,000 term loan and a $1,000,000 capital expenditure note. The
Company's line of credit facility expires on November 30, 1999. The Company's
line of credit and term loan contain certain covenants requiring the Company to
maintain certain financial ratios and minimum net worth requirements, and have
as collateral the Company's property and equipment, inventory, and receivables.
There is a guarantee in the amount of $6,000,000 of the outstanding principal
balance from the Company's Chairman of the Board related to all the Company's
credit facilities.
F-12
<PAGE>
HENRY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE: (CONTINUED)
The following are future maturities of long-term debt for each of the next
five years ending December 31 and in total thereafter:
<TABLE>
<S> <C>
1998.................................................... $4,608,580
1999.................................................... 3,596,861
2000.................................................... 103,453
2001.................................................... 24,047
2002.................................................... 26,042
Thereafter.............................................. 365,942
---------
Total............................................... $8,724,925
---------
---------
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
The Company conducts certain operations out of leased facilities, including
the corporate office and divisional warehouses. The lease terms range from 1 to
6 years and begin to expire in 1998. Certain of the Company's operating lease
agreements provide for escalation of payments, which are based on fluctuations
of certain published cost-of-living indices. The Company also leases certain
land, buildings and equipment from related parties, with terms expiring in 1998.
Various leases also contain certain renewal options.
Total rent expense was $712,097, $693,320 and $896,465 for the years ended
December 31, 1995, 1996 and 1997, respectively. Included in rent expense is rent
paid to related parties of $609,053, $630,747 and $735,960 for the years ended
December 31, 1995, 1996 and 1997, respectively. The minimum rental commitments
for land, buildings and equipment under all noncancellable operating leases,
with lease terms in excess of one year, are as follows:
<TABLE>
<S> <C>
1998.................................................... $ 876,722
1999.................................................... 581,017
2000.................................................... 520,911
2001.................................................... 498,423
2002.................................................... 435,559
Thereafter.............................................. 424,898
---------
$3,337,530
---------
---------
</TABLE>
Included in the annual minimum rental commitments are operating lease
payments to related parties of $710,541 in 1998, $496,951 in 1999, $488,861 in
2000 and $488,861 in 2001, $435,559 in 2002 and $424,898 thereafter.
The Company is involved in various lawsuits, claims and inquiries, most of
which are routine to the nature of their business. In the opinion of management,
the resolution of these matters will not materially affect the financial
position, results of operations or cash flows of the Company.
F-13
<PAGE>
HENRY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Paid During The Year For:
Interest................................. $ 1,673,324 $ 1,912,996 $ 1,461,977 $ 282,543 $ 202,607
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Income taxes............................. $ 1,600 $ 1,600 $ 1,600 -- --
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
NON-CASH TRANSACTIONS
At December 31, 1997, the Company sold property to the Henry II division of
the Henry Wine Group ("Wine Group") for the net book value of $1,863,072. This
transaction is excluded from the statement of cash flows for the year ended
December 31, 1997 as the consideration was received in the form of a note, as
more fully described in Note 8.
7. PROFIT-SHARING AND PENSION PLAN:
The Company sponsors a deferred profit-sharing plan for employees.
Contributions into the plan are maintained in a trust. Contributions are
discretionary and determined by the Board of Directors each year. Participants
are salaried regular employees with at least one year of continuous Company
employment. The Company has expensed $530,664, $232,951 and $403,242,
respectively, during 1995, 1996 and 1997 in contributions.
Hourly employees of the Henry Coatings Division at the Huntington Park plant
are covered by the Employers'-Warehousemen's Pension Trust Fund, a
multi-employer union plan to which the Company makes periodic contributions as
determined by a collective bargaining agreement effective through June 30, 2000.
The Company is also subject to additional charges as determined by the plan's
trustees during the term of the agreement to maintain the current level of
health and welfare benefits. The information with respect to the plan's net
assets and actuarial present value of accumulated plan benefits are not
determinable due to the nature of the plan. The costs incurred during the years
ended December 31, 1995, 1996 and 1997 were $76,175, $75,766 and $71,532,
respectively.
8. RELATED PARTIES:
The Company is obligated under certain leases at December 31, 1997 and has
incurred rent expense in 1995, 1996 and 1997 with related parties, as more fully
described in Note 5.
Receivables from affiliate represents amounts due from the Henry Wine Group,
an affiliated group of companies under common control, and relates to operating
advances made to the Wine Group.
The note receivable from affiliate relates to proceeds due the Company on
the sale of property to the Wine Group at its net book value at December 31,
1997. The note receivable is repayable by December 31, 2002, bears interest at
the prime interest rate and is secured by an interest in the property.
The Company charges the Wine Group certain direct administrative costs for
services provided by the Company's finance, human resources, and management
information systems departments. The administrative costs charged totalled
$50,000, $110,000 and $199,000 for the years ended 1995, 1996 and 1997,
respectively.
F-14
<PAGE>
HENRY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTIES: (CONTINUED)
During the three months ended March 31, 1998, the Company has charged the
Wine Group approximately $264,000 (unaudited) for reimbursement of
administrative services provided by Henry Company pursuant to an administrative
services agreement that was effective as of January 1, 1998.
As of December 31, 1996 and 1997, notes receivable in the accompanying
balance sheet include outstanding principal and accrued interest due from the
Company's President in the amount of $526,000 and $559,557, respectively. The
notes bear interest at Bank of America's First Rate and are payable in
installments or lump sum payments due through December 31, 1998 with the
exception of $175,000 which is due and payable upon termination.
Subordinated shareholder debt financing has been obtained from the Chairman
of the Board. The notes have a variable interest rate based on the Bank of
America "First Rate". Payments of principal and interest may be made in a lump
sum or installments at the option of the borrower. As of December 31, 1996 and
1997, accrued interest payable on the subordinated shareholder debt was $97,098
and $1,405, respectively.
9. ACQUISITIONS:
On February 3, 1997, the Company entered into a joint venture with J-K
Polysource, Inc. to form RamSource L.L.C. for an initial investment of $60,000
and additional investments of $4,189. RamSource L.L.C. manufactures and
distributes gaskets to the concrete pipe industry. The Company accounts for
their investment in the joint venture under the equity method of accounting.
On March 7, 1997, the Company purchased the net assets of American Blackline
Coatings, Inc. for cash payments totalling $134,779. American Blackline
Coatings, Inc. was based in Denver, Colorado, and manufactured and distributed
roof coating products in the Rocky Mountain region. In 1997, the Company closed
the manufacturing operations and transferred all assets to other Company
facilities. The Company continues to sell and distribute products in the Rocky
Mountain region.
The net effect of these acquisitions did not have a material effect on the
financial position, results of operations or cash flows of the Company in 1997.
F-15
<PAGE>
HENRY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
10. COMMON STOCK:
As of December 31, 1996 and 1997, common stock is composed of the following:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Henry Company, common stock, stated value $5 per share, 100,000 shares,
issued and outstanding..................................................... $ 500,000 $ 500,000
Henry Company, common stock, stated value $21.78 per share, authorized
94,000 shares, issued and outstanding...................................... 2,047,320 2,047,320
Warner Development of Texas, common stock, stated value $1,616.20 per share,
authorized 94 shares, issued and outstanding............................... 151,922 151,922
Henry Company, super voting class A common stock, stated value $23.96 per
share, authorized 6,000 shares, issued and outstanding..................... 143,760 143,760
Warner Development of Texas, super voting class A common stock, stated value
$1,777.82 per share, authorized 6 shares, issued and outstanding........... 10,667 10,667
------------ ------------
$ 2,853,669 $ 2,853,669
------------ ------------
------------ ------------
</TABLE>
On October 1, 1997, Henry Company granted the Warner W. Henry Living Trust
warrants to purchase an aggregate of 400,000 shares of Henry Company capital
stock, consisting of 12,000 shares of Class A common stock and 388,000 shares of
common stock (the "Warrants"). The Warrants expire on September 30, 2012 and may
be exercised in whole or in part at variable and increasing exercise prices over
the term of the warrants. The current and maximum exercise prices for both Class
A common stock and common stock are $12.94 and $38.82 per share, respectively.
The warrants have an initial exercise price that exceeds the fair value of
the capital stock at the date of grant. The grant date present value of each
warrant is estimated at 11 CENTS or an aggregate of $44,000 using the
Black-Scholes pricing model, using the following assumptions: risk-free interest
rate at 6.0%; expected warrant life of 15 years; volatility of 20.0%; forfeiture
rate zero (0); no expected dividends; and no adjustments for nontransferability.
As of December 31, 1997, no warrants have been exercised.
11. SUBSEQUENT EVENT (UNAUDITED):
On April 22, 1998, Henry Company completed the acquisition of Monsey
Products Co. ("Monsey") and its subsidiaries (the "Acquisition") engaged in the
distribution and manufacture of roof coatings, adhesives and membranes, and
waterproofing and air barrier systems, for residential and commercial
applications. The cash purchase price was $42,750,000 with an additional
$3,250,000 paid at closing to certain selling shareholders of Monsey for
noncompetition agreements. A selling shareholder also purchased 22,500 of
redeemable convertible preferred stock of the Company for $600,000 cash. The
Acquisition will be accounted for using the purchase method of accounting.
Concurrent with the Acquisition, the Company conducted a senior note
offering (the "Offering") in the aggregate principal amount of $85,000,000. The
proceeds of the Offering were used to acquire Monsey, retire a substantial
portion of Monsey's existing bank debt, and retire the existing Henry Company
bank debt and subordinated shareholder debt included in the accompanying
combined balance sheet at December 31, 1997 in the amounts of $7,897,255 and
$5,023,466, respectively.
Concurrent with the Acquisition and Offering, the Company's bank credit line
was replaced with a $35 million credit facility, $25 million of which is
available in accordance with a borrowing base and to be used for working capital
and $10 million of which may be used for capital expenditures.
F-16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Monsey Products Co.
We have audited the accompanying consolidated balance sheets of Monsey Products
Co., T/A Monsey Bakor, as of December 31, 1996 and 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Monsey Products
Co., T/A Monsey Bakor, at December 31, 1996 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the financial statements, in 1997 the Company changed
its method of accounting for environmental remediation liabilities.
ERNST & YOUNG LLP
Philadelphia, PA
February 6, 1998
F-17
<PAGE>
MONSEY PRODUCTS CO.
T/A MONSEY BAKOR
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
------------ ------------ MARCH 31,
------------
1998
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................................................. $ 1,375,167 $ 213,034 $ 1,168,611
Accounts receivable, net of allowance for doubtful accounts of $412,000 and
$289,000 at December 31, 1996 and 1997, respectively and $289,000 at March 31,
1998........................................................................... 9,228,612 9,783,653 14,477,293
Inventories...................................................................... 7,018,984 6,883,809 9,187,700
Prepaid expenses and other current asset......................................... 618,868 640,753 553,995
Refundable income taxes.......................................................... 93,723 -- 58,559
------------ ------------ ------------
Total current assets........................................................... 18,335,354 17,521,249 25,446,158
Property and equipment:
Land............................................................................. 2,599,501 2,693,300 2,693,300
Buildings and improvements....................................................... 16,008,570 16,460,028 16,442,194
Machinery and equipment.......................................................... 19,292,217 20,288,192 20,332,920
Furniture and fixtures........................................................... 1,840,270 2,350,824 2,556,381
Transportation equipment......................................................... 3,580,612 1,856,469 1,615,015
------------ ------------ ------------
43,321,170 43,648,813 43,639,810
Less accumulated depreciation.................................................... 20,604,088 21,164,710 21,439,445
------------ ------------ ------------
22,717,082 22,484,103 22,200,365
Cash surrender value of insurance.................................................. 1,258,730 1,591,529 2,893,656
Intangibles and other assets net of accumulated amortization of $598,975 and
$806,249 at December 31, 1996 and 1997, respectively and $890,686 at March 31,
1998.............................................................................. 1,679,315 1,695,066 1,651,529
Goodwill, net of accumulated amortization of $65,277 and $185,267 at December 31,
1996 and 1997, respectively and $216,367 at March 31, 1998........................ 2,201,175 2,924,757 1,611,509
------------ ------------ ------------
$ 46,191,656 $ 46,216,704 $ 53,803,217
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit.................................................................. $ 4,920,051 $ 2,642,296 $ 11,298,822
Accounts payable................................................................. 5,638,291 7,228,813 8,139,144
Accrued expenses................................................................. 2,943,823 3,036,284 2,486,083
Income taxes payable............................................................. -- 259,079 --
Current portion of long-term debt................................................ 1,552,652 3,866,566 3,251,949
------------ ------------ ------------
Total current liabilities...................................................... 15,054,817 17,033,038 25,175,998
Long-term debt, less current portion............................................... 9,147,492 5,232,797 5,293,267
Environmental reserve.............................................................. -- 3,502,510 3,502,510
Deferred income taxes.............................................................. 3,829,221 3,305,967 3,178,715
Shareholders' equity:
Preferred stock, $100 par value; Authorized shares--14,000 shares authorized
issued and outstanding shares--7,000 in 1996 and 0 in 1997 and 1998............ 700,000 -- --
Common stock, $1.00 par value; 3,000,000 shares authorized: Issued and
outstanding shares--2,505,000.................................................. 2,505,000 2,505,000 2,505,000
Additional paid-in capital....................................................... 7,152,000 7,152,000 7,152,000
Cumulative translation account................................................... -- (602,198) (587,590)
Retained earnings................................................................ 7,803,126 8,087,590 7,583,317
------------ ------------ ------------
Total shareholders' equity..................................................... 18,160,126 17,142,392 16,652,727
------------ ------------ ------------
$ 46,191,656 $ 46,216,704 $ 53,803,217
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
F-18
<PAGE>
MONSEY PRODUCTS CO.
T/A MONSEY BAKOR
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------- ----------------------------
1995 1996 1997 1997 1998
-------------- -------------- -------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................. $ 79,635,623 $ 108,583,539 $ 113,174,990 $ 21,619,844 $ 22,738,151
Cost of sales............................. 59,640,781 79,428,328 83,082,278 16,580,018 17,495,298
-------------- -------------- -------------- ------------- -------------
Gross profit............................ 19,994,842 29,155,211 30,092,712 5,039,826 5,242,853
Selling, general and administrative....... 17,817,697 23,513,166 24,444,040 5,693,127 5,679,072
Accounting method change--non-cash
environmental charge..................... -- -- 3,638,965 3,638,965 --
Amortization of intangibles............... 120,459 282,537 352,535 77,283 115,538
-------------- -------------- -------------- ------------- -------------
Operating income (loss)................... 2,056,686 5,359,508 1,657,172 (4,369,549) (551,757)
Interest expense.......................... 1,217,043 1,557,017 1,576,135 346,691 302,552
Other income, net......................... (81,572) (564,445) (390,427) (61,196) (60,786)
-------------- -------------- -------------- ------------- -------------
Income (loss) before income taxes......... 921,215 4,366,936 471,464 (4,655,044) (793,523)
Income tax expense (benefit).............. 385,000 1,537,000 187,000 (1,848,000) (289,250)
-------------- -------------- -------------- ------------- -------------
Net income (loss)....................... $ 536,215 $ 2,829,936 $ 284,464 $ (2,807,044) $ (504,273)
-------------- -------------- -------------- ------------- -------------
-------------- -------------- -------------- ------------- -------------
</TABLE>
See accompanying notes.
F-19
<PAGE>
MONSEY PRODUCTS CO.
T/A MONSEY BAKOR
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL CUMULATIVE
PREFERRED COMMON STOCK STOCK PAID-IN TRANSLATION RETAINED
STOCK STOCK CLASS A CLASS B CAPITAL ACCOUNT EARNINGS TOTAL
---------- ---------- -------- -------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994........ $5,600,000 $ -- $10,000 $90,000 $ -- $ -- $ 4,716,975 $10,416,975
Net income....................... 536,215 536,215
Dividends Paid................... (280,000) (280,000)
---------- ---------- -------- -------- ---------- ----------- ----------- -----------
Balances, December 31, 1995........ 5,600,000 10,000 90,000 -- 4,973,190 10,673,190
Recapitalization................. (4,200,000) 1,503,000 (10,000 ) (90,000 ) 2,797,000
Redemption of preferred stock.... (700,000) (700,000)
Purchase of Canadian
subsidiary..................... 1,002,000 4,355,000 5,357,000
Net income....................... 2,829,936 2,829,936
---------- ---------- -------- -------- ---------- ----------- ----------- -----------
Balances, December 31, 1996........ 700,000 2,505,000 -- -- 7,152,000 -- 7,803,126 18,160,126
Redemption of preferred stock...... (700,000) (700,000)
Comprehensive loss:
Net income....................... 284,464 284,464
Other comprehensive income--
change in cumulative
translation account............ (602,198 ) (602,198)
-----------
Total comprehensive loss........... (317,734)
---------- ---------- -------- -------- ---------- ----------- ----------- -----------
Balances, December 31, 1997........ -- 2,505,000 -- -- 7,152,000 (602,198 ) 8,087,590 17,142,392
Comprehensive loss:
Net loss (unaudited)............. (504,273) (504,273)
Other comprehensive income--
change in cumulative
translation account
(unaudited).................... 14,608 14,608
-----------
Total comprehensive loss
(unaudited)....................... (489,665)
---------- ---------- -------- -------- ---------- ----------- ----------- -----------
Balances, March 31, 1998
(unaudited)....................... -- $2,505,000 -- -- $7,152,000 $ (587,590 ) $ 7,583,317 $16,652,727
---------- ---------- -------- -------- ---------- ----------- ----------- -----------
---------- ---------- -------- -------- ---------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-20
<PAGE>
MONSEY PRODUCTS CO.
T/A MONSEY BAKOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31 31,
------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).......................... $ 536,215 $ 2,829,936 $ 284,464 $(2,807,044) $ (504,273)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation............................... 1,752,059 2,199,118 2,213,205 565,536 513,355
Amortization of intangible assets.......... 120,459 282,537 352,535 77,283 115,538
Environmental charge....................... -- -- 3,638,965 3,638,965 --
Deferred tax provision..................... (154,000) 107,000 (1,243,000) (1,508,000) (39,000)
(Gain) loss on sale of assets.............. 5,623 (323,961) (227,545) (22,423) (33,650)
Changes in operating assets and
liabilities:
Accounts receivable...................... (376,557) (1,127,381) (778,993) (5,779,512) (4,693,640)
Inventories.............................. (44,852) (1,162,867) (31,737) (1,927,145) (2,303,891)
Prepaid expenses and other............... 31,871 168,136 (69,929) (674,872) 94,576
Income taxes payable (refundable)........ 90,691 62,337 299,446 (272,602) (420,002)
Accounts payable and accrued expenses.... 6,321 991,579 1,759,090 3,940,844 360,130
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities................. 1,967,830 4,026,434 6,196,501 (4,768,971) (6,910,857)
INVESTING ACTIVITIES
Purchases of property and equipment........ (1,279,671) (1,224,845) (2,609,947) (779,712) (240,480)
Acquisitions of intangible assets.......... -- (910,784) (347,102) -- --
Proceeds from sale of assets............... -- 573,479 384,784 27,000 50,000
Investment in Canadian subsidiary, net of
cash acquired............................ -- (1,437,887) -- -- --
(Increase) decrease in cash surrender value
of life insurance........................ -- 214,436 (332,799) (67,150) (60,000)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities.. (1,279,671) (2,785,601) (2,905,064) (819,862) (250,480)
FINANCING ACTIVITIES
Long-term borrowings....................... 150,000 3,789,478 -- -- --
Repayment of long-term debt................ (1,763,553) (2,978,026) (1,555,740) (392,670) (554,147)
Net (repayments) borrowings under lines of
credit................................... 1,154,554 (747,416) (2,187,755) 5,285,600 8,656,453
Redemption of preferred stock.............. (280,000) (700,000) (700,000) -- --
----------- ----------- ----------- ----------- -----------
Cash provided by (used in) financing
activities............................... (738,999) (635,964) (4,443,495) 4,892,930 8,102,306
Effect of changes in exchange rate on
cash..................................... -- -- (10,075) -- 14,608
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash.............. (50,840) 604,869 (1,162,133) (695,903) 955,577
Cash, beginning of period.................... 821,138 770,298 1,375,167 1,375,167 213,034
----------- ----------- ----------- ----------- -----------
Cash, end of period.......................... $ 770,298 $ 1,375,167 $ 213,034 $ 679,264 $ 1,168,611
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental disclosures:
Cash paid for interest..................... $ 1,217,000 $ 1,557,000 $ 1,495,000 $ 303,000 $ 265,000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Cash paid for income taxes................. $ 463,000 $ 1,402,000 $ 942,000 $ 143,000 $ 303,000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-21
<PAGE>
MONSEY PRODUCTS CO.
T/A MONSEY BAKOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Monsey Products Co. (the "Company"), trading as Monsey Bakor, manufactures
protective coatings, adhesives, and membranes used in roofing, waterproofing,
and air barrier applications for both the retail and construction markets and
specialty products for industrial applications. Its products are sold primarily
in the United States and in Canada.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Significant intercompany accounts and transactions have
been eliminated in consolidation.
RECLASSIFICATIONS
Certain reclassifications have been made to the Company's prior years'
financial statements to conform to the 1997 presentation.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's wholly-owned Canadian
subsidiaries are translated from Canadian dollars to U.S. dollars using exchange
rates in effect at the balance sheet date and operations are translated using
average exchange rates for the year. Translation gains and losses are recorded
in stockholders' equity and transaction gains and losses (not significant in
amount) are included in operating results for the year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Product sales revenue is recognized upon the transfer of title to goods.
CREDIT RISK
Financial instruments that subject the Company to credit risk consist
primarily of accounts receivable. The Company performs periodic credit
evaluations of its customers and generally does not require collateral. The
majority of accounts receivable are from retail chains and building supply
distributors.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable and accounts payable approximate
fair value because of their short-term nature. The carrying amounts of the line
of credit and long-term debt approximate fair
F-22
<PAGE>
MONSEY PRODUCTS CO.
T/A MONSEY BAKOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
value because their interest rates are based upon rates currently available to
the Company for debt with similar terms and conditions.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
under the last-in first-out (LIFO) method for U.S. operations and under the
first-in, first-out method for Canadian operations. If the first-in, first-out
(FIFO) method had been used for all operations, inventories would have been
approximately $1,022,000 and $1,032,000 higher than reported at December 31,
1997 and 1996, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost. Depreciation is
computed over the estimated useful lives of the applicable assets by use of the
straight-line method for financial reporting purposes and straight-line and
accelerated methods for income tax purposes. The estimated useful lives range
from 15 to 31 years for buildings and improvements and from 5 to 10 years for
machinery, equipment and fixtures.
GOODWILL
Goodwill represents the excess of the cost over the fair value of the net
assets at the date of acquisition and is being amortized using the straight-line
method over 25 years.
ENVIRONMENTAL REMEDIATION LIABILITIES
In 1997 the Company adopted American Institute of Certified Public
Accountants' SOP 96-1, Environmental Remediation Liabilities, ("SOP 96-1") which
provides new guidance for the accrual of environmental remediation costs. In
accordance with the pronouncement, the Company accrues for losses associated
with environmental remediation obligations when such losses are probable and
reasonably estimable. Accruals for estimated losses from environmental
remediation obligations generally are recognized no later than completion of the
remedial feasibility study. Such accruals are adjusted as further information
develops or circumstances change. Cost of future expenditures for environmental
remediation obligations are not discounted.
INCOME TAXES
The Company and its U.S. subsidiaries file a consolidated federal income tax
return. Consolidated federal income tax expense is allocated to members of the
affiliated group on the basis of their separate-return tax liability. The
Company's Canadian subsidiaries are required to file separate income tax returns
and income tax expense is determined at the individual subsidiary level.
The Company accounts for income taxes using the liability method. The
liability method provides that deferred tax assets and liabilities are recorded
based on the difference between the tax basis of assets and liabilities and
their carrying amounts for financial reporting purposes, referred to as
"temporary differences." Temporary differences result from the use of different
accounting methods for financial statement and income tax reporting purposes.
F-23
<PAGE>
MONSEY PRODUCTS CO.
T/A MONSEY BAKOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information." SFAS 130 establishes standards for
reporting comprehensive income. The Company adopted SFAS 130 in 1998, which had
no impact on net income or shareholders' equity at March 31, 1998. SFAS 130
requires foreign currency translation adjustments, which prior to adoption were
reported separately in shareholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform with the requirements of SFAS 130.
SFAS 131 establishes standards for annual and interim disclosures of
operating segments, products and services, geographic areas and major customers.
The new rules will be effective for the Company's December 31, 1998 financial
statements. The Company is in the process of evaluating the disclosure
requirements of SFAS 131, the adoption of which will have no impact on the
Company's results of operations or financial condition.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying interim consolidated balance sheet as of March 31, 1998 and
the consolidated statements of operations, shareholders' equity and cash flows
for the three months ended March 31, 1997 and 1998 together with the related
notes are unaudited and include all adjustments, consisting of only normal
recurring adjustments, which the Company considers necessary to present fairly
in all material respects, the financial position, the results of operations and
cash flows for the three months ended March 31, 1997 and 1998. Results for the
three months ended March 31, 1997 and 1998 are not necessarily indicative of
results for an entire year. Certain information in footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.
3. ACQUISITIONS AND DIVESTITURES
On March 15, 1996, the Company acquired all of the outstanding common stock
of Bakor Holdings, Inc. (Bakor) in exchange for $1,837,000 plus 1,002,000 shares
of its common stock valued at $5,357,000. The transaction was accounted for as a
purchase. The purchase price, as revised in 1997, was allocated as follows: net
working capital $2,892,000; property, equipment and other assets--$6,045,000;
goodwill--$3,335,000; debt assumed--$3,194,000 and deferred tax
liability--$1,884,000. The consolidated results of operations reflect the
results of operations of Bakor from the date of acquisition.
In July 1996, the Company sold the principal assets of its wholly-owned
subsidiary, Carecraft Industries, Inc. for $534,000 and recognized a gain on the
sale of approximately $286,000.
4. RECAPITALIZATION
In conjunction with the Bakor acquisition, the Company recapitalized its
outstanding shares whereby the 56,000 shares of $100 par value preferred stock
were exchanged for 14,000 shares and the 100 shares of Class A common stock and
900 shares of Class B common stock were exchanged for 1,503,000 shares of $1.00
par value common stock. During 1996 and 1997 all preferred stock was redeemed.
F-24
<PAGE>
MONSEY PRODUCTS CO.
T/A MONSEY BAKOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1996 1997
------------ ------------- MARCH 31,
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.............................................. $ 4,457,462 $ 3,741,758 $ 4,798,912
Finished goods............................................. 2,561,522 3,142,051 4,388,788
------------ ------------- -------------
$ 7,018,984 $ 6,883,809 $ 9,187,700
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
6. LINES OF CREDIT
The Company has a domestic line of credit with a bank, subject to annual
confirmation, aggregating up to $13,000,000 with interest charged at the prime
rate less 0.25% (8.25% at December 31, 1997). The Company also has a Canadian
line of credit with a bank, subject to annual confirmation, aggregating
$4,440,000 with interest charged at the prime rate plus .5% (6.5% at December
31, 1997). At December 31, 1997 and March 31, 1998, there was $2,642,296 and
$11,298,822 outstanding under these lines, respectively.
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31
MONTHLY INTEREST ------------------------
DEBT INSTRUMENT PAYMENT RATE MATURITY DATE 1996 1997
- ----------------------- ----------- --------- ---------------- ----------- ----------- MARCH 31,
1998
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Note payable $ 83,334 7.1% November 1998 $ 3,999,976 $ 2,999,968 $2,749,966
Note payable ** prime June 2001 3,789,478 3,789,478 3,789,478
Note payable 13,542 8.1% February 2002 1,272,916 1,110,416 1,069,791
Note payable 7,738 8.45% July 1999 425,598 332,742 309,528
Mortgage payable 2,900* 6% September 2000 116,597 88,015 80,598
Mortgage payable 2,839* 6.5% June 2003 180,199 157,169 151,175
Mortgage payable 4,167 10.5% February 1998 231,250 178,250 --
Debenture 23,500 8.5% March 2000 684,130 443,325 394,680
----------- ----------- -----------
10,700,144 9,099,363 8,545,216
Less current maturities 1,552,652 3,866,566 3,251,949
----------- ----------- -----------
$ 9,147,492 $ 5,232,797 $5,293,267
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------------------
* Monthly payment includes interest
** Monthly installments of $20,387 commencing April 1, 1998 increasing to
$103,720 on January 1, 1999.
The bank indebtedness is secured by substantially all of the assets of the
Company. The agreements limit the amount of cash dividends, capital
expenditures, loans and investments and require the maintenance of certain
financial ratios.
F-25
<PAGE>
MONSEY PRODUCTS CO.
T/A MONSEY BAKOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
Principal payments of long-term debt are due as follows:
<TABLE>
<S> <C>
1998.................................................................... $3,866,566
1999.................................................................... 1,900,043
2000.................................................................... 1,514,736
2001.................................................................... 1,309,066
2002.................................................................... 490,352
2003.................................................................... 18,600
---------
$9,099,363
---------
---------
</TABLE>
At December 31, 1997, the Company had letters of credit of $632,000 with
various banks expiring on various dates. The letters are expected to be renewed
upon expiration.
8. INCOME TAXES
The significant components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ ------------------------
1995 1996 1997 1997 1998
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal............................ $ 444,000 $ 1,084,000 $ 1,008,000 $ (236,000) $ (123,250)
State.............................. 65,000 124,000 151,000 (26,000) (52,000)
Foreign............................ -- 222,000 273,000 (78,000) (75,000)
---------- ----------- ----------- ----------- -----------
509,000 1,430,000 1,432,000 (340,000) (250,250)
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Deferred:
Federal............................ (52,000) 26,000 (1,027,000) (1,158,000) (31,000)
State.............................. (72,000) 11,000 (273,000) (350,000) (8,000)
Foreign............................ -- 70,000 55,000 -- --
---------- ----------- ----------- ----------- -----------
(124,000) 107,000 (1,245,000) (1,508,000) (39,000)
---------- ----------- ----------- ----------- -----------
$ 385,000 $ 1,537,000 $ 187,000 $(1,848,000) $ (289,250)
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
</TABLE>
The effective income tax rate of 41.8%, 35.2% and 39.7% for the years ended
December 31, 1995, 1996 and 1997, respectively, and 39.7% and 36.5% for the
three month periods ended March 31, 1997 and 1998, respectively, differs from
the federal statutory rate of 34% because of the difference in treatment of
F-26
<PAGE>
MONSEY PRODUCTS CO.
T/A MONSEY BAKOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
certain expense items for financial and income tax reporting purposes. A
reconciliation between the statutory provision and the provision for financial
reporting purposes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- -----------------------
1995 1996 1997 1997 1998
--------- ----------- --------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory federal tax provision........... $ 313,000 $ 1,485,000 $ 160,000 $(1,583,000) $ (270,000)
State income taxes, net of federal income
tax benefit.............................. (4,000) 89,000 (81,000) (248,000) (40,000)
Foreign income taxes in excess of (less
than) U.S. statutory rate................ -- (164,000) 65,000 (13,000) (2,000)
Other..................................... 76,000 127,000 43,000 (4,000) 22,750
--------- ----------- --------- ----------- ----------
Income tax expense (benefit).............. $ 385,000 $ 1,537,000 $ 187,000 $(1,848,000) $ (289,250)
--------- ----------- --------- ----------- ----------
--------- ----------- --------- ----------- ----------
</TABLE>
Income (loss) before income taxes of the Canadian operations was $0,
$1,342,000, and $773,000 for the years ended 1995, 1996 and 1997, respectively,
and $(191,000) and $(215,000) for the three month periods ended March 31, 1997
and 1998, respectively.
Pre-tax income of the Canadian operations was $0, $1,342,000 and $773,000
for 1995, 1996 and 1997, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and are disclosed in the
consolidated balance sheets. The significant components of the Company's
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax asset:
Environmental reserve...................................................... $ -- $ 1,415,028
Deferred tax liabilities:
Depreciation and other property and equipment basis differences............ (3,334,901) (3,902,687)
Deferred gain on discharge of liability.................................... (494,320) (818,308)
----------- -----------
Total deferred tax liabilities............................................. (3,829,221) (4,720,995)
----------- -----------
Net deferred tax liabilities............................................... $(3,829,221) $(3,305,967)
----------- -----------
----------- -----------
</TABLE>
9. RETIREMENT PLANS
The Company participates in noncontributory defined contribution pension
plans for eligible U.S. hourly employees. Amounts charged to expense under these
plans are based upon predetermined hourly rates and were $259,000, $215,000,
$252,000 in 1995, 1996 and 1997, respectively.
The Company has a defined contribution profit sharing plan for eligible U.S.
salaried employees. In 1997 a 401(k) feature was added allowing employee
contributions and employer profit sharing contributions were discontinued.
Employer contributions charged to expense for this plan were $477,000, $508,000
and $0 in 1995, 1996 and 1997.
F-27
<PAGE>
MONSEY PRODUCTS CO.
T/A MONSEY BAKOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
The Company leases certain office and warehouse facilities, automobiles and
office equipment under operating leases with terms ranging from one to six
years. Certain of the leases contain escalation provisions based on fluctuations
in certain cost of living indices.
Total rent expense was $430,000, $698,000 and $676,000 in 1995, 1996 and
1997, respectively. The minimum rental commitments under all noncancelable
leases with an original term of one year or more are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998.............................................................................. $ 487,000
1999.............................................................................. 308,000
2000.............................................................................. 112,000
2001.............................................................................. 42,000
2002.............................................................................. 8,000
Thereafter........................................................................ 2,000
</TABLE>
The Company has an agreement granting it exclusive production and selling
rights in Canada and the United States for specific products listed in the
agreement. The agreement provides for a fixed royalty payment of $1,380,000
together with a variable royalty payment as a royalty on sale of the specific
products with predetermined minimum payments in year two through ten of the
agreement. The estimated remaining balance at December 31, 1997 is approximately
$200,000 and is expected to be earned and paid in 1998. As collateral for the
payments under the licensing agreement, the Company has granted a second
mortgage against certain real property of the Company.
The Company is a party to several legal actions arising in the ordinary
course of business. In management's opinion, the Company has adequate legal
defenses and insurance coverage with respect to each of these actions and does
not believe that they will materially affect the Company's operations or
financial position.
11. ENVIRONMENTAL RESERVE
In 1997, the Company adopted SOP 96-1, Environmental Remediation
Liabilities, which provides new guidance for the accrual of environmental
remediation costs. The adoption of SOP 96-1 resulted in a pretax charge of
$3,638,965 which is included in operating income. The effect of this change
reduced 1997 net income by approximately $2,131,000.
The pretax charge of $3,638,965 relates to operation and maintenance of a
remedial action plan at one of the Company's facilities under a Record of
Decision issued by the EPA in 1988 and a Remedial Design/ Remedial Action plan
approved and adopted by the EPA, the Company, and another Participating
Responsible Party (PRP). The facility was previously occupied by the other PRP
who agreed to a formal cost sharing agreement with the Company in 1990. The
Company expensed its share of the costs until 1997 when it adopted SOP 96-1. The
Company has accrued its best estimate of its obligation with respect to the site
which is $3,572,402 at December 31, 1997. The majority of this balance is
included in long-term liabilities as it is expected to be disbursed over the
next twenty-six years. If the other PRP is ultimately not able to fund its
allocated share or the EPA insists on a more expensive remediation approach, the
Company could incur additional obligations.
12. EVENT SUBSEQUENT TO THE BALANCE SHEET DATE
In February 1998, the shareholders agreed to sell all of the outstanding
shares of the Company to Henry Company.
F-28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION TO OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THE PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF NOR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.......................... i
Summary........................................ 1
Risk Factors................................... 19
Use of Proceeds................................ 27
The Exchange Offer............................. 28
Certain U.S. Federal Income Tax
Considerations................................ 37
The Transactions............................... 39
Capitalization................................. 40
Unaudited Pro Forma Condensed Combined
Financial Data................................ 42
Selected Historical Combined Financial Data of
Henry Company................................. 48
Management's Discussion and Analysis of
Financial Condition and Results of Operations
of Henry Company.............................. 50
Selected Historical Consolidated Financial Data
of Monsey Bakor............................... 56
Management's Discussion and Analysis of
Financial Condition and Results of Operations
of Monsey Bakor............................... 58
Industry Overview.............................. 63
Business....................................... 64
Management..................................... 82
Shareholders................................... 89
Certain Transactions........................... 90
Description of the Credit Facilities........... 91
Description of the Exchange Notes.............. 92
Plan of Distribution........................... 117
Transfer Restrictions on Old Notes............. 118
Book Entry; Delivery and Form.................. 119
Legal Matters.................................. 121
Experts........................................ 121
Index to Financial Statements.................. F-1
</TABLE>
--------------
PROSPECTUS
--------------
$85,000,000
[LOGO]
10% SERIES B SENIOR NOTES
DUE 2008
JULY , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
DIRECTOR LIABILITY
As authorized by the California General Corporation Law ("CGCL"), the
Company's Articles of Incorporation (the "Articles") provide that, to the
fullest extent permissible under California law, the liability of the directors
of the Company for monetary damages shall be eliminated and the Company is
authorized to indemnify the directors and officers of the Company. The CGCL does
not permit limitation of liability of any director (i) for acts or omissions
that involve intentional misconduct or a knowing and culpable violation of law,
(ii) for acts or omissions that a director believes to be contrary to the best
interests of the Company or its shareholders or that involve the absence of good
faith on the part of the director, (iii) for any transaction from which a
director derived an improper personal benefit, (iv) for acts or omissions that
show a reckless disregard for the director's duty to the Company or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a directors' duties, of a risk
of serious injury to the corporation or its shareholders, (v) for acts or
omissions that constitute an unexcused pattern of inattention that amounts to an
abdication of the directors' duty to the corporation or its shareholders or (vi)
for certain unlawful distributions, loans or guarantees. The effect of these
provisions and understandings will be to eliminate the rights of the Company and
its stockholders (through stockholder derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of fiduciary duty as a
director, except in the situations described in clauses (i)-(vi) of the second
sentence of this paragraph. These provisions and understandings will not alter
the liability of the Directors under federal securities laws. Warner W. Henry
has made certain oral agreements with Paul H. Beemer and Terrill M. Gloege
providing for Mr. Henry's personal indemnification of Mr. Beemer and Mr. Gloege
for any liabilities incurred in connection with the Initial Note Offering and
the Exchange Offer.
Subject to the Articles of Incorporation and California law, the Bylaws
provide that the Company shall indemnify each of its directors and officers
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact that any person is or was a Company director or officer.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.1 Stock Purchase Agreement between Henry Company and the Shareholders of Monsey Products Co. dated as
of February 27, 1998
2.2 Amendment to Stock Purchase Agreement between Henry Company and the Shareholders of Monsey Products
Co. dated as of February 27, 1998
2.3+ Summary of contents of omitted schedules to Stock Purchase Agreement
3.1 Certificate of Amendment and Restatement of Articles of Incorporation of Henry Company
3.2 Bylaws of Henry Company
4.1 Indenture dated as of April 22, 1998 between Henry Company, each of the guarantors named therein and
U.S. Trust Company of California, N.A., as Trustee, including forms of Senior Notes
4.2 Registration Rights Agreement dated as of April 22, 1998 by and among Henry Company, each of the
Guarantors named therein and BT Alex.Brown Incorporated as Initial Purchaser
5.1 Opinion of Munger, Tolles & Olson LLP
5.2 Opinion of John D. O'Keefe, Esq.
10.1 Amended and Restated Financing and Security Agreement dated April 22, 1998, by and between Henry
Company and Monsey Products Co., Kimberton Enterprises, Inc. Monsey Products of Arizona LLC and
Nationsbank, N.A.
10.2 Administrative Services Agreement, dated as of January 1, 1998, between Henry Company and Central
Coast Wine Company dba The Henry Wine Group.
10.3 Lease, dated September 5, 1996, between Warner Wheeler Henry Living Trust and Henry Family Trust B
and Henry Company
10.4 Ground Lease, dated April 30, 1976, (as extended on December 11, 1996) between The Warner W. Henry
Family Trust, the Declaration of Trust for Dorothy H. Floyd and The W.W. Henry Company.
10.5 Machinery Lease, dated August 1, 1958 and Amendment to Machinery Lease, dated August 1, 1968, between
Warner White Henry and The W.W. Henry Company.
10.6 Lease, dated February 27, 1992, between Alamo Development Company and Henry Company
10.7 Lease Agreement and Addendum to Lease Agreement dated December 23, 1994, by and between Seaboard
Supply Co. and Monsey Products Co.
10.8 Warrant Agreement between Henry Company and the Warner W. Henry Living Trust dated as of October 1,
1997
10.9 Convertible Preferred Stock Purchase Agreement between Henry Company and Joseph T. Mooney, Jr. dated
as of April 22, 1998
10.10 Stock Purchase Agreement between Henry Company and Frederick Muhs dated as of April 22, 1998
10.11 Henry Company Executive Deferral Plan
10.12 Employment and Incentive Agreement between Henry Company, Henry II, Warner Development Company of
Texas and Richard B. Gordinier, dated September 30, 1992
10.13 Amendment No. 1 to Employment and Incentive Agreement between Henry Company, Henry II, Warner
Development Company of Texas and Richard B. Gordinier, dated October 16, 1997
</TABLE>
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.14 Amendment No. 2 to Employment and Incentive Agreement between Henry Company, Henry II, Warner
Development Company of Texas and Richard B. Gordinier, dated April 21, 1998
10.15 Non-Negotiable Promissory Notes, between Henry Company and Richard B. Gordinier, dated July 11,
August 24 and December 15, 1997
10.16 Employment Agreement between Henry Company and Joseph T. Mooney, Jr. dated as of April 22, 1998
10.17 Employment Agreement between Henry Company and Larry A. Karasiuk dated as of April 22, 1998
10.18 Employment Agreement between Henry Company and John R. Enright dated July 1, 1993
10.19 Amended and Restated Employment Agreement between Henry Company and James Doose dated May 27, 1994
10.20 Incentive Compensation Agreement between Henry Company and Jeffrey A. Wahba dated August 1, 1994
10.21 Incentive Compensation Agreement between Henry Company and John R. Enright dated July 1, 1993
10.22 Noncompetition Agreement between Henry Company and James F.C. Stewart dated as of February 27, 1998
10.23 Noncompetition Agreement between Henry Company and Edward P. Mooney dated as of April 22, 1998
10.24 Noncompetition Agreement between Henry Company and Larry Karasiuk dated as of April 22, 1998
10.25 Consulting Agreement between Henry Company and Paul Beemer dated November 24, 1993
10.26 Amendment to Consulting Agreement between Henry Company and Paul Beemer dated July 29, 1996
10.26(A) Amendment to Consulting Agreement between Henry Company and Paul Beemer dated June 1, 1995
10.27 Custodial Agreement between Henry Company the Shareholders of Monsey Products Co. and PNC Bank,
National Association dated as of April 22, 1998
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of the Registrant
23.1 Consent of Munger, Tolles & Olson LLP
23.2 Consent of John D. O'Keefe, Esq.
23.3 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.4 Consent of Ernst & Young LLP, Independent Auditors
24.1 Powers of Attorney (contained on the signature page of this Prospectus)
25.1 Form T-1 Statement of Eligibility of U.S. Trust Company, N.A.
27.1 Financial Data Schedule
</TABLE>
- ------------------------
+ The Company will furnish upon request of the Commission any omitted schedule
or exhibit.
II-3
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrants hereby undertake:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment hereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Securities and
Exchange Commission (the "Commission") pursuant to rule 424(b) if, in the
aggregate, the changes in volume and price represent no more that a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in this Registration Statement when
it becomes effective;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
(2) that, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrants pursuant to the foregoing provisions, or otherwise,
the Registrants have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of a Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, such Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(5) to file an application for the purpose of determining the eligibility of
the trustee to act under subsection (a) of Section 310 of the Trust Indenture
Act in accordance with the rules and regulations prescribed by the Commission
under Section 305(b)(2) of the Trust Indenture Act.
(6) to respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
this Registration Statement through the date of responding to the request.
(7) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in this Registration Statement when it
became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrants have duly caused this registration statement to be signed on their
behalf by the undersigned, thereunto duly authorized, in the city of Los
Angeles, state of California on July 21, 1998.
<TABLE>
<S> <C> <C> <C>
HENRY COMPANY MONSEY PRODUCTS CO.
By: /s/ JEFFREY WAHBA By: /s/ JEFFREY WAHBA
---------------------------------------- ----------------------------------------
Its: Secretary and CFO Its: Secretary and CFO
- -------------------------------------------- --------------------------------------------
KIMBERTON ENTERPRISES, INC. MONSEY PRODUCTS OF ARIZONA LLC
By: /s/ JEFFREY WAHBA By: Monsey Products Co.
----------------------------------------
Its: Secretary and CFO Designated Manager
- -------------------------------------------- By: /s/ JEFFREY WAHBA
------------------------------------
Its: Secretary and CFO
------------------------------------
</TABLE>
POWERS OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of Warner W. Henry, Richard B. Gordinier and Jeffrey A. Wahba, his or her
true and lawful attorney-in-fact and agent with full powers of substitution and
resubstitution, for the undersigned and in the name of the undersigned, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement on Form S-4, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ WARNER W. HENRY
- ------------------------------ July 21, 1998
Warner W. Henry Chairman of the Board,
Chief Executive Officer
and Director,
Henry Company, Monsey
Products Co. and
Kimberton Enterprises,
Inc.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ RICHARD B. GORDINIER
- ------------------------------ July 21, 1998
Richard B. Gordinier President, Chief Operating
Officer and Director,
Henry Company, Monsey
Products Co. and
Kimberton Enterprises,
Inc.
/s/ JEFFREY A. WAHBA
- ------------------------------ July 21, 1998
Jeffrey A. Wahba Vice President, Chief
Financial, Officer,
Secretary and Director,
(Principal Financial
Officer), Henry Company,
Monsey Products Co. and
Kimberton Enterprises,
Inc.
/s/ GARY SPENCE
- ------------------------------ July 21, 1998
Gary Spence Controller (Principal
Accounting
Officer), Henry Company,
Monsey Products Co. and
Kimberton Enterprises,
Inc.
/s/ PAUL H. BEEMER
- ------------------------------ July 21, 1998
Paul H. Beemer Vice Chairman of the Board
and Director, Henry
Company
/s/ JOSEPH T. MOONEY, JR.
- ------------------------------ July 21, 1998
Joseph T. Mooney, Jr. Vice Chairman of the Board
and Director, Henry
Company
/s/ FREDERICK H. MUHS
- ------------------------------ July 21, 1998
Frederick H. Muhs Director, Henry Company,
Monsey Products Co. and
Kimberton Enterprises,
Inc.
/s/ CAROL F. HENRY
- ------------------------------ July 21, 1998
Carol F. Henry Director, Henry Company
/s/ DONALD H. FORD
- ------------------------------ July 21, 1998
Donald H. Ford Director, Henry Company
/s/ TERRILL M. GLOEGE
- ------------------------------ July 21, 1998
Terrill M. Gloege Director, Henry Company
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.1 Stock Purchase Agreement between Henry Company and the Shareholders of Monsey Products Co. dated as
of February 27, 1998
2.2 Amendment to Stock Purchase Agreement between Henry Company and the Shareholders of Monsey Products
Co. dated as of February 27, 1998
2.3+ Summary of contents of omitted schedules to Stock Purchase Agreement
3.1 Certificate of Amendment and Restatement of Articles of Incorporation of Henry Company
3.2 Bylaws of Henry Company
4.1 Indenture dated as of April 22, 1998 between the Company, each of the guarantors named therein and
U.S. Trust Company of California, N.A., as Trustee, including forms of Senior Notes
4.2 Registration Rights Agreement dated as of April 22, 1998 by and among the Company, each of the
Guarantors named therein and BT Alex.Brown Incorporated as Initial Purchaser
5.1 Opinion of Munger, Tolles & Olson LLP
5.2 Opinion of John D. O'Keefe, Esq.
10.1 Amended and Restated Financing and Security Agreement dated April 22, 1998, by and between Henry
Company and Monsey Products Co., Kimberton Enterprises, Inc. Monsey Products of Arizona LLC and
Nationsbank, N.A.
10.2 Administrative Services Agreement, dated as of January 1, 1998, between Henry Company and Central
Coast Wine Company dba The Henry Wine Group.
10.3 Lease, dated September 5, 1996, between Warner Wheeler Henry Living Trust and Henry Family Trust B
and Henry Company
10.4 Ground Lease, dated April 30, 1976, (as extended on December 11, 1996) between The Warner W. Henry
Family Trust, the Declaration of Trust for Dorothy H. Floyd and The W.W. Henry Company.
10.5 Machinery Lease, dated August 1, 1958 and Amendment to Machinery Lease, dated August 1, 1968, between
Warner White Henry and The W.W. Henry Company.
10.6 Lease, dated February 27, 1992, between Alamo Development Company and Henry Company
10.7 Lease Agreement and Addendum to Lease Agreement dated December 23, 1994, by and between Seaboard
Supply Co. and Monsey Products Co.
10.8 Warrant Agreement between Henry Company and the Warner W. Henry Living Trust dated as of October 1,
1997
10.9 Convertible Preferred Stock Purchase Agreement between Henry Company and Joseph T. Mooney, Jr. dated
as of April 22, 1998
10.10 Stock Purchase Agreement between Henry Company and Frederick Muhs dated as of April 22, 1998
10.11 Henry Company Executive Deferral Plan
10.12 Employment and Incentive Agreement between Henry Company, Henry II, Warner Development Company of
Texas and Richard B. Gordinier, dated September 30, 1992
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
10.13 Amendment No. 1 to Employment and Incentive Agreement between Henry Company, Henry II, Warner
Development Company of Texas and Richard B. Gordinier, dated October 16, 1997
<C> <S>
10.14 Amendment No. 2 to Employment and Incentive Agreement between Henry Company, Henry II, Warner
Development Company of Texas and Richard B. Gordinier, dated April 21, 1998
10.15 Non-Negotiable Promissory Notes, between Henry Company and Richard B. Gordinier, dated July 11,
August 24 and December 15, 1997
10.16 Employment Agreement between Henry Company and Joseph T. Mooney, Jr. dated as of April 22, 1998
10.17 Employment Agreement between Henry Company and Larry A. Karasiuk dated as of April 22, 1998
10.18 Employment Agreement between Henry Company and John R. Enright dated July 1, 1993
10.19 Amended and Restated Employment Agreement between Henry Company and James Doose dated May 27, 1994
10.20 Incentive Compensation Agreement between Henry Company and Jeffrey A. Wahba dated August 1, 1994
10.21 Incentive Compensation Agreement between Henry Company and John R. Enright dated July 1, 1993
10.22 Noncompetition Agreement between Henry Company and James F.C. Stewart dated as of February 27, 1998
10.23 Noncompetition Agreement between Henry Company and Edward P. Mooney dated as of April 22, 1998
10.24 Noncompetition Agreement between Henry Company and Larry Karasiuk dated as of April 22, 1998
10.25 Consulting Agreement between Henry Company and Paul Beemer dated November 24, 1993
10.26 Amendment to Consulting Agreement between Henry Company and Paul Beemer dated July 29, 1996
10.26 (A) Amendment to Consulting Agreement between Henry Company and Paul Beemer dated June 1, 1995
10.27 Custodial Agreement between Henry Company the Shareholders of Monsey Products Co. and PNC Bank,
National Association dated as of April 22, 1998
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of the Registrant
23.1 Consent of Munger, Tolles & Olson LLP
23.2 Consent of John D. O'Keefe, Esq.
23.3 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.4 Consent of Ernst & Young LLP, Independent Auditors
24.1 Powers of Attorney (contained on the signature page of this Prospectus)
25.1 Form T-1 Statement of Eligibility of U.S. Trust Company, N.A.
27.1 Financial Data Schedule
</TABLE>
- ------------------------
+ The Company will furnish upon request of the Commission any omitted schedule
or exhibit.
<PAGE>
Name of Person Filing: Date Completed:
Warner W. Henry March 6, 1998
ATTACHMENT NO. 1
STOCK PURCHASE AGREEMENT
BETWEEN
HENRY COMPANY
AND
THE SHAREHOLDERS OF
MONSEY PRODUCTS CO.
<PAGE>
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1-DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
"Acquired Companies". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
"Applicable Contract" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
"Balance Sheet" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
"BEST EFFORTS". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
"Breach". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Buyer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Closing" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Closing Date". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Consent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Contemplated Transactions" . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Contract". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Damages" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Employment Agreements" . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Encumbrance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Environment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Environmental, Health, and Safety Liabilities" . . . . . . . . . . . . . . . .2
"Environmental Law" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
"ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
"Facilities". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
"GAAP". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
"Governmental Authorization". . . . . . . . . . . . . . . . . . . . . . . . . .4
"Governmental Body" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"Hazardous Activity". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"Hazardous Materials" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"HSR Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"Intellectual Property Assets". . . . . . . . . . . . . . . . . . . . . . . . .4
"IRC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"IRS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"Legal Requirement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"Noncompetition Agreements" . . . . . . . . . . . . . . . . . . . . . . . . . .5
"Occupational Safety and Health Law" . . . . . . . . . . . . . . . . . . . . .5
"Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"Ordinary Course of Business" . . . . . . . . . . . . . . . . . . . . . . . . .5
"Organizational Documents" . . . . . . . . . . . . . . . . . . . . . . . . . .5
"Person". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"Principal Executives". . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
"Proceeding". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"Related Person". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"Release" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"Representative" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"Securities Act". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"Sellers" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"Sellers' Knowledge". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"Shares". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"Shareholders Agreement". . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"SUBSIDIARY". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"TAX" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"Tax Return" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
"Threat of Release" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
"Threatened". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE 2-SALE AND TRANSFER OF SHARES; CLOSING . . . . . . . . . . . . . . . . . . .7
2.1 SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
2.2 PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
2.3 CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
2.4 CLOSING OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
ARTICLE 3-REPRESENTATIONS AND WARRANTIES OF SELLERS. . . . . . . . . . . . . . . . .9
3.1 ORGANIZATION AND GOOD STANDING . . . . . . . . . . . . . . . . . . . . . .9
3.2 AUTHORITY; NO CONFLICT . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.3 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5 BOOKS AND RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.6 TITLE TO PROPERTIES; ENCUMBRANCES. . . . . . . . . . . . . . . . . . . . 11
3.7 PERSONAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.8 CONDITION AND SUFFICIENCY OF ASSETS. . . . . . . . . . . . . . . . . . . 13
3.9 ACCOUNTS RECEIVABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.10 INVENTORY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.11 NO UNDISCLOSED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . 14
3.12 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.13 NO MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . . 15
3.14 EMPLOYEE BENEFITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.15 COMPLIANCE WITH LEGAL REQUIREMENTS . . . . . . . . . . . . . . . . . . . 18
3.16 LEGAL PROCEEDINGS; ORDERS. . . . . . . . . . . . . . . . . . . . . . . . 18
3.17 ABSENCE OF CERTAIN CHANGES AND EVENTS. . . . . . . . . . . . . . . . . . 18
3.18 CONTRACTS; NO DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.19 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.20 ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.21 EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.22 LABOR RELATIONS; COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
3.23 INTELLECTUAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . 25
(a) Intellectual Property Assets. . . . . . . . . . . . . . . . . . . . 25
(b) Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(c) Know-How Necessary for the Business . . . . . . . . . . . . . . . . 25
(d) Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(e) Trademarks and Copyrights . . . . . . . . . . . . . . . . . . . . . 26
(f) Trade Secrets . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.24 NO IMPROPER PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.25 RELATIONSHIPS WITH RELATED PERSONS . . . . . . . . . . . . . . . . . . . 28
ARTICLE 4-REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . . . . . . . . . . . 29
4.1 ORGANIZATION AND GOOD STANDING . . . . . . . . . . . . . . . . . . . . . 29
4.2 AUTHORITY; NO CONFLICT . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.3 INVESTMENT INTENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.4 CERTAIN PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 5-COVENANTS OF SELLERS PRIOR TO CLOSING DATE . . . . . . . . . . . . . . . 30
5.1 ACCESS AND INVESTIGATION . . . . . . . . . . . . . . . . . . . . . . . . 30
5.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED
COMPANIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.3 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.4 REQUIRED APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.5 NOTIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS . . . . . . . . . . . . . . . 32
5.7 NO SOLICITATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.8 BEST EFFORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 6-COVENANTS OF BUYER PRIOR TO CLOSING DATE . . . . . . . . . . . . . . . . 33
6.1 APPROVALS OF GOVERNMENTAL BODIES . . . . . . . . . . . . . . . . . . . . 33
6.2 BEST EFFORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 7-CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. . . . . . . . . . . 33
7.1 ACCURACY OF REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . 34
7.2 SELLERS' PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.3 CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.4 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.5 ADDITIONAL DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.6 NO PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.7 NO CLAIM REGARDING STOCK OWNERSHIP OR
SALE PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.8 NO PROHIBITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.9 HSR ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.10 FINANCING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.11 TERMINATION OF AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
7.12 MOONEY INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 8-CONDITIONS PRECEDENT TO SELLERS' OBLIGATION
TO CLOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.1 ACCURACY OF REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . 36
8.2 BUYER'S PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.3 CONSENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.4 ADDITIONAL DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.5 NO INJUNCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 9-TERMINATION. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.1 TERMINATION EVENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.2 EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 10-INDEMNIFICATION; REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT
AFFECTED BY KNOWLEDGE . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS . . . . . . . . . . . 39
10.3 HOLDBACK ACCOUNT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER . . . . . . . . . . . . 40
10.5 TIME LIMITATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.6 LIMITATIONS ON AMOUNT--SELLERS. . . . . . . . . . . . . . . . . . . . . 41
10.7 LIMITATIONS ON AMOUNT--BUYER. . . . . . . . . . . . . . . . . . . . . . 41
10.8 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS . . . . . . . . . . . 42
10.9 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS . . . . . . . . . . . . . . 43
10.10 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 11-GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.1 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.2 PUBLIC ANNOUNCEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.3 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.4 RELEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.5 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.6 JURISDICTION; SERVICE OF PROCESS. . . . . . . . . . . . . . . . . . . . 47
11.7 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.8 WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.9 ENTIRE AGREEMENT AND MODIFICATION . . . . . . . . . . . . . . . . . . . 47
11.10 SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.11 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. . . . . . . . . . . 48
11.12 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.13 SECTION HEADINGS, CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . 49
11.14 APPOINTMENT OF SELLERS' REPRESENTATIVE. . . . . . . . . . . . . . . . . 49
11.15 TIME OF ESSENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.16 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.17 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
iv
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
2.4(a)(ii) Employment Agreement
2.4(a)(iii) Non-Competition Agreement
7.12 Terms of Mooney Investment
10.3 Custodial Agreement
</TABLE>
v
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of February
27, 1998, by Henry Company, a California corporation, or its designee ("Buyer")
and the individual persons listed on Schedule A (collectively, the "Sellers").
RECITALS
A. Joseph T. Mooney, Jr., Edward P. Mooney, James F. Stewart and
Larry A. Karasiuk (collectively, the "Principal Executives") are each a
principal executive officer and/or a principal shareholder of Monsey Products
Co., a Pennsylvania corporation (the "Company"), and together with those
additional Sellers listed on Schedule A, own all of the issued and outstanding
capital stock of the Company; and
B. Sellers desire to sell, and Buyer desires to purchase, all of the
Company's issued and outstanding shares of capital stock (the "Shares") for the
consideration and on the terms set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"ACQUIRED COMPANIES"-- the Company and its Subsidiaries, collectively.
"APPLICABLE CONTRACT" -- any Contract (a) under which any Acquired
Company has or may acquire any rights, (b) under which any Acquired Company has
or may become subject to any obligation or liability, or (c) by which any
Acquired Company or any of the assets owned or used by it is or may become
bound.
"BALANCE SHEET" -- as defined in Section 3.4.
"BEST EFFORTS" -- the efforts that a prudent Person desirous of achieving
a result would use in similar circumstances to ensure that such result is
achieved as expeditiously as possible.
1
<PAGE>
"BREACH" -- a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been any inaccuracy in or breach of, or any failure to perform or comply with,
such representation, warranty, covenant, obligation, or other provision, and the
term "Breach" means any such inaccuracy, breach or failure.
"BUYER" -- as defined in the first paragraph of this Agreement.
"CLOSING" -- as defined in Section 2.3.
"CLOSING DATE" -- the date and time as of which the Closing actually
takes place.
"COMPANY" -- as defined in the Recitals of this Agreement.
"CONSENT" -- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS" -- all of the transactions contemplated by
this Agreement, including (a) the sale of the Shares by Sellers to Buyer, (b)
the execution, delivery, and performance of the Employment Agreements and the
Noncompetition Agreements, (c) the performance by Buyer and Sellers of their
respective covenants and obligations under this Agreement, and (d) Buyer's
acquisition and ownership of the Shares and exercise of control over the
Acquired Companies.
"CONTRACT" -- any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"DAMAGES" -- as defined in Section 10.2.1.
"EMPLOYMENT AGREEMENTS" -- as defined in Section 2.4(a)(ii).
"ENCUMBRANCE" -- any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any voting, transfer,
receipt of income, or exercise of any other attribute of ownership.
"ENVIRONMENT" -- soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
2
<PAGE>
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES" -- any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to any violation of any Environmental Law or Occupational Safety and
Health Law or any discharge, disposal or other Release of Hazardous Material
into the Environment.
"ENVIRONMENTAL LAW" -- any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the commencements
of activities, such as resource extraction or construction, that could have
significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and
used so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other potentially
harmful substances;
(g) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for injuries
done to public assets.
"ERISA" -- the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"FACILITIES" -- any real property, leaseholds, or other interests
currently or formerly owned or operated by any Acquired Company and any
buildings, plants, structures, or equipment (including motor vehicles, tank
cars, and rolling stock) currently or formerly owned or operated by any Acquired
Company.
3
<PAGE>
"GAAP"--generally accepted United States accounting principles, applied
on a basis consistent with the basis on which the Balance Sheet and the other
financial statements referred to in Section 3.4 were prepared.
"GOVERNMENTAL AUTHORIZATION" -- any approval, consent, license, permit,
waiver, or other authorization issued or granted by or under the authority of
any Governmental Body or pursuant to any Legal Requirement.
"GOVERNMENTAL BODY"-- any:
(a) nation, state, territory, province, county, city, town, village,
district, or other jurisdiction of any nature;
(b) federal, state, provincial, territorial, local, municipal,
foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.
"HAZARDOUS ACTIVITY" -- the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment, and any
other act, business, operation, or thing that increases the danger, or risk of
danger, or poses an unreasonable risk of harm to persons or property on or off
the Facilities, or that may affect the value of the Facilities or the Acquired
Companies.
"HAZARDOUS MATERIALS" -- any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant or deleterious substance
under or pursuant to any Environmental Law, including any admixture or solution
thereof, and specifically including petroleum and all derivatives thereof or
synthetic substitutes therefor and asbestos or asbestos-containing materials.
"HSR ACT" -- the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"INTELLECTUAL PROPERTY ASSETS" -- as defined in Section 3.23.
4
<PAGE>
"IRC" -- the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS"--the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"LEGAL REQUIREMENT" -- any applicable federal, state, provincial,
territorial, local, municipal, foreign, international, multinational, or other
administrative order, constitution, law, ordinance, principle of common law,
regulation, statute, or treaty.
"NONCOMPETITION AGREEMENTS" -- as defined in Section 2.4(a)(iii).
"OCCUPATIONAL SAFETY AND HEALTH LAW" -- any Legal Requirement designed to
provide safe and healthful working conditions and to reduce occupational safety
and health hazards, and any governmental program designed to provide safe and
healthful working conditions.
"ORDER" -- any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS" -- an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person.
"ORGANIZATIONAL DOCUMENTS" -- (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"PERSON" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PRINCIPAL EXECUTIVES" means Joseph T. Mooney, Edward P. Mooney, James
F.C. Stewart, Larry A. Karasiuk.
5
<PAGE>
"PROCEEDING" -- any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"RELATED PERSON" -- with respect to a particular individual:
(a) each other member of such individual's Family; and
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family.
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control with
such specified Person; and
(b) each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity).
For purposes of this definition, (a) the "Family" of an individual includes (i)
the individual, (ii) the individual's spouse and (iii) any other natural person
who is related to the individual or the individual's spouse within the second
degree.
"RELEASE" -- any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"REPRESENTATIVE" -- with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SECURITIES ACT" -- the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SELLERS" -- as defined in the first paragraph of this Agreement.
"SELLERS' KNOWLEDGE"-- shall mean the actual knowledge of any of the
Principal Executives, except that with regard to Section 3.20, it shall mean the
actual knowledge of John Doyle and Michael Manning.
"SHARES" -- as defined in the Recitals of this Agreement.
6
<PAGE>
"SHAREHOLDERS AGREEMENT" -- the Shareholders Agreement dated March 15,
1996 by and between each of the shareholders of the Company.
"SUBSIDIARY" -- with respect to any Person (the "Owner"), any corporation
or other Person of which securities or other interests having the power to elect
a majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"TAX" -- means any federal, state, local, provincial, territorial or
foreign income, capital gain, gross receipts, license, excise, customs, duties,
franchise, profits, capital, sales, use, transfer, goods or services or value
added tax, including any interest, penalty, or addition thereto, whether
disputed or not.
"TAX RETURN" -- any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment
of any Tax or in connection with the administration, implementation, or
enforcement of or compliance with any Legal Requirement relating to any Tax.
"THREAT OF RELEASE" -- a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"THREATENED" -- a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person having knowledge of the event or circumstances to conclude
that such a claim, Proceeding, dispute, action, or other matter is likely to be
asserted, commenced or taken.
ARTICLE 2
SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES.
Subject to the terms and conditions of this Agreement, at the Closing,
Sellers will sell and transfer the Shares to Buyer, and Buyer will purchase the
Shares from Sellers.
7
<PAGE>
2.2 PURCHASE PRICE.
The purchase price (the "Stock Purchase Price") for the Shares will be
$42,750,000 subject to a holdback of $2 million of the Stock Purchase Price (the
"Holdback") which Buyers may cause to be retained as security for Sellers'
indemnification obligations, as set forth in Section 10.3 below. The Stock
Purchase Price will be allocated among the Sellers as set forth on Schedule A.
2.3 CLOSING.
The purchase and sale (the "Closing") provided for in this Agreement will
occur at the offices of Munger, Tolles & Olson as soon as possible following the
satisfaction of all conditions hereto but not later than April 7, 1998, or 5
business days after the date on which the applicable waiting periods under the
HSR Act have expired or been terminated (the "Closing Date").
2.4 CLOSING OBLIGATIONS.
At the Closing:
(a) the Sellers will deliver to Buyer:
(i) certificates evidencing the Shares, duly endorsed (or
accompanied by duly executed and irrevocable stock powers), for transfer to
Buyer, which shall be effective to transfer all of the Sellers' right, title and
interest in and to the Shares, free and clear of all Encumbrances;
(ii) employment agreements in the form of, or containing the
material terms set forth in, Exhibit 2.4(a)(ii), executed by Joseph T. Mooney,
Jr. and Larry A. Karasiuk (collectively, the "Employment Agreements");
(iii) noncompetition agreements in the form of Exhibit
2.4(a)(iii), executed by Joseph T. Mooney and Edward P. Mooney (collectively,
the "Noncompetition Agreements");
(iv) a certificate executed by Sellers representing and
warranting to Buyer that each of Sellers' representations and warranties in this
Agreement were accurate in all respects as of the date of this Agreement and are
accurate in all respects as of the Closing Date as if made on the Closing Date;
and
(v) such other documents, instruments and agreements that Buyer
may reasonably request no later than two business days prior to the Closing, and
which Sellers have the power to deliver, in order to consummate the Contemplated
Transaction.
(b) Buyer will deliver to Sellers:
8
<PAGE>
(i) $40,750,000 in cash payable by bank cashier's or certified
check payable to the order of Seller Representative, or by wire transfer to
accounts specified by the Sellers' Representative not later than 3 days before
the Closing Date;
(ii) $2,000,000 in cash as the Holdback payable by bank
cashier's check payable to the order of the Custodian, or by wire transfer to
accounts specified by the Custodian.
(iii) $1,296,000 in cash payable to Edward P. Mooney, by bank
cashier's check payable to his order or by wire transfer to accounts specified
by him not later than 3 days before the Closing Date;
(iv) a certificate executed by Buyer to the effect that, except
as otherwise stated in such certificate, each of Buyer's representations and
warranties in this Agreement was accurate in all respects as of the date of this
Agreement and is accurate in all respects as of the Closing Date as if made on
the Closing Date; and
(v) the Employment Agreements, executed by Buyer.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
The Sellers, jointly and severally represent and warrant to Buyer as
follows, as of the date hereof (provided that Sellers' representations and
warranties set forth in Section 3.26 of this Agreement shall be only the several
representations and warranties of such Sellers):
3.1 ORGANIZATION AND GOOD STANDING
(a) Schedule 3.1 contains a complete and accurate list for each
Acquired Company of its name, its jurisdiction of incorporation, other
jurisdictions in which it is authorized to do business, and its capitalization
(including the identity of each stockholder and the number of shares held by
each). Each Acquired Company is a corporation duly organized, validly existing,
and in good standing under the laws of its jurisdiction of incorporation, with
full corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under Applicable Contracts. Each
Acquired Company is duly qualified to do business as a foreign corporation and
is in good standing under the laws of each state or other jurisdiction in which
either the ownership or use of the properties owned or used by it, or the nature
of the activities conducted by it, requires such qualification.
9
<PAGE>
(b) Sellers have delivered to Buyer copies of the Organizational
Documents of each Acquired Company, as currently in effect.
3.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding
obligation of Sellers, enforceable against Sellers in accordance with its terms.
Upon the execution and delivery by Sellers of the Employment Agreements and the
Noncompetition Agreements (collectively, the "Sellers' Closing Documents"), the
Sellers' Closing Documents will constitute the legal, valid, and binding
obligations of Sellers, enforceable against Sellers in accordance with their
respective terms. Each Seller has the absolute and unrestricted right, power,
authority, and capacity to execute and deliver this Agreement and the Sellers'
Closing Documents and to perform their obligations under this Agreement and the
Sellers' Closing Documents.
(b) Except as set forth on Schedule 3.2, neither the execution and
delivery of this Agreement nor the consummation or performance of any of the
Contemplated Transactions will, directly or indirectly (with or without notice
or lapse of time):
(i) contravene, conflict with, or result in a violation of
(A) any provision of the Organizational Documents of the Acquired Companies, or
(B) any resolution adopted by the board of directors or the stockholders of any
Acquired Company;
(ii) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any Legal Requirement or any Order to which any Acquired Company or Sellers, or
any of the assets owned or used by any Acquired Company, may be subject;
(iii) contravene, conflict with, or result in a violation of any
of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by any Acquired Company or that otherwise relates to
the business of, or any of the assets owned or used by, any Acquired Company;
(iv) contravene, conflict with, or result in a violation or
breach of any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Applicable Contract; or
(v) result in the imposition or creation of any Encumbrance
upon or with respect to any of the assets owned or used by any Acquired Company.
10
<PAGE>
Except as set forth on Schedule 3.2, no Seller or Acquired Company is or will be
required to give any notice to or obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
3.3 CAPITALIZATION
The authorized equity securities of the Company consist of:
(a) 3,000,000 shares of Common stock, par value $1.00 per share, of
which only 2,505,000 shares are issued and outstanding; and
(b) 14,000 shares of Preferred stock, par value $100 per share, of
which no shares are issued and outstanding.
With the exception of the Shares (which are owned by Sellers), all of the
outstanding equity securities and other securities of each Acquired Company are
owned of record and beneficially by one or more of the Acquired Companies, free
and clear of all Encumbrances. No legend or other reference to any purported
Encumbrance appears upon any certificate representing equity securities of any
Acquired Company. All of the outstanding equity securities of each Acquired
Company have been duly authorized and validly issued and are fully paid and
nonassessable. There is no security or other instrument convertible into or
exchangeable for capital stock of the Company. There is no commitment, plan or
arrangement to issue, and no outstanding option, warrant, call, registration
right, convertible security, arrangement, agreement or commitment or other right
calling for the issuance of, any share of capital stock of the Company. There
are no voting trusts or other understandings with respect to the voting of the
capital stock of the Company. There are no Contracts relating to the issuance,
sale, or transfer of any equity securities or other securities of any Acquired
Company. None of the outstanding equity securities or other securities of any
Acquired Company was issued in violation of the Securities Act or any other
Legal Requirement. No Acquired Company owns, or has any Contract to acquire,
any equity securities or other securities of any Person (other than Acquired
Companies) or any direct or indirect equity or ownership interest in any other
business. All of the voting trusts and shareholder agreements set forth on
Schedule 3.3 will be terminated as of the Closing Date.
3.4 FINANCIAL STATEMENTS
Sellers have delivered to Buyer: (a) audited consolidated balance sheets
of the Acquired Companies as at December 31, 1997 (the "Balance Sheet"),
December 31, 1996 and December 31, 1995 and the related audited consolidated
statements of income, changes in stockholders' equity, and cash flow for each of
the fiscal years then ended, together with the report thereon of Ernst & Young,
LLP independent certified public accountants. Such financial statements and
11
<PAGE>
notes fairly present the financial condition and the results of operations,
changes in stockholders' equity, and cash flow of the Acquired Companies as at
the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP. The financial statements referred to
in this Section 3.4 reflect the consistent application of such accounting
principles throughout the periods involved. No financial statements of any
Person other than the Acquired Companies are required by GAAP to be included in
the consolidated financial statements of the Company.
3.5 BOOKS AND RECORDS
The books of account, minute books, stock record books, and other records
of the Acquired Companies, all of which have been made available to Buyer, are
complete and correct and have been maintained in accordance with sound business
practices and the requirements of law. The minute books of the Acquired
Companies are accurate, and no meeting of any such stockholders or Board of
Directors has been held for which minutes have not been prepared and are not
contained in such minute books. At the Closing, all of those books and records
will be in the possession of the Acquired Companies.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
(a) Schedule 3.6 contains a complete and accurate list of all real
property, leaseholds (including all rights or options of the Sellers or Acquired
Companies to acquire any real property) by any Acquired Company (collectively,
the "Real Property"). Sellers have delivered or made available to Buyer copies
of the deeds and other instruments (as recorded) by which the Acquired Companies
acquired such real property and interests, and copies of all title insurance
policies, opinions, abstracts, and surveys in the possession of Sellers or the
Acquired Companies and relating to such property or interests. Sellers have
delivered or made available to Buyer true and correct copies of all such leases
or real estate leased to any Acquired Company and of title insurance policies
(if any) with respect to leased real property. Schedule 3.6 accurately sets
forth the lease payments required to be paid by any Acquired Company under each
lease agreement and the expiration date of such lease agreement. To Sellers'
knowledge, all such leases are valid and in full force and effect, and each
Acquired Company has performed in all material respects all obligations required
to be performed by them under such leases. Except as set forth on Schedule 3.6,
neither the execution of this Agreement nor the consummation of the transactions
contemplated hereby will constitute a default by any Acquired Company under any
lease described on Schedule 3.6, and, except as set forth on Schedule 3.6, no
consent, approval, or waiver by any lessor under any lease is needed to
consummate the Contemplated Transactions. Except as disclosed on Schedule 3.6A,
the Acquired Companies have good and marketable title to, or a valid and binding
leasehold interest in, all of the Real Property, free and clear of all
Encumbrances and are not, in the case of real property, subject to any rights of
way, building use restrictions, exceptions, variances, reservations, or
limitations of any nature not set forth in the title policies set forth on
Schedule 3.6A.
12
<PAGE>
(b) To Sellers' knowledge, the Real Property is in reasonably good
condition and repair (ordinary wear and tear excepted). All necessary occupancy
and other certificates and permits for the lawful use and occupancy thereof and
the equipment thereon have been issued. Except as set forth in Schedule 3.6B,
none of the facilities used in connection with the business of any Acquired
Company violates the provisions of any applicable building code, fire
regulation, building restriction or other Governmental Authorization, and each
such facility is zoned so as to permit the commercial uses intended by the
Company, and there are no outstanding variances or special use permits affecting
any of the facilities or the uses thereof by any Acquired Company. All
buildings, plants, and structures owned by the Acquired Companies lie wholly
within the boundaries of the real property owned by the Acquired Companies and
do not encroach upon the property of, or otherwise conflict with the property
rights of, any other Person.
3.7 PERSONAL PROPERTY
Schedule 3.7 contains a list of property ("Personal Property") owned by
the Acquired Companies, with a value greater than $5,000 for any single item,
other than those items acquired or disposed of in the ordinary course of
business since the date hereof. To Sellers' knowledge, except as shown in
Schedule 3.7, each item included in the Personal Property, and all other items
of personal property presently being used in the business of the Acquired
Companies, is in good maintenance, operating condition and repair (ordinary wear
and tear excepted) and is available for immediate use in the business or
operations of the Acquired Companies.
3.8 CONDITION AND SUFFICIENCY OF ASSETS
To Sellers' knowledge, except as set forth on Schedule 3.8, the
buildings, plants, structures, and equipment presently being used in the
business of the Acquired Companies are structurally sound, are in good operating
condition and repair, and are adequate for the uses to which they are being put,
and none of such buildings, plants, structures, or equipment is in need of
maintenance or repairs except for ordinary, routine maintenance and repairs that
are not material in nature or cost. The building, plants, structures, and
equipment of the Acquired Companies are sufficient for the continued conduct of
the Acquired Companies' businesses after the Closing in substantially the same
manner as conducted prior to the Closing.
3.9 ACCOUNTS RECEIVABLE
All accounts receivable of the Acquired Companies that are reflected on
the Balance Sheet or on the accounting records of the Acquired Companies as of
the Closing Date (collectively, the "Accounts Receivable") represent or will
represent valid obligations arising from sales actually made or services
actually performed in the Ordinary Course of Business. Unless paid prior to the
Closing Date, the Accounts Receivable are or will be as of the Closing
13
<PAGE>
Date current and collectible net of the aggregate reserves made for the Accounts
Receivable and shown on the Balance Sheet or on the accounting records of the
Acquired Companies as of the Closing Date, as the case may be. Such reserves
have been calculated consistent with the Company's past practice for the
preparation of internal financial statements and have been established in
accordance with generally accepted accounting principles consistently applied,
and Sellers believe the amount of the reserves is adequate to cover
non-collection of the Accounts Receivable in light of the Acquired Companies'
past practice. Subject to such reserves, each of the Accounts Receivable either
has been or will be collected in full, without any set-off, within the later of
150 days after the day on which it first becomes due and payable or December 31,
1998; provided that all payments received by the Company from a customer with
respect to any Accounts Receivable shall be applied to the oldest remaining
Accounts Receivable in the order in which they arose, unless the customer
indicates otherwise as a result of a dispute with respect to a particular
invoice. There is no contest, claim, or right of set-off, other than returns
and offsets (such as for freight and commissions) in the Ordinary Course of
Business, under any Contract with any obligor of an Accounts Receivable relating
to the amount or validity of such Accounts Receivable. Schedule 3.9 contains a
complete and accurate list of all Accounts Receivable as of the date of the
Balance Sheet, which list sets forth the aging of such Accounts Receivable.
3.10 INVENTORY
All inventory of the Acquired Companies as set forth on inventory dated
December 31, 1997 and existing on the Closing Date consists of a quality and
quantity usable and salable in the Ordinary Course of Business, except for
obsolete items and items of below-standard quality, all of which have been
written off or written down to net realizable value in the Balance Sheet or on
the accounting records of the Acquired Companies as of the Closing Date, as the
case may be. All inventories not written off have been priced at the lower of
cost or market on a last in, first out basis (except for inventories of the
Company's Canadian subsidiary which are determined on a first-in, first-out
basis). The quantities of each item of inventory (whether raw materials,
work-in-process, or finished goods) are not excessive, but are reasonable in the
present circumstances of the Acquired Companies.
3.11 NO UNDISCLOSED LIABILITIES
Except as set forth on Schedule 3.11, the Acquired Companies have no
liabilities or obligations of any nature (whether absolute, accrued or
contingent) required to be reserved against on the Balance Sheet or disclosed in
the notes thereto, in accordance with GAAP, which are not adequately reserved
against or disclosed, except for current liabilities incurred in the Ordinary
Course of Business since the date thereof.
3.12 TAXES
14
<PAGE>
(a) The Acquired Companies have filed or caused to be filed (on a
timely basis) since 1992 all income Tax Returns that are or were required to be
filed by or with respect to any of them, either separately or as a member of a
group of corporations, pursuant to applicable Legal Requirements. Sellers have
delivered or made available to Buyer copies of, and Schedule 3.12 contains a
complete and accurate list of, all such Tax Returns filed since 1991. The
Acquired Companies have paid, or made provision for the payment of, all Taxes
that have or may have become due pursuant to those Tax Returns or otherwise, or
pursuant to any assessment or reassessment received by Sellers or any Acquired
Company, except such Taxes, if any, as are listed in Schedule 3.12 and are being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided in the Balance Sheet.
(b) The United States federal and state and Canadian federal,
provincial or territorial income Tax Returns of each Acquired Company subject to
such Taxes have been audited by the IRS or relevant state or Canadian federal,
provincial or territorial tax authorities or are closed by the applicable
statute of limitations for all taxable years through 1991. Schedule 3.12
contains a complete and accurate list of all audits of all such Tax Returns,
including a reasonably detailed description of the nature and outcome of each
audit. All deficiencies or claims proposed as a result of such audits have been
paid, reserved against, settled, or, as described on Schedule 3.12, are being
contested in good faith by appropriate proceedings. Schedule 3.12 describes all
adjustments to the United States federal and state or Canadian federal,
provincial and territorial income Tax Returns filed by any Acquired Company or
any group of corporations including any Acquired Company for all taxable years
since 1991, and the resulting deficiencies proposed by the IRS or Canadian
taxing authority. Except as described on Schedule 3.12, no Seller or Acquired
Company has given or been requested to give waivers or extensions (or is or
would be subject to a waiver or extension given by any other Person) of any
statute of limitations relating to the payment of Taxes of any Acquired Company
or for which any Acquired Company may be liable. No claim has ever been made by
an authority in a jurisdiction where any Acquired Company does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There
are no Security Interests on any of the assets of any Acquired Company that
arose in connection with any failure (or alleged failure) to pay any Tax.
(c) The charges, accruals, and reserves with respect to Taxes on the
respective books of each Acquired Company are adequate (determined in accordance
with GAAP) and are at least equal to that Acquired Company's liability for
Taxes. Sellers have not been advised or notified of any proposed tax assessment
or reassessment against any Acquired Company except as disclosed in the Balance
Sheet or on Schedule 3.12. No consent to the application of Section 341(f)(2)
of the IRC has been filed with respect to any property or assets held, acquired,
or to be acquired by any Acquired Company. All Taxes that any Acquired Company
is or was required by Legal Requirements to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Body or other Person. The Shares are not, and are not deemed to
be, "taxable Canadian property" for purposes of the Income Tax Act [Canada].
15
<PAGE>
(d) All income Tax Returns filed by (or that include on a consolidated
basis) any Acquired Company are true, correct, and complete. No Acquired
Company is currently the beneficiary of any extension of time with which to file
any income Tax Return (it being understood that, prior to the Closing Date,
extensions of time with respect to the 1997 year will be obtained). None of the
Acquired Companies (i) has been a member of any affiliated group within the
meaning of Section 1504 of the IRC (or any similar group defined under a similar
provision of state, local or foreign law) filing a consolidated income Tax
Return (other than a group the common parent of which is the Company or a
Canadian subsidiary of the Company) or (ii) has any liability for the taxes of
any Person (other than the Acquired Companies) under Treas. Reg. Section
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract, or otherwise.
(e) During the consistency period (as defined in Section 338(h)(4) of
the IRC with respect to the sale of the Shares to Buyer), no Acquired Company or
target affiliate (as defined in Section 338(h)(6) of the IRC with respect to the
sale of the Shares to Buyer) has sold or will sell any property or assets to
Buyer or to any member of the affiliated group (as defined in Section 338(h)(5)
of the IRC) that includes Buyer. Schedule 3.12 lists all such target
affiliates.
3.13 NO MATERIAL ADVERSE CHANGE
Since the date of the Balance Sheet, there has not been any material
adverse change in the business, operations, properties, prospects, assets, or
condition (financial or otherwise) of any Acquired Company, and, to Sellers'
knowledge, no event has occurred or circumstance exists that may result in such
a material adverse change; it being understood that any changes consistent with
historical seasonal adjustments shall not constitute a material adverse change.
Except as otherwise disclosed on Schedule 3.13, since the date of the Balance
Sheet, the Acquired Companies have not taken any actions that would be
prohibited under Section 5.3 hereof after the date of this Agreement.
3.14 EMPLOYEE BENEFITS
(a) Schedule 3.14 lists all "employee benefit plans," as such term is
defined in ERISA Section 3(3), including (i) all bonus, profit sharing,
incentive, deferred compensation, retirement, pension, severance, life
insurance, and other similar fringe or employee benefit plans, programs or
arrangements, and (ii) any applicable employment, consulting or compensation
agreements, written or otherwise (collectively, the "Employee Plans"),created,
entered into, maintained or contributed to by Sellers or the Acquired Companies
for the benefit or welfare of any current or former director, officer or
employee of any of the Acquired Companies or their ERISA Affiliates (meaning,
with respect to an Acquired Company, any other Person that, together with the
Company, would be treated as a single employer under IRC Section 414). None of
the Employee Plans is a Canadian pension plan (other than the Canada/Quebec
Pension Plan).
16
<PAGE>
(b) Except as set forth on Schedule 3.14, no Acquired Company or its
ERISA Affiliate has been a participating employer in any "Multiemployer Plan"
within the meaning of Section 3(37) of ERISA, or any plan maintained by more
than one employer, within the last six years (collectively, the "Multiemployer
Plans").
(c) All Employee Plans (other than the Multiemployer Plans) have been
registered or administered in compliance with their terms, and, where
applicable, ERISA, the Code (and the regulations and published authorities
thereunder) and any applicable Canadian Legal Requirements.
(d) With respect to each Employee Plan (other than the Multiemployer
Plans), (i) no "reportable event," as defined in Section 4043 of ERISA, exists
that would constitute grounds for termination of such Employee Plan by the
Pension Benefit Guaranty Corporation ("PBGC") or for the appointment by the
appropriate United States District Court of a trustee to administer such
Employee Plan, in each case as contemplated by Section 4042 of ERISA; (ii)
neither the Acquired Companies, nor any fiduciary, trustee, or administrator of
any such Employee Plan has engaged in a "prohibited transaction" as defined in
Section 4975 of the Code or a "prohibited transaction" as defined in Section 406
of ERISA that could reasonably be expected to subject any Acquired Company to
any material tax imposed by Section 4975 of the Code or any material penalty
imposed by Section 502 of ERISA; and (iii) to Sellers' Knowledge there is no
current matter, including, without limitation, any matter involving the
administration and operation of the Employee Plans, which could reasonably be
expected to result in any Employee Plan being deemed to be not in compliance
with the pertinent provisions of any law, regulation or ruling applicable
thereto and which could reasonably be expected to impose any material liability
upon any of the Acquired Companies.
(e) With respect to each Employee Plan which is a Multiemployer Plan
listed on Schedule 3.14 or in which any Acquired Company contributes or has
contributed, (i) no Acquired Company has made a complete withdrawal or a partial
withdrawal or has received any notice of any claim or demand for withdrawal
liability against any of them; (ii) no Acquired Company has received any notice
that any such Multiemployer Plan is in reorganization, that increased
contributions may be required to avoid a reduction in plan benefits or the
imposition of any excise tax, or that any such Multiemployer Plan is or may
become insolvent; (iii) no Acquired Company has failed to make any required
contributions to any such Multiemployer Plan; (iv) to Sellers' knowledge, no
such Multiemployer Plan is a party to any pending merger or asset or liability
transfer; and (v), to Sellers knowledge ,there are no PBGC proceedings against
any such Multiemployer Plan.
(f) Each Employee Plan (other than the Multiemployer Plans) which is
intended to be a qualified plan within the meaning of IRC Section 401(a) (a
"Qualified Plan") is qualified in form and operation under Sections 401(a) and
501(a) of the Code and the regulations and
17
<PAGE>
published authorities thereunder, and no event has occurred which will or could
give rise to disqualification of any such Qualified Plan under such Sections of
the IRC. All amendments to such Qualified Plans comply with the requirements of
Section 204(h) of ERISA. Each of the Acquired Companies has made when due all
contributions due to date under or with respect to the Employee Plans. Sellers
have furnished to Buyer for each such Qualified Plan complete and correct copies
of the Form 5500 series which was filed in each of the most recent three plan
years, and the most recent determination letter from the Internal Revenue
Service. The Acquired Companies have made no commitment, and have no
obligation, to establish a supplemental executive retirement plan or any other
Employee Plan which is not listed on Schedule 3.14.
(g) With respect to all material group health plans (other than the
Multiemployer Plans) applicable to employees of the Acquired Companies, all such
plans have been operated in substantial compliance with the group health plan
continuation coverage requirements of Section 4980B of the Code ("COBRA") and
Canadian Legal Requirements, to the extent such requirements are applicable, and
except as set forth on Schedule 3.14, no such Plan in Canada provides for
post-retirement benefits.
(h) All expenses and liabilities relating to the Employee Plans have
been, and will on the Closing Date be, fully and properly accrued on the
Acquired Companies' books and records (other than expenses or liabilities that
are paid in the normal course of the Acquired Companies' accounts payable
procedures and are accordingly not accrued) and disclosed in accordance with
generally accepted accounting principles and, where applicable, in Employee Plan
financial statements. Prior to the Closing Date, no event will have occurred,
and on such Closing Date, there will exist no condition or set of circumstances,
which will result in any liability on behalf of any of the Acquired Companies as
a result of the acquisition of share pursuant to this Agreement on or after the
Closing Date under any provision of ERISA, the IRC or applicable Canadian Legal
Requirements, which may impose liability on any of the Acquired Companies.
(i) The Acquired Companies have made all contributions due to date
under or with respect to the Employee Plans listed on Schedule 3.14 necessary to
meet the applicable minimum funding requirements of ERISA or applicable Canadian
Legal Requirements with respect to such Employee Plans (other than the
Multiemployer Plans).
3.15 COMPLIANCE WITH LEGAL REQUIREMENTS
Except as set forth on Schedule 3.15:
(a) each Acquired Company is in full compliance with each Legal
Requirement that is applicable to it or to the conduct or operation of its
business or the ownership or use of any of its assets;
18
<PAGE>
(b) to Sellers' Knowledge, no event has occurred or circumstance
exists that (with or without notice or lapse of time) may constitute or result
in a violation by any Acquired Company of, or a failure on the part of any
Acquired Company to comply with, any Legal Requirement; and
(c) no Acquired Company has received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding (A) any actual, alleged, possible, or potential violation of, or
failure to comply with, any Legal Requirement, or (B) any actual, alleged,
possible, or potential obligation on the part of any Acquired Company to
undertake, or to bear all or any portion of the cost of, any remedial action of
any nature.
Each Acquired Company is in possession of Governmental Authorizations necessary
to permit each Acquired Company to lawfully conduct and operate their businesses
in the manner they currently conduct and operate such businesses and to permit
the Acquired Companies to own and use their assets in the manner in which they
currently own and use such assets.
3.16 LEGAL PROCEEDINGS; ORDERS
Except as set forth on Schedule 3.16, there is no pending Proceeding in
which any Acquired Company (i) is subject to any outstanding Order, (ii) is a
party or (iii) to the Knowledge of any of the Sellers, is Threatened to be made
a party. Except as set forth on Schedule 3.16, to Sellers' Knowledge, no event
has occurred, and no circumstance exists that may give rise to a basis for any
such Proceeding, and no Seller or Acquired Company otherwise has reason to
believe that any such Proceeding may be brought or threatened against any of the
Acquired Companies.
3.17 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Schedule 3.17, since the date of the Balance
Sheet, the Acquired Companies have operated their businesses only in the
Ordinary Course of Business and there has not been any:
(a) change in any Acquired Company's authorized or issued capital
stock; grant of any stock option or right to purchase shares of capital stock of
any Acquired Company; issuance of any security convertible into such capital
stock; grant of any registration rights; purchase, redemption, retirement, or
other acquisition by any Acquired Company of any shares of any such capital
stock; or declaration or payment of any dividend or other distribution or
payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of any Acquired Company
(other than the termination of the Shareholder Agreement contemplated by Section
7.12 hereof);
19
<PAGE>
(c) payment or increase by any Acquired Company of any bonuses,
salaries, or other compensation to any stockholder, director, officer, or
employee (except for payments of existing salaries to employees in the Ordinary
Course of Business) or entry into any employment, severance, or similar Contract
with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of any
Acquired Company;
(e) damage to or destruction or loss of any asset or property of any
Acquired Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition or prospects of
the Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, joint venture, credit, or similar
agreement, or (ii) any Contract or transaction involving a total remaining
commitment by or to any Acquired Company of at least $5,000 (other than pursuant
to the Company's capital expenditure program which has been approved by Buyer);
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of any Acquired
Company or mortgage, pledge, or imposition of any lien or other encumbrance on
any material asset or property of any Acquired Company, including the sale,
lease, or other disposition of any of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to any
Acquired Company in excess of $5,000 (other than pursuant to adjustments with
customers in the Ordinary Course of Business);
(i) material change in the accounting methods used by any Acquired
Company; or
(j) agreement, whether oral or written, by any Acquired Company to do
any of the foregoing.
3.18 CONTRACTS; NO DEFAULTS
(a) Schedule 3.18 contains a complete and accurate list, and Sellers
have delivered to Buyer true and complete copies, of:
(i) each written Applicable Contract that involves performance
of services or delivery of goods or materials by one or more Acquired Companies
of an amount or value greater than $10,000 (or greater than $25,000 for
equipment leases);
20
<PAGE>
(ii) each written Applicable Contract that involves performance
of services or delivery of goods or materials to one or more Acquired Companies
of an amount or value greater than $5,000;
(iii) each written Applicable Contract that was not entered into
in the Ordinary Course of Business and that involves expenditures or receipts of
one or more Acquired Companies greater than $1,000;
(iv) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other written Applicable
Contract affecting the ownership of, leasing of, title to, use of, or any
leasehold or other interest in, any real or personal property (except personal
property leases and installment and conditional sales agreements having a value
per item or aggregate payments of less than $5,000 and with terms of less than
one year);
(v) each collective bargaining agreement and other written
Applicable Contract to or with any labor union or other employee representative
of a group of employees;
(vi) each joint venture, partnership, and other written
Applicable Contract (however named) involving a sharing of profits, losses,
costs, or liabilities by any Acquired Company with any other Person;
(vii) each written Applicable Contract for or with sales
representatives, manufacturing representatives, consultants, advisors or
finders;
(viii) each written Applicable Contract containing covenants that
in any way purport to restrict the business activity of any Acquired Company or
any Affiliate of an Acquired Company or limit the freedom of any Acquired
Company or any Affiliate of an Acquired Company to engage in any line of
business or to compete with any Person;
(ix) each written Applicable Contract for capital expenditures
in excess of $50,000; and
(x) each amendment, supplement, and modification (whether oral
or written) in respect of any of the foregoing.
No Acquired Company is party to an oral contract which would be
reasonably likely to have a material adverse effect on the business, financial
condition, operations, results of operations or future prospects of any of the
Acquired Companies.
21
<PAGE>
(b) Except as set forth on Schedule 3.18, each Contract identified or
required to be identified on Schedule 3.18 is in full force and effect and is
valid and enforceable in accordance with its terms.
(c) Except as set forth on Schedule 3.18:
(i) to Sellers' Knowledge, each Acquired Company is in full
compliance with all applicable terms and requirements of each Contract under
which such Acquired Company has or had any obligation or liability or by which
such Acquired Company or any of the assets owned or used by such Acquired
Company is or was bound;
(ii) to Sellers' Knowledge, each other Person that has or had
any obligation or liability under any Contract under which an Acquired Company
has or had any rights is in full compliance with all applicable terms and
requirements of such Contract;
(iii) to Sellers' Knowledge, no event has occurred or
circumstance exists that (with or without notice or lapse of time) may
contravene, conflict with, or result in a violation or breach of, or give any
Acquired Company or other Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract;
(iv) no Acquired Company has given to or received from any other
Person any notice or other communication (whether oral or written) regarding any
actual, alleged, possible, or potential violation or breach of, or default
under, any Contract; and
(v) no Acquired Company has paid any amounts under any current
or expired bonus or profit sharing plan except in accordance with the terms and
calculations provided for by such plans.
(d) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to any
Acquired Company under current or completed Contracts with any Person and such
Person has made written demand for such renegotiation.
(e) The Contracts relating to the sale, design, manufacture, or
provision of products or services by the Acquired Companies have been entered
into in the Ordinary Course of Business and have been entered into without the
commission of any act alone or in concert with any other Person, or any
consideration having been paid or promised, that is or, to Sellers' Knowledge,
would be in violation of any Legal Requirement.
3.19 INSURANCE
22
<PAGE>
Schedule 3.19 sets forth the following information with respect to each
insurance policy (including policies providing property casualty, liability and
workers' compensation coverage and bond and surety arrangements) to which any of
the Acquired Companies is a party or a named insured at any time within the past
10 years:
(a) the name, address and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the coverage was on
a claims made, occurrence or other basis) and amount (including a description of
how deductibles and ceilings are calculated and operate) of coverage; and
(e) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy, (A) the policy is legal,
valid, binding and in full force and effect; (B) none of the Acquired Companies
nor any other party to the policy is in breach or default (including with
respect to the payment of premiums or the giving of notices), and no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default, or permit termination, modification, or acceleration, under the
policy; and (C) no party to the policy has repudiated any provision thereof.
Each of the Acquired Companies has been covered during the past 10 years by
insurance in scope and amount customary and reasonable for the businesses in
which they have been engaged during such period. Schedule 3.19 describes any
self-insurance arrangements affecting any of the Acquired Companies. No
Acquired Company is a party to any insurance policy which covers the current
period with respect to liability for asbestos.
3.20 ENVIRONMENTAL MATTERS
Except as set forth on Schedule 3.20:
(a) To Sellers' Knowledge, each Acquired Company is not in violation
of or liable under, any Environmental Law. No Seller nor, to Sellers'
Knowledge, any Acquired Company has received any actual or Threatened order,
notice, or other written communication from (i) any Governmental Body or private
citizen acting in the public interest, or (ii) the current or prior owner or
operator of any Facilities, of any current, actual or alleged violation or
failure to comply with any Environmental Law, or of any current, actual or
Threatened obligation to undertake or bear the cost of any Environmental,
Health, and Safety Liabilities with respect to
23
<PAGE>
any of the Facilities or any other properties or assets (whether real, personal,
or mixed) in which Sellers or any Acquired Company has had an interest, or with
respect to any property or Facility at or to which Hazardous Materials were
generated, disposed of or otherwise released by any Acquired Company, or from
which Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled, or received, nor, to Sellers' Knowledge, is
there any basis to expect that any Acquired Company may receive such Threatened
order, notice or communication.
(b) There are no pending or, to the Sellers' Knowledge, Threatened
claims or Encumbrances resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental Law, with respect
to or affecting any of the Facilities or any other properties and assets
(whether real, personal, or mixed) in which Sellers or any Acquired Company has
or had an interest.
(c) No Seller nor, to Seller's Knowledge, any Acquired Company has
received, any citation, directive, inquiry, notice, Order, summons, warning, or
other written communication that relates to any alleged or actual violation or
failure to comply with any Environmental Law, or of any alleged or actual
obligation to undertake or bear the cost of any Environmental, Health, and
Safety Liabilities with respect to any of the Facilities or any other properties
or assets (whether real, personal, or mixed) in which Sellers or any Acquired
Company had an interest, or with respect to any property or facility to which
Hazardous Materials generated, disposed or otherwise released by or on behalf of
any Acquired Company, nor, to Sellers' Knowledge, is there any reasonable basis
to expect that any Acquired Company may receive such Threatened order, notice or
communication.
(d) To Sellers' Knowledge, no Acquired Company, or any other Person
for whose conduct they are or may be held responsible, has any Environmental,
Health, and Safety Liabilities with respect to the Facilities or with respect to
any other properties and assets (whether real, personal, or mixed) in which any
Acquired Company (or any predecessor), has or had an interest, or at any
property geologically or hydrologically adjoining the Facilities.
(e) To Sellers' Knowledge, there are no Hazardous Materials present on
or in the Environment at the Facilities other than in the Ordinary Course of
Business and not in violation of any Environmental Law, including any Hazardous
Materials contained in barrels, above or underground storage tanks, landfills,
land deposits, dumps, equipment (whether moveable or fixed) or other containers,
either temporary or permanent, and deposited or located in land, water, sumps,
or any other part of the Facilities and, to Sellers' Knowledge, no Hazardous
Materials have migrated from any Facility of any adjoining property. To
Sellers' Knowledge, no Acquired Company, any other Person for whose conduct they
are or may be held responsible, or any other Person, has permitted or conducted,
or is aware of, any Hazardous Activity conducted with respect to the Facilities
or any other properties or assets (whether real, personal, or mixed) in
24
<PAGE>
which Sellers or any Acquired Company has or had an interest except in
compliance with all applicable Environmental Laws.
(f) To Sellers' Knowledge, there has been no Release or Threat of
Release, of any Hazardous Materials that would require cleanup or other
remediation under applicable Environmental Laws at or from the Facilities or any
similar Release or Threat of Release of any Hazardous Materials by or on behalf
of any Acquired Company, or from or by any other properties and assets (whether
real, personal, or mixed) in which any Acquired Company has or had an interest.
(g) Sellers have made available to Buyer for inspection and copying
true and complete copies and results of any reports, studies, analyses, tests,
or monitoring possessed or initiated by Sellers or any Acquired Company
pertaining to Hazardous Materials or Hazardous Activities in, on, or under the
Facilities, or concerning compliance by any Acquired Company with Environmental
Laws.
3.21 EMPLOYEES
(a) Schedule 3.21 contains a complete and accurate list of (i) the
following information for each employee, director, consultant, advisor or finder
(collectively, "Employees") of the Acquired Companies, including each Employee
on leave of absence or layoff status: employer; name; job title; current
compensation paid or payable (whether in the form of salaries, bonuses,
commissions or other supplemental compensation now or hereafter payable);
vacation accrued; and service credited for purposes of vesting and eligibility
to participate under any Acquired Company's pension, retirement, profit-sharing,
severance pay, insurance, medical, welfare, or vacation plan, or other Employee
Plan; provided that job titles shall be provided only for such Employees with
annual compensation in excess of $75,000 and (ii) each sales or manufacturer
representative, together with their compensation or commission schedules.
(b) To Sellers' Knowledge, no employee, past or current, intends to
assert a claim against any Acquired Company of any kind whatsoever (assuming the
Acquired Company fulfills all its obligations to each such employee from and
after the Closing Date).
3.22 LABOR RELATIONS; COMPLIANCE
Except as set forth in Schedule 3.22, there is no presently pending or
existing, and to Sellers' Knowledge, there is not Threatened, (a) any strike,
slowdown, picketing, work stoppage, or employee grievance process or (b) any
Proceeding against or affecting any Acquired Company relating to the alleged
violation of any Legal Requirement pertaining to labor relations or employment
matters, including any charge or complaint filed by an employee or union with
the National Labor Relations Board, the Equal Employment Opportunity Commission,
or any
25
<PAGE>
comparable Canadian Governmental Body (Federal or Provincial), organizational
activity, or other labor or employment dispute against or affecting any of the
Acquired Companies or their premises. To the Knowledge of Sellers, no event has
occurred or circumstance exists that could provide the basis for any work
stoppage or other material labor dispute or other material labor or employment
law dispute. There is no lockout of any employees by any Acquired Company, and
no such action is contemplated by any Acquired Company. Each Acquired Company
has complied in all material respects with all Legal Requirements relating to
employment, equal employment opportunity, nondiscrimination, immigration, wages,
hours, benefits, collective bargaining, the payment of social security and
similar taxes, occupational safety and health, and plant closing.
3.23 INTELLECTUAL PROPERTY
(a) INTELLECTUAL PROPERTY ASSETS -- The term "Intellectual Property
Assets" consists of:
(i) the Acquired Companies' names, all fictional business
names, trading names, trade dress, registered and unregistered trademarks,
service marks, industrial designs, applications and registrations therefore
(collectively, "Marks");
(ii) all patents and patent applications (collectively,
"Patents");
(iii) all copyrights in both published works and unpublished
works (collectively, "Copyrights");
(iv) all know-how, trade secrets, confidential information,
customer lists, software, technical information, data, process technology,
plans, drawings, and blue prints (collectively, "Trade Secrets"); and
(v) all Intellectual Property Assets licensed by an Acquired
Company as licensee owned or used by any Acquired Company.
(b) AGREEMENTS -- Schedule 3.23 contains a complete and accurate list
and summary description, including any royalties paid or received by the
Acquired Companies, of all Contracts to date relating to the Intellectual
Property Assets to which any Acquired Company is a party or by which any
Acquired Company is bound, except for any license implied by the sale of a
product and perpetual, paid-up licenses for commonly available software programs
with a value of less than $10,000 under which an Acquired Company is the
licensee. There are no outstanding and, to Sellers' Knowledge, no Threatened
disputes or disagreements with respect to any such Contract.
(c) KNOW-HOW NECESSARY FOR THE BUSINESS
26
<PAGE>
(i) To Sellers' Knowledge, the Intellectual Property Assets are
all those necessary for the operation of the Acquired Companies' businesses as
they are currently conducted. One or more of the Acquired Companies is the
owner of all right, title, and interest in and to each of the Intellectual
Property Assets, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims (except subject to the PNC Bank
Loan), and has the right to use without payment to a third party all of the
Intellectual Property Assets.
(ii) Except as set forth on Schedule 3.23, all current employees
of each Acquired Company have executed written Contracts with one or more of the
Acquired Companies that assign to one or more of the Acquired Companies all
rights to any inventions, improvements, discoveries, copyrights or information
relating to the business of any Acquired Company and that, with respect to
Canadian employees, provide waivers of all moral rights in the Intellectual
Property Assets where necessary and appropriate.
(d) PATENTS
(i) Schedule 3.23 contains a complete and accurate list and
summary description of all Patents to date. One or more of the Acquired
Companies is the owner of all right, title, and interest in and to each of the
Patents, free and clear of all liens, security interests, charges, encumbrances,
entities, and other adverse claims.
(ii) All of the issued Patents are currently in compliance with
formal legal requirements (including payment of filing, examination, and
maintenance fees and proofs of working or use), are subsisting and have not been
adjudged invalid or unenforceable in whole or in part and, to Sellers'
Knowledge, are valid and enforceable.
(iii) No Patent has been or is now involved in any interference,
reissue, reexamination, or opposition proceeding. To Sellers' Knowledge, there
is no potentially interfering patent or patent application of any third party.
(iv) To Sellers' Knowledge, no Patent is infringed or has been
challenged or threatened in any way and, except as set forth in Schedule 3.23,
none of the products manufactured and sold, nor any process or know-how used, by
any Acquired Company infringes or is alleged to infringe any patent or other
proprietary right of any other Person.
(e) TRADEMARKS AND COPYRIGHTS
(i) Schedule 3.23 contains a complete and accurate list and
summary description of all Marks and Copyrights. One or more of the Acquired
Companies is the owner of all right, title, and interest in and to each of the
Marks and Copyrights, free and clear of all
27
<PAGE>
liens, security interests, charges, encumbrances, equities, and other adverse
claims (except subject to the PNC Bank Loan).
(ii) All Marks that are presently in use by one or more of the
Acquired Companies have been registered with the United States Patent and
Trademark Office and are currently in compliance with all formal legal
requirements (including the timely post-registration filing of affidavits of use
and incontestability, as appropriate, and renewal applications). All of the
Copyrights have been registered and are currently in compliance with formal
legal requirements. All of the Marks are valid and enforceable.
(iii) To Sellers' Knowledge, no Mark is now involved in any
opposition, invalidation, or cancellation and no such action is Threatened by
any third party with respect to any of the Marks.
(iv) To Sellers' Knowledge, there is no interfering trademark or
trademark application of any third party.
(v) To Sellers' Knowledge, no Mark or Copyright is infringed
or, to Sellers' Knowledge, has been challenged or threatened in any way and none
of the Marks or the subject matter of any of the Copyrights used by any Acquired
Company infringes or is alleged to infringe any trade name, trademark, service
mark or copyright of any third party.
(vi) All labeling and packaging displaying a registered Mark
bear the proper registration notice, as required by the law of the particular
jurisdiction in which the Mark is registered. All copyrighted works comply with
the law governing marking in force in the particular jurisdiction.
(f) TRADE SECRETS
(i) With respect to each Trade Secret, the documentation, if
any, relating to such Trade Secret is current, accurate, and sufficient in
detail and content to identify and explain it and to allow its full and proper
use without reliance on the knowledge or memory of any individual.
(ii) Sellers and the Acquired Companies have taken all
reasonable precautions to protect the secrecy, confidentiality, and value of
their Trade Secrets.
(iii) One or more of the Acquired Companies owns, and to the best
of Sellers' Knowledge, has the full right to use the Trade Secrets. The Trade
Secrets, to Sellers' Knowledge, have not been used, divulged, or appropriated
either for the benefit of any Person (other than one or more of the Acquired
Companies) or to the detriment of the Acquired
28
<PAGE>
Companies. No Trade Secret is subject to any adverse claim or has been
challenged or threatened in any way.
3.24 NO IMPROPER PAYMENTS
None of the Acquired Companies, nor, to Sellers' Knowledge, any of their
respective Representatives, for or on behalf of the Acquired Companies, has at
any time: (i) made any payment to any state, federal, commonwealth,
territorial, or foreign governmental officer or official or other person charged
with similar public or quasi-public duties, other than payments required or
allowed by applicable law; (ii) made any material payment outside the ordinary
course of business to any purchasing or selling agent, or person charged with
similar duties, of any entity to which any of the Acquired Companies buys or has
bought, products or services, for the purpose of influencing such agent or
person to buy products or services from, or sell products or services to, any of
the Acquired Companies; or (iii) engaged in any transaction or maintained any
account for, or used any funds of, any of the Acquired Companies, except for
transactions that have been and are reflected in the normally maintained books
and records of the Acquired Companies.
3.25 RELATIONSHIPS WITH RELATED PERSONS
Except as set forth on Schedule 3.25, no Seller or any Related Person of
Sellers or of any Acquired Company has any interest in any property (whether
real, personal, or mixed and whether tangible or intangible), used in or
pertaining to the Acquired Companies' businesses. No Seller or any Related
Person of Sellers or of any Acquired Company has owned (of record or as a
beneficial owner) an equity interest or any other financial or profit interest
in, a Person that has (i) had business dealings or a material financial interest
in any transaction with any Acquired Company, or (ii) engaged in competition
with any Acquired Company with respect to any line of the products or services
of such Acquired Company (a "Competing Business") in any market presently served
by such Acquired Company except for less than 1% of the outstanding capital
stock of any Competing Business that is publicly traded. Except as set forth on
Schedule 3.25, no Seller or any Related Person of Sellers or of any Acquired
Company is a party to any Contract with, or has any claim or right against, any
Acquired Company.
3.26 TITLE TO SHARES
Sellers are and will be on the Closing Date the record and beneficial
owners and holders of the Shares, free and clear of all Encumbrances. The
Sellers own the shares beneficially and of record in the amounts set forth on
Schedule 3.26 free and clear of any Encumbrances, options, conditional sales
agreements or rights to purchase or otherwise acquire, options or warrants of
any nature, whether imposed by agreement, understanding or otherwise, with no
restriction on transfer or disposition thereof, except as imposed by applicable
Legal Requirements and as set forth on Schedule 3.26. The Shares listed on
Schedule 3.26 opposite each Sellers' name are all
29
<PAGE>
of the shares of the Company's outstanding capital stock. At the Closing, upon
consummation of the transactions and the performance of the actions contemplated
herein, all beneficial and record ownership of the Shares will pass to Buyer,
and Buyer will acquire good and valid title to the Shares, free and clear of all
Encumbrances.
3.27 CUSTOMERS AND SUPPLIERS
Schedule 3.27 sets forth the names of the ten largest customers and the
ten largest suppliers of each Acquired Company during the twelve-month period
ending November 30, 1997 (based on the dollar amount of sales or purchases), and
any sole-source suppliers of significant goods or services to the Acquired
Companies with respect to which practicable alternative sources of supply are
not readily available on comparable terms and conditions. Except as set forth
on Schedule 3.27, to Sellers' Knowledge none of the customers or suppliers
listed on Schedule 3.27 intends to terminate or not renew any contract or
agreement, or otherwise materially alter its relationship, with any Acquired
Company.
3.28 DISCLOSURE AND DISCLOSURE SCHEDULES
(a) The representations and warranties of Sellers in this Agreement
and the Schedules and the certificates and other documents delivered or to be
delivered by Sellers to Buyer pursuant to this Agreement do not and will not
contain any untrue statement of a material fact and do not and will not omit to
state a material fact necessary to make the statements made herein or therein in
the light of the circumstances under which they were made, not misleading.
(b) Except as set forth on Schedule 3.28, there is no fact known to
Sellers that has specific application to Sellers or any Acquired Company (other
than general economic or industry conditions) and that materially adversely
affects or, as far as Sellers can reasonably foresee, materially threatens the
assets, business, prospects, financial condition or results of operations of the
Acquired Companies (on a consolidated basis) that has not been set forth in this
Agreement or the Schedules hereto.
3.29 DUE INQUIRY
With respect to each representation and warranty contained herein that is
to Sellers' Knowledge, the Principal Executives have made due inquiry of Michael
McFadden, Larry Davis and, as to Section 3.20, John Doyle.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
30
<PAGE>
Buyer represents and warrants to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware.
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
Upon the execution and delivery by Buyer of the Employment Agreements
(collectively, the "Buyer's Closing Documents"), the Buyer's Closing Documents
will constitute the legal, valid, and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms. Buyer has the absolute
and unrestricted right, power, and authority to execute and deliver this
Agreement and the Buyer's Closing Documents and to perform its obligations under
this Agreement and the Buyer's Closing Documents.
(b) Except as set forth on Schedule 4.2, neither the execution and
delivery of this Agreement nor the consummation or performance of any of the
Contemplated Transactions will give any Person the right to prevent, delay, or
otherwise interfere with any of the Contemplated Transactions pursuant to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer may be
subject; or
(iv) any Contract to which Buyer is a party or by which Buyer
may be bound.
Except as set forth on Schedule 4.2, Buyer is not and will not be
required to obtain any Consent from any Person in connection with the execution
and delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
4.3 INVESTMENT INTENT
Buyer is acquiring the Shares for its own account and not with a view to
their distribution within the meaning of Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS
31
<PAGE>
There is no pending Proceeding that has been commenced against Buyer and
that challenges, or may have the effect of preventing, delaying, making illegal,
or otherwise interfering with, any of the Contemplated Transactions. To Buyer's
Knowledge, no such Proceeding has been Threatened.
ARTICLE 5
COVENANTS OF SELLERS PRIOR TO CLOSING DATE
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, Sellers will,
and will cause each Acquired Company and its Representatives to, (a) afford
Buyer and its designees and their Representatives and underwriters, and
prospective lenders and their Representatives (collectively, "Buyer's Advisors")
reasonable access to each Acquired Company's personnel, properties (including
subsurface testing), contracts, books and records, and other documents and data,
(b) furnish Buyer and Buyer's Advisors with copies of all such contracts, books
and records, and other existing documents and data as Buyer may reasonably
request with reasonable notice, and (c) furnish Buyer and Buyer's Advisors with
such additional financial, operating, and other data and information as Buyer
may reasonably request.
5.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES
Between the date of this Agreement and the Closing Date, Sellers will,
and will cause each Acquired Company to:
(a) conduct the business of such Acquired Company only in the Ordinary
Course of Business;
(b) use their Best Efforts to preserve intact the current business
organization of such Acquired Company, keep available the services of the
current officers, employees, and agents of such Acquired Company, and maintain
the relations and good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with such Acquired
Company;
(c) confer with Buyer concerning operational matters of a material
nature; and
(d) otherwise report periodically to Buyer concerning the status of
the business, operations, and finances of such Acquired Company.
32
<PAGE>
5.3 NEGATIVE COVENANTS
Except as otherwise expressly permitted by this Agreement, between the
date of this Agreement and the Closing Date, Sellers will not, and will cause
each Acquired Company not to, without the prior consent of Buyer, take any
affirmative action, or fail to take any reasonable action within their or its
control, as a result of which any of the changes or events listed in Section
3.17 is likely to occur. The Acquired Companies will not pay 1997 year-end
bonuses to the Principal Executives, and shall limit the aggregate compensation
paid to the Principal Executives for the 1997 fiscal year to approximately $1.6
million.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Sellers
will, and will cause each Acquired Company to, make all filings required by
Legal Requirements to be made by them in order to consummate the Contemplated
Transactions (including all filings under the HSR Act and any filings required
to be made in Canada). Between the date of this Agreement and the Closing Date,
Sellers will, and will cause each Acquired Company to, (a) cooperate with Buyer
with respect to all filings that Buyer elects to make or is required by Legal
Requirements to make in connection with the Contemplated Transactions, and (b)
cooperate with Buyer in obtaining all consents identified in Schedule 4.2
(including taking all actions requested by Buyer to cause early termination of
any applicable waiting period under the HSR Act). Sellers will pay one-half of
any required fees for one filing under the HSR Act.
5.5 NOTIFICATION
Between the date of this Agreement and the Closing Date, each Seller will
promptly notify Buyer in writing if such Seller or any Acquired Company becomes
aware of any fact or condition that causes or constitutes a Breach of any of
Sellers' representations and warranties as of the date of this Agreement, or if
such Seller or any Acquired Company becomes aware of the occurrence after the
date of this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a Breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. Should any such
fact or condition require any change in the Schedules if the Schedules were
dated the date of the occurrence or discovery of any such fact or condition,
Sellers will promptly deliver to Buyer a supplement to the Schedules specifying
such change. During the same period, each Seller will promptly notify Buyer of
the occurrence of any Breach of any covenant of Sellers in this Section 5 or of
the occurrence of any event that may make the satisfaction of the conditions in
Section 7 impossible or unlikely.
5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS
33
<PAGE>
Except as expressly provided in this Agreement, Sellers will cause all
indebtedness owed to an Acquired Company by any Seller or any Related Person of
any Seller to be paid in full prior to Closing.
5.7 NO SOLICITATION
Until the Closing Date or such time, if any, as this Agreement is
terminated pursuant to Section 9, Sellers will not, and will cause each Acquired
Company and each of their Representatives not to, directly or indirectly
solicit, initiate, or encourage any inquiries or proposals from, discuss or
negotiate with, provide any information to, or consider the merits of any
unsolicited inquiries or proposals from, any Person (other than Buyer) relating
to any transaction involving the sale of the business or assets (other than in
the Ordinary Course of Business) of any Acquired Company, or any of the capital
stock of any Acquired Company, or any merger, consolidation, business
combination, or similar transaction involving any Acquired Company. Sellers
will immediately advise Buyer of, and communicate to Buyer the terms of, any
such inquiry or proposal the Sellers or the Company may receive or of which the
Sellers or the Company may become aware.
5.8 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Sellers will use
their Best Efforts to cause the conditions in Sections 7 and 8 to be satisfied.
5.9 ESTOPPEL CERTIFICATES; TITLE MATTERS
Between the date hereof and the Closing Date:
(a) Sellers will cause the Company to use its Best Efforts to obtain
from each lessor from which the Acquired Companies lease any real property or
material real property designated by Buyer and each lender having a lien
encumbering any of the Acquired Companies' properties: (i) the written consent
of such lessor and/or lender to the transactions contemplated hereby, except to
the extent such consent is not required; and (ii) an estoppel certificate
reasonably satisfactory in form and substance to Buyer as to the continuing
validity of such lease or extension of credit and the absence of any basis for
termination thereof; and
(b) Sellers will cause the Company to use its Best Efforts to obtain
title insurance commitments, riders or endorsements regarding the Acquired
Companies' Real Property in form and substance reasonably satisfactory to Buyer.
ARTICLE 6
COVENANTS OF BUYER PRIOR TO CLOSING DATE
34
<PAGE>
6.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, Buyer will,
and will cause each of its Related Persons to, make all filings required by
Legal Requirements to be made by them to consummate the Contemplated
Transactions (including all filings under the HSR Act and any filings required
to be made in Canada ). Between the date of this Agreement and the Closing
Date, Buyer will, and will cause each Related Person to, cooperate with Sellers
with respect to all filings that Sellers are required by Legal Requirements to
make in connection with the Contemplated Transactions, and (ii) cooperate with
Sellers in obtaining all consents identified in Schedule 3.2; provided that this
Agreement will not require Buyer to dispose of or make any change in any portion
of its business. Buyer will pay one-half of any required filing fees.
6.2 BEST EFFORTS
Except as set forth in the proviso to Section 6.1, between the date of
this Agreement and the Closing Date, Buyer will use its Best Efforts to cause
the conditions in Sections 7 and 8 to be satisfied.
ARTICLE 7
CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
(a) All of the Sellers' representations and warranties in this
Agreement (considered collectively), and each of these representations and
warranties (considered individually), must have been accurate in all material
respects as of the date of this Agreement, and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date, without giving
effect to any supplement to the Schedules.
(b) Each of Sellers' representations and warranties in Sections 3.3,
3.4, 3.13, the last paragraph of Section 3.18(a), and 3.28 must have been
accurate in all respects as of the date of this Agreement, and must be accurate
in all respects as of the Closing Date as if made on the Closing Date, without
giving effect to any supplement to the Schedules.
(c) Since the date of the Agreement, there has not been any material
adverse change in the business, operations, properties, prospects, assets, or
condition of any Acquired Company,
35
<PAGE>
and no event has occurred or circumstance exists that may result in such a
material adverse change.
7.2 SELLERS' PERFORMANCE
(a) All of the covenants and obligations that Sellers are required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been duly performed and complied with in
all material respects.
(b) Each document required to be delivered pursuant to Section 2.4
must have been delivered (including the Employment Agreements), and each of the
other covenants and obligations in Sections 5.4 and 5.8 must have been performed
and complied with in all respects.
7.3 CONSENTS
Each of the Consents identified on Schedule 4.2, must have been obtained
and must be in full force and effect.
7.4 FINANCIAL STATEMENTS
Buyer shall have received the Acquired Company's audited financial
statements for the 1997 fiscal year.
7.5 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Buyer:
(a) an opinion of John D. O'Keefe, Esq., dated the Closing Date, as
set forth in Exhibit 7.5, reasonably acceptable to Buyer; and
(b) such other documents as Buyer may reasonably request for the
purpose of evidencing the satisfaction of any condition referred to in this
Section 7.
7.6 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated
36
<PAGE>
Transactions, or (b) that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with any of the Contemplated Transactions.
7.7 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim
asserting that such Person (a) is the holder or the beneficial owner of, or has
the right to acquire or to obtain beneficial ownership of, any stock of, or any
other voting, equity, or ownership interest in, any of the Acquired Companies,
or (b) is entitled to all or any portion of the Stock Purchase Price payable for
the Shares.
7.8 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer or any Person affiliated with Buyer to suffer any
material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise formally proposed by or before any Governmental Body.
7.9 HSR ACT
All applicable waiting periods with respect to the HSR Act (including any
extensions thereof) shall have expired or been terminated.
7.10 FINANCING
There shall be available to Buyer high-yield financing at an interest
rate of 11% per annum or lower in an amount sufficient to fund its obligations
hereunder.
7.11 TERMINATION OF AGREEMENTS
The Shareholders Agreement and the Acquired Companies' bank loan with PNC
Bank, National Association dated July 26, 1996, as amended ("PNC Bank Loan)
shall have been terminated.
7.12 MOONEY INVESTMENT
Joseph T. Mooney, Jr. shall have made an investment in Buyer
substantially on the terms set forth on Exhibit 7.12.
ARTICLE 8
37
<PAGE>
CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions
required to be taken by Sellers at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by the Sellers' Representative, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
All of Buyer's representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.
8.2 BUYER'S PERFORMANCE
(a) All of the covenants and obligations that Buyer is required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been performed and complied with in all
material respects.
(b) Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to Section 2.4 (including the Employment Agreements)
and must have made the cash payments required to be made by Buyer pursuant to
Section 2.4(b).
8.3 CONSENTS
Each of the Consents identified in Schedule 4.2 must have been obtained
and must be in full force and effect.
8.4 ADDITIONAL DOCUMENTS
Buyer must have caused to be delivered to the Sellers' Representative
such documents as the Sellers' Representative may reasonably request for the
purpose of evidencing the satisfaction of any condition referred to in this
Section 8.
8.5 NO INJUNCTION
There must not be in effect any Legal Requirement or any injunction or
other Order that (a) prohibits the sale of the Shares by Sellers to Buyer, and
(b) has been adopted or issued, or has otherwise become effective, since the
date of this Agreement.
38
<PAGE>
8.6 HSR ACT
All applicable waiting periods with respect to the HSR Act (including any
extensions thereof) shall have expired or been terminated.
ARTICLE 9
TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) by either Buyer or the Sellers' Representative if a material
Breach of any provision of this Agreement has been committed by the other party
and such Breach has not been waived;
(b) (i) by Buyer if any of the conditions in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by the Sellers' Representative, if any of the
conditions in Section 8 has not been satisfied as of the Closing Date or if
satisfaction of such a condition is or becomes impossible (other than through
the failure of Sellers to comply with their obligations under this Agreement)
and the Sellers' Representative has not waived such condition on or before the
Closing Date;
(c) by mutual consent of Buyer and the Sellers' Representative;
(d) by either Buyer or the Sellers' Representative if the Closing has
not occurred (other than through the failure of any party seeking to terminate
this Agreement to comply fully with its obligations under this Agreement) on or
before April 7, 1998, or such date (i) as extended by Section 2.3 hereof, or
(ii) as the parties may otherwise agree upon in writing; or
(e) by the Sellers' Representative if all of the conditions in Section
7 have been satisfied and Buyer has failed to consummate the Contemplated
Transactions on the Closing Date; or
(f) by Buyer if all of the conditions in Section 8 have been satisfied
and Sellers have failed to consummate the Contemplated Transactions on the
Closing Date.
39
<PAGE>
9.2 EFFECT OF TERMINATION
(a) Nothing in this Agreement shall affect the right of any party to
seek injunctive relief to enforce the terms of this Agreement. If this
Agreement is terminated pursuant to Section 9.1, all further obligations of the
parties under this Agreement will terminate, except that the obligations in
Sections 11.1 and 11.3 will survive.
(b) In the event all of Buyer's conditions to close this Agreement as
set forth in Section 7 are satisfied or waived, and all of Sellers' conditions
to close the Agreement as set forth in Section 8 are satisfied, and Sellers fail
to close, Sellers shall pay Buyer its expenses incurred in connection with this
transaction, not to exceed $1 million. In the event all of Sellers's conditions
to close this Agreement as set forth in Section 7 are satisfied or waived, and
all of Buyer's conditions to close the Agreement as set forth in Section 8 are
satisfied, and Buyer fails to close, Buyer shall pay Sellers their expenses
incurred in connection with this transaction, not to exceed $1 million. The
foregoing is agreed by the parties to constitute liquidated damages, and no
party shall be entitled to any other monetary damages in the event this
Agreement is terminated and fails to close.
ARTICLE 10
INDEMNIFICATION; REMEDIES
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations, warranties, covenants, and obligations in this
Agreement, the Schedules hereto, the supplements to the Schedules, the
certificate delivered pursuant to Section 2.4(a)(iv), and any other certificate
or document provided for or contemplated by this Agreement will survive the
Closing.
Buyer's right to indemnification, payment of Damages or other remedy
based on such representations, warranties, covenants, and obligations will not
be affected by any investigation conducted with respect to, whether before or
after the execution and delivery of this Agreement or the Closing Date by Buyer
with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation. The waiver of any condition
based on the accuracy of any representation or warranty, or on the performance
of or compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations. Notwithstanding
anything contained in this Section 10 to the contrary, if prior to Closing,
Warner Henry, Richard Gordinier, Jeffrey Wahba or Duncan Moffat has actual
knowledge of specific facts that would cause one or more of the representations
and warranties made by Sellers in this Agreement not to be true as of the date
made, then Buyer shall have no right or remedy after the Closing with respect to
any claim under Section 10.2 by reason thereof, and shall be
40
<PAGE>
deemed to have waived its rights to indemnification under Section 10.2 in
respect thereof to such extent.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS
Sellers, jointly and severally, will indemnify and hold harmless Buyer,
the Acquired Companies, and their respective Representatives, stockholders,
controlling persons, and affiliates (collectively, the "Indemnified Persons")
for, and will pay to the Indemnified Persons the amount of, any loss, liability,
claim, damage (not including incidental or consequential damages), expense
(including costs of investigation and defense and reasonable attorneys' fees) or
diminution of value, whether or not involving a third-party claim (collectively,
"Damages"), arising, directly or indirectly, from or in connection with:
(i) any Breach of any representation or warranty made by
Sellers in this Agreement, the Schedules or any other certificate or document
delivered by Sellers pursuant to this Agreement as if such representation or
warranty were made on and as of the Closing Date (other than those made as of a
specified date, which are deemed to be made as of such date);
(ii) any Breach by a Seller of any covenant or obligation of
such Seller in this Agreement;
(iii) any product shipped or manufactured by, or any services
provided by, any Acquired Company prior to the Closing Date;
(iv) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with any Seller or any Acquired
Company (or any Person acting on their behalf) in connection with any of the
Contemplated Transactions.
The remedies provided in this Section 10.2 will be limited to those set forth in
Section 10.6 hereof.
10.3 HOLDBACK ACCOUNT
41
<PAGE>
(a) At the Closing Buyer will deposit the Holdback with Nations Bank,
or other mutually acceptable financial institution, as Custodian (the
"Custodian") under the terms of a Custodial Agreement (the "Custodial
Agreement") among the Sellers' Representative, Buyer and the Custodian in
substantially the form attached hereto as Exhibit 10.3, with such changes
therein as are required by the Custodian to serve in such capacity and are
reasonably acceptable to the Buyer and the Sellers' Representative. The
Custodian shall hold the Holdback Account to secure such indemnification
obligations of the Sellers under this Agreement. The Buyer shall proceed first
to satisfy its claims for indemnification from the Holdback Account before it
shall be entitled to proceed against any of the Sellers. Any portion of the
Holdback Account necessary to satisfy the Sellers' indemnification obligations
shall be disbursed to the Buyer in accordance with the procedures set forth in
the Custodial Agreement. Funds in the Holdback Account that are not required to
satisfy the Sellers' indemnification obligations shall be disbursed to the
Sellers as follows:
(i) one-half (1/2) shall be disbursed to the Sellers in
accordance with the Custodial Agreement on the first anniversary of the Closing
Date, less any amounts required to be paid to the Buyer to indemnify it against
all of the Buyer's Damages with respect to such matters;
(ii) Any funds remaining in the Holdback Account after the
Sellers' obligations have been fully satisfied in accordance with this Agreement
shall be disbursed to the Sellers in accordance with the procedures set forth in
the Custodial Agreement.
(b) The Holdback Account shall be administered in accordance with the
Custodial Agreement. All interest on, or other earnings of, the Holdback
Account, shall be deemed as income of the Sellers and not the Holdback Account
or the Buyer, and the Sellers shall pay any taxes attributable to such income.
All interest on, or other earnings of, the Holdback Account shall be distributed
to the Sellers in accordance with the Custodial Agreement.
10.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Sellers, and will pay to Sellers
the amount of any Damages arising, directly or indirectly, from or in connection
with (a) any Breach of any representation or warranty made by Buyer in this
Agreement or in any certificate delivered by Buyer pursuant to this Agreement,
(b) any Breach by Buyer of any covenant or obligation of Buyer in this
Agreement, or (c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on its
behalf) in connection with any of the Contemplated Transactions.
10.5 TIME LIMITATIONS
If the Closing occurs, Sellers will have no liability (for
indemnification or otherwise) with respect to any representation or warranty, or
covenant or obligation to be performed and
42
<PAGE>
complied with prior to the Closing Date, (i) unless, with respect to all
representations, warranties, covenants or obligations, other than those in
Sections 3.3, 3.12, 3.20 and 3.26, on or before the second anniversary of the
Closing Date, Buyer notifies Sellers' Representatives of a claim specifying the
factual basis of that claim in reasonable detail to the extent then known by
Buyer; and (ii) unless, with respect to representations and warranties in
Section 3.12 or Section 3.20, on or before the sooner of the sixth anniversary
of the Closing Date or the expiration of the applicable statute of limitations,
Buyer notifies Sellers' Representative of a claim specifying the factual basis
of that claim in reasonable detail to the extent then known by Buyer. A claim
with respect to Section 3.3 or 3.26 may be made at any time.
If the Closing occurs, Buyer will have no liability (for indemnification
or otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, unless
on or before the second anniversary of the Closing Date, Sellers notify Buyer of
a claim specifying the factual basis of that claim in reasonable detail to the
extent then known by Sellers.
Any matter as to which a claim has been asserted by notice to the other
party that is pending or unresolved at the end of any applicable limitation
period shall continue to be covered notwithstanding the foregoing provisions of
this Section 10.5 or any applicable statute of limitations (which the parties
hereby waive) until such matter is finally terminated or otherwise resolved by
the parties or by a court of competent jurisdiction and any amounts payable
hereunder are finally determined and paid.
10.6 LIMITATIONS ON AMOUNT--SELLERS
(a) Any joint and several liability of the Sellers arising under this
Agreement is limited to the total amount of gross proceeds any individual Seller
receives in connection with the Contemplated Transactions.
(b) Sellers will have no liability (for indemnification or otherwise)
with respect to the matters described in Section 10.2 until the total of all
Damages with respect to such matters exceeds $250,000, and then only for the
amount by which such Damages exceed $100,000; provided, however, that individual
claims of Five Thousand Dollars ($5,000) or less shall not be aggregated for
purposes of calculating either threshold set forth above; and PROVIDED FURTHER
that Sellers will have no liability for Damages in excess of $8 million.
(c) Section 10.6(b) will not apply to fraud and Sellers will be
jointly and severally liable for all Damages with respect to such fraud.
10.7 LIMITATIONS ON AMOUNT--BUYER
Buyer will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a) or (b) of Section 10.4 until the
total of all Damages with respect to such matters exceeds $250,000, and then
only for the amount by which such Damages exceed
43
<PAGE>
$100,000; provided, however, that individual claims of Five Thousand Dollars
($5,000) or less shall not be aggregated for purposes of calculating either
threshold set forth above. However, this Section 10.7 will not apply to fraud
and Buyer shall be liable for all Damages with respect to such fraud.
10.8 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Within 10 days after receipt by an indemnified party under Section
10.2 or 10.4 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of the commencement of
such claim, but the failure to notify the indemnifying party will not relieve
the indemnifying party of any liability that it may have to any indemnified
party, except to the extent that the indemnifying party demonstrates that the
defense of such action is prejudiced by the indemnifying party's failure to give
such notice.
(b) If any Proceeding referred to in Section 10.8(a) is brought
against an indemnified party and it gives notice to the indemnifying party of
the commencement of such Proceeding, the indemnifying party will be entitled to
participate in such Proceeding and, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such Proceeding and the indemnified party
determines in good faith that joint representation would be inappropriate due to
the potential conflict of interest between them, or (ii) the indemnifying party
fails to provide reasonable assurance to the indemnified party of its financial
capacity to defend such Proceeding and provide indemnification with respect to
such Proceeding), to assume the defense of such Proceeding with counsel
satisfactory to the indemnified party and, after notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently conducts
such defense, be liable to the indemnified party under this Section 10 for any
fees of other counsel or any other expenses with respect to the defense of such
Proceeding, in each case subsequently incurred by the indemnified party in
connection with the defense of such Proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of a Proceeding,
(i) no compromise or settlement of such claims may be effected by the
indemnifying party without the indemnified party's consent unless (A) there is
no finding or admission of any violation of Legal Requirements or any violation
of the rights of any Person and no effect on any other claims that may be made
against the indemnified party, and (B) the sole relief provided is monetary
damages that are paid in full by the indemnifying party; and (ii) the
indemnified party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. In all cases in which
the indemnifying party shall assume the defense, the indemnified party shall
have the right to participate in the defense of such claim or action through
counsel of its own choice at its own expense, provided, however, if indemnifying
party agrees to assume the defense of the claim or action subject to a
reservation of rights that the loss or claim is not subject to indemnification
or fails to waive in writing any right to disclaim coverage for all or any
portion of the loss or claim (it being understood that indemnifying party need
not waive the right to contest the merits of the alleged loss or claim), the
indemnified party shall have the right to select independent counsel of its own
choosing to defend the claim or action and the
44
<PAGE>
Indemnifying Party shall have responsibility to pay reasonable attorneys' fees
and costs of such defense. If notice is given to an indemnifying party of the
commencement of any Proceeding and the indemnifying party does not, within
thirty days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will be bound by any determination made in such Proceeding or
any compromise or settlement effected by the indemnified party.
(c) TAX MATTERS. Subject to Section 10(b) above, the Sellers
shall have the right to assume, at the Sellers' expense, the handling,
disposition and/or settlement of any issues raised in any official inquiry,
examination or proceeding of or with taxing authorities as respect Taxes due for
period prior to the Closing which the Sellers have liability for either directly
or under this Agreement, which by way of indemnity or otherwise, provided that
Buyer shall have the right to directly and/or through its designated
representatives, (i) to participate, at its own expense, in any such inquiry,
examination or proceeding and to review in advance and comment upon all
submissions made by the Sellers in the course thereof and (ii) to approve the
Sellers' disposition, handling or settlement of any issue if such disposition,
handling or settlement will or might reasonably be expected to result in an
increase in Taxes of the Company, any successor thereof or any consolidated
group which includes the Company, for any period ending after the Closing. If,
with respect to any such official inquiry, examination or proceeding described
above, the Sellers elect not to exercise control over the handling, disposition
and/or settlement thereof, then the Buyer and/or the Company shall have the
right to do so without limiting the obligations of the Sellers to provide
indemnity hereunder.
10.9 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party
claim may be asserted by notice to the party from whom indemnification is
sought.
10.10 ARBITRATION
(a) If any dispute or controversy shall arise among the parties hereto
as to any matter arising out of or in connection with the Holdback, the parties
shall attempt in good faith to resolve such controversy by mutual agreement. If
such dispute or controversy cannot be so resolved, it shall be resolved solely
in accordance with the provisions of this Section 10.10.
(b) Any dispute, controversy or claim between or among the parties
hereto (the "Disputing Parties"), arising out of or related to the Holdback
shall, except as provided in this Section 10.9, be settled by a single
arbitrator by arbitration in Delaware in accordance with the Commercial
Arbitration Rules of the American Arbitration Association as amended from time
to time and as modified by this Agreement.
(c) The arbitrator shall be selected by the Disputing Parties within
15 days after demand for arbitration is made by a Disputing Party. If the
Disputing Parties are unable to agree on an arbitrator within such period, then
each Disputing Party shall select one arbitrator, and
45
<PAGE>
each such arbitrator shall select a third arbitrator and the dispute shall be
settled by the panel consisting of such three arbitrators (such panel, or the
single arbitrator agreed to both parties, as the case may be, being hereinafter
referred to as the "Arbiter"). Each arbitrator possesses substantive legal
experience with respect to the principal issues on dispute.
(d) Except as may otherwise be agreed in writing by the Disputing
Parties or as ordered by the Arbiter upon substantial justification, the
hearings of the dispute shall be held and concluded within 90 days of submission
of the dispute to arbitration. The Arbiter shall render its final award within
30 days.
(e) The Arbiter shall not alter or disregard any express provision of
this Agreement. Any arbitration award in accordance with this Section 10.10
shall be final and binding upon the parties and judgment thereon may be entered
in any court having jurisdiction over such party. The Arbiter is hereby
authorized to award the winning party the costs (including reasonable attorney's
fees and expenses) of any such arbitration.
ARTICLE 11
GENERAL PROVISIONS
11.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives and
counsel. Sellers will pay all amounts payable to BT Alex Brown Incorporated in
connection with this Agreement and the Contemplated Transactions; it being
understood that Buyer will pay all amounts owed to BT Alex Brown Incorporated in
connection with obtaining its financing in connection with this Agreement and
the Contemplated Transactions. Sellers will cause the Acquired Companies not to
incur any out-of-pocket expenses in connection with this Agreement except for
professional fees of the Company incurred in connection with the Company's 1997
audited financial statements. In the event of termination of this Agreement,
the obligation of each party to pay its own expenses will survive.
11.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this
Agreement or the Contemplated Transactions will be issued, if at all, at such
time and in such manner as Buyer determines after consultation with the Sellers'
Representative. Unless consented to by Buyer in advance or required by Legal
Requirements, prior to the Closing Sellers shall, and shall cause the Acquired
Companies to, keep this Agreement strictly confidential and may not make any
disclosure of this Agreement to any Person. The Sellers' Representative and
Buyer will consult with each other concerning the means by which the Acquired
Companies' employees, customers,
46
<PAGE>
and suppliers and others having dealings with the Acquired Companies will be
informed of the Contemplated Transactions, and Buyer will have the right to be
present for any such communication.
11.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, Buyer and
Sellers will maintain in confidence, and will cause the directors, officers,
employees, agents, and advisors of Buyer and the Acquired Companies to maintain
in confidence, written, oral, or other information obtained in confidence from
another party or an Acquired Company in connection with this Agreement or the
Contemplated Transactions, unless (a) such information is already known to such
party or to others not bound by a duty of confidentiality or such information
becomes publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Contemplated
Transactions, or (c) the furnishing or use of such information is required by
legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request. Whether or not the Closing takes place, the Sellers' waive,
and will upon Buyer's request cause the Acquired Companies to waive, any cause
of action, right, or claim arising out of the access of Buyer or its
representatives to any trade secrets or other confidential information of the
Acquired Companies except for the intentional competitive misuse by Buyer of
such trade secrets or confidential information.
11.4 RELEASE
(a) Each Seller, on behalf of himself and each of his Related Persons,
hereby releases and forever discharges the Buyer, the Company and each of the
other Acquired Companies, and each of their respective individual, joint or
mutual, past, present and future Representatives, affiliates, stockholders,
controlling persons, Subsidiaries, successors and assigns (individually, a
"Releasee" and collectively, "Releasees") from any and all claims, demands,
Proceedings, causes of action, Orders, obligations, contracts, agreements, debts
and liabilities whatsoever, whether known or unknown, at law and in equity,
which each of the Sellers or any of their respective Related Persons now has,
have ever had or may hereafter have against the respective Releasees arising at
or prior to the Closing Date or on account of or arising out of any matter,
cause or event occurring at or prior to the Closing Date; it being understood
that this Section 11.4 does not apply to any rights of any Releasee specifically
arising under the Employment Agreements, the Non-Competition Agreements or this
Agreement.
(b) Each Seller hereby irrevocably covenants to refrain from, directly
or indirectly, asserting any claim or demand, or commencing, instituting or
causing to be commenced, any proceeding of any kind against any Releasee, based
upon any matter released hereby.
47
<PAGE>
(c) Without in any way limiting any of the rights and remedies
otherwise set forth in this Agreement, each Seller, jointly and severally, shall
indemnify and hold harmless each Releasee from and against all loss, liability,
claim, damage (including incidental and consequential damages) or expense
(including costs of investigation and defense and reasonable attorneys' fees)
whether or not involving third party claims, arising directly or indirectly from
or in connection with (i) the assertion by or on behalf of the Sellers or any of
their Related Persons of any claim or other matter purported to be released
hereby and (ii) the assertion by any third party of any claim or demand against
any Releasee which claim or demand arises directly or indirectly from, or in
connection with, any assertion by or on behalf of the Sellers or any of their
Related Persons against such third party of any claims or other matters
purported to be released hereby.
11.5 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Sellers: Monsey Products Company
Cold Stream Road
Kimberton, Pennsylvania 19442
Attention: Joseph T. Mooney, Jr., President and CEO
Facsimile No.: 610/933-4598
with a copy to:
John D. O'Keefe, Esq.
Suite 1113, Robinson Building
15th and Chestnut Streets
Pennsylvania 19102
Facsimile No.: 215/564-2565
Buyer: Henry Group of Companies
2911 Slauson Avenue
Huntington Park, California 90255
Attention: Warner Henry
Facsimile No.: 213/583-8582
48
<PAGE>
with a copy to:
Munger, Tolles & Olson
355 South Grand Avenue, 35th Floor
Los Angeles, California 90071-1560
Attention: Robert B. Knauss, Esq.
Facsimile No.: 213/687-3702
11.6 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Agreement shall be brought against any of the
parties in the courts of the State of Delaware, and each of the parties consents
to the jurisdiction of such courts (and of the appropriate appellate courts) in
any such action or proceeding and waives any objection to venue laid therein.
Process in any action or proceeding referred to in the preceding sentence may be
served on any party anywhere in the world.
11.7 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
11.8 WAIVER
Neither the failure nor any delay by any party in exercising any right,
power, or privilege under this Agreement or the documents referred to in this
Agreement will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege will preclude
any other or further exercise of such right, power, or privilege or the exercise
of any other right, power, or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement or the
documents referred to in this Agreement can be discharged by one party, in whole
or in part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any obligation
of such party or of the right of the party giving such notice or demand to take
further action without notice or demand as provided in this Agreement or the
documents referred to in this Agreement.
11.9 ENTIRE AGREEMENT AND MODIFICATION
This Agreement constitutes the entire agreement with respect to its
subject matter hereof and supersedes all prior agreements with respect thereto,
including the Letter of Intent, dated
49
<PAGE>
December 9, 1997, as amended, among the Buyer, the Company and the Principal
Executives, and no statements, representations, warranties (express or implied),
writings, understandings or agreements of any party or of any representative of
any party, in the negotiations leading to the execution and delivery of this
Agreement or at any other time, which are not expressed herein or in any such
other agreement, instrument or document executed and delivered hereto, shall be
binding. All exhibits referred to in this Agreement are hereby incorporated by
reference and made a part of this Agreement. This Agreement may not be amended
except by a written agreement executed by the party to be charged with the
amendment.
11.10 SCHEDULES
(a) The disclosures in the Schedules, and those in any Supplement
thereto, must relate only to the representations and warranties in the Section
of the Agreement to which they expressly relate and not to any other
representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the
body of this Agreement and those in the Schedules (other than an exception
expressly set forth as such in the Schedules with respect to a specifically
identified representation or warranty), the statements in the body of this
Agreement will control.
11.11 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
(a) The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, provided that no party may assign, delegate or otherwise transfer any
of its rights or obligations under this Agreement without the consent of the
other parties hereto; provided, further, that Buyer may assign this Agreement in
whole or in part (i) to any wholly-owned Subsidiary of the Buyer, (ii) any
lender to the Buyer, any subsidiary or affiliate thereof or any agent on behalf
thereof as security for obligations to such lender in respect of its financing
arrangements.
(b) If, prior to the Closing, the Buyer enters into an agreement to
sell a substantial portion of the Acquired Companies' assets or business to a
third party, then the Sellers agree to provide to such third party the benefits
of Sections 5.1 and 5.4.
(c) Notwithstanding anything contained in this Agreement to the
contrary, nothing in this Agreement, expressed or implied, is intended to confer
on any Person other than the parties hereto or their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
50
<PAGE>
11.12 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid
or unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.
11.13 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
11.14 APPOINTMENT OF SELLERS' REPRESENTATIVE
The Buyer and each of the Sellers acknowledge and agree that Edward P.
Mooney has been, or will be, appointed by the Sellers to act as the Sellers'
representative (the "Sellers' Representative") under this Agreement and the
Custodial Agreement pursuant to an agreement, dated the date of Closing, among
each of the Sellers and the Sellers' Representative, and that Buyer and the
Custodian may rely upon any action taken by such person in his capacity as the
Sellers' Representative under this Agreement and the Custodial Agreement for the
purpose of taking all such actions, exercising all such powers, making all such
determinations and receiving and sending all such notices and other information
permitted or required to be made, taken, received or sent by this Agreement.
Each Seller ratifies and confirms and agrees to ratify and confirm any action
taken by the Sellers' Representative on behalf of any Seller pursuant to this
Agreement or the Custodial Agreement that is consistent with the Sellers'
Representative's authority as described herein. All references to the Sellers'
Representative refer to him in his capacity as representative of the Sellers and
not to him in his individual capacity.
11.15 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.
11.16 GOVERNING LAW
This Agreement will be governed by the laws of the State of Delaware
without regard to conflicts of laws principles.
11.17 COUNTERPARTS
51
<PAGE>
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement.
52
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
Buyer:
HENRY COMPANY
a California corporation
By: /s/ Richard B. Gordinier
--------------------------------
Richard B. Gordinier
President
Sellers:
/s/ Joseph Mooney, Jr.
- ------------------------------------
Joseph T. Mooney, Jr.
/s/ E. P. Mooney
- ------------------------------------
Edward P. Mooney
*
- ------------------------------------
James F. Stewart
*
- ------------------------------------
Larry A. Karasiuk
*
- ------------------------------------
Joseph T. Mooney III
*
- ------------------------------------
Charles J. Mooney
*
- ------------------------------------
Stephen E. Mooney
53
<PAGE>
*
- ------------------------------------
James E. Mooney
*
- ------------------------------------
Lisa M. Brock
*
- ------------------------------------
Patricia A. Dever
*
- ------------------------------------
Edward P. Mooney, Jr.
*
- ------------------------------------
Susan S. Bruce
*
- ------------------------------------
Michael J. Mooney
*
- ------------------------------------
Maureen Mooney
*
- ------------------------------------
Luke A. Mooney
Canadian Venture Capital
BY: *
- ------------------------------------
*
- ------------------------------------
Kathleen A. Stewart
*
- ------------------------------------
James R. M. Stewart
54
<PAGE>
*
- ------------------------------------
Mark J. C. Stewart
*
- ------------------------------------
Barbara Karasiuk
*
- ------------------------------------
Yves Pare
*
- ------------------------------------
Lionel Borenstein
*
- ------------------------------------
Manfred Sassner
Waywell Management
BY: *
- ------------------------------------
*
- ------------------------------------
Robert S. Zalkowitz
- ---------------
** By Power of Attorney, a copy of which is attached.
/s/ E. P. Mooney , as attorney in fact
- ------------------------------------
Edward P. Mooney
/s/ Joseph Mooney, Jr. , as attorney in fact
- ------------------------------------
Joseph T. Mooney, Jr.
55
<PAGE>
MONSEY PRODUCTS CO.
LIST OF SHAREHOLDERS
COMMON STOCK
<TABLE>
<CAPTION>
Name Certificate No. Total Shares
- ---- --------------- ------------
<S> <C> <C>
Joseph T. Mooney, Jr. C-30 841,176
Joseph T. Mooney III C-2, C-24 35,154
Charles J. Mooney C-3, C-25 35,154
Stephen E. Mooney C-4, C-26 35,154
James M. Mooney C-5, C-27 35,154
Lisa M. Brock C-6, C-28 35,154
Patricia A. Dever C-7, C-29 35,154
Edward P. Mooney C-8 371,650
Edward P. Mooney, Jr. C-9 15,850
Susan S. Bruce C-10 15,850
Michael J. Mooney C-11 15,850
Maureen Mooney C-12 15,850
Luke A. Mooney C-13 15,850
Canadian Venture Capital C-14 200,000
Kathleen A. Stewart C-15 86,667
James R. M. Stewart C-16 86,667
Mark J. C. Stewart C-17 38,666
Larry Karasiuk C-18 130,000
Barbara Karasiuk C-19 130,000
Yves Pare C-21 66,668
Lionel Borenstein C-22 43,332
Manfred Sassner C-23 20,000
Waywell Management C-31 100,000
Robert S. Zalkowitz C-32 100,000
---------
2,505,000
---------
---------
</TABLE>
56
<PAGE>
AMENDMENT
TO
STOCK PURCHASE AGREEMENT
The Stock Purchase agreement dated as of February 27, 1998, by Henry Company, a
California corporation ("Buyer") and the individuals listed on Schedule A
thereto ("Sellers"), is hereby amended as follows:
Section 2.3 is hereby amended to read as follows:
"2.3 CLOSING:
The purchase and sale (the "Closing") provided for in this
Agreement will occur at the offices of Munger, Tolles & Olson as soon
as possible following the satisfaction of all conditions hereto but
not later than April 24, 1998."
Section 9.1(d) is hereby amended to replace "April 7, 1998" with
"April 24, 1998."
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment to Stock Purchase Agreement as of the date first written above.
BUYER:
HENRY COMPANY, a California corporation
By: /s/ Richard B. Gordinier
-----------------------------------
Its: President
-----------------------------------
SELLERS:
/s/ Joseph Mooney, Jr.
----------------------------------------
Joseph T. Mooney, Jr.
Page 1
<PAGE>
/s/ E. P. Mooney
----------------------------------------
Edward P. Mooney
*
----------------------------------------
James F. Stewart
*
----------------------------------------
Larry A. Karasiuk
*
----------------------------------------
Joseph T. Mooney III
*
----------------------------------------
Charles J. Mooney
*
----------------------------------------
Stephen E. Mooney
*
----------------------------------------
James E. Mooney
*
----------------------------------------
Lisa M. Brock
*
----------------------------------------
Patricia A. Dever
*
----------------------------------------
Edward P. Mooney, Jr.
*
----------------------------------------
Susan S. Bruce
Page 2
<PAGE>
*
----------------------------------------
Michael J. Mooney
*
----------------------------------------
Maureen Mooney
*
----------------------------------------
Luke A. Mooney
Canadian Venture Capital
By: *
-----------------------------------
Its: *
-------------------------------
*
----------------------------------------
Kathleen A. Stewart
*
----------------------------------------
James R. M. Stewart
*
----------------------------------------
Mark J. C. Stewart
*
----------------------------------------
Barbara Karasiuk
*
----------------------------------------
Yves Pare
*
----------------------------------------
Lionel Borenstein
*
----------------------------------------
Manfred Sassner
Page 3
<PAGE>
Waywell Management
By: *
------------------------------------
Its: *
-----------------------------------
*
----------------------------------------
Robert S. Zalkowitz
______________
* By Power of Attorney, a copy of which is attached.
/s/ Joseph Mooney, Jr. , as attorney in fact
- ----------------------------
Joseph T. Mooney, Jr.
/s/ E. P. Mooney , as attorney in fact
- ----------------------------
Edward P. Mooney
Page 4
<PAGE>
REVISED SUMMARY LIST OF UNDERLYING DOCUMENTS
TO
SCHEDULES TO
STOCK PURCHASE AGREEMENT
AS OF 4/22/98
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SCHEDULE # UNDERLYING DOCUMENTS
- -------------------------------------------------------------------------------------------------
<S> <C>
3.1; Organization and Good Standing - Organization Chart
- Letter, dated December 31, 1998
- -------------------------------------------------------------------------------------------------
3.2; Authority; No Conflict - Cross-references to other Schedules
- -------------------------------------------------------------------------------------------------
3.3; Capitalization - Voting Trust Agreements, dated March 15, 1996,
for the following parties:
James Stewart
Mark Stewart
Kathleen Stewart
Canadian Venture Capital Corporation
Barbara Karasiuk
- Letter Agreement, dated March 15, 1996, re BTL
Industries, Inc.
- Voting Trust Agreement, dated March __, 1996,
appointing Joseph Mooney as Voting Trustee
- Voting Trust Agreement, dated March __, 1996,
appointing Edward Mooney as Voting Trustee
- -------------------------------------------------------------------------------------------------
3.6; Properties; Encumbrances Deeds, indentures and/or other documents dated
and relating to the following properties:
- January 28, 1989 - Chester County (Tech Ctr)
- September 1, 1995 - Chester County (Trng Ctr)
- December 23, 1985 - Chester County (MPC Bldg)
- March 18, 1968 - Chester County (Kimberton Main)
- April 16, 1986 - Chester County (55 Acres)
- July 11, 1978 - Bergen County (NJ) (E.
- Rutherford)
- February 12, 1992 - York County (SC) (Rock Hill)
- September 16, 1980 - York County (Rock Hill)
- November 3, 1983 - Dallas County (TX) (Garland -
Main)
- January 8, 1991 - Dallas County (Garland - Whse)
- August 5, 1982 - Marion County (IN) (Indy)
- December 17, 1984 - Polk County (FL) (Bartow)
- October 6, 1977 - Saratoga County (NY)
(Waterford)
- October 5, 1989 - Rensselaer County (NY) (Troy)
April 6, 1992 - Mohave County (AZ)- October 11,
- -------------------------------------------------------------------------------------------------
1
<PAGE>
- -------------------------------------------------------------------------------------------------
1996 (Mirabel)
- Surveys delivered to Henry Company only
Leases dated and for the following properties:
- April 5, 1995 (Costa Mesa, CA)
- December 23, 1995 (Irvington, N.J.), including
addendum to Lease Agreement
- December 7, 1993 (VSP & St. Antoine)
- May 26, 1988 (Petrolia)
- February 7, 1997 (Mississauga)
- June 6, 1995 (PNC Lease)
The following warehousing agreements:
- September 30, 1996 (Houston, TX)
- September 30, 1997 (Agreement in French)
- Certain other warehousing letters or quotations
- -------------------------------------------------------------------------------------------------
Supplement to 3.6; Title Insurance - Title policies for the following properties:
Policies
Kimberton, PA (Vacant Land)
Kimberton, PA (Former MPC Building)
Kimberton, PA (Training Center)
Kimberton, PA (Corporate Headquarters)
Kimberton, PA (Tech Center/Warehouse)
East Rutherford, NJ
Rock Hill, SC (Main)
Rock Hill, SC (Vacant Land)
Garland, TX
Garland, TX (Warehouse)
Indianapolis, IN
Waterford, NY
Troy, NY (retail store)
Bartow, FL
Kingman, AZ
- -------------------------------------------------------------------------------------------------
3.6(b) Reference to Ville Ste. Pierre Operating
Certificate; December 19, 1997 letter from
Belanger Sauve
- -------------------------------------------------------------------------------------------------
3.7; Personal Property - Fixed Assets Report for Year 1997
- MPC Trucking -- Tractor Equipment Inventory
- Classification Summary - Petrolia
- Classification Summary - Ville St. Pierre
- Classification Summary - Mirabel
- List of Ville St. Pierre lab and customer
service equipment
- Letter dated September 19, 1997 re computer
- -------------------------------------------------------------------------------------------------
2
<PAGE>
- -------------------------------------------------------------------------------------------------
equipment
- -------------------------------------------------------------------------------------------------
3.8; Condition and Sufficiency of No documents included
Assets
- -------------------------------------------------------------------------------------------------
3.9; Accounts Receivable No documents included
- -------------------------------------------------------------------------------------------------
3.11; No Undisclosed Liabilities - List of U.S. and Canadian auto leases
- Bank of Butterfield letter of credit
- Cieba-Geigy letter of credit and amendment
- Tampa Electric Company letter of credit
- Application for letter of credit dated November
27, 1997
- June 19, 1997 letter re CSX Sidetrack Agreement
- Lists and agreements regarding leased equipment
- List of warranty items
- Metalshield warranty list
- List of Accrued Warranty Reserves
- Warranty list dated 3/9/98
- -------------------------------------------------------------------------------------------------
3.12; Tax Returns - Tax History as of February 10, 1998
- MB Holdings Inc. Tax Return Filing Status -
12/31/96
- Letter dated February 4, 1998 from Deloitte &
- Touche re Bakor Holdings and Bakor
- Letter dated February 5, 1998 from Deloitte &
Touche re Globe Vedag Corp., Globe-Vedag
Holdings and Bakor (Quebec)
- Letter dated June 15, 1995 from IRS
- -------------------------------------------------------------------------------------------------
3.13; Material Adverse Changes No documents included
- -------------------------------------------------------------------------------------------------
3.14; Employee Benefits - Basic Insurance Coverage Outline
- Letter dated December 18, 1997 re Laborer's
Industrial Pension Plan
- Premium Calculation Summary (Renewal Period
4/98 - 3/99)
- -------------------------------------------------------------------------------------------------
3.15; Compliance with Legal Reference to and listing of all permits is made
Requirements for reference purposes only. Copies of all
permits are included in a separate binder for
reference purposes.
- -------------------------------------------------------------------------------------------------
3.16; Legal Proceedings: Orders - Letter, dated December 17, 1997 from Rawle &
Henderson re asbestos litigation
- Memorandum dated January 16, 1998 re Open Legal
Actions
- Letter from M. P. Manning to Joseph McGovern,
Esq. dated November 26, 1997 re 7/25/97 Summons
in Rensselaer County
- -------------------------------------------------------------------------------------------------
3
<PAGE>
- -------------------------------------------------------------------------------------------------
- Letter dated August 27, 1997 from Kremblas,
Foster, Millard & Pollick
- Letter dated September 10, 1997 from Pantich,
Schwarz, Jacobs & Nadel, P.C.
- Letter from Stephanie van Boheemen dated August
10, 1997, and internal memos from M. P. Manning
re Isoltema patent infringement
- Letter, dated December 18, 1997 from Richard
Charles Hamburger, P.C.
- List of Potential Future Legal Proceedings
- -------------------------------------------------------------------------------------------------
3.17; Material Changes and Events - Appropriation Requests for expenditures dated
2/2/98, 12/5/97, 12/10/97, 12/19/97, 1/9/98
1/30/98 and 2/2/98
- Summary of Project Expenditures File Listing
dated 12/31/97
- List of Capital Expenditure Projects Underway
Year End 1997
- -------------------------------------------------------------------------------------------------
3.18(a)(i); Contracts - Agreement and Release dated September 14, 1990
- -------------------------------------------------------------------------------------------------
3.18(a)(ii); Contracts - Logistics Provider Agreement, dated March 12,
1997
- Supply letters or contracts with the following
companies:
Phoenix Container Inc.
Hercules, Inc.
Calfors Bruk
Eckart Aluminum L.P.
Reynolds Metal Company
Air Products and Chemicals, Inc.,
Letica Corporation
Kronos, Inc.
- -------------------------------------------------------------------------------------------------
3.18(a)(iv); Contracts - Lease Agreement, dated July 2, 1996 (Cal-Tex
Protective Coatings)
- Lease Agreement, dated July 24, 1997 (Leaman
Logistics)
- -------------------------------------------------------------------------------------------------
3.18(a)(v); Contracts - Agreement, dated April 1, 1997 (Local Union #57)
- Agreement, dated February 3, 1996 with UNITE
Union
- Memorandum, dated September 4, 1997 re 1997
Negotiation of Canadian benefits
- Collective Agreement - Ville St. Pierre
- -------------------------------------------------------------------------------------------------
3.18(a)(vii); Sales Representatives - Various Sales Representative agreements (as
listed on cover to Schedule section)
- Letter, dated November 30, 1995 re Ranger
Marketing
- -------------------------------------------------------------------------------------------------
4
<PAGE>
- -------------------------------------------------------------------------------------------------
3.18(a)(viii); Loan Agreements - Amended and Restated Loan Agreement, dated as of
July 26, 1996 (PNC loan)
- First Modification Agreement, dated May 1, 1997
(PNC loan)
- Second Modification Agreement, dated September
30, 1997 (PNC loan)
- Third Modification Agreement, dated February 27,
1998 (PNC loan)
- Loan Agreement, dated April 29, 1992 (AZ
Commerce and Economic Development Commission)
- Note, dated September 1, 1995 (Kulp note)
- Credit Agreement, dated February 27, 1995
(National Bank of Canada)
- Debenture dated February 18, 1994 (RoyNat, Inc.)
- Schedule of payments to CVCC
- -------------------------------------------------------------------------------------------------
3.19; Insurance - Murray Insurance Agency Summary of Insurance
dated 11/11/97
- Letter, dated July 3, 1997 from Morris &
MacKenzie re automobile insurance
- Letter, dated January 22, 1998 from Legion
Insurance Company re loss run as of December,
1997
- Letter, dated October 17, 1997 from Commonwealth
Risk re Insurance Profit Center Program
- Continental Loss Adjusting Services, Inc. report
dated December 31, 1997
- List of insurance policies for General
Liability, Excess Liability, Property,
Automobile and Workers' Compensation
- Letter, dated January 27, 1998 re MPC Trucking
loss runs
- -------------------------------------------------------------------------------------------------
3.20; Environmental Matters - Various documents relating to the matters
referred to in the Schedule section introductory
page, as amended
- -------------------------------------------------------------------------------------------------
3.21; Employees No documents included (excluding cross-references)
- -------------------------------------------------------------------------------------------------
3.22; Labor Relations Compliance No documents included
- -------------------------------------------------------------------------------------------------
3.23; Intellectual Property Assets - License Agreement, dated February 17, 1993
- Patent Report, January 1998
- List of Canadian registered trademarks and
patents
- Various patent and trademark documents
- Canadian trademarks re Bakor, Inc.
- -------------------------------------------------------------------------------------------------
3.24; Improper Payments No documents included; No schedule required
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
5
<PAGE>
- -------------------------------------------------------------------------------------------------
3.25; Relationships with Related No documents included
Persons
- -------------------------------------------------------------------------------------------------
3.26; Title to Shares - Shareholders' Agreement, dated March 15, 1996
Agreement, dated March 15, 1996
Certain cross-references
- -------------------------------------------------------------------------------------------------
3.27; Customers and Suppliers List of High Volume Accounts for 1997, 1996 and 1995
(No Schedule title page included)
- -------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
CERTIFICATE OF AMENDMENT AND RESTATEMENT
OF
ARTICLES OF INCORPORATION
Richard B. Gordinier and Jeffrey A. Wahba certify that:
1. They are the President and Secretary, respectively, of Henry
Company, a California corporation.
2. The Articles of Incorporation of the Corporation are amended
and restated to read in their entirety as follows:
ARTICLES OF INCORPORATION
OF
HENRY COMPANY
ONE: The name of this corporation is:
Henry Company
TWO: The purpose of the corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California, other than the banking business, the trust
company business or the practice of a profession permitted to be incorporated
by the California Corporations Code.
THREE: The number of shares of stock which the Corporation is
authorized to issue is One Million (1,000,000) shares of Common Stock, no par
value (the "Common Stock"), and Thirty Thousand (30,000) shares of Class A
Common Stock, no par value (the "Class A Common Stock"). The number of
shares of Preferred Stock which this Corporation is authorized to issue is
100,000 shares, without par value.
The Preferred Stock may be issued from time to time in one or more
series. The rights, preferences, privileges and restrictions granted to and
imposed upon the first such series, designated Series A Convertible Preferred
Stock, of which the
<PAGE>
Corporation is to issue Twenty-Two Thousand Five Hundred (22,500) shares, are
set forth below. The Board of Directors of the Corporation is expressly
authorized to provide for the issue of all or any of the remaining shares of
Preferred Stock in one or more series, and to fix the number of shares and to
determine or alter for each such series, such voting powers, full or limited,
or no voting powers, and such designations, preferences and relative,
participating, optional or other rights and such qualifications, limitations
or restrictions thereof, as shall be stated and expressed in the resolution
or resolutions adopted by the Board of Directors providing for the issue of
such shares, and as may be permitted by the General Corporation Law of the
State of California. The Board of Directors is authorized to decrease the
number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of that series then outstanding.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
The relative rights, powers, preferences and restrictions granted
to the Common Stock, Class A Common Stock and Series A Convertible Preferred
Stock Classes is as follows:
COMMON STOCK
On all matters upon which shareholders are entitled or permitted to
vote, every holder of Common Stock shall be entitled to one (1) vote for each
share of Common Stock standing in his name on the transfer books of the
Corporation and every holder of Class A Common Stock shall be entitled to
thirty-five (35) votes for each share of Common Stock standing in his name on
the transfer books of the Corporation. Except as otherwise may be required
by law, the holders of Common Stock and Class A Common Stock shall vote
together as a single class. Except as provided in this Article THREE, the
Common Stock and the Class A Common Stock shall have the same rights and
privileges and shall rank equally, share ratably and be identical in all
respects as to all matters.
SERIES A CONVERTIBLE PREFERRED STOCK
1. DESIGNATION. The first series of Preferred Stock is
designated the Series A Convertible Preferred Stock and the number of shares
of such series is 22,500. The Series A Convertible Preferred Stock shall,
with respect to rights on liquidation, winding up and dissolution, rank prior
to the Corporation's Common Stock, Class A Common Stock and all other series
or classes of the Corporation's equity securities now or hereafter
authorized, issued or outstanding.
-2-
<PAGE>
2. DIVIDEND RIGHTS.
(a) The holders of the Series A Convertible Preferred Stock
shall be entitled to receive, on an as-converted basis, any dividends which
are declared on the Corporation's Class A Common Stock or Common Stock, when,
as and if declared by the Board of Directors, out of the assets of the
Corporation which are legally available therefor.
(b) Dividends shall not accrue or accumulate on any share of
Series A Preferred Stock, except to the extent they are declared but unpaid.
Accumulation of declared but unpaid dividends shall bear no interest.
3. VOTING RIGHTS. The holder of each share of Series A
Convertible Preferred Stock shall have the right to one vote for each share
of Common Stock into which such share of Series A Convertible Preferred Stock
could be converted at the record date for determination of the shareholders
entitled to vote on any matters, or, if no such record date is established,
at the date such vote is taken or any written consent of shareholders is
solicited (with any fractional share determined on an aggregate conversion
basis being rounded to the nearest whole share), and with respect to such
vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be
entitled to notice of any shareholders' meeting in accordance with the bylaws
of the Corporation, and shall be entitled to vote, together with holders of
Common Stock, with respect to any question upon which holders of Common Stock
have the right to vote.
Without the consent of a majority of the outstanding shares of the
Series A Convertible Preferred Stock (so long as any such shares are
outstanding), the Corporation shall not effect any amendment, repeal or
alteration of the Corporation's Articles of Incorporation (or any provision
thereof) which would adversely affect any of the specific rights, powers or
privileges of the Series A Convertible Preferred Stock set forth herein.
4. CONVERSION RIGHTS. The holders of the Series A Convertible
Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Convertible
Preferred Stock shall be convertible, at the option of the holder thereof,
without payment of additional consideration, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer
agent for such stock, into fully-paid and nonassessable shares of Common
Stock.
-3-
<PAGE>
(b) CONVERSION PRICE. The Series A Convertible Preferred
Stock shall be convertible into the number of shares of Common Stock which
result from dividing the Conversion Price (as hereinafter defined) in effect
at the time of conversion into $1.00. The price at which shares of Common
Stock shall be deliverable upon conversion of Series A Convertible Preferred
Stock (the "Conversion Price") shall initially be $1.00 per share of Common
Stock. Such initial Conversion Price shall be subject to adjustment as
hereinafter provided.
(c) AUTOMATIC CONVERSION. Each share of Series A Convertible
Preferred Stock shall automatically be converted into shares of Common Stock
at the then effective Conversion Price, in the event of the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer
and sale of any equity securities of the Corporation (whether for the account
of the Corporation or for the account of one or more shareholders of the
Corporation) having aggregate proceeds (prior to expenses for underwriters
discount or other expenses) to the Corporation and/or selling shareholders in
excess of Ten Million Dollars ($10,000,000).
Upon the occurrence of an automatic conversion, the
outstanding shares of Series A Convertible Preferred Stock shall be converted
automatically without further action by the holders of said shares and
whether or not the certificates representing said shares are surrendered to
the Corporation or its transfer agent; provided, however, the Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock unless certificates evidencing the Series A Convertible Preferred Stock
are either delivered to the Corporation or any transfer agent as hereinafter
provided, or the holder notifies the Corporation that said certificate or
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation, indemnifying the Corporation against any
loss incurred by it in connection therewith. In the event of an underwritten
public offering, the person(s) entitled to receive the Common Stock issuable
upon conversion of the Series A Convertible Preferred Stock shall not be
deemed to have converted such stock until immediately prior to the closing of
such sale of equity securities (the "Offering Conversion Date").
(d) MECHANICS OF VOLUNTARY CONVERSION. Before any holder of
the Series A Convertible Preferred Stock shall be entitled to convert the
same into full shares of Common Stock, he shall surrender the certificate or
certificates therefore, duly endorsed, at the office of the Corporation or of
any transfer agent for such stock, and shall give written notice to the
Corporation at such office that he elects to convert the same. The
Corporation shall, as soon as practicable thereafter, issue and deliver to
such holder, at such office and in his name as shown on such surrendered
certificate or certificates, a certificate or certificates for the number of
shares of Common Stock into
-4-
<PAGE>
which such converted shares of stock were convertible on the Conversion Date
(as hereinafter defined). Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of
the shares of the Series A Convertible Preferred Stock (the "Conversion
Date"). The person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of the Conversion Date.
(e) FRACTIONAL SHARES. No fractional shares of Common Stock
or scrip shall be issued upon conversion of shares of Series A Convertible
Preferred Stock. If more than one share of Series A Convertible Preferred
Stock shall be surrendered for conversion at any one time by the same holder,
the number of full shares of Common Stock issuable upon conversion thereof
shall be computed on the basis of the aggregate number of shares of Series A
Convertible Preferred Stock so surrendered. Instead of any fractional shares
of Common Stock which would otherwise be issuable upon conversion of any
shares of Series A Convertible Preferred Stock, the Corporation shall pay a
cash adjustment in respect of such fractional interest in an amount equal to
the fair market value of such fraction as of the date of Conversion (as
determined in good faith by the Board of Directors).
(f) CONVERSION PRICE ADJUSTMENTS. The Conversion Price shall
be subject to adjustment from time to time as follows:
(i) STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS
OR COMBINATIONS. If the Corporation shall (i) declare a dividend or make a
distribution on its Common Stocks in shares of its Common Stock, (ii)
subdivide or reclassify the outstanding shares of Common Stock into a greater
number of shares, or (iii) combine or reclassify the outstanding Common Stock
into a smaller number of shares, the Conversion Price in effect at the time
of the record date for such dividend or distribution or the effective date of
such subdivision, combination or reclassification shall be proportionately
adjusted so that the holder of any shares of Series A Convertible Preferred
Stock surrendered for conversion after such date shall be entitled to receive
the number of shares of Common Stock which he would have owned or been
entitled to receive had such Series A Convertible Preferred Stock been
converted immediately prior to such date. Successive adjustments in the
Conversion Price shall be made whenever any event specified above shall occur.
(ii) CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE.
In case of any consolidation with or merger of the Corporation with or into
another corporation, or in case of any sale, lease or conveyance to another
corporation of the assets of the Corporation as an entirety or substantially
as an entirety, each share of Series A Convertible Preferred Stock shall
after the date of such consolidation, merger, sale, lease or conveyance be
convertible into the number of shares of stock or other securities or
property (including cash) to which the Common Stock issuable (at the time of
such consolidation, merger,
-5-
<PAGE>
sale, lease or conveyance) upon conversion of such share of Series A
Convertible Preferred Stock would have been entitled upon such consolidation,
merger, sale, lease or conveyance; and in any such case, if necessary, the
provisions set forth herein with respect to the rights and interests
thereafter of the holders of the shares of Series A Convertible Preferred
Stock shall be appropriately adjusted so as to be applicable, as nearly as
may reasonably be, to any shares of stock or other securities or property
thereafter deliverable on the conversion of the shares of Series A
Convertible Preferred Stock.
(iii) ROUNDING OF CALCULATIONS; MINIMUM ADJUSTMENT.
All calculations under this subparagraph (f) shall be made to the nearest
cent or to the nearest one hundredth (1/100th) of a share, as the case may
be. Any provision of this subparagraph (f) to the contrary notwithstanding,
no adjustment in the Conversion Price shall be made if the amount of such
adjustment would be less than $0.05, but any such amount shall be carried
forward and an adjustment with respect thereto shall be made at the time of
and together with any subsequent adjustment which, together with such amount
and any other amount or amounts so carried forward, shall aggregate $0.05 or
more.
(g) STATEMENT REGARDING ADJUSTMENTS. Whenever the Conversion
Price shall be adjusted as provided in subparagraph 4(f), the Corporation
shall forthwith file, at the office of any transfer agent for the Series A
Convertible Preferred Stock and at the principal office of the Corporation, a
statement showing in detail the facts requiring such adjustment and the
Conversion Price that shall be in effect after such adjustment, and the
Corporation shall also cause a copy of such statement to be sent by mail,
first class postage prepaid, to each holder of shares of Series A Convertible
Preferred Stock at its address appearing on the Corporation's records. Each
such statement shall be signed by the Corporation's independent public
accountants, if applicable. Where appropriate, such copy may be given in
advance and may be included as part of a notice required to be mailed under
the provisions of subparagraph 4(h).
(h) NOTICE TO HOLDERS. In the event the Corporation shall
propose to take any action of the type described in clause (f) which would
result in an adjustment in the Conversion Price), the Corporation shall give
notice to each holder of shares of Series A Convertible Preferred Stock, in
the manner set forth in subparagraph 4(g), which notice shall specify the
record date, if any, with respect to any such action and the approximate date
on which such action is to take place. Such notice shall also set forth such
facts with respect thereto as shall be reasonably necessary to indicate the
effect of such action (to the extent such effect may be known at the date of
such notice)
-6-
<PAGE>
on the Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable upon conversion of shares
of Series A Convertible Preferred Stock. In the case of any action which
would require the fixing of a record date, such notice shall be given at
least ten (10) days prior to the date so fixed, and in case of all other
action, such notice shall be given at least fifteen (15) days prior to the
taking of such proposed action. Failure to give such notice, or any defect
therein, shall not affect the legality or validity of any such action.
(i) TREASURY STOCK. For the purposes of this paragraph 4,
the sale or other disposition of Common Stock theretofore held in the
Corporation's treasury shall be deemed to be an issuance thereof.
(j) COSTS. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or
delivery of shares of Common Stock upon conversion of any shares of Series A
Convertible Preferred Stock; provided that the Corporation shall not be
required to pay any taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificate for such shares in a
name other than that of the holder of the shares of Series A Convertible
Preferred Stock in respect of which such shares are being issued.
(k) RESERVATION OF SHARES. The Corporation shall reserve at
all times so long as any shares of Series A Convertible Preferred Stock
remain outstanding, free from preemptive rights, out of its treasury stock
(if applicable) or its authorized but unissued shares of Common Stock, or
both, solely for the purpose of effecting the conversion of the shares of
Series A Convertible Preferred Stock, sufficient shares of Common Stock to
provide for the conversion of all outstanding shares of Series A Convertible
Preferred Stock.
(l) APPROVALS. If any shares of Common Stock to be reserved
for the purpose of conversion of shares of Series A Convertible Preferred
Stock require registration with or approval of any governmental authority
under any federal or state law before such shares may be validly issued or
delivered upon conversion, then the Corporation will in good faith and as
expeditiously as possible endeavor to secure such registration or approval,
as the case may be. If, and so long as, any Common Stock into which the
shares of Series A Convertible Preferred Stock are then convertible is listed
on any national securities exchange, the Corporation will, if permitted by
the rules of such exchange, list and keep listed on such exchange, upon
official notice of issuance, all shares of such Common Stock issuable upon
conversion.
(m) VALID ISSUANCE. All shares of Common Stock which may be
issued upon conversion of the shares of Series A Convertible Preferred Stock
will upon issuance by the Corporation be duly and validly issued, fully paid
and nonassessable
-7-
<PAGE>
and free from all taxes, liens and charges with respect to the issuance
thereof, and the Corporation shall take no action which will cause a contrary
result (including without limitation, any action which would cause the
Conversion Price to be less than the par value, if any, of the Common Stock).
5. PREFERENCE ON LIQUIDATION.
(a) In the event of any liquidation, dissolution, involuntary
or voluntary corporate reorganization under the federal bankruptcy laws or
similar state laws, or winding up of the Corporation, the holders of shares
of the Series A Convertible Preferred Stock then outstanding shall be
entitled to be paid out of the assets and surplus funds of the Corporation
available for distribution to its shareholders, and before any payment shall
be made to the holders of any shares of Common Stock, an amount equal to
$63.955 per share (or an aggregate of One Million Four Hundred Thirty-nine
Thousand ($1,439,000) with respect to Twenty-two Thousand Five Hundred
(22,500) shares) plus any declared and unpaid dividends thereon to the date
fixed for distribution. If upon any such liquidation, dissolution,
bankruptcy or winding up of the Corporation the assets and surplus funds of
the Corporation available for distribution to its shareholders shall be
insufficient to pay the holders of the Series A Convertible Preferred Stock
the full amounts to which they are entitled, the holders of the Series A
Convertible Preferred Stock shall share ratably in the distribution of such
assets and surplus funds in proportion to the full preferential amounts to
which each such holder is otherwise entitled.
(b) In the event payments provided for in subparagraph (a)
above shall have been made, the holders of the Common Stock shall be entitled
to share PRO RATA in all remaining assets and surplus funds of the
Corporation available for distribution to its shareholders; PROVIDED,
HOWEVER, that in the event of a voluntary corporate reorganization under the
federal bankruptcy law or similar state laws or a voluntary winding up, the
holders of the Preferred Stock and the Common Stock shall be entitled to
share PRO RATA on a per share basis (treating each share of Preferred Stock
as if converted into Common Stock) in all remaining assets and surplus funds
of the Corporation available for distribution to its shareholders.
(c) The merger or consolidation of the Corporation into or
with another corporation or other entity or any other corporate
reorganization in which the Corporation shall not be the continuing or
surviving entity of such consolidation, merger or reorganization, the sale of
all or substantially all the assets of the Corporation, or a transaction or
series of related transactions by the Corporation in which in excess of fifty
percent (50%) of the Corporation's voting power is transferred, shall not be
deemed to be a liquidation, dissolution or winding up of the Corporation.
-8-
<PAGE>
FOUR: The liability of the directors of the Corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
FIVE: The Corporation is authorized to indemnify the directors and
officers of the Corporation to the fullest extent permissible under California
law.
SIX: The amendment and restatement of the Articles of
Incorporation as herein set forth has been duly approved by the Board of
Directors.
The amendment and restatement herein set forth herein have been
duly approved by the required vote of shareholders in accordance with Section
903 of the California General Corporation Law. The total number of
outstanding shares of each class entitled to vote with respect to the
amendment was One Hundred Ninety-four Thousand (194,000) shares of Common
Stock and Six Thousand (6,000) shares of Class A Common Stock. The number of
shares of each class voting in favor of the amendment equal or exceeded the
vote required; the percentage vote required for each class entitled to vote
was more than fifty percent (50%).
-9-
<PAGE>
The undersigned declare under penalty of perjury under the laws of
the State of California that the matters set have executed this Certificate
of Amendment and Restatement this 21st day of April, 1998.
/s/ Richard B. Gordinier
----------------------------------------
Richard B. Gordinier, President
/s/ Jeffrey A. Wahba
----------------------------------------
Jeffrey A. Wahba, Secretary
The undersigned declare under penalty of perjury under the laws of
the State of California that each of them has read the foregoing certificate
and knows the contents thereof and that the matters set forth in such
certificate are true and correct of each of their own knowledge.
Dated: April 21, 1998
/s/ Richard B. Gordinier
----------------------------------------
Richard B. Gordinier, President
/s/ Jeffrey A. Wahba
----------------------------------------
Jeffrey A. Wahba, Secretary
-10-
<PAGE>
BYLAWS
OF
HENRY COMPANY
A California Corporation
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive
office of the corporation is hereby fixed and located at: 5608 Soto Street,
Huntington Park, California 90255. The board of directors is hereby granted
full power and authority to change said principal executive office from one
location to another. Any, such change shall be noted on the bylaws opposite
this Section, or this Section may be amended to state the new location.
SECTION 2. OTHER OFFICES. The board of directors may at any time
establish branch or subordinate offices at any place or places where the
corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of shareholders shall be
held at any place within or outside the State of California designated by the
board of directors or by the written consent of all persons entitled to vote
thereat, given either before or after the meeting and filed with the
secretary. In the absence of any such designation, shareholders' meetings
shall be held at the principal executive office of the corporation.
SECTION 2. ANNUAL MEETING. The annual meeting of shareholders shall
be held each year on the seventh Tuesday following March 31 at 2:00 o'clock
p.m. or on such other date or such other time as may be fixed by the board of
directors; provided, however, that the initial meeting shall be held within
fifteen (15) months after the organization of the corporation; and further
provided, that should said day fall upon a legal holiday, that any such
annual meeting of shareholders shall be held at the same time and place on
the next succeeding business day. If the date for the annual meeting is
designated by the board of directors, such date shall not be more than
fifteen (15) months after the date of the preceding annual meeting. At such
annual meeting, directors shall be elected and any other proper business may
be transacted.
<PAGE>
SECTION 3. SPECIAL MEETING. A special meeting of the shareholders
may be called at any time by the board of directors, or by the chairman of
the board, or by the president, or by one or more shareholders holding shares
in the aggregate entitled to cast not less than 10% of the votes at that
meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of
such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or
by telegraphic or other facsimile transmission to the chairman of the board,
the president, any vice president, or the secretary of the corporation. The
officer receiving the request shall cause notice to be promptly given to the
shareholders entitled to vote, in accordance with the provisions of Sections
4 and 5 of this Article, that a meeting will be held at the time requested by
the person or persons calling the meeting, not less than thirty-five (35) nor
more than sixty (60) days after the receipt of the request. If the notice is
not given within twenty (20) days after receipt of the request, the person or
persons requesting the meeting may give the notice. Nothing contained in
this paragraph of this Section shall be construed as limiting, fixing or
affecting the time when a meeting of shareholders called by action of the
board of directors may be held.
SECTION 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of
meetings of shareholders shall be sent or otherwise given in accordance with
Section 5 of this Article not less than ten (10) nor more than sixty (60)
days before the date of the meeting. The notice shall specify the place,
date and hour of the meeting and (i) in the case of a special meeting, the
general nature of the business to be transacted, or (ii) in the case of the
annual meeting, those matters which the board of directors, at the time of
giving the notice, intends to present for action by the shareholders. The
notice of any meeting at which directors are to be elected shall include the
name of any nominee or nominees whom, at the time of the notice, management
intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect
financial interest, pursuant to Section 310 of the Corporations Code of
California, (ii) an amendment of the articles of incorporation, pursuant to
Section 902 of that Code, (iii) a reorganization of the corporation, pursuant
to Section 1201 of that Code, (iv) a voluntary dissolution of the
corporation, pursuant to Section 1900 of that Code, or (v) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, pursuant to Section 2007 of that Code, the notice shall also state
the general nature of that proposal.
SECTION 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of
any meeting of shareholders shall be given either personally or by
first-class mail or telegraphic or other written communication, charges
prepaid, addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by first-class mail or telegraphic or other written
communication to the corporation's principal executive office, or if
published at least once in a newspaper of general circulation in the county
where that office is
2
<PAGE>
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting executed by the secretary, assistant secretary, or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
SECTION 6. QUORUM. The presence in person or by proxy of the holders
of a majority of the shares entitled to vote at any meeting of shareholders
shall constitute a quorum for the transaction of business. The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum, if any action taken (other
than adjournment) is approved by at least a majority of the shares required
to constitute a quorum.
SECTION 7. ADJOURNED MEETING; NOTICE. Any shareholders' meeting,
whether or not a quorum is present, may be adjourned from time to time by the
vote of the majority of the shares represented at that meeting, either in
person or by proxy, but in the absence of a quorum, no other business may be
transacted at that meeting, except as provided in Section 6 of this Article.
When any meeting of shareholders is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place are
announced at a meeting at which the adjournment is taken, unless a new record
date for the adjourned meeting is fixed, or unless the adjournment is for
more than forty-five (45) days in which case the board of directors shall set
a new record date. For any adjourned meeting requiring notice, such notice
shall be given to each shareholder of record entitled to vote at the
adjourned meeting in accordance with the provisions of Sections 4 and 5 of
this Article. At any adjourned meeting the corporation may transact any
business which might have been transacted at the original meeting.
SECTION 8. VOTING. The shareholders entitled to vote at any meeting
of shareholders shall be determined in accordance with the provisions of
Section 11 of this Article, subject to the provisions of the Corporations
Code of California relating to voting shares held by a fiduciary, in the name
of a corporation, or in joint ownership. The shareholders' vote may be by
voice vote or by ballot; provided, however, that any election for directors
must be by ballot if demanded by any shareholder before the voting has begun.
On any matter other than elections of directors, any shareholder may vote
part of the shares in favor of the proposal and refrain from voting the
remaining shares or vote them against the proposal, but, if the shareholder
fails to specify the number of shares which the shareholder is voting
affirmatively, it will be conclusively presumed that the shareholder's
approving vote is with respect to all shares that the shareholder is entitled
to vote. If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on any matter (other
than the election of directors) shall be the act of the shareholders, unless
the vote of a greater number or voting by classes is required by California
General Corporation Law or by the articles of incorporation.
3
<PAGE>
At a shareholders' meeting at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one or
more candidates a number of votes greater than the number of the
shareholder's shares) unless the candidates' names have been placed in
nomination prior to commencement of the voting and a shareholder has given
notice prior to commencement of the voting of the shareholder's intention to
cumulate votes. If any shareholder has given such a notice, then every
shareholder entitled to vote may cumulate votes for candidates in nomination
and give one candidate a number of votes equal to the number of directors to
be elected multiplied by the number of votes to which that shareholder's
shares are entitled, or distribute the shareholder's votes on the same
principle among any or all of the candidates, as the shareholder thinks fit.
The candidates receiving the highest number of votes, up to the number of
directors to be elected, shall be elected.
SECTION 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though
had at a meeting duly held after regular call and notice, if a quorum be
present either in person or by proxy, and if, either before or after the
meeting, each person entitled to vote, who was not present in person or by
proxy, signs a written waiver of notice or a consent to a holding of the
meeting, or an approval of the minutes. The waiver of notice or consent need
not specify either the business to be transacted or the purpose of any annual
or special meeting of shareholders, except that if action is taken or
proposed to be taken for approval of any of those matters specified in the
second paragraph of Section 4 of this Article, the waiver of notice or
consent shall state the general nature of the proposal. All such waivers,
consents or approvals shall be filed with the corporate records or made a
part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened, and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at the meeting.
SECTION 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the
holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take that action at a meeting
at which all shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be effective only
if signed by the holders of all outstanding shares entitled to vote for the
election of directors; provided, however, that a director may be elected at
any time to fill a vacancy on the board of directors that has not been filled
by the directors, by the written consent of the holders of a majority of the
outstanding shares entitled to vote for the election of directors. All such
consents shall be filed with the secretary of the corporation and shall be
maintained in the corporate records. Any shareholder giving a written
consent, or the shareholder's proxy holders, may revoke the consent by a
writing received by the secretary of the
4
<PAGE>
corporation before written consents of the number of shares required to
authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the secretary shall give prompt
notice of the corporate action approved by the shareholders without a
meeting. This notice shall be given in the manner specified in Section 5 of
this Article. In the case of approval of any action enumerated in Section 4
of this Article, the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval.
SECTION 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING
CONSENTS. For purposes of determining the shareholders entitled to notice of
any meeting or to vote or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days
before the date of any such meeting nor more than sixty (60) days before any
such action without a meeting, and in this event only shareholders of record
on the date so fixed are entitled to notice and to vote or to give consents,
as the case may be, notwithstanding any transfer of any shares on the books
of the corporation after the record date, except as otherwise provided in the
California General Corporation Law.
SECTION 12. PROXIES. Every person entitled to vote for directors or
on any other matter shall have the right to do so either in person or by one
or more agents authorized by a written proxy signed by the person and filed
with the secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the shareholder or
the shareholder's attorney in fact. A validly executed proxy which does not
state that it is irrevocable shall continue in full force and effect unless
(i) revoked by the person executing it, before the vote pursuant to that
proxy, by a writing delivered to the corporation stating that the proxy is
revoked, or by a subsequent proxy executed by, or attendance at the meeting
and voting in person by, the person executing the proxy; or (ii) written
notice of the death or incapacity of the maker of that proxy is received by
the corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven (11)
months from the date of the proxy, unless otherwise provided in the proxy.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Subject to the provisions of the California
General Corporation Law and any limitations in the articles of incorporation
and these bylaws relating to action required to be approved by the
shareholders or by the outstanding shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by
or under the direction of the board of directors.
5
<PAGE>
Without prejudice to these general powers, and subject to the same
limitations, the directors shall have the power to:
(a) Select and remove all officers, agents, and employees of the
corporation; prescribe any powers and duties for them that are consistent
with law, with the articles of incorporation, and with these bylaws; fix
their compensation; and require from them security for faithful service.
(b) Change the principal executive office or the principal business
office in the State of California from one location to another; cause the
corporation to be qualified to do business in any other state, territory,
dependency, or country and conduct business within or without the State of
California; and designate any place within or without the State of California
for the holding of any shareholders' meeting, or meetings, including annual
meetings.
(c) Adopt, make, and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates.
(d) Authorize the issuance of shares of stock of the corporation on any
lawful terms, in consideration of money paid, labor done, services actually
rendered, debts or securities cancelled, or tangible or intangible property,
actually received.
(e) Borrow money and incur indebtedness on behalf of the corporation,
and cause to be executed and delivered for the corporation's purposes, in the
corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations, and other evidences of debt and
securities.
SECTION 2. NUMBER AND QUALIFICATION OF DIRECTORS. The number of
directors shall be nine (9) until changed by a bylaw amending this Section,
duly adopted by the board of directors or by the shareholders.
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors
shall be elected at each annual meeting of the shareholders to hold office
until the next annual meeting. Each director, including a director elected
to fill a vacancy, shall hold office until the expiration of the term for
which elected and until a successor has been elected and qualified. If any
such annual meeting is not held, or the directors are not elected thereat,
the directors may be elected at any special meeting of the shareholders for
that purpose.
SECTION 4. VACANCIES. Vacancies on the board of directors may be
filled by a majority of the remaining directors, though less than a quorum,
or by a sole remaining director, except that a vacancy created by the removal
of a director by the vote or written consent of the shareholders or by court
order may be filled only by the vote of a majority of the shares entitled to
vote represented at a duly held meeting at which a quorum is present, or by
the written consent of holders of a majority of the outstanding shares
entitled to vote. Each director so elected shall hold office until the next
annual meeting of the shareholders and until a successor has been elected and
qualified.
6
<PAGE>
A vacancy or vacancies on the board of directors shall be deemed to
exist in the event of the death, resignation, or removal of any director, or
if the board of directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or
convicted of a felony, or if the authorized number of directors is increased,
or if the shareholders fail, at any meeting of shareholders at which any
director or directors are elected, to elect the number of directors to be
voted for at that meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election
by written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary, or the board of
directors, unless the notice specifies a later time for that resignation to
become effective. If the resignation of a director is effective at a future
time, the board of directors may elect a successor to take office when the
resignation becomes effective.
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.
SECTION 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular
meetings of the board of directors may be held at any place within or outside
the State of California that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board shall be held at any place within or outside
the State of California that has been designated in the notice of the meeting
or, if not stated in the notice or there is no notice, at the principal
executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in
the meeting can hear one another, and all such directors shall be deemed to
be present in person at the meeting.
SECTION 6. ANNUAL MEETING. Immediately following each annual
meeting of shareholders, the board of directors shall hold a regular meeting
for the purpose of organization, any desired election of officers, and the
transaction of other business. Notice of this meeting shall not be required.
SECTION 7. SPECIAL MEETINGS. Special meetings of the board of
directors for any purpose or purposes may be called at any time by the
chairman of the board or the president or any vice president or the secretary
or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. In case the notice
is mailed, it shall be deposited in the United States mail at least four (4)
days before the time of the holding of the meeting. In case the notice is
delivered personally, or by telephone or
7
<PAGE>
telegram, it shall be delivered personally or by telephone or to the
telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may
be communicated either to the director or to a person at the office of the
director who the person giving the notice has reason to believe will promptly
communicate it to the director. The notice need not specify the purpose of
the meeting nor the place if the meeting is to be held at the principal
executive office of the corporation.
SECTION 8. QUORUM. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn
as provided in Section 10 of this Article. Every act or decision done or
made by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the board of directors,
subject to the provisions of the Corporations Code of California as to
approval of contracts or transactions in which a director has a direct or
indirect material financial interest; appointment of committees; and
indemnification of directors. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the
required quorum for that meeting.
SECTION 9. WAIVER OF NOTICE. The transactions of any meeting of the
board of directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly hold after regular call and notice if a
quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding
the meeting or an approval of the minutes. The waiver of notice or consent
need not specify the purpose of the meeting. All such waivers, consents, and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Notice of a meeting shall also be deemed given to
any director who attends the meeting without protesting before or at its
commencement, the lack of notice to that director.
SECTION 10. ADJOURNMENT. A majority of the directors present,
whether or not constituting a quorum, may adjourn any meeting to another time
and place.
SECTION 11. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given, unless the meeting is
adjourned for more than twenty-four hours, in which case notice of the time
and place shall be given before the time of the adjourned meeting in the
manner specified in Section 8 of this Article, to the directors who were not
present at the time of the adjournment.
SECTION 12. ACTION WITHOUT MEETING. Any action required or permitted
to be taken by the board of directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same force and
effect as a unanimous vote of the board of directors. Such written consent
or consents shall be filed with the minutes of the proceedings of the board.
SECTION 13. FEES AND COMPENSATION OF DIRECTORS. Directors and
members of committees may receive such compensation, if any, for their
services, and such reimbursement of expenses, as may be fixed or determined
by resolution of the board of directors.
8
<PAGE>
This Section shall not be construed to preclude any director from serving the
corporation in any other capacity as an officer, agent, employee or
otherwise, and receiving compensation for those services.
SECTION 14. COMMITTEES OF DIRECTORS. The board of directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors,
to serve at the pleasure of the board. Any committee, to the extent provided
in the resolution of the board, shall have all the authority of the board,
except as limited by the Corporations Code of California
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the corporation shall be a
president, a secretary and a chief financial officer, who may also be a
treasurer. The corporation may also have, at the discretion of the board of
directors, a chairman of the board, one or more vice chairmen of the board,
one or more vice presidents, one or more assistant secretaries, a treasurer
and one or more assistant treasurers, a controller and such other officers as
may be appointed in accordance with the provisions of Section 3 of this
Article. Any number of offices may be held by the same person. Unless the
board of directors determines otherwise, if there is a chairman, he shall be
the chief executive officer. In such case, the president at the discretion
of the board may be named the chief operating officer. If there is no
chairman, the president shall be the chief executive officer.
SECTION 2. ELECTION OF OFFICERS. The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article, shall be chosen by the board of
directors, and each shall serve at the pleasure of the board, subject to the
rights, if any, of an officer under any contract of employment.
SECTION 3. SUBORDINATE OFFICERS. The board of directors may elect,
and may empower the president to appoint, such other officers as the business
of the corporation may require, each of whom shall hold office for such
period, have such authority and perform such duties as are provided in the
bylaws or as the board of directors may from time to time determine.
SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the
rights, if any, of an officer under any contract of employment, any officer
may be removed, either with or without cause, by the board of directors, at
any regular or special meeting of the board, or, except in case of an officer
chosen by the board of directors, by any officer upon whom such power of
removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall
not be necessary to make it effective.
9
<PAGE>
SECTION 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be
filled in the manner prescribed in these bylaws for regular appointments to
that office.
SECTION 6. CHIEF EXECUTIVE OFFICER. The chief executive officer
shall, subject to the control of the board of directors, have general
supervision, direction and control of the business and of the other officers
of the corporation. He shall have the general powers and duties of
management usually vested in the office of the chief executive of a
corporation, and shall have such other powers and duties as may be prescribed
by the board of directors or the bylaws.
SECTION 7. CHAIRMAN OF THE BOARD. If a chairman of the board is
elected, (unless the board of directors determines otherwise,) he shall be,
and shall perform all the duties of the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and of the
board of directors, and shall perform such other duties as may be prescribed
by the board of directors or by the bylaws.
SECTION 8. VICE CHAIRMAN OF THE BOARD. Any vice chairman of the
board, if such an officer or officers be elected, shall, if present and in
the absence of the chairman, preside at meetings of the stockholders and of
the board of directors and have and exercise such other powers and duties as
may from time to time be assigned to him by the board of directors or
prescribed by the bylaws.
SECTION 9. PRESIDENT. The president shall, subject to the control
of the chairman, if there be a chairman, and of the board of directors, be
the chief operating officer and general manager of the corporation, and, as
such, exercise specific supervision, direction, and control of the business
and of the subordinate officers of the corporation.
SECTION 10. VICE PRESIDENTS. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by
the board of directors, or if not ranked, a vice president designated by the
board of directors, shall perform all the duties of the president, and when
so acting shall have all the powers of, and be subject to all the
restrictions upon, the president. The vice presidents shall have such other
powers and perform such other duties as from time to time may be prescribed
for them respectively by the board of directors or the bylaws.
SECTION 11. SECRETARY. The secretary shall keep or cause to be kept,
at the principal executive office or such other place as the board of
directors may direct, copies of the articles of incorporation and bylaws of
the corporation, and a book of minutes of all meetings and actions of
directors, committees of directors, and shareholders, with the time and place
of holding, whether regular or special, and, if special, how authorized, the
notice given, the names of those present at directors' meetings or committee
meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all
shareholders and
10
<PAGE>
their addresses, the number and date of certificates issued for the same, and
the number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required by the bylaws or
by law to be given, and he shall keep the seal of the corporation if one be
adopted, in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or by the bylaws.
SECTION 12. CHIEF FINANCIAL OFFICER. The chief financial officer,
who may also be the treasurer and/or controller, shall keep and maintain, or
cause to be kept and maintained, adequate and correct books and records of
accounts of the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital, retained earnings, and shares. The books of account
shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables
in the name and to the credit of the corporation with such depositaries as
may be designated by the board of directors. He shall disburse the funds of
the corporation as may be ordered by the board of directors. He shall render
to the president, chairman, if there be a chairman, and directors, whenever
they request it, an account of all of his transactions as chief financial
officer and of the financial condition of the corporation. He shall have
such other powers and perform such other duties as may be prescribed by the
board of directors or the bylaws.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
SECTION 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The
corporation shall, to the maximum extent permitted by the California General
Corporation Law, indemnify each of its directors and officers against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of
the fact that any such person is or was a director or officer of the
corporation. For purposes of this Section, a "director or officer" of the
corporation includes any person who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership,
joint venture, trust, or any other enterprise.
SECTION 2. INDEMNIFICATION OF OTHER AGENTS. The corporation may, to
the maximum extent permitted by the California General Corporation Law,
indemnify any other agents not included within the scope of Section 1 of this
Article against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact any such person is or was an agent of the corporation.
For purposes of this Section, "other agent" of the corporation includes any
person who is or was
11
<PAGE>
an employee or other agent of the corporation, or is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or was a director,
officer, employee, or agent of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of
such predecessor corporation.
ARTICLE VI
RECORDS AND REPORTS
SECTION 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The
corporation shall keep at its principal executive office, or at the office of
its transfer agent or registrar, if either be appointed and as determined by
resolution of the board of directors, a record of its shareholders, giving
the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least
five percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders' names and
addresses and shareholdings during usual business hours on five days prior
written demand on the corporation, and (ii) obtain from the transfer agent of
the corporation, on written demand and on the tender of such transfer agent's
usual charges for such list, a list of the shareholders' names and addresses,
who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of
demand. This list shall be made available to any such shareholder by the
transfer agent on or before the later of five (5) days after the demand is
received or the date specified in the demand as the date as of which the list
is to be compiled. The record of shareholders shall also be open to
inspection on the written demand of any shareholder or holder of a voting
trust certificate, at any time during usual business hours, for a purpose
reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. Any inspection and copying under this
Section may be made in person or by an agent or attorney of the shareholder
or holder of a voting trust certificate making the demand.
SECTION 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation
shall keep at its principal executive office, or if its principal executive
office is not in the State of California, at its principal business office in
this state, the original or a copy of the bylaws as amended to date, which
shall be open to inspection by the shareholders at all reasonable times
during office hours. If the principal executive office of the corporation is
outside the State of California and the corporation has no principal business
office in this state, the secretary shall, upon the written request of any
shareholder, furnish to that shareholder a copy of the bylaws as amended to
date.
SECTION 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.
The accounting books and records and minutes of proceedings of the
shareholders
12
<PAGE>
and the board of directors and any committee or committees of the board of
directors shall be kept at such place or places designated by the board of
directors, or, in the absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form. The minutes and
accounting books and records shall be open to inspection upon the written
demand of any shareholder or holder of a voting trust certificate, at any
reasonable time during usual business hours, for a purpose reasonably related
to the holder's interests as a shareholder or as a holder of a voting trust
certificate. The inspection may be made in person or by an agent or
attorney, and shall include the right to copy and make extracts. These
rights of inspection shall extend to the records of each subsidiary
corporation of the corporation.
SECTION 4. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the corporation and
each of its subsidiary corporations. This inspection by a director may be
made in person or by an agent or attorney and the right of inspection
includes the right to copy and make extracts of documents.
SECTION 5. ANNUAL REPORT TO SHAREHOLDERS. The annual report to
shareholders referred to in Section 1501 of the California General
Corporation Law is expressly dispensed with, but nothing herein shall be
interpreted as prohibiting the board of directors from issuing annual or
other periodic reports to the shareholders of the corporation as they
consider appropriate.
SECTION 6. FINANCIAL STATEMENTS. A copy of any annual financial
statement and any income statement of the corporation for each quarterly
period of each fiscal year, and any accompanying balance sheet of the
corporation as of the end of each such period, that has been prepared by the
corporation shall be kept on file in the principal executive office of the
corporation for twelve (12) months.
ARTICLE VII
GENERAL CORPORATE MATTERS
SECTION 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.
For purposes of determining the shareholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action
by shareholders by written consent without a meeting), the board of directors
may fix, in advance, a record date, which shall not be more than sixty (60)
days before any such action, and in that case only shareholders of record on
the date so fixed are entitled to receive the dividend, distribution, or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation
after the record date so fixed, except as otherwise provided in the
California General Corporation Law.
13
<PAGE>
If the board of directors does not so fix a record date, the record
date for determining shareholders for any such purpose shall be at the close
of business on the day on which the board adopts the applicable resolution or
the sixtieth (60th) day before the date of that action, whichever is later.
SECTION 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes, or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons in such manner as, from time to
time, shall be determined by resolution of the board of directors.
SECTION 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
board of directors, except as otherwise provided in these by-laws, may
authorize any officer or officers, agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation, and this authority may be general or confined to specific
instances; and, unless so authorized or ratified by the board of directors or
within the agency power of an officer, no officer, agent, or employee shall
have any power or authority to bind the corporation by any contract or
engagement or to pledge its credit or to render it liable for any purpose or
for any amount.
SECTION 4. CERTIFICATES OF STOCK. Every holder of shares of the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the chairman of the board or the president or a vice
president, and by the chief financial officer or an assistant treasurer or
the secretary or an assistant secretary, certifying the number of shares and
the class or series of shares owned by the shareholder. Any or all of the
signatures on the certificate may be a facsimile. If any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by
the corporation with the same effect as if such person were an officer,
transfer agent, or registrar at the date of issue.
Certificates for shares may be issued prior to full payment under such
restrictions and for such purposes as the board of directors may provide;
provided, however, that on any certificates issued to represent any partly
paid shares, the total amount of the consideration to be paid therefor and
the amount paid thereon shall be stated.
SECTION 5. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
chairman of the board, the president or any vice president, or any other
person authorized by resolution of the board of directors or by any of the
foregoing designated officers, is authorized to vote on behalf of the
corporation any and all shares of any other corporation or corporations,
foreign or domestic, standing in the name of the corporation. The authority
granted to these officers to vote or represent on behalf of the corporation
any and all shares held by the corporation in any other corporation or
corporations may be exercised by any of these officers in person or by any
person authorized to do so by a proxy duly executed by these officers.
14
<PAGE>
SECTION 6. CONSTRUCTION AND DEFINITIONS. Unless the context
requires otherwise, the general provisions, rules of construction, and
definitions in the California General Corporation Law shall govern the
construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and
a natural person.
ARTICLE VIII
AMENDMENTS
SECTION 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or
these bylaws may be amended or repealed by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote; provided,
however, that if the articles of incorporation of the corporation set forth
the number of authorized directors of the corporation, the authorized number
of directors may be changed only by an amendment of the articles of
incorporation.
SECTION 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
shareholders as provided in Section 1 of this Article, to adopt, amend, or
repeal bylaws, bylaws may be adopted, amended, or repealed by the board of
directors.
15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HENRY COMPANY, as Issuer,
each of the Guarantors named herein
and
U.S. Trust Company of California, N.A.
as Trustee
--------------------
INDENTURE
Dated as of April 22, 1998
--------------------
up to $150,000,000
10% Senior Notes due 2008, Series A
10% Senior Notes due 2008, Series B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
------- ---------
<S> <C>
310(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.08; 7.10;
11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 11.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.06; 4.08;
11.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence). . . . . . . . . . . . . . . . . . . . . . 2.09
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.04
317(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
</TABLE>
N.A. means Not Applicable.
- -----------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.. . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Incorporation by Reference of TIA.. . . . . . . . . . . . . 26
SECTION 1.03. Rules of Construction.. . . . . . . . . . . . . . . . . . . 26
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.. . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.02. Execution and Authentication; Aggregate Principal Amount. . 28
SECTION 2.03. Registrar and Paying Agent. . . . . . . . . . . . . . . . . 29
SECTION 2.04. Paying Agent To Hold Assets in Trust. . . . . . . . . . . . 30
SECTION 2.05. Holder Lists. . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.06. Transfer and Exchange.. . . . . . . . . . . . . . . . . . . 31
SECTION 2.07. Replacement Notes.. . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.08. Outstanding Notes.. . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.09. Treasury Notes. . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.10. Temporary Notes.. . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.11. Cancellation. . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.12. Defaulted Interest. . . . . . . . . . . . . . . . . . . . . 34
SECTION 2.13. CUSIP Numbers.. . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 2.14. Deposit of Monies.. . . . . . . . . . . . . . . . . . . . . 35
SECTION 2.15. Restrictive Legends.. . . . . . . . . . . . . . . . . . . . 35
SECTION 2.16. Book-Entry Provisions for Global Security . . . . . . . . . 37
SECTION 2.17. Special Transfer Provisions.. . . . . . . . . . . . . . . . 39
ARTICLE THREE
REDEMPTION
SECTION 3.01 Notices to Trustee. . . . . . . . . . . . . . . . . . . . . 41
SECTION 3.02. Selection of Notes To Be Redeemed.. . . . . . . . . . . . . 42
SECTION 3.03. Optional Redemption.. . . . . . . . . . . . . . . . . . . . 43
SECTION 3.04. Notice of Redemption. . . . . . . . . . . . . . . . . . . . 43
SECTION 3.05. Effect of Notice of Redemption. . . . . . . . . . . . . . . 45
SECTION 3.06. Deposit of Redemption Price.. . . . . . . . . . . . . . . . 45
SECTION 3.07. Notes Redeemed in Part. . . . . . . . . . . . . . . . . . . 45
-i-
<PAGE>
<CAPTION>
Page
----
<S> <C>
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes. . . . . . . . . . . . . . . . . . . . . . 46
SECTION 4.02. Maintenance of Office or Agency.. . . . . . . . . . . . . . 46
SECTION 4.03. Corporate Existence.. . . . . . . . . . . . . . . . . . . . 46
SECTION 4.04. Payment of Taxes and Other Claims.. . . . . . . . . . . . . 47
SECTION 4.05. Maintenance of Properties and Insurance.. . . . . . . . . . 47
SECTION 4.06. Compliance Certificate; Notice of Default.. . . . . . . . . 48
SECTION 4.07. Compliance with Laws. . . . . . . . . . . . . . . . . . . . 49
SECTION 4.08. Reports to Holders. . . . . . . . . . . . . . . . . . . . . 49
SECTION 4.09. Waiver of Stay, Extension or Usury Laws.. . . . . . . . . . 49
SECTION 4.10. Limitation on Restricted Payments.. . . . . . . . . . . . . 50
SECTION 4.11. Limitations on Transactions with Affiliates.. . . . . . . . 52
SECTION 4.12. Limitation on Incurrence of Additional Indebtedness.. . . . 53
SECTION 4.13. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries.. . . . . . . . . . . . . . . . 54
SECTION 4.14. Change of Control.. . . . . . . . . . . . . . . . . . . . . 55
SECTION 4.15. Limitation on Asset Sales.. . . . . . . . . . . . . . . . . 57
SECTION 4.16. Limitation on Preferred Stock of Restricted Subsidiaries. . 59
SECTION 4.17. Limitation on Liens.. . . . . . . . . . . . . . . . . . . . 59
SECTION 4.18. Additional Subsidiary Guarantees. . . . . . . . . . . . . . 60
SECTION 4.19. Conduct of Business.. . . . . . . . . . . . . . . . . . . . 60
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets. . . . . . . . . . 60
SECTION 5.02. Successor Corporation Substituted.. . . . . . . . . . . . . 62
ARTICLE SIX
REMEDIES
SECTION 6.01. Events of Default.. . . . . . . . . . . . . . . . . . . . . 62
SECTION 6.02. Acceleration. . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 6.03. Other Remedies. . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 6.04. Waiver of Past Defaults.. . . . . . . . . . . . . . . . . . 65
SECTION 6.05. Control by Majority.. . . . . . . . . . . . . . . . . . . . 66
-ii-
<PAGE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.06. Limitation on Suits.. . . . . . . . . . . . . . . . . . . . 66
SECTION 6.07. Right of Holders To Receive Payment.. . . . . . . . . . . . 67
SECTION 6.08. Collection Suit by Trustee. . . . . . . . . . . . . . . . . 67
SECTION 6.09. Trustee May File Proofs of Claim. . . . . . . . . . . . . . 67
SECTION 6.10. Priorities. . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 6.11. Undertaking for Costs.. . . . . . . . . . . . . . . . . . . 68
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.. . . . . . . . . . . . . . . . . . . . . 69
SECTION 7.02. Rights of Trustee.. . . . . . . . . . . . . . . . . . . . . 70
SECTION 7.03. Individual Rights of Trustee. . . . . . . . . . . . . . . . 71
SECTION 7.04. Trustee's Disclaimer. . . . . . . . . . . . . . . . . . . . 72
SECTION 7.05. Notice of Default.. . . . . . . . . . . . . . . . . . . . . 72
SECTION 7.06. Reports by Trustee to Holders.. . . . . . . . . . . . . . . 72
SECTION 7.07. Compensation and Indemnity. . . . . . . . . . . . . . . . . 73
SECTION 7.08. Replacement of Trustee. . . . . . . . . . . . . . . . . . . 74
SECTION 7.09. Successor Trustee by Merger, Etc. . . . . . . . . . . . . . 75
SECTION 7.10. Eligibility; Disqualification.. . . . . . . . . . . . . . . 75
SECTION 7.11. Preferential Collection of Claims Against Company.. . . . . 75
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of Company's Obligations. . . . . . . . . . . . 76
SECTION 8.02. Application of Trust Money. . . . . . . . . . . . . . . . . 78
SECTION 8.03. Repayment to the Company. . . . . . . . . . . . . . . . . . 79
SECTION 8.04. Reinstatement.. . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 8.05. Acknowledgment of Discharge by Trustee. . . . . . . . . . . 80
ARTICLE NINE
MODIFICATION OF THE INDENTURE
SECTION 9.01. Without Consent of Holders. . . . . . . . . . . . . . . . . 80
SECTION 9.02. With Consent of Holders.. . . . . . . . . . . . . . . . . . 81
SECTION 9.03. Compliance with TIA.. . . . . . . . . . . . . . . . . . . . 82
SECTION 9.04. Revocation and Effect of Consents.. . . . . . . . . . . . . 82
SECTION 9.05. Notation on or Exchange of Notes. . . . . . . . . . . . . . 83
SECTION 9.06. Trustee To Sign Amendments, Etc.. . . . . . . . . . . . . . 83
-iii-
<PAGE>
<CAPTION>
Page
----
<S> <C>
ARTICLE TEN
GUARANTEE OF NOTES
SECTION 10.01. Unconditional Guarantee.. . . . . . . . . . . . . . . . . . 84
SECTION 10.02. Limitations on Guarantees.. . . . . . . . . . . . . . . . . 86
SECTION 10.03. Execution and Delivery of Guarantee.. . . . . . . . . . . . 86
SECTION 10.04. Release of Guarantors.. . . . . . . . . . . . . . . . . . . 86
SECTION 10.05. Waiver of Subrogation.. . . . . . . . . . . . . . . . . . . 87
SECTION 10.06. Immediate Payment.. . . . . . . . . . . . . . . . . . . . . 88
SECTION 10.07. Obligations Continuing. . . . . . . . . . . . . . . . . . . 88
SECTION 10.08. Obligations Reinstated. . . . . . . . . . . . . . . . . . . 88
SECTION 10.09. Obligations Not Affected. . . . . . . . . . . . . . . . . . 88
SECTION 10.10. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 10.11. No Obligation To Take Action Against the Company. . . . . . 89
SECTION 10.12. Dealing with the Company and Others.. . . . . . . . . . . . 89
SECTION 10.13. Default and Enforcement.. . . . . . . . . . . . . . . . . . 90
SECTION 10.14. Amendment, Etc. . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 10.15. Acknowledgment. . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 10.16. Costs and Expenses. . . . . . . . . . . . . . . . . . . . . 90
SECTION 10.17. No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . 90
SECTION 10.18. Survival of Obligations.. . . . . . . . . . . . . . . . . . 91
SECTION 10.19. Guarantee in Addition to Other Obligations. . . . . . . . . 91
SECTION 10.20. Severability. . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 10.21. Successors and Assigns. . . . . . . . . . . . . . . . . . . 91
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TIA Controls. . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 11.02. Notices.. . . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 11.03. Communications by Holders with Other Holders. . . . . . . . 93
SECTION 11.04. Certificate and Opinion as to Conditions Precedent. . . . . 93
SECTION 11.05. Statements Required in Certificate or Opinion.. . . . . . . 94
SECTION 11.06. Rules by Trustee, Paying Agent, Registrar.. . . . . . . . . 94
SECTION 11.07. Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . 94
SECTION 11.08. Governing Law.. . . . . . . . . . . . . . . . . . . . . . . 94
SECTION 11.09. No Adverse Interpretation of Other Agreements.. . . . . . . 95
SECTION 11.10. No Personal Liability.. . . . . . . . . . . . . . . . . . . 95
SECTION 11.11. Successors. . . . . . . . . . . . . . . . . . . . . . . . . 95
SECTION 11.12. Duplicate Originals.. . . . . . . . . . . . . . . . . . . . 95
-iv-
<PAGE>
<CAPTION>
Page
----
<S> <C>
SECTION 11.13. Severability. . . . . . . . . . . . . . . . . . . . . . . . 95
SECTION 11.14. Independence of Covenants.. . . . . . . . . . . . . . . . . 95
Exhibit A - Form of Initial Note. . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B - Form of Exchange Note . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C Form of Certificate To Be Delivered in Connection with
Transfers to Non-QIB Accredited Investors . . . . . . . . . C-1
Exhibit D - Form of Certificate To Be Delivered in Connection with
Transfers Pursuant to Regulation S. . . . . . . . . . . . . D-1
Exhibit E - Form of Guarantee . . . . . . . . . . . . . . . . . . . . . . E-1
</TABLE>
Note: This Table of Contents shall not, for any purpose, be deemed to be
part of the Indenture
-v-
<PAGE>
INDENTURE, dated as of April 22, 1998, among HENRY COMPANY, a
California corporation (the "Company"), each of the Guarantors named herein (the
"Guarantors"), as guarantors, and U.S. Trust Company of California, N.A., as
Trustee (the "Trustee").
The Company has duly authorized the creation of an issue of 10%
Senior Notes due 2008, Series A, and 10% Senior Notes due 2008, Series B, to be
issued in exchange for the 10% Senior Notes due 2008, Series A, pursuant to a
Registration Rights Agreement (as defined) and, to provide therefor, the Company
has duly authorized the execution and delivery of this Indenture. All things
necessary to make the Notes (as defined), when duly issued and executed by the
Company and authenticated and delivered hereunder, the valid and binding
obligations of the Company and to make this Indenture a valid and binding
agreement of the Company, have been done.
Each party hereto agrees as follows for the benefit of the other
parties and for the equal and ratable benefit of the Holders of the Company's
10% Senior Notes due 2008, Series A and Series B:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of
its Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary of the Company or at the time it merges or consolidates with the
Company or any of its Subsidiaries or assumed in connection with the acquisition
of assets from such Person and in each case not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"AFFILIATE" means, with respect to any specified Person, any
other Person who directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such specified
Person. The term "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative of the foregoing.
<PAGE>
"AFFILIATE TRANSACTION" has the meaning provided in Section
4.11.
"AGENT" means any Registrar, Paying Agent or co-Registrar.
"AGENT MEMBERS" has the meaning provided in Section 2.16.
"ASSET ACQUISITION" means (a) an Investment by the Company or
any Restricted Subsidiary of the Company in any other Person pursuant to which
such Person shall become a Restricted Subsidiary of the Company or any
Restricted Subsidiary of the Company, or shall be merged with or into the
Company or any Restricted Subsidiary of the Company, or (b) the acquisition by
the Company or any Restricted Subsidiary of the Company of the assets of any
Person (other than a Restricted Subsidiary of the Company) which constitute all
or substantially all of the assets of such Person or comprise any division or
line of business of such Person or any other properties or assets of such Person
other than in the ordinary course of business.
"ASSET SALE" means any direct or indirect sale, issuance,
conveyance, transfer, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by the
Company or any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company of (a) any Capital Stock of any Restricted Subsidiary
of the Company; or (b) any other property or assets of the Company or any
Restricted Subsidiary of the Company other than in the ordinary course of
business; PROVIDED, HOWEVER, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration of less than $500,000
and (ii) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company as permitted under Section 5.01.
"AUTHENTICATING AGENT" has the meaning provided in Section 2.02.
"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar
Federal, state or foreign law for the relief of debtors.
"BOARD OF DIRECTORS" means, as to any Person, the board of
directors of such Person or any duly authorized committee thereof.
-2-
<PAGE>
"BOARD RESOLUTION" means, with respect to any Person, a copy of
a resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
any other day on which commercial banking institutions in the City of New York
are required or authorized by law or other governmental action to be closed.
"CANADIAN CREDIT FACILITY" means the Credit Agreement dated as
of February 27, 1995, between Bakor Holdings Inc. and National Bank of Canada,
together with the related documents thereto (including, without limitation, any
guarantee agreements and security documents), in each case as such agreements
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder (PROVIDED that such
increase in borrowings is permitted by Section 4.12) or adding Restricted
Subsidiaries of the Company as additional borrowers or guarantors thereunder)
all or any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"CAPITAL STOCK" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person, and (ii) with
respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"CASH EQUIVALENTS" means (i) marketable direct obligations
issued by, or unconditionally guaranteed by, the United States Government or
issued by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof; (ii) marketable direct obligations issued by any state of
the
-3-
<PAGE>
United States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Corporation ("S&P") or
Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no
more than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America or any state thereof or the District of
Columbia or any U.S. branch of a foreign bank or (with respect to any Restricted
Subsidiary) any foreign country in which such Restricted Subsidiary is
principally located, having at the date of acquisition thereof combined capital
and surplus of not less than $250,000,000; (v) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; (vi) in the case of any foreign
Restricted Subsidiary, Investments: (a) in direct obligations of the sovereign
nation (or any agency thereof) in which such foreign Restricted Subsidiary is
organized or is conducting a substantial amount of business or in obligations
fully and unconditionally guaranteed by such sovereign nation (or any agency
thereof), (b) of the type and maturity described in clauses (i) through
(v) above of foreign obligors, which Investments or obligors (or the parents of
such obligors) have ratings described in such clauses or equivalent ratings from
comparable foreign rating agencies or (c) of the type and maturity described in
clauses (i) through (v) above of foreign obligors (or the parents of such
obligors), which Investments or obligors (or the parents of such obligors), are
not rated as provided in such clauses or in clause (vi) (b) but which are, in
the reasonable judgment of the Company, comparable in investment quality to such
Investments and obligors (or the parents of such obligors); and
(vii) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (i) through (vi) above.
"CERTIFICATED SECURITIES" means Notes in definitive registered
form.
"CHANGE OF CONTROL" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance
-4-
<PAGE>
with the provisions of the Indenture); (ii) the approval by the holders of
Capital Stock of the Company of any plan or proposal for the liquidation or
dissolution of the Company (whether or not otherwise in compliance with the
provisions of the Indenture); (iii) any Person or Group (other than the
Permitted Holders) shall become the owner, directly or indirectly, beneficially
or of record, of shares representing more than 50% of the aggregate ordinary
voting power represented by the issued and outstanding Capital Stock of the
Company; or (iv) the replacement of a majority of the Board of Directors of the
Company over a two-year period from the directors who constituted the Board of
Directors of the Company at the beginning of such period, and such replacement
shall not have been approved by a vote of at least a majority of the Board of
Directors of the Company then still in office who either were members of such
Board of Directors at the beginning of such period or whose election as a member
of such Board of Directors was previously so approved.
"CHANGE OF CONTROL OFFER" has the meaning provided in
Section 4.14.
"CHANGE OF CONTROL PAYMENT DATE" has the meaning provided in
Section 4.14.
"COMMISSION" means the U.S. Securities and Exchange Commission.
"COMMON STOCK" of any Person means any and all shares, interests
or other participations in, and other equivalents (however designated and
whether voting or non-voting) of, such Person's common stock, whether
outstanding on the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
"COMPANY" means Henry Company, a California corporation.
"CONSOLIDATED EBITDA" means, with respect to any Person, for any
period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to
the extent Consolidated Net Income has been reduced thereby, (A) all income
taxes of such Person and its Restricted Subsidiaries paid or accrued in
accordance with GAAP for such period (other than income taxes attributable to
extraordinary, unusual or nonrecurring gains or losses or taxes attributable to
sales or dispositions outside the ordinary course of business), (B) Consolidated
Interest Expense and (C) Consolidated Non-cash Charges (1) LESS any non-cash
items increasing Consolidated Net Income for such period (but not including
non-cash income recognized under the Company's warranty programs where such
income reflects cash al-
-5-
<PAGE>
ready or simultaneously received by the Company), and (2) LESS any cash payments
of prior accruals under the caption "accounting method change -non-cash
environmental charge," as set forth in the Consolidated Statements of Operations
of Monsey Products Co. for the year ended December 31, 1997, all as determined
on a consolidated basis for such Person and its Restricted Subsidiaries in
accordance with GAAP.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect
to any Person, the ratio of Consolidated EBITDA of such Person during the four
full fiscal quarters (the "Four Quarter Period") ending on or prior to the date
of the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a PRO
FORMA basis for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness of such Person or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (ii) any
asset sales or other distribution or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any Consolidated EBITDA (provided that such
Consolidated EBITDA shall be included only to the extent includible pursuant to
the definition of "Consolidated Net Income") attributable to the assets which
are the subject of the Asset Acquisition or asset sale or other disposition
during the Four Quarter Period) occurring during the Four Quarter Period or at
any time subsequent to the last day of the Four Quarter Period and on or prior
to the Transaction Date, as if such asset sale or other disposition or Asset
Acquisition (including the incurrence, assumption or liability for any such
Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If
such Person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a
-6-
<PAGE>
third Person, the preceding sentence shall give effect to the incurrence of such
guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such
Person had directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the Transaction
Date; (2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the Transaction Date will be deemed to have
been in effect during the Four Quarter Period; and (3) notwithstanding clause
(1) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"CONSOLIDATED FIXED CHARGES" means, with respect to any Person
for any period, the sum, without duplication, of (i) Consolidated Interest
Expense, plus (ii) the product of (x) the amount of all dividend payments on any
series of Preferred Stock of such Person (other than dividends paid in Qualified
Capital Stock) or any Guarantor paid, accrued or scheduled to be paid or accrued
during such period times (y) a fraction, the numerator of which is one and the
denominator of which is one minus the then current effective consolidated
federal, state and local tax rate of such Person, expressed as a decimal.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any
Person for any period, the sum of, without duplication: (i) the aggregate of
the interest expense of such Person and its Restricted Subsidiaries for such
period determined on a consolidated basis in accordance with GAAP, including
without limitation, (a) any amortization of debt discount and amortization or
write-off of deferred financing costs, (b) the net costs under Interest Swap
Obligations, (c) all capitalized interest and (d) the interest portion of any
deferred payment obligation; and (ii) the interest component of Capitalized
Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such
Person and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
-7-
<PAGE>
"CONSOLIDATED NET INCOME" means, with respect to any Person, for
any period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; PROVIDED that there shall be excluded therefrom (a) after-tax gains
or losses from Asset Sales or abandonments or reserves relating thereto, (b)
after-tax items classified as extraordinary or nonrecurring gains, (c) the net
income of any Person acquired in a "pooling of interests" transaction accrued
prior to the date it becomes a Restricted Subsidiary of the referent Person or
is merged or consolidated with the referent Person or any Restricted Subsidiary
of the referent Person, (d) the net income (but not loss) of any Restricted
Subsidiary of the referent Person to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that income
is restricted by a contract, operation of law or otherwise, (e) the net income
of any Person, other than a Restricted Subsidiary of the referent Person, except
to the extent of cash dividends or distributions paid to the referent Person or
to a Wholly Owned Restricted Subsidiary of the referent Person by such Person,
(f) any restoration to income of any contingency reserve, except to the extent
that provision for such reserve was made out of Consolidated Net Income accrued
at any time following the Issue Date, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued), and (h) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets, any
earnings of the successor corporation prior to such consolidation, merger or
transfer of assets.
"CONSOLIDATED NET WORTH" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Capital Stock of such Person.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any
Person, for any period, the aggregate depreciation, amortization and other
non-cash expenses of such Person and its Restricted Subsidiaries reducing
Consolidated Net Income of such Person and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such charges constituting an extraordinary item or loss or any such charge
which requires an accrual of or a reserve for cash charges for any future
period).
"CORPORATE TRUST OFFICE" means the office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which office at the
-8-
<PAGE>
date of execution of this Indenture is located at 515 South Flower Street, Suite
2700, Los Angeles, California 90071-2291, except that with respect to
presentation of Notes for payment or for registration of transfer or exchange,
such term shall mean any office or agency of the Trustee at which, at any
particular time, its corporate agency business shall be conducted.
"COVENANT DEFEASANCE" has the meaning set forth in Section 8.01.
"CURRENCY AGREEMENT" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any Restricted Subsidiary of the Company against
fluctuations in currency values.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"DEFAULT" means an event or condition the occurrence of which
is, or with the lapse of time or the giving of notice or both would be, an Event
of Default.
"DEPOSITORY" means The Depository Trust Company, its nominees
and successors.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof on or prior to the final maturity date of the Notes.
"EVENT OF DEFAULT" has the meaning provided in Section 6.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any successor statute or statutes thereto.
"EXCHANGE NOTES" means the 10% Senior Notes due 2008, Series B
to be issued in exchange for the Initial Notes pursuant to the Registration
Rights Agreement or, with respect to Initial Notes issued under this Indenture
subsequent to the Issue Date pursuant to Section 2.02, a registration rights
agreement substantially identical to the Registration Rights Agreement.
"EXCHANGE OFFER" has the meaning set forth in the Registration
Rights Agreement.
-9-
<PAGE>
"EXCHANGE REGISTRATION STATEMENT" means the registration
statement filed by the Company pursuant to the Registration Rights Agreement.
"FAIR MARKET VALUE" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between a willing seller and a willing and able buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair market value shall be determined by the Board of Directors of
the Company acting reasonably and in good faith and shall be evidenced by a
Board Resolution of the Board of Directors of the Company delivered to the
Trustee.
"FOREIGN SUBSIDIARY" means any Subsidiary of the Company which
(i) is not organized under the laws of the United States, any state thereof or
the District of Columbia and (ii) conducts substantially all of its business
operations in a country other than the United States of America.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect as of the
Issue Date.
"GLOBAL NOTE" has the meaning provided in Section 2.01.
"GUARANTEE" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"GUARANTEE" means the guarantee of the Notes by the Guarantors.
"GUARANTOR" means (i) the domestic Subsidiaries of the Company
on the Issue Date and (ii) each of the Company's Restricted Subsidiaries that in
the future executes a supplemental indenture in which such Restricted Subsidiary
agrees to be bound by the terms of the Indenture as a Guarantor; provided that
any Person constituting a Guarantor as described above shall cease to constitute
a Guarantor when its respective Guarantee is released in accordance with the
terms of the Indenture.
-10-
<PAGE>
"HOLDER" means the Person in whose name a Note is registered on
the Registrar's books.
"INCUR" has the meaning set forth in Section 4.12.
"INDEBTEDNESS" means with respect to any Person, without
duplication, (i) all Obligations of such Person for borrowed money, (ii) all
Obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all Capitalized Lease Obligations of such Person,
(iv) all Obligations of such Person issued or assumed as the deferred purchase
price of property, all conditional sale obligations and all Obligations under
any title retention agreement (but excluding trade accounts payable and other
accrued liabilities arising in the ordinary course of business that are not
overdue by 90 days or more or are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted), (v) all Obligations
for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction, (vi) guarantees and other contingent
obligations in respect of Indebtedness referred to in clauses (i) through
(v) above and clause (viii) below, (vii) all Obligations of any other Person of
the type referred to in clauses (i) through (vi) which are secured by any lien
on any property or asset of such Person, the amount of such Obligation being
deemed to be the lesser of the fair market value of such property or asset or
the amount of the Obligation so secured, (viii) all Obligations under currency
agreements and interest swap agreements of such Person, (ix) all Obligations for
Preferred Stock of a Guarantor and all Disqualified Capital Stock issued by such
Person with the amount of Indebtedness represented by such Preferred Stock or
Disqualified Capital Stock being equal to the greater of its voluntary or
involuntary liquidation preference and its maximum fixed repurchase price, but
excluding accrued dividends, if any. For purposes hereof, the "maximum fixed
repurchase price" of any Preferred Stock of any Guarantor or Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Preferred Stock or Disqualified Capital
Stock as if such Preferred Stock or Disqualified Capital Stock were purchased on
any date on which Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the fair market
value of such Preferred Stock or Disqualified Capital Stock, such fair market
value shall be determined reasonably and in good faith by the Board of Directors
of the issuer of such Preferred Stock or Disqualified Capital Stock.
"INDENTURE" means this Indenture, as amended or supplemented
from time to time in accordance with the terms hereof.
-11-
<PAGE>
"INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does not,
and whose directors, officers and employees or Affiliates do not, have a direct
or indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"INITIAL NOTES" means, collectively, (i) the 10% Senior Notes
due 2008, Series A, of the Company issued on the Issue Date and (ii) one or more
series of 10% Senior Notes due 2008 that are issued under this Indenture
subsequent to the Issue Date pursuant to Section 2.02, in each case for so long
as such securities constitute Restricted Notes.
"INITIAL PURCHASER" means BT Alex. Brown Incorporated.
"INTEREST" when used with respect to any Note means the amount
of all interest accruing on such Note, including any applicable defaulted
interest pursuant to Section 2.12 and any Liquidated Damages pursuant to the
Registration Rights Agreement.
"INTEREST PAYMENT DATE" means the stated maturity of an
installment of interest on the Notes.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986,
as amended to the date hereof and from time to time hereafter.
"INVESTMENT" means, with respect to any Person, any direct or
indirect loan or other extension of credit (including, without limitation, a
guarantee) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition by such Person of any Capital
Stock, bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit by
the Company and its Restricted Subsidiaries on commercially reasonable
-12-
<PAGE>
terms in accordance with normal trade practices of the Company or such
Restricted Subsidiary, as the case may be. For the purposes of Section 4.10,
(i) "Investment" shall include and be valued at the fair market value of the net
assets of any Restricted Subsidiary at the time that such Restricted Subsidiary
is designated an Unrestricted Subsidiary and shall exclude the fair market value
of the net assets of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the
amount of any Investment shall be the original cost of such Investment plus the
cost of all additional Investments by the Company or any of its Restricted
Subsidiaries, without any adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment, reduced by
the payment of dividends or distributions in connection with such Investment or
any other amounts received in respect of such Investment; PROVIDED that no such
payment of dividends or distributions or receipt of any such other amounts shall
reduce the amount of any Investment if such payment of dividends or
distributions or receipt of any such amounts would be included in Consolidated
Net Income. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Common Stock of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, the Company no longer owns, directly or indirectly, 50% of the
outstanding Common Stock of such Restricted Subsidiary, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Common Stock of such Restricted Subsidiary
not sold or disposed of.
"ISSUE DATE" means April 22, 1998.
"LEGAL DEFEASANCE" has the meaning set forth in Section 8.01.
"LEGAL HOLIDAY" has the meaning provided in Section 11.07.
"LIEN" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"LIQUIDATED DAMAGES" shall have the meaning set forth in the
Registration Rights Agreement.
"MATURITY DATE" means April 15, 2008.
-13-
<PAGE>
"MOODY'S" means Moody's Investors Service, Inc. and its
successors.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Restricted Subsidiaries from
such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions), (b) taxes paid or payable after
taking into account any reduction in consolidated tax liability due to available
tax credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that is required to be repaid in connection with such Asset Sale
and (d) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale.
"NET PROCEEDS OFFER" has the meaning set forth in Section 4.15.
"NET PROCEEDS OFFER AMOUNT" has the meaning set forth in Section
4.15.
"NET PROCEEDS OFFER PAYMENT DATE" has the meaning set forth in
Section 4.15.
"NET PROCEEDS OFFER TRIGGER DATE" has the meaning set forth in
Section 4.15.
"NEW BANK CREDIT FACILITY" means the Amended and Restated
Financing and Security Agreement dated as of April 22, 1998, between the
Company, Monsey Products Co., Kimberton Enterprises, Inc. and Monsey Products of
Arizona LLC and NationsBank, N.A., together with the related documents thereto
(including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (PROVIDED that such increase in bor-
-14-
<PAGE>
rowings is permitted by Section 4.12) or adding Restricted Subsidiaries of the
Company as additional borrowers or guarantors thereunder) all or any portion of
the Indebtedness under such agreement or any successor or replacement agreement
and whether by the same or any other agent, lender or group of lenders.
"NOTES" means, collectively, the Initial Notes, the Private
Exchange Notes, if any, and the Exchange Notes, treated as a single class of
securities, as amended or supplemented from time to time in accordance with the
terms of this Indenture, that are issued pursuant to this Indenture.
"OBLIGATIONS" means all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"OFFERING MEMORANDUM" means the confidential Offering Memorandum
dated April 15, 1998 of the Company relating to the offering of the Notes.
"OFFICER" means, with respect to any Person, the Chairman of the
Board of Directors, any Vice Chairman of the Board of Directors, the Chief
Executive Officer, the President, any Vice President, the Chief Financial
Officer, the Treasurer, the Controller, or the Secretary of such Person, or any
other officer designated by the Board of Directors serving in a similar
capacity.
"OFFICERS' CERTIFICATE" means, with respect to any Person, a
certificate signed by the Chief Executive Officer, the President or any Vice
President and the Chief Financial Officer or any Treasurer of such Person that
shall comply with applicable provisions of this Indenture.
"OPINION OF COUNSEL" means a written opinion from legal counsel
who is reasonably acceptable to the Trustee complying with the requirements of
Sections 11.04 and 11.05, as they relate to the giving of an Opinion of Counsel,
and delivered to the Trustee.
"PAYING AGENT" has the meaning provided in Section 2.03.
"PERMITTED HOLDER" means Warner W. Henry, and each of his
immediate family members, the Warner W. Henry Living Trust, trustees of the
Warner W. Henry Living Trust or trusts, entities or arrangements for the benefit
of the foregoing persons and entities.
-15-
<PAGE>
"PERMITTED INDEBTEDNESS" means, without duplication, each of the
following:
(i) Indebtedness under the Notes issued in the offering up
to $85.0 million and the Guarantees thereof;
(ii) Indebtedness incurred pursuant to the New Bank Credit
Facility in an aggregate principal amount at any time outstanding not to
exceed $25,000,000 and Indebtedness incurred pursuant to the Canadian
Credit Facility in an aggregate principal amount at any time outstanding
not to exceed Canadian $8,000,000, in each case, less any required
permanent repayments (which are accompanied by a corresponding permanent
commitment reduction) thereunder; and additional Indebtedness incurred
pursuant to a capital expenditure facility under the New Bank Credit
Facility in an aggregate principal amount at any time outstanding not to
exceed $10,000,000.
(iii) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually
paid or permanent reductions thereon;
(iv) Interest Swap Obligations of the Company covering
Indebtedness of the Company or any of its Restricted Subsidiaries and
Interest Swap Obligations of any Restricted Subsidiary of the Company
covering Indebtedness of such Restricted Subsidiary; PROVIDED, HOWEVER,
that such Interest Swap Obligations are entered into to protect the
Company and its Restricted Subsidiaries from fluctuations in interest
rates on Indebtedness incurred in accordance with the Indenture to the
extent the notional principal amount of such Interest Swap Obligation
does not exceed the principal amount of the Indebtedness to which such
Interest Swap Obligation relates;
(v) Indebtedness under Currency Agreements; PROVIDED that in
the case of Currency Agreements which relate to Indebtedness, such
Currency Agreements do not increase the Indebtedness of the Company and
its Restricted Subsidiaries outstanding other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(vi) Indebtedness of a Wholly Owned Restricted Subsidiary of
the Company to the Company or to a Wholly Owned Restricted Subsidiary of
the Company for so long as such Indebtedness is held by the Company or a
Wholly Owned Restricted Subsidiary of the Company, in each case subject
-16-
<PAGE>
to no Lien held by a Person other than the Company or a Wholly Owned
Restricted Subsidiary of the Company; PROVIDED that if as of any date
any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company owns or holds any such Indebtedness or holds a
Lien in respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness by
the issuer of such Indebtedness;
(vii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary of the Company for so long as such Indebtedness is held by a
Wholly Owned Restricted Subsidiary of the Company, in each case subject
to no Lien; PROVIDED that (a) any Indebtedness of the Company to any
Wholly Owned Restricted Subsidiary of the Company is unsecured and
subordinated, pursuant to a written agreement, to the Company's
obligations under the Indenture and the Notes and (b) if as of any date
any Person other than a Wholly Owned Restricted Subsidiary of the
Company owns or holds any such Indebtedness or any Person holds a Lien
in respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness by
the Company;
(viii) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business; PROVIDED,
HOWEVER, that such Indebtedness is extinguished within five business
days of incurrence;
(ix) Indebtedness of the Company or any of its Restricted
Subsidiaries represented by letters of credit for the account of the
Company or such Restricted Subsidiary, as the case may be, in order to
provide security for workers' compensation claims, payment obligations
in connection with self- insurance or similar requirements in the
ordinary course of business;
(x) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary of the Company providing for indemnification,
adjustment of purchase price or similar obligations, in each case,
incurred in connection with the disposition of any business, assets or
Restricted Subsidiary, other than guarantees of Indebtedness incurred by
any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition;
PROVIDED that the maximum aggregate liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds actually
received by the
-17-
<PAGE>
Company and the Restricted Subsidiary in connection with such
disposition;
(xi) Refinancing Indebtedness; and
(xii) additional Indebtedness of the Company and its
Restricted Subsidiaries in an aggregate principal amount not to exceed
$10,000,000 at any one time outstanding.
"PERMITTED INVESTMENTS" means (i) Investments by the Company or
any Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted Subsidiary of the Company, (ii) Investments in the Company by any
Restricted Subsidiary of the Company; PROVIDED that any Indebtedness evidencing
such Investment is unsecured and subordinated, pursuant to a written agreement,
to the Company's obligations under the Notes and the Indenture;
(iii) investments in cash and Cash Equivalents; (iv) loans and advances to
employees and officers of the Company and its Restricted Subsidiaries in the
ordinary course of business for bona fide business purposes not in excess of
$1,000,000 at any one time outstanding; (v) Currency Agreements and Interest
Swap Obligations entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' businesses and otherwise in compliance with the
Indenture; (vi) Investments in Unrestricted Subsidiaries not to exceed
$2,500,000 at any one time outstanding; PROVIDED that such Unrestricted
Subsidiary is engaged in a business or businesses which are the same, similar or
related to the businesses in which the Company and its Restricted Subsidiaries
are engaged on the Issue Date; (vii) Investments in securities of trade
creditors or customers received pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such trade creditors or
customers; (viii) Investments made by the Company or its Restricted Subsidiaries
as a result of consideration received in connection with an Asset Sale made in
compliance with Section 4.15; (ix) Investments by the Company or a Wholly Owned
Restricted Subsidiary of the Company not in excess of $500,000 at any one time
outstanding in any partnership, joint venture, limited liability partnership,
limited liability company or similar entity of which (A) at least 50% of the
capital accounts, distribution rights, total equity and voting interests or
general or limited partnership interests, as applicable, are owned or
controlled, directly or indirectly, by the Company or a Wholly Owned Restricted
Subsidiary of the Company whether in the form of membership, general, special or
limited partnership interests or otherwise and (B) the Company or any Wholly
Owned Restricted Subsidiary of the Company is a controlling general partner,
member or manager or otherwise controls such entity
-18-
<PAGE>
which is engaged in a business or businesses which are the same, similar or
related to the businesses in which the Company and its Restricted Subsidiaries
are engaged on the Issue Date; and (x) additional Investments not to exceed
$2,500,000 at any one time outstanding.
"PERMITTED LIENS" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or
claims either (a) not delinquent or (b) contested in good faith by
appropriate proceedings and as to which the Company or its Restricted
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law incurred in the ordinary course of business for
sums not yet delinquent or being contested in good faith, if such
reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance and other types of social security, including any Lien
securing letters of credit issued in the ordinary course of business
consistent with past practice in connection therewith, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default so
long as such Lien is adequately bonded and any appropriate legal
proceedings which may have been duly initiated for the review of such
judgment shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other
similar charges or encumbrances in respect of real property not
interfering in any material respect with the ordinary conduct of the
business of the Company or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized
Lease Obligation; PROVIDED that such Liens do
-19-
<PAGE>
not extend to any property or assets which is not leased property
subject to such Capitalized Lease Obligation;
(vii) purchase money Liens to finance property or assets of
the Company or any Restricted Subsidiary of the Company acquired in the
ordinary course of business; PROVIDED, HOWEVER, that (A) the related
purchase money Indebtedness shall not exceed the cost of such property
or assets and shall not be secured by any property or assets of the
Company or any Restricted Subsidiary of the Company other than the
property and assets so acquired and (B) the Lien securing such
Indebtedness shall be created within 90 days of such acquisition;
(viii) Liens upon specific items of inventory or other goods
and proceeds of any Person securing such Person's obligations in respect
of bankers' acceptances issued or created for the account of such Person
to facilitate the purchase, shipment or storage of such inventory or
other goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof (or
encumber up to $600,000 in cash collateral pledged to PNC Bank, National
Association prior to April 30, 1998);
(x) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual, or warranty
requirements of the Company or any of its Restricted Subsidiaries,
including rights of offset and set-off;
(xi) leases or subleases granted to others that do not
materially interfere with the ordinary course of business of the Company
and its Restricted Subsidiaries;
(xii) Liens arising from filing Uniform Commercial Code
financing statements regarding leases;
(xiii) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of custom duties in
connection with the importation of goods;
(xiv) Liens securing Interest Swap Obligations which Interest
Swap Obligations relate to Indebtedness that is otherwise permitted
under the Indenture;
(xv) Liens securing Indebtedness under Currency Agreements;
and
-20-
<PAGE>
(xvi) Liens securing Acquired Indebtedness incurred in
accordance with Section 4.12; PROVIDED that (A) such Liens secured such
Acquired Indebtedness at the time of and prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary of the
Company and were not granted in connection with, or in anticipation of,
the incurrence of such Acquired Indebtedness by the Company or a
Restricted Subsidiary of the Company and (B) such Liens do not extend to
or cover any property or assets of the Company or of any of its
Restricted Subsidiaries other than the property or assets that secured
the Acquired Indebtedness prior to the time such Indebtedness became
Acquired Indebtedness of the Company or a Restricted Subsidiary of the
Company and are no more favorable to the lienholders than those securing
the Acquired Indebtedness prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company.
"PERSON" means an individual, partnership, corporation,
unincorporated organization, trust or joint venture, or a governmental agency or
political subdivision thereof.
"PHYSICAL NOTES" has the meaning provided in Section 2.01.
"PLAN OF LIQUIDATION" means, with respect to any Person, a plan
(including by operation of law) that provides for, contemplates or the
effectuation of which is preceded or accompanied by (whether or not
substantially contemporaneously) (a) the sale, lease, conveyance or other
disposition of all or substantially all of the assets of such Person otherwise
than as an entirety or substantially as an entirety and (b) the distribution of
all or substantially all of the proceeds of such sale, lease, conveyance or
other disposition and all or substantially all of the remaining assets of such
Person to holders of Capital Stock of such Person.
"PREFERRED STOCK" of any Person means any Capital Stock of such
Person that has preferential rights to any other Capital Stock of such Person
with respect to dividends or redemptions or upon liquidation.
"PRINCIPAL" of any Indebtedness (including the Notes) means the
principal amount of such Indebtedness plus the premium, if any, on such
Indebtedness.
"PRIVATE EXCHANGE NOTES" has the meaning set forth in the
Registration Rights Agreement.
-21-
<PAGE>
"PRIVATE PLACEMENT LEGEND" means the legend initially set forth
on the Notes in the form set forth in Section 2.15.
"PRO FORMA" means, with respect to any calculation made or
required to be made pursuant to the terms of this Indenture, a calculation in
accordance with Article 11 of Regulation S-X under the Securities Act, as
determined by the Board of Directors of the Company in consultation with its
independent public accountants.
"PUBLIC EQUITY OFFERING" means an underwritten public offering
of Qualified Capital Stock of the Company pursuant to a registration statement
filed with the Commission in accordance with the Securities Act.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company
or its Restricted Subsidiaries incurred for the purpose of financing all or any
part of the purchase price or the cost of installation, construction or
improvement of any property.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not
Disqualified Capital Stock.
"QUALIFIED INSTITUTIONAL BUYER" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"RECORD DATE" means the Record Date specified in the Notes.
"REDEMPTION DATE," when used with respect to any Note to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Notes.
"REDEMPTION PRICE," when used with respect to any Note to be
redeemed, means the price fixed for such redemption, including principal and
premium, if any, pursuant to this Indenture and the Notes.
"REFERENCE DATE" has the meaning set forth in Section 4.10.
"REFINANCE" means, in respect of any security or Indebtedness,
to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire,
or to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing by the Company
or any Restricted Subsidiary of the Company of In-
-22-
<PAGE>
debtedness incurred in accordance with Section 4.12 (other than pursuant to
clause (ii), (iv), (v), (vi), (vii), (viii), (ix), (x) or (xii) of the
definition of Permitted Indebtedness), in each case that does not (1) result in
an increase in the aggregate principal amount of Indebtedness of such Person as
of the date of such proposed Refinancing (plus the amount of any premium
required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred by the Company
in connection with such Refinancing) or (2) create Indebtedness with (A) a
Weighted Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier
than the final maturity of the Indebtedness being Refinanced; PROVIDED that
(x) if such Indebtedness being Refinanced is Indebtedness of the Company, then
such Refinancing Indebtedness shall be Indebtedness solely of the Company and
(y) if such Indebtedness being Refinanced is subordinate or junior to the Notes,
then such Refinancing Indebtedness shall be subordinate to the Notes at least to
the same extent and in the same manner as the Indebtedness being Refinanced.
"REGISTRAR" has the meaning provided in Section 2.03.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of the Issue Date among the Company, the Guarantors and the
Initial Purchaser.
"REGULATION S" means Regulation S under the Securities Act.
"REPLACEMENT ASSETS" means assets of a kind used or usable in
the business of the Company and its Restricted Subsidiaries as conducted on the
date of the relevant Asset Sale.
"RESTRICTED PAYMENT" shall have the meaning set forth in Section
4.10.
"RESTRICTED SECURITY" has the meaning assigned to such term in
Rule 144(a)(3) under the Securities Act; PROVIDED, HOWEVER, that the Trustee
shall be entitled to request and conclusively rely on an Opinion of Counsel with
respect to whether any Note constitutes a Restricted Security.
"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of
such Person which at the time of determination is not an Unrestricted
Subsidiary.
"REVOLVING CREDIT FACILITY" means one or more revolving credit
facilities under the New Bank Credit Facility or the Canadian Credit Facility.
-23-
<PAGE>
"RULE 144A" means Rule 144A under the Securities Act.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such Property.
"S&P" means Standard & Poor's Rating Services, a division of The
McGraw Hill Companies, Inc., and its successors.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"SIGNIFICANT SUBSIDIARY" shall have the meaning set forth in
Rule 1.02(w) of Regulation S-X under the Securities Act.
"SUBSIDIARY", with respect to any Person, means (i) any
corporation of which the outstanding Capital Stock having at least a majority of
the votes entitled to be cast in the election of directors under ordinary
circumstances shall at the time be owned, directly or indirectly, by such Person
or (ii) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly, owned by
such Person.
"SURVIVING ENTITY" shall have the meaning set forth in Section
5.01.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except
as otherwise provided in Section 9.03.
"TRUST OFFICER" means any officer or assistant officer of the
Trustee assigned by the Trustee to administer this Indenture, or in the case of
a successor trustee, an officer assigned to the department, division or group
performing the corporate trust work of such successor and assigned to administer
this Indenture.
"TRUSTEE" means the party named as such in this Indenture until
a successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
-24-
<PAGE>
"UNRESTRICTED SUBSIDIARY" of any Person means (i) any Subsidiary
of such Person that at the time of determination shall be or continue to be
designated an Unrestricted Subsidiary by the Board of Directors of such Person
in the manner provided below and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, the Company or any other Subsidiary of the Company that is not
a Subsidiary of the Subsidiary to be so designated; PROVIDED that (x) the
Company certifies to the Trustee that such designation complies with Section
4.10 and (y) each Subsidiary to be so designated and each of its Subsidiaries
has not at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable with
respect to any Indebtedness pursuant to which the lender has recourse to any of
the assets of the Company or any of its Restricted Subsidiaries. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary only if (x) immediately after giving effect to such designation, the
Company is able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with Section 4.12 and (y) immediately
before and immediately after giving effect to such designation, no Default or
Event of Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the Board Resolution giving effect to such designation and
an officers' certificate certifying that such designation complied with the
foregoing provisions.
"U.S. GOVERNMENT OBLIGATIONS" mean direct obligations of, and
obligations guaranteed by, the United States of America for the payment of which
the full faith and credit of the United States of America is pledged.
"U.S. LEGAL TENDER" means such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by
(ii) the number of years (calculated to the nearest one-twelfth) which will
elapse between such date and the making of such payment.
-25-
<PAGE>
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any
Restricted Subsidiary of such Person of which all the outstanding voting
securities (other than in the case of a foreign Restricted Subsidiary,
directors' qualifying shares or an immaterial amount of shares required to be
owned by other Persons pursuant to applicable law) are owned by such Person or
any Wholly Owned Restricted Subsidiary of such Person.
SECTION 1.02. INCORPORATION BY REFERENCE OF TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the Indenture securities means the Company or any
other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by Commission
rule and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP of any date of determination;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in
the plural include the singular;
(5) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision; and
-26-
<PAGE>
(6) any reference to a statute, law or regulation means that
statute, law or regulation as amended and in effect from time to time
and includes any successor statute, law or regulation; PROVIDED,
HOWEVER, that any reference to the Bankruptcy Law shall mean the
Bankruptcy Law as applicable to the relevant case.
ARTICLE TWO
THE NOTES
SECTION 2.01. FORM AND DATING.
The Initial Notes and the Trustee's certificate of
authentication relating thereto shall be substantially in the form of EXHIBIT A.
The Exchange Notes and the Trustee's certificate of authentication relating
thereto shall be substantially in the form of EXHIBIT B. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
depository rule or usage. The Company and the Trustee shall approve the form of
the Notes and any notation, legend or endorsement on them. If required, the
Notes may bear the appropriate legend regarding any original issue discount for
federal income tax purposes. Each Note shall be dated the date of its issuance
and shall show the date of its authentication. Each Note shall have an executed
Guarantee from each of the Guarantors endorsed thereon substantially in the form
of EXHIBIT E hereto.
The terms and provisions contained in the Notes, annexed hereto
as EXHIBITS A AND B, shall constitute, and are hereby expressly made, a part of
this Indenture and, to the extent applicable, the Company, the Guarantors and
the Trustee, by their execution and delivery of this Indenture, expressly agree
to such terms and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A and Notes
offered and sold in reliance on Regulation S shall be issued initially in the
form of one or more permanent global Notes in registered form, substantially in
the form set forth in EXHIBIT A (the "Global Note"), deposited with the Trustee,
as custodian for the Depository, duly executed by the Company (and having an
executed Guarantee from each of the Guarantors endorsed thereon) and
authenticated by the Trustee as hereinafter provided and shall bear all the
legends set forth in Section 2.15. The aggregate principal amount of the Global
Note may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as custodian for the Depository, as hereinafter
provided.
-27-
<PAGE>
Notes issued in exchange for interests in a Global Note pursuant
to Section 2.16 may be issued in the form of permanent certificated Notes in
registered form in substantially the form set forth in EXHIBIT A (the "Physical
Notes") and shall bear the first legend set forth in Section 2.15. All Notes
offered and sold in reliance on Regulation S shall remain in the form of a
Global Note until the consummation of the Exchange Offer pursuant to the
Registration Rights Agreement; PROVIDED, HOWEVER, that all of the time periods
specified in the Registration Rights Agreement to be complied with by the
Company have been so complied with.
SECTION 2.02. EXECUTION AND AUTHENTICATION; AGGREGATE
PRINCIPAL AMOUNT.
Two Officers, or an Officer and an Assistant Secretary, shall
sign, or one Officer or an Assistant Secretary (each of whom shall, in each
case, have been duly authorized by all requisite corporate actions) shall attest
to, the Notes for the Company, and the Guarantees for the Guarantors, by manual
or facsimile signature.
If an Officer or Assistant Secretary whose signature is on a
Note or a Guarantee, as the case may be, was an Officer or Assistant Secretary
at the time of such execution but no longer holds that office or position at the
time the Trustee authenticates the Note, the Note shall nevertheless be valid.
A Note shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Note. The
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
The Trustee shall authenticate (i) Initial Notes for original
issue in the aggregate principal amount not to exceed $150,000,000 in one or
more series, provided that the aggregate principal amount of Initial Notes on
the Issue Date shall not exceed $85,000,000, and further provided that the
Company complies with Section 4.12 of this Indenture, (ii) Private Exchange
Notes from time to time only in exchange for a like principal amount of Initial
Notes and (iii) Exchange Notes from time to time only in exchange for (A) a like
principal amount of Initial Notes or (B) a like principal amount of Private
Exchange Notes, in each case upon a written order of the Company in the form of
an Officers' Certificate of the Company. Each such written order shall specify
the amount of Notes to be authenticated and the date on which the Notes are to
be authenticated, whether the Notes are to be Initial Notes, Private Exchange
Notes or Exchange Notes and whether (subject to Section 2.01) the Notes are to
be issued as Physical Notes or Global Notes or such other information as the
Trustee may rea-
-28-
<PAGE>
sonably request. In addition, with respect to authentication pursuant to clause
(iii) of the first sentence of this paragraph, the first such written order from
the Company shall be accompanied by an Opinion of Counsel of the Company in a
form reasonably satisfactory to the Trustee stating that the issuance of the
Exchange Notes does not give rise to an Event of Default, complies with this
Indenture and has been duly authorized by the Company. The aggregate principal
amount of Notes outstanding at any time may not exceed $150,000,000, except as
provided in Sections 2.07 and 2.08.
In the event that the Company shall issue and the Trustee shall
authenticate any Notes issued under this Indenture subsequent to the Issue Date
pursuant to clauses (i) and (iii) of the first sentence of the immediately
preceding paragraph, the Company shall use its reasonable efforts to obtain the
same "CUSIP" number for such Notes as is printed on the Notes outstanding at
such time; PROVIDED, HOWEVER, that if any series of Notes issued under this
Indenture subsequent to the Issue Date is determined, pursuant to an Opinion of
Counsel of the Company in a form satisfactory to the Trustee to be a different
class of security than the Notes outstanding at such time for federal income tax
purposes, the Company may obtain a "CUSIP" number for such Notes that is
different than the "CUSIP" number printed on the Notes then outstanding.
Notwithstanding the foregoing, all Notes issued under this
Indenture shall vote and consent together on all matters (as to which any of
such Notes may vote or consent) as one class and no series of Notes will have
the right to vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent (the
"Authenticating Agent") reasonably acceptable to the Company to authenticate
Notes. Unless otherwise provided in the appointment, an Authenticating Agent
may authenticate Notes whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
Authenticating Agent. An Authenticating Agent has the same rights as an Agent
to deal with the Company or with any Affiliate of the Company.
The Notes shall be issuable in fully registered form only,
without coupons, in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency (which shall be
located in the Borough of Manhattan in the City of New York, State of New York)
where (a) Notes may be presented or
-29-
<PAGE>
surrendered for registration of transfer or for exchange ("Registrar"),
(b) Notes may be presented or surrendered for payment ("Paying Agent") and
(c) notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served. The office or agency in respect of clauses (a) and (b)
shall be the Trustee, c/o United States Trust Company of New York (770 Broadway,
13th Floor, New York, New York 10003, Attn: Corporate Trust Services), and the
office or agency in respect of clause (c) shall be the Trustee, c/o United
States Trust company of New York (114 West 47th Street, New York, New York
10036, Attn: Corporate Trust Administration), unless in either case the Company
shall designate and maintain some other office or agency for one or more of such
purposes. The Registrar shall keep a register of the Notes and of their
transfer and exchange. The Company, upon prior written notice to the Trustee,
may have one or more co-Registrars and one or more additional paying agents
acceptable to the Trustee. The term "Paying Agent" includes any additional
Paying Agent. The Company may act as its own Paying Agent, except that for the
purposes of payments on the Notes pursuant to Sections 4.14 and 4.15, neither
the Company nor any Affiliate of the Company may act as Paying Agent.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which agreement shall incorporate
the provisions of the TIA and implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee, in advance, of the
name and address of any such Agent. If the Company fails to maintain a
Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee
shall act as such and shall be entitled to appropriate compensation in
accordance with Section 7.07.
The Company initially appoints the Trustee as Registrar, Paying
Agent and agent for service of demands and notices in connection with the Notes,
until such time as the Trustee has resigned or a successor has been appointed.
Any of the Registrar, the Paying Agent or any other agent may resign upon 30
days' notice to the Company.
SECTION 2.04. PAYING AGENT TO HOLD ASSETS IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that such Paying Agent shall hold in trust for the
benefit of the Holders or the Trustee all assets held by the Paying Agent for
the payment of principal of, premium, if any, or interest on, the Notes (whether
such assets have been distributed to it by the Company or any other obligor on
the Notes), and the Company and the Paying Agent shall notify the Trustee of any
Default by the
-30-
<PAGE>
Company (or any other obligor on the Notes) in making any such payment. The
Company at any time may require a Paying Agent to distribute all assets held by
it to the Trustee and account for any assets disbursed and the Trustee may at
any time during the continuance of any payment Default, upon written request to
a Paying Agent, require such Paying Agent to distribute all assets held by it to
the Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent, the Paying Agent shall have no further liability for such assets.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders. If the Trustee is not the Registrar, the Company shall furnish or
cause the Registrar to furnish to the Trustee five (5) Business Days before each
Interest Payment Date and at such other times as the Trustee may request in
writing a list as of such date and in such form as the Trustee may require of
the names and addresses of the Holders, which list may be conclusively relied
upon by the Trustee.
SECTION 2.06. TRANSFER AND EXCHANGE.
When Notes are presented to the Registrar or a co-Registrar with
a request to register the transfer of such Notes or to exchange such Notes for
an equal principal amount of Notes or other authorized denominations, the
Registrar or co-Registrar shall register the transfer or make the exchange as
requested if its requirements for such transaction are met; PROVIDED, HOWEVER,
that the Notes presented or surrendered for registration of transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Company, the Trustee and the Registrar or co-Registrar,
duly executed by the Holder thereof or his attorney duly authorized in writing.
To permit registration of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Notes (and each of the Guarantors shall execute a
Guarantee thereon). No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax, fee or similar governmental charge payable in connection
therewith (other than any such transfer taxes or similar governmental charge
payable upon exchanges or transfers pursuant to Sections 2.10, 3.04, 4.14, 4.15
or 9.05, in which event the Company shall be responsible for the payment of such
taxes).
-31-
<PAGE>
The Registrar or co-Registrar shall not be required to register
the transfer of or exchange of any Note (i) during a period beginning at the
opening of business 15 days before the mailing of a notice of redemption of
Notes and ending at the close of business on the day of such
mailing,(ii) selected for redemption in whole or in part pursuant to Article
Three, except the unredeemed portion of any Note being redeemed in part or
(iii) between a Record Date and the next succeeding Interest Payment Date.
Any Holder of a beneficial interest in a Global Note shall, by
acceptance of such Global Note, agree that transfers of beneficial interests in
such Global Notes may be effected only through a book entry system maintained by
the Holder of such Global Note (or its agent), and that ownership of a
beneficial interest in the Note shall be required to be reflected in a book
entry system.
SECTION 2.07. REPLACEMENT NOTES.
If a mutilated Note is surrendered to the Trustee or if the
Holder of a Note claims that the Note has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a replacement
Note and each of the Guarantors shall execute a Guarantee thereon if the
Trustee's requirements are met. If required by the Trustee or the Company, such
Holder must provide satisfactory evidence of such loss, destruction or taking,
and an indemnity bond or other indemnity of reasonable tenor, sufficient in the
reasonable judgment of the Company, the Guarantors and the Trustee, to protect
the Company, the Guarantors, the Trustee or any Agent from any loss which any of
them may suffer if a Note is replaced. Every replacement Note shall constitute
an obligation of the Company and the Guarantors. The Company and the Trustee
each may charge such Holder for its expenses in replacing such Note.
SECTION 2.08. OUTSTANDING NOTES.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those canceled by it, those delivered to it
for cancellation and those described in this Section as not outstanding.
Subject to the provisions of Section 2.09, a Note does not cease to be
outstanding because the Company or any of its Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.07 (other than a
mutilated Note surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Note is held by
a BONA FIDE purchaser. A mutilated Note ceases to be outstanding upon surren-
-32-
<PAGE>
der of such Note and replacement thereof pursuant to Section 2.07.
If on a Redemption Date or the Maturity Date the Paying Agent
holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of
the principal, premium, if any, and interest due on the Notes payable on that
date and is not prohibited from paying such money to the Holders thereof
pursuant to the terms of this Indenture, then on and after that date such Notes
shall be deemed not to be outstanding and interest on them shall cease to
accrue.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver, consent or notice,
Notes owned by the Company or an Affiliate of the Company shall be considered as
though they are not outstanding, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Notes which a Trust Officer of the Trustee actually knows are
so owned shall be so considered. The Company shall notify the Trustee, in
writing, when it or, to its knowledge, any of its Affiliates repurchases or
otherwise acquires Notes, of the aggregate principal amount of such Notes so
repurchased or otherwise acquired and such other information as the Trustee may
request and the Trustee shall be entitled to rely thereon.
SECTION 2.10. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes and the Guarantors
shall prepare temporary Guarantees thereon upon receipt of a written order of
the Company in the form of an Officers' Certificate. The Officers' Certificate
shall specify the amount of temporary Notes to be authenticated and the date on
which the temporary Notes are to be authenticated. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company considers appropriate for temporary Notes and so indicate in the
Officers' Certificate. Without unreasonable delay, the Company shall prepare
and execute, the Trustee shall authenticate, and the Guarantors shall execute
Guarantees on, upon receipt of a written order of the Company pursuant to
Section 2.02, definitive Notes in exchange for temporary Notes.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent
-33-
<PAGE>
shall forward to the Trustee any Notes surrendered to them for transfer,
exchange or payment. The Trustee, or at the direction of the Trustee, the
Registrar or the Paying Agent, and no one else, shall cancel and, at the written
direction of the Company, shall dispose, in its customary manner, of all Notes
surrendered for transfer, exchange, payment or cancellation. Subject to Section
2.07, the Company may not issue new Notes to replace Notes that it has paid or
delivered to the Trustee for cancellation. If the Company shall acquire any of
the Notes, such acquisition shall not operate as a redemption or satisfaction of
the Indebtedness represented by such Notes unless and until the same are
surrendered to the Trustee for cancellation pursuant to this Section 2.11.
SECTION 2.12. DEFAULTED INTEREST.
The Company will pay interest on overdue principal from time to
time on demand at the rate of interest then borne by the Notes. The Company
shall, to the extent lawful, pay interest on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the rate of interest then borne by the Notes. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months, and, in the case of a
partial month, the actual number of days elapsed.
If the Company defaults in a payment of interest on the Notes,
it shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, which special record date shall be the fifteenth
day next preceding the date fixed by the Company for the payment of defaulted
interest or the next succeeding Business Day if such date is not a Business Day.
The Company shall notify the Trustee in writing of the amount of defaulted
interest proposed to be paid on each Note and the date of the proposed payment
(a "Default Interest Payment Date"), and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such defaulted interest or shall make
arrangements satisfactory to the Trustee for such deposit on or prior to the
date of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such defaulted interest as provided in
this Section; PROVIDED, HOWEVER, that in no event shall the Company deposit
monies proposed to be paid in respect of defaulted interest later than 11:00
a.m. New York City time of the proposed Default Interest Payment Date. At least
15 days before the subsequent special record date, the Company shall mail (or
cause to be mailed) to each Holder, as of a recent date selected by the Company,
with a copy to the Trustee, a notice that states the subsequent special record
-34-
<PAGE>
date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid. Notwithstanding the
foregoing, any interest which is paid prior to the expiration of the 30-day
period set forth in Section 6.01(a) shall be paid to Holders as of the regular
record date for the Interest Payment Date for which interest has not been paid.
Notwithstanding the foregoing, the Company may make payment of any defaulted
interest in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange.
SECTION 2.13. CUSIP NUMBERS.
The Company in issuing the Notes may use one or more "CUSIP"
numbers, and, if so, the Trustee shall use the CUSIP numbers in notices of
redemption or exchange as a convenience to Holders; PROVIDED, HOWEVER, that no
representation is hereby deemed to be made by the Trustee as to the correctness
or accuracy of the CUSIP number printed in the notice or on the Notes, and that
reliance may be placed only on the other identification numbers printed on the
Notes. The Company shall promptly notify the Trustee of any change in the CUSIP
numbers.
SECTION 2.14. DEPOSIT OF MONIES.
Prior to 11:00 a.m. New York City time on each Interest Payment
Date, Maturity Date, Redemption Date, Change of Control Payment Date and Net
Proceeds Offer Payment Date, the Company shall have deposited with the Paying
Agent in immediately available funds money sufficient to make cash payments, if
any, due on such Interest Payment Date, Maturity Date, Redemption Date, Change
of Control Payment Date and Net Proceeds Offer Payment Date, as the case may be,
in a timely manner which permits the Paying Agent to remit payment to the
Holders on such Interest Payment Date, Maturity Date, Redemption Date, Change of
Control Payment Date and Net Proceeds Offer Payment Date, as the case may be.
SECTION 2.15. RESTRICTIVE LEGENDS.
Each Global Note and Physical Note that constitutes a Restricted
Security or is sold in compliance with Regulation S shall bear the following
legend (the "Private Placement Legend") on the face thereof until after the
second anniversary of the later of the Issue Date and the last date on which the
Company or any Affiliate of the Company was the owner of such Note (or any
predecessor security) (or such shorter period of time as permitted by Rule
144(k) under the Securities Act or any successor provision thereunder) (or such
longer period of time as may be required under the Securities Act or applicable
state
-35-
<PAGE>
securities laws in the opinion of counsel for the Company, 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 OR SOLD WITHIN THE UNITED STATES
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS
SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT
A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE THAT IS TWO
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY
THEREOF OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES
TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR
(7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR") THAT,
PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS
BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH
LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
(3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY
WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY,
IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE
COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION
AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S.
-36-
<PAGE>
PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
Each Global Note shall also bear the following legend on the
face thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF
THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY, OR BY
THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW
YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO.
OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED
TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH
IN SECTION 2.17 OF THE INDENTURE GOVERNING THIS NOTE.
SECTION 2.16. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITY.
(a) The Global Notes initially shall (i) be registered in
the name of the Depository or the nominee of such Depository, (ii) be delivered
to the Trustee as custodian for such Depository and (iii) bear legends as set
forth in Section 2.15.
Members of, or participants in, the Depository ("Agent Members")
shall have no rights under this Indenture with respect to any Global Note held
on their behalf by the Depository, or the Trustee as its custodian, or under the
Global Notes, and the Depository may be treated by the Company, the
-37-
<PAGE>
Trustee and any Agent of the Company or the Trustee as the absolute owner of
such Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any Agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depository or impair, as between the
Depository and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder of any Note.
(b) Transfers of a Global Note shall be limited to transfers
in whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in a Global Note may be transferred or
exchanged for Physical Notes in accordance with the rules and procedures of the
Depository and the provisions of Section 2.17. In addition, Physical Notes
shall be transferred to all beneficial owners in exchange for their beneficial
interests in a Global Note if (i) the Depository notifies the Company that it is
unwilling or unable to continue as Depository for the Global Notes and a
successor depositary is not appointed by the Company within 90 days of such
notice or (ii) an Event of Default has occurred and is continuing and the
Registrar has received a written request from the Depository to issue Physical
Notes.
(c) In connection with any transfer or exchange of a portion
of the beneficial interest in a Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of such Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and the Company
shall execute and the Trustee shall authenticate and deliver, one or more
Physical Notes of like tenor and amount.
(d) In connection with the transfer of an entire Global Note
to beneficial owners pursuant to paragraph (b), such Global Note shall be deemed
to be surrendered to the Trustee for cancellation, and the Company shall
execute, the Guarantors shall execute Guarantees on and the Trustee shall
authenticate and deliver, to each beneficial owner identified by the Depository
in exchange for its beneficial interest in the Global Note, an equal aggregate
principal amount of Physical Notes of authorized denominations.
(e) Any Physical Note constituting a Restricted Security
delivered in exchange for an interest in a Global Note pursuant to paragraph (b)
or (c) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of
Section 2.17, bear
-38-
<PAGE>
the Private Placement Legend applicable to the Physical Notes set forth in
Section 2.15.
(f) The Holder of a Global Note may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION 2.17. SPECIAL TRANSFER PROVISIONS.
(a) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS
AND NON-U.S. PERSONS. The following provisions shall apply with respect to the
registration of any proposed transfer of a Note constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person:
(i) the Registrar shall register the transfer of any Note
constituting a Restricted Security, whether or not such Note bears the
Private Placement Legend, if (x) the requested transfer is after the
second anniversary of the Issue Date (PROVIDED, HOWEVER, that neither
the Company nor any Affiliate of the Company has held any beneficial
interest in such Note, or portion thereof, at any time on or prior to
the second anniversary of the Issue Date) or (y) (1) in the case of a
transfer to an Institutional Accredited Investor which is not a QIB
(excluding Non-U.S. Persons), the proposed transferee has delivered to
the Registrar a certificate substantially in the form of EXHIBIT C and
any legal opinions and certifications required thereby or (2) in the
case of a transfer to a Non-U.S. Person, the proposed transferor has
delivered to the Registrar a certificate substantially in the form of
EXHIBIT D; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in the Global Note, upon receipt by the Registrar of
(x) the certificate, if any, required by paragraph (i) above and (y)
written instructions given in accordance with the Depository's and the
Registrar's procedures,
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Physical Notes) a
decrease in the principal amount of such Global Note in an amount equal to the
principal amount of the beneficial interest in the Global Note to be
transferred, and (b) the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Notes of like tenor and amount.
-39-
<PAGE>
(b) TRANSFERS TO QIBS. The following provisions shall apply
with respect to the registration of any proposed transfer of a Note constituting
a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer of any
Restricted Note, whether or not such Note bears the Private Placement
Legend, if (x) the requested transfer is after the second anniversary of
the Issue Date; PROVIDED, HOWEVER, that neither the Company nor any
Affiliate of the Company has held any beneficial interest in such Note,
or portion thereof, at any time on or prior to the second anniversary of
the Issue Date or (y) if such transfer is being made by a proposed
transferor who has checked the box provided for on the form of Note
stating, or has otherwise advised the Company and the Registrar in
writing, that the sale has been made in compliance with the provisions
of Rule 144A to a transferee who has signed the certification provided
for on the form of Note stating, or has otherwise advised the Company
and the Registrar in writing, that it is purchasing the Note for its own
account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a QIB within the meaning
of Rule 144A, and is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information
regarding the Company as it has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying upon its foregoing representations in order to
claim the exemption from registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the
Notes to be transferred consist of Physical Notes which after transfer
are to be evidenced by an interest in a Global Note, upon receipt by the
Registrar of written instructions given in accordance with the
Depository's and the Registrar's procedures, the Registrar shall reflect
on its books and records the date and an increase in the principal
amount of such Global Note in an amount equal to the principal amount of
the Physical Notes to be transferred, and the Trustee shall cancel the
Physical Notes so transferred.
(c) PRIVATE PLACEMENT LEGEND. Upon the transfer, exchange
or replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private Placement Legend
unless (i) the requested transfer is after the sec-
-40-
<PAGE>
ond anniversary of the Issue Date (PROVIDED, HOWEVER, that neither the Company
nor any Affiliate of the Company has held any beneficial interest in such Note,
or portion thereof, prior to or on the second anniversary of the Issue Date), or
(ii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(d) 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 Indenture and in the
Private Placement Legend and agrees that it will transfer such Note only as
provided in this Indenture.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.16 or this Section
2.17. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time during
the Registrar's normal business hours upon the giving of reasonable written
notice to the Registrar.
(e) TRANSFERS OF NOTES HELD BY AFFILIATES. Any certificate
(i) evidencing a Note that has been transferred to an Affiliate of the Company
within two years after the Issue Date, as evidenced by a notation on the
Assignment Form for such transfer or in the representation letter delivered in
respect thereof or (ii) evidencing a Note that has been acquired from an
Affiliate (other than by an Affiliate) in a transaction or a chain of
transactions not involving any public offering, shall, until two years after the
last date on which either the Company or any Affiliate of the Company was an
owner of such Note, in each case, bear a legend in substantially the form set
forth in Section 2.15, unless otherwise agreed by the Company (with written
notice thereof to the Trustee).
ARTICLE THREE
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to Paragraph 5 of
the Notes and Section 3.03, it shall notify the Trustee and the Paying Agent in
writing of the Redemption Date and the principal amount of the Notes to be
redeemed.
-41-
<PAGE>
The Company shall give each notice provided for in this Section
3.01 at least 45 but not more than 90 days before the Redemption Date (unless a
shorter notice period shall be satisfactory to the Trustee, as evidenced in a
writing signed on behalf of the Trustee), together with an Officers' Certificate
stating that such redemption shall comply with the conditions contained herein
and in the Notes, the Redemption Date, the redemption price and the principal
amount of the Notes to be redeemed.
If the Company is required to make an offer to redeem Notes
pursuant to the provisions of Section 4.14 or 4.15 hereof, it shall furnish to
the Trustee at least 45 days but not more than 90 days before a Redemption Date
(or such shorter period as may be agreed to by the Trustee in writing), an
Officers' Certificate setting forth (i) the Section of this Indenture pursuant
to which the redemption shall occur, (ii) the Redemption Date, (iii) the
principal amount of Notes to be redeemed, (iv) the redemption price and (v) a
statement to the effect that (a) the Company or one of its Subsidiaries has
effected an Asset Sale and the conditions set forth in Section 4.15 have been
satisfied or (b) a Change of Control has occurred and the conditions set forth
in Section 4.14 have been satisfied, as applicable.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
In the event that less than all of the Notes are to be redeemed
at any time, selection of such Notes for redemption will be made by the Trustee
in compliance with the requirements of the principal national securities
exchange, if any, on which such Notes are listed or, if such Notes are not then
listed on a national securities exchange, on a PRO RATA basis or by lot;
PROVIDED, HOWEVER, that no Notes of a principal amount of U.S. $1,000 or less
shall be redeemed in part; PROVIDED, FURTHER, that if a partial redemption is
made with the proceeds of a Public Equity Offering, selection of the Notes or
portions thereof for redemption shall be made by the Trustee only on a PRO RATA
basis or on as nearly a PRO RATA basis as is practicable (subject to DTC
procedures), unless such method is otherwise prohibited. Notice of redemption
shall be mailed by first-class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on Notes or
-42-
<PAGE>
portions thereof called for redemption as long as the Company has deposited with
the Paying Agent funds in satisfaction of the applicable redemption price
pursuant to this Indenture.
SECTION 3.03. OPTIONAL REDEMPTION.
(a) The Notes will be redeemable, at the Company's option,
in whole at any time or in part from time to time, on and after April 15, 2003,
upon not less than 30 nor more than 60 days' notice, at the following redemption
prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on April 15 of the year set forth
below, plus, in each case, accrued and unpaid interest thereon, if any, to the
date of redemption:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003............................ 105.000%
2004............................ 103.333%
2005............................ 101.667%
2006 and thereafter............. 100.000%
</TABLE>
(b) At any time, or from time to time, on or prior to
April 15, 2001, the Company may, at its option, use the net cash proceeds of one
or more Public Equity Offerings to redeem up to 35% of the sum of (i) the
initial aggregate principal amount of the Notes issued in the offering on the
Issue Date and (ii) the respective initial aggregate principal amounts of the
Notes issued under this Indenture after the Issue Date, at a redemption price
equal to 110.000% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of redemption; PROVIDED that at least 65%
of the sum of (i) the initial aggregate principal amount of the Notes issued in
the offering on the Issue Date and (ii) the respective initial aggregate
principal amounts of the Notes issued under this Indenture after the Issue Date
remains outstanding immediately after any such redemption. In order to effect
the foregoing redemption with the proceeds of any Public Equity Offering, the
Company shall make such redemption not more than 120 days after the consummation
of any such Public Equity Offering.
SECTION 3.04. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before the Redemption
Date, the Company shall mail or cause to be mailed a notice of redemption by
first class mail to each Holder of Notes to be redeemed at its registered
address, with a copy to the Trustee and any Paying Agent. At the Company's
request, the Trustee shall give the notice of redemption in the Company's name
and at the Company's expense. The Company shall provide such notices of
redemption to the Trustee at least five
-43-
<PAGE>
days before the intended mailing date. In any case, failure to give such notice
or any defect in the notice to the holder of any Note shall not affect the
validity of the proceeding for the redemption of any other Note.
Each notice of redemption shall identify (including the CUSIP
number) 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) the subparagraph of the Notes pursuant to which such
redemption is being made;
(5) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price plus accrued interest,
if any;
(6) that, unless the Company defaults in making the
redemption payment, interest on Notes or applicable portions thereof
called for redemption ceases to accrue on and after the Redemption Date,
and the only remaining right of the Holders of such Notes is to receive
payment of the redemption price plus accrued interest as of the
Redemption Date, if any, upon surrender to the Paying Agent of the Notes
redeemed;
(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, and upon surrender of such Note, a new Note or Notes in
the aggregate principal amount equal to the unredeemed portion thereof
will be issued; and
(8) 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.
No representation is made as to the accuracy of the CUSIP
numbers listed in such notice or printed on the Notes.
The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and
-44-
<PAGE>
regulations thereunder to the extent such laws and regulations are applicable in
connection with the purchase of Notes.
SECTION 3.05. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with
Section 3.04, such notice of redemption shall be irrevocable and Notes called
for redemption become due and payable on the Redemption Date and at the
redemption price plus accrued interest as of such date, if any. Upon surrender
to the Trustee or Paying Agent, such Notes called for redemption shall be paid
at the redemption price plus accrued interest thereon to the Redemption Date,
but installments of interest, the maturity of which is on or prior to the
Redemption Date, shall be payable to Holders of record at the close of business
on the relevant record dates referred to in the Notes. Interest shall accrue on
or after the Redemption Date and shall be payable only if the Company defaults
in payment of the redemption price.
SECTION 3.06. DEPOSIT OF REDEMPTION PRICE.
On or before 11:00 a.m. New York City time on the Redemption
Date and in accordance with Section 2.14, the Company shall deposit with the
Paying Agent U.S. Legal Tender sufficient to pay the redemption price plus
accrued interest, if any, of all Notes to be redeemed on that date. The Paying
Agent shall promptly return to the Company any U.S. Legal Tender so deposited
which is not required for that purpose, except with respect to monies owed as
obligations to the Trustee pursuant to Article Seven.
Unless the Company fails to comply with the preceding paragraph
and defaults in the payment of such redemption price plus accrued interest, if
any, interest on the Notes to be redeemed will cease to accrue on and after the
applicable Redemption Date, whether or not such Notes are presented for payment.
SECTION 3.07. NOTES REDEEMED IN PART.
Upon surrender of a Note that is to be redeemed in part, the
Trustee shall authenticate for the Holder a new Note or Notes equal in principal
amount to the unredeemed portion of the Note surrendered.
-45-
<PAGE>
ARTICLE FOUR
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
(a) The Company shall 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 Indenture.
(b) An installment of principal of or interest on the Notes
shall be considered paid on the date it is due if the Trustee or Paying Agent
(other than the Company or any of its Affiliates) holds, prior to 11:00 a.m. New
York City time on that date, U.S. Legal Tender designated for and sufficient to
pay the installment in full and is not prohibited from paying such money to the
Holders pursuant to the terms of this Indenture or the Notes.
(c) Notwithstanding anything to the contrary contained in
this Indenture, the Company may, to the extent it is required to do so by law,
deduct or withhold income or other similar taxes imposed by the United States of
America from principal or interest payments hereunder.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain the office or agency required under
Section 2.03. The Company shall give prior written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 11.02.
SECTION 4.03. CORPORATE EXISTENCE.
Except as provided in Article Five, the Company shall do or
shall cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence and the corporate, partnership or other
existence of each of its Restricted Subsidiaries in accordance with the
respective organizational documents of the Company and each such Restricted
Subsidiary and the rights (charter and statutory) and material franchises of the
Company and its Restricted Subsidiaries.
-46-
<PAGE>
SECTION 4.04. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all material taxes,
assessments and governmental charges (including withholding taxes and any
penalties, interest and additions to taxes) levied or imposed upon the Company
or any of the Subsidiaries or properties of the Company or any of the
Subsidiaries and (ii) all material lawful claims for labor, materials and
supplies that, if unpaid, might by law become a Lien upon the property of the
Company or any of the Subsidiaries; PROVIDED, HOWEVER, that the Company shall
not be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate negotiations or proceedings
properly instituted and diligently conducted for which adequate reserves, to the
extent required under GAAP, have been taken.
SECTION 4.05. MAINTENANCE OF PROPERTIES AND INSURANCE.
(a) The Company and each of its Subsidiaries shall cause all
material properties owned by or leased to it and used or useful in the conduct
of its business to be maintained and kept in normal condition, repair and
working order and supplied with all necessary equipment and shall cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company or such Subsidiary may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; PROVIDED, HOWEVER, that
nothing in this Section shall prevent the Company or any of its Subsidiaries
from discontinuing the use, operation or maintenance of any of such properties,
or disposing of any of them, if such discontinuance or disposal is, in the
judgment of the Board of Directors of the Company or of the Board of Directors
of the Subsidiary concerned, or of an officer (or other agent employed by the
Company or any of its Subsidiaries) of the Company or such Subsidiary having
managerial responsibility for any such property, desirable in the conduct of the
business of the Company or any of its Subsidiaries.
(b) The Company and the Subsidiaries shall cause to be
provided insurance (including appropriate self-insurance) against loss or damage
of the kinds that, in the good faith judgment of the respective Boards of
Directors or other governing body or officer or other agent of the Company or
such Subsidiaries, as the case may be, are adequate and appropriate for the
conduct of the business of the Company or such Subsidiaries, as the case may be,
with reputable insurers or with the
-47-
<PAGE>
government of the United States of America or an agency or instrumentality
thereof, in such amounts, with such deductibles, and by such methods as shall be
customary, in the good faith judgment of the respective Boards of Directors or
other governing body or officer or other agent of the Company or such
Subsidiary, as the case may be, for companies similarly situated in the
industry.
SECTION 4.06. COMPLIANCE CERTIFICATE; NOTICE OF DEFAULT.
(a) The Company shall deliver to the Trustee, within 90 days
after the end of each of the Company's fiscal years, an Officers' Certificate
(signed by the principal executive officer, principal financial officer and/or
principal accounting officer) stating that a review of its activities and the
activities of its Restricted Subsidiaries during the preceding fiscal year has
been made under the supervision of the signing officers with a view to
determining whether it has kept, observed, performed and fulfilled its
obligations under this Indenture and further stating, as to each such officer
signing such certificate, that to the best of such officers' knowledge the
Company during such preceding fiscal year has kept, observed, performed and
fulfilled each and every such obligation and no Default or Event of Default
occurred during such year and at the date of such certificate there is no
Default or Event of Default that has occurred and is continuing or, if such
signers do know of such Default or Event of Default, the certificate shall
describe the Default or Event of Default and its status with particularity. The
Officers' Certificate shall also notify the Trustee should the Company elect to
change the manner in which it fixes its fiscal year end.
(b) The annual financial statements delivered pursuant to
Section 4.08 shall be accompanied by a written report of the Company's
independent certified public accountants (who shall be a firm of established
national reputation) stating (A) that their audit examination has included a
review of the terms of this Indenture and the form of the Notes as they relate
to accounting matters, and (B) whether, in connection with their audit
examination, any Default or Event of Default has come to their attention and if
such a Default or Event of Default has come to their attention, specifying the
nature and period of existence thereof; PROVIDED, HOWEVER, that, without any
restriction as to the scope of the audit examination, such independent certified
public accountants shall not be liable by reason of any failure to obtain
knowledge of any such Default or Event of Default that would not be disclosed in
the course of an audit examination conducted in accordance with generally
accepted auditing standards.
-48-
<PAGE>
(c) So long as any of the Notes are outstanding (i) if any
Default or Event of Default has occurred and is continuing or (ii) if any Holder
seeks to exercise any remedy hereunder with respect to a claimed Default under
this Indenture or the Notes, the Company shall promptly deliver to the Trustee
by registered or certified mail or by telegram, telex or facsimile transmission
followed by hard copy by registered or certified mail an Officers' Certificate
specifying such event, notice or other action promptly of its becoming aware of
such occurrence.
SECTION 4.07. COMPLIANCE WITH LAWS.
The Company shall comply, and shall cause each of its
Subsidiaries to comply, with all applicable statutes, rules, regulations, orders
and restrictions of the United States of America, all states and municipalities
thereof and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as could not singly or in the
aggregate reasonably be expected to have a material adverse effect on the
financial condition, business or results of operations of the Company and its
Subsidiaries taken as a whole.
SECTION 4.08. REPORTS TO HOLDERS.
The Company shall deliver to the Trustee within 15 days after
the filing of the same with the Commission, copies of the quarterly and annual
reports and of the information, documents and other reports, if any, which the
Company is required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company
shall also comply with the other provisions of TIA Section 314(a).
SECTION 4.09. WAIVER OF STAY, EXTENSION OR 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 or extension law or any
usury law or other law that would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on the Notes as
-49-
<PAGE>
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it shall not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
shall suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 4.10. LIMITATION ON RESTRICTED PAYMENTS.
The Company shall not, and shall not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any
dividend or make any distribution (other than dividends or distributions payable
in Qualified Capital Stock of the Company) on or in respect of shares of the
Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem
or otherwise acquire or retire for value any Capital Stock of the Company or any
warrants, rights or options to purchase or acquire shares of any class of such
Capital Stock, (c) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund payment,
any Indebtedness of the Company or a Guarantor that is subordinate or junior in
right of payment to the Notes or a Guarantee, as the case may be, or (d) make
any Investment (each of the foregoing actions set forth in clauses (a), (b),
(c) and (d), other than Permitted Investments, being referred to as a
"Restricted Payment"), if at the time of such Restricted Payment or immediately
after giving effect thereto, (i) a Default or an Event of Default shall have
occurred and be continuing or (ii) the Company is not able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with Section 4.12 or (iii) the aggregate amount of Restricted
Payments (including such proposed Restricted Payment) made subsequent to the
Issue Date shall exceed the sum of: (w) 50% of the cumulative Consolidated Net
Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss) of the Company earned subsequent to the Issue Date and on or prior to
the date the Restricted Payment occurs (the "Reference Date") (treating such
period as a single accounting period); plus (x) 100% of the aggregate net cash
proceeds received by the Company from any Person (other than a Subsidiary of the
Company) from the issuance and sale subsequent to the Issue Date and on or prior
to the Reference Date of Qualified Capital Stock of the Company; plus (y) to the
extent not otherwise included in Consolidated Net Income of the Company, an
amount equal to the net reduction in Investments (other than reductions in
Permitted Indebtedness) in Unrestricted Subsidiaries resulting from divi-
-50-
<PAGE>
dends, interest payments, repayments of loans or advances, or other transfers of
cash, in each case, to the Company or to any Wholly Owned Restricted Subsidiary
of the Company from Unrestricted Subsidiaries, or from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (in each case valued as
provided in the definition of "Investment"), not to exceed, in the case of an
Unrestricted Subsidiary, the amount of Investments previously made by the
Company or any Restricted Subsidiary of the Company in such Unrestricted
Subsidiary and which were treated as a Restricted Payment under this Indenture;
plus (z) without duplication of any amounts included in clause (iii)(x) above,
100% of the aggregate net cash proceeds of any equity contribution received by
the Company from a holder of the Company's Capital Stock (excluding, in the case
of clauses (iii)(x) and (z), any net cash proceeds from a Public Equity Offering
to the extent used to redeem the Notes).
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit: (1) the payment of any
dividend within 60 days after the date of declaration of such dividend if the
dividend would have been permitted on the date of declaration; (2) if no Default
or Event of Default shall have occurred and be continuing, the acquisition of
any shares of Capital Stock of the Company, either (i) solely in exchange for
shares of Qualified Capital Stock of the Company or (ii) through the application
of net proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of shares of Qualified Capital Stock of the Company;
(3) if no Default or Event of Default shall have occurred and be continuing, the
acquisition of any Indebtedness of the Company or a Guarantor that is
subordinate or junior in right of payment to the Notes or a Guarantee, as the
case may be, either (i) solely in exchange for shares of Qualified Capital Stock
of the Company, or (ii) through the application of net proceeds of a
substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of (A) shares of Qualified Capital Stock of the Company or (B)
Refinancing Indebtedness; (4) so long as no Default or Event of Default shall
have occurred and be continuing, (i) repurchases by the Company of Common Stock
of the Company (or rights to acquire such Common Stock) from employees of the
Company or any of its Subsidiaries or their authorized representatives upon the
death, disability or termination of employment of such employees, or as
otherwise required by existing employment agreements, in an aggregate amount not
to exceed $500,000 in any calendar year and $3,000,000 in the aggregate
(PROVIDED that, notwithstanding the foregoing $500,000 per year limitation, on
or after April 22, 2003, the Company may repurchase Common Stock of the Company
(or rights to acquire such Common Stock) through the issuance of indebtedness
subordinated in right of payment to the Notes in an aggregate principal amount
of not more than
-51-
<PAGE>
$3,000,000 less the aggregate amount of Restricted Payments made pursuant to
this clause (4) prior to the date of such issuance, which indebtedness shall
provide for no payments of principal in excess of $500,000 per year prior to the
repayment in full of the Notes) plus (ii) the aggregate cash proceeds from any
payments on life insurance policies for which the Company or its Subsidiaries is
the beneficiary with respect to any employees, officers or directors of the
Company and its Subsidiaries which proceeds are used to purchase the Common
Stock of the Company held by any such employees, officers or directors. In
determining the aggregate amount of Restricted Payments made subsequent to the
Issue Date in accordance with clause (iii) of the immediately preceding
paragraph, amounts expended pursuant to clauses (1), (2)(ii), (3)(ii)(A), and
(4)(i) shall be included in such calculation.
The amount of any non-cash Restricted Payment shall be the fair
market value, on the date such Restricted Payment is made, of the assets or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined by
the Board of Directors of the Company whose resolution with respect thereto
shall be delivered to the Trustee, such determination to be based upon an
opinion or appraisal issued by an accounting, appraisal or investment banking
firm of national standing if such fair market value exceeds $10,000,000. Not
later than 50 days after the end of any fiscal quarter (100 days in the case of
the last fiscal quarter of the fiscal year) during which any Restricted Payment
is made, the Company shall deliver to the Trustee an Officers' Certificate
stating that all Restricted Payments made during such fiscal quarter were
permitted and setting forth the basis upon which the calculations required by
this covenant were computed, together with a copy of any opinion or appraisal
required by this Indenture.
SECTION 4.11. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into or permit to
exist any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any of its Affiliates
(each an "Affiliate Transaction"), other than (x) Affiliate Transactions
permitted under paragraph (b) below and (y) Affiliate Transactions on terms that
are no less favorable than those that might reasonably have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person that
is not an Affiliate of the Company or such Restricted Sub-
-52-
<PAGE>
sidiary. All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $500,000 shall
be approved by a majority of non-interested directors of the Board of Directors
of the Company or such Restricted Subsidiary, as the case may be, such approval
to be evidenced by a Board Resolution stating that such majority of
non-interested directors of the Board of Directors have determined that such
transaction complies with the foregoing provisions. If the Company or any
Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a
series of related Affiliate Transactions related to a common plan) that involves
an aggregate fair market value of more than $5,000,000, the Company or such
Restricted Subsidiary, as the case may be, shall, prior to the consummation
thereof, obtain a favorable opinion as to the fairness of such transaction or
series of related transactions to the Company or the relevant Restricted
Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to
(i) reasonable fees and compensation paid to and indemnity provided on behalf
of, officers, directors, employees or consultants of the Company or any
Restricted Subsidiary of the Company as determined in good faith by the
Company's Board of Directors or senior management; (ii) transactions exclusively
between or among the Company and any of its Wholly Owned Restricted Subsidiaries
or exclusively between or among such Wholly Owned Restricted Subsidiaries,
provided such transactions are not otherwise prohibited by this Indenture;
(iii) any agreement as in effect as of the Issue Date or any amendment thereto
or any transaction contemplated thereby (including pursuant to any amendment
thereto) in any replacement agreement thereto so long as any such amendment or
replacement agreement is not more disadvantageous to the Holders in any material
respect than the original agreement as in effect on the Issue Date; and
(iv) Restricted Payments permitted by this Indenture.
SECTION 4.12. LIMITATION ON INCURRENCE OF ADDITIONAL
INDEBTEDNESS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume,
guarantee, acquire, become liable, contingently or otherwise, with respect to,
or otherwise become responsible for payment of (collectively, "incur") any
Indebtedness (other than Permitted Indebtedness); PROVIDED, HOWEVER, that if no
Default or Event of Default shall have occurred and be continuing at the time of
or as a consequence of the incurrence of any such Indebtedness, the Company or
any of its Guarantors may in-
-53-
<PAGE>
cur Indebtedness (including, without limitation, Acquired Indebtedness) if on
the date of the incurrence of such Indebtedness, after giving effect to the
incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company
is greater than 2.0 to 1.0.
The Company shall not, and shall not permit any Guarantor to,
incur any Indebtedness which by its terms (or by the terms of any agreement
governing such Indebtedness) is subordinated in right of payment to any other
Indebtedness of the Company or such Guarantor, as the case may be, unless such
Indebtedness is also by its terms (or by the terms of any agreement governing
such Indebtedness) made expressly subordinate in right of payment to the Notes
or the Guarantee of such Guarantor, as the case may be, pursuant to
subordination provisions that are substantively identical to the subordination
provisions of such Indebtedness (or such agreement) that are most favorable to
the holders of any other Indebtedness of the Company or such Guarantor, as the
case may be.
SECTION 4.13. LIMITATION ON DIVIDEND AND OTHER PAYMENT
RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company shall not, and shall not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or make
any other distributions on or in respect of its Capital Stock; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary of the Company; or (c) transfer any of its
property or assets to the Company or any other Restricted Subsidiary of the
Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) this Indenture; (3) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary of the Company; (4) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired; (5) agreements existing on the
Issue Date to the extent and in the manner such agreements are in effect on the
Issue Date (including the New Bank Credit Facility); or (6) an agreement
governing Indebtedness incurred to Refinance the Indebtedness issued, assumed or
incurred pursuant to an agreement referred to in clause (2), (4) or (5) above;
PROVIDED, HOWEVER, that the provisions relating to such encumbrance or
restriction contained in any such Indebtedness are no less favorable to the
Company in any material respect as determined by the Board of
-54-
<PAGE>
Directors of the Company in their reasonable and good faith judgment than the
provisions relating to such encumbrance or restriction contained in agreements
referred to in such clause (2), (4) or (5).
SECTION 4.14. CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder
shall have the right to require that the Company purchase all or a portion of
such Holder's Notes pursuant to the offer described below (the "Change of
Control Offer"), at a purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, thereon to the date of
purchase.
(b) Within 30 days following the date upon which the Change of
Control occurred, the Company shall send, by first class mail, a notice to each
Holder at such Holder's last registered address, with a copy to the Trustee,
which notice shall govern the terms of the Change of Control Offer. The notice
to the Holders shall contain all instructions and materials necessary to enable
such Holders to tender Notes pursuant to the Change of Control Offer. Such
notice shall state:
(i) that the Change of Control Offer is being made pursuant
to this Section 4.14 and that all Notes tendered and not withdrawn shall
be accepted for payment;
(ii) the purchase price (including the amount of accrued
interest) and the purchase date (which shall be no earlier than 30 days
nor later than 45 days from the date such notice is mailed, other than
as may be required by law) (the "Change of Control Payment Date");
(iii) that any Note not tendered shall continue to accrue
interest;
(iv) that, unless the Company defaults in making payment
therefor, any Note accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Payment Date;
(v) that Holders electing to have a Note purchased pursuant
to a Change of Control Offer shall be required to surrender the Note,
with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the third
business day prior to the Change of Control Payment Date;
-55
<PAGE>
(vi) that Holders shall be entitled to withdraw their
election if the Paying Agent receives, not later than the second
business day prior to the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Notes the Holder delivered for
purchase and a statement that such Holder is withdrawing his election
to have such Notes purchased;
(vii) that Holders whose Notes are purchased only in part
shall be issued new Notes in a principal amount equal to the unpurchased
portion of the Notes surrendered; PROVIDED, HOWEVER, that each Note
purchased and each new Note issued shall be in an original principal
amount of $1,000 or integral multiples thereof; and
(viii) the circumstances and relevant facts regarding such
Change of Control.
On the Change of Control Payment Date, the Company shall, to the
extent permitted by law, (i) accept for payment all Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (ii) deposit with the
Paying Agent an amount equal to the aggregate Change of Control Payment in
respect of all Notes or portions thereof so tendered and (iii) deliver, or cause
to be delivered, to the Trustee for cancellation the Notes so accepted together
with an Officers' Certificate stating that such Notes or portions thereof have
been tendered to and purchased by the Company. The Paying Agent shall promptly
either (x) pay to the Holder against presentation and surrender (or, in the case
of partial payment, endorsement) of the Global Notes or (y) in the case of
Certificated Securities, mail to each Holder of Notes the Change of Control
Payment for such Notes, and the Trustee shall promptly authenticate and deliver
to the Holder of the Global Notes a new Global Note or Notes or, in the case of
Physical Notes, mail to each Holder new Certificated Securities, as applicable,
equal in principal amount to any unpurchased portion of the Notes surrendered,
if any, provided that each new Certificated Security shall be in a principal
amount of $1,000 or an integral multiple thereof. The Company shall notify the
Trustee and the Holders of the results of the Change of Control Offer on or as
soon as practicable after the Change of Control Payment Date.
Neither the Board of Directors of the Company nor the Trustee
may waive the provisions of this Section 4.14 relating to the Company's
obligation to make a Change of Control Offer or a Holder's right to redemption
upon a Change of Control.
-56-
<PAGE>
The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of this Section 4.14, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached their
obligations under the provisions of this Section 4.14 by virtue thereof.
SECTION 4.15. LIMITATION ON ASSET SALES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or
the applicable Restricted Subsidiary, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors), (ii) at least 75% of the consideration received
by the Company or the Restricted Subsidiary, as the case may be, from such Asset
Sale shall be in the form of cash or Cash Equivalents and is received at the
time of such disposition; PROVIDED that the provisions of this clause (ii) shall
not apply to an Asset Sale to the extent comprised of real property; and
(iii) upon the consummation of an Asset Sale, the Company shall apply, or cause
such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such
Asset Sale within 360 days of receipt thereof either (A) to prepay any
Indebtedness under the New Bank Credit Facility and, in the case of any
Indebtedness under any Revolving Credit Facility, effect a permanent reduction
in the availability under such Revolving Credit Facility, (B) to make an
investment in properties and assets that replace the properties and assets that
were the subject of such Asset Sale or in properties and assets that shall be
used in the business of the Company and its Subsidiaries as existing on the
Issue Date or in businesses reasonably related thereto ("Replacement Assets"),
or (C) a combination of prepayment and investment permitted by the foregoing
clauses (iii)(A) and (iii)(B). On the 361st day after an Asset Sale or such
earlier date, if any, as the Board of Directors of the Company or of such
Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to
such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the
next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such
aggregate amount of Net Cash Proceeds which have not been applied on or before
such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A),
(iii)(B) and (iii)(C) of the next preceding sentence (each a "Net Proceeds Offer
Amount") shall be applied by the Company or such Restricted Subsidiary to make
an offer to purchase (the "Net Proceeds Offer") on a
-57-
<PAGE>
date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45
days following the applicable Net Proceeds Offer Trigger Date, from all Holders
on a PRO RATA basis, that amount of Notes equal to the Net Proceeds Offer Amount
at a price equal to 100% of the principal amount of the Notes to be purchased,
plus accrued and unpaid interest thereon, if any, to the date of purchase;
PROVIDED, HOWEVER, that if at any time any non-cash consideration received by
the Company or any Restricted Subsidiary of the Company, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash (other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this covenant. The Company may defer the Net
Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount
equal to or in excess of $5,000,000 resulting from one or more Asset Sales (at
which time, the entire unutilized Net Proceeds Offer Amount, and not just the
amount in excess of $5,000,000, shall be applied as required pursuant to this
paragraph).
Notwithstanding the immediately preceding paragraph, the Company
and its Restricted Subsidiaries shall be permitted to consummate an Asset Sale
without complying with such paragraph to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; PROVIDED that any consideration not
constituting Replacement Assets received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two preceding paragraphs.
Each Net Proceeds Offer shall be mailed to the record Holders as
shown on the register of Holders within 25 days following the Net Proceeds Offer
Trigger Date, with a copy to the Trustee, and shall comply with the procedures
set forth in this Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering
Holders shall be purchased on a PRO RATA basis (based on amounts tendered). A
Net Proceeds Offer shall remain open for a period of 20 business days or such
longer period as may be required by law.
The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes
-58-
<PAGE>
pursuant to a Net Proceeds Offer. To the extent that the provisions of any
securities laws or regulations conflict with this covenant, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this covenant by virtue thereof.
SECTION 4.16. LIMITATION ON PREFERRED STOCK OF
RESTRICTED SUBSIDIARIES.
The Company shall not permit any of its Restricted Subsidiaries
that is not a Guarantor to issue any Preferred Stock (other than to the Company
or to a Wholly Owned Restricted Subsidiary of the Company) or permit any Person
(other than the Company or a Wholly Owned Restricted Subsidiary of the Company)
to own any Preferred Stock of any Restricted Subsidiary of the Company that is
not a Guarantor.
SECTION 4.17. LIMITATION ON LIENS.
The Company shall not, and shall not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens of any kind against or upon any property or
assets of the Company or any of its Restricted Subsidiaries whether owned on the
Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes or any Guarantee, the
Notes and such Guarantee, as the case may be, are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Liens and
(ii) in all other cases, the Notes and the Guarantees are equally and ratably
secured, except for (A) Liens existing as of the Issue Date to the extent and in
the manner such Liens are in effect on the Issue Date; (B) Liens securing
Indebtedness under the New Bank Credit Facility or the Canadian Credit Facility;
(C) Liens securing the Notes and the Guarantees; (D) Liens in favor of the
Company or a Wholly Owned Restricted Subsidiary of the Company on assets of any
Restricted Subsidiary of the Company; (E) Liens securing Refinancing
Indebtedness which is incurred to Refinance any Indebtedness which has been
secured by a Lien permitted under this Indenture and which has been incurred in
accordance with the provisions of this Indenture; PROVIDED, HOWEVER, that such
Liens (A) are no less favorable to the Holders and are not more favorable to the
lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being Refinanced and (B) do not extend to or cover any property or
assets of the Company or any of its Restricted Subsidiaries not securing the
Indebtedness so Refinanced; and (F) Permitted Liens.
-59-
<PAGE>
SECTION 4.18. ADDITIONAL SUBSIDIARY GUARANTEES.
If the Company or any of its Restricted Subsidiaries transfers
or causes to be transferred, in one transaction or a series of related
transactions, any property to any Restricted Subsidiary (other than a Foreign
Subsidiary) that is not a Guarantor, or if the Company or any of its Restricted
Subsidiaries shall organize, acquire or otherwise invest in another Restricted
Subsidiary (other than a Foreign Subsidiary) having total assets with a book
value in excess of $500,000, then such transferee or acquired or other
Restricted Subsidiary shall (i) execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Restricted Subsidiary shall unconditionally guarantee all of the
Company's obligations under the Notes and this Indenture on the terms set forth
in this Indenture and (ii) deliver to the Trustee an Opinion of Counsel that
such supplemental indenture has been duly authorized, executed and delivered by
such Restricted Subsidiary and constitutes a legal, valid, binding and
enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Guarantor for all purposes of this Indenture.
SECTION 4.19. CONDUCT OF BUSINESS.
The Company and its Restricted Subsidiaries shall not engage in
any businesses which are not the same, similar or related to the businesses in
which the Company and its Restricted Subsidiaries are engaged on the Issue Date.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. MERGER, CONSOLIDATION AND SALE OF ASSETS.
(a) The Company shall not, in a single transaction or series of
related transactions, consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or
otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Company's Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless: (i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is
-60-
<PAGE>
merged or the Person which acquires by sale, assignment, transfer, lease,
conveyance or other disposition the properties and assets of the Company and of
the Company's Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity") (x) shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the District of
Columbia and (y) shall expressly assume, by supplemental indenture (in form and
substance satisfactory to the Trustee), executed and delivered to the Trustee,
the due and punctual payment of the principal of, and premium, if any, and
interest on all of the Notes and the performance of every covenant of the Notes,
this Indenture and the Registration Rights Agreement on the part of the Company
to be performed or observed; (ii) immediately after giving effect to such
transaction and the assumption contemplated by clause (i)(2)(y) above (including
giving effect to any Indebtedness and Acquired Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be,
(1) shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction and
(2) shall be able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to Section 4.12; (iii) immediately before and
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including, without limitation, giving
effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to
be incurred and any Lien granted in connection with or in respect of the
transaction), no Default or Event of Default shall have occurred or be
continuing; and (iv) the Company or the Surviving Entity shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that such consolidation, merger, sale, assignment, transfer, lease, conveyance
or other disposition and, if a supplemental indenture is required in connection
with such transaction, such supplemental indenture comply with the applicable
provisions of this Indenture and that all conditions precedent in this Indenture
relating to such transaction have been satisfied.
(b) For purposes of this Section 5.01, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries of the Company the Capital Stock of which
constitutes all or substantially all of the properties and assets of the
Company, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
(c) Each Guarantor (other than any Guarantor whose Guarantee is
to be released in accordance with the terms of the
-61-
<PAGE>
Guarantee and this Indenture in connection with any transaction complying with
the provisions of Section 4.15) shall not, and the Company shall not cause or
permit any Guarantor to, consolidate with or merge with or into any Person other
than the Company or any other Guarantor unless: (i) the entity formed by or
surviving any such consolidation or merger (if other than the Guarantor) or to
which such sale, lease, conveyance or other disposition shall have been made is
a corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia; (ii) such entity assumes by
supplemental indenture all of the obligations of the Guarantor on the Guarantee;
(iii) immediately after giving effect to such transaction, no Default or Event
of Default shall have occurred and be continuing; and (iv) immediately after
giving effect to such transaction and the use of any net proceeds therefrom on a
PRO FORMA basis, the Company could satisfy the provisions of clause (ii) of the
first paragraph of this Section 5.01. Any merger or consolidation of a
Guarantor with and into the Company (with the Company being the surviving
entity) or another Guarantor that is a Wholly Owned Restricted Subsidiary of the
Company need only comply with clause (iv) of the first paragraph of
Section 5.01(a).
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation, combination or merger or any transfer of
all or substantially all of the assets of the Company in accordance with Section
5.01, in which the Company is not the continuing corporation, the successor
Person formed by such consolidation or into which the Company is merged or to
which such conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture and the Notes with the same effect as if such surviving entity
had been named as such.
ARTICLE SIX
REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" means any of the following events:
(a) the failure to pay interest on any Notes when the same
becomes due and payable and the default continues for a period of 30
days;
-62-
<PAGE>
(b) the failure to pay the principal on any Notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer);
(c) a default in the observance or performance of any other
covenant or agreement contained in this Indenture which default
continues for a period of 30 days after the Company receives written
notice specifying the default (and demanding that such default be
remedied) from the Trustee or the Holders of at least 25% of the
outstanding principal amount of the Notes (except in the case of a
default with respect to Section 5.01, which shall constitute an Event of
Default with such notice requirement but without such passage of time
requirement);
(d) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal
amount of any Indebtedness of the Company or any Restricted Subsidiary
of the Company, or the acceleration of the final stated maturity of any
such Indebtedness if the aggregate principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at final maturity
or which has been accelerated, aggregates $2,500,000 or more at any
time;
(e) one or more judgments in an aggregate amount in excess of
$2,500,000 shall have been rendered against the Company or any of its
Restricted Subsidiaries and such judgments remain undischarged, unpaid
or unstayed for a period of 60 days after such judgment or judgments
become final and non-appealable;
(f) the Company or any of its Significant Subsidiaries pursuant
to or under or within the meaning of any Bankruptcy Law:
(i) commences a voluntary case or proceeding;
(ii) consents to the entry of an order for relief
against it in an involuntary case or proceeding;
(iii) consents to the appointment of a Custodian of it
or for all or substantially all of its property;
(iv) makes a general assignment for the benefit of
its creditors; or
-63-
<PAGE>
(v) shall generally not pay its debts when such
debts become due or shall admit in writing its inability to pay
its debts generally;
(g) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any of its
Significant Subsidiaries in an involuntary case or proceeding,
(ii) appoints a Custodian of the Company or any of
its Significant Subsidiaries for all or substantially all of
their properties taken as a whole, or
(iii) orders the liquidation of the Company, the
Company or any of their Significant Subsidiaries,
and in each case the order or decree remains unstayed and in effect for
60 days; or
(h) any of the Guarantees ceases to be in full force and effect
or any of the Guarantees is declared to be null and void and
unenforceable or any of the Guarantees is found to be invalid, in each
case by a court of competent jurisdiction in a final non-appealable
judgment, or any of the Guarantors denies its liability under its
Guarantee (other than by reason of release of a Guarantor in accordance
with the terms of this Indenture).
SECTION 6.02. ACCELERATION.
If an Event of Default (other than an Event of Default specified
in Section 6.01 (f) or (g) relating to the Company) shall occur and be
continuing, the Trustee or the Holders of at least 25% in principal amount of
outstanding Notes may declare the principal of and accrued interest on all the
Notes to be due and payable by notice in writing to the Company and the Trustee
specifying the respective Event of Default and that it is a declaration of
acceleration, and the same shall become immediately due and payable. If an
Event of Default specified in Section 6.01 (f) or (g) with respect to the
Company occurs and is continuing, then all unpaid principal of, and premium, if
any, and accrued and unpaid interest on all of the outstanding Notes shall IPSO
FACTO become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration with respect to
the Notes as described in the preceding paragraph, the Holders of a majority in
principal amount of the Notes may
-64-
<PAGE>
rescind and cancel such declaration and its consequences (a) if the rescission
would not conflict with any judgment or decree, (b) if all existing Events of
Default have been cured or waived except nonpayment of principal or interest
that has become due solely because of the acceleration, (c) to the extent the
payment of such interest is lawful, interest on overdue installments of interest
and overdue principal, which has become due otherwise than by such declaration
of acceleration, has been paid, (d) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (e) in the event of the cure or waiver of an
Event of Default of the type described in Section 6.01, the Trustee shall have
received an Officers' Certificate and an opinion of counsel that such Event of
Default has been cured or waived. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
SECTION 6.03. OTHER REMEDIES.
(a) If an Event of Default occurs and is continuing, the
Trustee may pursue any available remedy by proceeding at law or in equity to
collect the payment of the principal of, premium, if any, or interest on the
Notes or to enforce the performance of any provision of the Notes or this
Indenture.
(b) All rights of action and claims under this Indenture or the
Notes may be enforced by the Trustee even if it does not possess any of the
Notes or does not produce any of them in the proceeding. A delay or omission by
the Trustee or 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 6.04. WAIVER OF PAST DEFAULTS.
Prior to the acceleration of the Notes, the Holders of a
majority in aggregate principal amount of the Notes then outstanding by notice
to the Trustee may, on behalf of the Holders of all the Notes, waive any
existing Default or Event of Default and its consequences under this Indenture,
except a Default or Event of Default specified in Section 6.01(a) or (b) or in
respect of any provision hereof which cannot be modified or amended without the
consent of the Holder so affected pursuant to Section 9.02. When a Default or
Event of Default is so waived, it shall be deemed cured and shall cease to
exist. This Section 6.04 shall be in lieu of Section 316(a)(1)(B) of the TIA
and such Section 316(a)(1)(B) of the TIA is hereby expressly excluded from this
Indenture and the Notes, as permitted by the TIA.
-65-
<PAGE>
SECTION 6.05. CONTROL BY MAJORITY.
Holders of the Notes may not enforce this Indenture or the Notes
except as provided in this Article Six and under the TIA. The Holders of a
majority in aggregate principal amount of the then outstanding Notes have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee, PROVIDED, HOWEVER, that the Trustee may refuse to follow any
direction (a) that conflicts with any rule of law or this Indenture, (b) that
the Trustee, in its sole discretion, determines may be unduly prejudicial to the
rights of another Holder (it being understood that the Trustee shall have no
duty to ascertain whether or not such actions or forebearances are unduly
prejudicial to such Holders), or (c) that may expose the Trustee to personal
liability for which adequate indemnity provided to the Trustee against such
liability is not reasonably assured to it; PROVIDED, FURTHER, HOWEVER, that the
Trustee may take any other action deemed proper by the Trustee that is not
inconsistent with such direction or this Indenture. This Section 6.05 shall be
in lieu of Section 316(a)(1)(A) of the TIA, and such Section 316(a)(1)(A) of
the TIA is hereby expressly excluded from this Indenture and the Notes, as
permitted by the TIA.
SECTION 6.06. LIMITATION ON SUITS.
No Holder of any Notes shall have any right to institute any
proceeding with respect to this Indenture or the Notes or any remedy hereunder,
unless the Holders of at least 25% in aggregate principal amount of the
outstanding Notes have made written request, and offered reasonable indemnity,
to the Trustee to institute such proceeding as Trustee under the Notes and this
Indenture, the Trustee has failed to institute such proceeding within 30 days
after receipt of such notice, request and offer of indemnity and the Trustee,
within such 30-day period, has not received directions inconsistent with such
written request by Holders of a majority in aggregate principal amount of the
outstanding Notes.
The foregoing limitations shall not apply to a suit instituted
by a Holder of a Note for the enforcement of the payment of the principal of,
premium, if any, or interest on, such Note on or after the respective due dates
expressed or provided for in such Note.
A Holder may not use this Indenture to prejudice the rights of
any other Holders or to obtain priority or preference over such other Holders.
-66-
<PAGE>
SECTION 6.07. RIGHT OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision in this Indenture, the right
of any Holder of a Note to receive payment of the principal of, premium, if any,
and interest on such Note, on or after the respective due dates expressed or
provided for in such Note, or to bring suit for the enforcement of any such
payment on or after the respective due dates, is absolute and unconditional and
shall not be impaired or affected without the consent of the Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in clause (a) or (b) of Section
6.01 occurs and is continuing, the Trustee may recover judgment in its own name
and as trustee of an express trust against the Company, or any other obligor on
the Notes for the whole amount of the principal of, premium, if any, and accrued
interest remaining unpaid, together with interest on overdue principal and, to
the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum provided for by the
Notes and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and any other
amounts due the Trustee pursuant to the provisions of Section 7.07.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents, counsel, accountants and
experts) and the Holders allowed in any judicial proceedings relative to the
Company (or any other obligor upon the Notes), its creditors or its property and
shall be entitled and empowered to collect and receive any monies or other
property payable or deliverable on any such claims and to distribute the same,
and any Custodian in any such judicial proceedings is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder
-67-
<PAGE>
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article Six
it shall pay out such money in the following order:
First: to the Trustee, its agents and attorneys for amounts due
under Section 7.07, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the cost
and expenses of collection;
Second: to Holders for interest accrued on the Notes, ratably,
without preference or priority of any kind, according to the amounts due
and payable on the Notes for interest;
Third: to Holders for the principal amounts (including any
premium) owing under the Notes, ratably, without preference or priority
of any kind, according to the amounts due and payable on the Notes for
the principal (including any premium); and
Fourth: the balance, if any, to the Company.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Holders pursuant to this Section
6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court may in its discretion require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to any suit by the Trustee, any suit
by a Holder pursuant to Section 6.07, or a suit by a Holder or Holders of more
than 10% in aggregate principal amount of the outstanding Notes.
-68-
<PAGE>
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in its exercise thereof as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or obligations
shall be implied in this Indenture that are adverse to the Trustee.
(2) The Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein,
upon certificates or opinions furnished to the Trustee and conforming to
the requirements of this Indenture. However, in the case of any such
certificates or opinions that by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to
the requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein contained,
the Trustee may not be relieved from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of
paragraph (b) of this Section 7.01.
(2) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.02, 6.04 or 6.05.
-69-
<PAGE>
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this
Section 7.01 and Section 7.02.
(f) The Trustee shall not be liable for interest on any money
or assets received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in acting
or refraining from acting upon any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel of its selection and may require an Officers'
Certificate or an Opinion of Counsel, which shall conform to
Sections 11.04 and 11.05. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
Officers' Certificate or Opinion of Counsel. The Trustee may consult
with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from
liability in respect to any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action that it
takes or omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers.
-70-
<PAGE>
(e) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, notice, request, direction, consent,
order, bond, debenture, or other paper or document, but the Trustee, in
its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall determine
to make such further inquiry or investigation, it shall be entitled,
upon reasonable notice to the Company, to examine the books, records,
and premises of the Company, personally or by agent or attorney and to
consult with the officers and representatives of the Company, including
the Company's accountants and attorneys.
(f) The Trustee shall be under no obligation to exercise any of
its rights or powers vested in it by this Indenture at the request,
order or direction of any of the Holders pursuant to the provisions of
this Indenture, unless such Holders have offered to the Trustee
reasonable indemnity satisfactory to the Trustee against the costs,
expenses and liabilities which may be incurred by it in compliance with
such request, order or direction.
(g) The Trustee shall not be required to give any bond or
surety in respect of the performance of its powers and duties hereunder.
(h) Delivery of reports, information and documents to the
Trustee under Section 4.08 is for informational purposes only and the
Trustee's receipt of the foregoing shall not constitute constructive
notice of any information contained therein or determinable from
information contained therein, including the Company's compliance with
any of their covenants hereunder (as to which the Trustee is entitled to
rely exclusively on Officers' Certificates).
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company, the
Company, or any of the Subsidiaries, or their respective Affiliates with the
same rights it would have if it were not Trustee. Any Agent may do the same
with like rights. However, the Trustee must comply with Sections 7.10 and 7.11.
-71-
<PAGE>
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Notes, and it shall not be accountable for the
Company's use of the proceeds from the Notes, it shall not be responsible for
the use or application of any money received by any Paying Agent other than the
Trustee, and it shall not be responsible for any statement of the Company in
this Indenture or the Notes other than the Trustee's certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULT.
If a Default or an Event of Default occurs and is continuing and
if it is known to a Trust Officer, the Trustee shall mail to each Holder notice
of the uncured Default or Event of Default within 90 days after obtaining
knowledge thereof. Except in the case of a Default or an Event of Default in
payment of principal of, or interest on, any Note, including an accelerated
payment, a Default in payment on the Change of Control Payment Date pursuant to
a Change of Control Offer or on the Net Proceeds Offer Payment Date pursuant to
a Net Proceeds Offer and a Default in compliance with Article Five hereof, the
Trustee may withhold the notice if and so long as its Board of Directors, the
executive committee of its Board of Directors or a committee of its directors
and/or Trust Officers in good faith determines that withholding the notice is in
the interest of the Holders. The foregoing sentence of this Section 7.05 shall
be in lieu of the proviso to Section 315(b) of the TIA and such proviso to
Section 315(b) of the TIA is hereby expressly excluded from this Indenture and
the Notes, as permitted by the TIA.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after May 15 of each year beginning with 1998,
the Trustee shall, to the extent that any of the events described in TIA Section
313(a) occurred within the previous twelve months, but not otherwise, mail to
each Holder a brief report dated as of such date that complies with TIA Section
313(a). The Trustee also shall comply with TIA Sections 313(b), (c) and (d).
A copy of each report at the time of its mailing to Holders
shall be mailed to the Company and filed with the Commission and each stock
exchange, if any, on which the Notes are listed.
The Company shall promptly notify the Trustee if the Notes
become listed on any stock exchange and the Trustee shall comply with TIA
Section 313(d).
-72-
<PAGE>
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such
compensation for its services as has been agreed to in writing signed by the
Company and the Trustee. The Trustee's compensation shall not be limited by any
law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred or made by it in connection with the performance of its duties under
this Indenture. Such expenses shall include the reasonable fees and expenses of
the Trustee's agents, counsel, accountants and experts.
The Company shall indemnify each of the Trustee (or any
predecessor Trustee) and its agents, employees, stockholders, Affiliates and
directors and officers for, and hold them each harmless against, any and all
loss, liability, damage, claim or expense (including reasonable fees and
expenses of counsel), including taxes (other than taxes based on the income of
the Trustee) incurred by them except for such actions to the extent caused by
any negligence or willful misconduct on their part, arising out of or in
connection with the acceptance or administration of this trust including the
reasonable costs and expenses of defending themselves against any claim or
liability in connection with the exercise or performance of any of their rights,
powers or duties hereunder. The Trustee shall notify the Company promptly of
any claim asserted against the Trustee for which it may seek indemnity. Failure
by the Trustee to so notify the Company shall not relieve the Company of its
Obligations hereunder except to the extent such failure shall have prejudiced
the Company. At the Trustee's sole discretion, the Company shall defend the
claim and the Trustee shall cooperate and may participate in the defense;
PROVIDED, HOWEVER, that any settlement of a claim shall be approved in writing
by the Trustee if such settlement would result in an admission of liability by
the Trustee or if such settlement would not be accompanied by a full release of
the Trustee for all liability arising out of the events giving rise to such
claim. Alternatively, the Trustee may at its option have separate counsel of
its own choosing and the Company shall pay the reasonable fees and expenses of
such counsel.
To secure the Company's payment obligations in this
Section 7.07, the Trustee shall have a lien prior to the Notes on all assets or
money held or collected by the Trustee, in its capacity as Trustee, except
assets or money held in trust to pay principal of or premium, if any, or
interest on particular Notes.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(f) occurs,
-73-
<PAGE>
such expenses and the compensation for such services are intended to constitute
expenses of administration under any Bankruptcy Law.
The provisions of this Section 7.07 shall survive the
termination of this Indenture.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
The Trustee may resign at any time by so notifying the Company.
The Holders of a majority in principal amount of the outstanding Notes may
remove the Trustee and appoint a successor Trustee with the Company's consent,
by so notifying the Company and the Trustee. The Company may remove the Trustee
if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall notify each Holder of
such event and shall promptly appoint a successor Trustee. Within one year
after the successor Trustee takes office, the Holders of a majority in aggregate
principal amount of the outstanding Notes may appoint a successor Trustee to
replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The Company shall mail notice of such successor Trustee's
appointment to each Holder.
If a successor Trustee does not take office within 30 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in aggregate principal amount of the outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
-74-
<PAGE>
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding any resignation or replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee; PROVIDED, HOWEVER, that
such corporation shall be otherwise qualified and eligible under this
Article Seven.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the
requirement of TIA Sections 310(a)(1), (2) and (5). The Trustee (or, in the
case of a Trustee that is a subsidiary of another bank or a corporation included
in a bank holding company system, the related bank or bank holding company)
shall have a combined capital and surplus of at least $100,000,000 million as
set forth in its most recent published annual report of condition, and have a
corporate trust office in the City of New York. In addition, if the Trustee is
a subsidiary of another bank or a corporation included in a bank holding company
system, the Trustee, independently of such bank or bank holding company, shall
meet the capital requirements of TIA Section 310(a)(2). The Trustee shall
comply with TIA Section 310(b); PROVIDED, HOWEVER, that there shall be excluded
from the operation of TIA Section 310(b)(1) any indenture or indentures under
which other securities, or certificates of interest or participation in other
securities, of the Company are outstanding, if the requirements for such
exclusion set forth in TIA Section 310(b)(1) are met. The provisions of TIA
Section 310 shall apply to the Company, as obligor of the Notes.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
-75-
<PAGE>
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. TERMINATION OF COMPANY'S OBLIGATIONS.
This Indenture shall be discharged and shall cease to be of further
effect (except as to surviving rights or registration of transfer or exchange of
the Notes, as expressly provided for in this Indenture) as to all outstanding
Notes when (a) either (i) all Notes, theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (ii) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (b)
the Company has paid all other sums payable under this Indenture by the Company;
and (c) the Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel stating that all conditions precedent under this Indenture
relating to the satisfaction and discharge of this Indenture have been complied
with; PROVIDED, HOWEVER, that such counsel may rely, as to matters of fact, on a
certificate or certificates of officers of the Company.
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for (a) the rights of Holders to
receive payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments are due, (b) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payments, (c) the rights, powers, trust, duties and immunities of the
Trustee and the Company's obligations in connection therewith and (d) the Legal
Defeasance provisions of this Section 8.01. In addition, the Company may, at
its option and at any time, elect to have the
-76-
<PAGE>
obligations of the Company released with respect to covenants contained in
Sections 4.04, 4.05, 4.08 and 4.10 through 4.19 and Article Five ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event of Covenant Defeasance, those events described under Section 6.01 (except
those events described in Section 6.01(a),(b),(f) and (g)) shall no longer
constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders cash in United States dollars, non-callable
U.S. Government Obligations, or a combination thereof, in such amounts as
shall be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any,
and interest on the Notes on the stated date for payment thereof or on the
applicable Redemption Date, as the case may be;
(b) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an Opinion of Counsel in the United States reasonably
acceptable to the Trustee confirming that (i) the Company has received
from, or there has been published by, the Internal Revenue Service a ruling
or (ii) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the Holders shall
not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and in either case, and (iii) the Holders
shall be subject to U.S. federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(c) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders shall not
recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and shall be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or
-77-
<PAGE>
insofar as Events of Default under Section 6.01(f) or (g) from bankruptcy
or insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under this Indenture or
any other material agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance, as the case may be, have been complied with; and
(h) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the deposit, the
trust funds shall not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally.
Notwithstanding the foregoing, the Opinion of Counsel required by
clause (b) with respect to Legal Defeasance need not be delivered if all the
Notes not theretofore delivered to the Trustee for cancellation (i) have become
due and payable or (ii) shall become due and payable on the maturity date within
one year under arrangements satisfactory to the Trustee for the giving of notice
of redemption by such Trustee in the name, and at the expense, of the Company.
SECTION 8.02. APPLICATION OF TRUST MONEY.
The Trustee or Paying Agent shall hold in trust U.S. Legal Tender or
U.S. Government Obligations deposited with it pursuant to Section 8.01, and
shall apply the deposited U.S. Legal Tender and the money from U.S. Government
Obligations in accordance with this Indenture to the payment of the principal of
and interest on the Notes. The Trustee shall be under no obligation to invest
said U.S. Legal Tender or U.S. Government Obligations.
-78-
<PAGE>
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the Legal Tender or U.S.
Government Obligations deposited pursuant to Section 8.01 or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of outstanding Notes.
SECTION 8.03. REPAYMENT TO THE COMPANY.
Subject to Sections 7.07 and 8.01, the Trustee and the Paying Agent
shall promptly pay to the Company upon request any excess U.S. Legal Tender or
U.S. Government Obligations held by them at any time and thereupon shall be
relieved from all liability with respect to such money. The Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for one year after
the due date for payment of such principal or interest; PROVIDED, HOWEVER, that
the Company shall, if requested by the Trustee or Paying Agent, give to the
Trustee or Paying Agent, indemnification reasonably satisfactory to it against
any and all liability which may be incurred by it by reason of such paying;
PROVIDED, FURTHER, that the Trustee or such Paying Agent, before being required
to make any payment, may at the expense of the Company cause to be published
once in a newspaper of general circulation in the City of New York or mail to
each Holder entitled to such money notice that such money remains unclaimed and
that after a date specified therein which shall be at least 30 days from the
date of such publication or mailing any unclaimed balance of such money then
remaining shall be repaid to the Company. After payment to the Company, Holders
entitled to such money must look to the Company for payment as general creditors
unless an applicable law designates another Person, and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
SECTION 8.04. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or U.S. Government Obligations in accordance with Section 8.01 by reason
of any legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Notes shall
be revived and reinstated as though no deposit had occurred pursuant to
Section 8.01 until such time as the Trustee or Paying Agent is permitted to
apply all such U.S. Legal Tender or U.S. Government Obligations in accordance
with Section 8.01; PROVIDED, HOWEVER, that if the Company has made any payment
of interest on or principal of any Notes because of
-79-
<PAGE>
the reinstatement of its obligations, the Company shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the U.S. Legal
Tender or U.S. Government Obligations held by the Trustee or Paying Agent.
SECTION 8.05. ACKNOWLEDGMENT OF DISCHARGE BY TRUSTEE.
After (i) the conditions of Section 8.01 have been satisfied, (ii) the
Company has paid or caused to be paid all other sums payable hereunder by the
Company and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent referred to in clause (i) above relating to the satisfaction and
discharge of this Indenture have been complied with, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
this Indenture except for those surviving obligations specified in Section 8.01,
PROVIDED the legal counsel delivering such Opinion of Counsel may rely as to
matters of fact on one or more Officers' Certificates of the Company.
ARTICLE NINE
MODIFICATION OF THE INDENTURE
SECTION 9.01. WITHOUT CONSENT OF HOLDERS.
Subject to the provisions of Section 9.02, the Company, the Guarantors
and the Trustee may amend, waive or supplement this Indenture without notice to
or consent of any Holder: (a) to cure any ambiguity, defect or inconsistency;
(b) to comply with Section 5.01 of this Indenture; (c) to provide for
uncertificated Notes in addition to certificated Notes; (d) to comply with any
requirements of the Commission in order to effect or maintain the qualification
of this Indenture under the TIA; or (e) to make any change that would provide
any additional benefit or rights to the Holders or that does not adversely
affect the rights of any Holder. Notwithstanding the foregoing, the Trustee,
the Guarantors and the Company may not make any change pursuant to this Section
9.01 that adversely affects the rights of any Holder under this Indenture
without the consent of such Holder. In formulating its determination on such
matters, the Trustee shall be entitled to rely on such evidence as it deems
appropriate, including, without limitation, solely on an Opinion of Counsel, and
may not be held liable therefor.
-80-
<PAGE>
Upon the request of the Company and the Guarantors accompanied by a
Board Resolution authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in
Section 9.06, the Trustee shall join with the Company and the Guarantors in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations which may be therein contained, but the Trustee may but shall not
be obligated to enter into such amended or supplemental Indenture which affects
its own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS.
The Company, the Guarantors and the Trustee may amend or supplement
this Indenture or the Notes or any amended or supplemental Indenture with the
written consent of the Holders of Notes of not less than a majority in aggregate
principal amount of the Notes then outstanding (including consents obtained in
connection with a tender offer or exchange offer for the Notes).
Upon the request of the Company and the Guarantors accompanied by a
Board Resolution authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of the documents described in Section 9.06, the Trustee shall join
with the Company and the Guarantors in the execution of such amended or
supplemental Indenture unless such amended or supplemental Indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise, in
which case the Trustee may in its sole discretion, but shall not be obligated
to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such amended or supplemental Indenture
or waiver. Subject to Sections 6.04 and 6.07, the Holders of a majority in
aggregate principal amount of the Notes then outstanding may waive compliance in
a par-
-81-
<PAGE>
ticular instance by the Company with any provision of this Indenture or the
Notes. However, without the consent of each Holder of the Notes affected
thereby, an amendment or waiver may not, directly or indirectly: (i) reduce the
amount of Notes whose Holders must consent to an amendment; (ii) reduce the rate
of or change or have the effect of changing the time for payment of premium, if
any, and interest, including defaulted interest, on any Notes; (iii) reduce the
principal of or change or have the effect of changing the fixed maturity of any
Notes, or change the date on which any Notes may be subject to redemption or
repurchase, or reduce the redemption or repurchase price therefor; (iv) make any
Notes payable in money other than that stated in the Notes; (v) make any change
in provisions of this Indenture protecting the right of each Holder to receive
payment of premium, if any, principal of and interest on such Note on or after
the due date thereof or to bring suit to enforce such payment, or permitting
Holders of a majority in principal amount of the Notes to waive Defaults or
Events of Default; (vi) after the Company's obligation to purchase Notes arises
thereunder, amend, change or modify in any material respect the obligation of
the Company to make and consummate a Change of Control Offer in the event of a
Change of Control which has occurred or make and consummate a Net Proceeds Offer
with respect to any Asset Sale that has been consummated or modify any of the
provisions or definitions with respect thereto; (vii) modify or change any
provision of this Indenture or the related definitions affecting the ranking of
the Notes or any Guarantee in a manner which adversely affects the Holders; or
(viii) release any Guarantor from any of its obligations under its Guarantee or
this Indenture otherwise than in accordance with the terms of this Indenture.
SECTION 9.03. COMPLIANCE WITH TIA.
Every amendment, waiver or supplement of this Indenture or the Notes
shall comply with the TIA as then in effect; PROVIDED, HOWEVER, that this
Section 9.03 shall not of itself require that this Indenture or the Trustee be
qualified under the TIA or constitute any admission or acknowledgment by any
party hereto that any such qualification is required prior to the time this
Indenture and the Trustee are required by the TIA to be so qualified.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Note or portion of a Note that evidences the same debt as the
consenting Holder's Note, even if notation of the consent is not made on any
Note. Subject to the following paragraph, any such Holder or subse-
-82-
<PAGE>
quent Holder may revoke the consent as to such Holder's Note or portion of such
Note by notice to the Trustee or the Company received before the date on which
the Trustee receives an Officers' Certificate certifying that the Holders of the
requisite principal amount of Notes have consented (and not theretofore revoked
such consent) to the amendment, supplement or waiver. An amendment, supplement
or waiver becomes effective upon receipt by the Trustee of such Officers'
Certificate and evidence of consent by the Holders of the requisite percentage
in principal amount of outstanding Notes.
The Company may, but shall not be obligated to, fix a Record Date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a Record Date is fixed, then notwithstanding the
second sentence of the immediately preceding paragraph, those Persons who were
Holders at such Record Date (or their duly designated proxies), and only those
Persons, shall be entitled to revoke any consent previously given, whether or
not such Persons continue to be Holders after such Record Date. No such consent
shall be valid or effective for more than 90 days after such Record Date unless
consents from Holders of the requisite percentage in principal amount of
outstanding Notes required hereunder for the effectiveness of such consents
shall have also been given and not revoked within such 90 day period.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
If an amendment, supplement or waiver changes the terms of a Note, the
Trustee may require the Holder of such Note to deliver it to the Trustee. The
Trustee may place an appropriate notation on the Note about the changed terms
and return it to the Holder. Alternatively, if the Company or the Trustee so
determine, the Company in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; PROVIDED, HOWEVER, that the Trustee
may, but shall not be obligated to, execute any such amendment, supplement or
waiver which affects the Trustee's own rights, duties or immunities under this
Indenture. In executing such amendment, supplement or waiver the Trustee shall
be entitled to receive indemnity reasonably satisfactory to it, and shall be
fully protected in relying upon an Opinion of Counsel and an Officers'
Certificate of the Company, stating that no Event of Default shall occur as a
result of such amendment, supplement or waiver and that the execution of such
amendment, supplement or waiver is authorized or per-
-83-
<PAGE>
mitted by this Indenture; PROVIDED, HOWEVER, that the legal counsel delivering
such Opinion of Counsel may rely as to matters of fact on one or more Officers'
Certificates of the Company. Such Opinion of Counsel shall not be an expense of
the Trustee.
ARTICLE 10
GUARANTEE OF NOTES
SECTION 10.01. UNCONDITIONAL GUARANTEE.
Subject to the provisions of this Article Ten, each Guarantor hereby,
jointly and severally, unconditionally and irrevocably guarantees, on a senior
basis (such guarantee to be referred to herein as a "Guarantee") to each Holder
of a Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of this
Indenture, the Notes or the obligations of the Company or any other Guarantor to
the Holders or the Trustee hereunder or thereunder, that: (a) the principal of,
premium, if any, and interest on the Notes (and any Liquidated Damages payable
thereon) shall be duly and punctually paid in full when due, whether at
maturity, upon redemption at the option of Holders pursuant to the provisions of
the Notes relating thereto, by acceleration or otherwise, and interest on the
overdue principal and (to the extent permitted by law) interest, if any, on the
Notes and all other obligations of the Company or the Guarantors to the Holders
or the Trustee hereunder or thereunder (including amounts due the Trustee under
Section 7.07) and all other obligations shall be promptly paid in full or
performed, all in accordance with the terms hereof and thereof; and (b) in case
of any extension of time of payment or renewal of any Notes or any of such other
obligations, the same shall be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at maturity, by
acceleration or otherwise. Failing payment when due of any amount so
guaranteed, or failing performance of any other obligation of the Company to the
Holders under this Indenture or under the Notes, for whatever reason, each
Guarantor shall be obligated to pay, or to perform or cause the performance of,
the same immediately. An Event of Default under this Indenture or the Notes
shall constitute an event of default under this Guarantee, and shall entitle the
Holders of Notes to accelerate the obligations of the Guarantors hereunder in
the same manner and to the same extent as the obligations of the Company.
-84-
<PAGE>
Each of the Guarantors hereby agrees that its obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, any release of any other Guarantor, the
recovery of any judgment against the Company, any action to enforce the same,
whether or not a Guarantee is affixed to any particular Note, or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a Guarantor. Each of the Guarantors hereby waives the benefit of
diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that its Guarantee shall not be discharged except by complete
performance of the obligations contained in the Notes, this Indenture and this
Guarantee. This Guarantee is a guarantee of payment and not of collection. If
any Holder or the Trustee is required by any court or otherwise to return to the
Company or to any Guarantor, or any custodian, trustee, liquidator or other
similar official acting in relation to the Company or such Guarantor, any amount
paid by the Company or such Guarantor to the Trustee or such Holder, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Guarantor further agrees that, as between it, on the one
hand, and the Holders of Notes and the Trustee, on the other hand, (a) subject
to this Article Ten, the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article Six for the purposes of this Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (b) in the
event of any acceleration of such obligations as provided in Article Six, such
obligations (whether or not due and payable) shall forthwith become due and
payable by the Guarantors for the purpose of this Guarantee.
No stockholder, officer, director, employee or incorporator, past,
present or future, or any Guarantor , as such, shall have any personal liability
under this Guarantee by reason of his, her or its status as such stockholder,
officer, director, employee or incorporator.
Each Guarantor that makes a payment or distribution under its
Guarantee shall be entitled to a contribution from each other Guarantor,
determined in accordance with GAAP.
-85-
<PAGE>
SECTION 10.02. LIMITATIONS ON GUARANTEES.
The obligations of any Guarantor under its Guarantee are limited to
the maximum amount which, after giving effect to all other contingent and fixed
liabilities of the Guarantor will result in the obligations of the Guarantor
under the Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under any laws of the United States, any state of the United States or
the District of Columbia.
SECTION 10.03. EXECUTION AND DELIVERY OF GUARANTEE.
To further evidence the Guarantee set forth in Section 10.01, each
Guarantor hereby agrees that a notation of such Guarantee, substantially in the
form of EXHIBIT E, shall be endorsed on each Note authenticated and delivered by
the Trustee. Such Guarantee shall be executed on behalf of each Guarantor by
either manual or facsimile signature of two Officers of the Guarantor, each of
whom, in each case, shall have been duly authorized to so execute by all
requisite corporate action. The validity and enforceability of any Guarantee
shall not be affected by the fact that it is not affixed to any particular Note.
Each of the Guarantors hereby agrees that its Guarantee set forth in Section
10.01 shall remain in full force and effect notwithstanding any failure to
endorse on each Note a notation of such Guarantee.
If an Officer of a Guarantor whose signature is on this Indenture or a
Guarantee no longer holds that office at the time the Trustee authenticates the
Note on which such Guarantee is endorsed or at any time thereafter, such
Guarantor's Guarantee of such Note shall be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of any Guarantee set forth in
this Indenture on behalf of each Guarantor.
SECTION 10.04. RELEASE OF GUARANTORS.
(a) If no Default exists or would exist under this Indenture, upon
(i) the sale or other disposition of all of the Capital Stock of any Guarantor
by the Company, or (ii) the sale or disposition of all or substantially all of
the assets of any Guarantor in compliance with all of the terms of this
Indenture, such Guarantor's Guarantee shall be released, and such Guarantor
shall be deemed released from all obligations under this Article Ten without any
further action required on the part of the Trustee or any Holder. If such
Guarantor is not so released such Guarantor or the entity surviving such
Guarantor,
-86-
<PAGE>
as applicable, shall remain or be liable under its Guarantee as provided in this
Article Ten.
(b) The Trustee shall deliver an appropriate instrument evidencing
the release of the Guarantor upon receipt of a request by the Company or the
Guarantor accompanied by an Officers' Certificate and an Opinion of Counsel
certifying as to the compliance with this Section 10.04, PROVIDED the legal
counsel delivering such Opinion of Counsel may rely as to matters of fact on one
or more Officers Certificates of the Company.
The Trustee shall execute any documents reasonably requested by the
Company or the Guarantor in order to evidence the release of the Guarantor from
its obligations under its Guarantee endorsed on the Notes and under this Article
Eleven.
Except as set forth in Articles Four and Five and this Section 10.04,
nothing contained in this Indenture or in any of the Notes shall prevent any
consolidation or merger of the Guarantor with or into the Company or shall
prevent any sale or conveyance of the property of the Guarantor as an entirety
or substantially as an entirety to the Company.
SECTION 10.05. WAIVER OF SUBROGATION.
Until this Indenture is discharged and all of the Notes are discharged
and paid in full, each Guarantor hereby irrevocably waives and agrees not to
exercise any claim or other rights which it may now or hereafter acquire against
the Company that arise from the existence, payment, performance or enforcement
of the Company's obligations under the Notes or this Indenture and such
Guarantor's obligations under this Guarantee and this Indenture, in any such
instance including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution, indemnification, and any right to participate in any
claim or remedy of the Holders against the Company, whether or not such claim,
remedy or right arises in equity, or under contract, statute or common law,
including, without limitation, the right to take or receive from the Company,
directly or indirectly, in cash or other property or by set-off or in any other
manner, payment or security on account of such claim or other rights. If any
amount shall be paid to any Guarantor in violation of the preceding sentence and
any amounts owing to the Trustee or the Holders of Notes under the Notes, this
Indenture, or any other document or instrument delivered under or in connection
with such agreements or instruments, shall not have been paid in full, such
amount shall have been deemed to have been paid to such Guarantor for the
benefit of, and held in trust for the benefit of, the Trustee or the Holders and
shall forthwith be paid to the Trustee for the
-87-
<PAGE>
benefit of itself or such Holders to be credited and applied to the obligations
in favor of the Trustee or the Holders, as the case may be, whether matured or
unmatured, in accordance with the terms of this Indenture. Each Guarantor
acknowledges that it will receive direct and indirect benefits from the
financing arrangements contemplated by this Indenture and that the waiver set
forth in this Section 10.05 is knowingly made in contemplation of such benefits.
SECTION 10.06. IMMEDIATE PAYMENT.
Each Guarantor agrees to make immediate payment to the Trustee on
behalf of the Holders of all Obligations owing or payable to the respective
Holders upon receipt of a demand for payment therefor by the Trustee to such
Guarantor in writing.
SECTION 10.07. OBLIGATIONS CONTINUING.
The obligations of each Guarantor hereunder shall be continuing and
shall remain in full force and effect until all the obligations have been paid
and satisfied in full. Each Guarantor agrees with the Trustee that it will from
time to time deliver to the Trustee suitable acknowledgments of this continued
liability hereunder.
SECTION 10.08. OBLIGATIONS REINSTATED.
The obligations of each Guarantor hereunder shall continue to be
effective or shall be reinstated, as the case may be, if at any time any payment
which would otherwise have reduced the obligations of any Guarantor hereunder
(whether such payment shall have been made by or on behalf of the Company or by
or on behalf of a Guarantor) is rescinded or reclaimed from any of the Holders
upon the insolvency, bankruptcy, liquidation or reorganization of the Company or
any Guarantor or otherwise, all as though such payment had not been made. If
demand for, or acceleration of the time for, payment by the Company is stayed
upon the insolvency, bankruptcy, liquidation or reorganization of the Company,
all such Indebtedness otherwise subject to demand for payment or acceleration
shall nonetheless be payable by each Guarantor as provided herein.
SECTION 10.09. OBLIGATIONS NOT AFFECTED.
The obligations of each Guarantor hereunder shall not be affected,
impaired or diminished in any way by any act, omission, matter or thing
whatsoever, occurring before, upon or after any demand for payment hereunder
(and whether or not known or consented to by any Guarantor or any of the
Holders)
-88-
<PAGE>
which, but for this provision, might constitute a whole or partial defense to a
claim against any Guarantor hereunder or might operate to release or otherwise
exonerate any Guarantor from any of its obligations hereunder or otherwise
affect such obligations, whether occasioned by default of any of the Holders or
otherwise.
SECTION 10.10. WAIVER.
Without in any way limiting the provisions of Section 10.01 hereof,
each Guarantor hereby waives notice or proof of reliance by the Holders upon the
obligations of any Guarantor hereunder, and diligence, presentment, demand for
payment on the Company, protest or notice of dishonor of any of the Obligations,
or other notice or formalities to the Company of any kind whatsoever.
SECTION 10.11. NO OBLIGATION TO TAKE ACTION AGAINST THE COMPANY.
Neither the Trustee nor any other Person shall have any obligation to
enforce or exhaust any rights or remedies or to take any other steps under any
security for the Obligations or against the Company or any other Person or any
property of the Company or any other Person before the Trustee is entitled to
demand payment and performance by any or all Guarantors of their liabilities and
obligations under their Guarantees or under this Indenture.
SECTION 10.12. DEALING WITH THE COMPANY AND OTHERS.
The Holders, without releasing, discharging, limiting or otherwise
affecting in whole or in part the obligations and liabilities of any Guarantor
hereunder and without the consent of or notice to any Guarantor, may
(a) grant time, renewals, extensions, compromises, concessions,
waivers, releases, discharges and other indulgences to the Company or any
other Person;
(b) take or abstain from taking security or collateral from the
Company or from perfecting security or collateral of the Company;
(c) release, discharge, compromise, realize, enforce or otherwise
deal with or do any act or thing in respect of (with or without
consideration) any and all collateral, mortgages or other security given by
the Company or any third party with respect to the obligations or matters
contemplated by this Indenture or the Notes;
-89-
<PAGE>
(d) accept compromises or arrangements from the Company;
(e) apply all monies at any time received from the Company or from
any security upon such part of the Obligations as the Holders may see fit
or change any such application in whole or in part from time to time as the
Holders may see fit; and
(f) otherwise deal with, or waive or modify their right to deal with,
the Company and all other Persons and any security as the Holders or the
Trustee may see fit.
SECTION 10.13. DEFAULT AND ENFORCEMENT.
If any Guarantor fails to pay in accordance with Section 10.06, the
Trustee may proceed in its name as trustee hereunder in the enforcement of the
Guarantee of any such Guarantor and such Guarantor 's obligations thereunder and
hereunder by any remedy provided by law, whether by legal proceedings or
otherwise, and to recover from such Guarantor the obligations.
SECTION 10.14. AMENDMENT, ETC.
No amendment, modification or waiver of any provision of this
Indenture relating to any Guarantor or consent to any departure by any Guarantor
or any other Person from any such provision will in any event be effective
unless it is signed by such Guarantor and the Trustee.
SECTION 10.15. ACKNOWLEDGMENT.
Each Guarantor hereby acknowledges communication of the terms of this
Indenture and the Notes and consents to and approves of the same.
SECTION 10.16. COSTS AND EXPENSES.
Each Guarantor shall pay on demand by the Trustee any and all costs,
fees and expenses (including, without limitation, legal fees on a solicitor and
client basis) incurred by the Trustee, its agents, advisors and counsel or any
of the Holders in enforcing any of their rights under any Guarantee.
SECTION 10.17. NO WAIVER; CUMULATIVE REMEDIES.
No failure to exercise and no delay in exercising, on the part of the
Trustee or the Holders, any right, remedy, power or privilege hereunder or under
this Indenture or the
-90-
<PAGE>
Notes, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder or under this
Indenture or the Notes preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges in the Guarantee and under this Indenture, the Notes and
any other document or instrument between a Guarantor and/or the Company and the
Trustee are cumulative and not exclusive of any rights, remedies, powers and
privilege provided by law.
SECTION 10.18. SURVIVAL OF OBLIGATIONS.
Without prejudice to the survival of any of the other obligations of
each Guarantor hereunder, the obligations of each Guarantor under Section 10.01
and shall be enforceable against such Guarantor without regard to and without
giving effect to any right of offset or counterclaim available to or which may
be asserted by the Company or any Guarantor.
SECTION 10.19. GUARANTEE IN ADDITION TO OTHER OBLIGATIONS.
The obligations of each Guarantor under its Guarantee and this
Indenture are in addition to and not in substitution for any other obligations
to the Trustee or to any of the Holders in relation to this Indenture or the
Notes (including the purchase agreement by and between the Company, the
Guarantors and the Initial Purchaser dated April 15, 1998 and the Registration
Rights Agreement).
SECTION 10.20. SEVERABILITY.
Any provision of this Article Ten which is prohibited or unenforceable
in any jurisdiction shall not invalidate the remaining provisions and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction unless its removal
would substantially defeat the basic intent, spirit and purpose of this
Indenture and this Article Ten.
SECTION 10.21. SUCCESSORS AND ASSIGNS.
Each Guarantee shall be binding upon and inure to the benefit of each
Guarantor and the Trustee and the other Holders and their respective successors
and permitted assigns, except that no Guarantor may assign any of its
obligations hereunder or thereunder.
-91-
<PAGE>
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TIA CONTROLS.
If any provision of this Indenture limits, qualifies, or conflicts
with another provision which is required to be included in this Indenture by the
TIA, the required provision shall control; PROVIDED, HOWEVER, that this Section
11.01 shall not of itself require that this Indenture or the Trustee be
qualified under the TIA or constitute any admission or acknowledgment by any
party hereto that any such qualification is required prior to the time this
Indenture and the Trustee are required by the TIA to be so qualified.
SECTION 11.02. NOTICES.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
if to the Company or the Guarantors:
Henry Company
2911 Slauson Avenue
Huntington Park, CA 90255
Facsimile No. (213) 582-7764
Attention: Chief Financial Officer
with a copy to:
Munger, Tolles & Olson LLP
355 South Grand Avenue, 35th Floor
Los Angeles, CA 90071-6560
Facsimile No. (213) 687-3702
Attention: Robert B. Knauss
if to the Trustee:
U.S. Trust Company of California, N.A.
515 South Flower Street, Suite 2700
Los Angeles, CA 90071-2291
Facsimile No.: (213) 488-1370
Attention: Corporate Trust Department
-92-
<PAGE>
The Company, the Guarantors and the Trustee by written notice to the
other may designate additional or different addresses for notices to such
Person. Any notice or communication to the Company, the Guarantors or the
Trustee shall be deemed to have been given or made as of the date so delivered
if hand delivered; when answered back, if telexed; when receipt is acknowledged,
if faxed; one (1) Business Day after mailing by reputable overnight courier and
five (5) calendar days after mailing if sent by registered or certified mail,
postage prepaid (except that a notice of change of address shall not be deemed
to have been given until actually received by the addressee).
Any notice or communication mailed to a Holder shall be mailed to him
by first class mail or other equivalent means at his address as it appears on
the registration books of the Registrar ten (10) days prior to such mailing and
shall be sufficiently given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
SECTION 11.03. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and any other Person shall have the
protection of TIA Section 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company or the Guarantors to
the Trustee to take any action under this Indenture, the Company shall furnish
to the Trustee:
(1) an Officers' Certificate, in form and substance satisfactory to
the Trustee, stating that, in the opinion of the signers, all conditions
precedent to be performed by the Company, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent to be performed by the Company, if
any, provided for in this Indenture relating to the proposed action have
been complied
-93-
<PAGE>
with (which counsel, as to factual matters, may rely on an Officers'
Certificate).
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.06, shall include:
(1) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is reasonably necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with.
SECTION 11.06. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR.
The Trustee may make reasonable rules in accordance with the Trustee's
customary practices for action by or at a meeting of Holders. The Paying Agent
or Registrar may make reasonable rules for its functions.
SECTION 11.07. LEGAL HOLIDAYS.
A "LEGAL HOLIDAY" used with respect to a particular place of payment
is a Saturday, a Sunday or a day on which banking institutions in New York, New
York or at such place of payment are not required to be open. If a payment date
is a Legal Holiday at such place, payment may be made at such place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
SECTION 11.08. GOVERNING LAW.
THIS INDENTURE, THE NOTES AND THE GUARANTEES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
-94-
<PAGE>
STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF
CONFLICTS OF LAW.
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 11.10. NO PERSONAL LIABILITY.
No director, officer, partner, member, employee or stockholder, as
such, of the Company or any Guarantor, as such, shall have any liability for any
obligations of the Company or any Guarantor under the Notes, the Guarantees,
this Indenture or the Registration Rights Agreement or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each Holder
of Notes by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for the issuance of the Notes.
SECTION 11.11. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
SECTION 11.12. DUPLICATE ORIGINALS.
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
SECTION 11.13. SEVERABILITY.
In case any one or more of the provisions in this Indenture or in the
Notes shall be held invalid, illegal or unenforceable, in any respect for any
reason, the validity, legality and enforceability of any such provision in every
other respect and of the remaining provisions shall not in any way be affected
or impaired thereby, it being intended that all of the provisions hereof shall
be enforceable to the full extent permitted by law.
SECTION 11.14. INDEPENDENCE OF COVENANTS.
All covenants and agreements in this Indenture and the Notes shall be
given independent effect so that if any particular action or condition is not
permitted by any of such
-95-
<PAGE>
covenants, the fact that it would be permitted by an exception to, or otherwise
be within the limitations of, another covenant shall not avoid the occurrence of
a Default or an Event of Default if such action is taken or condition exists.
-96-
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
HENRY COMPANY,
as Issuer
By: /s/ Richard B. Gordinier
-----------------------------------
Name: Richard B. Gordinier
Title: President
MONSEY PRODUCTS CO.,
as Guarantor
By: /s/ Richard B. Gordinier
-----------------------------------
Name: Richard B. Gordinier
Title: President
KIMBERTON ENTERPRISES, INC.
as Guarantor
By: /s/ Richard B. Gordinier
-----------------------------------
Name: Richard B. Gordinier
Title: President
MONSEY PRODUCTS OF ARIZONA LLC,
as Guarantor
By: Monsey Products Co.
Designated Manager
-----------------------------------
Name: Richard B. Gordinier
Title: President
-97-
<PAGE>
U.S. TRUST COMPANY OF CALIFORNIA,
N.A., as Trustee
By: /s/ Sandra H. Leess
-----------------------------------
Name: Sandra H. Leess
Title: Senior Vice President
-98-
<PAGE>
EXHIBIT A
CUSIP No.: [ ]
HENRY COMPANY
10% SENIOR NOTE DUE 2008, SERIES A
No. [ ] $
HENRY COMPANY, a California corporation (the "Company"), for value
received promises to pay to Cede & Co. or registered assigns the principal sum
of Dollars on April 15, 2008.
Interest Payment Dates: April 15 and October 15, commencing
October 15, 1998
Record Dates: April 1 and October 1
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
HENRY COMPANY
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
Dated: [ ]
A-1
<PAGE>
Certificate of Authentication
This is one of the 10% Senior Notes due 2008 referred to in the
within-mentioned Indenture.
U.S. TRUST COMPANY OF CALIFORNIA,
N.A., as Trustee
By:
-----------------------------------
Authorized Signatory
Date of Authentication: [ ]
A-2
<PAGE>
(REVERSE OF SECURITY)
10% Senior Note due 2008, Series A
1. INTEREST. HENRY COMPANY, a California corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from April 22, 1998. The Company will pay interest semi-annually in arrears on
each Interest Payment Date, commencing October 15, 1998. Interest will be
computed on the basis of a 360-day year of twelve 30-day months and, in the case
of a partial month, the actual number of days elapsed.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Notes and on overdue installments of interest (without regard to any applicable
grace periods) to the extent lawful.
2. METHOD OF PAYMENT. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are the registered Holders at the
close of business on the Record Date immediately preceding the Interest Payment
Date even if the Notes are cancelled on registration of transfer or registration
of exchange (including pursuant to an Exchange Offer (as defined in the
Registration Rights Agreement)) after such Record Date. Holders must surrender
Notes to a Paying Agent to collect principal payments. The Company shall pay
principal and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts ("U.S. Legal Tender").
However, the Company may pay principal and interest by 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, U.S. Trust Company of
California, N.A. (the "Trustee") will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-Registrar without notice to
the Holders.
4. INDENTURE. The Company issued the Notes under an Indenture, dated
as of April 22, 1998 (the "Indenture"), among the Company, each of the
Guarantors named therein and the Trustee. This Note is one of a duly authorized
issue of Initial Notes of the Company designated as its 10% Senior Notes due
2008, Series A (the "Initial Notes"). The Notes are limited (except as
otherwise provided in the Indenture) in aggregate
A-3
<PAGE>
principal amount to $150,000,000, which may be issued under the
Indenture; PROVIDED the principal amount of Initial Notes issued on the Issue
Date will not exceed $85,000,000. The Notes include the Initial Notes, Private
Exchange Notes and the Exchange Notes (as defined in the Indenture) issued in
exchange for the Initial Notes pursuant to the Registration Rights Agreement.
The Initial Notes and the Exchange Notes are treated as a single class of
securities under the Indenture. Capitalized terms herein are used as defined in
the Indenture unless otherwise defined herein. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the
"TIA"), as in effect on the date of the Indenture. Notwithstanding anything to
the contrary herein, the Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture and said Act for a statement of them. The
Notes are general unsecured obligations of the Company.
Each Holder, by accepting a Note, agrees to be bound by all of
the terms and provisions of the Indenture, as the same may be amended from time
to time in accordance with its terms.
5. REDEMPTION. The Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after
April 15, 2003, upon not less than 30 nor more than 60 days' notice, at the
following redemption prices (expressed as percentages of the principal amount
thereof) if redeemed during the twelve-month period commencing on April 15 of
the year set forth below, plus, in each case, accrued and unpaid interest
thereon, if any, to the date of redemption:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003 . . . . . . . . . . . . . . . . 105.000%
2004 . . . . . . . . . . . . . . . . 103.333%
2005 . . . . . . . . . . . . . . . . 101.667%
2006 and thereafter. . . . . . . . . 100.000%
</TABLE>
At any time, or from time to time, on or prior to April 15,
2001, the Company may, at its option, use the net cash proceeds of one or more
Public Equity Offerings to redeem up to 35% of the sum of (i) the initial
aggregate principal amount of the Notes issued in the offering on the Issue Date
and (ii) the respective initial aggregate principal amount of the Notes issued
under the Indenture after the Issue Date, at a redemption price equal to
110.000% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of redemption; PROVIDED that at least 65% of the
sum
A-4
<PAGE>
of (i) the initial aggregate principal amount of the Notes issued in the
offering on the Issue Date and (ii) the respective initial aggregate principal
amounts of the Notes issued under the Indenture after the Issue Date remains
outstanding immediately after any such redemption. In order to effect the
foregoing redemption with the proceeds of any Public Equity Offering, the
Company shall make such redemption not more than 120 days after the consummation
of any such Public Equity Offering.
6. NOTICE OF REDEMPTION. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the Redemption Date to each
Holder of Notes to be redeemed at such Holder's registered address. Notes in
denominations larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the
redemption of the Notes called for redemption shall have been deposited with the
Paying Agent for redemption on such Redemption Date, then, unless the Company
defaults in the payment of such redemption price plus accrued interest, if any,
the Notes called for redemption will cease to bear interest from and after such
Redemption Date and the only right of the Holders of such Notes will be to
receive payment of the redemption price plus accrued interest, if any.
7. OFFERS TO PURCHASE. Sections 4.14 and 4.15 of the Indenture
provide that, after certain Asset Sales (as defined in the Indenture) and upon
the occurrence of a Change of Control (as defined in the Indenture), and subject
to further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
8. REGISTRATION RIGHTS. Pursuant to a registration rights
agreement among the Company, the Guarantors and the Initial Purchaser, the
Company and the Guarantors will be obligated to consummate an exchange offer
pursuant to which the Holder of this Note shall have the right to exchange this
Note for Exchange Notes (as defined in the Indenture), which have been
registered under the Securities Act, in like principal amount and having terms
identical in all material respects as the Initial Notes. The Holders of the
Initial Notes shall be entitled to receive certain additional interest payments
in the event such exchange offer is not consummated and upon certain other
conditions, all pursuant to and in accordance with the terms of the registration
rights agreement.
9. DENOMINATIONS; TRANSFER; EXCHANGE. The Notes are in
registered form, without coupons, and in denominations of $1,000 and integral
multiples of $1,000. A Holder shall register the transfer of or exchange Notes
in accordance with the
A-5
<PAGE>
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange of any Notes or portions thereof selected for redemption.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note
shall be treated as the owner of it for all purposes.
11. UNCLAIMED MONEY. If money for the payment of principal or
interest remains unclaimed for one year, the Trustee and the Paying Agent will
pay the money back to the Company. After that, all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
12. DISCHARGE PRIOR TO REDEMPTION OR MATURITY. If the Company
at any time deposits with the Trustee U.S. Legal Tender or U.S. Government
Obligations sufficient to pay the principal of and interest on the Notes to
redemption or maturity and complies with the other provisions of the Indenture
relating thereto, the Company will be discharged from certain provisions of the
Indenture and the Notes (including certain covenants, but including, under
certain circumstances, its obligation to pay the principal of and interest on
the Notes but without affecting the rights of the Holders to receive such
amounts from such deposits).
13. AMENDMENT; SUPPLEMENT; WAIVER. Subject to certain
exceptions set forth in the Indenture, the Indenture or the Notes may be amended
or supplemented with the written consent of the Holders of a majority in
aggregate principal amount of the Notes then outstanding, and any past Default
or Event of Default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in aggregate principal amount of
the Notes then outstanding. Without notice to or consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Notes to, among
other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Notes in addition to or in place of certificated Notes, comply
with any requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the TIA or comply with Article Five of the
Indenture or make any other change that does not adversely affect the rights of
any Holder of a Note.
14. RESTRICTIVE COVENANTS. The Indenture 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,
A-6
<PAGE>
consummate certain Asset Sales, enter into certain transactions with Affiliates,
incur liens, impose restrictions on the ability of a Subsidiary to pay dividends
or make certain payments to the Company and its Subsidiaries, 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. Pursuant to Section 4.06 of the Indenture, the Company must
annually report to the Trustee on compliance with such limitations.
15. SUCCESSORS. When a successor assumes, in accordance with
the Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released from
those obligations.
16. DEFAULTS AND REMEDIES. If an Event of Default occurs and
is continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of Notes then outstanding may declare all the Notes to be due
and payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Notes may not enforce the Indenture or the Notes except
as provided in the Indenture. The Trustee is not obligated to enforce the
Indenture or the Notes unless it has received indemnity reasonably satisfactory
to it. The Indenture permits, subject to certain limitations therein provided,
Holders of a majority in aggregate principal amount of the Notes then
outstanding to direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of Notes notice of any continuing Default or
Event of Default (except a Default in payment of principal or interest when due,
for any reason or a Default in compliance with Article Five of the Indenture) if
it determines that withholding notice is in their interest.
17. TRUSTEE DEALINGS WITH THE COMPANY AND ITS SUBSIDIARIES.
The Trustee under the Indenture, in its individual or any other capacity, may
become the owner or pledgee of Notes and may otherwise deal with the Company,
its Subsidiaries or their respective Affiliates as if it were not the Trustee.
18. NO RECOURSE AGAINST OTHERS. No partner, director, officer,
employee, member or stockholder, as such, of the Company or any Guarantor shall
have any liability for any obligation of the Company or any Guarantor under the
Notes, the Guarantees, the Indenture or the Registration Rights Agreement or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
A-7
<PAGE>
19. GUARANTEES. This Note will be entitled to the benefits of
certain Guarantees, if any, made for the benefit of the Holders. Reference is
hereby made to the Indenture for a statement of the respective rights,
limitations of rights, duties and obligations thereunder of the Guarantors, the
Trustee and the Holders.
20. AUTHENTICATION. This Note shall not be valid until the
Trustee or Authenticating Agent manually signs the certificate of authentication
on this Note.
21. GOVERNING LAW. This Note and the Indenture shall be
governed by and construed in accordance with the laws of the State of New York,
as applied to contracts made and performed within the State of New York, without
regard to principles of conflict of laws. Each of the parties hereto agrees to
submit to the jurisdiction of the courts of the State of New York in any action
or proceeding arising out of or relating to this Note.
22. ABBREVIATIONS AND DEFINED TERMS. Customary abbreviations
may be used in the name of a Holder of a Note or an assignee, such as: TEN COM
(= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
23. CUSIP NUMBERS. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes as a convenience to the Holders
of the Notes. No representation is made as to the accuracy of such numbers as
printed on the Notes and reliance may be placed only on the other identification
numbers printed hereon.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture, which has the text of this
Note. Requests may be made to: Henry Company, 2911 Slauson Avenue, Huntington
Park, CA 90255, Attention: Chief Financial Officer.
A-8
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Note to:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type name, address and zip code and social security or tax ID number
of assignee)
and irrevocably appoint ____________________________________, agent to transfer
this Note on the books of the Company. The agent may substitute another to act
for him.
Dated: Signed:
----------- ---------------------------------
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee:
----------------------------------------------------------
In connection with any transfer of this Note occurring prior to
the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act") covering resales of this Note
(which effectiveness shall not have been suspended or terminated at the date of
the transfer) and (ii) the undersigned confirms that it has not utilized any
general solicitation or general advertising in connection with the transfer:
[CHECK ONE]
(1) to the Company or a subsidiary thereof; or
--
(2) pursuant to and in compliance with Rule 144A under the Securities Act of
-- 1933, as amended; or
A-9
<PAGE>
(3) to an institutional "accredited investor" (as defined in Rule 501(a)(1),
-- (2), (3) or (7) under the Securities Act of 1933, as amended) that has
furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter can be obtained
from the Trustee); or
(4) outside the United states to a "foreign person" in compliance with Rule
-- 904 of Regulation S under the Securities Act of 1933, as amended; or
(5) pursuant to the exemption from registration provided by Rule 144 under
-- the Securities Act of 1933, as amended; or
(6) pursuant to an effective registration statement under the Securities Act
-- of 1933, as amended; or
(7) pursuant to another available exemption from the registration
-- requirements of the Securities Act of 1933, as amended.
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
/ / The transferee is an Affiliate of the Company.
Unless one of the items is checked, the Trustee will refuse to
register any of the Notes evidenced by this certificate in the name of any
person other than the registered Holder thereof; PROVIDED, HOWEVER, that if item
(3), (4), (5) or (7) is checked, the Company or the Trustee may require, prior
to registering any such transfer of the Notes, in their sole discretion, such
written legal opinions, certifications (including an investment letter in the
case of box (3) or (4)) and other information as the Trustee or the Company has
reasonably requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, as amended.
A-10
<PAGE>
If none of the foregoing items are checked, the Trustee or
Registrar shall not be obligated to register this Note in the name of any person
other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section 2.17 of the Indenture
shall have been satisfied.
Dated: Signed:
-------------------- -----------------------------------------
(Sign exactly as name appears on the
other side of this Note)
Signature Guarantee:
------------------------------------------ --------------
A-11
<PAGE>
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
-------------- ----------------------------------------------------
NOTICE: To be executed by an executive
officer
A-12
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.14 or Section 4.15 of the Indenture, check the appropriate
box:
Section 4.14 [ ]
Section 4.15 [ ]
If you want to elect to have only part of this Note purchased by
the Company pursuant to Section 4.14 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$
------------------
Dated:
---------------- -------------------------------------
NOTICE: The signature on this
assignment must correspond with the
name as it appears upon the face of
the within Note in every particular
without alteration or enlargement
or any change whatsoever and be
guaranteed.
Signature Guarantee:
----------------------------------------
A-13
<PAGE>
EXHIBIT B
CUSIP No.: [ ]
HENRY COMPANY
10% SENIOR NOTE DUE 2008, SERIES B
No. [ ] $
HENRY COMPANY, a California corporation (the "Company"), for
value received, promises to pay to Cede & Co. or registered assigns the
principal sum of Dollars on April 15, 2008.
Interest Payment Dates: April 15 and October 15, commencing
October 15, 1998
Record Dates: April 1 and October 1
Reference is made to the further provisions of this Note
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
HENRY COMPANY
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
Dated: [ ]
B-1
<PAGE>
Certificate of Authentication
This is one of the 10% Senior Notes due 2008, Series B referred
to in the within-mentioned Indenture.
U.S. Trust Company of California,
N.A., as Trustee
By:
--------------------------------
Authorized Signatory
Date of Authentication: [ ]
B-2
<PAGE>
(REVERSE OF SECURITY)
10% Senior Note due 2008, Series B
1. INTEREST. HENRY COMPANY, a California corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from April 22, 1998. The Company will pay interest semi-annually in arrears on
each Interest Payment Date, commencing October 15, 1998. Interest will be
computed on the basis of a 360-day year of twelve 30-day months and, in the case
of a partial month, the actual number of days elapsed.
The Company shall pay interest on overdue principal and on
overdue installments of interest from time to time on demand at the rate borne
by the Notes and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful.
2. METHOD OF PAYMENT. The Company shall pay interest on
the Notes (except defaulted interest) to the Persons who are the registered
Holders at the close of business on the Record Date immediately preceding the
Interest Payment Date even if the Notes are canceled on registration of transfer
or registration of exchange after such Record Date. Holders must surrender
Notes to a Paying Agent to collect principal payments. The Company shall pay
principal and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts ("U.S. Legal Tender").
However, the Company may pay principal and interest by 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, U.S. Trust
Company of California, N.A. (the "Trustee") will act as Paying Agent and
Registrar. The Company may change any Paying Agent, Registrar or co-Registrar
without notice to the Holders.
4. INDENTURE. The Company issued the Notes under an
Indenture, dated as of April 15, 1998 (the "Indenture"), among the Company, each
of the Guarantors named therein and the Trustee. This Note is one of a duly
authorized issue of Exchange Notes of the Company designated as its 10% Senior
Notes due 2008, Series B (the "Exchange Notes"). The Notes include the 10%
Notes due 2008, Series A (the "Initial Notes") and the Exchange Notes, issued in
exchange for the Initial Notes pursuant to a registration rights agreement. The
Notes are limited (except as otherwise provided in the Indenture) in aggregate
B-3
<PAGE>
principal amount to $150,000,000, which may be issued under the Indenture;
PROVIDED the principal amount of Initial Notes issued on the Issue Date will not
exceed $85,000,000. The Initial Notes and the Exchange Notes are treated as a
single class of securities under the Indenture. Capitalized terms herein are
used as defined in the Indenture unless otherwise defined herein. The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and said Act for
a statement of them. The Notes are general unsecured obligations of the
Company.
Each Holder, by accepting a Note, agrees to be bound by all of
the terms and provisions of the Indenture, as the same may be amended from time
to time in accordance with its terms.
5. REDEMPTION. The Notes will be redeemable, at the
Company's option, in whole at any time or in part from time to time, on and
after April 15, 2003, upon not less than 30 nor more than 60 days' notice, at
the following redemption prices (expressed as percentages of the principal
amount thereof) if redeemed during the twelve-month period commencing on
April 15 of the years set forth below, plus, in each case, accrued and unpaid
interest, if any, thereon to the date of redemption:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003 . . . . . . . . . . . . . . . . 105.000%
2004 . . . . . . . . . . . . . . . . 103.333%
2005 . . . . . . . . . . . . . . . . 101.667%
2006 and thereafter. . . . . . . . . 100.000%
</TABLE>
At any time, or from time to time, on or prior to April 15,
2001, the Company may, at its option, use the net cash proceeds of one or more
Public Equity Offerings to redeem up to 35% of the sum of (i) the initial
aggregate principal amount of the Notes issued in the offering on the Issue Date
and (ii) the respective initial aggregate principal amounts of the Notes issued
under the Indenture after the Issue Date at a redemption price equal to 110.000%
of the principal amount thereof plus accrued and unpaid interest thereon, if
any, to the date of redemption; PROVIDED that at least 65% of the sum of (i) the
initial aggregate principal amount of the Notes issued in the offering on the
Issue Date and (ii) the respective initial aggregate principal amounts of the
Notes issued under the Indenture after the Issue Date remains outstanding
immedi-
B-4
<PAGE>
ately after any such redemption. In order to effect the foregoing redemption
with the proceeds of any Public Equity Offering, the Company shall make such
redemption not more than 120 days after the consummation of any such Public
Equity Offering.
6. NOTICE OF REDEMPTION. Notice of redemption will be
mailed at least 30 days but not more than 60 days before the Redemption Date to
each Holder of Notes to be redeemed at such Holder's registered address. Notes
in denominations larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the
redemption of the Notes called for redemption shall have been deposited with the
Paying Agent for redemption on such Redemption Date, then, unless the Company
defaults in the payment of such redemption price plus accrued interest, if any,
the Notes called for redemption will cease to bear interest from and after such
Redemption Date and the only right of the Holders of such Notes will be to
receive payment of the redemption price plus accrued interest, if any.
7. OFFERS TO PURCHASE. Sections 4.14 and 4.15 of the
Indenture provide that, after certain Asset Sales (as defined in the Indenture)
and upon the occurrence of a Change of Control (as defined in the Indenture),
and subject to further limitations contained therein, the Company will make an
offer to purchase certain amounts of the Notes in accordance with the procedures
set forth in the Indenture.
8. DENOMINATIONS; TRANSFER; EXCHANGE. The Notes are in
registered form, without coupons, and in denominations of $1,000 and integral
multiples of $1,000. A Holder shall register the transfer of or exchange Notes
in accordance with the Indenture. The Registrar may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and to
pay certain transfer taxes or similar governmental charges payable in connection
therewith as permitted by the Indenture. The Registrar need not register the
transfer of or exchange of any Notes or portions thereof selected for
redemption.
9. PERSONS DEEMED OWNERS. The registered Holder of a Note
shall be treated as the owner of it for all purposes.
10. UNCLAIMED MONEY. If money for the payment of principal
or interest remains unclaimed for one year, the Trustee and the Paying Agent
will pay the money back to the Company. After that, all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
B-5
<PAGE>
11. DISCHARGE PRIOR TO REDEMPTION OR MATURITY. If the
Company at any time deposits with the Trustee U.S. Legal Tender or U.S.
Government Obligations sufficient to pay the principal of and interest on the
Notes to redemption and complies with the other provisions of the Indenture
relating thereto, the Company will be discharged from certain provisions of the
Indenture and the Notes (including certain covenants, including, under certain
circumstances, its obligation to pay the principal of and interest on the Notes
but without affecting the rights of the Holders to receive such amounts from
such deposit).
12. AMENDMENT; SUPPLEMENT; WAIVER. Subject to certain
exceptions set forth in the Indenture, the Indenture or the Notes may be amended
or supplemented with the written consent of the Holders of a majority in
aggregate principal amount of the Notes then outstanding, and any past Default
or Event of Default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in aggregate principal amount of
the Notes then outstanding. Without notice to or consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Notes to, among
other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Notes in addition to or in place of certificated Notes, comply
with any requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the TIA or comply with Article Five of the
Indenture or make any other change that does not adversely affect the rights of
any Holder of a Note.
13. RESTRICTIVE COVENANTS. The Indenture 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, impose restrictions on the ability of
a Subsidiary to pay dividends or make certain payments to the Company and its
Subsidiaries, 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. Pursuant to Section 4.06 of the Indenture, the
Company must annually report to the Trustee on compliance with such limitations.
14. SUCCESSORS. When a successor assumes, in accordance
with the Indenture, all the obligations of its predecessor under the Notes and
the Indenture, the predecessor, subject to certain exceptions, will be released
from those obligations.
B-6
<PAGE>
15. DEFAULTS AND REMEDIES. If an Event of Default occurs
and is continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of Notes then outstanding may declare all the Notes to be due
and payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Notes may not enforce the Indenture or the Notes except
as provided in the Indenture. The Trustee is not obligated to enforce the
Indenture or the Notes unless it has received indemnity reasonably satisfactory
to it. The Indenture permits, subject to certain limitations therein provided,
Holders of a majority in aggregate principal amount of the Notes then
outstanding to direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of Notes notice of any continuing Default or
Event of Default (except a Default in payment of principal or interest when due,
for any reason or a Default in compliance with Article Five of the Indenture) if
it determines that withholding notice is in their interest.
16. TRUSTEE DEALINGS WITH THE COMPANY AND ITS SUBSIDIARIES.
The Trustee under the Indenture, in its individual or any other capacity, may
become the owner or pledgee of Notes and may otherwise deal with the Company,
its Subsidiaries or their respective Affiliates as if it were not the Trustee.
17. NO RECOURSE AGAINST OTHERS. No partner, director,
officer, employee, member or stockholder, as such, of the Company or any
Guarantor shall have any liability for any obligation of the Company or any
Guarantor under the Notes, the Guarantees, the Indenture or the Registration
Rights Agreement or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
18. GUARANTEES. This Note will be entitled to the benefits
of certain Guarantees, if any, made for the benefit of the Holders. Reference
is hereby made to the Indenture for a statement of the respective rights,
limitations of rights, duties and obligations thereunder of the Guarantors, the
Trustee and the Holders.
19. AUTHENTICATION. This Note shall not be valid until the
Trustee or Authenticating Agent manually signs the certificate of authentication
on this Note.
20. GOVERNING LAW. This Note and the Indenture shall be
governed by and construed in accordance with the laws of the State of New York,
as applied to contracts made and performed within the State of New York, without
regard to princi-
B-7
<PAGE>
ples of conflict of laws. Each of the parties hereto agrees to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to this Note.
21. ABBREVIATIONS AND DEFINED TERMS. Customary
abbreviations may be used in the name of a Holder of a Note or an assignee, such
as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT
TEN (= joint tenants with right of survivorship and not as tenants in common),
CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP NUMBERS. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes as a convenience to the Holders
of the Notes. No representation is made as to the accuracy of such numbers as
printed on the Notes and reliance may be placed only on the other identification
numbers printed hereon.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture, which has the text of this
Note. Requests may be made to: Henry Company, 2911 Slauson Avenue, Huntington
Park, CA 90255, Attention: Chief Financial Officer.
B-8
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and social security or tax ID number
of assignee)
and irrevocably appoint _______________________________________________________,
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Dated: Signed:
---------------------- -----------------------------------------
(Sign exactly as name appears on the other side
of this Note)
Signature Guarantee:
-----------------------------
B-9
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.14 or Section 4.15 of the Indenture, check the appropriate
box:
Section 4.14 [ ]
Section 4.15 [ ]
If you want to elect to have only part of this Note purchased by
the Company pursuant to Section 4.14 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$
------------------
Dated:
--------------- ------------------------------------------------
NOTICE: The signature on this assignment must
correspond with the name as it appears upon the
face of the within Note in every particular
without alteration or enlargement or any change
whatsoever and be guaranteed.
Signature Guarantee:
----------------------------------
B-10
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE TO BE
DELIVERED IN CONNECTION WITH
TRANSFERS TO NON-QIB ACCREDITED INVESTORS
[ ], [ ]
U.S. Trust Company of California, N.A.
515 South Flower Street, Suite 7200
Los Angeles, CA 90071-2291
Ladies and Gentlemen:
In connection with our proposed purchase of 10% Senior Notes due
2008 (the "Notes") of Henry Company, a California corporation (the "Company"),
we confirm that:
1. We have received a copy of the Offering Memorandum (the
"Offering Memorandum"), dated April 22, 1998, relating to the Notes and
such other information as we deem necessary in order to make our
investment decision. We acknowledge that we have read and agreed to the
matters stated in the section entitled "Transfer Restrictions" of such
Offering Memorandum.
2. We understand that any subsequent transfer of the Notes
is subject to certain restrictions and conditions set forth in the
Indenture relating to the Notes (the "Indenture") as described in the
Offering Memorandum and the undersigned agrees to be bound by, and not
to resell, pledge or otherwise transfer the Notes except in compliance
with, such restrictions and conditions and the Securities Act of 1933,
as amended (the "Securities Act"), and all applicable State securities
laws.
3. We understand that the offer and sale of the Notes have
not been registered under the Securities Act, and that the Notes may not
be offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except as permitted in the following sentence.
We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell any Notes, we
will do so only (i) to the Company or any subsidiary thereof, (ii)
inside the United States in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined in Rule
144A promulgated under the Securities Act), (iii) inside the United
States to an institutional "ac-
C-1
<PAGE>
credited investor" (as defined below) that, prior to such transfer,
furnishes (or has furnished on its behalf by a U.S. broker-dealer) to
the Trustee (as defined in the Indenture) a signed letter containing
certain representations and agreements relating to the restrictions
on transfer of the Notes (the form of which letter can be obtained
from the Trustee), (iv) outside the United States in accordance with
Rule 904 of Regulation S promulgated under the Securities Act to
non-U.S. persons, (v) pursuant to the exemption from registration
provided by Rule 144 under the Securities Act (if available), or (vi)
pursuant to an effective registration statement under the Securities
Act, and we further agree to provide to any person purchasing any of
the Notes from us a notice advising such purchaser that resales of
the Notes are restricted as stated herein.
4. We understand that, on any proposed resale of any Notes,
we will be required to furnish to the Trustee and the Company such
certification, legal opinions and other information as the Trustee and
the Company may reasonably require to confirm that the proposed sale
complies with the foregoing restrictions. We further understand that
the Notes purchased by us will bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the
Securities Act) and have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of
our investment in the Notes, and we and any accounts for which we are
acting are each able to bear the economic risk of our or their
investment, as the case may be.
6. We are acquiring the Notes purchased by us for our
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
C-2
<PAGE>
You, the Company, the Trustee and others are entitled to rely
upon this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
---------------------------
Name:
Title:
C-3
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS
PURSUANT TO REGULATION S
[ ], [ ]
U.S. Trust Company of California, N.A.
515 South Flower Suite, Suite 7200
Los Angeles, CA 90071-2291
Re: Henry Company (the "Company")
10% Senior Notes due 2008 (the "Notes")
---------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of aggregate principal
amount of the Notes, we confirm that such sale has been effected pursuant to and
in accordance with Regulation S under the U.S. Securities Act of 1933, as
amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we
nor any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer
restrictions applicable to the Notes.
You, the Company and counsel for the Company are entitled to
rely upon this letter and are irrevocably authorized to produce this letter or a
copy hereof to any interested party
D-1
<PAGE>
in any administrative or legal proceedings or official inquiry with respect to
the matters covered hereby. Terms used in this certificate have the meanings
set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
---------------------------
Authorized Signature
D-2
<PAGE>
EXHIBIT E
FORM OF GUARANTEE
For value received, the undersigned hereby unconditionally
guarantees, as principal obligor and not only as a surety, to the Holder of this
Note the cash payments in United States dollars of principal of, premium, if
any, and interest on this Note (and including Liquidated Damages payable
thereon) in the amounts and at the times when due and interest on the overdue
principal, premium, if any, and interest, if any, of this Note, if lawful, and
the payment or performance of all other obligations of the Company under the
Indenture (as defined below) or the Notes, to the Holder of this Note and the
Trustee, all in accordance with and subject to the terms and limitations of this
Note, Article Ten of the Indenture and this Guarantee. This Guarantee will
become effective in accordance with Article Ten of the Indenture and its terms
shall be evidenced therein. The validity and enforceability of any Guarantee
shall not be affected by the fact that it is not affixed to any particular Note.
Capitalized terms used but not defined herein shall have the meanings ascribed
to them in the Indenture dated as of April 22, 1998, among Henry Company, a
California corporation, as Company (the "Company"), each of the Guarantors named
therein and U.S. Trust Company of California, N.A., as Trustee (the "Trustee"),
as amended or supplemented (the "Indenture").
The obligations of the undersigned to the Holders of Notes and
to the Trustee pursuant to this Guarantee and the Indenture are expressly set
forth in Article Ten of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Guarantee and all of the other provisions
of the Indenture to which this Guarantee relates.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW. Each Guarantor hereby agrees to submit to the jurisdiction of
the courts of the State of New York in any action or proceeding arising out of
or relating to this Guarantee.
This Guarantee is subject to release upon the terms set forth in
the Indenture.
E-1
<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused its Guarantee to
be duly executed.
Date:
---------------------------
MONSEY PRODUCTS CO., as
Guarantor
By:
------------------------
Name:
Title:
KIMBERTON ENTERPRISES, INC., as
Guarantor
By:
------------------------
Name:
Title:
MONSEY PRODUCTS OF ARIZONA LLC,
as Guarantor
By:
------------------------
Name:
Title:
E-2
<PAGE>
Exhibit A to Purchase Agreement
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of April 22, 1998
by and among
HENRY COMPANY,
THE GUARANTORS NAMED HEREIN,
BT ALEX. BROWN INCORPORATED
================================================================================
$85,000,000
10% SENIOR NOTES DUE 2008
<PAGE>
This Registration Rights Agreement is dated as of April 22, 1998,
by and among Henry Company, a California corporation (the "COMPANY"), three
of the subsidiaries of the Company listed on the signature pages hereto as
guarantors, (the "GUARANTORS") and, together with the Company (the "ISSUERS")
and BT Alex. Brown Incorporated (the "INITIAL PURCHASER").
This Agreement is made pursuant to the Purchase Agreement, dated
April 15, 1998, among the Company, the Guarantors and the Initial Purchaser
(the "PURCHASE AGREEMENT"). In order to induce the Initial Purchaser to
enter into the Purchase Agreement, the Issuers have agreed to provide the
registration rights provided for in this Agreement to the Initial Purchaser
and their respective direct and indirect transferees and assigns. The
execution and delivery of this Agreement is a condition to the closing of the
transactions contemplated by the Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
AFFILIATE: With respect to any specified person, "Affiliate" shall
mean any other person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified person. For the
purposes of this definition, "control," when used with respect to any person,
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise and the terms "affiliated," controlling" and "controlled" have
meanings correlative to the foregoing.
AGREEMENT: This Registration Rights Agreement, as the same may be
amended, supplemented or modified from time to time in accordance with the terms
hereof.
BUSINESS DAY: Any day except a Saturday, a Sunday or a day on which
banking institutions in New York, New York generally are required or authorized
by law or other government action to be closed.
COMPANY: As defined in the preamble hereof.
<PAGE>
-2-
CONSUMMATE OR consummate: When used to qualify the term "Exchange
Offer", shall mean validly and lawfully to issue and deliver the Exchange Notes
pursuant to the Exchange Offer for all Notes validly tendered and not validly
withdrawn pursuant thereto in accordance with the terms of this Agreement.
CONSUMMATION DATE: The date that is 35 days immediately following
the date that the Exchange Registration Statement shall have been declared
effective by the SEC.
EFFECTIVENESS PERIOD: As defined in Section 3(a) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC pursuant thereto.
EXCHANGE DATE: As defined in Section 2(d) hereof.
EXCHANGE NOTES: The 10% Senior Notes due 2008 of the Company,
guaranteed on a Senior unsecured basis by the Guarantors, that are identical to
the Notes in all material respects, except that the provisions regarding
restrictions on transfer shall be modified, as provided in the Indenture (or the
indenture pursuant to which the Exchange Notes are issued), and the issuance
thereof pursuant to the Exchange Offer shall have been registered pursuant to an
effective Registration Statement in compliance with the Securities Act.
EXCHANGE OFFER: An offer to issue, in exchange for any and all of
the Notes, a like aggregate principal amount of Exchange Notes, which offer
shall be made by the Company pursuant to Section 2 hereof.
EXCHANGE REGISTRATION STATEMENT: As defined in Section 2(a) hereof.
FILING DATE: As defined in Section 2(a) hereof.
GUARANTORS: As defined in the preamble hereof.
INDEMNIFIED PERSON: As defined in Section 7(a) hereof.
INDENTURE: The Indenture, dated as of April 22, 1998, among the
Issuers and U.S. Trust Company of California, N.A., as trustee thereunder,
pursuant to which the Notes are
<PAGE>
-3-
issued, as amended or supplemented from time to time in accordance with the
terms thereof.
INITIAL PURCHASER: As defined in the preamble hereof.
ISSUE DATE: As defined in Section 2(a) hereof.
ISSUERS: As defined in the preamble hereof.
LIQUIDATED DAMAGES. As defined in Section 4(a) hereof.
NOTES: The 10% Senior Notes due 2008 of the Company, guaranteed on
a Senior unsecured basis by the Guarantors, issued pursuant to the Indenture.
PARTICIPATING BROKER-DEALER: As defined in Section 2(e) hereof.
PRIVATE EXCHANGE: As defined in Section 2(c) hereof.
PRIVATE EXCHANGE NOTES: As defined in Section 2(c) hereof.
PROSPECTUS: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated pursuant to the Securities
Act), as amended or supplemented by any prospectus supplement, with respect to
the terms of the offering of any portion of the Notes, Exchange Notes or Private
Exchange Notes covered by such Registration Statement, and all other amendments
and supplements to any such prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by
reference, if any, in such prospectus.
PURCHASE AGREEMENT: As defined in the preamble hereof.
REGISTRATION DEFAULT: As defined in Section 4(b) hereof.
REGISTRATION STATEMENT: Any registration statement of the Company
and/or the Guarantors that covers any of the Notes, Exchange Notes or Private
Exchange Notes pursuant to the provisions of this Agreement, including the
Prospectus, amend-
<PAGE>
-4-
ments and supplements to such registration statement or Prospectus, including
pre- and post-effective amendments, all exhibits thereto, and all material
incorporated by reference or deemed to be incorporated by reference, if any,
in such registration statement.
RULE 144(k): Rule 144(k) promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
RULE 144A: Rule 144A promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
RULE 158: Rule 158 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
RULE 174: Rule 174 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
RULE 415: Rule 415 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
RULE 424: Rule 424 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
SEC: The Securities and Exchange Commission.
SECURITIES ACT: The Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.
<PAGE>
-5-
SHELF BLACKOUT PERIOD: As defined in Section 3(a) hereof.
SHELF FILING EVENT: As defined in Section 3(a) hereof.
SHELF REGISTRATION: As defined in Section 3(a) hereof.
SHELF REGISTRATION STATEMENT: As defined in Section 3(a) hereof.
SPECIAL COUNSEL: Such special counsel to the holders of Transfer
Restricted Notes as shall be agreed upon by the Issuers and holders of a
majority in aggregate principal amount of Transfer Restricted Notes, the
reasonable expenses of which holders of Transfer Restricted Notes will be
reimbursed by the Issuers pursuant to Section 6 hereof.
TIA: The Trust Indenture Act of 1939, as amended.
TRANSFER RESTRICTED NOTE: Each Note, upon original issuance
thereof, and at all times subsequent thereto, each Exchange Note as to which
Section 3(a)(ii) hereof is applicable upon original issuance and at all times
subsequent thereto and each Private Exchange Note upon original issuance thereof
and at all times subsequent thereto, until in the case of any such Note,
Exchange Note or Private Exchange Note, as the case may be, the earliest to
occur of (i) the date on which any such Note has been exchanged by a person
other than a Participating Broker-Dealer for an Exchange Note (other than with
respect to an Exchange Note as to which Section 3(a)(ii) hereof applies)
pursuant to the Exchange Offer, (ii) with respect to Exchange Notes received by
Participating Broker-Dealers in the Exchange Offer, the earlier of (x) the date
on which such Exchange Note has been sold by such Participating Broker-Dealer by
means of the Prospectus contained in the Exchange Registration Statement and (y)
the date on which the Exchange Registration Statement has been effective under
the Securities Act for a period of six months after the Consummation Date,
(iii) a Shelf Registration Statement covering such Note, Exchange Note or
Private Exchange Note has been declared effective by the SEC and such Note,
Exchange Note or Private Exchange Note, as the case may be, has been disposed of
in accordance with such effective Shelf Registration Statement, (iv) the date on
which such Note, Exchange Note or Private Exchange Note, as the case may be, is
eligible for distribution to the public without volume or manner of sale
restrictions pursuant to Rule 144(k) or (v) the date on which
<PAGE>
-6-
such Note, Exchange Note or Private Exchange Note, as the case may be, ceases
to be outstanding for purposes of the Indenture or any other indenture under
which such Exchange Note or Private Exchange Note was issued.
TRUSTEE: The trustee under the Indenture.
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration
in connection with which securities are sold to an underwriter for reoffering to
the public pursuant to an effective Registration Statement.
2. EXCHANGE OFFER
(a) To the extent not prohibited by any applicable law or
applicable interpretation of the staff of the SEC, the Issuers shall (A) prepare
and, on or prior to 90 days (the "FILING DATE") after the date of original
issuance of the Notes (the "ISSUE DATE"), file with the SEC a Registration
Statement under the Securities Act with respect to an offer by the Company to
the holders of the Notes to issue and deliver to such holders, in exchange for
Notes, a like principal amount of Exchange Notes, (B) use their best efforts to
cause the Registration Statement relating to the Exchange Offer to be declared
effective by the SEC under the Securities Act on or prior to 150 days after the
Issue Date, and (C) commence the Exchange Offer and use their best efforts to
issue, on or prior to the Consummation Date, the Exchange Notes. The offer and
sale of the Exchange Notes pursuant to the Exchange Offer shall be registered
pursuant to the Securities Act on an appropriate form (the "EXCHANGE
REGISTRATION STATEMENT") and duly registered or qualified under all applicable
state securities or Blue Sky laws and will comply with all applicable tender
offer rules and regulations under the Exchange Act and state securities or Blue
Sky laws. The Exchange Offer shall not be subject to any condition, other than
that the Exchange Offer does not violate any applicable law or regulation or
interpretation of the staff of the SEC. Upon consummation of the Exchange Offer
in accordance with this Section 2, the Issuers shall have no further
registration obligations other than with respect to (i) Private Exchange Notes,
(ii) Exchange Notes held by Participating Broker-Dealers and (iii) Notes or
Exchange Notes as to which Section 3(a)(ii) hereof applies. No securities shall
be included in the Exchange Registration Statement other than the Exchange
Notes.
(b) The Issuers may require each holder of Notes, as a condition
to its participation in the Exchange Offer, to rep-
<PAGE>
-7-
resent to the Issuers and their counsel in writing (which may be contained in
the applicable letter of transmittal) that at the time of the consummation of
the Exchange Offer (i) any Exchange Notes received by such holder will be
acquired in the ordinary course of its business, (ii) such holder will have
no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes
and (iii) such holder is not an Affiliate of an Issuer, or if it has such an
arrangement or understanding or is an Affiliate of an Issuer, it will comply
with the registration and prospectus delivery requirements of the Securities
Act, to the extent applicable.
If the holder is not a broker-dealer, it will be required to
represent that it is not engaged in, and does not intend to engage in, the
distribution of the Exchange Notes. If the holder is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Notes that were
acquired as a result of market-making activities or other trading activities, it
will be required to acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes.
(c) If, prior to consummation of the Exchange Offer, the Initial
Purchaser holds any Notes acquired by it and having, or which are reasonably
likely to be determined to have, the status of an unsold allotment in the
initial distribution, or any other holder of Notes is not entitled to
participate in the Exchange Offer, the Issuers, upon the request of the Initial
Purchaser or any such holder, shall, simultaneously with the delivery of the
Exchange Notes in the Exchange Offer, issue and deliver to the Initial Purchaser
and any such holder, in exchange (the "PRIVATE EXCHANGE") for such Notes held by
the Initial Purchaser and any such holder, a like principal amount of debt
securities of the Company, guaranteed by the Guarantors on a senior basis, that
are identical in all material respects to the Exchange Notes (the "PRIVATE
EXCHANGE NOTES") (and which are issued pursuant to the same indenture as the
Exchange Notes). The Private Exchange Notes shall bear the same CUSIP number as
the Exchange Notes.
(d) Unless the Exchange Offer would not be permitted by any
applicable law or interpretation of the staff of the SEC, the Company shall mail
the Exchange Offer Prospectus and appropriate accompanying documents, including
appropriate letters of transmittal, to each holder of Notes providing, in
addition to such other disclosures as are required by applicable law:
<PAGE>
-8-
(i) that the Exchange Offer is being made pursuant to this
Agreement and that all Notes validly tendered will be accepted for
exchange;
(ii) The date of acceptance for exchange (the "EXCHANGE DATE"),
which date shall in no event be later than the Consummation Date (unless
otherwise required by applicable law);
(iii) that a holder of a Note electing to have a Note exchanged
pursuant to the Exchange Offer will be required to surrender such Note,
together with the enclosed letters of transmittal, to the institution and
at the address (located in the Borough of Manhattan, The City of New York)
specified in the notice prior to the close of business on the Exchange
Date; and
(iv) that holders of Notes that do not tender all such securities
pursuant to the Exchange Offer may no longer have any registration rights
hereunder with respect to Notes not tendered.
Promptly after the Exchange Date, the Company shall:
(i) accept for exchange all Notes or portions thereof validly
tendered and not validly withdrawn pursuant to the Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Notes or portions thereof so accepted for exchange by the
Company, and issue, cause the Trustee under the Indenture (or the
indenture pursuant to which the Exchange Notes are issued) to
authenticate, and mail to each holder of Notes, Exchange Notes equal in
principal amount to the principal amount of the Notes surrendered by such
holder.
(e) The Issuers and the Initial Purchaser acknowledge that the
staff of the SEC has taken the position that any broker-dealer that owns
Exchange Notes that were received by such broker-dealer for its own account in
the Exchange Offer (a "PARTICIPATING BROKER-DEALER") may be deemed to be an
"underwriter" within the meaning of the Securities Act and must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes (other than a resale of an unsold allotment
resulting from the original offering of the Notes).
<PAGE>
-9-
The Issuers and the Initial Purchaser also acknowledge that it is
the SEC staff's position that if the Prospectus contained in the Exchange
Registration Statement includes a plan of distribution containing a statement to
the above effect and the means by which Participating Broker-Dealers may resell
the Exchange Notes, without naming the Participating Broker-Dealers or
specifying the amount of Exchange Notes owned by them, such Prospectus may be
delivered by Participating Broker-Dealers to satisfy their prospectus delivery
obligations under the Securities Act in connection with resales of Exchange
Notes for their own accounts, so long as the Prospectus otherwise meets the
requirements of the Securities Act.
In light of the foregoing, if requested by a Participating
Broker-Dealer, the Issuers agree (x) to use their best efforts to keep the
Exchange Registration Statement continuously effective for a period of up to six
months after the Consummation Date or such earlier date as each Participating
Broker-Dealer shall have notified the Company in writing that such Participating
Broker-Dealer has resold all Exchange Notes acquired in the Exchange Offer,
(y) to comply with the provisions of Section 5 of this Agreement, as they relate
to the Exchange Offer and the Exchange Registration Statement, and (z) to
deliver to such Participating Broker-Dealer a "cold comfort" letter of the
independent public accountants of the Issuers and a legal opinion as to matters
reasonably requested by such Participating Broker-Dealer relating to the
Exchange Registration Statement and the related Prospectus and any amendments or
supplements thereto.
(f) The Initial Purchaser shall have no liability to any
Participating Broker-Dealer with respect to any request made pursuant to
Section 2(e).
(g) Interest on each Exchange Note or Private Exchange Note will
accrue (A) from the later of (i) the last interest payment date on which
interest was paid on the Note surrendered in exchange therefor, or (ii) if the
Note is surrendered for exchange on a date in a period which includes the record
date for an interest payment date to occur on or after the date of such exchange
and as to which interest will be paid, the date of such interest payment date or
(B) if no interest has been paid on the Notes, from the Issue Date.
(h) The Exchange Notes and the Private Exchange Notes may be
issued under (i) the Indenture or (ii) an indenture identical in all material
respects to the Indenture, which in either event shall provide that the Exchange
Notes shall not
<PAGE>
-10-
be subject to the transfer restrictions set forth in the Indenture. The
Indenture or such indenture shall provide that the Exchange Notes, the
Private Exchange Notes and the Notes shall vote and consent together on all
matters as one class and that neither the Exchange Notes, the Private
Exchange Notes nor the Notes will have the right to vote or consent as a
separate class on any matter.
3. SHELF REGISTRATION
(a) If (i) the Issuers are not permitted to file the Exchange
Registration Statement or to consummate the Exchange Offer because the Exchange
Offer is not permitted by any applicable law or applicable interpretation of the
staff of the SEC or (ii) any holder of a Note notifies the Company that (A) due
to a change in law or policy it is not entitled to participate in the Exchange
Offer, (B) due to a change in law or policy it may not resell Exchange Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the Prospectus contained in the Exchange Registration Statement
is not appropriate or available for such resales by such holder or (C) it owns
Notes (including any Initial Purchaser that holds Notes as part of an unsold
allotment from the original offering of the Notes) acquired directly from an
Issuer or an Affiliate of an Issuer or (iii) any holder of Private Exchange
Notes so requests after the consummation of the Private Exchange or (iv) the
Issuers have not consummated the Exchange Offer within 185 days after the Issue
Date (each such event referred to in clauses (i) through (iv), a "SHELF FILING
EVENT"), the Issuers shall (x) promptly deliver to the holders and the Trustee
notice thereof and (y) at their own expense cause to be filed with the SEC
pursuant to Rule 415 a shelf registration statement (the "SHELF REGISTRATION
STATEMENT") as promptly as practicable and in any event prior to 60 days after
such filing obligation arises relating to all Transfer Restricted Notes (the
"SHELF REGISTRATION") the holders of which have provided the information
required pursuant to Section 3(b) hereof (PROVIDED that if the Shelf Filing
Event arises pursuant to clause (iv) above and the Exchange Registration
Statement shall not have been filed or shall have been withdrawn, the Issuers
shall file the Shelf Registration Statement on the 186th day after the Issue
Date), and shall use their best efforts to have the Shelf Registration Statement
declared effective by the SEC on or prior to 60 days after the filing thereof.
In such circumstances, the Issuers shall use their best efforts to keep the
Shelf Registration Statement continuously effective under the Securities Act,
until (A) two years (or such shorter period as may be established by any
amendment to the two year period set
<PAGE>
-11-
forth in Rule 144(k) under the Securities Act) following the Issue Date or
(B) if sooner, the date immediately following the date that all Transfer
Restricted Notes covered by the Shelf Registration Statement have been sold
pursuant thereto or otherwise cease to be Transfer Restricted Notes (the
"EFFECTIVENESS PERIOD"); PROVIDED that the Effectiveness Period shall be
extended to the extent required to permit dealers to comply with the
applicable prospectus delivery requirements of Rule 174; PROVIDED, FURTHER,
that during any consecutive 365 day period, the Company may suspend the
effectiveness of a Shelf Registration Statement, in the event that, and for
up to two periods of up to 45 consecutive days, but no more than an aggregate
of 60 days during any 365 day period (a "SHELF BLACKOUT PERIOD") if, (i) an
event occurs and is continuing as a result of which the Shelf Registration
Statement would, in the Company's good faith judgment, contain an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading and (ii) if the Company
determines in good faith that (a) the disclosure of such event at such time
would have a material adverse effect on the business, operations or prospects
of the Company or (b) the disclosure otherwise relates to a pending material
business transaction which has not yet been publicly disclosed.
(b) No holder of Transfer Restricted Notes may include any of its
Transfer Restricted Notes in any Shelf Registration Statement pursuant to this
Agreement unless and until such holder furnishes to the Company in writing,
within 30 days after receipt of a request therefor, such information as the
Company may reasonably request for use in connection with any Shelf Registration
Statement or Prospectus or preliminary prospectus included therein. No holder
of Transfer Restricted Notes shall be entitled to Liquidated Damages pursuant to
Section 4 hereof unless and until such holder shall have provided all such
reasonably requested information. Each holder of Transfer Restricted Notes as
to which any Shelf Registration Statement is being effected agrees to furnish
promptly to the Company all information required to be disclosed in order to
make the information previously furnished to the Company by such holder not
materially misleading.
4. LIQUIDATED DAMAGES
(a) The parties hereto agree that the holders of Transfer
Restricted Notes will suffer damages if the Issuers fail to fulfill their
obligations pursuant to Section 2 or Section 3, as applicable, and that it would
not be feasible to as-
<PAGE>
-12-
certain the extent of such damages. Accordingly, in the event that:
(i) if (A) neither the Exchange Registration Statement nor Shelf
Registration Statement is filed with the Commission on or prior to the
Filing Date or (B) notwithstanding that the Issuers have consummated or
will consummate an Exchange Offer, the Issuers are required to file a
Shelf Registration Statement and such Shelf Registration Statement is not
filed on or prior to the date required by this Registration Rights
Agreement, then commencing on the day after either such required filing
date, Liquidated Damages shall accrue on the principal amount of the Notes
at a rate of 0.5% per annum for the first 90 days immediately following
each such filing date, such Liquidated Damages rate increasing by an
additional 0.5% per annum at the beginning of each subsequent 90-day
period; or
(ii) if (A) neither the Exchange Registration Statement nor a Shelf
Registration Statement is declared effective by the Commission on or prior
to 60 days after the applicable filing date or (B) notwithstanding that
the Issuers have consummated or will consummate an Exchange Offer, the
Issuers are required to file a Shelf Registration Statement and such Shelf
Registration Statement is not declared effective by the Commission on or
prior to the 60th day following the date such Shelf Registration Statement
was filed, then, commencing on the day after the 60th day following the
applicable filing date, Liquidated Damages shall accrue on the principal
amount of the Notes at a rate of 0.5% per annum for the first 90 days
immediately following such date, such Liquidated Damages rate increasing
by an additional 0.5% per annum at the beginning of each subsequent 90-day
period; or
(iii) if (A) the Issuers have not exchanged Exchange Notes for all
Notes validly tendered in accordance with the terms of the Exchange Offer
on or prior to the 36th day after the date on which the Exchange
Registration Statement was declared effective or (B) if applicable, the
Shelf Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
expiration of the Effectiveness Period, then Liquidated Damages shall
accrue on the principal amount of the Notes at a rate of 0.5% per annum
for the first 90 days commencing on (x) the 36th day after such effective
date, in the case of (A) above, or (y) the day such Shelf Registration
Statement ceases to be effec-
<PAGE>
-13-
tive in the case of (B) above, such Liquidated Damages rate increasing
by an additional 0.5% per annum at the beginning of each subsequent
90-day period;
PROVIDED, HOWEVER, that the Liquidated Damages rate on the Notes may
not exceed in the aggregate 2.00% per annum; PROVIDED, FURTHER, HOWEVER,
that (1) upon the filing of the Exchange Registration Statement or a Shelf
Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Exchange Registration Statement or a Shelf
Registration Statement (in the case of clause (ii) above), or (3) upon the
exchange of Exchange Notes for all Notes tendered (in the case of clause
(iii)(A) above), or upon the effectiveness of the Shelf Registration
Statement which had ceased to remain effective (in the case of clause
(iii)(B) above), Liquidated Damages on the Notes as a result of such
clause (or the relevant subclause thereof), as the case may be, shall
cease to accrue; PROVIDED FURTHER, that Liquidated Damages shall not
accrue during any Shelf Blackout Period permitted pursuant to Section
3(a).
(b) The Issuers shall notify the Trustee and paying agent under
the Indenture (or the trustee and paying agent under such other indenture under
which any Transfer Restricted Notes are issued) promptly upon the happening of
each and every event described in clauses (a)(i), (a)(ii) or (a)(iii) above
(each a "Registration Default"). The Issuers shall pay the Liquidated Damages
due on the Transfer Restricted Notes by depositing with the paying agent (which
shall not be an Issuer for these purposes) for the Transfer Restricted Notes, in
trust, for the benefit of the holders thereof, prior to 11:00 A.M. on the next
interest payment date specified by the Indenture (or such other indenture), sums
sufficient to pay the Liquidated Damages then due. The Liquidated Damages due
shall be payable on each interest payment date specified by the Indenture (or
such other indenture) to the record holders entitled to receive the interest
payment to be made on such date. Each obligation to pay Liquidated Damages
shall be deemed to accrue from and including the applicable Registration
Default.
(c) The parties hereto agree that the Liquidated Damages provided
for in this Section 4 constitutes a reasonable estimate of the damages that will
be suffered by holders of Transfer Restricted Notes by reason of the happening
of any Registration Default.
<PAGE>
-14-
5. REGISTRATION PROCEDURES
In connection with the Issuers' registration obligations hereunder,
the Issuers shall effect such registrations on the appropriate form available
for the sale of the Notes, the Exchange Notes or Private Exchange Notes, as
applicable, to (i) in the case of the Exchange Offer, permit the exchange of
Exchange Notes for Notes in the Exchange Offer and, if applicable, resales of
Exchange Notes by Participating Broker-Dealers and (ii) in the case of a Shelf
Registration, permit the sale of the applicable Transfer Restricted Notes in
accordance with the method or methods of disposition thereof specified by the
holders of such Transfer Restricted Notes, and pursuant thereto the Issuers
shall as expeditiously as possible:
(a) In the case of a Shelf Registration, a reasonable period of
time prior to the initial filing of a Shelf Registration Statement or
Prospectus and a reasonable period of time prior to the filing of any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), furnish
to the holders of the Transfer Restricted Notes included in such Shelf
Registration Statement, their Special Counsel and the managing
underwriters, if any, copies of all such documents proposed to be filed,
which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such holders,
their Special Counsel and such underwriters, if any, and cause the
officers and directors of the Issuers, counsel to the Issuers and
independent certified public accountants to the Issuers to respond to such
reasonable inquiries as shall be necessary, in the opinion of respective
counsel to such holders and such underwriters, to conduct a reasonable
investigation within the meaning of the Securities Act; PROVIDED that the
foregoing inspection and information gathering shall be conducted by the
Initial Purchaser and on behalf of any other persons, by one counsel
designated by and on behalf of such other persons; PROVIDED, HOWEVER, that
the Issuers shall not be deemed to have kept a Shelf Registration
Statement effective during the applicable period if any of them
voluntarily takes any unreasonable action or voluntarily fails to take any
reasonable action that results in holders of the Transfer Restricted Notes
covered thereby not being able to sell such Transfer Restricted Notes
pursuant to federal securities laws during that period. The Issuers shall
not file any such Shelf Registration Statement or related Prospectus or
any amendments or supplements thereto which the
<PAGE>
-15-
holders of a majority in principal amount of the Transfer Restricted
Notes included in such Shelf Registration Statement shall reasonably
object on a timely basis;
(b) Prepare and file with the SEC such amendments, including
post-effective amendments, to each Registration Statement as may be
necessary to keep such Registration Statement continuously effective for
the applicable time period required hereunder; cause the related
Prospectus to be supplemented by any required Prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424; and comply with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all securities covered by such Registration Statement
during such period in accordance with the intended methods of disposition
by the sellers thereof set forth in such Registration Statement as so
amended or in such Prospectus as so supplemented;
(c) Notify the holders of Transfer Restricted Notes to be sold or,
in the case of an Exchange Offer, tendered for, their Special Counsel and
the managing underwriters, if any, promptly, and (if requested by any such
person), confirm such notice in writing, (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment is proposed to be filed,
and (B) with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the
SEC or any other Federal or state governmental authority for amendments or
supplements to a Registration Statement or related Prospectus or for
additional information, (iii) of the issuance by the SEC, any state
securities commission, any other governmental agency or any court of any
stop order or injunction suspending or enjoining the use of a Prospectus
or the effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or
exemption from qualification of any of the Notes, Exchange Notes or
Private Exchange Notes for sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose, and (v) of the happening
of any event or information becoming known to any Issuer that makes any
statement made in a Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any changes
in such Registration Statement, Prospectus or documents so
<PAGE>
-16-
that it will not contain any 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, and that in the case of a
Prospectus, it will not contain any 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, in light of the circumstances under which
they were made, not misleading;
(d) Use their best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of any order enjoining or suspending the use of a
Prospectus or the effectiveness of a Registration Statement or the lifting
of any suspension of the qualification (or exemption from qualification)
of any of the Notes, Exchange Notes or Private Exchange Notes for sale in
any jurisdiction, at the earliest practicable moment;
(e) If a Shelf Registration Statement is filed pursuant to
Section 3 hereof and if requested by the managing underwriters, if any, or
the holders of a majority in aggregate principal amount of the Transfer
Restricted Notes being sold pursuant to such Shelf Registration Statement,
(i) promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters, if any, and such
holders reasonably believe should be included therein, and (ii) make all
required filings of such Prospectus supplement or such post-effective
amendment under the Securities Act as soon as practicable after the
Company has received notification of the matters to be incorporated in
such Prospectus supplement or post-effective amendment; PROVIDED, HOWEVER,
that the Issuers shall not be required to take any action pursuant to this
Section 5(e) that would, in the opinion of counsel for the Issuers,
violate applicable law;
(f) Upon written request to the Company by a holder of Notes,
Exchange Notes or Private Exchange Notes to be exchanged or sold pursuant
to a Registration Statement, their Special Counsel and each managing
underwriter, if any, without charge, furnish at least one conformed copy
of such Registration Statement and each amendment thereto, including
financial statements and schedules, all documents incorporated or deemed
to be incorporated therein by reference, and all exhibits to the extent
requested (including those previously furnished or incorporated by
ref-
<PAGE>
-17-
erence) as soon as practicable after the filing of such documents with
the SEC;
(g) Deliver to each holder of Notes, Exchange Notes or Private
Exchange Notes to be exchanged or sold pursuant to a Registration
Statement, their Special Counsel, and the underwriters, if any, without
charge, as many copies of the Prospectus (including each form of
prospectus) and each amendment or supplement thereto as such persons
reasonably request; and the Issuers hereby consent to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
holders of Transfer Restricted Notes and the underwriters, if any, in
connection with the offering and sale of the Transfer Restricted Notes in
accordance with the terms thereof and with U.S. federal securities laws
and Blue Sky laws covered by such Prospectus and any amendment or
supplement thereto;
(h) Prior to any public offering of Notes, Exchange Notes or
Private Exchange Notes, use their best efforts to register or qualify or
cooperate with the holders of Notes, Exchange Notes or Private Exchange
Notes to be sold or tendered for, the underwriters, if any, and their
respective counsel in connection with the registration or qualification
(or exemption from such registration or qualification) of such Notes,
Exchange Notes or Private Exchange Notes for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States
as any such holder or underwriter reasonably requests in writing; keep
each such registration or qualification (or exemption therefrom) effective
during the period such Registration Statement is required to be kept
effective hereunder and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Notes,
Exchange Notes or Private Exchange Notes covered by the applicable
Registration Statement; PROVIDED, HOWEVER, that the Issuers shall not be
required to (i) qualify generally to do business in any jurisdiction where
they are not then so qualified or (ii) take any action which would subject
them to general service of process or to taxation in any jurisdiction
where they are not so subject;
(i) In connection with any sale or transfer of Transfer Restricted
Notes that will result in such securities no longer being Transfer
Restricted Notes, cooperate with the holders thereof and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
<PAGE>
-18-
certificates representing Transfer Restricted Notes to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company and to enable such
Transfer Restricted Notes to be in such denominations and registered in
such names as the managing underwriters, if any, or such holders may
request at least two Business Days prior to any sale of Transfer
Restricted Notes;
(j) Upon the occurrence of any event contemplated by Section
5(c)(v) hereof, as promptly as practicable, prepare a supplement or
amendment, including, if appropriate, a post-effective amendment, to each
Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference,
and file any other required document so that, as thereafter delivered,
such Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(k) Prior to the effective date of the Exchange Registration
Statement, to provide a CUSIP number for the Exchange Notes (and Private
Exchange Notes, if applicable);
(l) If a Shelf Registration Statement is filed pursuant to
Section 3 hereof, enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in underwritten
offerings) and take all such other reasonable actions in connection
therewith (including those reasonably requested by the managing
underwriters, if any, or the holders of a majority in aggregate principal
amount of the Transfer Restricted Notes being sold) in order to expedite
or facilitate the disposition of such Transfer Restricted Notes, and,
whether or not an underwriting agreement is entered into and whether or
not the registration is an underwritten registration, (i) make such
representations and warranties to the holders of such Transfer Restricted
Notes and the underwriters, if any, with respect to the business of the
Issuers and their subsidiaries (including with respect to businesses or
assets acquired or to be acquired by any of them), and the Shelf
Registration Statement, Prospectus and documents, if any, incorporated or
deemed to be incorporated by reference therein, in each case, in form,
substance and scope as are customarily made by issuers to underwriters in
underwritten offerings, and confirm the same
<PAGE>
-19-
if and when customarily requested; (ii) obtain opinions of counsel
to the Issuers and updates thereof (which counsel and opinions
(in form, scope and substance) shall be reasonably satisfactory
to the managing underwriters, if any, and Special Counsel to
the holders of the Transfer Restricted Notes being sold), addressed
to each selling holder of Transfer Restricted Notes and each of
the underwriters, if any, covering the matters customarily covered
in opinions requested in underwritten offerings and such other matters as
may be reasonably requested by such Special Counsel and the managing
underwriters, in any; (iii) use their best efforts to obtain customary
"cold comfort" letters and updates thereof from the independent certified
public accountants of the Issuers (and, if necessary, any other
independent certified public accountants of any subsidiary of the Issuers
or of any business acquired by an Issuer or any such subsidiary for which
financial statements and financial data is, or is required to be, included
in the Shelf Registration Statement), addressed (where reasonably
possible) to each selling holder of Transfer Restricted Notes and each of
the underwriters, if any, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters
in connection with underwritten offerings; (iv) if an underwriting
agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable to the selling holders and the
underwriters, if any, than those set forth in Section 7 hereof (or such
other provisions and procedures acceptable to holders of a majority in
aggregate principal amount of Transfer Restricted Notes covered by such
Shelf Registration Statement and the managing underwriters, if any); and
(v) deliver such documents and certificates as may be reasonably requested
by the holders of a majority in aggregate principal amount of the Transfer
Restricted Notes being sold, their Special Counsel and the managing
underwriters, if any, to evidence the continued validity of the
representations and warranties made pursuant to clause (i) above and to
evidence compliance with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Issuers;
(m) In the case of a Shelf Registration, make available for
inspection by a representative of the holders of Transfer Restricted Notes
being sold, any underwriter participating in any such disposition of
Transfer Restricted Notes, and any attorney, consultant or accountant
retained by such selling holders or underwriter, (collectively the
<PAGE>
-20-
"Inspectors") at the offices where normally kept, during reasonable
business hours, all relevant financial and other records, pertinent
corporate documents, instruments of the Issuer and its subsidiaries
(collectively, the "Records") as shall be reasonably necessary to enable
them to exercise any applicable due diligence responsibilities, and
properties of the Issuers and their subsidiaries (including with respect
to businesses and assets acquired or to be acquired to the extent that
such information is available to the Issuers), and cause the officers,
directors, agents and employees of the Issuers and their subsidiaries
(including with respect to businesses and assets acquired or to be
acquired to the extent that such information is available to the Issuers)
to supply all information in each case reasonably requested by any such
representative, underwriter, attorney, consultant or accountant in
connection with such Shelf Registration; PROVIDED, HOWEVER, that such
persons shall first agree in writing with the Company that any information
that is reasonably and in good faith designated by the Company in writing
as confidential at the time of delivery of such information shall be kept
confidential by such persons, unless and to the extent that (i) disclosure
of such information is, in the opinion of counsel for any Inspector,
necessary or advisable in connection with any action, claim, suit or
proceeding, directly or indirectly, involving or potentially involving
such Inspector and arising out of, based upon, relating to, or involving
this Agreement, or any transactions contemplated hereby or arising
hereunder, or (ii) the information in such Records has been required by
court or administrative order or is necessary to respond to inquiries of
regulatory authorities, (iii) disclosure of such information is required
by law (including any disclosure requirements pursuant to Federal
securities laws in connection with the filing of the Shelf Registration
Statement or the use of any Prospectus), (iv) such information becomes
generally available to the public other than as a result of a disclosure
or failure to safeguard such information by such person or (v) such
information becomes available to such person from a source other than the
Issuers and their subsidiaries and such source is not bound by a
confidentiality agreement; and PROVIDED, FURTHER, that the foregoing
inspection and information gathering shall be conducted by the Initial
Purchaser and on behalf of any other persons, by one counsel designated by
and on behalf of such other persons;
<PAGE>
-21-
(n) Provide an indenture trustee for the Notes and/or the Exchange
Notes and Private Exchange Notes, as the case may be, and cause an
indenture to be qualified under the TIA not later than the effective date
of the first Registration Statement relating to the Notes and/or the
Exchange Notes and Private Exchange Notes, as the case may be; and if such
indenture shall be the Indenture, in connection therewith, cooperate with
the Trustee and the holders of the Notes and/or the Exchange Notes and
Private Exchange Notes, to effect such changes to the Indenture, if any,
as may be required for the Indenture to be so qualified in accordance with
the terms of the TIA; and execute, and use its reasonable efforts to cause
the Trustee to execute, all customary documents as may be required to
effect such changes, and all other forms and documents required to be
filed with the SEC to enable the Indenture to be so qualified in a timely
manner;
(o) Comply with all applicable rules and regulations of the SEC
and make generally available to their securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158, no later than 45 days after the end of any 12-month period (or
90 days after the end of any 12-month period if such period is a fiscal
year) (i) commencing at the end of any fiscal quarter in which Transfer
Restricted Notes are sold to underwriters in a firm commitment or
reasonable efforts underwritten offering and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter after the effective date of a Registration Statement, which
statement shall cover said period, consistent with the requirements of
Rule 158;
(p) Upon consummation of an Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Issuer, in a form customary for
underwritten transactions, addressed to the Trustee for the benefit of all
holders of Exchange Notes of Private Exchange Notes participating in the
Exchange Offer or the Private Exchange, as the case may be, that the
Exchange Notes or Private Exchange Notes, as the case may be, and the
related indenture constitute legal, valid and binding obligations of the
Issuer, enforceable against the Issuer in accordance with their respective
terms;
(q) Cooperate with each seller of Transfer Restricted Notes
covered by any Registration Statement and each underwriter, if any,
participating in the disposition
<PAGE>
-22-
of such Transfer Restricted Notes and their respective counsel in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc.; and
(r) Use their best efforts to take all other steps reasonably
necessary to effect the registration of the Transfer Restricted Notes
covered by a Registration Statement contemplated hereby.
The Issuers may require a holder of Transfer Restricted Notes to be
included in a Registration Statement to furnish to the Issuers such information
regarding the distribution of such Transfer Restricted Notes as is required by
law to be disclosed in such Registration Statement and the Issuers may exclude
from such Registration Statement the Transfer Restricted Notes of any holder who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
If any such Registration Statement refers to any holder by name or
otherwise as the holder of any securities of an Issuer, then such holder shall
have the right to require (i) the insertion therein of language, in form and
substance reasonably satisfactory to such holder, to the effect that the holding
by such holder of such securities is not to be construed as a recommendation by
such holder of the investment quality of the Issuers' securities covered thereby
and that such holding does not imply that such holder will assist in meeting any
future financial requirements of the Issuers, or (ii) in the event that such
reference to such holder by name or otherwise is not required by the Securities
Act, the deletion of the reference to such holder in any amendment or supplement
to the Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
In the case of a Shelf Registration pursuant to Section 3 hereof,
each holder of Transfer Restricted Notes agrees by acquisition of such Transfer
Restricted Notes that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii),
5(c)(iv) or 5(c)(v) hereof, such holder will forthwith discontinue disposition
of such Transfer Restricted Notes covered by such Registration Statement or
Prospectus until such holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 5(j) hereof, or until it is advised
in writing by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of
<PAGE>
-23-
any additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus.
6. REGISTRATION EXPENSES
All fees and expenses incident to the performance of or compliance
with this Agreement by the Issuers shall be borne by the Issuers whether or not
any Registration Statement is filed or becomes effective and whether or not any
Notes, Exchange Notes or Private Exchange Notes are issued or sold pursuant to
any Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the National Association of Securities Dealers, Inc.
and (B) in compliance with securities or Blue Sky laws), (ii) printing expenses
(including, without limitation, expenses of printing certificates for Notes,
Exchange Notes and Private Exchange Notes in a form eligible for deposit with
The Depository Trust Company and of printing Prospectuses), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Issuers and the Special Counsel, (v) fees and disbursements of all independent
certified public accountants referred to in Section 2(e) and Section 5(l)(iii)
hereof (including, without limitation, the expenses of any special audit and
"cold comfort" letters required by or incident to such performance), (vi)
Securities Act liability insurance, if the Company desires such insurance, (vii)
the expenses relating to printing, word processing and distributing all
Registration Statements, underwriting agreements and other documents necessary
in order to comply with this Agreement, (viii) the fees and expenses of the
Trustee and any exchange agent and the fees and expenses of their counsel; (ix)
rating agency fees, if any, and any fees associated with making Transfer
Restricted Notes eligible for trading through The Depository Trust Company,
(x) if required, the reasonable fees and expenses of any "qualified independent
underwriter" and its counsel as may be required by the rules and regulations of
the National Association of Securities Dealers, Inc., and (xi) fees and expenses
of all other persons retained by the Issuers. In addition, the Issuers shall
pay their internal expenses (including, without limitation, all salaries and
expenses of their respective officers and employees performing legal or
accounting duties), the expense of any annual audit, and the fees and expenses
incurred in connection with the listing of the Notes, Exchange Notes or Private
Exchange Notes to be registered on any securities exchange.
<PAGE>
-24-
7. INDEMNIFICATION
(a) The Issuers agree, jointly and severally, to indemnify and
hold harmless (i) the Initial Purchaser, each holder of Notes, Exchange Notes
and Private Exchange Notes and each Participating Broker-Dealer, (ii) each
person, if any, who controls (within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act) any of the foregoing (any of the persons
referred to in this clause (ii) being hereinafter referred to as a "controlling
person"), and (iii) the respective officers, directors, partners, employees,
representatives and agents of the Initial Purchaser, each holder of Notes,
Exchange Notes and Private Exchange Notes, each Participating Broker-Dealer and
any controlling person (any person referred to in clause (i), (ii) or (iii) may
hereinafter be referred to as an "INDEMNIFIED PERSON"), from and against any and
all losses, claims, damages, liabilities and judgments arising out of or
relating to any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, Prospectus or preliminary prospectus or
in any amendment or supplement thereto, or arising out of or relating to any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or preliminary prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except insofar as such
losses, claims, damages, liabilities or judgments are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Indemnified Person furnished in writing to the
Issuers by or on behalf of such Indemnified Person expressly for use therein;
PROVIDED that the foregoing indemnity with respect to any preliminary prospectus
shall not inure to the benefit of any Indemnified Person from whom the person
asserting such losses, claims, damages, liabilities and judgments purchased
securities if such untrue statement or omission or alleged untrue statement or
omission made in such preliminary prospectus is eliminated or remedied in the
Prospectus and a copy of the remedied Prospectus shall not have been furnished
to such person in a timely manner due to the wrongful action or wrongful
inaction of such Indemnified Person.
(b) In case any action shall be brought against any Indemnified
Person, based upon any Registration Statement or any Prospectus or preliminary
prospectus or any amendment or supplement thereto and with respect to which
indemnity may be sought against the Issuers hereunder, such Indemnified Person
shall promptly notify the Issuers in writing and the Company
<PAGE>
-25-
shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Indemnified Person and payment of all fees
and expenses. Any Indemnified Person shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Indemnified
Person, unless (i) the employment of such counsel shall have been
specifically authorized in writing by the Issuers, (ii) the Company shall
have failed to assume the defense and employ counsel or pay all such fees and
expenses or (iii) the named parties to any such action (including any
impleaded parties) include both such Indemnified Person and an Issuer and
such Indemnified Person shall have been advised by counsel that there may be
one or more legal defenses available to it which are different from or
additional to those available to any such Issuer (in which case the Company
shall not have the right to assume the defense of such action on behalf of
such Indemnified Person, it being understood, however, that the Issuers shall
not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (in addition to any
local counsel) for all such Indemnified Persons, which firm shall be
designated in writing by such Indemnified Persons, and that all such
reasonable fees and expenses shall be reimbursed as they are incurred). The
Issuers shall not be liable for any settlement of any such action effected
without their written consent but if settled with the written consent of the
Issuers, the Issuers agree, jointly and severally, to indemnify and hold
harmless each Indemnified Person from and against any loss or liability by
reason of such settlement. No Issuer shall, without the prior written
consent of each Indemnified Person, effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is a party
and indemnity could have been sought hereunder by such Indemnified Person,
unless such settlement includes an unconditional release of such Indemnified
Person from all liability on claims that are the subject matter of such
proceeding.
(c) In connection with any Registration Statement pursuant to
which a holder of Transfer Restricted Notes offers or sells Transfer Restricted
Notes, such holder agrees, severally and not jointly, to indemnify and hold
harmless the Issuers, their respective directors, officers, employees,
representatives and agents and any person controlling an Issuer within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
to the same extent as the foregoing indem-
<PAGE>
-26-
nity from the Issuers to each Indemnified Person but only with respect to
information relating to such holder furnished in writing by or on behalf of
such holder expressly for use in such Registration Statement. In any such
case in which any action shall be brought against an Issuer, any director or
officer of an Issuer or any person controlling an Issuer based on such
Registration Statement and in respect of which indemnity may be sought
against a holder of Transfer Restricted Notes, such holder shall have the
rights and duties given to the Issuers (except that if an Issuer shall have
assumed the defense thereof, such holder shall not be required to do so, but
may employ separate counsel therein and participate in the defense thereof
but the fees and expenses of such counsel shall be at the expense of such
holder), and the Issuers, their respective directors and officers and any
person controlling an Issuer shall have the rights and duties given to the
Indemnified Persons by Section 7(b) hereof.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to herein, then each 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 losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by each indemnifying party on the one
hand and the indemnified party on the other hand from the offering of the Notes,
the Exchange Notes or the Private Exchange Notes, as the case may be (it being
expressly understood and agreed that the relative benefits received by the
Issuers from the offering of the Notes, Exchange Notes or Private Exchange
Notes, as the case may be, shall be the amount of the net proceeds received by
the Company from the sale of the Notes to the), or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party on
the one hand and the indemnified party on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative fault of the each indemnifying party on the one
hand the indemnified party on the other hand shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by an indemnifying party or such indemnified party and the parties'
relative in-
<PAGE>
-27-
tent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Issuers and the Initial Purchaser agree that it would not be
just and equitable if contribution pursuant to this Section 7(d) were determined
by PRO RATA allocation (even if all Indemnified Persons were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, no
Indemnified Person shall be required to contribute any amount in excess of the
amount by which the net proceeds received by it in connection with the sale of
the Notes, Exchange Notes or Private Exchange Notes contemplated by this
Agreement (or, in the case of an underwriter that is an Indemnified Person, the
total underwriting discounts received by such underwriter) exceeds the amount of
any damages which such Indemnified Person has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Indemnified Person's obligations to contribute pursuant to this Section 7(d) are
several in proportion to the respective amount of Notes, Exchange Notes or
Private Exchange Notes included in any such Registration Statement by each
Indemnified Person and not joint.
8. RULES 144 AND 144A
Each of the Issuers covenants and agrees that it will file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the SEC thereunder in a timely manner
in accordance with the requirements of the Securities Act and the Exchange Act
and, if at any time such Issuer is not required to file such reports, such
Issuer will, upon the request of any Holder or beneficial owner of Registrable
Notes, make available such information necessary to permit sales pursuant to
Rule 144A under the Securities Act. Each of the Issuers further covenants and
agrees, for so long as any Registrable Notes remain out-
<PAGE>
-28-
standing that it will make available to any Holder of Registrable Notes, all
to the extent required from time to time to enable such holder to sell
Registrable Notes without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under
the Securities Act, as such Rules may be amended from time to time, or (b)
any similar rule or regulation hereafter adopted by the SEC.
9. UNDERWRITTEN REGISTRATIONS
If any of the Transfer Restricted Notes covered by any Shelf
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will administer the offering
will be selected by the holders of a majority in aggregate principal amount of
the Transfer Restricted Notes included in such offering and reasonably
acceptable to the Company.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such Transfer Restricted Notes on the
basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
10. MISCELLANEOUS
(a) REMEDIES. In the event of a breach by an Issuer or by a
holder of Notes, Exchange Notes or Private Exchange Notes of any of its
obligations under this Agreement, each holder of Notes, Exchange Notes or
Private Exchange Notes and each Issuer, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement.
Notwithstanding the provisions of Section 4 hereof, the Issuers and each holder
of Notes, Exchange Notes and Private Exchange Notes agree that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
of any of the provisions of this Agreement and each hereby further agrees that,
in the event of any action for specific performance in respect of such breach,
it shall waive the defense that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Issuers will not enter into
any agreement with respect to their securities
<PAGE>
-29-
that is inconsistent with the rights granted to the holders of Notes,
Exchange Notes and Private Exchange Notes and Indemnified Persons in this
Agreement or otherwise conflicts with the provisions hereof. Without the
written consent of the holders of a majority in aggregate principal amount of
the outstanding Transfer Restricted Notes, the Issuers shall not grant to any
person any rights which conflict with or are inconsistent with the provisions
of this Agreement.
(c) NO PIGGYBACK ON REGISTRATIONS. The Issuers shall not grant to
any of their securityholders (other than the holders of Transfer Restricted
Notes in such capacity) the right to include any of their securities in any
Registration Statement other than Transfer Restricted Notes.
(d) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, otherwise than with the prior written consent of the holders
of not less than a majority of the then outstanding aggregate principal amount
of Transfer Restricted Notes; PROVIDED, HOWEVER, that, for the purposes of this
Agreement, Transfer Restricted Notes that are owned, directly or indirectly, by
the Issuers or any of their Affiliates are not deemed outstanding.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
holders of Transfer Restricted Notes whose securities are being sold or tendered
pursuant to a Registration Statement and that does not directly or indirectly
affect the rights of other holders of Transfer Restricted Notes may be given by
holders of a majority in aggregate principal amount of the Transfer Restricted
Notes being sold or tendered by such holders pursuant to such Registration
Statement; PROVIDED, HOWEVER, that the provisions of this sentence may not be
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence. Notwithstanding the foregoing, no
amendment, modification, supplement, waiver or consent with respect to Section 7
shall be made or given otherwise than with the prior written consent of each
Indemnified Person affected thereby.
(e) NOTICES. All notices and other communications provided for
herein shall be made in writing by hand-delivery, next-day air courier,
certified first-class mail, return receipt requested, telex or telecopier:
<PAGE>
-30-
(i) if to the Issuers, as provided in the Purchase Agreement,
(ii) if to the Initial Purchaser, as provided in the Purchase
Agreement, or
(iii) if to any other person who is then the registered holder of
Notes, Exchange Notes or Private Exchange Notes, to the address of such
holder as it appears in the register therefor of the Company.
Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given: when delivered by hand,
if personally delivered; one Business Day after being timely delivered to a
next-day air courier; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; and when receipt is
acknowledged by the recipient's telecopier machine, if telecopied.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each holder of Notes, Exchange
Notes and Private Exchange Notes and each Indemnified Person. The Issuers may
not assign any of their rights or obligations hereunder without the prior
written consent of each holder of Transfer Restricted Notes and each Indemnified
Person. Notwithstanding the foregoing, no successor or assignee of an Issuer
shall have any of the rights granted under this Agreement until such person
shall acknowledge its rights and obligations hereunder by a signed written
statement of such person's acceptance of such rights and obligations.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement.
(h) GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW
YORK. THE ISSUERS HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY NEW YORK
STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY
FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN
RESPECT OF ANY SUIT, ACTION OR
<PAGE>
-31-
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND EACH IRREVOCABLY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS.
(i) SEVERABILITY. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(j) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
All references made in this Agreement to "Section" and "paragraph" refer to such
Section or paragraph of this Agreement, unless expressly stated otherwise.
(k) ENTIRE AGREEMENT. This Agreement is intended by the parties
as a final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Issuers with
respect to the Notes, the Exchange Notes and the Private Exchange Notes. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
<PAGE>
-32
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first written above.
HENRY COMPANY
By: /s/ Richard B. Gordinier
------------------------
Name: Richard B. Gordinier
Title: President
<PAGE>
-33-
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written.
BT ALEX. BROWN INCORPORATED
By: /s/ Amelia Silver
-----------------
Name: Amelia Silver
Title: Principal
<PAGE>
-34-
The Subsidiary specified below agrees to become a party to this
Agreement as a Subsidiary Guarantor as of the date hereof:
MONSEY PRODUCTS CO.
By: /s/ Richard B. Gordinier
------------------------
Name: Richard B. Gordinier
Title: President
<PAGE>
-35-
The Subsidiary specified below agrees to become a party to this
Agreement as a Subsidiary Guarantor as of the date hereof:
KIMBERTON ENTERPRISES
By: /s/ Richard B. Gordinier
------------------------
Name: Richard B. Gordinier
Title: President
<PAGE>
-36-
The Subsidiary specified below agrees to become a party to this
Agreement as a Subsidiary Guarantor as of the date hereof:
MONSEY PRODUCTS OF ARIZONA LLC
By: Monsey Products Co. Designated Manager
/s/ RICHARD B. GORDINIER
--------------------------------------
Name: Richard B. Gordinier
Title: President
<PAGE>
[Munger, Tolles & Olson LLP]
April 22, 1998
BT ALEX. BROWN INCORPORATED
130 Liberty Street
New York, New York 10006
Re: Henry Company 10% Senior Notes Due 2008
Ladies and Gentlemen:
We have acted as counsel for Henry Company, a California
corporation (the "Company"), with respect to the issuance and sale by the
Company to BT Alex. Brown Incorporated (the "Initial Purchaser") of
$85,000,000 principal amount of the Company's 10% Senior Notes due 2008 (the
"Notes"), pursuant to that certain Purchase Agreement (the "Purchase
Agreement") dated as of April 15, 1998, between the Initial Purchaser, the
Company and, as of April 22, 1998, Monsey Products, Co., a Pennsylvania
corporation ("Monsey"), Kimberton Enterprises, Inc., a Delaware corporation
("Kimberton") and Monsey Products of Arizona LLC, an Arizona limited
liability company ("Monsey Arizona"; Monsey, Kimberton and Monsey Arizona are
together sometimes referred to herein as the "Guarantors") as guarantors.
The Notes are being issued pursuant to an Indenture dated as of April 22,
1998 (the "Indenture"), between the Company, U.S. Trust Company of
California, N.A., as trustee (the "Trustee") and the Guarantors. All
capitalized terms used herein without definition shall have meanings ascribed
to such terms in the Purchase Agreement.
In our capacity as counsel for the Company, we have examined
originals or copies of corporate records of the Company, certificates of
public officials and of officers of the Company and others, and such other
documents as we have deemed necessary or
<PAGE>
BT Alex. Brown Incorporated
April 22, 1998
Page 2
appropriate for the purposes of this opinion. We have also examined the
Offering Memorandum dated April 15, 1998 related to the offer by the Company
of the Senior Notes (the "Final Memorandum"). In our examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to authentic original documents
of all documents submitted to us as copies, and the legal capacity of all
parties executing such documents.
In making our examination of documents executed by parties other
than the Company, we have assumed that such parties had the power, corporate
or other, to enter into and perform all obligations thereunder and have also
assumed the due authorization by all requisite action, corporate or other,
and execution and delivery by such parties of such documents and the validity
and binding effect thereof.
On the basis of the foregoing, and in reliance thereon, and subject
to the assumptions, qualifications, and limitations set forth herein, we are
of the opinion that:
1. The Company is duly incorporated, validly existing and in good
standing under the laws of the State of California and has all requisite
corporate power and authority to own its properties and to conduct its
business as described in the Final Memorandum. The Company is duly qualified
to do business as a foreign corporation in good standing in the jurisdictions
listed in Exhibit A hereto.
2. The Company has the authorized, issued and outstanding
capitalization set forth in the Final Memorandum; all of the outstanding
shares of capital stock of the Company have been duly authorized and validly
issued, are fully paid and nonassessable and, to our knowledge, were not
issued in violation of any preemptive or similar rights.
3. To our knowledge, except as set forth in the Final Memorandum,
(A) no options, warrants or other rights to purchase from the Company shares
of capital stock of the Company are outstanding, (B) no agreements or other
obligations to issue, or other rights to convert, any obligation into, or
exchange any securities for, shares of capital stock in the Company are
outstanding, and (C) no holder of securities of the Company, other than the
holders of the Notes, is entitled to have such securities registered under a
registration statement to be filed pursuant to the Registration Rights
Agreement dated as of April 22, 1998 by and among the Company, the Initial
Purchaser and the Guarantors (the "Registration Rights Agreement").
4. The Company has all requisite corporate power and authority to
execute, deliver and perform each of its obligations under the Indenture, the
Notes, the Exchange Notes and the Private Exchange Notes; the Indenture meets
the requirements for qualification under
<PAGE>
BT Alex. Brown Incorporated
April 22, 1998
Page 3
the TIA; the Indenture has been duly and validly authorized by the Company
and, when duly executed and delivered by the Company and each Guarantor
(assuming the due authorization, execution and delivery thereof by the
Trustee), will constitute the valid and legally binding agreement of the
Company, enforceable against the Company in accordance with its terms, except
that (A) the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights generally and (ii) general principles
of equity and the discretion of the court before which any proceeding
therefor may be brought and (B) we express no opinion with respect to the
enforceability or effect of Section 4.09 of the Indenture or as to whether a
California court or a Federal court sitting in California would uphold the
stipulation in the Indenture that New York law governs the Indenture and the
Notes and the Guarantees (the Notes and the Guarantees, together, are
referred to herein as the "Securities").
5. The Notes and the Guarantees are in the form contemplated by
the Indenture. The Notes have each been duly and validly authorized by the
Company and, when duly executed and delivered by the Company and paid for by
the Initial Purchaser in accordance with the terms of the Purchase Agreement
(assuming the due authorization, execution and delivery of the Indenture by
the Trustee and due authentication and delivery of the Notes by the Trustee
in accordance with the Indenture), will constitute the valid and legally
binding obligations of the Company, entitled to the benefits of the
Indenture, and enforceable against the Company in accordance with their
terms, except that the enforcement thereof may be subject to (A) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights generally and (B) general principles
of equity and the discretion of the court before which any proceeding
therefor may be brought.
6. The Exchange Notes and the Private Exchange Notes have been
duly and validly authorized by the Company, and if the Exchange Notes and the
Private Exchange Notes have been duly executed and delivered by the Company
in accordance with the terms of the Registration Rights Agreement and the
Indenture (assuming the due authorization, execution and delivery of the
Indenture by the Trustee and due authentication and delivery of the Exchange
Notes and the Private Exchange Notes by the Trustee in accordance with the
Indenture), will constitute the valid and legally binding obligations of the
Company, entitled to the benefits of the Indenture, and enforceable against
the Company in accordance with their terms, except that the enforcement
thereof may be subject to (A) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (B) general principles of equity and the
discretion of the court before which any proceeding therefor may be brought.
7. The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Registration Rights
Agreement; the Registration
<PAGE>
BT Alex. Brown Incorporated
April 22, 1998
Page 4
Rights Agreement has been duly and validly authorized by the Company and,
when duly executed and delivered by the Company and each of the Guarantors
(assuming due authorization, execution and delivery thereof by the Initial
Purchaser), will constitute the valid and legally binding agreement of the
Company, enforceable against the Company in accordance with its terms, except
that (A) the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights generally and (ii) general principles
of equity and the discretion of the court before which any proceeding
therefor may be brought, (B) any rights to indemnity or contribution
thereunder may be limited by federal and state securities laws and public
policy considerations, and (C) we express no opinion with respect to the
enforceability or effect of Section 4 of the Registration Rights Agreement or
that a California court or a Federal court sitting in California would uphold
the stipulation in the Registration Rights Agreement that New York law would
govern it.
8. The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Purchase Agreement and
to consummate the transactions contemplated thereby; the Purchase Agreement
and the consummation by the Company of the transactions contemplated thereby
have been duly and validly authorized by the Company. The Purchase Agreement
has been duly executed and delivered by the Company.
9. The descriptions of the Indenture, the Notes, the Guarantees,
the Registration Rights Agreement, the New Credit Agreement and the
Acquisition Agreement contained in the Final Memorandum provide a fair
summary of such documents.
10. The statements set forth under the headings "The
Transactions," "Certain Transactions," "Description of the Credit
Facilities," and "Description of the Notes" in the Final Memorandum, insofar
as such statements constitute a summary of provisions of documents referred
to therein, accurately summarize the described provisions of such documents
in all material respects. The first and third sentences of the second
paragraph and the first and second sentences of the third paragraph appearing
under the heading "Business - Litigation" and the third sentence of the
second paragraph appearing under the heading "Business -Environmental
Matters," insofar as such sentences constitute a summary of provisions of
documents referred to therein, accurately summarize the described provisions
of such documents in all material respects; provided, that we express no
opinion with respect to (i) the status of any such proceedings or matters, or
the materiality thereof or (ii) the accuracy of any statement of fact
contained therein as it relates to the actions of any person or entity.
11. The execution, delivery and performance by the Company of the
Purchase Agreement, the Indenture, the Registration Rights Agreement, the
Acquisition
<PAGE>
BT Alex. Brown Incorporated
April 22, 1998
Page 5
Agreement and the New Credit Agreement and the consummation of the
transactions contemplated thereby (including, without limitation, the
issuance and sale of the Notes to the Initial Purchaser) will not conflict
with, constitute or result in a breach or a default under (or an event which
with notice or passage of time or both would constitute a default under) or
violation of any of (i) the terms or provisions of any contract listed on
Exhibit B hereto, except for any such conflict, breach, violation, default or
event which would not, individually or in the aggregate, have a material
adverse effect on the business, condition (financial or otherwise), prospects
or results of operations of the Company, the Guarantors and the Guarantors'
direct and indirect subsidiaries taken as a whole (a "Material Adverse
Effect"), (ii) the articles of incorporation or bylaws of the Company, or
(iii) assuming compliance with all applicable state securities or "Blue Sky"
laws and assuming the accuracy of the representations and warranties of the
Initial Purchaser in Section 8 of the Purchase Agreement, any statute, law,
judgment, decree, order, rule or regulation known to us to be applicable to
the Company or any of its properties or assets, except for any such conflict,
breach or violation which would not, individually or in the aggregate, have a
Material Adverse Effect.
12. Assuming the accuracy of the Initial Purchaser's
representations and warranties in Section 8 of the Purchase Agreement, no
consent, approval, authorization or order of any governmental authority is
required for the issuance and sale by the Company of the Notes to the Initial
Purchaser or the consummation by the Company of the other transactions
contemplated thereby, except such as may be required under state securities
or "Blue Sky" laws, as to which we express no opinion, and those which have
previously been obtained.
13. To our knowledge, there are no legal or governmental
proceedings involving or affecting the Company or any of the Guarantors or
any of their respective properties or assets which would be required to be
described in a prospectus on Form S-1 pursuant to the Securities Act of 1933,
as amended (the "Act") that are not described in the Final Memorandum, nor
are there any material contracts which would be required to be described in a
prospectus on Form S-1 pursuant to the Act that are not described in the
Final Memorandum; provided, that with respect to our opinion as to the
properties, assets or material contracts of the Guarantors, we have relied
solely on an examination of the Guarantors' schedules to the Acquisition
Agreement (for which we assume no responsibility and which we have not
independently verified) describing legal or governmental proceedings and
material contracts.
14. None of the Company or any of the Guarantors, or immediately
after the sale of the Securities to be sold pursuant to the Purchase
Agreement and the application of the proceeds from such sale (as described in
the Final Memorandum under the caption "Sources and Uses of Funds") will be,
an "investment company" as such term is defined in the
<PAGE>
BT Alex. Brown Incorporated
April 22, 1998
Page 6
Investment Company Act of 1940, as amended; provided, that with respect to
the opinion set forth in this Paragraph 14, we have relied solely on the
description of the businesses of the Company and the Guarantors contained in
the Final Memorandum and a certificate of the chief financial officer of the
Company as to the business and financial affairs of the Company and, to his
knowledge, of the Guarantors.
15. No registration of the Securities is required under the Act in
connection with the sale of the Securities to the Initial Purchaser as
contemplated by the Purchase Agreement and the Final Memorandum or in
connection with the initial resale of the Securities by the Initial Purchaser
in accordance with the Purchase Agreement, and prior to the commencement of
the Exchange Offer (as defined in the Registration Rights Agreement) or the
effectiveness of the Shelf Registration Statement (as defined in the
Registration Rights Agreement), the Indenture is not required to be qualified
under the TIA, in each case assuming (i) (A) that the purchasers who buy such
Securities in the initial resale thereof are qualified institutional buyers
as defined in Rule 144A promulgated under the Act ("QIBs") or (B) that the
offer or sale of the Securities is made in an offshore transaction as defined
in Regulation S promulgated under the Act, (ii) the accuracy of the Initial
Purchaser's representations in Section 8 of the Purchase Agreement and those
of the Company and the Guarantors contained in the Purchase Agreement
regarding the absence of a general solicitation in connection with the sale
of such Securities to the Initial Purchaser and the initial resale thereof
and (iii) the due performance by the Initial Purchaser of the agreements set
forth in Section 8 of the Purchase Agreement.
16. Assuming that the proceeds from the sale of the Securities are
applied as described in the Final Memorandum under the caption "Sources and
Uses of Funds", neither the consummation of the transactions contemplated by
the Purchase Agreement nor the sale, issuance, execution or delivery of the
Securities by the Company and the Guarantors, as appropriate, will violate
Regulations G, T, U or X of the Board of Governors of the Federal Reserve
System.
-------------------------
Because the primary purpose of our professional engagement was not
to establish or confirm factual matters or financial, accounting or
statistical information, and because many determinations involved in the
Final Memorandum are of a wholly or partially non-legal character or relate
to matters outside the scope of the opinion set forth above, we are not
passing upon and do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Final Memorandum,
and we make no representation
<PAGE>
BT Alex. Brown Incorporated
April 22, 1998
Page 7
that we have independently verified the accuracy, completeness or fairness of
such statements or any of them.
However, during the course of our engagement, we have participated
in conferences with officers and other representatives of the Company,
representatives of the independent accountants of the Company,
representatives of the Initial Purchaser and counsel for the Initial
Purchaser at which conferences the contents of the Final Memorandum and
related matters were discussed. Although we are not passing upon, and do not
assume any responsibility for, the accuracy, completeness or fairness of the
statements contained in the Final Memorandum (without limiting our opinions
set forth in paragraphs 9 and 10 above) and have made no independent check or
verification thereof, during the course of such participation (in which we
relied as to materiality primarily on the statements of officers of the
Company), no facts have come to our attention that have led us to believe
that the Final Memorandum, as of its date or as of the date hereof, contained
an untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that we express no opinion or belief with respect to the financial statements
and related notes thereto and the other financial, statistical and accounting
data included in the Final Memorandum.
We furthermore confirm to you that, to our knowledge, there are no
legal or governmental proceedings pending or threatened to which the Company
is a party or to which any of its properties or assets is subject which seeks
to restrain, enjoin or prevent the consummation of or otherwise challenge the
issuance or sale of the Notes to be sold pursuant to the Purchase Agreement
or the consummation of the other transactions described in the Final
Memorandum under the caption "Sources and Uses of Funds."
We are admitted to practice law only in the State of California.
Accordingly, our opinion is limited in all respects to the laws of the State
of California, the Federal laws of the United States of America and the
General Corporation Law of the State of Delaware, and we assume no
responsibility as to the applicability or effect of the laws of any other
jurisdiction. To the extent that the matters which are the subject of this
opinion may be affected by the laws of the State of New York, we have
assumed, without verification, that the laws of the State of New York are
identical to the laws of the State of California. We express no opinion as
to the effect of California or Federal laws relating to permissible rates of
interest on the Securities and the transactions contemplated by the Purchase
Agreement.
This letter is furnished by us as counsel for the Company pursuant
to Section 7(a) of the Purchase Agreement in connection with the offer and
sale of the Securities and is intended to be solely for the benefit of the
Initial Purchaser. This letter may not be
<PAGE>
BT Alex. Brown Incorporated
April 22, 1998
Page 8
relied upon by the Initial Purchaser for any other purpose, or furnished to,
quoted to, or relied upon by any other person or entity for any purpose,
without our prior written consent.
Very truly yours,
/s/ MUNGER, TOLLES & OLSON LLP
------------------------------
Munger, Tolles & Olson LLP
<PAGE>
BT Alex. Brown Incorporated
April 22, 1998
Page 9
EXHIBIT A
Foreign Jurisdictions
Texas
Washington
Oregon
<PAGE>
BT Alex. Brown Incorporated
April 22, 1998
Page 10
EXHIBIT B
Contracts
1. Warrant Agreement dated as of October 1, 1997 between Henry Company
and the Warner W. Henry Living Trust
2. Financing and Security Agreement dated as of December 20, 1996 by and
between Henry Company and NationsBank, N.A.
<PAGE>
OFFICER'S CERTIFICATE
TO MUNGER, TOLLES & OLSON LLP
The undersigned Jeffrey A. Wahba, Chief Financial Officer of Henry Company
(the "Company"), in connection with the legal opinion to be given by Munger,
Tolles & Olson LLP in connection with the issuance of the Company's 10% Senior
Notes Due 2008 (the "Notes"), does hereby certify as follows:
1. Except as described in the Offering Memorandum dated April 15,
1998 relating to the issuance and sale of the Notes (the "Offering
Memorandum"), the Company has not issued any shares of its capital stock.
2. Attached as Exhibit A hereto is a true and correct list of every
material bond, debenture, note or other evidence of material indebtedness,
and every material instrument, indenture, contract or agreement to which
the Company is a party or by which any of its properties are bound.
3. There are no legal or governmental proceedings to which the
Company is a party or of which any of its property is the subject, other
than ordinary routine litigation incidental to the business of the Company,
which could not be reasonably expected to have a material adverse effect on
the operations, business or financial condition of the Company.
4. There are no court or administrative orders, writs, judgments or
decrees specifically directed to the Company which are material to the
Company.
5. The offer and sale of the Notes will be conducted in accordance
with the terms set forth in the Purchase Agreement dated April 15, 1998 by
and among the Company, BT Alex. Brown Incorporated (the "Initial
Purchaser") and the guarantors named therein.
6. The financial statements of the Company contained in the Offering
Memorandum provide a fair presentation of the consolidated financial
condition of the Company as of and for the periods ended December 31, 1998.
The Company and, to my knowledge each of Monsey Products Co. ("Monsey") and
its subsidiaries:
(i) is engaged solely in the lines of business described in the
Offering Memorandum;
(ii) does not hold itself out as being engaged primarily, or
proposes to engage primarily, in the business of investing, reinvesting or
trading in securities; and
1
<PAGE>
(iii) do not own or propose to acquire securities having a
value exceeding 40 percent of the value of its total assets.
7. There are no legal or governmental proceedings pending or, to my
knowledge, threatened to which the Company is a party or to which any of
its properties or assets is subject which seeks to restrain, enjoin or
prevent the consummation of or otherwise challenge the issuance or sale of
the Notes or the consummation of the other transactions described in the
Final Memorandum under the caption "Sources and Uses of Funds."
8. Munger, Tolles & Olson LLP is entitled to rely on the Officer's
Certificate of the Company delivered on the date hereof pursuant to Section
7(h) of the Purchase Agreement and the Secretary's Certificate of the
Company delivered to the Initial Purchaser on the date hereof.
IN WITNESS WHEREOF, I have executed this Officer's Certificate on behalf of
the Company as of April 22, 1998.
/s/ Jeffrey A. Wahba
-----------------------------------
Jeffrey A. Wahba
Chief Financial Officer
2
<PAGE>
EXHIBIT A - MATERIAL AGREEMENTS
1. Warrant Agreement dated as of October 1, 1997 between Henry Company
and the Warner W. Henry Living Trust
2. Financing and Security Agreement dated as of December 20, 1996 by and
between Henry Company and NationsBank, N.A.
3
<PAGE>
[John D. O'Keefe]
EXHIBIT 5.2
April 22, 1998
BT ALEX. BROWN INCORPORATED
130 Liberty Street
New York, New York 10006
Re: Henry Company 10% Senior Notes Due 2008
Ladies and Gentlemen:
I have acted as special counsel for Monsey Products, Co., a
Pennsylvania corporation ("Monsey"), Kimberton Enterprises, Inc., a Delaware
corporation ("Kimberton") and Monsey Products of Arizona LLC, an Arizona limited
liability company ("Monsey Arizona"; Monsey, Kimberton and Monsey Arizona are
together sometimes referred to herein as the "Guarantors") in connection with
the sale by Henry Company, a California corporation (the "Company") to BT Alex.
Brown Incorporated (the "Initial Purchaser") of $85,000,000 principal amount of
the Company's 10% Senior Notes due 2008 (the "Notes"), pursuant to that certain
Purchase Agreement (the "Purchase Agreement") dated April 15, 1998, between the
Initial Purchaser, the Company and, as of April 22, 1998, the Guarantors, and
the guarantee by the Guarantors of such Notes (the "Guarantees"). The Notes and
the Guarantees are being issued pursuant to an Indenture, dated as of April 22,
1998 (the "Indenture"), between the Company and U.S. Trust Company of
California, N.A., as trustee (the "Trustee"). All capitalized terms used herein
without definition shall have meanings ascribed to such terms in the Purchase
Agreement.
In my capacity as special counsel for the Guarantors, I have examined
originals or copies of corporate records of the Guarantors, certificates of
public officials and of officers of the Guarantors and others, and such other
documents as I have deemed necessary or appropriate for the purposes of this
opinion. I have also examined the Offering Memorandum related to the offer by
the Company of the Notes dated April 15, 1998 (the "Final Memorandum"). In my
examination, I have assumed the genuineness of all signatures, the
<PAGE>
BT Alex. Brown Incorporated
April 22, 1998
Page 2
authenticity of all documents submitted to me as originals, the conformity to
authentic original documents of all documents submitted to me as copies, and the
legal capacity of all parties executing such documents.
In making my examination of documents executed by parties other than
the Guarantors, I have assumed that such parties had the power, corporate or
other, to enter into and perform all obligations thereunder and have also
assumed the due authorization by all requisite action, corporate or other, and
execution and delivery by such parties of such documents and the validity and
binding effect thereof.
On the basis of the foregoing, and in reliance thereon, and subject to
the assumptions, qualifications, and limitations set forth herein, I am of the
opinion that:
i. Each of Monsey and Kimberton is duly incorporated, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation and has all requisite corporate power and authority to own its
properties and to conduct its business as described in the Final Memorandum.
Monsey Arizona is duly organized, validly existing and in good standing under
the laws of the state of Arizona and has all requisite power and authority to
own its properties and conduct its business as described in the Final
Memorandum. Each Guarantor is duly qualified to do business as a foreign
corporation in good standing in the jurisdictions listed on Exhibit A hereto.
ii. All of the outstanding shares of capital stock or membership
interests of the Guarantors have been duly authorized and validly issued, are
fully paid and nonassessable and, to my knowledge, were not issued in violation
of any preemptive or similar rights; to my knowledge, all of the outstanding
shares of capital stock or membership interests of the Guarantors are owned,
directly or indirectly, by the Company, free and clear of all perfected security
interests (other than in connection with the New Credit Agreement) and, to my
knowledge, free and clear of all other liens, encumbrances, equities and claims
or restrictions on transferability (other than those imposed by the Securities
Act of 1933, as amended (the "Act") and the securities or "Blue Sky" laws of
certain jurisdictions) or voting.
iii. Except as set forth in the Final Memorandum and to my
knowledge, (A) no options, warrants or other rights to purchase from any
Guarantor shares of capital stock or ownership interests in any Guarantor are
outstanding, (B) no agreements or other obligations to issue, or other rights
to convert, any obligation into, or exchange any securities for, shares of
capital stock or ownership interests in any Guarantor are outstanding, and
(C) no holder of securities of any Guarantor is entitled to have such
securities registered under a registration statement filed pursuant to the
Registration Rights Agreement.
<PAGE>
BT Alex. Brown Incorporated
April 22, 1998
Page 3
iv. Each of the Guarantors has all requisite power and authority
to execute, deliver and perform each of its obligations under the Indenture,
the Guarantees, the Exchange Notes Guarantees and the Private Exchange Notes
Guarantees; the Indenture has been duly and validly authorized by each of the
Guarantors and, when duly executed and delivered by the Company and each
Guarantor (assuming the due authorization, execution and delivery thereof by
the Trustee), will constitute the valid and legally binding agreement of each
Guarantor, enforceable against each Guarantor in accordance with its terms,
except that the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights generally and (ii) general principles
of equity and the discretion of the court before which any proceeding
therefor may be brought.
v. The Guarantees have each been duly and validly authorized by
each of the Guarantors and, when duly executed and delivered by the Guarantors
in accordance with the terms of the Purchase Agreement (assuming the due
authorization, execution and delivery of the Indenture by the Trustee), will
constitute the valid and legally binding obligations of the Guarantors,
enforceable against the Guarantors in accordance with their terms, except that
the enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
and the discretion of the court before which any proceeding therefor may be
brought.
vi. The Exchange Notes Guarantees and the Private Exchange Notes
Guarantees have been duly and validly authorized by each of the Guarantors,
and if the Exchange Notes Guarantees and the Private Exchange Notes
Guarantees have been duly executed and delivered by the Guarantors in
accordance with the terms of the Registration Rights Agreement dated as of
April 22, 1998 between the Initial Purchaser, the Company and the Guarantors
(the "Registration Rights Agreement") and the Indenture (assuming due
authorization, execution and delivery of the Indenture by the Trustee), will
constitute the valid and legally binding obligations of the Guarantors, and
enforceable against the Guarantors in accordance with their terms, except
that the enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
and the discretion of the court before which any proceeding therefor may be
brought.
vii. Each of the Guarantors has all requisite power and authority
to execute, deliver and perform its obligations under the Registration Rights
Agreement; the Registration Rights Agreement has been duly and validly
authorized by each of the Guarantors and, when duly executed and delivered by
the Company and each Guarantor (assuming due authorization, execution and
delivery thereof by the Initial Purchaser), will constitute the valid and
legally
<PAGE>
BT Alex. Brown Incorporated
April 22, 1998
Page 4
binding agreement of each of the Guarantors, enforceable against each
of the Guarantors in accordance with its terms, except that (A) the
enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
and the discretion of the court before which any proceeding therefor may be
brought and (B) any rights to indemnity or contribution thereunder may be
limited by federal and state securities laws and public policy considerations.
viii. Each of the Guarantors has all requisite power and authority
to execute, deliver and perform its obligations under the Purchase Agreement and
to consummate the transactions contemplated thereby; the Purchase Agreement and
the consummation by each of the Guarantors of the transactions contemplated
thereby have been duly and validly authorized by each of the Guarantors. The
Purchase Agreement has been duly executed and delivered by each of the
Guarantors.
ix. The execution, delivery and performance by the Guarantors of
the Purchase Agreement, the Indenture, the Registration Rights Agreement, and
the Amended and Restated Financing and Security Agreement dated as of April 22,
1998 by and among NationsBank, N.A., the Company and the Guarantors and the
consummation of the transactions contemplated thereby (including, without
limitation, the issuance and sale of the Guarantees to the Initial Purchaser)
will not conflict with constitute or result in a breach or a default under (or
an event which with notice or passage of time or both would constitute a default
under) or violation of any of (i) the terms of provisions of any contract known
to me, except for any such conflict, breach, violation, default or event which
would not, individually or in the aggregate, have a material adverse effect on
the business, condition (financial or otherwise), prospects or results of
operations of the Company, Monsey and Monsey's direct and indirect subsidiaries
taken as a whole (a "Material Adverse Effect"), (ii) the articles of
incorporation or bylaws, of Monsey or Kimberton, (iii) the articles of
organization or the operating agreement of Monsey Arizona, or (iv) assuming
compliance with all applicable state securities or "Blue Sky" laws and assuming
the accuracy of the representations and warranties, of the Initial Purchaser in
Section 8 of the Purchase Agreement, any statute, law, judgment, decree, order,
rule or regulation known to me to be applicable to any of the Guarantors or any
of their respective properties or assets, except for any such conflict, breach
or violation which would not, individually or in the aggregate, have a Material
Adverse Effect.
x. Assuming the accuracy of the Initial Purchaser's
representations and warranties in Section 8 of the Purchase Agreement, no
consent, approval, authorization or order of any governmental authority is
required for the execution and delivery by the Guarantors of the Guarantees or
the consummation by the Guarantors of the other transactions
<PAGE>
BT Alex. Brown Incorporated
April 22, 1998
Page 5
contemplated hereby and except such as may be required under Blue Sky laws,
as to which I express no opinion, and those which have previously been
obtained.
I furthermore confirm to you that, to my knowledge, there are no legal
or governmental proceedings pending or threatened to which any of the Guarantors
is a party or to which any of their respective properties or assets is subject
which seeks to restrain, enjoin or prevent the consummation of or otherwise
challenge the issuance or sale of the Guarantees to be sold pursuant to the
Purchase Agreement or the consummation of the other transactions described in
the Final Memorandum under the caption "Sources and Uses of Funds."
I am admitted to practice law only in the Commonwealth of
Pennsylvania. Accordingly, my opinion is limited in all respects to the laws of
the Commonwealth of Pennsylvania, and I assume no responsibility as to the
applicability or effect of the laws of any other jurisdiction. To the extent
that the matters which are the subject of this opinion may be affected by the
laws of the States of New York, Delaware and Arizona, I have assumed, without
verification, that the law of the States of New York, Delaware and Arizona,
respectively, are identical to the laws of the Commonwealth of Pennsylvania.
This letter is furnished by me as special counsel to the Guarantors
pursuant to Section 7(a) of the Purchase Agreement and is intended to be solely
for the benefit of the Initial Purchaser. This letter may not be relied upon by
the Initial Purchaser for any other purpose, or furnished to, quoted to, or
relied upon by any other person or entity for any purpose, without my prior
written consent.
Very truly yours,
/s/ John D. O'Keefe
-------------------
John D. O'Keefe
<PAGE>
BT Alex. Brown Incorporated
April 22, 1998
Page 6
EXHIBIT A
Foreign Jurisdictions
Monsey Products Co.:
California
Florida
Indiana
New Jersey
New York
South Carolina
Texas
<PAGE>
AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT
by and between
HENRY COMPANY AND CERTAIN OF ITS SUBSIDIARIES
and
NATIONSBANK, N.A.
April 22, 1998
<PAGE>
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS 2
SECTION 1.1 CERTAIN DEFINED TERMS. 2
SECTION 1.2 ACCOUNTING TERMS AND OTHER DEFINITIONAL PROVISIONS. 25
ARTICLE II THE CREDIT FACILITIES 25
SECTION 2.1 THE REVOLVING CREDIT FACILITY. 25
2.1.1 Revolving Credit Facility. 25
2.1.2 Procedure for Making Advances Under the Revolving
Loan; Lender Protection Loans. 26
2.1.3 Borrowing Base. 26
2.1.4 Borrowing Base Report. 27
2.1.5 Revolving Credit Note. 28
2.1.6 Mandatory Prepayments of Revolving Loan. 28
2.1.7 Optional Prepayments of Revolving Loan. 28
2.1.8 The Collateral Account. 29
2.1.9 Revolving Loan Account. 30
2.1.10 Revolving Credit Unused Line Fee. 30
2.1.11 Early Termination Fee. 30
2.1.12 Required Availability under the Revolving Credit
Facility. 31
2.1.13 Right of Lender to Demand Payment and Terminate
Revolving Credit Facility. 32
SECTION 2.2 THE CAPITAL EXPENDITURE FACILITY. 32
2.2.1 Capital Expenditure Facility. 32
2.2.2 Procedure for Making Advances Under the Capital
Expenditure Facility. 32
2.2.3 Capital Expenditure Note. 33
2.2.4 Optional Prepayments of Capital Expenditure Loan. 33
2.2.5 Activation Fee. 34
SECTION 2.3 THE LETTER OF CREDIT FACILITY. 34
2.3.1 Letters of Credit. 34
2.3.2 Letter of Credit Fees. 34
2.3.3 Terms of Letters of Credit. 34
2.3.4 Procedure for Letters of Credit. 35
SECTION 2.4 INTEREST. 35
2.4.1 Applicable Interest Rates. 35
2.4.2 Selection of Interest Rates. 36
2.4.3 Inability to Determine LIBOR Computation Rate. 38
2.4.4 Indemnity. 38
2.4.5 Payment of Interest. 38
SECTION 2.5 GENERAL FINANCING PROVISIONS. 39
2.5.1 Borrowers' Representatives. 39
2.5.2 Use of Proceeds of the Loans. 41
2.5.3 Origination Fee. 41
2.5.4 Field Examination Fees. 41
2.5.5 Computation of Interest and Fees. 41
2.5.6 Payments. 41
2.5.7 Liens; Setoff. 42
2.5.8 Requirements of Law. 42
2.5.9 Funds Transfer Services. 43
2.5.10 No Novation. 44
ARTICLE III THE COLLATERAL 44
SECTION 3.1 DEBT AND OBLIGATIONS SECURED. 44
SECTION 3.2 MONSEY BAKOR GROUP COLLATERAL. 45
SECTION 3.3 GRANT OF LIENS. 45
SECTION 3.4 COLLATERAL DISCLOSURE LIST. 46
i
<PAGE>
SECTION 3.5 CERTAIN PERSONAL PROPERTY. 46
3.5.1 Certain Possessory Collateral. 46
3.5.2 Additional Steps to Perfect. 47
SECTION 3.6 RECORD SEARCHES. 47
SECTION 3.7 COSTS. 47
SECTION 3.8 RELEASE. 48
SECTION 3.9 INCONSISTENT PROVISIONS. 48
ARTICLE IV REPRESENTATIONS AND WARRANTIES 48
SECTION 4.1 REPRESENTATIONS AND WARRANTIES. 48
4.1.1 Subsidiaries. 48
4.1.2 Good Standing. 48
4.1.3 Good Standing - Limited Liability Company. 48
4.1.4 Power and Authority. 49
4.1.5 Binding Agreements. 49
4.1.6 No Conflicts. 49
4.1.7 No Defaults, Violations. 50
4.1.8 Compliance with Laws. 50
4.1.9 Margin Stock. 50
4.1.10 Investment Company Act; Margin Securities. 50
4.1.11 Litigation. 51
4.1.12 Financial Condition. 51
4.1.13 Full Disclosure. 51
4.1.14 Indebtedness for Borrowed Money. 52
4.1.15 Offering. 52
4.1.16 Taxes. 52
4.1.17 ERISA. 52
4.1.18 Title to Properties. 53
4.1.19 Capital Expenditure Loan Equipment. 53
4.1.20 Patents, Trademarks, Etc. 53
4.1.21 Employee Relations. 53
4.1.22 Presence of Hazardous Materials or Hazardous
Materials Contamination. 54
4.1.23 Perfection and Priority of Collateral. 54
4.1.24 Places of Business and Location of Collateral. 54
4.1.25 Business Names and Addresses. 55
4.1.26 Inventory. 55
4.1.27 Accounts. 55
4.1.28 Compliance with Eligibility Standards. 56
SECTION 4.2 SURVIVAL; UPDATES OF REPRESENTATIONS AND WARRANTIES. 56
ARTICLE V CONDITIONS PRECEDENT 56
SECTION 5.1 CONDITIONS TO THE INITIAL ADVANCE AND INITIAL
LETTER OF CREDIT. 56
5.1.1 Organizational Documents - Corporate Borrowers. 57
5.1.2 Organizational Documents - Monsey Arizona. 57
5.1.3 Opinion of Borrower's Counsel. 58
5.1.4 Consents, Licenses, Approvals, Etc. 58
5.1.5 Notes. 59
5.1.6 Financing Documents and Collateral. 59
5.1.7 Other Financing Documents. 59
5.1.8 Other Documents, Etc. 59
5.1.9 Payment of Fees. 59
5.1.10 Collateral Disclosure List. 59
5.1.11 Recordings and Filings. 59
5.1.12 Insurance Certificate. 60
5.1.13 Field Examination. 60
ii
<PAGE>
5.1.14 Offering. 60
5.1.15 Life Insurance. 60
SECTION 5.2 CONDITIONS TO ALL EXTENSIONS OF CREDIT. 60
5.2.1 Compliance. 60
5.2.2 Borrowing Base. 60
5.2.3 Default. 61
5.2.4 Representations and Warranties. 61
5.2.5 Adverse Change. 61
5.2.6 Legal Matters. 61
ARTICLE VI COVENANTS OF THE BORROWER 61
SECTION 6.1 AFFIRMATIVE COVENANTS. 61
6.1.1 Financial Statements. 61
6.1.2 Reports to SEC and to Stockholders. 64
6.1.3 Recordkeeping, Rights of Inspection, Field Examination,
Etc. 64
6.1.4 Existence. 65
6.1.5 Compliance with Laws. 65
6.1.6 Preservation of Properties. 65
6.1.7 Line of Business. 66
6.1.8 Insurance. 66
6.1.9 Taxes. 67
6.1.10 ERISA. 67
6.1.11 Notification of Events of Default and Adverse
Developments. 67
6.1.12 Hazardous Materials; Contamination. 68
6.1.13 Disclosure of Significant Transactions. 69
6.1.14 Life Insurance Policies. 69
6.1.15 Financial Covenants. 69
6.1.16 Collection of Accounts. 69
6.1.17 Assignments of Accounts. 70
6.1.18 Government Accounts. 70
6.1.19 Notice of Returned Goods, etc. 70
6.1.20 Equipment. 71
6.1.21 Inventory. 71
6.1.22 Maintenance of the Collateral. 72
6.1.23 Defense of Title and Further Assurances. 72
6.1.24 Business Names; Locations. 73
6.1.25 Subsequent Opinion of Counsel as to Recording
Requirements. 73
6.1.26 Use of Premises and Equipment. 73
6.1.27 Protection of Collateral. 73
SECTION 6.2 NEGATIVE COVENANTS. 74
6.2.1 Capital Structure, Merger, Acquisition or Sale of
Assets. 74
6.2.2 Subsidiaries. 74
6.2.3 Issuance of Stock. 75
6.2.4 Purchase or Redemption of Securities,
Dividend Restrictions. 75
6.2.5 Indebtedness. 75
6.2.6 Investments, Loans and Other Transactions. 76
6.2.7 Operating Lease Obligations. 76
6.2.8 Capital Expenditures. 76
6.2.9 Stock of Subsidiaries. 76
6.2.10 Subordinated Indebtedness. 77
6.2.11 Liens; Confessed Judgment. 77
6.2.12 Transactions with Affiliates. 77
6.2.13 Other Businesses. 78
6.2.14 ERISA Compliance. 78
6.2.15 Prohibition on Hazardous Materials. 78
iii
<PAGE>
6.2.16 Method of Accounting; Fiscal Year. 78
6.2.17 Compensation. 78
6.2.18 Transfer of Collateral. 79
6.2.19 Sale and Leaseback. 79
6.2.20 Disposition of Collateral. 79
ARTICLE VII DEFAULT AND RIGHTS AND REMEDIES 79
SECTION 7.1 EVENTS OF DEFAULT. 79
7.1.1 Failure to Pay. 79
7.1.2 Breach of Representations and Warranties. 79
7.1.3 Failure to Comply with Covenants. 80
7.1.4 Default Under Other Financing Documents or Obligations. 80
7.1.5 Receiver; Bankruptcy. 80
7.1.6 Involuntary Bankruptcy, etc. 80
7.1.7 Judgment. 81
7.1.8 Execution; Attachment. 81
7.1.9 Default Under Other Borrowings. 81
7.1.10 Challenge to Agreements. 81
7.1.11 Material Adverse Change. 82
7.1.12 Change in Ownership. 82
7.1.13 Liquidation, Termination, Dissolution, Change in
Management, etc. 82
SECTION 7.2 REMEDIES. 82
7.2.1 Acceleration. 82
7.2.2 Further Advances. 82
7.2.3 Uniform Commercial Code. 83
7.2.4 Specific Rights With Regard to Collateral. 84
7.2.5 Application of Proceeds. 85
7.2.6 Performance by Lender. 85
7.2.7 Other Remedies. 85
ARTICLE VIII MISCELLANEOUS 86
SECTION 8.1 NOTICES. 86
SECTION 8.2 AMENDMENTS; WAIVERS. 87
SECTION 8.3 CUMULATIVE REMEDIES. 87
SECTION 8.4 SEVERABILITY. 88
SECTION 8.5 ASSIGNMENTS BY LENDER. 89
SECTION 8.6 SUCCESSORS AND ASSIGNS. 89
SECTION 8.7 CONTINUING AGREEMENTS. 89
SECTION 8.8 ENFORCEMENT COSTS. 90
SECTION 8.9 APPLICABLE LAW; JURISDICTION. 90
SECTION 8.10 DUPLICATE ORIGINALS AND COUNTERPARTS. 91
SECTION 8.11 HEADINGS. 91
SECTION 8.12 NO AGENCY. 91
SECTION 8.13 DATE OF PAYMENT. 91
SECTION 8.14 ENTIRE AGREEMENT. 92
SECTION 8.15 WAIVER OF TRIAL BY JURY. 92
SECTION 8.16 LIABILITY OF THE LENDER. 92
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED
FINANCING AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT (this
"Agreement") is made this 22nd day of April, 1998, by and between HENRY COMPANY,
a corporation organized under the laws of the State of California (the
"Company"), and MONSEY PRODUCTS CO., a corporation organized under the laws of
the State of Pennsylvania ("Monsey Products"), KIMBERTON ENTERPRISES, INC., a
corporation organized under the laws of Delaware ("Kimberton"), MONSEY PRODUCTS
OF ARIZONA LLC, a limited liability company organized under the laws of the
State of Arizona ("Monsey Arizona") (each of the Company, Monsey Products,
Kimberton, and Monsey Arizona, a "Borrower" and collectively the "Borrowers")
and NATIONSBANK, N.A., a national banking association (the "Lender").
RECITALS
A. The Company and the Lender are parties to a Financing and Security
Agreement dated December 20, 1996 (the "Original Financing Agreement"). Under
the Original Financing Agreement, the Lender provided credit facilities
consisting of a revolving credit facility in the maximum principal amount of
$10,000,000, a capital expenditure facility in the maximum principal amount of
$4,000,000, and a term facility in the maximum principal amount of $1,000,000.
B. In connection with the sale of senior debt, the Company has requested
that the Lender agree to recast the credit facilities to consist of a revolving
credit facility in the maximum principal amount of $25,000,000, including a
letter of credit facility in the amount of $3,000,000, and a capital expenditure
facility in the maximum principal amount of $10,000,000 to be used by the
Borrowers for the Permitted Uses described in this Agreement. The Company has
also requested that the Lender secure the recast credit facilities with the
"Accounts," Inventory" and the "Capital Expenditure Loan Equipment" as described
below, release other Collateral contemplated by the Original Financing Agreement
and add the Monsey Bakor Group (as that term is defined below) as a Borrower.
C. The Lender is willing to make the recast credit facilities available
to the Borrowers upon the terms and subject to the conditions set forth in this
Agreement.
AGREEMENTS
NOW THEREFORE, in consideration of the premises, and for other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 CERTAIN DEFINED TERMS.
As used in this Agreement, the terms defined in the Preamble and Recitals
hereto shall have the respective meanings specified therein, and the following
terms shall have the following meanings:
"Account" individually and "Accounts" collectively mean all presently
existing or hereafter acquired or created accounts, accounts receivable,
contract rights, notes, drafts, instruments, acceptances, chattel paper, leases
and writings evidencing a monetary obligation or a security interest in, or a
lease of, goods, all rights to receive the payment of money or other
consideration under present or future contracts (including, without limitation,
all rights to receive payments under presently existing or hereafter acquired or
created letters of credit), or by virtue of merchandise sold or leased, services
rendered, loans and advances made or other considerations given, by or set forth
in or arising out of any present or future chattel paper, note, draft, lease,
acceptance, writing, bond, insurance policy, instrument, document or general
intangible, and all extensions and renewals of any thereof, all rights under or
arising out of present or future contracts, agreements or general interest in
merchandise which gave rise to any or all of the foregoing, including all goods,
all claims or causes of action (whether in tort, equity or otherwise) now
existing or hereafter arising in connection with or under any agreement or
document or by operation of law or otherwise, all collateral security of any
kind (including, without limitation, real property mortgages and deeds of trust)
and letters of credit given by any Person with respect to any of the foregoing,
all books and records in whatever media (paper, electronic or otherwise)
recorded or stored, with respect to any or all of the foregoing and all
equipment and general intangibles necessary or beneficial to retain, access
and/or process the information contained in those books and records, and all
proceeds (cash and non-cash) of the foregoing.
"Account Debtor" means any Person who is obligated on an Account and
"Account Debtors" mean all Persons who are obligated on the Accounts.
"Adjusted Net Worth" means for the Company and its Subsidiaries the sum of
Net Worth plus deferred warranty revenue, determined on a consolidated basis.
"Affiliate" means, with respect to any designated Person, any other Person,
(i) directly or indirectly controlling, directly or indirectly controlled by, or
under direct or indirect common control with the Person designated, (ii)
directly or indirectly owning or holding five percent (5%) or more of any equity
interest in such designated Person, or (iii) five percent (5%) or more of whose
stock or other equity interest is directly or indirectly owned or held by such
designated Person. For purposes of this definition, the term "control"
(including with correlative meanings, the terms "controlling", "controlled by"
and "under common control with") means the possession, directly or indirectly,
of the power to direct or cause the direction of the management
-2-
<PAGE>
and policies of a Person, whether through ownership of voting securities or
other equity interests or by contract or otherwise.
"Agreement" means this Financing and Security Agreement, as amended,
restated, supplemented or otherwise modified in writing in accordance with the
provisions of Section 8.2 of this Agreement.
"Applicable Interest Rate" means (i) the LIBOR Rate, or (ii) the Base Rate.
"Applicable Margin" means the applicable rate per annum added, as set forth
in Section 2.5.1, to the LIBOR Computation Rate or the Prime Rate.
"Asset Disposition" means the disposition of any or all of the Assets of
any Borrower, whether by sale, lease, transfer or other disposition (including
any such disposition effected by way of merger or consolidation) other than the
following to the extent made in the ordinary course of business: (a) sales of
Inventory, (b) licensing of Patents, Trademarks and/or Copyrights, (c)
dispositions of worn, used, surplus or obsolete equipment (other than Capital
Expenditure Loan Equipment), and (d) sales, leases, transfers or other
dispositions (including any such dispositions effected by way of merger or
consolidation) other than those described in clauses (a), (b) and (c) where the
fair market value of (or, if greater, the consideration to be paid for) the
property involved does not exceed $500,000 in the aggregate for all such sales,
leases, transfers or other dispositions in any fiscal year.
"Assets" means at any date all assets that, in accordance with GAAP
consistently applied, should be classified as assets on a consolidated balance
sheet of the Borrowers and their Subsidiaries.
"Assignment of Life Insurance" and "Assignments of Life Insurance as
Collateral" mean the collective reference to those certain assignments of life
insurance as collateral dated the date hereof from the Borrower for the benefit
of the Lender, which Assignments of Life Insurance assign to the Lender all of
the right, title and interest of the Company in, and to, the Life Insurance
Policies, as those assignments are amended, restated, reissued, supplemented or
otherwise modified in writing at any time and from time to time.
"Assignment of Trademarks" means those certain patent and trademark
assignment and security agreements from the Borrowers for the benefit of the
Lender, as amended, restated, supplemented or otherwise modified in writing at
any time and from time to time, covering such patents and trademarks necessary
or beneficial for the Lender to effect a disposition of Collateral.
"Assistance Agreement" means that certain assistance agreement dated the
date hereof by the Borrowers and Warner W. Henry for the benefit of the Lender,
as amended, restated, supplemented or otherwise modified in writing at any time
and from time to time.
-3-
<PAGE>
"Bankruptcy Code" means the United States Bankruptcy Code, as amended from
time to time.
"Base Rate" means the sum of the Prime Rate plus the Applicable Margin.
"Base Rate Loan" means any Loan for which interest is to be computed with
reference to the Base Rate.
"Borrowing Base" has the meaning described in Section 2.1.3 (Borrowing
Base).
"Borrowing Base Deficiency" has the meaning described in Section 2.1.3
(Borrowing Base).
"Borrowing Base Report" has the meaning described in Section 2.1.4
(Borrowing Base Report).
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in the State are authorized or required to close.
"Capital Expenditure" means an expenditure for Fixed or Capital Assets
including, without limitation, the entering into of a Capital Lease.
"Capital Expenditure Loan" has the meaning described in Section 2.3.1
(Capital Expenditure Facility).
"Capital Expenditure Commitment Period" means the period of time from the
Closing Date to the earlier of April 1, 2003, or the Revolving Credit
Termination Date.
"Capital Expenditure Loan Commitment" means the agreement of the Lender
relating to the making of the Capital Expenditure Loan and advances thereunder
subject to and in accordance with the provisions of this Agreement.
"Capital Expenditure Loan Committed Amount" has the meaning described in
Section 2.3.1 (Capital Expenditure Facility).
"Capital Expenditure Loan Equipment" means equipment which is the subject
of an advance under the Capital Expenditure Loan and further means with respect
to such equipment all chattels, tools, parts, machine tools, furniture, fixtures
and supplies of every nature, presently existing or hereafter acquired or
created and wherever located, whether or not the same shall be deemed to be
affixed to real property, together with all accessions, additions, fittings,
accessories, special tools, and improvements thereto and substitutions therefor
and all parts and equipment which may be attached to or which are necessary or
beneficial for the operation, use and/or disposition of such personal property,
all licenses, warranties, franchises and general intangibles related thereto or
necessary or beneficial for the operation, use and/or disposition of the same,
together with all Accounts, chattel paper, instruments and other consideration
received
-4-
<PAGE>
by any or all of the Borrowers on account of the sale, lease or other
disposition of all or any part of the foregoing, and together with all rights
under or arising out of present or future documents and contracts relating to
the foregoing and all proceeds (cash and non-cash) of the foregoing.
"Capital Expenditure Loan Facility" has the meaning described in Section
2.3.1 (Capital Expenditure Facility).
"Capital Expenditure Note" has the meaning described in Section 2.3.3
(Capital Expenditure Note).
"Capital Expenditure Loan Optional Prepayment" has the meaning described in
Section 2.3.4 (Optional Prepayments of Capital Expenditure Loan).
"Capital Lease" means any lease of real or personal property, for which the
related Lease Obligations have been or should be, in accordance with GAAP
consistently applied, capitalized on the balance sheet.
"Cash Equivalents" means (a) securities with maturities of one year or less
from the date of acquisition issued or fully guaranteed or insured by the United
States Government or any agency thereof, (b) certificates of deposit with
maturities of one (1) year or less from the date of acquisition of, or money
market accounts maintained with, the Lender, any Affiliate of the Lender, or any
other domestic commercial bank having capital and surplus in excess of One
Hundred Million Dollars ($100,000,000.00) or such other domestic financial
institutions or domestic brokerage houses to the extent disclosed to, and
approved by, the Lender and (c) commercial paper of a domestic issuer rated at
least either A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors
Service, Inc. with maturities of six (6) months or less from the date of
acquisition.
"Closing Date" means the Business Day, in any event not later than April
23, 1998, on which the Lender shall be satisfied that the conditions precedent
set forth in Section 5.1 (Conditions to the Initial Advance) have been
fulfilled.
"Collateral" means all property of the Borrowers subject from time to time
to the Liens of this Agreement, any of the Security Documents and/or any of the
other Financing Documents, together with any and all cash and non-cash proceeds
and products thereof.
"Collateral Account" has the meaning described in Section 2.1.8 (The
Collateral Account).
"Collateral Disclosure List" has the meaning described in Section 3.4
(Collateral Disclosure List).
"Commitment" means the collective reference to the Revolving Credit
Commitment and the Capital Expenditure Loan Commitment.
-5-
<PAGE>
"Committed Amount" means the Revolving Credit Committed Amount or the
Capital Expenditure Loan Committed Amount, as the case may be, and "Committed
Amounts" means collectively the Revolving Credit Committed Amount and the
Capital Expenditure Loan Committed Amount.
"Compliance Certificate" means a periodic Compliance Certificate described
in Section 6.1.1 (Financial Statements).
"Commonly Controlled Entity" means an entity, whether or not incorporated,
which is under common control with any Borrower within the meaning of Section
414(b) or (c) of the Internal Revenue Code.
"Copyrights" means and includes, in each case whether now existing or
hereafter arising, all of each Borrower's rights, title and interest in and to
the following as they relate to the Borrowers (a) all copyrights, rights and
interests in copyrights, works protectable by copyright, copyright
registrations, copyright applications, and all renewals of any of the foregoing,
(b) all income, royalties, damages and payments now or hereafter due and/or
payable under any of the foregoing, including, without limitation, damages or
payments for past, current or future infringements of any of the foregoing, (c)
the right to sue for past, present and future infringements of any of the
foregoing, and (d) all rights corresponding to any of the foregoing throughout
the world.
"Credit Facility" means the Revolving Credit Facility, the Capital
Expenditure Facility, or the Letter of Credit Facility , as the case may be, and
"Credit Facilities" means collectively the Revolving Credit Facility, the
Capital Expenditure Facility and the Letter of Credit Facility and any and all
other credit facilities now or hereafter extended under or secured by this
Agreement.
"Current Assets" means at any date, the amount which, in accordance with
GAAP consistently applied, would be set forth opposite the caption "total
current assets" (or any like caption) on a consolidated balance sheet of the
Company and its Subsidiaries, excluding, however, all amounts due from
Affiliates.
"Current Liabilities" means at any date, the amount which, in accordance
with GAAP consistently applied, would be set forth opposite the caption "total
current liabilities" (or any like caption) on a consolidated balance sheet of
the Company and its Subsidiaries, excluding, however, the principal balance of
the Revolving Loan.
"Current Ratio" means for the date of any determination thereof the ratio
of (a) Current Assets to (b) Current Liabilities.
"Debt Service" means for any period of determination thereof an amount
equal to the total of the aggregate amount of all payments of principal and
interest with respect to Indebtedness for Borrowed Money of the Company and its
Subsidiaries on a consolidated basis scheduled to be due and payable during such
period.
-6-
<PAGE>
"Default" means an event which, with the giving of notice or lapse of time,
or both, could or would constitute an Event of Default under the provisions of
this Agreement.
"Early Termination Fee" has the meaning described in Section 2.1.11 (Early
Termination Fee).
"EBITDA" means as to the Company and its Subsidiaries on a consolidated
basis for any period of determination thereof, the sum of (a) net income (or
loss) after deduction of interest expenses and taxes for such period, plus (b)
interest expense and taxes deducted for such period, plus (c) the aggregate
amount of depreciation and amortization expense deducted in determining such net
income, all calculated in accordance with GAAP consistently applied.
"Eligible Foreign Receivable" and "Eligible Foreign Receivables" mean, at
any time of determination thereof, the unpaid portion of each account receivable
which meets each and every requirement for inclusion in Eligible Receivables
other than requirement (n).
"Eligible Inventory" means the collective reference to all Inventory of
each Borrower held for sale in the ordinary course of business, valued at the
lowest of (i) net purchase cost or net manufacturing cost, (ii) any ceiling
prices which may be established by any applicable Law, or (iii) prevailing
market value, excluding, however, any Inventory which consists of:
(a) any goods located outside of the United States,
(b) any goods located outside of a state in which the
Lender has perfected (beyond any preference period) its security
interests by filing in that state, free and clear of all other Liens,
(c) except as allowed under requirement (d) or
requirement (e), any goods not in the actual possession of a
Borrower,
(d) any goods in the possession of a bailee,
warehouseman, consignee or similar third party, other than a
warehouseman (i) who is identified in the Company's Collateral
Disclosure List or, after the date of this Agreement, in a notice from
a Borrower to the Lender and (ii) (A) from whom the Lender has
received a waiver and consent, in form and substance satisfactory to
the Lender, to the extent required by the Lender, or (B) (without
implying any limitation on the Lender's other rights and remedies)
with respect to whose potential claims the Lender has established
reserves satisfactory to the Lender,
(e) except as provided in Section 6.1.23(a) with
respect to leases existing on the date of this Agreement, any goods
located on premises leased or rented to a Borrower or otherwise not
owned by a Borrower,
-7-
<PAGE>
unless the Lender has received a waiver and consent from the lessor,
landlord and/or owner, in form and substance satisfactory to the
Lender and from any mortgagee of such lessor, landlord or owner to the
extent required by the Lender,
(f) any goods the sale or other disposition of which
has given rise to a Receivable,
(g) any goods which fail to meet all standards and
requirements imposed by any applicable Governmental Authority over
such goods, their production, storage, use or sale,
(h) work-in-process or supplies,
(i) any goods as to which the Lender determines in the
exercise of its discretion at any time and in good faith are not in
good condition or are defective, unmerchantable, or obsolete, and
(j) any goods which are not excluded for reasons
addressed by items (a) through (i) above, but which the Lender in the
good faith exercise of its discretion has deemed to be ineligible
because the Lender otherwise considers the collateral value to the
Lender to be impaired or its ability to realize such value to be
insecure.
(k) In the event of any dispute under the foregoing
criteria, as to whether goods are, or have ceased to be, Eligible
Inventory, the decision of the Lender in the good faith exercise of
its discretion shall control.
"Eligible Life Insurance Policies" means, at any time of determination
thereof, the collective reference to each Life Insurance Policy covered by the
Assignments of Life Insurance as Collateral, provided such Life Insurance Policy
conforms and continues to conform to the following criteria to the good faith
satisfaction of the Lender:
(a) the Life Insurance Policy arose in the ordinary course
of the Company's business from a bona fide transaction between the Company and
the Life Insurance Policy issuer;
(b) the Life Insurance Policy is an issued, valid, legally
enforceable obligation of the Life Insurance Policy issuer, is in full force and
effect and requires no further act on the part of any Person under any
circumstances (other than the payment of premiums) to make cash surrender value
payable at any time, and the death benefits and other benefits payable as set
forth in the Life Insurance Policy, by the Life Insurance Policy issuer;
-8-
<PAGE>
(c) the Life Insurance Policy issuer has not rejected or
refused to honor, or otherwise notified the Company or the Lender of any dispute
concerning with respect to, the Life Insurance Policy;
(d) all premiums have been fully paid when due, without
giving effect to and without relying on any grace period;
(e) the Life Insurance Policy is not subject to any present
or known contingent (and no facts exist which are the basis for any future)
offset, claim, deduction or counterclaim, dispute or defense in law or equity on
the part of the issuer including, without limitation, those arising on account
of a breach of any express or implied representation or warranty;
(f) the Life Insurance Policy issuer is not a Subsidiary or
Affiliate of the Company or an employee, officer, director of shareholder of the
Company or any Subsidiary or Affiliate of the Company;
(g) the Life Insurance Policy issuer is not incorporated or
primarily conducting business or otherwise located in any jurisdiction outside
of the United States of America;
(h) the Life Insurance Policy issuer with respect to such
Life Insurance Policy is not insolvent or the subject of any receivership,
conservatorship, bankruptcy or insolvency proceedings of any kind or of any
other similar proceeding or action, threatened or pending;
(i) the Life Insurance Policy issuer is not a Governmental
Authority;
(j) the Company is not indebted in any manner to the Life
Insurance Policy issuer (as creditor, lessor, supplier otherwise), with the
exception of premiums which are not past due;
(k) the title of the Company to the Life Insurance Policy
is absolute and is not subject to any prior assignment, claim, Lien, or security
interest, except Permitted Liens;
(l) the Company has the full and unqualified right and
power to assign and grant a security interest in, and Lien on, the Life
Insurance Policy to the Lender as security and collateral for the payment of the
Obligations;
(m) the Life Insurance Policy does not by its terms nor by
operation of applicable Laws, forbid or make void or unenforceable the
applicable Assignment of Life Insurance as Collateral;
-9-
<PAGE>
(n) the Life Insurance Policy is subject to the Lien and
assignment in favor of the Lender, which Lien and assignment is perfected as to
the Life Insurance Policy by the filing of the applicable Assignment of Life
Insurance as Collateral with the Life Insurance Policy issuer and constitutes a
first priority security interest and Lien and a first assignment;
(o) the Life Insurance Policy issuer has acknowledged the
applicable Assignment of Life Insurance as Collateral; and
(p) any Life Insurance Policy which is not excluded for
reasons addressed by items (a) through (o) above, but which the Lender in the
good faith exercise of its discretion has deemed to be ineligible because of
uncertainty as to the creditworthiness of the Life Insurance Policy issuer or
because the Lender otherwise considers the collateral value of such Life
Insurance Policy to the Lender to be impaired or its ability to realize such
value to be insecure.
In the event of any dispute, under the foregoing criteria, as to whether an
account is, or has ceased to be, an Eligible Life Insurance Policy, the decision
of the Lender in the good faith exercise of its discretion shall control.
"Eligible Receivable" and "Eligible Receivables" mean, at any time of
determination thereof, the unpaid portion of each account receivable (net of any
returns, discounts, claims, credits, charges, accrued rebates or other
allowances, offsets, deductions, counterclaims, disputes or other defenses and
reduced by the aggregate amount of all reserves, limits and deductions provided
for in this definition and elsewhere in this Agreement) in United States Dollars
by a Borrower on account the sale of Inventory or the provision of services
solely by a Borrower, provided each account receivable conforms and continues to
conform to the following criteria:
(a) the account arose in the ordinary course of a
Borrower's business from a bona fide outright sale of goods by such Borrower or
from services performed by such Borrower;
(b) the account is a valid, legally enforceable obligation
of the Account Debtor and requires no further act on the part of any Person
under any circumstances to make the account payable by the Account Debtor;
(c) the account is based upon an enforceable order or
contract, written or oral, for goods shipped or for services performed, and the
same were shipped or performed in accordance with such order or contract;
(d) if the account arises from the sale of goods, the goods
the sale of which gave rise to the account have been shipped or delivered to the
Account Debtor on an absolute sale basis and not on a bill and hold sale basis,
a consignment sale basis, a guaranteed sale basis, a sale or return basis, or on
the basis of any other similar understanding;
-10-
<PAGE>
(e) if the account arises from the performance of services,
such services have been fully rendered and do not relate to any warranty claim
or obligation;
(f) the account is evidenced by an invoice or other
documentation in form reasonably acceptable to the Lender, dated no later than
the date of shipment or performance and containing only terms normally offered
by the Borrower;
(g) the amount shown on the books of the Borrower and on
any invoice, certificate, schedule or statement delivered to the Lender is owing
to the Borrower and no partial payment has been received unless reflected with
that delivery;
(h) except as set forth in Schedule 1.1, the account is not
outstanding more than ninety (90) days from the date of the invoice therefor or
past due more than sixty (60) days after its due date, which shall not be later
than thirty (30) days after the invoice date;
(i) the account is not owing by any Account Debtor for
which the Lender has deemed fifty percent (50%) or more of such Account Debtor's
other accounts (or any portion thereof) due to all of the Borrowers
collectively, to be non-Eligible Receivables;
(j) the account is not owing by an Account Debtor or a
group of affiliated Account Debtors whose then existing accounts owing to the
Borrowers exceed in aggregate face amount (i) fifteen percent (15%) (or, only in
case of accounts due from Home Depot, twenty-five percent (25%)) of the
Borrowers' total Eligible Receivables, provided that this item (j) shall not be
used in the computation required by item (i) above;
(k) the Account Debtor has not returned, rejected or
refused to retain, or otherwise notified any Borrower of any dispute concerning,
or claimed nonconformity of, any of the goods or services from the sale or
furnishing of which the account arose (provided that the account shall be
excluded from Eligible Receivables only to the extent the Account Debtor is
refusing to pay because of the dispute or claim);
(l) the account is not subject to any present or contingent
(and no facts exist which are the basis for any future) offset, claim, deduction
or counterclaim, dispute or defense in law or equity on the part of such Account
Debtor, or any claim for credits, allowances, or adjustments by the Account
Debtor because of returned, inferior, or damaged goods or unsatisfactory
services, or for any other reason including, without limitation, those arising
on account of a breach of any express or implied representation or warranty
(provided that the account shall be excluded from Eligible Receivables only to
the extent the Account Debtor is refusing to pay because of those returned,
inferior, or damaged goods or unsatisfactory services);
(m) the Account Debtor is not a Subsidiary or Affiliate of
any Borrower or an employee, officer, director of shareholder or any Borrower or
any Subsidiary or Affiliate of any Borrower;
-11-
<PAGE>
(n) the Account Debtor is not incorporated or primarily
conducting business or otherwise located in any jurisdiction outside of the
United States of America or Canada;
(o) the Account Debtor with respect to such account is not
insolvent or the subject of any bankruptcy or insolvency proceedings of any kind
or of any other similar proceeding or action;
(p) the Account Debtor is not a Governmental Authority,
unless the respective Borrower has complied with Section 6.1.18 with respect to
that Account Debtor;
(q) no Borrower is indebted in any manner to the Account
Debtor (as creditor, lessor, supplier otherwise), with the exception of
customary credits, adjustments and/or discounts given to an Account Debtor by a
Borrower in the ordinary course of its business;
(r) the account does not arise from services under or
related to any warranty obligation of a Borrower or out of service charges,
finance charges or other fees for the time value of money;
(s) the account is not evidenced by chattel paper or an
instrument of any kind and is not secured by any letter of credit, unless the
respective Borrower has assigned the letter of credit to the Lender and the
issuer of the letter of credit has acknowledged that assignment;
(t) the title of the respective Borrower to the account is
absolute and is not subject to any prior assignment, claim, Lien, or security
interest, except Permitted Liens;
(u) no bond or other undertaking by a guarantor or surety
has been or is required to be obtained, supporting the performance of any
Borrower or any other obligor in respect of any such Borrower's agreements with
the Account Debtor;
(v) the respective Borrower has the full and unqualified
right and power to assign and grant a security interest in, and Lien on, the
account to the Lender as security and collateral for the payment of the
Obligations;
(w) the account does not arise out of a contract with, or
order from, an Account Debtor that, by its terms, forbids or makes void or
unenforceable the assignment or grant of a security interest by any Borrower to
the Lender of the account arising from such contract or order;
(x) the account is subject to a Lien in favor of the
Lender, which Lien is perfected (beyond any preference period) as to the account
by the filing of financing statements and which Lien upon such filing
constitutes a first priority security interest and Lien;
-12-
<PAGE>
(y) the goods giving rise to the account were not, at the
time of the sale thereof, subject to any Lien, except those in favor of the
Lender;
(z) no part of the account represents a progress billing or
a retainage;
(aa) the account is not excluded for reasons addressed by
items (a) through (z) above, and the Lender in the good faith exercise of its
discretion has not deemed the account ineligible because the Lender considers
the Account Debtor to be not creditworthy or because the Lender otherwise
considers the collateral value of such account to the Lender to be impaired or
its ability to realize such value to be impaired.
In the event of any dispute, under the foregoing criteria, as to whether an
account is, or has ceased to be, an Eligible Receivable, the decision of the
Lender in the good faith exercise of its discretion shall control.
"Enforcement Costs" means all expenses, charges, costs and fees whatsoever
(including, without limitation, reasonable outside and allocated in-house
counsel attorney's fees and expenses) of any nature whatsoever paid or incurred
by or on behalf of the Lender in connection with (a) the preparation of this
Agreement and each of the other Financing Documents from time to time, (b) the
creation or perfection of the Lender's security interests in the Collateral, or
the collection, maintenance, preservation, defense, protection, realization
upon, disposition, sale or enforcement of all or any part of the Collateral, the
Obligations, this Agreement or any of the other Financing Documents, including,
without limitation, all costs and expenses related to the Lender's determination
that the Borrowers meet the requirements of Article 5, and those costs and
expenses more specifically enumerated in Section 3.8 (Costs) and/or Section 8.8
(Enforcement Costs), (c) the Lender's customary charges for services, including,
by way of example and not limitation, wire transfer charges, and (d) following
an Event of Default, the monitoring, administration, processing and/or servicing
of any or all of the Obligations, the Financing Documents, and/or the
Collateral.
"Equity" means at any date as to any Borrower and its Subsidiaries the
total of capital stock (except treasury stock and net of any note and other
receivable received upon the issuance of any shares of capital stock) and
contributed capital, as determined in accordance with GAAP consistently applied.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurodollar Business Day" means any Business Day on which dealings in
United States Dollar deposits are carried out on the London interbank market and
on which commercial banks are open for domestic and international business
(including dealings in Dollar deposits) in London, England.
-13-
<PAGE>
"Eurodollar Lending Office" means with respect to the Lender such branch or
office of the Lender designated by the Lender, as applicable, from time to time
as the branch or office at which the LIBOR Loans are to be made or maintained.
"Event of Default" has the meaning described in Section 7.1.
"Facilities" means the collective reference to the loan, letter of credit,
interest rate protection, foreign exchange risk, cash management, and other
credit facilities now or hereafter provided to any or all of the Borrowers by
the Lender whether under this Agreement or otherwise.
"Fees" means the collective reference to each fee payable to the Lender
under the terms of this Agreement or under the terms of any of the other
Financing Documents, including, without limitation, the following: Revolving
Credit Unused Line Fees, the Early Termination Fee, the Letter of Credit Fees,
the Capital Expenditure Line Activation Fee, the Origination Fee, and Field
Examination Fees.
"Field Examination Fee" and "Field Examination Fees" have the meanings
described in Section 2.6.4 (Field Examination Fees).
"Financing Documents" means at any time collectively this Agreement, the
Notes, the Security Documents, the Letter of Credit Documents, and any other
instrument, agreement or document previously, simultaneously or hereafter
executed and delivered by the Borrower and/or any other Person, singly or
jointly with another Person or Persons, evidencing, securing, guarantying or in
connection with this Agreement, any Note, any of the Security Documents, the
Letter of Credit Documents, any of the Facilities, and/or any of the
Obligations.
"Fixed or Capital Assets" of a Person at any date means all assets which
would, in accordance with GAAP consistently applied, be classified on the
balance sheet of such Person as property, plant or equipment at such date.
"GAAP" means generally accepted accounting principles in the United States
of America in effect from time to time.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government
and any department, agency or instrumentality thereof.
"Hazardous Materials" means (a) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act of 1976, as amended from time to time,
and regulations promulgated thereunder; (b) any "hazardous substance" as defined
by the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended from time to time, and regulations promulgated thereunder; (c)
any substance the presence of which on any
-14-
<PAGE>
property now or hereafter owned, acquired or operated by any Borrower is
prohibited by any Law similar to those set forth in this definition; and (d) any
other substance which by Law requires special handling in its collection,
storage, treatment or disposal.
"Hazardous Materials Contamination" means the contamination (whether
presently existing or occurring after the date of this Agreement) by Hazardous
Materials of any property owned, operated or controlled by any Borrower or for
which any Borrower has responsibility, including, without limitation,
improvements, facilities, soil, ground water, air or other elements on, or of,
any property now or hereafter owned, acquired or operated by any Borrower, and
any other contamination by Hazardous Materials for which any Borrower is, or is
claimed to be, responsible.
"Henry Living Trust" means the Warner Wheeler Henry Revocable Trust Dated
December 4, 1982, its successors and assigns.
"Indebtedness" of a Person means at any date the total liabilities of such
Person at such time determined in accordance with GAAP consistently applied.
"Indebtedness for Borrowed Money" of a Person means at any time the sum at
such time of (a) indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, (b) any obligations of such
Person in respect of letters of credit, banker's or other acceptances or similar
obligations issued or created for the account of such Person, (c) Lease
Obligations of such Person with respect to Capital Leases, (d) all liabilities
secured by any Lien on any property owned by such Person, to the extent attached
to such Person's interest in such property, even though such Person has not
assumed or become personally liable for the payment thereof, (e) obligations of
third parties which are being guarantied or indemnified against by such Person
or which are secured by the property of such Person; (f) any obligation of such
Person under a employee stock ownership plan or other similar employee benefit
plan; (g) any obligation of such Person or a Commonly Controlled Entity to a
Multiemployer Plan; and (h) any obligations, liabilities or indebtedness,
contingent or otherwise, under or in connection with, any interest rate or
currency swap agreements, cap, floor, and collar agreements, currency spot,
foreign exchange and forward contracts and other similar agreements and
arrangements; but excluding trade and other accounts payable in the ordinary
course of business in accordance with customary trade terms and which are not
overdue (as determined in accordance with customary trade practices) or which
are being disputed in good faith by such Person and for which adequate reserves
are being provided on the books of such Person if required in accordance with
GAAP.
"Indenture" means that certain Indenture dated as of April 22, 1998 (as
amended, supplemented or otherwise modified from time to time), between the
Company, the Trustee and, as guarantors, Monsey Bakor Group.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
from time to time, and the Income Tax Regulations issued and proposed to be
issued thereunder.
-15-
<PAGE>
"Interest Period" means as to any LIBOR Loan, the period commencing on and
including the date such LIBOR Loan is made (or on the effective date of the
Borrowers' election to convert any Base Rate Loan to a LIBOR Loan in accordance
with the provisions of this Agreement) and ending on and including the day which
is 30, 60, 90, or 180 days thereafter, as selected by the Borrowers in
accordance with the provisions of this Agreement, and thereafter, each period
commencing on the last day of the then preceding Interest Period for such LIBOR
Loan and ending on and including the day which is 30, 60, 90, or 180 days
thereafter, as selected by the Borrowers in accordance with the provisions of
this Agreement; provided, however, that there shall be no day during any
Interest Period on which the Lender also computes interest at the Base Rate on
the balance of such LIBOR Loan and provided further that:
(a) the first day of any Interest Period shall be a Eurodollar
Business Day;
(b) if any Interest Period would end on a day that shall not be
a Eurodollar Business Day, such Interest Period shall be extended to
the next succeeding Eurodollar Business Day unless such next
succeeding Eurodollar Business Day would fall in the next calendar
month, in which case, such Interest Period shall end on the next
preceding Eurodollar Business Day; and
(c) no Interest Period shall extend beyond the Revolving Credit
Expiration Date.
"Interest Rate Election Notice" has the meaning described in Section
2.5.2(e).
"Inventory" means all inventory of the Borrowers and all right, title and
interest of the Borrowers in and to all of its now owned and hereafter acquired
goods, merchandise and other personal property furnished under any contract of
service or intended for sale or lease, including, without limitation, all raw
materials, work-in-progress, finished goods and materials and supplies of any
kind, nature or description which are used or consumed in a Borrower's business
or are or might be used in connection with the manufacture, packing, shipping,
advertising, selling or finishing of such goods, merchandise and other licenses,
Copyrights, Trademarks, Patents, warranties, franchises, general intangibles,
personal property, rights under or arising out of present or future contracts,
or agreements with respect to any or all of the foregoing, including all goods,
all claims or causes of action (whether in tort, equity or otherwise), now
existing or hereafter, arising in connection with or under any agreement or
document or by operation of law or otherwise, and all documents of title or
documents relating to the same, and all proceeds (cash and non-cash) of the
foregoing.
"Item of Payment" means each check, draft, cash, money, instrument, item,
and other remittance in payment or on account of payment of the Accounts or
otherwise with respect to any Collateral, including, without limitation, cash
proceeds of any returned, rejected or repossessed goods, the sale or lease of
which gave rise to an Account, and other proceeds of Collateral; and "Items of
Payment" means the collective reference to all of the foregoing.
-16-
<PAGE>
"Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs, or decrees of any Governmental Authority.
"Lease Obligations" of a Person means for any period the rental commitments
of such Person for such period under leases for real and/or personal property
(net of rent from subleases thereof, but including taxes, insurance, maintenance
and similar expenses which such Person, as the lessee, is obligated to pay under
the terms of said leases, except to the extent that such taxes, insurance,
maintenance and similar expenses are payable by sublessees), including rental
commitments under Capital Leases.
"Letter of Credit" and "Letters of Credit" shall have the meanings
described in Section 2.4.1 hereof.
"Letter of Credit Agreement" means the collective reference to each letter
of credit application and agreement substantially in the form of the Lender's
then standard form of application for letter of credit or such other form as may
be approved by the Lender, executed and delivered by any one or more of the
Borrowers in connection with the issuance of a Letter of Credit, as the same may
from time to time be amended, restated, supplemented or modified and "Letter of
Credit Agreements" means all of the foregoing in effect at any time and from
time to time.
"Letter of Credit Documents" means any and all drafts under or purporting
to be under a Letter of Credit, any Letter of Credit Agreement, and any other
instrument, document or agreement executed and/or delivered by any one or more
of the Borrowers or any other Person under, pursuant to or in connection with a
Letter of Credit or any Letter of Credit Agreement.
"Letter of Credit Facility" means the facility established by the Lender
pursuant to Section 2.4 (Letter of Credit Facility) of this Agreement.
"Letter of Credit Fee" and "Letter of Credit Fees" have the meanings
described in Section 2.4.2 hereof.
"Letter of Credit Obligations" means the collective reference to all
Obligations of any one or more of the Borrowers with respect to the Letters of
Credit and the Letter of Credit Agreements.
"Liabilities" means at any date all liabilities that in accordance with
GAAP consistently applied should be classified as liabilities on a consolidated
balance sheet of the Borrowers and their respective Subsidiaries.
"LIBOR Computation Rate" means for any Interest Period with respect to any
LIBOR Loan, the rate per annum (rounded upward, if necessary, to the nearest
next 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in United States Dollars at
approximately 11:00 a.m. (London time) two (2)
-17-
<PAGE>
Eurodollar Business Days prior to the first day of such Interest Period for a
term comparable to such Interest Period. If for any reason such rate is not
available, the term "LIBOR Computation Rate" shall mean, for any LIBOR Loan for
any Interest Period therefor, the rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London
interbank offered rate for deposits in United States Dollars at approximately
11:00 a.m. (London time) two (2) Eurodollar Business Days prior to the first day
of such Interest Period; provided, however, if more than one rate is specified
on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of
all such rates. For purposes of this definition, Telerate Page 3750 refers to
the British Bankers Association Libor Rates (determined at approximately 11:00
a.m. (London time)) that are published by Dow Jones Telerate, Inc.
"LIBOR Loan" means any Loan for which interest is to be computed with
reference to the LIBOR Rate.
"LIBOR Rate" means for any Interest Period with respect to any LIBOR Loan,
(i) the Applicable Margin, plus (ii) the per annum rate of interest calculated
pursuant to the following formula:
Libor Computation Rate
-----------------------
1.00 - Reserve Percentage
"Lien" means any mortgage, deed of trust, deed to secure debt, grant,
pledge, security interest, assignment, encumbrance, judgment, lien,
hypothecation, provision in any instrument or other document for confession of
judgment, cognovit or other similar right or remedy, claim or charge of any kind
which attaches to the property of any Borrower, whether perfected or
unperfected, avoidable or unavoidable, including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof, and the filing of or agreement to give any financing statement under
the Uniform Commercial Code of any jurisdiction, excluding the precautionary
filing of any financing statement by any lessor in a true lease transaction, by
any bailor in a true bailment transaction or by any consignor in a true
consignment transaction under the Uniform Commercial Code of any jurisdiction
and excluding the agreement to give any financing statement by any lessee in a
true lease transaction, by any bailee in a true bailment transaction or by any
consignee in a true consignment transaction.
"Life Insurance Policy" individually and "Life Insurance Policies"
collectively mean the life insurance policies described in SCHEDULE 5.1.15 to
this Agreement.
"Loan" means the Revolving Loan or the Capital Expenditure Loan, as the
case may be, and "Loans" means the collective reference to the Revolving Loan
and the Capital Expenditure Loan.
"Loan Notice" has the meaning described in Section 2.1.2 (Procedure for
Making Advances).
"Lockbox" has the meaning described in Section 2.1.8 (The Collateral
Account).
-18-
<PAGE>
"Material Adverse Effect" means, either in any case or in the aggregate, a
material adverse change (a) in the business, condition, assets, properties or
operations of the applicable Person, (b) in the right or ability of the
applicable Person to carry on a substantial portion of its operations as now
conducted or proposed to be conducted, or (c) to the value of, or the ability of
the Lender to realize upon, the Collateral.
"Monsey Bakor Group" means the collective reference to Monsey Products,
Kimberton, and Monsey Arizona.
"Monsey Bakor Group Collateral" means the collective reference to the
property covered by the grant contained in Section 3.3 (Grant of Liens) by any
one or more of the Borrowers included in the Monsey Bakor Group.
"Multiemployer Plan" means a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"Net Worth" means as to the Company and its Subsidiaries at any date the
excess of (a) the Assets, over (b) the Liabilities, determined on a consolidated
basis.
"Note" means the Revolving Credit Note or the Capital Expenditure Note, as
the case may be, and "Notes" means collectively the Revolving Credit Note and
the Capital Expenditure Note, and any other promissory note which may from time
to time evidence all or any portion of the Obligations.
"Obligations" means all present and future indebtedness, duties,
obligations, and liabilities, whether now existing or contemplated or hereafter
arising, of any one or more of the Borrowers to the Lender under, arising
pursuant to, in connection with and/or on account of the provisions of this
Agreement, each Note, each Security Document, and/or any of the other Financing
Documents, the Loans, and/or any of the Facilities including, without
limitation, the principal of, and interest on, each Note, late charges, the
Fees, Enforcement Costs, and prepayment fees (if any), letter of credit fees or
fees charged with respect to any guaranty of any letter of credit obligations;
also means all other present and future indebtedness, liabilities and
obligations, whether now existing or contemplated or hereafter arising, of any
one or more of the Borrowers to the Lender of any nature whatsoever regardless
of whether such debts, obligations and liabilities be direct, indirect, primary,
secondary, joint, several, joint and several, fixed or contingent; and also
means any and all renewals, extensions, substitutions, amendments, restatements
and rearrangements of any such debts, obligations and liabilities.
"Offering Memorandum" means the Company's Offering Memorandum dated April
15, 1998, pursuant to which the Senior Notes are offered.
"Offering Transaction" means the sale of the Senior Notes as described in
the Offering Memorandum.
-19-
<PAGE>
"Origination Fee" has the meaning described in Section 2.6.3 (Origination
Fee).
"Outstanding Letter of Credit Obligations" has the meaning described in
Section 2.4.3 hereof and also includes the Obligations of the Borrowers with
respect to any undertaking of the Lender to Bank of America, N.T. & S.A. with
respect to letters of credit issued at the request of any or all of the
Borrowers.
"Patents" means and includes, in each case whether now existing or
hereafter arising, all of the Borrowers' rights, title and interest in and to
the following to the extent they relate to the Borrower (a) any and all patents
and patent applications, (b) any and all inventions and improvements described
and claimed in such patents and patent applications, (c) reissues, divisions,
continuations, renewals, extensions and continuations-in-part of any patents and
patent applications, (d) income, royalties, damages, claims and payments now or
hereafter due and/or payable under and with respect to any patents or patent
applications, including, without limitation, damages and payments for past and
future infringements, (e) rights to sue for past, present and future
infringements of patents, and (f) all rights corresponding to any of the
foregoing throughout the world.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Estate Planning Transfers" means the collective reference to
transfers of any of the Borrowers' common stock which are made to or for the
benefit of the families of Warner W. Henry, Frederick H. Muhs, and Joseph T.
Mooney, Jr. or trusts or other entities exclusively benefiting such persons.
"Permitted Liens" means: (a) Liens for Taxes which are not delinquent or
which the Lender has determined in the good faith exercise of its discretion (i)
are being diligently contested in good faith and by appropriate proceedings,
(ii) each Borrower has the financial ability to pay, with all penalties and
interest, at all times without materially and adversely affecting that Borrower,
and (iii) except for real and personal property Taxes (which the Lender may, in
its sole and absolute discretion exercised from time to time, pay pursuant to
Section 7.2.6) are not, and will not be with appropriate filing, the giving of
notice and/or the passage of time, entitled to priority over any Lien of the
Lender; (b) deposits or pledges to secure obligations under workers'
compensation, social security or similar laws, or under unemployment insurance
in the ordinary course of business; (c) Liens in favor of the Lender; (d)
judgment Liens to the extent the entry of such judgment does not constitute a
Default or an Event of Default under the terms of this Agreement or result in
the sale or levy of, or execution on, any of the Collateral, provided, however,
that the Lender shall be entitled to establish reasonable reserves to against
the Borrowing Base to cover any judgment Liens, whether included in this
definition or not; (e) Liens (other than a Lien on the Collateral) existing on
property of any Borrower on the Closing Date and identified in Schedule 4.1.23;
(f) statutory Liens, or other non-consensual Liens imposed by law, of landlords,
carriers, warehousemen, mechanics, and materialmen, created in the ordinary
course of business for amounts (i) which are not yet due or (ii) which are being
contested in good faith and by appropriate proceedings and with respect to which
a
-20-
<PAGE>
Borrower has given the Lender notice of each instance where the amount contested
exceeds $100,000, the respective Borrower maintains adequate reserves and,
following the occurrence of an Event of Default, the respective Borrower has
made payment not later than five (5) days after the Lender notifies any Borrower
to do so provided, however, that the Lender may, in the exercise of its sole and
absolute discretion at any time or from time to time, exclude any Inventory
affected from Eligible Inventory which the Lender may, in its sole and absolute
discretion exercised from time to time, pay pursuant to Section 7.2.6; (g) with
respect to any Borrower's real property, zoning restrictions, easements,
rights-of-way, licenses, covenants, restrictions and other similar charges or
encumbrances not interfering with the ordinary conduct of the business of the
respective Borrower, (h) purchase money security interests on any property
acquired or held by a respective Borrower in the ordinary course of business,
securing indebtedness incurred or assumed for the purpose of financing all or
part of the cost of acquiring such property; provided that such lien attaches
solely to the property so acquired and the indebtedness so secured does not
exceed 100% of the cost of such property, and that the aggregate principal
amount of the indebtedness so secured at any time does not exceed $250,000 and
extensions to the maturity thereof or replacements, without increase of
principal or rate of interest thereof; and (i) such other Liens, if any, as are
set forth on Schedule 4.1.23 attached hereto and made a part hereof and
extensions to the maturity thereof or replacements, without increase of
principal or rate of interest thereof.
"Permitted Uses" means (a) with respect to the Capital Expenditure Loan,
the purposes set forth in Section 2.3.2, and (c) with respect to the Revolving
Loan, the payment of expenses incurred in the ordinary course of each Borrowers'
business.
"Person" means and includes an individual, a corporation, a partnership, a
joint venture, a limited liability company or partnership, a trust, an
unincorporated association, a Governmental Authority, or any other organization
or entity.
"Plan" means any pension plan which is covered by Title IV of ERISA and in
respect of which any Borrower or a Commonly Controlled Entity is an "employer"
as defined in Section 3 of ERISA.
"Post-Default Rate" means (a) with respect to principal balance of the
Loans, the Applicable Interest Rate in effect under the respective Notes from
time to time, plus two percent (2%) per annum and (b) with respect to all other
Obligations, the Base Rate in effect from time to time, plus two and one-quarter
percent (2.25%) per annum.
"Prepayment" means a Revolving Loan Mandatory Prepayment, a Revolving Loan
Optional Prepayment or a Capital Expenditure Loan Optional Prepayment, as the
case may be, and "Prepayments" mean collectively all Revolving Loan Mandatory
Prepayments, all Revolving Loan Optional Prepayments and all Capital Expenditure
Loan Optional Prepayments.
"Prime Rate" means the floating and fluctuating per annum prime commercial
lending rate of interest of the Lender, as established and declared by the
Lender at any time or from time
-21-
<PAGE>
to time. The Prime Rate shall be adjusted automatically, without notice,
effective as of the first day of the month following the date of any such change
in such prime commercial lending rate. The Prime Rate does not necessarily
represent the lowest rate of interest charged by the Lender to borrowers.
"Purchase Investments" means any purchase of the assets of a Person, or the
merger (in which a Borrower is the survivor) of a Borrower with a Person,
engaged in the United States in the same line of business described in Section
6.1.7, if as a result of such purchase or merger, substantially all of the
assets of the Person are acquired by the respective Borrower free and clear of
all Liens, other than Permitted Liens, and no Default or Event of Default would
result from the purchase or merger.
"Reportable Event" means any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder.
"Reserve Percentage" means, at any time, the then current maximum rate for
which reserves (including any basic, supplemental, marginal and emergency
reserves) are required to be maintained by member banks of the Federal Reserve
System under Regulation D of the Board of Governors of the Federal Reserve
System against "Eurocurrency liabilities", as that term is defined in Regulation
D. The LIBOR Rate shall be adjusted automatically on and as of the effective
date of any change in the Reserve Percentage.
"Responsible Officer" means the chief executive officer of a Borrower or
the president of a Borrower or, with respect to financial matters, the chief
financial officer of a Borrower.
"Revolving Credit Commitment" means the agreement of the Lender relating to
the making of the Revolving Loan and advances thereunder subject to and in
accordance with the provisions of this Agreement.
"Revolving Credit Commitment Period" means the period of time from the
Closing Date to the Business Day preceding the Revolving Credit Termination
Date.
"Revolving Credit Committed Amount" has the meaning described in Section
2.1.1 (Revolving Credit Facility).
"Revolving Credit Expiration Date" means April 30, 2003, extending
automatically for successive periods of one (1) year (but in no event later than
April 30, 2008) unless the Lender in the exercise of its sole and absolute
discretion has notified the Borrowers, or the Borrowers in the exercise of their
sole and absolute discretion have notified the Lender, no later than the
February 28th immediately preceding the next scheduled Revolving Credit
Expiration Date of their intention to terminate the Revolving Credit Facility as
of the next scheduled Revolving Credit Expiration Date.
-22-
<PAGE>
"Revolving Credit Facility" means the facility established by the Lender
pursuant to Section 2.1 (Revolving Credit Facility) of this Agreement.
"Revolving Credit Note" has the meaning described in Section 2.1.5
(Revolving Credit Note).
"Revolving Credit Termination Date" means the earlier of (a) the Revolving
Credit Expiration Date, or (b) the date on which the Revolving Credit Commitment
is terminated pursuant to Section 7.2 or otherwise.
"Revolving Credit Unused Line Fee" and "Revolving Credit Unused Line Fees"
have the meanings described in Section 2.1.10 (Revolving Credit Unused Line
Fee).
"Revolving Loan" has the meaning described in Section 2.1.1 (Revolving
Credit Facility).
"Revolving Loan Account" has the meaning described in Section 2.1.9
(Revolving Loan Account).
"Revolving Loan Mandatory Prepayment" and "Revolving Loan Mandatory
Prepayments" have the meanings described in Section 2.1.6 (Mandatory
Prepayments).
"Revolving Loan Optional Prepayment" and "Revolving Loan Optional
Prepayments" have the meanings described in Section 2.1.7 (Revolving Loan
Optional Prepayment).
"Security Documents" means collectively any assignment, pledge agreement,
security agreement, mortgage, deed of trust, deed to secure debt, financing
statement and any similar instrument, document or agreement under or pursuant to
which a Lien is now or hereafter granted to, or for the benefit of, the Lender
on any real or personal property of any Person to secure all or any portion of
the Obligations, all as the same may from time to time be amended, restated,
supplemented or otherwise modified, including, without limitation, this
Agreement, the Assignments of Life Insurance, the Assistance Agreement, and the
Assignment of Trademarks.
"Security Procedures" means the rules, policies and procedures adopted and
implemented by the Lender and its Affiliates at any time and from time to time
with respect to security procedures and measures relating to electronic funds
transfers, all as the same may be amended, restated, supplemented, terminated,
or otherwise modified at any time and from time to time as the Lender and/or any
Affiliate of the Lender, as applicable, in its or their sole and absolute
discretion, deems appropriate to meet then prevailing standards of good banking
practice.
"Senior Notes" means any and all 10% Senior Notes due 2008 to be issued
from time to time under the Indenture, in the original principal amount of
$85,000,000 and the maximum principal amount of $150,000,000.
"Senior Notes Documents" means, collectively, the Indenture and the Senior
Notes.
-23-
<PAGE>
"State" means the State of Maryland.
"Subordinated Indebtedness" means all Indebtedness incurred at any time by
any Borrower, which is in amounts, subject to repayment terms, and subordinated
to the Obligations, as set forth in one or more written agreements, all in form
and substance satisfactory to the Lender in its sole and absolute discretion.
"Subsidiary" means any corporation or a limited liability company the
majority of the voting shares or other voting ownership interests of which at
the time are owned directly by a Borrower and/or by one or more Subsidiaries of
a Borrower.
"Taxes" means all taxes and assessments whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character
(including all penalties or interest thereon), assessed, levied, confirmed or
imposed by any Governmental Authority on any Borrower or any of its properties
or assets or any part thereof or in respect of any of its franchises,
businesses, income or profits.
"Trademarks" means and includes in each case whether now existing or
hereafter arising, all of the Borrowers' rights, title and interest in and to
the following as they relate to any Borrower (a) any and all trademarks
(including service marks), trade names and trade styles, and applications for
registration thereof and the goodwill of the business symbolized by any of the
foregoing, (b) any and all licenses of trademarks, service marks, trade names
and/or trade styles, whether as licensor or licensee, (c) any renewals of any
and all trademarks, service marks, trade names, trade styles and/or licenses of
any of the foregoing, (d) income, royalties, damages and payments now or
hereafter due and/or payable with respect thereto, including, without
limitation, damages, claims, and payments for past, present and future
infringements thereof, (e) rights to sue for past, present and future
infringements of any of the foregoing, including the right to settle suits
involving claims and demands for royalties owing, and (f) all rights
corresponding to any of the foregoing throughout the world.
"Trustee" means U.S. Trust Company of California, N.A., and its successor
and assigns as Trustee under the Indenture.
"Uniform Commercial Code" means, unless otherwise provided in this
Agreement, the Uniform Commercial Code as adopted by and in effect from time to
time in the State or in any other jurisdiction, as applicable.
"Wholly Owned Subsidiary" means any Subsidiary all the shares of stock of
all classes of which (other than directors' qualifying shares) or, if
applicable, all of the membership interests at the time are owned directly or
indirectly by a Borrower and/or by one or more Wholly Owned Subsidiaries of a
Borrower.
"Wire Transfer Procedures" means the rules, policies and procedures adopted
and implemented by the Lender and its Affiliates at any time and from time to
time with respect to
-24-
<PAGE>
electronic funds transfers, including, without limitation, the Security
Procedures, all as the same may be amended, restated, supplemented, terminated
or otherwise modified at any time and from time to time as the Lender and/or any
Affiliate of the Lender, as applicable, in its or their sole and absolute
discretion, deems appropriate to meet then prevailing standards of good banking
practice.
Section 1.2 ACCOUNTING TERMS AND OTHER DEFINITIONAL PROVISIONS.
Unless otherwise defined herein, as used in this Agreement and in any
certificate, report or other document made or delivered pursuant hereto,
accounting terms not otherwise defined herein, and accounting terms only partly
defined herein, to the extent not defined, shall have the respective meanings
given to them under GAAP as consistently applied to the applicable Person.
Unless otherwise defined herein, all terms used herein which are defined by the
Uniform Commercial Code shall have the same meanings as assigned to them by the
Uniform Commercial Code unless and to the extent varied by this Agreement. The
words "hereof", "herein" and "hereunder" and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and article, section, subsection,
schedule and exhibit references are references to articles, sections or
subsections of, or schedules or exhibits to, as the case may be, this Agreement
unless otherwise specified. As used herein, the singular number shall include
the plural, the plural the singular and the use of the masculine, feminine or
neuter gender shall include all genders, as the context may require. Reference
to any one or more of the Financing Documents shall mean the same as the
foregoing may from time to time be amended, restated, substituted, extended,
renewed, supplemented or otherwise modified. Reference in this Agreement and
the other Financing Documents to the "Borrower", the "Borrowers", "each
Borrower" or otherwise with respect to any one or more of the Borrowers shall
mean each and every Borrower and any one or more of the Borrowers, jointly and
severally, unless a specific Borrower is expressly identified.
ARTICLE II
THE CREDIT FACILITIES
Section 2.1 THE REVOLVING CREDIT FACILITY.
2.1.1 REVOLVING CREDIT FACILITY.
Subject to and upon the provisions of this Agreement, the Lender
establishes a revolving credit facility in favor of the Borrowers. The aggregate
of all advances under the Revolving Credit Facility are sometimes referred to in
this Agreement collectively as the "Revolving Loan".
The principal amount of Twenty-Five Million Dollars ($25,000,000)
is the "Revolving Credit Committed Amount". If at any time the unpaid principal
balance of the Revolving Loan exceeds the Revolving Credit Committed Amount in
effect from time to time, the Borrowers shall pay such excess to the Lender ON
DEMAND.
-25-
<PAGE>
During the Revolving Credit Commitment Period, the Lender agrees
to make advances under the Revolving Loan requested by any or all of the
Borrowers from time to time provided that after giving effect to the Borrowers'
request, the outstanding principal balance of the Revolving Loan and of the
Outstanding Letter of Credit Obligations would not exceed the lesser of (a) the
Revolving Credit Committed Amount, or (b) the then most current Borrowing Base.
Unless sooner paid, the unpaid Revolving Loan, together with
interest accrued and unpaid thereon, and all other Obligations shall be due and
payable in full on the Revolving Credit Expiration Date.
2.1.2 PROCEDURE FOR MAKING ADVANCES UNDER THE REVOLVING LOAN;
LENDER PROTECTION LOANS.
The Borrowers may borrow under the Revolving Credit Commitment on
any Business Day. Advances under the Revolving Loan shall be deposited to a
demand deposit account of a Borrower with the Lender (or an Affiliate of the
Lender) or shall be otherwise applied as directed by any or all of the
Borrowers, which direction the Lender may require to be in writing. No later
than 1:00 p.m. (Baltimore time) on the date of the requested borrowing, the
Borrowers shall give the Lender oral or written notice (a "Loan Notice") of the
amount and (if requested by the Lender) the purpose of the requested borrowing.
Any oral Loan Notice shall be confirmed in writing by any or all of the
Borrowers within three (3) Business Days after the making of the requested
Revolving Loan. In addition, each Borrower hereby irrevocably authorizes the
Lender at any time and from time to time, without further request from or prior
notice to any or all of the Borrowers, to make advances under the Revolving Loan
which the Lender, in its sole and absolute discretion, deems necessary or
appropriate to cover any amounts due under the Obligations, including, without
limitation, advances under the Revolving Loan made to cover principal of, and/or
interest on, any Loan when due, any of the Obligations, and/or Enforcement
Costs, prior to, on, or after the termination of other advances under this
Agreement, regardless of whether the outstanding principal amount of the
Revolving Loan which the Lender may make hereunder exceeds the Revolving Credit
Committed Amount.
2.1.3 BORROWING BASE.
As used in this Agreement, the term "Borrowing Base" means at any
time, an amount equal to the aggregate of (a) eighty-five percent (85%) of the
amount of Eligible Receivables, plus (b) the lesser of (i) seventy-five percent
(75%) of the amount of Eligible Foreign Receivables, or (ii) $3,000,000, plus
(c) the lesser of (i) sixty percent (60%) of the amount of Eligible Inventory,
or (ii) Fifteen Million Dollars ($15,000,000) , plus (d) ninety-five percent
(95%) of the aggregate cash surrender value immediately available to the Lender
as assignee of the Eligible Life Insurance Policies.
The Borrowing Base shall be computed based on the Borrowing Base
Report most recently delivered to, and accepted by, the Lender in its good faith
discretion. In the
-26-
<PAGE>
event the Borrower shall fail to furnish a Borrowing Base Report required by
Section 2.1.4 below, or in the event the Lender believes in good faith that a
Borrowing Base Report is no longer accurate, the Lender may, in its sole and
absolute discretion exercised from time to time and without limiting its other
rights and remedies under this Agreement, suspend the making of or limit
advances under the Revolving Loan until the Lender receives such a report or
revised report. The Borrowing Base shall be subject to reduction by amounts
credited to the Collateral Account since the date of the most recent Borrowing
Base Report and by the amount of any account or any Inventory which was included
in the Borrowing Base but which the Lender determines fails to meet the
respective criteria applicable from time to time for Eligible Receivables,
Eligible Foreign Receivables, Eligible Life Insurance Policies or Eligible
Inventory.
If at any time the total of the aggregate principal amount of the
Revolving Loan and Outstanding Letter of Credit Obligations exceeds the
Borrowing Base, a borrowing base deficiency ("Borrowing Base Deficiency") shall
exist. Each time a Borrowing Base Deficiency exists, the Borrower, at the sole
and absolute discretion of the Lender exercised from time to time, shall pay the
Borrowing Base Deficiency ON DEMAND to the Lender.
Without implying any limitation on the Lender's discretion with
respect to the Borrowing Base, the criteria for Eligible Receivables, Eligible
Foreign Receivables, Eligible Life Insurance Policies and for Eligible Inventory
contained in the respective definitions of Eligible Receivables, Eligible
Foreign Receivables, Eligible Life Insurance Policies and of Eligible Inventory
are in part based upon the business operations of any or all of the Borrowers
existing on or about the Closing Date and upon information and records furnished
to the Lender by the Borrower. If at any time or from time to time hereafter,
the business operations of any or all of the Borrowers materially change or
such information and records furnished to the Lender is incorrect or misleading,
the Lender in its discretion, may at any time and from time to time during the
duration of this Agreement change add new criteria. The Lender may communicate
such changed or additional criteria to any or all of the Borrowers from time to
time either orally or in writing.
2.1.4 BORROWING BASE REPORT.
The Borrowers will furnish to the Lender no less frequently than
monthly or, if the aggregate outstanding principal amount of the Revolving Loan
and the Outstanding Letter of Credit Obligations exceeds the Borrowing Base
minus Two Million Five Hundred Thousand Dollars ($2,500,000) ,weekly (provided,
however, that the Eligible Inventory component shall be computed based on the
most recent monthly Inventory report required by Section 6.1.1(f)(iii)), and at
such other times as may be requested by the Lender a report of the Borrowing
Base (each a "Borrowing Base Report"; collectively, the "Borrowing Base
Reports") in the form required from time to time by the Lender, appropriately
completed and duly signed. The Borrowing Base Report shall contain the amount
and payments on the Accounts and the Eligible Foreign Receivables, the aggregate
cash surrender value immediately available to the Lender as assignee, under the
Assignments of Life Insurance as Collateral, of the Eligible Life Insurance
Policies, the value of Inventory, and the calculations of the Borrowing Base,
all in such detail, and accompanied by such
-27-
<PAGE>
supporting and other information, as the Lender may from time to time request.
Upon the Lender's request upon the creation of any Receivables or at such other
intervals as the Lender may require, the Borrowers will provide the Lender with:
(a) confirmatory assignment schedules; (b) copies of Account Debtor invoices;
(c) evidence of shipment or delivery; and (d) such further schedules, documents
and/or information regarding any of the Receivables, the Life Insurance Policies
and Inventory as the Lender may reasonably require. The items to be provided
under this subsection shall be certified as true and correct by a Responsible
Officer (or by any other officers or employees of the Borrowers whom a
Responsible Officer from time to time authorizes in writing to do so), and
delivered to the Lender from time to time solely for the Lender's convenience in
maintaining records of the Collateral. The failure of the Borowers to deliver
any such items to the Lender shall not affect, terminate, modify, or otherwise
limit the Lender's security interests in, and Liens on, the Collateral.
2.1.5 REVOLVING CREDIT NOTE.
The obligation of the Borrowers to pay the Revolving Loan, with
interest, shall be evidenced by a promissory note (as from time to time
extended, amended, restated, supplemented or otherwise modified, the "Revolving
Credit Note") substantially in the form of EXHIBIT "A-1" attached hereto and
made a part hereof, with appropriate insertions. The Revolving Credit Note
shall be dated as of the date of this Agreement, shall be payable to the order
of the Lender at the times provided in the Revolving Credit Note, and shall be
in the principal amount of the Revolving Credit Committed Amount. The Borrowers
acknowledge and agree that, if the outstanding principal balance of the
Revolving Loan outstanding from time to time exceeds the face amount of the
Revolving Credit Note, the excess shall until repaid bear interest at the Base
Rate or, if applicable, the Post-Default Rate being charged under the Revolving
Loan from time to time and shall be payable, with accrued interest, ON DEMAND.
The Revolving Credit Note shall not operate as a novation of any of the
Obligations or nullify, discharge, or release any such Obligations or the
continuing contractual relationship of the parties hereto in accordance with the
provisions of this Agreement.
2.1.6 MANDATORY PREPAYMENTS OF REVOLVING LOAN.
The Borrowers shall make the mandatory prepayments (each a
"Revolving Loan Mandatory Prepayment" and collectively, the "Revolving Loan
Mandatory Prepayments") of the Revolving Loan at any time and from time to time
in such amounts requested by the Lender pursuant to Section 2.1.3 (Borrowing
Base) of this Agreement in order to cover any Borrowing Base Deficiency.
2.1.7 OPTIONAL PREPAYMENTS OF REVOLVING LOAN.
The Borrowers shall have the option, at any time and from time to
time, to prepay (each a "Revolving Loan Optional Prepayment" and collectively
the "Revolving Loan Optional Prepayments") the Revolving Loan, in whole or in
part without premium or penalty.
-28-
<PAGE>
2.1.8 THE COLLATERAL ACCOUNT.
The Borrowers will deposit, or cause to be deposited, all Items
of Payment to a bank account designated by the Lender and from which the Lender
alone has power of access and withdrawal (the "Collateral Account"). Each
deposit shall be made not later than the next Business Day after the date of
receipt of the Items of Payment. The Items of Payment shall be deposited in
precisely the form received, except for the endorsements of the Borrowers where
necessary to permit the collection of any such Items of Payment, the Borrowers
hereby agreeing to make such endorsement. In the event the Borrowers shall fail
to do so, the Lender is hereby authorized by the Borrowers to make the
endorsement in the name of the Borrowers. Prior to such a deposit, the
Borrowers will not commingle any Items of Payment with any of the other funds or
property of the Borrowers, but will hold them separate and apart in trust and
for the account of the Lender.
In addition, if so directed by the Lender, the Borrowers shall
direct the mailing of all Items of Payment from its Account Debtors to a
post-office box designated by the Lender, or to such other additional or
replacement post-office boxes pursuant to the request of the Lender from time to
time (collectively, the "Lockbox"). The Lender shall have unrestricted and
exclusive access to the Lockbox.
The Borrowers hereby authorize the Lender to inspect all Items of
Payment, endorse all Items of Payment in the name of any or all of the
Borrowers, and deposit Items of Payment in the Collateral Account. The Lender
reserves the right, exercised in its sole and absolute discretion from time to
time, to provide to the Collateral Account credit prior to final collection of
an Item of Payment and to disallow credit for any Item of Payment which is
unsatisfactory to the Lender. In the event Items of Payment are returned to the
Lender for any reason whatsoever, the Lender may, in the exercise of its
discretion from time to time, forward such Items of Payment a second time. Any
returned Items of Payment for which credit has been given by the Lender shall be
charged back to the Collateral Account, the Revolving Loan Account, or other
account, as appropriate.
The Lender will apply the whole or any part of the collected
funds credited to the Collateral Account against the Revolving Loan Account as
of each Business Day, provided, however, the Lender shall have the right (a)
after an Event of Default, to apply collected funds against any of the
Obligations in such order as the Lender may elect in its sole and absolute
discretion from time to time, and (b) at any time, to apply collected funds
which are not proceeds of accounts or inventory of any or all of the Borrowers
as a Prepayment of any one or more of the Loans. As part of the Obligations,
an amount equal to the additional interest which would have accrued on the
Revolving Loan during the preceding month if collections in the Collateral
Account during the month had been received one (1) Business Day subsequent to
their actual receipt shall be due and payable by any or all of the Borrowers to
the Lender on the first day of each month, commencing on the first such date
following the date hereof, and on the Revolving Credit Termination Date,
provided, however, except for the payment due on the Revolving Credit
Termination Date, no such payment shall be considered past due unless the
-29-
<PAGE>
Lender has not covered the payment by an advance under Section 2.1.2 and the
payment continues unpaid for one (1) Business Day after the Lender has given
written notice of the amount of the payment.
2.1.9 REVOLVING LOAN ACCOUNT.
The Lender will establish and maintain a loan account on its
books (the "Revolving Loan Account") to which the Lender will (a) debit (i) the
principal amount of each advance of the Revolving Loan made by the Lender
hereunder as of the date made, (ii) the amount of any interest accrued on the
Revolving Loan as and when due, and (iii) any other amounts due and payable by
the Borrower to the Lender from time to time under the provisions of this
Agreement in connection with the Revolving Loan, including, without limitation,
Enforcement Costs, Fees, late charges, and service, collection and audit fees,
as and when due and payable, and (b) credit all payments made by the Borrower to
the Lender on account of the Revolving Loan as of the date made including,
without limitation, funds credited to the Revolving Loan Account from the
Collateral Account. All credit entries to the Revolving Loan Account are
conditional and shall be readjusted as of the date made if final and
indefeasible payment is not received by the Lender in cash or solvent credits.
Any and all monthly periodic statements of the Revolving Loan Account furnished
by the Lender to the Borrower shall, with respect to the Revolving Loan balance,
the computation thereof, and debits and credits to the Revolving Loan Account,
shall be final, binding and conclusive upon the Borrower, unless the Lender
receives specific written objection thereto from the Borrower within sixty (60)
Business Days after such statement or reconciliation shall have been sent by the
Lender.
2.1.10 REVOLVING CREDIT UNUSED LINE FEE.
The Borrowers shall pay to the Lender a monthly revolving credit
facility fee (collectively, the "Revolving Credit Unused Line Fees" and
individually, a "Revolving Credit Unused Line Fee") in an amount equal to
one-quarter percent (1/4%) per annum of the average daily unused and undisbursed
portion of the Revolving Credit Committed Amount in effect from time to time
accruing during each month. The accrued and unpaid portion of the Revolving
Credit Unused Line Fee shall be due and payable by any or all of the Borrowers
to the Lender on the first day of each month, commencing on the first such date
following the date hereof, and on the Revolving Credit Termination Date,
provided, however, except for the payment due on the Revolving Credit
Termination Date, no such payment shall be considered past due unless the Lender
has not covered the payment by an advance under Section 2.1.2 and the payment
continues unpaid for one (1) Business Day after the Lender has given written
notice of the amount of the payment.
2.1.11 EARLY TERMINATION FEE.
In the event of the termination by, or on behalf of, the
Borrowers, of the Revolving Credit Commitment, the Borrowers shall pay a fee
(the "Early Termination Fee") equal to following amount at the following times:
-30-
<PAGE>
<TABLE>
<CAPTION>
Period Early Termination Fee
<S> <C>
Closing Date, through and
including, April 30, 1999 $100,000
May 1, 1999, through and
including, April 30, 2000 $ 75,000
Thereafter until 30 days preceding
the Revolving Credit Expiration Date $ 50,000
</TABLE>
Payment of the Revolving Loan in whole or in part by or on behalf
of the Borrower, by court order or otherwise, following and as a result of the
institution of any bankruptcy proceeding by or against any Borrower, shall be
deemed to be a prepayment of the Revolving Loan subject to the Early Termination
Fee provided in this subsection.
Notwithstanding the foregoing, an Early Termination Fee shall not
be due if the termination of the Revolving Credit Commitments and repayment of
the Revolving Credit Facility are made solely as a result of (a) a replacement
credit facility extended by the Lender and/or its Affiliates to the Borrowers,
which generates sufficient proceeds and is in fact used to repay all Obligations
(including all Letter of Credit Obligations) in full and, if, in connection with
such repayment of all Obligations (including all Letter of Credit Obligations)
are terminated and/or released, or (b) a simultaneous public or private offering
of the Company's equity securities with net cash proceeds to the Borrowers of
$25,000,000 or more.
The Lender acknowledges and agrees that no "Early Termination
Fee" (as that term is defined in the Original Financing Agreement) is due and
the same is hereby waived.
2.1.12 REQUIRED AVAILABILITY UNDER THE REVOLVING CREDIT
FACILITY.
On the Closing Date, the aggregate outstanding principal amount
of the Revolving Loan and Outstanding Letter of Credit Obligations shall not
exceed an amount equal to the lesser of (i) the Revolving Credit Committed
Amount, or (ii) the Borrowing Base minus the sum of (A) the amount of the
Permitted Uses of the Revolving Loan required to be made on the Closing Date,
the amount of the costs relating to the closing of this Agreement and the
Offering Transaction (including, without limitation, applicable Fees, recording
costs, recording taxes, and the fees and expenses of the Borrowers' and the
Lender's professionals), and (B) the amount of Three Million Dollars
($3,000,000), provided that the Lender shall also be satisfied on the Closing
Date that each Borrower is continuing to pay its trade payables in accordance
with past practices.
(a) The Borrower shall not at any time permit the aggregate
outstanding principal amount of the Revolving Loan and the Outstanding Letter of
Credit Obligations to exceed an amount equal to the lesser of (i) the Revolving
Credit Committed Amount, or (ii) the Borrowing Base minus One Million Dollars
($1,000,000).
-31-
<PAGE>
(b) The Borrowers shall make a Revolving Loan Mandatory
Prepayment pursuant to the provisions of Section 2.1.6 to the extent necessary
to achieve compliance with this Section.
2.1.13 RIGHT OF LENDER TO DEMAND PAYMENT AND TERMINATE
REVOLVING CREDIT FACILITY.
Notwithstanding any of the provisions of this Agreement, the
Revolving Credit Note or any of the other Financing Documents, following an
Event of Default, the Lender may at any time, in its sole and absolute
discretion, demand payment of the Revolving Loan in whole or in part and/or
terminate, suspend or limit the Revolving Credit Commitment. Upon termination of
the Revolving Credit Facility, the outstanding principal balance under the
Revolving Loan, and any accrued and unpaid interest thereon, shall be
immediately due and payable, and the Lender shall not make any further advances
under the Revolving Loan, unless it elects to do so in the exercise of its sole
and absolute discretion.
Section 2.2 THE CAPITAL EXPENDITURE FACILITY.
2.2.1 CAPITAL EXPENDITURE FACILITY.
Subject to and upon the provisions of this Agreement, the Lender
establishes a credit facility in favor of any or all of the Borrowers which may
be used by any or all of the Borrowers to purchase Fixed or Capital Assets (the
"Capital Expenditure Facility"). The aggregate of all advances under the
Capital Expenditure Facility are sometimes referred to in this Agreement
collectively as the "Capital Expenditure Loan."
The principal amount of Ten Million Dollars ($10,000,000) is the
"Capital Expenditure Loan Committed Amount."
During the Capital Expenditure Commitment Period, the Lender
agrees to make advances under the Capital Expenditure Credit Facility requested
by any or all of the Borrowers from time to time provided that after giving
effect to any or all of the Borrowers' request, the outstanding principal
balance of the Capital Expenditure Loan would not exceed the Capital Expenditure
Loan Committed Amount.
2.2.2 PROCEDURE FOR MAKING ADVANCES UNDER THE CAPITAL EXPENDITURE
FACILITY.
The proceeds of the Capital Expenditure Loan shall be used solely
by any or all of the Borrowers to purchase Fixed or Capital Assets.
(a) The amount of each advance shall not exceed eighty
percent (80%) of the cost (excluding transportation, taxes, delivery,
installation, site preparation and other similar costs) of the Fixed or Capital
Assets to be purchased.
-32-
<PAGE>
(b) No later three (3) Business Days prior to the date of
the proposed advance under the Capital Expenditure Facility, a Responsible
Officer shall provide the Lender with a written request for the advance (which
may not be less than $25,000) which shall contain the proposed date (which shall
be a Business Day) for the advance, and a written certification from a
Responsible Officer of a Borrower as to the use of the proceeds of the requested
advance. Advances under the Capital Expenditure Loan shall be deposited to a
Borrower's demand deposit account with the Lender or shall be otherwise applied
as directed by any or all of the Borrowers, which direction the Lender may
require to be in writing.
2.2.3 CAPITAL EXPENDITURE NOTE.
The obligation of the Borrowers to repay the Capital Expenditure
Loan with interest shall be evidenced by a promissory note (as from time to time
extended, amended, restated, supplemented or otherwise modified, the "Capital
Expenditure Note") substantially in the form of EXHIBIT "A-2" attached hereto
and made a part hereof, with appropriate insertions.
(a) The Capital Expenditure Note shall be dated as of the
date of this Agreement, shall be payable to the order of the Lender, shall be in
the principal amount of the Capital Expenditure Committed Amount, shall provide
for payment of interest at the rate, time and manner provided in this Agreement,
shall provide for quarterly installments of principal, (i) which, commencing
June 1, 2000, and continuing on the first day of each June, September, December
and March thereafter to maturity, are in the amount of five percent (5%) of the
outstanding principal balance of the Capital Expenditure Note outstanding on May
31, 2000, and (ii) which, commencing September 1, 2000, shall increase quarterly
on the first day of each December, March, June and September, thereafter to
maturity, by an amount equal to five percent (5%) of the aggregate advances made
under the Capital Expenditure Loan during the immediately preceding three (3)
month period, and shall mature on the earlier of April 30, 2003, or the
Revolving Credit Termination Date. The Capital Expenditure Note shall not
operate as a novation of any of the Obligations or nullify, discharge, or
release any such Obligations or the continuing contractual relationship of the
parties hereto in accordance with the provisions of this Agreement.
2.2.4 OPTIONAL PREPAYMENTS OF CAPITAL EXPENDITURE LOAN.
The Borrowers may, at their option, at any time and from time to
time prepay (each a "Capital Expenditure Loan Optional Prepayment" and
collectively the "Capital Expenditure Loan Optional Prepayments") the Capital
Expenditure Loan, in whole or in part without premium or penalty, upon five (5)
Business Days prior written notice, specifying the date and amount of
prepayment. The amount to be so prepaid, together with interest accrued
thereon to date of prepayment if the amount is intended as a prepayment of the
Capital Expenditure Loan in whole, shall be paid by the Borrowers to the Lender
on the date specified for such prepayment. Partial Capital Expenditure Loan
Optional Prepayments shall be in an amount not less than the aggregate amount of
the next principal installment under the Capital Expenditure Note and shall be
applied first to all accrued and unpaid interest on the principal of
-33-
<PAGE>
the Capital Expenditure Note, then to the principal against the balloon payment
due at maturity, if any, and then to principal against the principal
installments in the inverse order of their maturity.
2.2.5 ACTIVATION FEE.
The Borrower shall pay to the Lender on or before the date of
each advance under the Capital Expenditure Line a fee (the "Capital Expenditure
Line Activation Fee") in the amount of one-quarters percent (1/4%) of the amount
advanced, provided, however, that the aggregate amount of the Capital
Expenditure Line Activation Fees paid hereunder shall not exceed Twenty-five
Thousand Dollars ($25,000).
Section 2.3 THE LETTER OF CREDIT FACILITY.
2.3.1 LETTERS OF CREDIT.
Subject to and upon the provisions of this Agreement, and as a
part of the Revolving Credit Commitment, the Borrowers may, upon the prior
approval of the Lender, obtain standby letters of credit (as the same may from
time to time be amended, supplemented or otherwise modified, each a "Letter of
Credit" and collectively the "Letters of Credit") from the Lender from time to
time from the Closing Date until the Business Day preceding the Revolving Credit
Termination Date. No Borrower will be entitled to obtain a Letter of Credit
hereunder unless (a) after giving effect to the request, the outstanding
principal balance of the Revolving Loan and of the Letter of Credit Obligations
would not exceed the lesser of (i) the Revolving Credit Committed Amount, or
(ii) the most current Borrowing Base and (b) the sum of the aggregate face
amount of the then outstanding Letters of Credit (including the face amount of
the requested Letter of Credit) does not exceed Three Million Dollars
($3,000,000).
2.3.2 LETTER OF CREDIT FEES.
Prior to or simultaneously with the opening of each Letter of
Credit, the Borrowers shall pay to the Lender, a letter of credit fee (each a
"Letter of Credit Fee" and collectively the "Letter of Credit Fees") in an
amount equal to one percent (1%) per annum of the amount of the Letter of
Credit. Such Letter of Credit Fees shall be paid on the first day of each month
computed in arrears. In addition, the Borrowers shall pay to the Lender any and
all additional issuance, negotiation, processing, transfer or other fees to the
extent and as and when required by the provisions of any Letter of Credit
Agreement; such additional fees are included in and a part of the "Fees" payable
by the Borrowers under the provisions of this Agreement.
2.3.3 TERMS OF LETTERS OF CREDIT.
Each Letter of Credit shall (a) be opened pursuant to a Letter of
Credit Agreement, and (b) expire on a date not later than the Business Day
preceding the Revolving Credit Expiration Date; provided, however, if any Letter
of Credit does have an expiration date
-34-
<PAGE>
later than the Business Day preceding the Revolving Credit Termination Date, as
of the Business Day preceding the Revolving Credit Termination Date an advance
of the Revolving Loan Credit Facility shall be made by the Lender in the face
amount of such Letter of Credit (or Letters of Credit) and the proceeds thereof
shall be deposited in an account titled in the name of the Lender as trustee for
the Borrowers. The proceeds of the trustee account referred to in the
immediately preceding sentence shall be held as collateral for the Letter of
Credit (or Letters of Credit) and in the event of a draw under the Letter of
Credit (or Letters of Credit), used to pay any such draw. The aggregate face
amount of all Letters of Credit at any one time outstanding and issued by the
Lender pursuant to the provisions of this Agreement, plus the amount of any
unpaid Letter of Credit Fees accrued or scheduled to accrue thereon, and less
the aggregate amount of all drafts issued under or purporting to have been
issued under such Letters of Credit that have been paid by the Lender, is herein
called the "Outstanding Letter of Credit Obligations".
2.3.4 PROCEDURE FOR LETTERS OF CREDIT.
The Borrowers shall give the Lender written notice at least three
(3) Business Days prior to the date on which a Letter of Credit is requested to
be opened of their request for a Letter of Credit. Such notice shall be
accompanied by a duly executed and delivered Letter of Credit Agreement. Upon
receipt of the Letter of Credit Agreement and the Letter of Credit Fee, the
Lender shall process such Letter of Credit Agreement in accordance with its
customary procedures and open such Letter of Credit on the Business Day
specified in such notice.
Section 2.4 INTEREST.
2.4.1 APPLICABLE INTEREST RATES.
Each Loan shall bear interest until maturity (whether by
acceleration, declaration, extension or otherwise) at either the Base Rate or
the LIBOR Rate, as selected and specified by the Borrowers in an Interest Rate
Election Notice furnished to the Lender in accordance with the provisions of
Section 2.5.2(e), or as otherwise determined in accordance with the provisions
of this Section 2.5, and as may be adjusted from time to time in accordance with
the provisions of Section 2.5.3.
(a) Notwithstanding the foregoing, following the occurrence
and during the continuance of an Event of Default, at the option of the Lender,
all Loans and all other Obligations shall bear interest at the Post-Default
Rate.
(b) For the Revolving Loan, the Applicable Margin for (i)
LIBOR Loans shall be 225 basis points per annum, and (ii) Base Rate Loans shall
be 0 basis points per annum.
-35-
<PAGE>
(c) For the Capital Expenditure Loan, the Applicable
Margin for (i) LIBOR Loans shall be 250 basis points per annum, and (ii) Base
Rate Loans shall be 25 basis points per annum.
2.4.2 SELECTION OF INTEREST RATES.
The Borrowers may select the initial Applicable Interest Rate or
Applicable Interest Rates to be charged on each of the Loans.
(a) From time to time after the date of this Agreement as
provided in this Section, by a proper and timely Interest Rate Election Notice
furnished to the Lender in accordance with the provisions of Section 2.5.2(e),
the Borrowers may select an initial Applicable Interest Rate or Applicable
Interest Rates for any Loan or may convert the Applicable Interest Rate and,
when applicable, the Interest Period, for any existing Loan to any other
Applicable Interest Rate or, when applicable, any other Interest Period.
(b) The Borrowers' selection of an Applicable Interest Rate
and/or an Interest Period, the Borrowers' election to convert an Applicable
Interest Rate and/or an Interest Period to another Applicable Interest Rate or
Interest Period, and any other adjustments in an interest rate are subject to
the following limitations:
(i) the Borrowers shall not at any time select
or change to an Interest Period that extends beyond the Revolving
Credit Expiration Date in the case of the Revolving Loan or
beyond the respective scheduled maturity of the Capital
Expenditure Loan,
(ii) except as otherwise provided in Section
2.5.4, no change from the LIBOR Rate to the Base Rate shall
become effective on a day other than a Business Day and on a day
which is the last day of the then current Interest Period, no
change of an Interest Period shall become effective on a day
other than the last day of the then current Interest Period, and
no change from the Base Rate to the LIBOR Rate shall become
effective on a day other than a day which is a Eurodollar
Business Day,
(iii) any Applicable Interest Rate change for any
Loan to be effective on a date on which any principal payment on
account of such Loan is scheduled to be paid shall be made only
after such payment shall have been made,
(iv) no more than four (4) different LIBOR Rates
may be outstanding at any time and from time to time with respect
to the Revolving Loan,
-36-
<PAGE>
(v) only two (2) LIBOR Rate may be outstanding
at any time and from time to time with respect to the Capital
Expenditure Loan,
(vi) the first day of each Interest Period shall
be a Eurodollar Business Day,
(vii) as of the effective date of a selection,
there shall not exist a Default or an Event of Default, and
(viii) the minimum principal amount of a LIBOR
Loan shall be Seven Hundred Fifty Thousand Dollars ($750,000).
(c) If a request for an advance under the Loans is not
accompanied by an Interest Rate Election Notice or does not otherwise include a
selection of an Applicable Interest Rate and, if applicable, an Interest Period,
or if, after having made a selection of an Applicable Interest Rate and, if
applicable, an Interest Period, the Borrowers fail or are not otherwise entitled
under the provisions of this Agreement to continue such Applicable Interest Rate
or Interest Period, the Borrowers shall be deemed to have selected the Base Rate
as the Applicable Interest Rate until such time as the Borrowers have selected a
different Applicable Interest Rate and specified an Interest Period in
accordance with, and subject to, the provisions of this Section.
(d) The Lender will not be obligated to make Loans, to
convert the Applicable Interest Rate on Loans to another Applicable Interest
Rate, or to change Interest Periods, unless the Lender shall have received an
irrevocable written or telephonic notice (an "Interest Rate Election Notice")
from the Borrowers specifying the following information:
(i) the amount to be borrowed or converted,
(i) a selection of the Base Rate or the LIBOR
Rate,
(ii) the length of the Interest Period if the
Applicable Interest Rate selected is the LIBOR Rate, and
(iii) the requested date on which such election
is to be effective.
Any telephonic notice must be confirmed in writing within three
(3) Business Days. Each Interest Rate Election Notice must be received by the
Lender not later than 1:00 p.m. (Baltimore City time) on the Business Day of any
requested borrowing or conversion in the case of a selection of the Base Rate
and not later than 1:00 p.m. (Baltimore City time) on the third Business Day
before the effective date of any requested borrowing or conversion in the case
of a selection of the LIBOR Rate.
-37-
<PAGE>
2.4.3 INABILITY TO DETERMINE LIBOR COMPUTATION RATE.
In the event that (i) the Lender shall have determined that, by
reason of circumstances affecting the London interbank eurodollar market,
adequate and reasonable means do not exist for ascertaining the LIBOR
Computation Rate for any requested Interest Period with respect to a Loan the
Borrowers have requested to be made as or to be converted to a LIBOR Loan or
(ii) the Lender shall determine that the LIBOR Computation Rate for any
requested Interest Period with respect to a Loan the Borrowers have requested to
be made as or to be converted to a LIBOR Loan does not adequately and fairly
reflect the cost to the Lender of funding or converting such Loan, the Lender
shall give telephonic or written notice of such determination to the Borrowers
at least one (1) day prior to the proposed date for funding or converting such
Loan, provided that Lender's NationsBank Business Credit operation has
determined to give such notice to its Borrowers generally. If such notice is
given, any request for a LIBOR Loan shall be made as or converted to a Base Rate
Loan. Until such notice has been withdrawn by the Lender, the Borrowers will
not request that any Loan be made as or converted to a LIBOR Loan. No such
notice shall be given by Lender with respect to an Interest Period that has
already commenced.
2.4.4 INDEMNITY.
The Borrowers agree to indemnify and reimburse the Lender and to
hold the Lender harmless from any loss, cost (including administrative costs) or
expense which the Lender may sustain or incur as a consequence of (a) a default
by the Borrowers in payment when due of the principal amount of or interest on
any LIBOR Loan, (b) the failure of the Borrowers to make, or convert to a LIBOR
Rate the Applicable Interest Rate of, a Loan after the Borrowers have given a
Loan Notice or an Interest Rate Election Notice, (c) the failure of the
Borrowers to make any prepayment of a LIBOR Loan after the Borrowers have given
notice of such intention to make such a prepayment, and/or (d) the making by the
Borrowers of a prepayment of a LIBOR Loan on a day which is not the last day of
the Interest Period for such LIBOR Loan, including, without limitation, any such
loss or expense arising from the reemployment of funds obtained by the Lender to
maintain any LIBOR Loan or from fees payable to terminate the deposits from
which such funds were obtained, but in no event shall the charge be less than
$500.00.
2.4.5 PAYMENT OF INTEREST.
Unpaid and accrued interest on any advance of the Revolving Loan
and on any portion of the Capital Expenditure Loan which consists of a Base Rate
Loan shall be paid monthly, in arrears, on the first day of each calendar month,
commencing on the first such date after the date of this Agreement, and on the
first day of each calendar month thereafter, and at maturity (whether by
acceleration, declaration, extension or otherwise). Payment on account of
interest on the Revolving Loan shall be by debit to the Revolving Loan Account
as set forth in Section 2.1.9 (Revolving Loan Account).
-38-
<PAGE>
(a) Notwithstanding the foregoing, any and all unpaid and
accrued interest on any Base Rate Loan converted to a LIBOR Loan or prepaid
shall be paid immediately upon such conversion and/or prepayment, as
appropriate.
(b) Unpaid and accrued interest on any LIBOR Loan shall be
paid on the last Business Day of each Interest Period for such LIBOR Loan and at
maturity (whether by acceleration, declaration, extension or otherwise);
provided, however that any and all unpaid and accrued interest on any LIBOR Loan
prepaid prior to expiration of the then current Interest Period for such LIBOR
Loan shall be paid immediately upon prepayment. Payment on account of interest
on the Revolving Loan shall be by debit to the Revolving Loan Account as set
forth in Section 2.1.9 (Revolving Loan Account).
Section 2.5 GENERAL FINANCING PROVISIONS.
2.5.1 BORROWERS' REPRESENTATIVES.
The Borrowers hereby represent and warrant to the Lender that
each of them will derive benefits, directly and indirectly, from each Letter of
Credit and from each Loan, both in their separate capacity and as a member of
the integrated group to which each of the Borrowers belong and because the
successful operation of the integrated group is dependent upon the continued
successful performance of the functions of the integrated group as a whole,
because (a) the terms of the consolidated financing provided under this
Agreement are more favorable than would otherwise would be obtainable by the
Borrowers individually, and (b) the Borrowers' additional administrative and
other costs and reduced flexibility associated with individual financing
arrangements which would otherwise be required if obtainable would substantially
reduce the value to the Borrowers of the financing. The Borrowers in the
discretion of their respective managements are to agree among themselves as to
the allocation of the benefits of Letters of Credit and the proceeds of Loans,
provided, however, that the Borrowers shall be deemed to have represented and
warranted to the Lender at the time of allocation that each benefit and use of
proceeds is a Permitted Use.
For administrative convenience, each Borrower hereby irrevocably
appoints the Company as the Borrower's attorney-in-fact, with power of
substitution (with the prior written consent of the Lender in the exercise of
its sole and absolute discretion), in the name of the Company or in the name of
the Borrower or otherwise to take any and all actions with respect to the this
Agreement, the other Financing Documents, the Obligations and/or the Collateral
(including, without limitation, the proceeds thereof) as the Company may so
elect from time to time, including, without limitation, actions to (i) request
advances under the Loans, apply for and direct the benefits of Letters of
Credits, and direct the Lender to disburse or credit the proceeds of any Loan
directly to an account of the Company, any one or more of the Borrowers or
otherwise, which direction shall evidence the making of such Loan and shall
constitute the acknowledgement by each of the Borrowers of the receipt of the
proceeds of such Loan or the benefit of such Letter of Credit, (ii) enter into,
execute, deliver, amend, modify, restate, substitute, extend and/or renew this
Agreement, any additional Borrower joinder
-39-
<PAGE>
supplement, any other Financing Documents, security agreements, mortgages,
deposit account agreements, instruments, certificates, waivers, letter of credit
applications, releases, documents and agreements from time to time, and (iii)
endorse any check or other item of payment in the name of the Borrower or in the
name of the Company. The foregoing appointment is coupled with an interest,
cannot be revoked without the prior written consent of the Lender, and may be
exercised from time to time through the Company's duly authorized officer,
officers or other Person or Persons designated by the Company to act from time
to time on behalf of the Company.
Each of the Borrowers hereby irrevocably authorizes the Lender to
make Loans to any one or more all of the Borrowers, and hereby irrevocably
authorizes the Lender to issue or cause to be issued Letters of Credit for the
account of any or all of the Borrowers, pursuant to the provisions of this
Agreement upon the written, oral or telephone request any one or more of the
Persons who is from time to time a Responsible Officer of a Borrower under the
provisions of the most recent certificate of corporate resolutions and/or
incumbency of the Borrowers on file with the Lender and also upon the written,
oral or telephone request of any one of the Persons who is from time to time a
Responsible Officer of the Company under the provisions of the most recent
certificate of corporate resolutions and/or incumbency for the Company on file
with the Lender.
The Lender does not assume any responsibility or liability for
any errors, mistakes, and/or discrepancies in the oral, telephonic, written or
other transmissions of any instructions, orders, requests and confirmations
between the Lender and the Borrowers or the Lender in connection with the Credit
Facilities, any Loan, any Letter of Credit or any other transaction in
connection with the provisions of this Agreement. Without implying any
limitation on the joint and several nature of the Obligations, the Lender agrees
that, notwithstanding any other provision of this Agreement, the Borrowers may
create reasonable inter-company indebtedness between or among the Borrowers with
respect to the allocation of the benefits and proceeds of the advances and
Credit Facilities under this Agreement. The Borrowers agree among themselves,
and the Lender consents to that agreement, that each Borrower shall have rights
of contribution from all of the other Borrowers to the extent such Borrower
incurs Obligations in excess of the proceeds of the Loans received by, or
allocated to purposes for the direct benefit of, such Borrower. All such
indebtedness and rights shall be, and are hereby agreed by the Borrowers to be,
subordinate in priority and payment to the indefeasible repayment in full in
cash of the Obligations, and, unless the Lender agrees in writing otherwise,
shall not be exercised or repaid in whole or in part until all of the
Obligations have been indefeasibly paid in full in cash. The Borrowers agree
that all of such inter-company indebtedness and rights of contribution are part
of the Collateral and secure the Obligations. Each Borrower hereby waives all
rights of counterclaim, recoupment and offset between or among themselves
arising on account of that indebtedness and otherwise. Each Borrower shall not
evidence the inter-company indebtedness or rights of contribution by note or
other instrument, and shall not secure such indebtedness or rights of
contribution with any Lien or security.
-40-
<PAGE>
2.5.2 USE OF PROCEEDS OF THE LOANS.
The proceeds of each advance under the Loans shall be used by the
Borrowers for Permitted Uses, and for no other purposes except as may otherwise
be agreed by the Lender in writing. The Borrowers shall use the proceeds of the
Loans promptly.
2.5.3 ORIGINATION FEE.
The Borrowers shall pay to the Lender on or before the Closing
Date a loan origination fee (the "Origination Fee") in the amount of
Seventy-five Thousand Dollars ($75,000), which fee has been fully earned and is
non-refundable.
2.5.4 FIELD EXAMINATION FEES.
The Borrowers shall pay to the Lender a field examination fee
(collectively, the "Field Examination Fees" and individually a "Field
Examination Fee") in the amount of $5,000 for each field examination of the
Lender provided that, prior to an Event of Default the Field Examination Fees
(a) shall not exceed $15,000 in any fiscal year and (b) shall be used by the
Lender to cover its expenses with respect to field examinations except as
expressly permitted by Section 6.1.3(c).
2.5.5 COMPUTATION OF INTEREST AND FEES.
All applicable Fees and interest shall be calculated on the basis
of a year of 360 days for the actual number of days elapsed.
2.5.6 PAYMENTS.
All payments of the Obligations, including, without limitation,
principal, interest, Prepayments, and Fees, shall be paid by the Borrowers
without setoff, recoupment or counterclaim to the Lender in immediately
available funds not later than 2:00 p.m., Baltimore, Maryland time on the due
date of such payment. All such payments shall be made to the Lender's principal
office in Baltimore, Maryland or at such other location as the Lender may at any
time and from time to time notify the Borrowers. Alternatively, at its sole
discretion, the Lender may charge any deposit account of any or all of the
Borrowers at the Lender or any Affiliate of the Lender with all or any part of
any amount due to the Lender under this Agreement or any of the other Financing
Documents to the extent that the Borrowers shall have not otherwise tendered
timely payment to the Lender. All payments shall be applied first to any unpaid
Fees, second to any and all accrued and unpaid late charges and Enforcement
Costs, third to any and all accrued and unpaid interest on the Obligations, and
then to the then unpaid principal balance of the Obligations, all in such order
and manner as set forth in this Agreement.
-41-
<PAGE>
2.5.7 LIENS; SETOFF.
The Borrowers hereby grants to the Lender as additional
collateral and security for all of the Obligations, a continuing Lien on any and
all monies, securities, and other personal property of the Borrowers and any and
all proceeds thereof, now or hereafter held (except as provided in the last
sentence of Section 2.5.10 hereof) or received by, or in transit to, the Lender
or any Affiliate of the Lender from, or for the account of, the Borrowers, and
also upon any and all depository accounts (whether general or special) and
credits of the Borrowers, if any, with the Lender or any Affiliate of the
Lender, at any time existing, excluding any depository accounts held by the
Borrowers in their capacity as trustee for Persons who are not Affiliates of the
Borrowers. Without implying any limitation on any other rights the Lender may
have under the Financing Documents or applicable Laws, during the continuance of
an Event of Default, the Lender is hereby authorized by the Borrowers at any
time and from time to time at the Lender's option, without notice to, or consent
of, the Borrowers, to set off, appropriate, seize, freeze and apply any or all
items hereinabove referred to against all Obligations then outstanding (whether
or not then due), all in such order and manner as shall be determined by the
Lender in its sole and absolute discretion.
2.5.8 REQUIREMENTS OF LAW.
In the event that the Lender shall have determined in good faith
that after the Closing Date (a) the adoption of any Laws regarding capital
adequacy, or (b) any change in such Laws or in the interpretation or application
thereof or (c) compliance by the Lender or any corporation controlling the
Lender with any request or directive regarding capital adequacy (whether or not
having the force of law) from any Governmental Authority or central bank, does
or shall have the effect of reducing the rate of return on the capital of the
Lender or such controlling corporation as a consequence of the Lender's
obligations under this Agreement to a level below that which the Lender or such
corporation would have achieved but for such adoption, change or compliance
(taking into consideration the policies of the Lender and its controlling
corporation with respect to capital adequacy) by an amount deemed by the Lender,
in its discretion, to be material, then from time to time, after submission by
the Lender to the Borrowers of a written request therefor, a statement that the
Lender's NationsBank Business Credit operation is making similar requests of its
customers generally, and a statement of the basis for the Lender's
determination, the Borrowers shall pay to the Lender ON DEMAND such additional
amount or amounts in order to compensate the Lender or its controlling
corporation for any such reduction; provided, however, if the additional
compensation would exceed one-half of one percent (1/2%) per annum of the
Revolving Credit Committed Amount, the Borrower may, for a period of ninety (90)
days after notice to the Borrower, prepay all of the Obligations and terminate
the Commitments without payment of the Early Termination Fee, but only if the
Borrowers have within thirty (30) days following receipt of such notice,
notified the Lender of the Borrowers' intention to do so.
-42-
<PAGE>
2.5.9 FUNDS TRANSFER SERVICES.
(a) The Borrowers have requested that the Lender and its
Affiliates make available to the Borrowers electronic funds transfer services
and related security measures in connection with the Obligations. A copy of the
Lender's current Wire Transfer Procedures, including the Security Procedures, is
attached to this Agreement as EXHIBIT B. The Borrowers acknowledge and agree
that all electronic funds transfers made by the Lender or any Affiliate of the
Lender to, or for the account of, the Borrowers shall be governed by, and
subject to, the Wire Transfer Procedures and the Security Procedures in effect
from time to time. The Borrowers and the Lender agree that the current Wire
Transfer Procedures and the Security Procedures are commercially reasonable.
The Borrowers further acknowledge and agree, however, that the full scope of the
Security Procedures which the Lender and its Affiliates offer and strongly
recommend for electronic funds transfers is available only if the Borrowers
communicate directly with the Lender or its Affiliate, as applicable, in
accordance with and as required by the Wire Transfer Procedures and the Security
Procedures. If the Borrowers attempt to communicate with the Lender or any
Affiliate of the Lender by any other method or otherwise does not communicate
with the Lender and/or its Affiliate, as appropriate, in accordance with the
Wire Transfer Procedures and the Security Procedures, the Lender and/or its
Affiliate, as applicable, shall not be required to execute the instructions of
the Borrowers, but if the Lender or such Affiliate, as applicable, does so, the
Borrowers will be deemed to have refused and waived the Security Procedures that
the Lender or its Affiliate, as applicable, offers and strongly recommends, and
the Borrowers will be bound by any funds transfer, whether or not authorized,
which is issued in any Borrower's name and accepted by the Lender or any
Affiliate, as applicable, in good faith. The Lender or its Affiliate, as
applicable, may modify the Wire Transfer Procedures ncluding, without
limitation, the Security Procedures at such time or times and in such manner as
the Lender and/or any Affiliate of the Lender, as applicable, in its or their
sole and absolute discretion, deems appropriate to meet then prevailing
standards of good banking practice. The Lender shall notify the Borrowers of
any material change or modification to the Wire Transfer Procedures and/or the
Security Procedures. By continuing to use the wire transfer services of the
Lender and/or any Affiliate of the Lender following notice to the Borrowers of
any such change or modification to the Wire Transfer Procedures and/or the
Security Procedures, the Borrowers shall be deemed automatically to have agreed
to the Wire Transfer Procedures and the Security Procedures, as changed and/or
modified and to have further agreed that the Wire Transfer Procedures and the
Security Procedures, as changed and/or modified, are likewise commercially
reasonable. The Borrowers further agree to establish and maintain procedures to
safeguard the Security Procedures and any information related thereto. Neither
the Lender or any Affiliate of the Lender is responsible for detecting any error
in any payment order sent by any Borrower to the Lender or any Affiliate of the
Lender.
(b) The Lender and its Affiliates, as applicable, will
generally use the Fedwire funds transfer system for domestic funds transfers,
and the funds transfer system operated by the Society for Worldwide
International Financial Telecommunication (SWIFT) for international funds
transfers. International funds transfers may also be initiated through the
Clearing House InterBank Payment System (CHIPs) or international cable.
However, the Lender
-43-
<PAGE>
and/or its Affiliates, as applicable, may use any means and routes that the
Lender or any such Affiliate, as applicable, in its sole discretion, may
consider suitable for the transmission of funds. Each payment order, or
cancellation thereof, carried out through a funds transfer system or a
clearinghouse will be governed by all applicable funds transfer system rules and
clearinghouse rules and clearing arrangements, whether or not the Lender or any
Affiliate, as applicable, is a member of the system, clearinghouse or
arrangement and the Borrowers acknowledge that the right of the Lender or any
Affiliate, as applicable, to reverse, adjust, stop payment or delay posting of
an executed payment order is subject to the Laws, regulations, rules, circulars
and arrangements described herein.
2.5.10 NO NOVATION.
The Borrowers and the Lender acknowledge and agree that (a) this
Agreement amends and restates the Original Financing Agreement, (b) the
Obligations outstanding under the Original Financing Agreement have not been
extinguished or repaid, continue without interruption, and have not been
discharged by this Agreement, (c) the Obligations outstanding under the Original
Financing Agreement are part of the Obligations under this Agreement and the
respective Credit Facilities under which such Obligations arose under the
Original Financing Agreement, as those Credit Facilities have been amended and
restated by this Agreement, (d) the obligation of the Borrowers to repay the
Obligations outstanding under the Original Financing Agreement are evidenced by
the Notes under this Agreement, which Notes replace the Notes under the Original
Financing Agreement, and (e) this Agreement and the other Financing Documents
are not intended to, and shall not, result in a novation of the Obligations
outstanding under the Original Financing Agreement. The Lender acknowledges and
agrees that the "Notes" which it received in conjunction with the Original
Financing Agreement shall be marked "SUBSTITUTED" and returned to the Company at
the time the Notes are executed and delivered pursuant to this Agreement and
that the Lender's Liens on that portion of the "Collateral" under the Original
Financing Agreement which is not part of the Collateral under this Agreement is
hereby released and terminated shall be released by the Lender and the Lender
shall execute and deliver all documents evidencing such releases with reasonable
promptness hereafter.
ARTICLE III
THE COLLATERAL
Section 3.1 DEBT AND OBLIGATIONS SECURED.
All property and Liens assigned, pledged or otherwise granted under or in
connection with this Agreement (including, without limitation, those under
Section 3.3 (Grant of Liens) below) or any of the Financing Documents shall
secure (a) the payment of all of the Obligations, and (b) the performance,
compliance with and observance by each Borrower of the provisions of this
Agreement and all of the other Financing Documents or otherwise under the
Obligations.
-44-
<PAGE>
Section 3.2 MONSEY BAKOR GROUP COLLATERAL.
The Lender and the Borrowers acknowledge that on the date of this
Agreement, the Monsey Bakor Group may have failed to provide a perfected
security interest in some or all of the Monsey Bakor Group Collateral, and a
Collateral Disclosure List with respect to the Monsey Bakor Group. The Lender
agrees that such failure shall not constitute a breach of the representations
and warranties, conditions of lending or covenants of the Borrowers under this
Agreement and that the representations, warranties and covenants with respect to
the Collateral Disclosure List shall not apply to the Monsey Bakor Group until
the Collateral Disclosure List with respect thereto has been furnished as
required by this Section; PROVIDED, HOWEVER:
(a) Commencing immediately after the Closing Date, the Borrowers
shall commence and diligently pursue completion of the Collateral Disclosure
List for the Monsey Bakor Group and shall effect such completion no later than
May 5, 1998.
(b) No assets of the Monsey Bakor Group may be included in the
computation of Eligible Receivables or Eligible Inventory unless and until the
Lender's security interests in those assets have been perfected.
(c) The Monsey Bakor Group shall take all steps required by the
Lender under Section 6.1.23 and, in any event, shall have perfected the Lender's
security interests and Liens granted in Section 3.3 and any applicable
Assignment of Trademarks on or before June 22, 1998.
Section 3.3 GRANT OF LIENS.
Each Borrower hereby assigns, pledges and grants to the Lender, and agrees
that the Lender shall have a perfected (except to the limited extent provided in
Section 3.2 above) and continuing security interest in, and Lien on,(a) all of
the respective Borrower's Accounts, Inventory, and Capital Expenditure Loan
Equipment, whether now owned or existing or hereafter acquired or arising, (b)
all returned, rejected or repossessed goods, the sale or lease of which shall
have given or shall give rise to an Account, (c) all insurance policies relating
to the foregoing, (d) all books and records in whatever media (paper, electronic
or otherwise) recorded or stored, with respect to the foregoing and all
equipment and general intangibles necessary or beneficial to retain, access
and/or process the information contained in those books and records, and (e) all
cash and non-cash proceeds and products of the foregoing.
The Borrowers further agree that the Lender shall have in respect
thereof all of the rights and remedies of a secured party under the Uniform
Commercial Code as well as those provided in this Agreement, under each of the
other Financing Documents and under applicable Laws.
-45-
<PAGE>
Section 3.4 COLLATERAL DISCLOSURE LIST.
Each of the Borrowers shall deliver to the Lender a list (collectively, the
"Collateral Disclosure List") which shall contain such information with respect
to the Borrowers' businesses and real and personal property as the Lender may
require and shall be certified by a Responsible Officer of the Borrowers, all in
the form provided to the Borrowers by the Lender. Promptly after demand by the
Lender, the Borrowers shall furnish to the Lender an update of the information
contained in the Collateral Disclosure List at any time and from time to time as
may be requested by the Lender. The Collateral Disclosure List for the Company
shall be provided on or before the Closing Date. The Collateral Disclosure List
for the Monsey Bakor Group shall be provided as required by Section 3.2.
Section 3.5 CERTAIN PERSONAL PROPERTY.
The Borrowers acknowledge and agree that it is the intention of the parties
to this Agreement that the Lender shall have a first priority, perfected Lien,
in form and substance satisfactory to the Lender and its counsel, on all of the
Collateral and proceeds thereof of any kind and nature whatsoever, whether now
owned or hereafter acquired, subject only to the Permitted Liens. In
furtherance of the foregoing:
3.5.1 CERTAIN POSSESSORY COLLATERAL.
(a) On the Closing Date and without implying any limitation
on the scope of Section 3.3 (Grant of Liens) above, the Borrowers shall
deliver to the Lender all originals of all of the Borrowers' letters of credit,
chattel paper, documents of title, securities, instruments and other property
which may be perfected by possession and which is included among the Collateral,
and, if the Lender so requires, shall execute and deliver to the Lender separate
pledges, assignments and security agreements in form and content acceptable to
the Lender, which pledges, assignments and security agreements shall assign,
pledge and grant a Lien to the Lender on all such letters of credit, chattel
paper, documents of title and instruments.
(b) In the event that any Borrower shall acquire after the
Closing Date any letters of credit, chattel paper, documents of title and
instruments included among the Collateral, the Borrower shall promptly so notify
the Lender and deliver the originals of all of the foregoing to the Lender
promptly and in any event within ten (10) days of each acquisition.
(c) All letters of credit, chattel paper, documents of
title and instruments included among the Collateral shall be delivered to the
Lender endorsed and/or assigned as required by any pledge, assignment and
security agreement and/or as the Lender may require and, if applicable, shall be
accompanied by notices as the Lender may require.
-46-
<PAGE>
3.5.2 ADDITIONAL STEPS TO PERFECT.
On the Closing Date and without implying any limitation on the
scope of Section 3.2 above, each Borrower shall execute and deliver all
Financing Documents it is required to execute and take all actions requested by
the Lender in order to perfect a first priority assignment of Patents,
Copyrights, Trademarks or any other type or kind of intellectual property
acquired by any Borrower with respect to the Collateral after the Closing Date.
Section 3.6 RECORD SEARCHES.
As of the Closing Date and thereafter at the time any Financing Document is
executed and delivered by the Borrowers pursuant to this Section, the Lender
shall have received, in form and substance satisfactory to the Lender, such Lien
or record searches with respect to the Borrowers and/or any other Person, as
appropriate, and the property covered by such Financing Document showing that
the Lien of such Financing Document will be a perfected first priority Lien on
the property covered by such Financing Document subject only to Permitted Liens
or to such other matters as the Lender may approve.
Section 3.7 COSTS.
The Borrowers agree to pay, as part of the Enforcement Costs (other than
Enforcement Costs incurred by the Lender prior to an Event of Default on account
of an assignment, participation or transfer under Section 8.5) and to the
fullest extent permitted by applicable Laws, on demand all costs, fees and
expenses incurred by the Lender in connection with the taking, perfection,
preservation, protection and/or release of a Lien on the Collateral, including,
without limitation:
(a) customary fees and expenses incurred in preparing
Financing Documents from time to time (including, without limitation, reasonable
attorneys' fees incurred in connection with preparing the Financing Documents);
(b) all filing and/or recording taxes or fees;
(c) all title insurance premiums and costs;
(d) all costs of Lien and record searches;
(e) reasonable attorneys' fees in connection with all legal
opinions required;
(f) appraisal and/or survey costs; and
(g) all related costs, fees and expenses.
-47-
<PAGE>
Section 3.8 RELEASE.
Upon the payment and performance of all Obligations of the Borrowers and
all obligations and liabilities of each other Person, other than the Lender,
under this Agreement and all other Financing Documents, the termination and/or
expiration of the Commitment and Outstanding Letter of Credit Obligations, upon
the Borrowers' request and at the Borrowers' sole cost and expense, the Lender
shall release and/or terminate any Financing Document but only if and provided
that there is no commitment or obligation (whether or not conditional) of the
Lender to re-advance amounts which would be secured thereby.
Section 3.9 INCONSISTENT PROVISIONS.
In the event that the provisions of any Financing Document directly
conflict with any provision of this Agreement, the provisions of this Agreement
govern.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 REPRESENTATIONS AND WARRANTIES.
The Borrowers represent and warrant to the Lender, as follows:
4.1.1 SUBSIDIARIES.
The Borrowers have no Subsidiaries except that Monsey Products is
a Subsidiary of the Company and that Bakor Holdings, Inc., Kimberton and Monsey
Arizona are Subsidiaries of Monsey Products. Each of the Subsidiaries is a
Wholly Owned Subsidiary. Bakor Holdings, Inc. and each of its Subsidiaries is a
corporation organized under the laws of Canada or its provinces.
4.1.2 GOOD STANDING.
Each of the corporate Borrowers (a) is a corporation duly
organized, existing and in good standing under the laws of the jurisdiction of
its incorporation, (b) has the corporate power to own its property and to carry
on its business as now being conducted, and (c) is duly qualified to do business
and is in good standing in each jurisdiction in which the character of the
properties owned by it therein or in which the transaction of its business makes
such qualification necessary.
4.1.3 GOOD STANDING - LIMITED LIABILITY COMPANY.
Monsey Arizona (a) is a limited liability company duly organized,
and existing under the laws of the state in which it is organized, (b) has the
limited liability company power to own its property and to carry on its business
as now being conducted and is duly
-48-
<PAGE>
qualified to do business and is in good standing in each jurisdiction in which
the character of the properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary.
4.1.4 POWER AND AUTHORITY.
(a) Each corporate Borrower has full corporate power and
authority to execute and deliver this Agreement, the other Financing Documents
to which it is a party, to make the borrowings under this Agreement, and to
incur and perform the Obligations whether under this Agreement, the other
Financing Documents or otherwise, all of which have been duly authorized by all
proper and necessary corporate action.
(b) Monsey Arizona has full limited liability company power
and authority to execute and deliver this Agreement and the other Financing
Documents to which it is a party, to make the borrowings under this Agreement,
and to incur and perform the Obligations whether under this Agreement, the other
Financing Documents or otherwise, all of which have been duly authorized by all
proper and necessary limited liability company action.
(c) No consent or approval of shareholders or any creditors
of any Borrower, and no consent, approval, filing or registration with or notice
to any Governmental Authority on the part of any Borrower, is required as a
condition to the execution, delivery, validity or enforceability of this
Agreement, the other Financing Documents or the performance by the Borrower of
the Obligations
4.1.5 BINDING AGREEMENTS.
This Agreement and the other Financing Documents executed and
delivered by the Borrowers have been properly executed and delivered and
constitute the valid and legally binding obligations of the Borrowers and are
fully enforceable against each of the Borrowers in accordance with their
respective terms, subject to bankruptcy, insolvency, reorganization, moratorium
and other laws of general applications affecting the rights and remedies of
creditors and secured parties, and general principles of equity regardless of
whether applied in a proceeding in equity or at law.
4.1.6 NO CONFLICTS.
Neither the execution, delivery and performance of the terms of
this Agreement or of any of the other Financing Documents executed and delivered
by any Borrower nor the consummation of the transactions contemplated by this
Agreement will conflict with, violate or be prevented by (a) any corporate
Borrower's charter or bylaws or Monsey Arizona's articles of organization or
operating agreement, (b) with immaterial exceptions and those exceptions set
forth in Schedule 4.1.6, any existing mortgage, indenture, contract or agreement
binding on any Borrower or affecting its property, or (c) any Laws, the
violation would have a Material Adverse Effect on any Borrower.
-49-
<PAGE>
4.1.7 NO DEFAULTS, VIOLATIONS.
(a) No Default or Event of Default has occurred and is
continuing.
(b) Except as previously disclosed to the Lender in
writing, none of the Borrowers is in default under or with respect to any
obligation under any existing mortgage, indenture, contract or agreement binding
on it or affecting its property in any respect the loss of which or damages
because of which would be materially adverse to the business, operations,
property or financial condition of any Borrower, or which would materially
adversely affect the ability of the Borrowers taken as a whole to perform its
obligations under this Agreement or the other Financing Documents, to which that
Borrower is a party.
4.1.8 COMPLIANCE WITH LAWS.
None of the Borrowers is in violation of any applicable Laws
(including, without limitation, any Laws relating to employment practices, to
environmental, occupational and health standards and controls) or order, writ,
injunction, decree or demand of any court, arbitrator, or any Governmental
Authority affecting any Borrower or any of its properties, the violation of
which, considered in the aggregate, could materially adversely affect the
business, operations or properties of any Borrower and/or their Subsidiaries.
4.1.9 MARGIN STOCK.
None of the proceeds of the Loans will be used, directly or
indirectly, by any Borrower or any of their Subsidiaries for the purpose of
purchasing or carrying, or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry, any "margin
security" within the meaning of Regulation G (12 CFR Part 207), or "margin
stock" within the meaning of Regulation U (12 CFR Part 221), of the Board of
Governors of the Federal Reserve System or for any other purpose which might
make the transactions contemplated in this Agreement a "purpose credit" within
the meaning of said Regulation G or Regulation U, or cause this Agreement to
violate any other regulation of the Board of Governors of the Federal Reserve
System or the Securities Exchange Act of 1934 or the Small Business Investment
Act of 1958, as amended, or any rules or regulations promulgated under any of
such statutes.
4.1.10 INVESTMENT COMPANY ACT; MARGIN SECURITIES.
None of the Borrowers nor any of their Subsidiaries are an
investment company within the meaning of the Investment Company Act of 1940, as
amended, nor is it, directly or indirectly, controlled by or acting on behalf of
any Person which is an investment company within the meaning of said Act. None
of the Borrowers nor any of their Subsidiaries are engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying "margin security" within the meaning of
Regulation G
-50-
<PAGE>
(12 CFR Part 207), or "margin stock" within the meaning of Regulation U (12 CFR
Part 221), of the Board of Governors of the Federal Reserve System.
4.1.11 LITIGATION.
Except as otherwise disclosed to the Lender on Schedule 4.1.11
attached to and made a part of this Agreement, there are no proceedings, actions
or investigations pending or, so far as each Borrower knows, threatened before
or by any court, arbitrator any Governmental Authority which, in any one case or
in the aggregate, if determined adversely to the interests of any Borrower,
would have a material adverse effect on the business, properties, condition
(financial or otherwise) or operations, present or prospective, of the Borrowers
taken as a whole.
4.1.12 FINANCIAL CONDITION.
The financial statements of the Company dated December 31, 1997,
and the consolidated financial statements of Monsey Products, respectively, are
complete and correct and fairly present the financial position of the applicable
Borrowers and their Subsidiaries and the results of their operations and
transactions in their surplus accounts as of the date and for the period
referred to and have been prepared in accordance with GAAP (except for the
absence of normal year end adjustments and accruals) applied on a consistent
basis throughout the period involved. There are no liabilities, direct or
indirect, fixed or contingent, known to any Borrower as of the date of such
financial statements which are required by GAAP to be, but are not, reflected
therein or in the notes thereto. There has been no adverse change in the
financial condition or operations of any Borrower or its Subsidiaries since the
date of such financial statements and to each Borrower's knowledge no such
adverse change is pending or threatened. No Borrower nor any Subsidiary has
guaranteed the obligations of, or made any investment in or advances to, any
Person, except as disclosed in such financial statements and except for the
guaranty of the Senior Notes by the Monsey Bakor Group.
4.1.13 FULL DISCLOSURE.
The financial statements referred to in Section 4.1.12 (Financial
Condition) of this Agreement, the Financing Documents (including, without
limitation, this Agreement) to be executed by the Borrowers, and the statements,
reports or certificates furnished by any Borrower in connection with the
Financing Documents (a) do not contain any untrue statement of a material fact
and (b) when taken in their entirety, do not omit any material fact necessary to
make the statements contained therein not misleading. There is no fact known to
any Borrower which that Borrower has not disclosed to the Lender in writing
prior to the date of this Agreement with respect to the transactions
contemplated by the Financing Documents which materially and adversely affects
or in the future could, in the reasonable opinion of the respective Borrower
materially adversely affect the condition, financial or otherwise, results of
operations, business, or assets of any Borrower or of any Subsidiary.
-51-
<PAGE>
4.1.14 INDEBTEDNESS FOR BORROWED MONEY.
Except for the Obligations, the Obligations under the Senior
Notes, the Indenture and the Senior Notes Documents and except as set forth in
Schedule 4.1.14 attached to and made a part of this Agreement, the Borrowers
have no Indebtedness for Borrowed Money. The Lender has received a photocopy of
all the promissory notes (including, without limitation, the "Global Note," as
that term is defined in the Indenture) evidencing any Indebtedness for Borrowed
Money set forth in SCHEDULE 4.1.14 and a copy of the Indenture which contains
the guaranty of the Senior Notes by the Monsey Bakor Group, together with any
and all subordination agreements, other agreements, documents, or instruments
securing, evidencing, guarantying or otherwise executed and delivered in
connection therewith.
4.1.15 OFFERING.
The Lender has received true and correct photocopies of the
Offering Memorandum, and each of the Senior Notes Documents, executed, delivered
and/or furnished on or before the Closing Date in connection with the
transactions contemplated by the Senior Notes Documents. Neither the Offering
Memorandum nor any of the Senior Notes Documents has been modified, changed,
supplemented, canceled, amended or otherwise altered or affected, except as
otherwise disclosed to the Lender in writing on or before the Closing Date. The
Offering Transaction has been effected, closed and consummated pursuant to, and
in accordance with, the terms and conditions of the Offering Memorandum and,
assuming the accuracy of the representations and warranties made in the Purchase
Agreement dated April 15, 1998 relating to the Senior Notes by the "Initial
Purchaser" (as defined in that Purchase Agreement), all applicable Laws.
4.1.16 TAXES.
Each of the Borrowers has filed all returns, reports and forms
for Taxes which, to the knowledge of each Borrower, are required to be filed,
and has paid all Taxes as shown on such returns or on any assessment received by
it, to the extent that such Taxes have become due, unless and to the extent only
that such Taxes, assessments and governmental charges are currently contested in
good faith and by appropriate proceedings by a Borrower, such Taxes are not the
subject of any Liens other than Permitted Liens, and adequate reserves therefor
have been established as required under GAAP. All tax liabilities of each
Borrower were as of the date of financial statements referred to in Section
4.1.12 (Financial Condition) above, and are now, adequately provided for on the
books of each Borrower or its Subsidiaries, as appropriate. No tax liability
has been asserted by the Internal Revenue Service or any state or local
authority against any Borrower for Taxes in excess of those already paid.
4.1.17 ERISA.
With respect to any "pension plan" as defined in SECTION 3(2) of
ERISA, which plan is now or previously has been maintained or contributed to by
any Borrower
-52-
<PAGE>
and/or by any Commonly Controlled Entity: (a) no "accumulated funding
deficiency" as defined in Code Section 412 or ERISA Section 302 has occurred,
whether or not that accumulated funding deficiency has been waived; (b) no
Reportable Event has occurred; (c) no termination of any plan subject to Title
IV of ERISA has occurred; (d) no Borrower nor any Commonly Controlled Entity (as
defined under ERISA) has incurred a "complete withdrawal" within the meaning of
ERISA Section 4203 from any Multiemployer Plan; (e) no Borrower nor any Commonly
Controlled Entity has incurred a "partial withdrawal" within the meaning of
ERISA Section 4205 with respect to any Multiemployer Plan; (f) no Multiemployer
Plan to which any Borrower or any Commonly Controlled Entity has an obligation
to contribute is in "reorganization" within the meaning of ERISA Section 4241
nor has notice been received by any Borrower or any Commonly Controlled Entity
that such a Multiemployer Plan will be placed in "reorganization".
4.1.18 TITLE TO PROPERTIES.
Each Borrower has good and marketable title to all of its
properties, including, without limitation, the Collateral and the properties and
assets reflected in the balance sheets described in Section 4.1.12 (Financial
Condition) above, subject to the Permitted Liens. Each Borrower has all such
rights as are necessary to use such property and assets in the ordinary course.
All of such properties, including, without limitation, the Collateral which were
purchased, were purchased for fair consideration and reasonably equivalent value
in the ordinary course of business of both the seller and a Borrower and not, by
way of example only, as part of a bulk sale, except for those bulk sales
described in Schedule 4.1.18 and except bulk sales described on the Collateral
Disclosure List with respect to the Monsey Bakor Group.
4.1.19 CAPITAL EXPENDITURE LOAN EQUIPMENT.
All Capital Expenditure Loan Equipment is personalty and is not
and will not be affixed to real estate in such manner as to become a fixture or
part of such real estate. No Capital Expenditure Loan Equipment is held by a
Borrower on a sale on approval basis.
4.1.20 PATENTS, TRADEMARKS, ETC.
Each of the Borrowers owns, possesses, or has the right to use
all necessary Patents, licenses, Trademarks, Copyrights, permits and franchises
to own its properties and to conduct its business as now conducted, without
known conflict with the rights of any other Person. Any and all obligations to
pay royalties or other charges with respect to such properties and assets are
properly reflected on the financial statements described in Section 4.1.12
(Financial Condition) above.
4.1.21 EMPLOYEE RELATIONS.
Except as disclosed on Schedule 4.1.21 attached hereto and made a
part hereof, (a) neither any Borrower nor any of the Borrowers' employees is
subject to any collective bargaining agreement, (b) no petition for
certification or union election is pending with respect to
-53-
<PAGE>
the employees of any Borrower and no union or collective bargaining unit has
sought such certification or recognition with respect to the employees of any
Borrower, (c) there are no strikes, slowdowns, work stoppages or controversies
pending or, to the best knowledge of each Borrower after due inquiry, threatened
between any Borrower and its employees, and (d) no Borrower is subject to an
employment contract, severance agreement, commission contract, consulting
agreement or bonus agreement. Hours worked and payments made to the employees
of the Borrowers have not been in violation of the Fair Labor Standards Act or
any other applicable law dealing with such matters. All payments due from any
Borrower or for which any claim may be made against any Borrower, on account of
wages and employee and retiree health and welfare insurance and other benefits
have been paid or accrued as a liability on its books. The consummation of the
transactions contemplated by the Financing Agreement or any of the other
Financing Documents will not give rise to a right of termination or right of
renegotiation on the part of any union under any collective bargaining agreement
to which any Borrower is a party or by which it is bound.
4.1.22 PRESENCE OF HAZARDOUS MATERIALS OR HAZARDOUS MATERIALS
CONTAMINATION.
To the best of each Borrower's knowledge, except as set forth in
the reports described in Schedule 4.1.22 to this Agreement (a) no Hazardous
Materials are located on any real property owned, controlled or operated by any
Borrower or for which any Borrower is, or is claimed to be, responsible, except
for reasonable quantities of necessary supplies for use and sale by a Borrower
in the ordinary course of its current line of business and stored, used and
disposed in accordance with applicable Laws; and (b) no property owned,
controlled or operated by any Borrower or for which any Borrower has, or is
claimed to have, responsibility has ever been used as a manufacturing or storage
site for Hazardous Materials (except those manufactured by any Borrower in the
ordinary course of its business), or dump site for Hazardous Materials nor is
affected by Hazardous Materials Contamination at any other property.
4.1.23 PERFECTION AND PRIORITY OF COLLATERAL.
The Lender has, or upon execution and recording of this Agreement
and the Security Documents will have, and will continue to have as security for
the Obligations, a valid and perfected Lien on and security interest in all
Collateral, free of all other Liens, claims and rights of third parties
whatsoever except Permitted Liens, including, without limitation, those
described on Schedule 4.1.23.
4.1.24 PLACES OF BUSINESS AND LOCATION OF COLLATERAL.
The information contained in the Collateral Disclosure List is
complete and correct. The Collateral Disclosure List completely and accurately
identifies the address of (a) the chief executive office of each Borrower, (b)
any and each other place of business of the Borrowers, (c) the location of all
books and records pertaining to the Collateral, and (d) each location, other
than the foregoing, where any of the Collateral is located.
-54-
<PAGE>
4.1.25 BUSINESS NAMES AND ADDRESSES.
Except as set forth in the Collateral Disclosure List, in the
twelve (12) years preceding the date hereof, no Borrower has changed its name,
identity or corporate structure, has conducted business under any name other
than its current name, and has conducted its business in any jurisdiction other
than those disclosed on the Collateral Disclosure List provided, however, that
the representations and warranties in this Section 4.1.25 are made to the best
of the Borrowers' knowledge with respect to such changes and such business
conduct pertaining to entities included in the Monsey Bakor Group and taking
place prior to the date of this Agreement.
4.1.26 INVENTORY.
The Inventory of each Borrower is (a) of good and merchantable
quality, free from defects, except to the extent reserved on a Borrower's
financial statements and in accordance with GAAP, (b) not stored with a bailee,
warehouseman, carrier, or similar party, other than a warehouseman or bailee who
is identified on the Collateral Disclosure List or, after the date of this
Agreement, in a notice from a Borrower to the Lender, and other than a carrier
or similar party in the ordinary course of business and delivery, (c) not on
consignment, sale on approval, or sale or return, and (d) located at the places
of business set forth on the Collateral Disclosure List. No goods offered for
sale by a Borrower are consigned to or held on sale or return terms by a
Borrower.
4.1.27 ACCOUNTS.
With respect to all Accounts and to the best of each Borrower's
knowledge (a) they are genuine, and in all respects what they purport to be, and
are not evidenced by a judgment, an instrument, or chattel Paper (unless such
judgment has been assigned and such instrument or chattel paper has been
endorsed and delivered to the Lender); (b) they represent bona fide transactions
completed in accordance with the terms and provisions contained in the invoices,
purchase orders and other contracts relating thereto, and the underlying
transaction therefor is in accordance with all applicable Laws; (c) the amounts
shown on any Borrower's books and records, with respect thereto are actually and
absolutely owing to their respective Borrower and are not contingent or subject
to reduction for any reason other than regular discounts, credits or adjustments
allowed by the respective Borrower in the ordinary course of its business; (d)
no payments have been or shall be made thereon except payments turned over to
the Lender by a Borrower; (e) all Account Debtors thereon have the capacity to
contract; and (f) the goods sold, leased or transferred or the services
furnished giving rise thereto are not subject to any Liens except the security
interest granted to the Lender by this Agreement and Permitted Liens.
-55-
<PAGE>
4.1.28 COMPLIANCE WITH ELIGIBILITY STANDARDS.
Each Account, Life Insurance Policy and all Inventory included in
the calculation of the Borrowing Base does and will at all times meet and comply
with all of the standards for Eligible Receivables, Eligible Foreign
Receivables, Eligible Life Insurance Policies and Eligible Inventory. With
respect to those Accounts which the Lender has deemed Eligible Receivables and
Eligible Foreign Receivables (a) there are no facts, events or occurrences known
to any Borrower which in any way impair the validity, collectibility or
enforceability thereof or tend to reduce the amount payable thereunder; and (b)
there are no proceedings or actions known to any Borrower which are threatened
or pending against any Account Debtor which might result in any material adverse
change in the Borrowing Base.
Section 4.2 SURVIVAL; UPDATES OF REPRESENTATIONS AND WARRANTIES.
(a) All representations and warranties contained in or made under or
in connection with this Agreement and the other Financing Documents shall
survive the Closing Date, the making of any advance under the Loans and
extension of credit made hereunder, and the incurring of any other Obligations
and shall be deemed to have been made at the time of each request for, and again
at the time the making of, each advance under the Loans or the issuance of each
Letter of Credit, except that the representations and warranties which relate to
financial statements which are referred to in Section 4.1.11, shall also be
deemed to cover financial statements furnished from time to time to the Lender
pursuant to Section 6.1.1 (Financial Statements) of this Agreement.
(b) Immediately prior to the execution and delivery of this
Agreement, the Company acquired the stock of Monsey Products. In recognition
thereof, the Lender and the Company agree that, notwithstanding any other
provision of this Agreement, the representations and warranties contained in
made under or in connection with this Agreement and the other Financing
Documents (i) are made, and through December 31, 1998 shall be deemed to be
made, to the best of the Company's knowledge with respect to the Monsey Bakor
Group and its Subsidiaries and (ii) as written herein or therein with respect to
the Company at all times and, after December 31, 1998, with respect to the
Monsey Bakor Group and its Subsidiaries.
ARTICLE V
CONDITIONS PRECEDENT
Section 5.1 CONDITIONS TO THE INITIAL ADVANCE AND INITIAL LETTER OF
CREDIT.
The making of the initial advance under the Loans and the issuance of the
initial Letter of Credit is subject to the fulfillment on or before the Closing
Date of the following conditions precedent in a manner satisfactory in form and
substance to the Lender:
-56-
<PAGE>
5.1.1 ORGANIZATIONAL DOCUMENTS - CORPORATE BORROWERS.
The Lender shall have received:
(a) a certificate of good standing for each Borrower
certified by the Secretary of State, or other appropriate Governmental
Authority, of the state of incorporation for each respective Borrower;
(b) a certificate of qualification to do business for each
Borrower certified by the Secretary of State or other Governmental Authority of
each state in which such Borrower conducts business;
(c) a certificate dated as of the Closing Date by the
Secretary or an Assistant Secretary of each Borrower covering:
(i) true and complete copies of each Borrower's
corporate charter, bylaws, and all amendments thereto;
(ii) true and complete copies of the resolutions
of each Borrower's Board of Directors authorizing (a) the
execution, delivery and performance of the Financing Documents to
which such Borrower is a party, (b) the borrowings by such
Borrower hereunder, and (c) the granting of the Liens
contemplated by this Agreement and the Financing Documents to
which such Borrower is a party;
(iii) the incumbency, authority and signatures of
the officers of each Borrower authorized to sign this Agreement
and the other Financing Documents to which such Borrower is a
party; and
(iv) the identity of each Borrower's current
directors, common stock holders and other equity holders, as well
as their respective percentage ownership interests.
5.1.2 ORGANIZATIONAL DOCUMENTS - MONSEY ARIZONA.
In addition, the Lender shall have received a certificate of the
managing member of Monsey Arizona as of the date of this Agreement:
(a) stating that attached to the certificate is a true and
complete copy of Monsey Arizona's articles of organization and operating
agreement furnished to the Lender on the date of this Agreement and that those
documents have not been the subject of any amendments, modifications,
restatements, substitutions, extensions or renewals thereto;
(b) stating that attached to the certificate is a
resolution approved by all members of Monsey Arizona authorizing the execution
and delivery of this Agreement,
-57-
<PAGE>
the joinder in the other Financing Documents, and the performance of Monsey
Arizona's obligations under the Financing Documents;
(c) setting forth the identity and signatures of the
representatives of the managing member then authorized to sign the Financing
Documents to which Monsey Arizona is a party;
(d) authorizing the Company to request and direct advances
under the Financing Agreement on behalf of Monsey Arizona and otherwise to act
on behalf of Monsey Arizona as set forth in | of this Agreement; and
(e) identifying of Monsey Arizona's members.
The Lender shall have also received with respect to the corporate
managing member of Monsey Arizona a certificate of the corporate managing
member's Secretary or Assistant Secretary dated the date of this Agreement
covering:
(a) true and complete copies of the corporate managing
member's corporate charter, bylaws, and all amendments thereto;
(b) true and complete copies of the resolutions of its
Board of Directors authorizing the execution and delivery of the Financing
Documents by corporate managing member on behalf of Monsey Arizona;
(c) the incumbency, authority and signatures of the
officers of the corporate managing member authorized to sign this Agreement and
the other Financing Documents on behalf of Monsey Arizona; and
(d) the identity of the corporate managing member's current
directors, common stock holders and other equity holders, as well as their
respective percentage ownership interests.
5.1.3 OPINION OF BORROWER'S COUNSEL.
The Lender shall have received the favorable opinion of counsel
for the Borrowers addressed to the Lender.
5.1.4 CONSENTS, LICENSES, APPROVALS, ETC.
The Lender shall have received copies of all consents, licenses
and approvals, required in connection with the execution, delivery, performance,
validity and enforceability of the Financing Documents, the Senior Notes
Documents, and such consents, licenses and approvals shall be in full force and
effect.
-58-
<PAGE>
5.1.5 NOTES.
The Lender shall have received the Capital Expenditure Note and
the Revolving Credit Note, each conforming to the requirements hereof and
executed by a Responsible Officer of each Borrower and attested by a duly
authorized representative of each Borrower.
5.1.6 FINANCING DOCUMENTS AND COLLATERAL.
Each Borrower shall have executed and delivered the Financing
Documents to be executed by it, and shall have delivered original chattel paper,
instruments, securities, and related Collateral and all opinions, title
insurance, and other documents contemplated by Article 3 hereof.
5.1.7 OTHER FINANCING DOCUMENTS.
In addition to the Financing Documents to be delivered by the
Borrower, the Lender shall have received the Financing Documents duly executed
and delivered by Persons other than the Borrowers.
5.1.8 OTHER DOCUMENTS, ETC.
The Lender shall have received such other certificates, opinions,
documents and instruments confirmatory of or otherwise relating to the
transactions contemplated hereby as may have been reasonably requested by the
Lender.
5.1.9 PAYMENT OF FEES.
The Lender shall have received payment of any Fees due on or
before the Closing Date.
5.1.10 COLLATERAL DISCLOSURE LIST.
The Company shall have delivered the Collateral Disclosure List
required under the provisions of Section 3.4 (Collateral Disclosure List) hereof
duly executed by a Responsible Officer of the Company.
5.1.11 RECORDINGS AND FILINGS.
Each Borrower shall have: (a) executed and delivered all
Financing Documents (including, without limitation, statements) required by the
Lender to be filed, registered or recorded in order to create, in favor of the
Lender, a perfected Lien in the Collateral (subject only to the Permitted Liens)
in form and in sufficient number for filing, registration, and recording in each
office in each jurisdiction in which such filings, registrations and
recordations are required, and (b) delivered such evidence as the Lender require
that all necessary filing fees
-59-
<PAGE>
and all recording and other similar fees, and all Taxes and other expenses
related to such filings, registrations and recordings will be or have been paid
in full.
5.1.12 INSURANCE CERTIFICATE.
The Lender shall have received an insurance certificate in
accordance with the provisions of Section 6.1.8 (Insurance) of this Agreement.
5.1.13 FIELD EXAMINATION.
The Lender shall have completed a field examination and audit of
the Borrowers' business, operations and income, the results of which field
examination and audit shall be in all respects acceptable to the Lender in its
sole and absolute discretion and shall include reference discussions with key
customers and vendors.
5.1.14 OFFERING.
The Lender shall have received a certificate signed by a
Responsible Officer of the Company, certifying to the Lender that the Company
(a) has received the proceeds from the sale of the Senior Notes, in accordance
with, and pursuant to, the terms and conditions of the Offering Memorandum and
the Senior Notes Documents, and has applied the same to such purposes as has
been previously disclosed to, and approved by, the Lender, and (b) has delivered
to the Lender true and correct photocopies of all Senior Notes Documents.
5.1.15 LIFE INSURANCE.
The Lender shall have received the original Life Insurance
Policies, together with the fully executed duplicate originals of the
Assignments of Life Insurance.
Section 5.2 CONDITIONS TO ALL EXTENSIONS OF CREDIT.
The making of all advances under the Loans and the issuance of all Letters
of Credit is subject to the fulfillment of the following conditions precedent in
a manner satisfactory in form and substance to the Lender:
5.2.1 COMPLIANCE.
Each Borrower shall have complied and shall then be in compliance
with all terms, covenants, conditions and provisions of this Agreement and the
other Financing Documents which are binding upon it.
5.2.2 BORROWING BASE.
The Borrowers shall have furnished all Borrowing Base Reports
required by Section 2.1.4 (Borrowing Base Report) of this Agreement, there shall
exist no Borrowing
-60-
<PAGE>
Base Deficiency, and as evidence thereof, the Borrowers shall have furnished to
the Lender such reports, schedules, certificates, records and other papers as
may be requested by the Lender, and each Borrower shall be in compliance with
the provisions of Section 2.1.12 of this Agreement both immediately before and
immediately after the making of the advance requested.
5.2.3 DEFAULT.
There shall exist no Event of Default or Default hereunder.
5.2.4 REPRESENTATIONS AND WARRANTIES.
Subject to Section 4.2(b), the representations and warranties of
the Borrowers contained among the provisions of this Agreement shall be true and
with the same effect as though such representations and warranties had been made
at the time of the making of, and of the request for, each advance under the
Loans or the issuance of each Letter of Credit, except that the representations
and warranties which relate to financial statements which are referred to in
Section 4.1.12, shall also be deemed to cover financial statements furnished
from time to time to the Lender pursuant to Section 6.1.1 (Financial Statements)
of this Agreement.
5.2.5 ADVERSE CHANGE.
No adverse change shall have occurred in the condition (financial
or otherwise), operations or business of any Borrower which would, in the good
faith judgment of the Lender, materially impair the ability of any Borrower to
pay or perform any of the Obligations.
5.2.6 LEGAL MATTERS.
All legal documents incident to each advance under the Loans and
each of the Letters of Credit shall be reasonably satisfactory to counsel for
the Lender.
ARTICLE VI
COVENANTS OF THE BORROWER
Section 6.1 AFFIRMATIVE COVENANTS.
So long as any of the Obligations or the Commitment shall be outstanding
hereunder, the Borrower agrees with the Lender as follows:
6.1.1 FINANCIAL STATEMENTS.
The Borrowers shall furnish to the Lender:
(a) ANNUAL STATEMENTS AND CERTIFICATES. The Company shall
furnish to the Lender as soon as available, but in no event more than one
hundred twenty (120)
-61-
<PAGE>
days after the close of each fiscal year of the Company, (i) a copy of the
annual financial statement in reasonable detail satisfactory to the Lender
relating to the Company, prepared in accordance with GAAP and examined and
certified by independent certified public accountants reasonably satisfactory to
the Lender, which financial statement shall include a consolidated and
consolidating balance sheet of the Company and its Subsidiaries as of the end of
such fiscal year and consolidated and consolidating statements of income, cash
flows and changes in shareholders equity of the Company and its Subsidiaries for
such fiscal year, (ii) a Compliance Certificate, in substantially the form
attached to this Agreement as EXHIBIT C, as may be amended by the Lender from
time to time, containing a detailed computation of each financial covenant which
is applicable for the period reported, a certification that no material change
has occurred to the information contained in the Collateral Disclosure List
(except as set forth in a schedule attached to the certification), and a cash
flow projection report, each prepared by a Responsible Officer of the Company in
a format acceptable to the Lender, and (iii) a management letter in the form
prepared by the Company's independent certified public accountants.
(b) ANNUAL OPINION OF ACCOUNTANT. The Company shall
furnish to the Lender as soon as available, but in no event more than one
hundred twenty (120) days after the close of the Company's fiscal years, a
letter or opinion of the accountant who examined and certified the annual
financial statement relating to the Company and its Subsidiaries stating whether
anything in such accountant's examination has revealed the occurrence of a
Default or an Event of Default hereunder, and, if so, stating the facts with
respect thereto.
(c) QUARTERLY STATEMENTS AND CERTIFICATES. The Company
shall furnish to the Lender as soon as available, but in no event more than
forty-five (45) days after the close of the Company's first three fiscal
quarters, consolidated and consolidating balance sheets of the Company and its
Subsidiaries as of the close of such period, consolidated and consolidating
income, cash flows and changes in shareholders equity statements for such
period, projected cash flow on a month to month basis and projected income
statements, and a Compliance Certificate, in substantially the form attached to
this Agreement as EXHIBIT C, containing a detailed computation of each financial
covenant which is applicable for the period reported, a certification that no
change has occurred to the information contained in the Collateral Disclosure
List (except as set forth any schedule attached to the certification), and a
cash flow projection report, all as prepared and certified by a Responsible
Officer of the Company and accompanied by a certificate of that officer stating
whether any event has occurred which constitutes a Default or an Event of
Default hereunder, and, if so, stating the facts with respect thereto.
(d) MONTHLY STATEMENTS AND CERTIFICATES. The Company shall
furnish to the Lender as soon as available, but in no event more than the later
of thirty (30) days after the close of each month or the last day of the first
month after the end of each month, consolidated and consolidating balance sheets
of the Company and its Subsidiaries as of the close of such period, consolidated
and consolidating income, cash flows and changes in shareholders equity
statements for such period, projected cash flow on a month to month basis
-62-
<PAGE>
and projected income statements, and a detailed computation of each financial
covenant in this Agreement which is applicable for the period reported, all as
prepared and certified by a Responsible Officer of the Company and accompanied
by a certificate of that officer stating whether any event has occurred which
constitutes a Default or an Event of Default hereunder, and, if so, stating the
facts with respect thereto.
(e) LIMITED GRACE PERIOD. Notwithstanding the provisions
of subsections (d) above, in the event the Company fails to furnish any of the
financial statements, certificates or other requirements of those subsections
because the same is not available before the later of thirty (30) days after the
close of the applicable period or the last day of the first month after the end
of applicable period, no Default or Event of Default shall be deemed to exist
unless such failure continues uncured for a period of five (5) days or more,
there have been more than a total of two (2) such failures in any twelve (12)
month period.
(f) MONTHLY REPORTS. The Borrowers shall furnish to the
Lender within fifteen (15) days after the end of each fiscal month, a report
containing the following information with respect to the Borrowers:
(i) a detailed aging schedule of all accounts receivable
by Account Debtor, in such detail, and accompanied by such supporting
information, as the Lender may from time to time reasonably request;
(ii) a detailed aging of all accounts payable by supplier,
in such detail, and accompanied by such supporting information, as the
Lender may from time to time reasonably request; and
(iii) a listing of all Inventory by component, category and
location, in such detail, and accompanied by such supporting
information as the Lender may from time to time reasonably request.
(g) ANNUAL BUDGET AND PROJECTIONS. The Borrowers shall
furnish to the Lender as soon as available, but in no event later than the 10th
day before the end of each fiscal year with respect to the Borrowers (i) a
consolidated and consolidating budget and pro forma financial statements on an
annual basis for the following fiscal year, and (ii) five year projections. The
Borrowers shall also furnish to the Lender as soon as available, but in no event
later than January 15th of each fiscal year with respect to the Borrowers a
consolidated and consolidating budget and pro forma financial statements on a
month-to-month basis for the current fiscal year.
(h) CERTAIN INFORMATION FURNISHED TO TRUSTEE. The
Borrowers will furnish to the Lender, at the same time sent to the Trustee, at
least one (1) copy of all financial statements, reports, and other information
sent by the Borrowers to the holders of the Senior Notes and the Trustee
pursuant to Section 4.08 of the Indenture as in effect on the Closing Date.
-63-
<PAGE>
(i) OTHER BORROWER INFORMATION. The Borrower shall furnish
promptly upon the Lender's request from time to time, (i) such additional
information, reports or statements as the Borrower may prepare from time to time
in connection with the Borrower, and (ii) tax returns (whether or not
consolidated) filed with respect to each Borrower's income and properties.
(j) ADDITIONAL REPORTS AND INFORMATION. The Borrowers
shall furnish to the Lender promptly, such additional information, reports or
statements as the Lender may from time to time reasonably request.
6.1.2 REPORTS TO SEC AND TO STOCKHOLDERS.
The Company will furnish to the Lender, promptly upon the filing
or making thereof, at least one (1) copy of all financial statements, reports,
notices and proxy statements sent by the Company to its stockholders, and of all
regular and other reports filed by the Borrowers with any securities exchange or
with the Securities and Exchange Commission.
6.1.3 RECORDKEEPING, RIGHTS OF INSPECTION, FIELD EXAMINATION,
ETC.
The Borrowers shall, and shall cause each of their Subsidiaries
to, maintain (i) a standard system of accounting in accordance with GAAP, and
(ii) proper books of record and account in which full, true and correct entries
are made of all dealings and transactions in relation to its properties,
business and activities.
(a) The Borrowers shall, and shall cause each of their
Subsidiaries to, permit authorized representatives of the Lender to visit and
inspect the properties of the Borrowers, to review, audit, check and inspect the
Collateral at any time with or without notice, to review, audit, check and
inspect the Borrowers' other books of record at any time with or without notice
and to make abstracts and photocopies thereof, and to discuss the affairs,
finances and accounts of the Borrowers and/or any Subsidiaries, with the
officers, directors, employees and other representatives of the Borrower and/or
any Subsidiaries and their respective accountants, all at such times during
normal business hours and other reasonable times and as often as the Lender may
reasonably request.
(b) The Borrowers hereby irrevocably authorize and direct
all accountants and auditors employed by any Borrower and/or any Subsidiaries at
any time prior to the repayment in full of the Obligations to exhibit and
deliver to the Lender copies of any and all of the financial statements, trial
balances, management letters, or other accounting records of any nature of any
Borrower and/or any Subsidiaries in the accountant's or auditor's possession,
and to disclose to the Lender any information they may have concerning the
financial status and business operations of any Borrower and its Subsidiaries.
Further, the Borrowers hereby authorizes all Governmental Authorities to furnish
to the Lender copies of reports or examinations relating to any Borrower and/or
any Subsidiaries, whether made by a Borrower or otherwise.
-64-
<PAGE>
(c) Any and all costs and expenses incurred by, or on
behalf of, the Lender in connection with the conduct of any of the foregoing
shall be part of the Enforcement Costs and shall be payable to the Lender upon
demand. The Borrowers acknowledge and agree that such expenses may include, but
shall not be limited to, any and all out-of-pocket costs and expenses of the
Lender's employees and agents in, and when, travelling to the Borrowers'
facilities. Notwithstanding the other provisions of this subsection (d), the
Lender agrees that prior to an Event of Default, the Borrowers shall not be
obligated to pay the Lender's Enforcement Costs under this Section 6.1.3.
6.1.4 EXISTENCE.
(a) Each corporate Borrower shall maintain its corporate
existence in good standing in the jurisdiction in which it is incorporated and
in each other jurisdiction where it is required to register or qualify to do
business if the failure to do so in such other jurisdiction would have a
material adverse effect on the ability of the Borrower to perform the
Obligations, the conduct of the Borrowers' operations, the Borrowers' financial
condition, or the value of, or the ability of the Lender to realize upon, the
Collateral.
(b) Monsey Arizona shall maintain its limited liability
company existence in good standing in the jurisdiction in which it is organized
and in each other jurisdiction where it is required to register or qualify to do
business if the failure to do so in such other jurisdiction would have a
material adverse effect on the ability of the Monsey Arizona to perform the
Obligations, the conduct of Monsey Arizona's operations, Monsey Arizona's
financial condition, or the value of, or the ability of the Lender to realize
upon, the Collateral.
6.1.5 COMPLIANCE WITH LAWS.
Each Borrower shall comply with all applicable Laws and observe
the valid requirements of Governmental Authorities, the noncompliance with or
the nonobservance of which would have a material adverse effect on the ability
of the Borrowers taken as a whole to perform the Obligations, the conduct of the
Borrowers' operations taken as a whole, the Borrowers' financial condition taken
as whole, or the value of, or the ability of the Lender to realize upon, the
Collateral (with immaterial exceptions).
6.1.6 PRESERVATION OF PROPERTIES.
Each Borrower will (a) maintain, preserve, protect and keep its
properties, whether owned or leased, in good operating condition, working order
and repair (ordinary wear and tear excepted), and from time to time will make
all proper repairs, maintenance, replacements, additions and improvements
thereto needed to maintain such properties in good operating condition, working
order and repair, and (b) do or cause to be done all things necessary to
preserve and to keep in full force and effect its material franchises, leases of
real and personal property, trade names, Patents, Trademarks, Copyrights and
permits which are necessary for the orderly continuance of its business.
-65-
<PAGE>
6.1.7 LINE OF BUSINESS.
The Borrowers will continue to engage substantially only in the
business of the manufacturing and distribution of construction products
including asphalt-based and polyurethane foam materials, industrial emulsions
and roofing systems.
6.1.8 INSURANCE.
(a) Each Borrower will at all times maintain with A-or
better rated insurance companies such insurance as is required by applicable
Laws and such other insurance, all in such amounts not less than the Lender
shall reasonably determine from time to time, of such types and against such
risks, hazards, liabilities, casualties and contingencies as are usually insured
against in the same geographic areas by business entities engaged in the same or
similar business. Without limiting the generality of the foregoing, each
Borrower will keep adequately insured all of its property against loss or damage
resulting from fire or other risks insured against by extended coverage and
maintain public liability insurance against claims for personal injury, death or
property damage occurring upon, in or about any properties occupied or
controlled by it, or arising in any manner out of the businesses carried on by
it.
(b) Without implying any limitation on the provisions of
subsection (a), each Borrower will maintain hazard insurance with fire and
extended coverage and naming the Lender as an additional insured with loss
payable to the Lender as its respective interest may appear on the Capital
Expenditure Loan Equipment and the Inventory in an amount at least equal to the
lesser amount of the outstanding principal amount of the Obligations or the fair
market value of the Capital Expenditure Loan Equipment and the Inventory (but in
any event sufficient to avoid any co-insurance obligations) and with a specific
endorsement to each such insurance policy pursuant to which the insurer agrees
to give the Lender at least thirty (30) days written notice before any
alteration or termination of such insurance policy and that no act or default of
any Borrower shall affect the right of the Lender to recover under such policy
in the event of loss or damage.
(c) Each Borrower shall deliver to the Lender on the
Closing Date (and thereafter on each date there is a material change in the
insurance coverage) a certificate of a Responsible Officer of the respective
Borrower containing a detailed list of the insurance then in effect and stating
the names of the insurance companies, the types, the amounts and rates of the
insurance, dates of the expiration thereof and the properties and risks covered
thereby. Within thirty (30) days after notice in writing from the Lender, the
respective Borrower will obtain such additional insurance as the Lender may
reasonably request; provided, however, (i) the Lender may not require insurance
which is not usually insured against in the same geographic areas by business
entities engaged in the same or similar business, and (ii) the Lender has
reviewed the respective Borrower's current insurance and has determined that it
is reasonable both as to scope and levels of coverage on the date of this
Agreement.
-66-
<PAGE>
6.1.9 TAXES.
Except to the extent that the validity or amount thereof is being
contested in good faith and by appropriate proceedings, each Borrower will pay
and discharge all Taxes prior to the date when any interest or penalty would
accrue for the nonpayment thereof. The Borrowers shall furnish to the Lender at
such times as the Lender may require proof satisfactory to the Lender of the
making of payments or deposits required by applicable Laws including, without
limitation, payments or deposits with respect to amounts withheld by any
Borrower from wages and salaries of employees and amounts contributed by any
Borrower on account of federal and other income or wage taxes and amounts due
under the Federal Insurance Contributions Act, as amended.
6.1.10 ERISA.
Each Borrower will, and will cause each of its Subsidiaries and
Affiliates to, comply with the funding requirements of ERISA with respect to
employee pension benefit plans for its respective employees. The Borrowers will
not permit with respect to any employee benefit plan or plans covered by Title
IV of ERISA (a) any prohibited transaction or transactions under ERISA or the
Internal Revenue Code, which results, or may result, in any material liability
of any Borrower and/or any Subsidiary and/or Affiliate, or (b) any Reportable
Event if, upon termination of the plan or plans with respect to which one or
more such Reportable Events shall have occurred, there is or would be any
material liability of any Borrower and/or any Subsidiary and/or Affiliate to the
PBGC. Upon the Lender's request, the Borrowers will deliver to the Lender a
copy of the most recent actuarial report, financial statements and annual report
completed with respect to any "defined benefit plan", as defined in ERISA.
6.1.11 NOTIFICATION OF EVENTS OF DEFAULT AND ADVERSE
DEVELOPMENTS.
The Borrowers shall promptly notify the Lender upon obtaining
knowledge of the occurrence of:
(a) any Event of Default;
(b) any Default;
(c) any litigation instituted or overtly threatened against
any Borrower or its Subsidiaries and of the entry of any judgment or Lien (other
than any Permitted Liens) against any of the assets or properties of any
Borrower or any Subsidiary where such litigation could reasonably be expected to
result in judgments or Liens against such Borrower or any of its Subsidiaries in
excess of Five Hundred Thousand Dollars ($500,000), and such judgments or Liens
are not covered by insurance;
-67-
<PAGE>
(d) any event, development or circumstance whereby the
financial statements furnished hereunder fail in any material respect to present
fairly, in accordance with GAAP, the financial condition and operational results
of any Borrower or any Subsidiary;
(e) any judicial, administrative or arbitral proceeding
pending against any Borrower and any judicial or administrative proceeding known
by any Borrower to be threatened against it which could reasonably be expected
to affect materially and adversely the Borrowers' financial condition or
operations (present or prospective) taken as a whole;
(f) the receipt by any Borrower of any notice, claim or
demand from any Governmental Authority which alleges that any Borrower is in
violation of any of the terms of, or has failed to comply with any applicable
Laws regulating its operation and business, including, but not limited to, the
Occupational Safety and Health Act and the Environmental Protection Act if such
violation or failure would result in a Material Adverse Effect on the Borrowers
taken as a whole; and
(g) any other development in the business or affairs of any
Borrower which could reasonably be expected to have a Material Adverse Effect on
the Borrowers taken as a whole;
in each case describing in detail satisfactory to the Lender the nature thereof
and the action any Borrower proposes to take with respect thereto.
6.1.12 HAZARDOUS MATERIALS; CONTAMINATION.
The Borrowers agree to:
(a) give notice to the Lender immediately upon any
Borrower's acquiring knowledge of the presence of any Hazardous Materials and of
any Hazardous Materials Contamination on any property owned or controlled by any
Borrower or for which any Borrower is, or is claimed to be, responsible
(provided that such notice shall not be required for Hazardous Materials placed
or stored on such property in accordance with applicable Laws in the ordinary
course (including, without limitation, quantity) of a Borrower's line of
business expressly described in this Agreement) or of any Hazardous Materials
Contamination, with a full description thereof;
(b) promptly comply with any Laws requiring any Borrower to
remove, treat or dispose of Hazardous Materials or Hazardous Materials
Contamination and provide the Lender with satisfactory evidence of such
compliance;
(c) to the extent actions any Governmental Authority
requires any Borrower to take an action described in Section 6.1.12(b), provide
the Lender, within thirty (30) days after a demand by the Lender, with a bond,
letter of credit or similar financial assurance evidencing to the Lender's
satisfaction that the necessary funds are available to pay the cost of
-68-
<PAGE>
such removal, treatment, and disposal of such Hazardous Materials or Hazardous
Materials Contamination and discharging any Lien which may be established as a
result thereof on any property owned or controlled by any Borrower or for which
any Borrower is, or is claimed to be, responsible; and
(d) as part of the Obligations, defend, indemnify and hold
harmless the Lender and its agents, employees, trustees, successors and assigns
from any and all claims which may now or in the future (whether before or after
the termination of this Agreement) be asserted as a result of the presence of
any Hazardous Materials or of any Hazardous Materials Contamination on any
property owned or controlled by any Borrower or for which any Borrower is, or is
claimed to be, responsible. The Borrowers acknowledge and agree that this
indemnification shall survive the termination of this Agreement and the
Commitment and the payment and performance of all of the other Obligations.
6.1.13 DISCLOSURE OF SIGNIFICANT TRANSACTIONS.
Each of the Borrowers shall deliver to the Lender a written
notice describing in detail each transaction by it involving the purchase, sale,
lease, or other acquisition or loss or casualty to or disposition of an interest
in Fixed or Capital Assets which exceeds Two Hundred Fifty Thousand Dollars
($250,000.00), said notices to be delivered to the Lender within thirty (30)
days of the occurrence of each such transaction.
6.1.14 LIFE INSURANCE POLICIES.
The Company shall at all times maintain the Life Insurance
Policies as Eligible Life Insurance Policies subject to the Assignments of Life
Insurance.
6.1.15 FINANCIAL COVENANTS.
The Borrowers will maintain the financial covenants set forth on
ANNEX 1 which is attached to and made and made a part of this Agreement.
6.1.16 COLLECTION OF ACCOUNTS.
Until such time that the Lender shall notify the Borrowers of the
revocation of such privilege following an Event of Default, the Borrowers and
each of their Subsidiaries shall at its own expense have the privilege for the
account of, and in trust for, the Lender of collecting its Accounts and
receiving in respect thereto all Items of Payment and shall otherwise completely
service all of the Accounts including (a) the billing, posting and maintaining
of complete records applicable thereto, (b) the taking of such action with
respect to the Accounts as the Lender may request or in the absence of such
request, as each of the Borrowers and each of the Subsidiaries may deem
advisable; and (c) the granting, in the ordinary course of business, to any
Account Debtor, any rebate, refund or adjustment to which the Account Debtor may
be lawfully entitled, and may accept, in connection therewith, the return of
-69-
<PAGE>
goods, the sale or lease of which shall have given rise to an Account and may
take such other actions relating to the settling of any Account Debtor's claim
as may be commercially reasonable. The Lender may, at its option, at any time
or from time to time after and during the continuance of an Event of Default
hereunder, revoke the collection privilege given in this Agreement to any
Borrower and any one or more of the Subsidiaries by either giving notice of its
assignment of, and lien on the Collateral to the Account Debtors or giving
notice of such revocation to the Borrowers. The Lender shall not have any duty
to, and the Borrowers hereby release the Lender from all claims of loss or
damage caused by the delay or failure to collect or enforce any of the Accounts
or to preserve any rights against any other party with an interest in the
Collateral. The Lender shall be entitled at any time and from time to time to
confirm and verify Accounts.
6.1.17 ASSIGNMENTS OF ACCOUNTS.
Each of the Borrowers will promptly, upon request, execute and
deliver to the Lender written assignments, in form and content acceptable to the
Lender, of specific Accounts or groups of Accounts; provided, however, the Lien
and/or security interest granted to the Lender under this Agreement shall not be
limited in any way to or by the inclusion or exclusion of Accounts within such
assignments. Accounts so assigned shall secure payment of the Obligations and
are not sold to the Lender whether or not any assignment thereof, which is
separate from this Agreement, is in form absolute. Each Borrower agrees that
neither any assignment to the Lender nor any other provision contained in this
Agreement or any of the other Financing Documents shall impose on the Lender any
obligation or liability of any Borrower with respect to that which is assigned
and each Borrower hereby agrees to indemnify the Lender and hold the Lender
harmless from any and all claims, actions, suits, losses, damages, costs,
expenses, fees, obligations and liabilities which may be incurred by or imposed
upon the Lender by virtue of the assignment of and Lien on any Borrower's
rights, title and interest in, to, and under the Collateral.
6.1.18 GOVERNMENT ACCOUNTS.
Each of the Borrowers will promptly notify the Lender if any of
the Accounts arise out of contracts with the United States or with any other
Governmental Authority, provided that no notice shall be required for an
individual contract involving an aggregate purchase of less than $100,000, and
execute any instruments and take any steps required by the Lender in order that
all moneys due and to become due under such contracts shall be assigned to the
Lender and notice thereof given to the Governmental Authority under the Federal
Assignment of Claims Act or any other applicable Laws.
6.1.19 NOTICE OF RETURNED GOODS, ETC.
Each of the Borrowers will promptly notify, and will cause its
Subsidiaries to notify promptly, the Lender of the return, rejection or
repossession of any goods sold or delivered in respect of any Accounts, and of
any claims made in regard thereto to the extent that
-70-
<PAGE>
the aggregate purchase price of any such goods in any given calendar month
exceeds in the aggregate One Hundred Thousand Dollars ($100,000.00) in any given
calendar month.
6.1.20 EQUIPMENT.
Each of the Borrowers shall (a) maintain all Capital Expenditure
Loan Equipment as personalty, (b) not affix any Capital Expenditure Loan
Equipment to any real estate in such manner as to become a fixture or part of
such real estate, and (c) shall hold no Capital Expenditure Loan Equipment on a
sale on approval basis. The Borrowers hereby declares their intent that,
notwithstanding the means of attachment, no Capital Expenditure Loan Equipment
hereafter attached to any realty shall be deemed a fixture, which declaration
shall be irrevocable, without the Lender's consent, until all of the Obligations
have been paid in full and all of the Commitments have been terminated.
6.1.21 INVENTORY.
With respect to the Inventory, each Borrower will: (a) as soon
as possible upon demand by the Lender from time to time, prepare and deliver to
the Lender designations of Inventory specifying each Borrower's cost of
Inventory, the retail price thereof, and such other matters and information
relating to the Inventory as the Lender may reasonably request; (b) keep correct
and accurate records itemizing and describing the kind, type, quality and
quantity of Inventory, each Borrower's cost therefor and the selling price
thereof, all of which records shall be available to the officers, employees or
agents of the Lender upon demand for inspection and copying thereof; (c) except
as set forth in SCHEDULE 6.1.21, not store any of its Inventory with a bailee,
warehouseman or similar Person without the Lender's prior written consent, which
consent may be conditioned on, among other things, delivery by the bailee,
warehouseman or similar Person to the Lender of warehouse receipts, in form
acceptable to the Lender, in the name of the Lender evidencing the storage of
Inventory and the Lender's interests therein, provided, however, that, unless an
Event of Default would arise under another provision of this Agreement, a
Borrower may store its Inventory with a warehouseman (i) who is identified on
the Collateral Disclosure List or, after the date of this Agreement, in a notice
from any such Borrower to the Lender given no less than five (5) Business Days
prior to any such storage, and (ii) (A) from whom the Lender has received a
waiver and consent, in form and substance satisfactory to the Lender, to the
extent required by the Lender, or (B) (without implying any limitation on the
Lender's other rights and remedies) with respect to whose potential claims the
Lender has established reserves satisfactory to the Lender; and (d) permit the
Lender and its agents or representatives to inspect and examine the Inventory
and to check and test the same as to quality, quantity, value and condition at
any time or times hereafter during a Borrower's usual business hours or at other
reasonable times. Any Borrower shall be permitted to sell its Inventory in the
ordinary course of its business until the occurrence of a Default or an Event of
Default.
-71-
<PAGE>
6.1.22 MAINTENANCE OF THE COLLATERAL.
(a) The Borrowers will not permit anything to be done to the
Collateral which may materially impair the value thereof. (b) The Lender, or an
agent designated by the Lender, shall be permitted to enter the premises of any
Borrower and any Subsidiary and examine, audit and inspect the Collateral at any
reasonable time and from time to time without notice. The Lender agrees to act
in a commercially reasonable manner when inspecting the premises of the
Borrowers and the Subsidiaries and when examining, auditing and/or inspecting
the Collateral. The Lender shall not have any duty to, and the Borrowers hereby
release the Lender from all claims of loss or damage caused by the delay or
failure to collect or enforce any of the Accounts or to, preserve any rights
against any other party with an interest in the Collateral.
6.1.23 DEFENSE OF TITLE AND FURTHER ASSURANCES.
(a) No later June 22, 1998, the Monsey Bakor Group and the
Company (to the extent not previously provided) shall provide to the Lender, a
landlord's waiver from each landlord of each and every business premise leased
by the Borrowers and on which any of the Collateral is located, which landlords'
waivers must be in the form provided by the Lender or shall be otherwise
reasonably acceptable to the Lender and its counsel.
(b) At their expense the Borrowers will defend the title to
the Collateral (and any part thereof), and will immediately execute, acknowledge
and deliver any financing statement, renewal, affidavit, deed, assignment,
continuation statement, security agreement, certificate or other document which
the Lender may require in order to perfect, preserve, maintain, continue,
protect and/or extend the Lien granted to the Lender under this Agreement or
under any of the other Financing Documents and the first priority of that Lien
subject only to the Permitted Liens. In addition to the requirements of
subparagraph (a) above, the Borrowers will from time to time do whatever the
Lender may require by way of obtaining, executing, delivering, and/or filing
financing statements, landlords', mortgagees' or bailees' waivers, notices of
assignment and other notices and amendments and renewals thereof and the
Borrowers will take any and all steps and observe such formalities as the Lender
may require, in order to create and maintain a valid Lien upon, pledge of, or
paramount security interest in, the Collateral, subject to the Permitted Liens.
The Borrowers shall pay to the Lender on demand all taxes, costs and expenses
incurred by the Lender in connection with the preparation, execution, recording
and filing of any such document or instrument. To the extent that the proceeds
of any of the Accounts of any of the Borrower's are expected to become subject
to the control of, or in the possession of, a party other than a Borrower or the
Lender, the respective Borrower shall cause all such parties to execute and
deliver on the Closing Date security documents, financing statements or other
documents as requested by the Lender and as may be necessary to evidence and/or
perfect the security interest of the Lender in those proceeds. The Borrowers
agree that a copy of a fully executed security agreement and/or financing
statement shall be sufficient to satisfy for all purposes the requirements of a
financing statement as set forth in Article of the applicable Uniform
Commercial Code. Each Borrower hereby irrevocably appoints the Lender as
-72-
<PAGE>
each such Borrower's attorney-in-fact, with power of substitution, in the name
of the Lender or in the name of each such Borrower or otherwise, for the use and
benefit of the Lender, but at the cost and expense of the Borrowers and without
notice to any Borrower, to execute and deliver any and all of the instruments
and other documents and take any action which the Lender may require pursuant
the foregoing provisions of this Section 6.1.23.
6.1.24 BUSINESS NAMES; LOCATIONS.
Each of the Borrowers will notify the Lender not less than
thirty (30) days prior to (a) any change in the name under which such Borrower
conducts its business, (b) any change of the location of the chief executive
office of such Borrower , and (c) the opening of any new place of business or
the closing of any existing place of business, and any change in the location of
the places where the Collateral, or any part thereof, or the books and records,
or any part thereof, are kept.
6.1.25 SUBSEQUENT OPINION OF COUNSEL AS TO RECORDING
REQUIREMENTS.
In the event that any Borrower shall transfer its principal place
of business or the office where it keeps its records pertaining to the
Collateral, upon the Lender's request, the Borrowers will provide to the Lender
a subsequent opinion of counsel as to the filing, recording and other
requirements with which the Borrowers have complied to maintain the Lien and
security interest in favor of the Lender in the Collateral.
6.1.26 USE OF PREMISES AND EQUIPMENT.
The Borrowers agree that until the Obligations are fully paid and
this Agreement has been terminated, the Lender (a) after and during the
continuance of a Default or an Event of Default, may use any of the Borrowers'
owned or leased lifts, hoists, trucks and other facilities or equipment for
handling or removing the Collateral; and (b) shall have, and is hereby granted,
a right of ingress and egress to the places where the Collateral is located, and
may proceed over and through any of the Borrowers' owned or leased property.
6.1.27 PROTECTION OF COLLATERAL.
The Borrowers agree that the Lender may at any time following an
Event of Default take such steps as the Lender deems reasonably necessary to
protect the Lender's interest in, and to preserve the Collateral, including, (a)
the hiring of such security guards or the placing of other security protection
measures as the Lender deems appropriate, (b) the employment and maintenance at
any of the Borrowers' premises a custodian who shall have full authority to do
all acts necessary to protect the Lender's interests in the Collateral and (c)
leasing warehouse facilities to which the Lender may move all or any part of the
Collateral to the extent commercially reasonable. Each Borrower agrees to
cooperate fully with the Lender's efforts to preserve the Collateral and will
take such actions to preserve the Collateral as the Lender may reasonably
direct. All of the Lender's expenses of preserving the Collateral, including
any
-73-
<PAGE>
reasonable expenses relating to the compensation and bonding of a custodian,
shall be part of the Enforcement Costs.
Section 6.2 NEGATIVE COVENANTS.
So long as any of the Obligations or the Commitment shall be outstanding
hereunder, the Borrowers agree with the Lender as follows:
6.2.1 CAPITAL STRUCTURE, MERGER, ACQUISITION OR SALE OF ASSETS.
None of the Borrowers will alter or amend its capital structure,
authorize any additional class of equity, issue any stock or equity of any class
(except in connection with Permitted Estate Planning Transfers or in connection
with the exercise of any of the options, warrants or rights outstanding on the
date hereof and described on SCHEDULE 6.2.1 attached to and made and made a part
of this Agreement), enter into any merger or consolidation or amalgamation,
windup or dissolve itself (or suffer any liquidation or dissolution) or acquire
all or substantially all the assets of any Person, or engage in any Asset
Disposition; provided, however, if there shall exist no Event of Default:
(a) the Company may make or participate in Permitted Estate
Planning Transfers;
(b) the Company may issue the stock or equity in the
Company which does not result in a Default or an Event of Default under 7.1.12;
and
(c) the Lender agrees to consider the Company's requests
for the Lender's consent to proposed Purchase Investments (which request shall
be accompanied by such appraisals, projections and other information which the
Lender may reasonably request) and agrees that such consent shall not be
unreasonably withheld.
Any consent of the Lender to the disposition of any assets may be conditioned on
a specified use of the proceeds of disposition.
6.2.2 SUBSIDIARIES.
None of the Borrowers will create or acquire any Subsidiaries
other than the Subsidiaries described in the Collateral Disclosure List;
provided, however, if there shall exist no Event of Default, the Lender agrees
to consider any Borrower's requests for the Lender's consent to proposed
Purchase Investments (which request shall be accompanied by such appraisals,
projections and other information which the Lender may reasonably request) and
agrees that such consent shall not be unreasonably withheld.
-74-
<PAGE>
6.2.3 ISSUANCE OF STOCK.
None of the Borrowers will issue, or grant any option or right to
purchase, any of its capital stock; provided, however, the Borrower may make or
participate in Permitted Estate Planning Transfers, and, provided, further, the
Lender agrees to consider any Borrower's requests for the Lender's consent to
proposed Purchase Investments (which request shall be accompanied by such
appraisals, projections and other information which the Lender may reasonably
request) and agrees that such consent shall not be unreasonably withheld.
6.2.4 PURCHASE OR REDEMPTION OF SECURITIES, DIVIDEND
RESTRICTIONS.
Without the Lender's prior written consent, none of the Borrowers
will purchase, redeem or otherwise acquire any shares of its capital stock or
warrants now or hereafter outstanding, declare or pay any dividends thereon
(other than stock dividends), apply any of its property or assets to the
purchase, redemption or other retirement of, set apart any sum for the payment
of any dividends on, or for the purchase, redemption, or other retirement of,
make any distribution by reduction of capital or otherwise in respect of, any
shares of any class of capital stock of any Borrower, or any warrants, permit
any Subsidiary to purchase or acquire any shares of any class of capital stock
of, or warrants issued by, any Borrower, make any distribution to stockholders
or set aside any funds for any such purpose other than payments or other
distributions to the holders of the Company's Series A Convertible Preferred
Stock issued to Joseph T. Mooney, Jr., as such payments or distributions may be
required pursuant to the terms, existing on the date hereof, of such securities
but only if such payments or distributions are made at any time from the
proceeds of life insurance (other than the Life Insurance Policies) or are made
after May 1, 2003. Notwithstanding the foregoing, so long as any Borrower is
eligible for taxation as a corporation under Subchapter S of the Internal
Revenue Code and provided there shall exist no Default or Event of Default, that
Borrower may distribute to each of its shareholders an amount sufficient to
cover that shareholder's actual tax liability due and payable as a result of
income of such Borrower attributed to such shareholder.
6.2.5 INDEBTEDNESS.
None of the Borrowers will create, incur, assume or suffer to
exist any Indebtedness for Borrowed Money, or prepay, purchase or redeem any
Indebtedness for Borrowed Money, except:
(a) the Obligations;
(b) current accounts payable and motor vehicle and
equipment operating leases arising in the ordinary course;
(c) Indebtedness represented by the Senior Notes;
(d) the guaranty of the Senior Notes by the Monsey Bakor
Group;
-75-
<PAGE>
(e) Indebtedness secured by Permitted Liens; and
(f) Indebtedness described on Schedule 6.2.5 to this
Agreement.
6.2.6 INVESTMENTS, LOANS AND OTHER TRANSACTIONS.
Except as otherwise provided in this Agreement, none of the
Borrowers will (a) make, assume, acquire or continue to hold any investment in
any Person, whether by stock purchase, capital contribution, acquisition of
indebtedness of such Person or otherwise (including, without limitation,
investments in any joint venture or partnership), (b) guaranty or otherwise
become contingently liable for the indebtedness or obligations of any Person, or
(c) make any loans or advances, or otherwise extend credit to any Person except:
(a) loans and advances which are to officers and employees
who are not Affiliates of any Borrower or of any Subsidiary and which, exclusive
of such loans and advances which are outstanding on the date of this Agreement,
shall not exceed Five Hundred Thousand Dollars ($500,000) in the aggregate
outstanding at any time;
(b) the endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business;
(c) any investment in Cash Equivalents; and
(d) trade credit extended to customers in the ordinary
course of business.
6.2.7 OPERATING LEASE OBLIGATIONS.
None of the Borrowers will incur or permit to exist any Lease
Obligations except Capital Leases expressly permitted by this Agreement so to
do, if the aggregate amount of all such Lease Obligations of the Borrowers
(taken as a whole) would at any time exceed One Million Five Hundred Thousand
Dollars ($1,500,000) during any fiscal year of the Borrowers.
6.2.8 CAPITAL EXPENDITURES.
None of the Borrowers will (by way of the acquisition of the
securities of a Person or otherwise), make any Capital Expenditures in the
aggregate for the Borrowers (taken as a whole) in any fiscal year exceeding
Three Million Five Hundred Thousand Dollars ($3,500,000).
6.2.9 STOCK OF SUBSIDIARIES.
None of the Borrowers will sell or otherwise dispose of any
shares of capital stock of any Subsidiary (except in connection with a merger or
consolidation of a Wholly Owned Subsidiary into a Borrower or another Wholly
Owned Subsidiary or with the dissolution
-76-
<PAGE>
of any Subsidiary) or permit any Subsidiary to issue any additional shares of
its capital stock except pro rata to its stockholders.
6.2.10 SUBORDINATED INDEBTEDNESS.
None of the Borrowers will make:
(a) any payment of principal of, or interest on, any of the
Subordinated Indebtedness if a Default or an Event of Default then exists
hereunder or would result from such payment;
(b) any payment of the principal or interest due on the
Subordinated Debt as a result of acceleration thereunder or a mandatory
prepayment thereunder;
(c) any amendment or modification of or supplement to the
documents evidencing or securing the Subordinated Debt; or
(d) payment of principal or interest on the Subordinated
Debt other than when due (without giving effect to any acceleration of maturity
or mandatory prepayment).
6.2.11 LIENS; CONFESSED JUDGMENT.
Each Borrower agrees that it (a) will not create, incur, assume
or suffer to exist any Lien upon any of its properties or assets, whether now
owned or hereafter acquired, except for Liens securing the Obligations and
Permitted Liens, (b) will not agree to, assume or suffer to exist any provision
in any instrument or other document for confession of judgment, cognovit or
other similar right or remedy, (c) except as set forth in Schedule 6.2.11, will
not allow or suffer to exist any Permitted Liens to be superior to Liens
securing the Obligations, (d) will not enter into any contracts for the
consignment of goods to any Borrower, (e) will not execute or suffer the filing
of any financing statements or the posting of any signs giving notice of
consignments to any Borrower, (f) will not, as a material part of its business,
engage in the sale of goods belonging to others, and (g) will not allow or
suffer to exist the failure of any Lien described in the Security Documents to
attach to, and/or remain at all times perfected on, any of the property
described in the Security Documents.
6.2.12 TRANSACTIONS WITH AFFILIATES.
None of the Borrowers will enter into or participate in any
transaction with any Affiliate or use or permit the use of any proceeds of the
Collateral or the Loans for the benefit of any Affiliate (other than another
Borrower) or, except in the ordinary course of business or as set forth in
SCHEDULE 6.2.12 hereof, enter into or participate in any transaction with the
officers, directors, employees and other representatives of any Borrower, other
than Permitted Estate Planning Transfers.
-77-
<PAGE>
6.2.13 OTHER BUSINESSES.
None of the Borrowers will engage directly or indirectly in any
business other than their current lines of business described elsewhere in this
Agreement.
6.2.14 ERISA COMPLIANCE.
None of the Borrowers nor any Commonly Controlled Entity shall:
(a) engage in or permit any "prohibited transaction" (as defined in ERISA); (b)
cause any "accumulated funding deficiency" as defined in ERISA and/or the
Internal Revenue Code; (c) terminate any pension plan in a manner which could
result in the imposition of a lien on the property of any Borrower pursuant to
ERISA; (d) terminate or consent to the termination of any Multiemployer Plan; or
(e) incur a complete or partial withdrawal with respect to any Multiemployer
Plan.
6.2.15 PROHIBITION ON HAZARDOUS MATERIALS.
None of Borrowers shall place, manufacture or store or permit to
be placed, manufactured or stored any Hazardous Materials on any property owned,
operated or controlled by any Borrower or for which any Borrower is responsible
other than Hazardous Materials placed or stored on such property in accordance
with applicable Laws in the ordinary course.
6.2.16 METHOD OF ACCOUNTING; FISCAL YEAR.
None of the Borrowers shall change the method of accounting
employed in the preparation of any financial statements furnished to the Lender
under the provisions of Section 6.1.1 (Financial Statements) of this Agreement,
unless required to conform to GAAP and on the condition that any such Borrower's
accountants shall furnish such information as the Lender may request to
reconcile the changes with such Borrower's prior financial statements.
(a) None of the Borrowers will change its fiscal year from
a year ending on December 31.
6.2.17 COMPENSATION.
None of the Borrowers will pay any bonuses, fees, compensation,
commissions, salaries, drawing accounts, or other payments (cash and non-cash),
whether direct or indirect, to any stockholders of any Borrower or any Affiliate
of any Borrower, other than (a) reasonable compensation for actual services
rendered by stockholders in their capacity as officers, employees or directors
of a Borrower, (b) compensation disclosed in the portion of the Offering
Memorandum captioned "Certain Transactions," and (c) other compensation paid to
stockholders in their capacity as officers or employees but only if the amount
and manner of payment of that other compensation is consistent with such
Borrower's past practices disclosed to the Lender prior to the Closing Date and
if there exists no Event of Default and no Event of
-78-
<PAGE>
Default would result from the payment or accrual of that other compensation;
provided, however, that residential arrangements existing on the date of this
Agreement with respect to property owned or leased in Kimberton, Pennsylvania
shall not be deemed to be compensation for the purposes of this Section 6.2.17.
6.2.18 TRANSFER OF COLLATERAL.
Other than locations described on the Collateral Disclosure List,
none of the Borrowers will transfer, or permit the transfer, to another location
of any of the Collateral or the books and records related to any of the
Collateral.
6.2.19 SALE AND LEASEBACK.
None of the Borrowers will directly or indirectly enter into any
arrangement to sell or transfer all or any substantial part of its fixed assets
and thereupon or within one year thereafter rent or lease the assets so sold or
transferred.
6.2.20 DISPOSITION OF COLLATERAL.
None of the Borrowers will sell, discount, allow credits or
allowances, transfer, assign, extend the time for payment on, convey, lease,
assign, transfer or otherwise dispose of the Collateral, except, prior to an
Event of Default, dispositions expressly permitted elsewhere in this Agreement,
the sale of Inventory in the ordinary course of business.
ARTICLE VII
DEFAULT AND RIGHTS AND REMEDIES
Section 7.1 EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall constitute
an "Event of Default" under the provisions of this Agreement:
7.1.1 FAILURE TO PAY.
The failure of the Borrowers to pay any of the Obligations as and
when due and payable in accordance with the provisions of this Agreement, the
Notes and/or any of the other Financing Documents;
7.1.2 BREACH OF REPRESENTATIONS AND WARRANTIES.
Any representation or warranty made in this Agreement or in any
report, statement, schedule, certificate, opinion (including any opinion of
counsel for any Borrower), financial statement or other document furnished in
connection with this Agreement, any of the other Financing Documents, or the
Obligations, shall prove to have been false or misleading when made (or, if
applicable, when reaffirmed) in any material respect.
-79-
<PAGE>
7.1.3 FAILURE TO COMPLY WITH COVENANTS.
The failure of the Borrowers to perform, observe or comply with
any covenant, condition or agreement contained in this Agreement and, (i) only
with respect to a failure under Sections 6.1.1(a), (b) or (g) (Financial
Statement), such failure continues uncured for a period of five (5) days, or
(ii) only with respect to a failure under Sections 6.1.2 (Reports to SEC and to
Stockholders), 6.1.3(a) (Bookkeeping), 6.1.4 (Corporate Existence), 6.1.6(a)
(Preservation of Properties), Section 6.1.9 (Taxes) which does not relate to
Taxes due or claimed to be due in excess of $100,000 in the aggregate, Section
6.1.21(b) (Inventory), or 6.1.22 (Maintenance of Collateral), if any Borrower
after discovering such failure, fails to diligently and continuously pursue the
cure of such failure or such failure continues uncured thirty (30) days after
discovery.
7.1.4 DEFAULT UNDER OTHER FINANCING DOCUMENTS OR OBLIGATIONS.
A default shall occur under any of the other Financing Documents
or under any other Obligations, and such default is not cured within any
applicable grace period provided therein.
7.1.5 RECEIVER; BANKRUPTCY.
Any Borrower or any Subsidiary shall (a) apply for or consent to
the appointment of a receiver, trustee or liquidator of itself or any of its
property, (b) admit in writing its inability to pay its debts as they mature,
(c) make a general assignment for the benefit of creditors, (d) be adjudicated a
bankrupt or insolvent, (e) file a voluntary petition in bankruptcy or a petition
or an answer seeking or consenting to reorganization or an arrangement with
creditors or to take advantage of any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation law or statute, or an answer
admitting the material allegations of a petition filed against it in any
proceeding under any such law, or take corporate action for the purposes of
effecting any of the foregoing, or (f) by any act indicate its consent to,
approval of or acquiescence in any such proceeding or the appointment of any
receiver of or trustee for any of its property, or suffer any such receivership,
trusteeship or proceeding to continue undischarged for a period of sixty (60)
days, or (g) by any act indicate its consent to, approval of or acquiescence in
any order, judgment or decree by any court of competent jurisdiction or any
Governmental Authority enjoining or otherwise prohibiting the operation of a
material portion of any Borrower's or any Subsidiary's business or the use or
disposition of a material portion of any Borrower's or any Subsidiary's assets.
7.1.6 INVOLUNTARY BANKRUPTCY, ETC.
(a) An order for relief shall be entered in any involuntary case
brought against any Borrower or any Subsidiary under the Bankruptcy Code, or (b)
any such case shall be commenced against any Borrower or any Subsidiary and
shall not be dismissed within sixty (60) days after the filing of the petition,
or (c) an order, judgment or decree under any other Law
-80-
<PAGE>
is entered by any court of competent jurisdiction or by any other Governmental
Authority on the application of a Governmental Authority or of a Person other
than a Borrower or any Subsidiary (i) adjudicating any Borrower, or any
Subsidiary bankrupt or insolvent, or (ii) appointing a receiver, trustee or
liquidator of any Borrower or of any Subsidiary, or of a material portion of any
Borrower's or any Subsidiary's assets, or (iii) enjoining, prohibiting or
otherwise limiting the operation of a material portion of any Borrower's or any
Subsidiary's business or the use or disposition of a material portion of any
Borrower's or any Subsidiary's assets, and such order, judgment or decree
continues unstayed and in effect for a period of thirty (30) days from the date
entered.
7.1.7 JUDGMENT.
Unless adequately insured in the reasonable opinion of the
Lender, the entry of a final judgment for the payment of money involving more
than $500,000 against any Borrower, and the failure by any such Borrower to
discharge the same, or cause it to be discharged, within thirty (30) days from
the date of the order, decree or process under which or pursuant to which such
judgment was entered, or to secure a stay of execution pending appeal of such
judgment.
7.1.8 EXECUTION; ATTACHMENT.
Any execution or attachment involving more than $500,000 shall be
levied against the Collateral, or any part thereof, and such execution or
attachment shall not be set aside, discharged or stayed within thirty (30) days
after the same shall have been levied.
7.1.9 DEFAULT UNDER OTHER BORROWINGS.
Default shall be made with respect to any Indebtedness for
Borrowed Money (other than the Loans) aggregating more than $750,000 if the
effect of such default is to accelerate the maturity of such Indebtedness for
Borrowed Money or to permit the holder or obligee thereof or other party thereto
to cause any such Indebtedness for Borrowed Money to become due prior to its
stated maturity.
7.1.10 CHALLENGE TO AGREEMENTS.
Any Borrower shall challenge the validity and binding effect of
any provision of any of the Financing Documents or shall state its intention to
make such a challenge of any of the Financing Documents or any of the Financing
Documents executed by any one or more of the Borrowers shall for any reason
(except to the extent permitted by its express terms) cease to be effective or
to create a valid and perfected first priority Lien (except for Permitted Liens)
on, or security interest in, any of the Collateral purported to be covered
thereby.
-81-
<PAGE>
7.1.11 MATERIAL ADVERSE CHANGE.
A material adverse change shall have occurred in the financial
condition of the any Borrower.
7.1.12 CHANGE IN OWNERSHIP.
Any change shall occur in the ownership of any Borrower, other
than transfers of interests in the Company such that any Person or group of
Persons other than Warner W. Henry, each of his immediate family members, the
Warner W. Henry Living Trust, trustees or trusts, entities or arrangements for
the exclusive benefit of the foregoing persons or entities, shall become the
owner, directly or indirectly, beneficially or of record, or control the voting
of, shares representing more than 50% of the aggregate voting power represented
by the aggregate capital stock of the Company.
7.1.13 LIQUIDATION, TERMINATION, DISSOLUTION, CHANGE IN
MANAGEMENT, ETC.
Any Borrower shall liquidate, dissolve or terminate its existence
or shall suspend or terminate a substantial portion of its business operations
or any change occurs in the management or control of any Borrower without the
prior written consent of the Lender.
Section 7.2 REMEDIES.
Upon the occurrence of any Default or Event of Default, the Lender may at
any time thereafter exercise any one or more of the following rights, powers or
remedies:
7.2.1 ACCELERATION.
The Lender may declare the Obligations to be immediately due and
payable, notwithstanding anything contained in this Agreement or in any of the
other Financing Documents to the contrary, without presentment, demand, protest,
notice of protest or of dishonor, or other notice of any kind, all of which the
Borrowers hereby waive.
7.2.2 FURTHER ADVANCES.
The Lender may from time to time without notice to the Borrowers
suspend, terminate or limit any further loans or other extensions of credit
under this Agreement and under any of the other Financing Documents. Further,
upon the occurrence of an Event of Default or Default specified in Sections
7.1.5 (Receiver; Bankruptcy) or 7.1.6 (Involuntary Bankruptcy, etc.) above, the
Revolving Credit Commitment and any agreement in any of the Financing Documents
to provide additional credit shall immediately and automatically terminate and
the unpaid principal amount of the Notes (with accrued interest thereon) and all
other Obligations then outstanding, shall immediately become due and payable
without further action
-82-
<PAGE>
of any kind and without presentment, demand, protest or notice of any kind, all
of which are hereby expressly waived by the Borrowers.
7.2.3 UNIFORM COMMERCIAL CODE.
The Lender shall have all of the rights and remedies of a secured
party under the applicable Uniform Commercial Code and other applicable Laws.
Upon demand by the Lender, the Borrowers shall assemble the Collateral and make
it available to the Lender, at a place designated by the Lender. The Lender or
its agents may without notice from time to time enter upon any Borrower's
premises to take possession of the Collateral, to remove it, to render it
unusable, to process it or otherwise prepare it for sale, or to sell or
otherwise dispose of it.
Any written notice of the sale, disposition or other intended
action by the Lender with respect to the Collateral which is sent by regular
mail, postage prepaid, to the Borrowers at the address set forth in Section 8.1
of this Agreement, at least ten (10) days prior to such sale, disposition or
other action, shall constitute commercially reasonable notice to the Borrowers.
The Lender may alternatively or additionally give such notice in any other
commercially reasonable manner. Nothing in this Agreement shall require the
Lender to give any notice not required by applicable Laws.
If any consent, approval, or authorization of any state,
municipal or other governmental department, agency or authority or of any
person, or any person, corporation, partnership or other entity having any
interest therein, should be necessary to effectuate any sale or other
disposition of the Collateral, the Borrower agrees to execute all such
applications and other instruments, and to take all other action, as may be
required in connection with securing any such consent, approval or
authorization.
The Borrower recognizes that the Lender may be unable to effect a
public sale of all or a part of the Collateral consisting of securities by
reason of certain prohibitions contained in the Securities Act of 1933, as
amended, and other applicable federal and state Laws. The Lender may,
therefore, in its discretion, take such steps as it may deem appropriate to
comply with such Laws and may, for example, at any sale of the Collateral
consisting of securities restrict the prospective bidders or purchasers as to
their number, nature of business and investment intention, including, without
limitation, a requirement that the Persons making such purchases represent and
agree to the satisfaction of the Lender that they are purchasing such securities
for their account, for investment, and not with a view to the distribution or
resale of any thereof. The Borrower covenants and agrees to do or cause to be
done promptly all such acts and things as the Lender may request from time to
time and as may be necessary to offer and/or sell the securities or any part
thereof in a manner which is valid and binding and in conformance with all
applicable Laws. Upon any such sale or disposition, the Lender shall have the
right to deliver, assign and transfer to the purchaser thereof the Collateral
consisting of securities so sold.
-83-
<PAGE>
7.2.4 SPECIFIC RIGHTS WITH REGARD TO COLLATERAL.
In addition to all other rights and remedies provided hereunder
or as shall exist at law or in equity from time to time, the Lender may (but
shall be under no obligation to), without notice to the Borrowers, and each
Borrower hereby irrevocably appoints the Lender as its attorney-in-fact, with
power of substitution, in the name of the Lender or in the name of any or all of
the Borrowers or otherwise, for the use and benefit of the Lender, but at the
cost and expense of the Borrowers and without notice to the Borrowers:
(a) request any account debtor obligated on any of the
Accounts to make payments thereon directly to the Lender, with the Lender taking
control of the cash and non-cash proceeds thereof;
(b) compromise, extend or renew any of the Collateral or
deal with the same as it may deem advisable;
(c) make exchanges, substitutions or surrenders of all or
any part of the Collateral;
(d) copy, transcribe, or remove from any place of business
of any Borrower or any Subsidiary all books, records, ledger sheets,
correspondence, invoices and documents, relating to or evidencing any of the
Collateral or without cost or expense to the Lender, make such use of any
Borrower's or any Subsidiary's place(s) of business as may be reasonably
necessary to administer, control and collect the Collateral;
(e) repair, alter or supply goods if necessary to fulfill
in whole or in part the purchase order of any Account Debtor;
(f) demand, collect, receipt for and give renewals,
extensions, discharges and releases of any of the Collateral;
(g) institute and prosecute legal and equitable proceedings
to enforce collection of, or realize upon, any of the Collateral;
(h) settle, renew, extend, compromise, compound, exchange
or adjust claims in respect of any of the Collateral or any legal proceedings
brought in respect thereof;
(i) endorse or sign the name of any Borrower upon any Items
of Payment, certificates of title, instruments, securities, stock powers,
documents, documents of title, financing statements, assignments, notices, or
other writing relating to or part of the Collateral and on any Proof of Claim in
Bankruptcy against an Account Debtor;
-84-
<PAGE>
(j) notify the Post Office authorities to change the
address for the delivery of mail to the Borrowers to such address or Post Office
Box as the Lender may designate and receive and open all mail addressed to any
Borrower; and
(k) take any other action necessary or beneficial to
realize upon or dispose of the Collateral or to carry out the terms of this
Agreement.
7.2.5 APPLICATION OF PROCEEDS.
Any proceeds of sale or other disposition of the Collateral will
be applied by the Lender to the payment of the Enforcement Costs, and any
balance of such proceeds will be applied by the Lender to the payment of the
balance of the Obligations in such order and manner of application as the Lender
may from time to time in its sole and absolute discretion determine. If the
sale or other disposition of the Collateral fails to fully satisfy the
Obligations, the Borrowers shall remain liable to the Lender for any deficiency.
7.2.6 PERFORMANCE BY LENDER.
Upon the occurrence and continuation of an Event of Default, the
Lender without notice to or demand upon the Borrowers and without waiving or
releasing any of the Obligations or any Default or Event of Default, may (but
shall be under no obligation to) at any time thereafter make such payment or
perform such act for the account and at the expense of the Borrowers, pay or
satisfy (in whole or in part) Liens on the Collateral (whether or not such Liens
are Permitted Liens), and may enter upon the premises of any Borrower for that
purpose and take all such action thereon as the Lender may consider necessary or
appropriate for such purpose and each Borrower hereby irrevocably appoints the
Lender as its attorney-in-fact to do so, with power of substitution, in the name
of the Lender or in the name of any of the Borrowers or otherwise, for the use
and benefit of the Lender, but at the cost and expense of the Borrowers and
without notice to the Borrowers. All sums so paid or advanced by the Lender
together with interest thereon from the date of payment, advance or incurring
until paid in full at the Post-Default Rate and all costs and expenses, shall be
deemed part of the Enforcement Costs, shall be paid by the Borrowers to the
Lender on demand, and shall constitute and become a part of the Obligations.
7.2.7 OTHER REMEDIES.
The Lender may from time to time proceed to protect or enforce
its rights by an action or actions at law or in equity or by any other
appropriate proceeding, whether for the specific performance of any of the
covenants contained in this Agreement or in any of the other Financing
Documents, or for an injunction against the violation of any of the terms of
this Agreement or any of the other Financing Documents, or in aid of the
exercise or execution of any right, remedy or power granted in this Agreement,
the Financing Documents, and/or applicable Laws. The Lender is authorized to
offset and apply to all or any part of the Obligations all moneys, credits and
other property of any nature whatsoever of any or all of the
-85-
<PAGE>
Borrowers now or at any time hereafter in the possession of, in transit to or
from, under the control or custody of, or on deposit with, the Lender.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 NOTICES.
All notices, requests and demands to or upon the parties to this Agreement
shall be in writing and shall be deemed to have been given or made when
delivered by hand on a Business Day, or two (2) days after the date when
deposited in the mail, postage prepaid by registered or certified mail, return
receipt requested, or when sent by overnight courier, on the Business Day next
following the day on which the notice is delivered to such overnight courier,
addressed as follows:
Borrowers: c/o Henry Company
2911 Slauson Avenue
Huntington Park, California 90255
Attention: Jeffrey A. Wahba
with a copy to:
Munger, Tolles & Olson
355 Grand Avenue
35th Floor
Los Angeles, California 90071
Attention: Judith T. Kitano
Lender: NationsBank Business Credit
100 South Charles Street
MD4-325-04-14
Baltimore, Maryland 21201
Attention: Stephen V. Rieger
with a copy to:
Frederick W. Runge, Jr., Esquire
Miles & Stockbridge P.C.
10 Light Street
Baltimore, Maryland 21202
By written notice, each party to this Agreement may change the address to which
notice is given to that party, provided that such changed notice shall include a
street address to which notices may be delivered by overnight courier in the
ordinary course on any Business Day.
-86-
<PAGE>
Section 8.2 AMENDMENTS; WAIVERS.
This Agreement and the other Financing Documents may not be amended,
modified, or changed in any respect except by an agreement in writing signed by
the Lender and all of the Borrowers. No waiver of any provision of this
Agreement or of any of the other Financing Documents, nor consent to any
departure by the Borrowers therefrom, shall in any event be effective unless the
same shall be in writing. No course of dealing between the Borrowers and the
Lender and no act or failure to act from time to time on the part of the Lender
shall constitute a waiver, amendment or modification of any provision of this
Agreement or any of the other Financing Documents or any right or remedy under
this Agreement, under any of the other Financing Documents or under applicable
Laws.
Without implying any limitation on the foregoing:
(a) Any waiver or consent shall be effective only in the
specific instance, for the terms and purpose for which given, subject to such
conditions as the Lender may specify in any such instrument.
(b) No waiver of any Default or Event of Default shall
extend to any subsequent or other Default or Event of Default, or impair any
right consequent thereto.
(c) No notice to or demand on the Borrowers in any case
shall entitle the Borrowers to any other or further notice or demand in the
same, similar or other circumstance.
(d) No failure or delay by the Lender to insist upon the
strict performance of any term, condition, covenant or agreement of this
Agreement or of any of the other Financing Documents, or to exercise any right,
power or remedy consequent upon a breach thereof, shall constitute a waiver,
amendment or modification of any such term, condition, covenant or agreement or
of any such breach or preclude the Lender from exercising any such right, power
or remedy at any time or times.
(e) By accepting payment after the due date of any amount
payable under this Agreement or under any of the other Financing Documents, the
Lender shall not be deemed to waive the right either to require prompt payment
when due of all other amounts payable under this Agreement or under any of the
other Financing Documents, or to declare a default for failure to effect such
prompt payment of any such other amount.
Section 8.3 CUMULATIVE REMEDIES.
The rights, powers and remedies provided in this Agreement and in the other
Financing Documents are cumulative, may be exercised concurrently or separately,
may be exercised from time to time and in such order as the Lender shall
determine and are in addition to, and not exclusive of, rights, powers and
remedies provided by existing or future applicable Laws. In
-87-
<PAGE>
order to entitle the Lender to exercise any remedy reserved to it in this
Agreement, it shall not be necessary to give any notice, other than such notice
as may be expressly required in this Agreement. Without limiting the generality
of the foregoing, the Lender may:
(a) proceed against any one or more of the Borrowers with or without
proceeding against any Person who may be liable (by endorsement, guaranty,
indemnity or otherwise) for all or any part of the Obligations;
(b) proceed against any one or more of the Borrowers with or without
proceeding under any of the other Financing Documents or against any Collateral
or other collateral and security for all or any part of the Obligations;
(c) without reducing or impairing the obligation of the Borrowers and
without notice, release or compromise with any guarantor or other Person liable
for all or any part of the Obligations under the Financing Documents or
otherwise;
(d) without reducing or impairing the obligations of the Borrowers
and without notice thereof: (i) fail to perfect the Lien in any or all
Collateral or to release any or all the Collateral or to accept substitute
Collateral, (ii) approve the making of advances under the Revolving Loan under
this Agreement, (iii) waive any provision of this Agreement or the other
Financing Documents, (iv) exercise or fail to exercise rights of set-off or
other rights, or (v) accept partial payments or extend from time to time the
maturity of all or any part of the Obligations.
Section 8.4 SEVERABILITY.
In case one or more provisions, or part thereof, contained in this
Agreement or in the other Financing Documents shall be invalid, illegal or
unenforceable in any respect under any Law, then without need for any further
agreement, notice or action:
(a) the validity, legality and enforceability of the
remaining provisions shall remain effective and binding on the parties thereto
and shall not be affected or impaired thereby;
(b) the obligation to be fulfilled shall be reduced to the
limit of such validity;
(c) if such provision or part thereof pertains to repayment
of the Obligations, then, at the sole and absolute discretion of the Lender, all
of the Obligations of the Borrowers to the Lender shall become immediately due
and payable; and
(d) if the affected provision or part thereof does not
pertain to repayment of the Obligations, but operates or would prospectively
operate to invalidate this Agreement in whole or in part, then such provision or
part thereof only shall be void, and the remainder of this Agreement shall
remain operative and in full force and effect.
-88-
<PAGE>
Section 8.5 ASSIGNMENTS BY LENDER.
The Lender may, without notice to, or consent of, the Borrowers, sell,
assign or transfer to or participate with any Person or Persons all or any part
of the Obligations, provided, however, prior to an Event of Default that
NationsBank shall at all times remain as lead lender, in the case of a
participation, or servicing agent, in the case of an assignment. Each such
Person or Persons shall have the right to enforce the provisions of this
Agreement and any of the other Financing Documents as fully as the Lender,
provided that the Lender shall continue to have the unimpaired right to enforce
the provisions of this Agreement and any of the other Financing Documents as to
so much of the Obligations that the Lender has not sold, assigned or
transferred. In the event the Lender makes a transfer which is required to, but
does not, conform with the proviso of the first sentence of this Section, the
Borrowers may, for a period of one hundred twenty (120) days after notice to the
Borrowers of the transfer and as its sole remedy, prepay all of the Obligations
and terminate the Commitments without payment of the Early Termination Fee, but
only if the Borrowers have within thirty (30) days following receipt of such
notice, notified the Lender of the Borrowers' intention to do so. In connection
with the foregoing and provided the Lender obtains a confidentiality agreement,
the Lender shall have the right to disclose to any such actual or potential
purchaser, assignee, transferee or participant all financial records,
information, reports, financial statements and documents obtained in connection
with this Agreement and any of the other Financing Documents or otherwise.
Section 8.6 SUCCESSORS AND ASSIGNS.
This Agreement and all other Financing Documents shall be binding upon and
inure to the benefit of the Borrowers and the Lender and their respective
successors and assigns, except that the Borrowers shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Lender.
Section 8.7 CONTINUING AGREEMENTS.
All covenants, agreements, representations and warranties made by the
Borrowers in this Agreement, in any of the other Financing Documents, and in any
certificate delivered pursuant hereto or thereto shall survive the making by the
Lender of the Loans and the execution and delivery of the Notes, shall be
binding upon the Borrowers regardless of how long before or after the date
hereof any of the Obligations were or are incurred, and shall continue in full
force and effect so long as any of the Obligations are outstanding and unpaid.
From time to time upon the Lender's request, and as a condition of the release
of any one or more of the Security Documents, the Borrowers and other Persons
obligated with respect to the Obligations shall provide the Lender with such
acknowledgments and agreements as the Lender may require to the effect that
there exists no defenses, rights of setoff or recoupment, claims, counterclaims,
actions or causes of action of any kind or nature whatsoever against the Lender,
its agents and others, or to the extent there are, the same are waived and
released.
-89-
<PAGE>
Section 8.8 ENFORCEMENT COSTS.
The Borrowers shall pay to the Lender on demand all Enforcement Costs,
together with interest thereon from the date incurred or advanced until paid in
full at a per annum rate of interest equal at all times to the Post-Default
Rate. Enforcement Costs shall be immediately due and payable at the time
advanced or incurred, whichever is earlier. Without implying any limitation on
the foregoing, the Borrowers shall pay, as part of the Enforcement Costs, upon
demand any and all stamp and other Taxes and fees payable or determined to be
payable in connection with the execution and delivery of this Agreement and the
other Financing Documents and to save the Lender harmless from and against any
and all liabilities with respect to or resulting from any delay in paying or
omission to pay any Taxes or fees referred to in this Section. The provisions
of this Section shall survive the execution and delivery of this Agreement, the
repayment of the other Obligations and shall survive the termination of this
Agreement.
Section 8.9 APPLICABLE LAW; JURISDICTION.
As a material inducement to the Lender to enter into this Agreement, the
Borrowers acknowledge and agree that the Financing Documents, including, this
Agreement, shall be governed by the Laws of the State, as if each of the
Financing Documents and this Agreement had each been executed, delivered,
administered and performed solely within the State even though for the
convenience and at the request of the Borrowers, one or more of the Financing
Documents may be executed elsewhere. The Lender acknowledges, however, that
remedies under certain of the Financing Documents which relate to property
outside the State may be subject to the laws of the state in which the property
is located.
(a) The Borrowers irrevocably submit to the jurisdiction of
any federal court sitting in Maryland and to the jurisdiction of any state or
federal court sitting in California over any suit, action or proceeding arising
out of or relating to this Agreement or any of the other Financing Documents.
Each Borrower irrevocably waives, to the fullest extent permitted by law, any
objection that it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding brought in any such court and any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. Final judgment in any such suit, action or proceeding
brought in any such court shall be conclusive and binding upon the Borrowers and
may be enforced in any court in which the Borrowers are subject to jurisdiction,
by a suit upon such judgment, provided that service of process is effected upon
the Borrowers in one of the manners specified in this Section or as otherwise
permitted by applicable Laws.
(b) The Borrower hereby irrevocably designates and appoints
in Maryland CT Corporation System, Inc., Baltimore, Maryland 21202, as each
Borrower's authorized agent to receive on each Borrower's behalf service of any
and all process that may be served in any suit, action or proceeding of the
nature referred to in this Section in any state or federal court sitting in the
State. If such agent shall cease so to act, each Borrower shall
-90-
<PAGE>
irrevocably designate and appoint without delay another such agent in the State
satisfactory to the Lender and shall promptly deliver to the Lender evidence in
writing of such other agent's acceptance of such appointment and its agreement
that such appointment shall be irrevocable.
(c) The Borrowers hereby consent to process being served in
any suit, action or proceeding of the nature referred to in this Section by (i)
the mailing of a copy thereof by registered or certified mail, postage prepaid,
return receipt requested, to the Borrowers at the Borrowers' address designated
in or pursuant to Section 8.1 hereof, and (ii) serving a copy thereof upon the
agent, if any, designated and appointed by the Borrowers as the Borrowers' agent
for service of process by or pursuant to this Section. The Borrowers
irrevocably agree that such service (i) shall be deemed in every respect
effective service of process upon the Borrowers in any such suit, action or
proceeding, and (ii) shall, to the fullest extent permitted by law, be taken and
held to be valid personal service upon the Borrowers. Nothing in this Section
shall affect the right of the Lender to serve process in any manner otherwise
permitted by law or limit the right of the Lender otherwise to bring proceedings
against the Borrowers in the courts of any jurisdiction or jurisdictions.
Section 8.10 DUPLICATE ORIGINALS AND COUNTERPARTS.
This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and all taken together shall constitute but one and the same
instrument.
Section 8.11 HEADINGS.
The headings in this Agreement are included herein for convenience only,
shall not constitute a part of this Agreement for any other purpose, and shall
not be deemed to affect the meaning or construction of any of the provisions
hereof.
Section 8.12 NO AGENCY.
Nothing herein contained shall be construed to constitute any of Borrowers
as the Lender's agent for any purpose whatsoever or to permit the Borrower to
pledge any of the Lender's credit. The Lender shall not be responsible nor
liable for any shortage, discrepancy, damage, loss or destruction of any part of
the Collateral wherever the same may be located and regardless of the cause
thereof. The Lender shall not, by anything herein or in any of the Financing
Documents or otherwise, assume any of the Borrower's obligations under any
contract or agreement assigned to the Lender, and the Lender shall not be
responsible in any way for the performance by any or all of the Borrowers of any
of the terms and conditions thereof.
Section 8.13 DATE OF PAYMENT.
Should the principal of or interest on any of the Notes become due and
payable on other than a Business Day, the maturity thereof shall be extended to
the next succeeding Business Day
-91-
<PAGE>
and in the case of principal, interest shall be payable thereon at the rate per
annum specified in the Notes during such extension.
Section 8.14 ENTIRE AGREEMENT.
This Agreement is intended by the Lender and the Borrowers to be a
complete, exclusive and final expression of the agreements contained herein.
Neither the Lender nor the Borrowers shall hereafter have any rights under any
prior agreements pertaining to the matters addressed by this Agreement but shall
look solely to this Agreement for definition and determination of all of their
respective rights, liabilities and responsibilities under this Agreement.
Section 8.15 WAIVER OF TRIAL BY JURY.
THE BORROWERS AND THE LENDER HEREBY JOINTLY AND SEVERALLY WAIVE TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO WHICH THE BORROWERS AND THE LENDER MAY BE
PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY
OF THE FINANCING DOCUMENTS, OR (C) THE COLLATERAL. THIS WAIVER CONSTITUTES A
WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS
AGREEMENT.
This waiver is knowingly, willingly and voluntarily made by the Borrowers and
the Lender, and the Borrowers and the Lender hereby represent that no
representations of fact or opinion have been made by any individual to induce
this waiver of trial by jury or to in any way modify or nullify its effect. The
Borrowers and the Lender further represent that they have been represented in
the signing of this Agreement and in the making of this waiver by independent
legal counsel, selected of their own free will, and that they have had the
opportunity to discuss this waiver with counsel.
Section 8.16 LIABILITY OF THE LENDER.
The Borrowers acknowledge and agree that the Lender is acting on its own
behalf, and not on behalf of any of the Borrowers or any other Person, in making
examinations, investigations or otherwise in perfecting, maintaining, protecting
or realizing upon any lien or security interest or any other interest in the
Collateral or other security for the Obligations, in inspecting the Collateral
or any other properties of the Borrowers and by accepting or approving anything
required to be observed, performed or fulfilled by the Borrowers or to be given
to the Lender pursuant to this Agreement or any of the other Financing
Documents.
The Borrowers hereby agree that the Lender shall not be liable for or
estopped by any negligence, mistake, act or omission of any accountant,
examiner, agency or attorney employed by the Lender in making such examinations,
investigations, or otherwise in perfecting, maintaining, protecting or realizing
upon any lien or security interest or any other interest in the Collateral or
other security for the Obligations.
-92-
<PAGE>
By inspecting the Collateral or any other properties of the Borrowers or by
accepting or approving anything required to be observed, performed or fulfilled
by the Borrowers or to be given to the Lender pursuant to this Agreement or any
of the other Financing Documents, the Lender shall not be deemed to have
warranted or represented the condition, sufficiency, legality, effectiveness or
legal effect of the same, and such acceptance or approval shall not constitute
any warranty or representation with respect thereto by the Lender.
IN WITNESS WHEREOF, each of the parties hereto have executed and delivered
this Agreement under their respective seals as of the day and year first written
above ON THE FOLLOWING, SEPARATE PAGES.
-93-
<PAGE>
AMENDED AND RESTATED
FINANCING AND SECURITY AGREEMENT
BORROWERS' SIGNATURE PAGE
ATTEST: HENRY COMPANY
/s/ Jeffrey A. Wahba By: /s/ Richard B. Gordinier
- ---------------------------- ---------------------------
Jeffrey A. Wahba Richard B. Gordinier
Chief Financial Officer and President
Secretary
ATTEST: MONSEY PRODUCTS CO.
/s/ Jeffrey A. Wahba By: /s/ Richard B. Gordinier
- ---------------------------- ---------------------------
Jeffrey A. Wahba Richard B. Gordinier
Chief Financial Officer and President
Secretary
ATTEST: KIMBERTON ENTERPRISES, INC.
/s/ Jeffrey A. Wahba By: /s/ Richard B. Gordinier
- ---------------------------- ---------------------------
Jeffrey A. Wahba Richard B. Gordinier
Chief Financial Officer and President
Secretary
MONSEY PRODUCTS OF ARIZONA LLC
By its Designated Member,
ATTEST: MONSEY PRODUCTS CO.
/s/ Jeffrey A. Wahba By: /s/ Richard B. Gordinier
- ---------------------------- ---------------------------
Jeffrey A. Wahba Richard B. Gordinier
Chief Financial Officer and President
Secretary
-94-
<PAGE>
AMENDED AND RESTATED
FINANCING AND SECURITY AGREEMENT
LENDER'S SIGNATURE PAGE
WITNESS: NATIONSBANK, N.A.
By: /s/ Stephen V. Rieger
- ---------------------------- ---------------------------
Stephen V. Rieger
Vice President
-95-
<PAGE>
EXHIBIT A-1
CAPITAL EXPENDITURE NOTE
$10,000,000 Baltimore, Maryland
April 22,1998
FOR VALUE RECEIVED, HENRY COMPANY, a corporation organized under the laws
of the State of California (the "Company"), MONSEY PRODUCTS CO., a corporation
organized under the laws of the State of Pennsylvania ("Monsey Products"),
KIMBERTON ENTERPRISES, INC., a corporation organized under the laws of the State
of Delaware ("Kimberton"), and MONSEY PRODUCTS OF ARIZONA LLC, a limited
liability company organized under the laws of the State of Arizona ("Monsey
Arizona"), jointly and severally (each of the Company, Monsey Products,
Kimberton and Monsey Arizona, a "Borrower" and collectively, the "Borrowers"),
promise to pay to the order of NATIONSBANK, N.A., a national banking association
(the "Lender"), the principal sum of TEN MILLION DOLLARS ($10,000,000) (the
"Principal Sum") or so much thereof as has been or may be advanced or readvanced
under the Capital Expenditure Loan (as that term is defined in the "Financing
Agreement"' as hereinafter defined), together with interest thereon at the rate
or rates hereinafter provided, in accordance with the following:
1. INTEREST. Commencing as of the date hereof and continuing until
repayment in full of all sums due hereunder, the unpaid Principal Sum shall bear
interest at the Applicable Interest Rate (as that term is defined in the
"Financing Agreement," which is defined below).
2. PAYMENTS AND MATURITY. The unpaid Principal Sum, together with
interest thereon at the rate or rates provided above, shall be payable as
follows:
(a) Interest only on the unpaid Principal Sum shall be paid at the
times and in the manner provided in the Financing Agreement; and
(b) The Borrower shall make installment payments of principal (i)
which, commencing June 1, 2000, and continuing on the first day of each June,
September, December and March thereafter to maturity, are in the amount of five
percent (5%) of the outstanding principal balance of this Note outstanding on
May 31, 2000, and (ii) which, commencing September 1, 2000, shall increase
quarterly on the first day of each December, March, June and September
thereafter to maturity, by an amount equal to five percent (5%) of the aggregate
advances made under the Capital Expenditure Loan during the immediately
preceding three (3) month period; and
1
<PAGE>
(c) Unless sooner paid, the unpaid Principal Sum, together with
interest accrued and unpaid thereon, shall be due and payable in full on the
earlier of April 30, 2003 or the Revolving Credit Termination Date.
Except when repaid in accordance with 2(c) above, the fact that the balance
hereunder may be reduced to zero from time to time pursuant to the Financing
Agreement will not affect the continuing validity of this Note or the Financing
Agreement, and the balance may be increased to the Principal Sum after any such
reduction to zero.
3. DEFAULT INTEREST. Upon the occurrence of an Event of Default (as
hereinafter defined), the unpaid Principal Sum shall bear interest thereafter at
the Post-Default Rate (as that term is defined in the Financing Agreement) until
such Event of Default is cured.
4. APPLICATION AND PLACE OF PAYMENTS. All payments made on account of
this Note shall be applied in the order provided for in the Financing
Agreement. All payments on account of this Note shall be paid in lawful money
of the United States of America in immediately available funds during regular
business hours of the Lender at its principal office in Baltimore, Maryland
or at such other times and places as the Lender may at any time and from time
to time designate in writing to the Borrowers.
5. PREPAYMENT. The Borrowers may prepay the Principal Sum at the times
and in the manner provided in the Financing Agreement.
6. FINANCING AGREEMENT AND OTHER FINANCING DOCUMENTS. This Note is the
"Capital Expenditure Note" described in an Amended and Restated Financing and
Security Agreement of even date herewith (as amended, modified, restated,
substituted, extended and renewed at any time and from time to time, the
"Financing Agreement") by and among the Borrowers and the Lender. All terms
used in this Note which are not otherwise defined herein shall have the meaning
set forth in the Financing Agreement. The indebtedness evidenced by this Note
is included within the meaning of the term "Obligations" as defined in the
Financing Agreement. As further set forth in Section 2.5.10 of the Financing
Agreement, this Note does not create a novation with respect to the "Capital
Expenditure Note" (as that term is defined in the Original Financing Agreement
(as that term is defined in the Financing Agreement)).
7. SECURITY. This Note is secured as provided in the Financing
Agreement.
8. EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an event of default (individually, an "Event of Default"
and collectively, the "Events of Default") under the terms of this Note:
(a) The failure of the Borrowers to pay to the Lender when due any
and all amounts payable by the Borrowers to the Lender under the terms of this
Note; or
2
<PAGE>
(b) The occurrence of an "Event of Default" (as that term is defined
in the Financing Agreement).
9. SECURITY. This Note is secured as provided in the Financing
Agreement.
10. REMEDIES. Upon the occurrence of an Event of Default, the Lender
shall be entitled to exercise all rights, powers, and remedies provided under
the Financing Agreement, the other Financing Documents and applicable Laws (as
that term is defined in the Financing Agreement). The Borrowers and all
endorsers, guarantors, and other parties who may now or in the future be
primarily or secondarily liable for the payment of the indebtedness evidenced by
this Note hereby severally waive presentment, protest and demand, notice of
protest, notice of demand and of dishonor and non-payment of this Note and
expressly agree that this Note or any payment hereunder may be extended from
time to time without in any way affecting the liability of the Borrowers,
guarantors and endorsers.
11. EXPENSES. The Borrowers agree to pay to the Lender as provided in the
Financing Agreement all Enforcement Costs (as that term is defined in the
Financing Agreement) incurred by the Lender in connection with the collection
and enforcement of this Note.
12. NOTICES. Any notice, request, or demand to or upon the Borrowers or
the Lender shall be deemed to have been properly given or made when delivered in
accordance with Section 8.1 of the Financing Agreement.
13. MISCELLANEOUS. Each right, power, and remedy of the Lender as
provided for in this Note or any of the other Financing Documents, or now or
hereafter existing under any applicable law or otherwise shall be cumulative and
concurrent and shall be in addition to every other right, power, or remedy
provided for in this Note or any of the other Financing Documents or now or
hereafter existing under any applicable law, and the exercise or beginning of
the exercise by the Lender of any one or more of such rights, powers, or
remedies shall not preclude the simultaneous or later exercise by the Lender of
any or all such other rights, powers, or remedies. No failure or delay by the
Lender to insist upon the strict performance of any term, condition, covenant,
or agreement of this Note or any of the other Financing Documents, or to
exercise any right, power, or remedy consequent upon a breach thereof, shall
constitute a waiver of any such term, condition, covenant, or agreement or of
any such breach, or preclude the Lender from exercising any such right, power,
or remedy at a later time or times. By accepting payment after the due date of
any amount payable under the terms of this Note, the Lender shall not be deemed
to waive the right either to require prompt payment when due of all other
amounts payable under the terms of this Note or to declare an Event of Default
for the failure to effect such prompt payment of any such other amount. No
course of dealing or conduct shall be effective to amend, modify, waive,
release, or change any provisions of this Note.
14. PARTIAL INVALIDITY. In the event any provision of this Note (or any
part of any provision) is held by a court of competent jurisdiction to be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision (or
3
<PAGE>
remaining part of the affected provision) of this Note; but this Note shall be
construed as if such invalid, illegal, or unenforceable provision (or part
thereof) had not been contained in this Note, but only to the extent it is
invalid, illegal, or unenforceable.
15. CAPTIONS. The captions herein set forth are for convenience only and
shall not be deemed to define, limit, or describe the scope or intent of this
Note.
16. APPLICABLE LAW. The Borrowers acknowledge and agree that this Note,
as one of the Financing Documents, shall be governed by the laws of the State of
Maryland as provided in the Financing Agreement.
IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed
under seal by its duly authorized officers as of the date first written above.
ATTEST: HENRY COMPANY
By: By:
------------------------------- -----------------------------------
Jeffrey A. Wahba Richard B. Gordinier
Chief Financial Officer and President
Secretary
ATTEST: MONSEY PRODUCTS CO.
By:
- ----------------------------------- -----------------------------------
Jeffrey A. Wahba Richard B. Gordinier
Chief Financial Officer and Secretary President
ATTEST: KIMBERTON ENTERPRISES, INC.
By:
- ----------------------------------- -----------------------------------
Jeffrey A. Wahba Richard B. Gordinier
Chief Financial Officer and Secretary President
ATTEST: MONSEY PRODUCTS OF ARIZONA LLC
By its Designated Member
MONSEY PRODUCTS CO.
By:
- ----------------------------------- -----------------------------------
Jeffrey A. Wahba Richard B. Gordinier
Chief Financial Officer and Secretary President
4
<PAGE>
EXHIBIT A-2
REVOLVING CREDIT NOTE
$25,000,000 ................................................ Baltimore, Maryland
April 22,1998
FOR VALUE RECEIVED, HENRY COMPANY, a corporation organized under the laws
of the State of California (the "Company'), MONSEY PRODUCTS CO., a corporation
organized under the laws of the State of Pennsylvania ("Monsey Products"),
KIMBERTON ENTERPRISES, INC., a corporation organized under the laws of the State
of Delaware (Kimberton"), and MONSEY PRODUCTS OF ARIZONA LLC, a limited
liability company organized under the laws of the State of Arizona ("Monsey
Arizona"), jointly and severally (each of the Company, Mousey Products,
Kimberton and Monsey Arizona, a "Borrower" and collectively, the "Borrowers"),
promise to pay to the order of NATIONSBANK, N.A., a national banking association
(the "Lender"), the principal sum of TWENTY-FIVE MILLION DOLLARS ($25,000,000)
(the "Principal Sum"), or so much thereof as has been or may be advanced or
readvanced to or for the account of the Borrowers under the Revolving Loan (as
that term is defined in the "Financing Agreement" as hereinafter defined),
together with interest thereon at the rate or rates hereinafter provided, in
accordance with the following:
1. Interest. Commencing as of the date hereof and continuing until
repayment in full of all sums due hereunder, the unpaid Principal Sum shall bear
interest at the Applicable Interest Rate (as that term is defined in the
"Financing Agreement", which is defined below).
2. Payments and Maturity. The unpaid Principal Sum, together with
interest thereon at the rate or rates provided above, shall be payable as
follows:
(a) Interest only on the unpaid Principal Sum shall be paid at the
times and in the manner provided in the Financing Agreement;
(b) Unless sooner paid, the unpaid Principal Sum, together with
interest accrued and unpaid thereon, shall be due and payable in full an the
Revolving Credit Expiration Date (as defined in the Financing Agreement).
The fact that the balance hereunder may be reduced to zero from time to time
pursuant to the Financing Agreement will not affect the continuing validity of
this Note or the Financing Agreement, and the balance may be increased to the
Principal Sum after any such reduction to zero.
1
<PAGE>
3. Default Interest. Upon the occurrence of an Event of Default (as
hereinafter defined), the unpaid Principal Sum shall bear interest thereafter at
the Post-Default Rate (as that term is defined in the Financing Agreement) until
such Event of Default is cured.
4. Application and Place of Payments. All payments, made on account
of this Note shall be applied in the order provided for in the Financing
Agreement. All payments on account of this Note shall be paid in lawful money
of the United States of America in immediately available funds during regular
business hours of the Lender at its principal office in Baltimore, Maryland
or at such other times and places as the Lander may at any time and from time
to time designate in writing to the Borrowers.
5. Prepayment. The Borrowers may prepay the Principal Sum at the times
and in the manner provided in the Financing Agreement.
6. Financing Agreement and Other Financing Documents. This Note is the
"Revolving Credit Note" described in an Amended and Restated Financing and
Security Agreement of even date herewith by and among the Borrowers and the
Lender (as amended, modified, restated, substituted, extended and renewed at any
time and from time to time, the "Financing Agreement"). The indebtedness
evidenced by this Note is included within the meaning of the term "Obligations"
as defined in the Financing Agreement. The term "Financing Documents as used in
this Note shall have the meaning provided in the Financing Agreement, As
further set forth in Section 2.5.10 of the Financing Agreement, this Note does
not create a novation with respect to the "Revolving Credit Note" (as that term
is defined in the Original Financing Agreement (as that term is defined in the
Financing Agreement)).
7. Events of Default. The occurrence of any one or more of the following
events shall constitute an event of default (individually, an "Event of Default"
and collectively, the "Events of Default") under the terms of this Note:
(a) The failure of the Borrowers to pay to the Lender when due any
and all amounts payable by the Borrowers to the Lender under the terms of this
Note; or
(b) The occurrence of an "Event of Default" (as that term is defined
in the Financing Agreement).
2
<PAGE>
8. Security. This Note is secured as provided in the Financing
Agreement.
9. Remedies. Upon the occurrence of an Event of Default, the Lender
shall be entitled to exercise all rights, powers, and remedies provided under
the Financing Agreement, the other Financing Documents and applicable Laws (as
that term is defined in the Financing Agreement). The Borrowers and all
endorsers, guarantors, and other parties who may now or in the future be
primarily or secondarily liable for the payment of the indebtedness evidenced by
this Note hereby severally waive presentment, protest and demand, notice of
protest, notice of demand and of dishonor and non-payment of this Note and
expressly agree that this Note or any payment hereunder may be extended from
time to time without in any way affecting the liability of the Borrowers,
guarantors and endorsers.
10. Expenses. The Borrowers agree to pay to the Lender as provided in the
Financing Agreement all Enforcement Costs (as that term is defined in the
Financing Agreement) incurred by the Lender in connection with the collection
and enforcement of this Note.
11. Notices. Any notice, request, or demand to or upon the Borrowers or
the Lender shall be deemed to have been properly given or made when delivered in
accordance with Section 8.1 of the Financing Agreement.
12. Miscellaneous. Each right, power, and remedy of the Lender as
provided for in this Note or any of the other Financing Documents, or now or
hereafter existing under any applicable law or otherwise shall be cumulative and
concurrent and shall be in addition to every other right, power, or remedy
provided for in this Note or any of the other Financing Documents or now or
hereafter existing under any applicable law, and the exercise or beginning of
the exercise by the Lender of any one or more of such rights, powers, or
remedies shall not preclude the simultaneous or later exercise by the Lender of
any or all such other rights, powers, or remedies. No failure or delay by the
Lender to insist upon the strict performance of any term, condition, covenant,
or agreement of this Note or any of the other Financing Documents, or to
exercise any right, power, or remedy consequent upon a breach thereof, shall
constitute a waiver of any such term, condition, covenant, or agreement or of
any such breach, or preclude the Lender from exercising any such right, power,
or remedy at a later time or times. By accepting payment after the due date of
any amount payable under the terms of this Note, the Lender shall not be deemed
to waive the right either to require prompt payment when due of all other
amounts payable under the terms of this Note or to declare an Event of Default
for the failure to effect such prompt
3
<PAGE>
payment of any such other amount. No course of dealing or conduct shall be
effective to amend, modify, waive, release, or change any provisions of this
Note.
13. Partial Invalidity. In the event any provision of this Note (or any
part of any provision) is held by a court of competent jurisdiction to be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision (or remaining part of
the affected provision) of this Note; but this Note shall be construed as if
such invalid, illegal, or unenforceable provision (or part thereof) had not been
contained in this Note, but only to the extent it is invalid, illegal, or
unenforceable.
14. Captions. The captions herein set forth are for convenience only and
shall not be deemed to define, limit, or describe the scope or intent of this
Note.
15. Applicable Law. The Borrowers acknowledge and agree that this Note,
as one of the Financing Documents, shall be governed by the laws of the State of
Maryland as provided in the Financing Agreement.
IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed
under seal by its duly authorized officers as of the date first written above.
ATTEST: HENRY COMPANY
By: By:
------------------------------- ----------------------------------
Jeffrey A. Wahba Richard B. Gordinier
Chief Financial Officer and President
Secretary
ATTEST: MONSEY PRODUCTS CO.
By:
- ----------------------------------- ----------------------------------
Jeffrey A. Wahba Richard B. Gordinier
Chief Financial Officer and Secretary President
ATTEST: KIMBERTON ENTERPRISES, INC.
By:
- ----------------------------------- ----------------------------------
4
<PAGE>
Jeffrey A. Wahba Richard B. Gordinier
Chief Financial Officer and Secretary President
ATTEST: MONSEY PRODUCTS OF ARIZONA LLC
By its Designated Member
MONSEY PRODUCTS CO.
By:
- ----------------------------------- ----------------------------------
Jeffrey A. Wahba Richard B. Gordinier
Chief Financial Officer and Secretary President
5
<PAGE>
EXHIBIT B
NATIONSBANK BUSINESS CREDIT
WIRE TRANSFER PROCEDURES
The transfer of funds by means of wire may be made by NationsBank (lender) at
the request of its customer (borrower). Such wire transfers are categorized by
lender as either repetitive or non-repetitive.
Repetitive:
Repetitive wire transfers may vary in amount, but are consistent in terms of the
payee, the location to which funds are wired, the bank name, account number and
the routing transit number.
Either borrower or lender may initiate a repetitive wire transfer. The borrower
may identify the repetitive nature of transfers and request they be established
as such via the "Repetitive Wire Transfer Authorization Form" (copy attached).
Lender, after observing numerous transfers to the same recipient and
destination, may initiate the repetitive process by faxing or mailing the
"Repetitive Wire Authorization Form" to the borrower for completion and return.
Although a first request for a repetitive wire transfer may be honored from a
faxed copy of the "Repetitive Wire Transfer Authorization Form", a copy of the
form containing an original signature must be received from the borrower. All
transfer authorization forms must be approved by and contain the signature of a
person authorized by the borrower to advance funds from borrower's line of
credit with the lender.
After receipt of the original "Repetitive Wire Transfer Authorization Form" by
the lender, subsequent wire transfers to the recipient named thereon may be
initiated by telephone request, provided the requesting party is identified by
the lender as a person authorized by borrower to advance funds from the
borrower's line of credit with lender.
Non-Repetitive:
Non-Repetitive wire transfers are directed to recipients on a one-time or
infrequent basis or are directed to varied destinations. Non-repetitive wire
transfers require that written notification be provided to lender by borrower,
showing payee, location, account number, routing transit number and name and
location of bank into which funds are to be transferred. Such written
notification may be provided by means of a "Non-Repetitive Wire Transfer
Authorization Form" (copy attached).
Required information may be faxed to lender in order to expedite the transfer;
however, a copy of the transfer authorization form with an original signature(s)
must be received by lender from
-1-
<PAGE>
borrower. The transfer authorization form must be approved by and contain the
signature of a person authorized by the borrower to advance funds from
borrower's line of credit with the lender.
For any non-repetitive wire transfer, Lender may, at its discretion, perform a
telephone verification with an authorized representative (the original signer or
another authorized representative) of borrower prior to initiating the transfer.
-2-
<PAGE>
EXHIBIT C
FINANCING AGREEMENT
____________ COMPLIANCE CERTIFICATE
THIS CERTIFICATE is made as of __________________, 199_ , by
____________________________________, a ________________ organized under the
laws of the State of ___________________ (the "Borrower"), to
_______________________________, a national banking association (the "Lender"),
pursuant to Section of the Amended and Restated Financing and Security
Agreement dated ______________, 199_, (as amended, modified, restated,
substituted, extended and renewed at any time and from time to time, the
"Financing Agreement") by and between the Borrower and the Lender.
I, ____________________, hereby certify that I am the ______________ of the
Borrower and am a Responsible Officer (as that term is defined in the Financing
Agreement) authorized to certify to the Lender on behalf the Borrower as
follows:
(a) This Certificate is given to induce the Lender to make
advances to the Borrower under the Financing Agreement.
(b) This Certificate accompanies the _____________
financial statements for the period ended ___________________, 199__ (the
"Current Financials") which the Borrower is furnishing to the Lender pursuant to
Section 6.
1.1(__) of the Financing Agreement. The Current Financials have been prepared in
accordance with GAAP (as that term is defined in the Financing Agreement).
(c) As required by Section 6.
1.1(__) of the Financing Agreement, I have set forth on Schedule 1 a detailed
computation of each financial covenant in Financing Agreement and a cash flow
projection report.
(d) No change has occurred to the information contained in
the Collateral Disclosure List except as set forth on Schedule 2 to this
Certificate.
By way of example and not limitation, the Collateral Disclosure List, together
with Schedule 2, contains a listing of all of the Borrower's Patents,
Trademarks, Copyrights (as those terms are defined in the Financing Agreement),
all locations (owned, leased, warehouses or otherwise) where any Collateral (as
that term is defined in the Financing Agreement) is located, all Subsidiaries
(as that term is defined in the Financing Agreement).
(e) As of the date hereof, there exists no Default or Event
of Default, as defined in the Article 7 of the Financing Agreement, nor any
event which, upon notice or the lapse of time, or both, would constitute such an
Event of Default.
-3-
<PAGE>
(f) On the date hereof, the representations and warranties
contained in Article 4 of the Financing Agreement are true with the same effect
as though such representations and warranties had been made on the date hereof.
WITNESS my signature this _____ day of ____________, 199_.
______________________________
Name:
Title:
-4-
<PAGE>
Schedule 1
-5-
<PAGE>
Schedule 2
-6-
<PAGE>
Schedule 4.1.10
LITIGATION
-7-
<PAGE>
Schedule 4.1.13
OTHER INDEBTEDNESS
-8-
<PAGE>
Schedule 4.1.21
LIENS ON COLLATERAL
Unpaid
Principal
Asset Covered Lienholder Balance
-9-
<PAGE>
Schedule 6.2.5
OTHER PERMITTED INDEBTEDNESS
-10-
<PAGE>
ANNEX 1
FINANCIAL COVENANTS
1. CURRENT RATIO. The Company and its Subsidiaries on a consolidated
basis will at all times, tested as of the last day of each fiscal quarter,
maintain a Current Ratio of not less than 1.75 to 1.0.
2. ADJUSTED NET WORTH. The Company and its Subsidiaries on a
consolidated basis will at all times, tested as of the last day of each
fiscal quarter, maintain an Adjusted Net Worth of not less than the following:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Adjusted Net Worth
- -----------------------------------------------------------------------------
<S> <C>
June 30, 1998 $ 8,000,000
September 30, 1998 $ 9,000,000
December 31, 1998 $10,000,000
March 31, 1999 and thereafter $10,000,000
PLUS 50% of the Borrowers' cumulative
annual net income (without reduction
for annual losses) for each fiscal year
commencing with the fiscal year ending
December 31, 1998.
</TABLE>
3. DEBT SERVICE COVERAGE RATIO. The Company and its Subsidiaries on a
consolidated basis will maintain for each fiscal quarter of each fiscal year (a)
tested commencing with the quarter ending June 30, 1998, through and including
the quarter ending March 31, 1999, for the period commencing with the Closing
Date and ending on the last day of the applicable fiscal quarter, and (b) tested
commencing with the fiscal quarter ending June 30, 1999 and thereafter, for the
twelve month period ending on the last day of the applicable fiscal quarter, a
ratio of (i) EBITDA minus Capital Expenditures (other than those financed
pursuant to the Capital Expenditure Loan Facility) minus dividends to (ii) Debt
Service of not less than 1.25 to 1.0.
4. INTEREST COVERAGE RATIO. The Company and its Subsidiaries on a
consolidated basis will maintain for each fiscal quarter of each fiscal year (a)
tested commencing with the quarter ending June 30, 1998, through and including
the quarter ending March 31, 1999, for the period commencing with the Closing
Date and ending on the last day of the applicable fiscal quarter, and (b) tested
commencing with the fiscal quarter ending June 30, 1999 and continuing for each
fiscal quarter thereafter, for the twelve month period ending on the last day of
the
-1-
<PAGE>
applicable fiscal quarter, a ratio of (i) EBITDA minus Capital Expenditures
(other than those financed pursuant to the Capital Expenditure Loan Facility)
minus dividends to (ii) interest with respect to Indebtedness for Borrowed Money
scheduled to be due and payable during such period of not less than the
following:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Interest Coverage Ratio
- --------------------------------------------------------------------------------
<S> <C>
June 30, 1998 and September 30, 1998 1.25 to 1.0
December 31, 1998 through and including 1.50 to 1.0
September 30, 1999
December 31, 1999 through and including 1.75 to 1.0
September 30, 2000
December 31, 2000 and thereafter 2.0 to 1.0
</TABLE>
-2-
<PAGE>
LIST OF EXHIBITS
A-1. Revolving Credit Note
A-2. Capital Expenditure Note
B. Security Procedures
C. Form of Compliance Certificate
LIST OF SCHEDULES
Schedule 1.1 Certain Defined Terms
Schedule 4.1.10 Litigation
Schedule 4.1.5 Conflicts
Schedule 4.1.13 Other Indebtedness
Schedule 4.1.17 Certain Bulk Sales
Schedule 4.1.19 Employee Relations
Schedule 4.1.20 Presence of Hazardous Materials
Schedule 4.1.21 Permitted Liens
Schedule 5.1.13 Appraisals
Schedule 6.2.5 Other Permitted Indebtedness
Schedule 6.2.11 Certain Permitted Liens
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
This Agreement is entered into as of January 1, 1998 between Henry Company
("Henry") and Central Coast Wine Company dba The Henry Wine Group ("THWG").
RECITALS: Henry Company is a California corporation with headquarters
located at 2911 Slauson Avenue, Huntington Park, California. Central Coast
Wine Company-dba The Henry Wine Group is a California corporation with
headquarters located at 531 Getty Ct. Unit A Benicia, California.
The Companies agree that certain administrative services can be provided for
more efficiently when resources are combined rather than performed
independently. Further, it is agreed that Henry Company can provide certain
management expertise not currently available at THWG. Therefore, the
Companies are entering into this Agreement whereby Henry will provide certain
management services to THWG on a fee basis.
It is understood that Henry currently has three operating divisions which
receive similar services to those which will be provided to THWG. These
services are and will be provided by the Corporate Management group of Henry
to the three operating divisions of Henry as well as to THWG on an equal
basis.
SERVICES: Services to be provided on an ongoing basis include but are not
limited to the following:
- - 401-K administration and benefits oversight
- - Human resource consulting
- - Management of workers compensation insurance and claims
- - Tax preparation and filing
- - General liability and other insurance coverage management
- - Communication services
- - Travel management services
- - Audit coordination and review
- - Financial management and consulting
- - Trademark and legal assistance
- - Accounting services
- - MIS consulting services
- - Accommodation of Southern California THWG sales office
- - Management services provided by Chairman of the Board and Vice Chairman
REIMBURSEMENT FOR SERVICES: In order to equitably allocate the expense for the
1
<PAGE>
charges provided by the Henry Corporate Management group, a formula has been
developed with the intention that the three operating divisions of Henry and
THWG would share equally in the cost of the services based on the size of
their respective operations. This formula has two components which are based
on the number of employees in the operating entity and the assets employed by
that entity. This formula takes into account differences that may occur
between asset intensive versus labor intensive operating entities.
The charge for 1998 has been developed based on the submitted budgets of the
four operating entities and is shown for THWG in Attachment 1a & 1b. The
"budgeted" charge for the THWG for 1998 is $1,142M. The labor component of
this charge will not vary throughout the year and will be $46M a month. The
asset component of this charge will vary based on the net operating assets
that are employed in the month by the division. Attachment lb shows the
asset charge based on the "budgeted" net operating assets employed by THWG
for 1998.
The Henry Corporate Management Group will bill THWG monthly 30 days after the
month end and payment will be due by the 15thof the following month.
TERM: The provisions of this agreement are effective for the calendar
year 1998. The agreement will automatically renew on the same basis as
outlined above unless terminated by either party, by given written notice no
later than November 1, 1998.
ENTIRE AGREEMENT: This contract constitutes the entire agreement between
Henry and THWG concerning the management services to be provided by Henry to
THWG. Any agreements or representations respecting the services to be
performed and payment thereof not expressly set forth in this contract shall
have no effect, except for a subsequent written modification signed by both
parties.
AMENDMENT OF CONTRACT: This contract may be amended or modified at any time
with respect to any provision by a written instrument executed by Henry and
THWG.
ATTORNEY'S FEES: If Henry or THWG bring any legal action or seek arbitration
regarding any provision of this agreement, the prevailing party in the
litigation or arbitration shall be entitled to recover reasonable attorneys'
fees from the other party, in addition to any other relief that may be
granted. This provision applies to the entire agreement.
NOTICES: Any notice required or permitted to be given under this agreement
shall be written, and may be given by personal delivery or by registered or
certified mail, first class postage pre-paid, return receipt requested.
Notice
2
<PAGE>
shall be deemed given upon actual receipt in the case of personal delivery,
or upon mailing. Mailed notices shall be addressed as follows, but each
party may change address by written notice in accordance with this paragraph:
To Henry: Henry Company
2911 Slauson Avenue
Huntington Park, CA 90266
Attn: Jeffrey Wahba
To THWG: The Henry Wine Group
531 Getty Ct., Unit A
Benicia, CA 945 1 0
Attn: Gerard Pasterick
ASSIGNMENT PROHIBITED: Neither Henry or THWG shall assign any right or
interest arising under this agreement without the prior written consent of
the other.
GOVERNING LAW: This contract shall be governed by and construed in
accordance with the laws of the State of California.
Executed on March 26, 1998 at Huntington Park, California.
Henry
By: /s/ Richard B. Gordinier
----------------------------
Richard B. Gordinier
President
The Henry Wine Group
By: /s/ Warner W. Henry
----------------------------
Warner W. Henry
Chairman and CEO
3
<PAGE>
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
September 5, 1996, is made by and between Warner Wheeler Henry Living Trust and
Henry Family Trust B ("LESSOR") and Henry Company ("LESSEE") (collectively the
"PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 2901 Slauson Avenue located in the County of Los
Angeles, State of California and generally described as (describe briefly the
nature of the property) set forth on Exhibit A ("PREMISES"). (See Paragraph 2
for further provisions.)
1.3 TERM: Ten years and 0 months ("ORIGINAL TERM") commencing
September 6, 1996 ("COMMENCEMENT DATE") and ending September 4, 2006
("EXPIRATION DATE"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE").
1.5 BASE RENT: $ See Addendum per month ("BASE RENT"), payable on the
________ day of each month commencing___________________________________________
_____________________________________________________________________________
__________________________________________________ (See Paragraph 4 for further
provisions.)
/ / If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ N/A as Base Rent for the period
______________________________________________________________________________
_____________________________________________________________________________.
1.7 SECURITY DEPOSIT: $ N/A ("SECURITY DEPOSIT"). See Paragraph 5 for
further provisions.)
1.8 PERMITTED USE: Henry Company Operations (See Paragraph 6 for
further provisions.)
1.9 INSURING PARTY: Lessee is the "INSURING PARTY" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
Page 1
<PAGE>
1.10 REAL ESTATE BROKERS: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
N/A represents
/ / Lessor exclusively ("LESSOR'S BROKER"); both Lessor and Lessee, and
_____________________________________________________________________ represents
/ / Lessee exclusively ("LESSEE'S BROKER"); both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by N/A ("GUARANTOR"). (See Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 50 and Exhibit(s) A all of which constitute a part of this
Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Deleted.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law (as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral
Page 2
<PAGE>
or written representations or warranties with respect to the said matters other
than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and the insurance premiums and to maintain the Premises) shall be
in effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, or shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligations of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of
the Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when
the term actually commences, if possession is not tendered to Lessee when
required by this Lease and Lessee does not terminate this Lease, as aforesaid,
the period free of the obligation to pay Base Rent, if any, that Lessee would
otherwise have enjoyed shall run from the date of delivery of possession and
continue for a period equal to what Lessee would otherwise have enjoyed under
the terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent
or charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the Untied States, without offset or deduction, on or
before the day on which it is due under
Page 3
<PAGE>
the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one (1) full calendar month
shall be prorated based upon the actual number of days of the calendar month
involved. Payment of Base Rent and other charges shall be made to Lessor at its
address stated herein or to such other persons or at such other addresses as
Lessor may from time to time designate in writing to Lessee.
5. Deleted.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the
purposes set forth in Paragraph 1.8, or any other use which is comparable
thereto, and for no other purpose. Lessee shall not use or permit the use of
the Premises in a manner that creates waste or a nuisance, or that disturbs
owners and/or occupants of, or causes damage to, neighboring premises or
properties. Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessees assignees or subtenants, and
by prospective assignees and subtenants of the Lessee, its assignees and
subtenants, for a modification of said permitted purpose for which the premises
may be used or occupied, so long as the same will not impair the structural
integrity of the improvements on the Premises, the mechanical or electrical
systems therein, is not significantly more burdensome to the Premises and the
improvements thereon, and is otherwise permissible pursuant to this Paragraph 5.
If Lessor elects to withhold such consent, Lessor shall within five (5) business
days give a written notification of same, which notice shall include an
explanation of Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in, on or about the Premises
which constitutes a Reportable Use (as hereinafter defined) of Hazardous
Substances without the express prior written consent of Lessor and compliance in
a timely manner (at Lessee's sole cost and expense) with all Applicable Law (as
defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority.
Reportable Use shall also include Lessee's being responsible for the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Law requires that a notice be given to persons
Page 4
<PAGE>
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but in compliance
with all Applicable Law, use any ordinary and customary materials reasonably
required to be used by Lessee in the normal course of Lessee's business
permitted on the Premises, so long as such use is not a Reportable Use and does
not expose the Premise or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In
addition, Lessor may (but without any obligation to do so) condition its consent
to the use or presence of any Hazardous Substance, activity or storage tank by
Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its
reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and/or
liability therefrom or therefor, including, but not limited to, the installation
(and removal on or before Lease expiration or earlier termination) of reasonably
necessary protective modifications to the Premises (such as concrete
encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance, or a condition involving or
resulting from same, has come to be located in, on, under or about the Premises,
other than as previously consented to by Lessor, Lessee shall immediately give
written notice of such fact to Lessor. Lessee shall also immediately give Lessor
a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action or proceeding given to, or received from,
any governmental authority or private party, or persons entering or occupying
the Premises, concerning the presence, spill, release, discharge of, or exposure
to, any Hazardous Substance or contamination in, on, or about the Premises,
including but limited to all such documents as may be involved in any Reportable
Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if any, and
the Premises, harmless from and against any and all loss of rents and/or
damages, liabilities, judgments, costs, claims, liens, expenses, penalties,
permits and attorney's and consultant's fees arising out of or involving any
Hazardous Substance or storage tank brought onto the Premises by or for Lessee
or under Lessee's control. Lessees's obligations under this Paragraph 6 shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation (including consultant's and attorney's fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances or storage tanks, unless
specifically so agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "APPLICABLE LAW," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
Page 5
<PAGE>
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy, Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION: COMPLIANCE. Lessor and Lessor's Lender(s) (as defined
in Paragraph 8.3(a)) shall have the right to enter the Premises at any time. In
the case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination caused or materially contributed to by Lessee is found to exist or
be imminent, or unless the inspection is requested or ordered by a governmental
authority as the result of any such existing or imminent violation or
contamination. In any such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's
warranty as to condition), 2.3 (Lessor's warranty as to compliance with
covenants, etc.), 7.2 (Lessor's obligations to repair), 9 (damage and
destruction), and 14 (condemnation), Lessee shall, at Lessee's sole cost and
expense and at all times, keep the Premises and every part thereof in good
order, condition and repair, structural and non-structural (whether or not such
portion of the Premises requiring repairs, or the means of repairing the same,
are reasonably or readily accessible to Lessee, and whether or not the need for
such repairs occurs as a result of Lessee's use, any prior use, the elements or
the age of such portion of the Premises), including, without limiting the
generality of the foregoing, all equipment or facilities serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or
standpipe and hose or other automatic fire extinguishing system, including fire
alarm and/or smoke detection systems
Page 6
<PAGE>
and equipment, fire hydrants, fixtures, walls (interior and exterior),
foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights,
landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks
and parkways located in, on, about, or adjacent to the Premises, Lessee shall
not cause or permit any Hazardous Substance to be spilled or released in, on,
under or about the Premises (including through the plumbing or sanitary sewer
system) and shall promptly, at Lessee's expense, take all investigatory and/or
remedial action reasonably recommended, whether or not formally ordered or
required, for the cleanup of any contamination of, and for the maintenance,
security and/or monitoring of the Premises, the elements surrounding same, or
neighboring properties, that was caused or materially contributed to by Lessee,
or pertaining to or involving any Hazardous Substance and/or storage tank
brought onto the Premises by or for Lessee or under its control. Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all improvements thereon or a part thereof in good order, condition and state of
repair. If Lessee occupies the Premises for seven (7) years or more, Lessor may
require Lessee to repaint the exterior of the building on the Premises as
reasonably required, but not more frequently than once every seven (7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms
of this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of
any statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of any
needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all carpeting, window
coverings, air lines, power panels, electrical distribution, security, fire
protection systems, communication systems, lighting fixtures, heating,
ventilating, and air conditioning equipment, plumbing, and fencing in, on or
Page 7
<PAGE>
about the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and
equipment that can be removed without doing material damage to the Premises.
The term "ALTERNATIONS" shall mean any modification of the improvements on the
Premises from that which are provided by Lessor under the terms of this Lease,
other than Utility Installations or Trade Fixtures, whether by addition or
deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined
as Alternations and/or Utility Installations made by lessee that are not yet
owned by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any
Alterations or Utility Installations in, on, under or about the Premises without
Lessor's prior written consent. Lessee may, however, make non-structural
Utility Installations to the interior of the Premises (excluding the roof), as
long as they are not visible from the outside, do not involve puncturing,
relocating or removing the roof or any existing walls, and the cumulative cost
thereof during the term of this Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alternation or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alternations or Utility Installations
by Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanics' or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor of the Premises. If Lessor shall
require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in
an amount equal to one and one-half times the amount of such contested lien
claim or demand, indemnifying Lessor against liability for the same, as required
by law for the holding of the Premises free from the effect of such lien or
claim. In addition, Lessor may require Lessee to pay Lessor's attorney's fees
and costs in participating in such action if Lessor shall decide it is to its
best interest to do so.
Page 8
<PAGE>
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their
removal or become the owner thereof as hereinafter provided in this Paragraph
7.4, all Alterations and Utility Additions made to the Premises by Lessee shall
be the property of and owned by Lessee, but considered a part of the Premises.
Lessor may, at any time and at its option, elect in writing to Lessee to be the
owner of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
their installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises
by the end of the last day of the Lease term or any earlier termination date,
with all of the improvements, parts and surfaces thereof clean and free of
debris and in good operating order, condition and state of repair, ordinary wear
and tear excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations under this Lease. Except as otherwise
agreed or specified in writing by Lessor, the Premises, as surrendered, shall
include the Utility Installations. The obligation of Lessee shall include the
repair of any damage occasioned by the installation, maintenance or removal of
Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee
is the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease term. Payment shall be made by Lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2 LIABILITY INSURANCE.
Page 9
<PAGE>
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance required by this Lease or as
carried by Lessee shall not, however, limit the liability of Lessee nor relieve
Lessee of any obligation hereunder. All insurance to be carried by Lessee shall
be primary to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the insuring
Party, Lessor shall also maintain liability insurance described in Paragraph
8.2(a), above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE -- BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and to the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDER(s)"), insuring loss or
damage to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations shall be insured by Lessee under Paragraph
8.4 rather than by Lessor. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for any additional costs resulting
from debris removal and reasonable amounts of coverage for the enforcement of
any ordinance or law regulating the reconstruction or replacement of any
undamaged sections of the Premises required to be demolished or removed by
reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provisions in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has
a deductible clause, the deductible amount shall not
Page 10
<PAGE>
exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount in the event of an Insured Loss, as defined in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain
and keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the
full rental and other charges payable by Lessee to Lessor under this Lease for
one (1) year (including all real estate taxes, insurance costs, and any
scheduled rental increases). Said insurance shall provide that in the event the
Lease is terminated by reason of an insured loss, the period of indemnity for
such coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be
liable for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party,
the Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property or the restoration of Lessee Owned
Alterations and Utility Installations. Lessee shall be the Insuring Party with
respect to the insurance required by this Paragraph 8.4 and shall provide Lessor
with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender having a
lien on the Premises, as set forth in the most current issue of "Best's
Insurance Guide." Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies referred to in this Paragraph 8. If Lessee is
the
Page 11
<PAGE>
Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of
policies of such insurance or certificates evidencing the existence and amounts
of such insurance with the insureds and loss payable clauses as required by this
Lease. No such policy shall be cancellable or subject to modification except
after thirty (30) days prior written notice to Lessor. Lessee shall at least
thirty (30) days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party
shall fail to procure and maintain the insurance required to be carried by the
Insuring Party under this Paragraph 8, the other Party may, but shall not be
required to, procure and maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought
against Lessor by reason of any of the foregoing matters, Lessee upon notice
from Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing
Page 12
<PAGE>
the same is accessible or not. Lessor shall not be liable for any damages
arising from any act or neglect of any other tenant of Lessor. Notwithstanding
Lessor's negligence or breach of this Lease, Lessor shall under no circumstances
be liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction
to the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction, excluding from such calculation the value of the land and
Lessee Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations the repair cost of which damage or destruction is 50% or more of
the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE -- INSURED LOSS. If a Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to
Page 13
<PAGE>
complete said repairs. In the event, however, the shortage in proceeds was due
to the fact that, by reason of the unique nature of the improvements, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, the party responsible for making the repairs
shall complete them as soon as reasonably possible and this Lease shall remain
in full force and effect. If Lessor does not receive such funds or assurance
within said period, Lessor may nevertheless elect by written notice to Lessee
within ten (10) days thereafter to make such restoration and repair as is
commercially reasonable with Lessor paying any shortage in proceeds, in which
case this Lease shall remain in full force and effect. If in such case Lessor
does not so elect, then this Lease shall terminate sixty (60) days following the
occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall
in no event have any right to reimbursement from Lessor for any funds
contributed by Lessee to repair any such damage or destruction. Premises
Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3
rather than Paragraph 9.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available for
the repairs if made by either Party.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. If a Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13). Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of event
the occurrence of such damage of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
repair of such damage totally at Lessee's expense and without reimbursement from
Lessor. Lessee shall provide Lessor with the required funds or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment in
such event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
a Premises Total Destruction occurs (including any destruction required by an
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
Page 14
<PAGE>
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("EXERCISE PERIOD"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option
during said Exercise Period and provides Lessor with funds (or adequate
assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at
Lessor's expense repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said Exercise Period, then
Lessor may at Lessor's option terminate this Lease as of the expiration of said
sixty (60) day period following the occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in the
grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage -- Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the specified in said
notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "COMMENCE" as used in this Paragraph shall
mean
Page 15
<PAGE>
either the unconditional authorization of the preparation of the required plans,
or the beginning of the actual work on the Premises, whichever first occurs.
9.7 Deleted.
9.8 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes,
as defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period
of time prior to or after the expiration or earlier termination of the term
hereof, Lessee's share of such taxes shall be equitably prorated to cover only
the period of time within the tax fiscal year this Lease is in effect, and
Lessor shall reimburse Lessee for any overpayment after such proration. If
Lessee shall fail to pay any Real Property Taxes required by this Lease to be
paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall
reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In order to insure payment when due and
before delinquency of any or all Real Property Taxes, Lessor reserves the right,
at Lessor's option, to estimate the current Real Property Taxes applicable to
the Premises, and to require such current year's Real Property Taxes to be paid
in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by
Lessee under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to
Page 16
<PAGE>
Lessor under this Paragraph may be intermingled with other moneys of Lessor and
shall not bear interest. In the event of a Breach by Lessee in the performance
of the obligations of Lessee under this Lease, then any balance of funds paid to
Lessor under the provisions of this Paragraph may, subject to proration as
provided in Paragraph 10.1(a), at the option of Lessor, be treated as an
additional Security Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "REAL PROPERTY TAXES" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any
of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to lessee's property or, at Lessor's option, as provided in Paragraph
10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. Deleted.
13. DEFAULT; BREACH; REMEDIES.
Page 17
<PAGE>
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "DEFAULT" is defined as
a failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" is defined as the occurrence of any one or more of the following
Defaults, and, where a grace period for cure after notice is specified herein,
the failure by Lessee to cure such Default prior to the expiration of the
applicable grace period, shall entitle Lessor to pursue the remedies set forth
in Paragraphs 13.2 and 13.3.
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable Law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
Page 18
<PAGE>
(e) The occurrence of any of the following events: (i) The
making by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee becoming a "debtor" as defined in 11 U.S.C. Section 101
or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given
to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a guarantor, (ii) the termination of a
guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the
guaranty, or (v) a guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurance or security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the guarantors that existed at the
time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event, Lessor shall be entitled to recover from Lessee: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been
Page 19
<PAGE>
reasonably avoided; (iii) the worth at the time of award of the amount by which
the unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that the Lessee proves could be reasonably avoided;
and (iv) any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom, including, but not limited to, the cost of recovering possession of
the Premises, expenses of reletting, including necessary renovation and
alteration of the Premises, reasonable attorneys' fees, and that portion of the
leasing commission paid by Lessor applicable to the unexpired term of this
Lease. The worth at the time of award of the amount referred to in provision
(iii) of the prior sentence shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's
Default or Breach of this Lease shall not waive Lessor's right to recover
damages under this Paragraph. If termination of this Lease is obtained through
the provisional remedy of unlawful detainer, Lessor shall have the right to
recover in such proceeding the unpaid rent and damages as are recoverable
therein, or Lessor may reserve therein the right to recover all or any part
thereof in a separate suit for such rent and/or damages. If a notice and grace
period required under subparagraphs 13.1(b), (c) or (d) was not previously
given, a notice to pay rent or quit, or to perform or quit, as the case may be,
given to Lessee under any statute authorizing the forfeiture of leases for
unlawful detainer shall also constitute the applicable notice for grace period
purposes required by subparagraphs 13.1(b), (c) or (d). In such case, the
applicable grace period under subparagraphs 13.1(b), (c) or (d) and under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two such grace periods shall constitute both an unlawful detainer and a Breach
of this Lease entitling lessor to the remedies provided for in this Lease and/or
by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after Lessee's
Breach and abandonment and recover the rent as it becomes due, provided Lessee
has the right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by
Page 20
<PAGE>
Lessor to or for Lessee of any cash or other bonus, inducement or consideration
for Lessee's entering into this Lease, all of which concessions are hereinafter
referred to as "INDUCEMENT PROVISIONS," shall be deemed conditioned upon
Lessee's full and faithful performance of all of the terms, covenants and
conditions of this Lease to be performed or observed by Lessee during the term
hereof as the same may be extended. Upon the occurrence of a Breach of this
Lease by Lessee, as defined in Paragraph 13.1, any such Inducement Provision
shall automatically be deemed deleted from this Lease and of no further force or
effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an Inducement Provision
shall be immediately due and payable by Lessee to Lessor, and recoverable by
Lessor as additional rent due under this Lease, notwithstanding any subsequent
cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of
the Breach which initiated the operation of this Paragraph shall not be deemed a
waiver by Lessor of the provisions of this Paragraph unless specifically so
stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of
such overdue amount. The parties hereby agree that such late charge represents
a fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) consecutive installments of Base Rent,
then notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days after such notice
are reasonably required for its performance, then Lessor shall not be in breach
of this Lease if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein
Page 21
<PAGE>
called "CONDEMNATION"), this Lease shall terminate as to the part so taken as of
the date the condemning authority takes title or possession, whichever first
occurs. If more than ten percent (10%) of the floor area of the Premises, or
more than twenty-five percent (25%) of the land area not occupied by any
building, is taken by condemnation, Lessee may, at Lessee's option, to be
exercised in writing within ten (10) days after Lessor shall have given Lessee
written notice of such taking (or in the absence of such notice, within ten (10)
days after the condemning authority shall have taken possession) terminate this
Lease as of the date the condemning authority taxes such possession. If Lessee
does not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the Base Rent shall be reduced in the same proportion as the
rentable floor area of the Premises taken bears to the total rentable floor area
of the building located on the Premises. No reduction of Base Rent shall occur
if the only portion of the Premises taken is land on which there is no building.
Any award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise at such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease
is not terminated by reason of such condemnation, Lessor shall to the extent of
its net severance damages received, over and above the legal and other expenses
incurred by lessor in the condemnation matter, repair any damage to the Premises
caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible
for the payment of any amount in excess of such net severance damages required
to complete such repair.
15. Deleted.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after
written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "TENANCY STATEMENT" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's
Page 22
<PAGE>
interest in the prior lease. In the event of a transfer of Lessor's title or
interest in the Premises or in this Lease, Lessor shall deliver to the
transferee or assignee (in cash or by credit) any unused Security Deposit held
by Lessor at the time of such transfer or assignment. Except as provided in
Paragraph 15, upon such transfer or assignment and delivery of the Security
Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with
respect to the obligations and/or covenants under this Lease thereafter to be
performed by the Lessor. Subject to the foregoing, the obligations and/or
covenants in this Lease to be performed by the Lessor shall be binding only upon
the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at
Page 23
<PAGE>
such addresses as Lessor may from time to time hereafter designate by written
notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation or receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received
on a Sunday or legal holiday, it shall be deemed received on the next business
day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision of provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any preceding Default or
Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in
Page 24
<PAGE>
which the Premises are located. Any litigation between the Parties hereto
concerning this Lease shall be initiated in the county in which the Premises are
located.
30. SUBORDINATION: ATTORNMENT: NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed or trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE") now or
hereafter place by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof Lessee agrees
that the Lenders holding any such Security Device shall have no duty, liability
or obligation to perform any of the obligations of Lessor under this Lease, but
that in the event of Lessors default with respect to any such obligation.
Lessee will give any Lender whose name and address have been furnished Lessee in
writing for such purpose notice of Lessor's default and allow such Lender thirty
(30) days following receipt of such notice for the cure of said default before
invoking any remedies Lessee may have by reason thereof. If any Lender shall
elect to have this Lease and/or any Option granted hereby superior to the lien
of its Security Device and shall give written notice thereof to Lessee, this
Lease and such Options shall be deemed prior to such Security Device,
notwithstanding the relative dates of the documentation of recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3. Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act of omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "NON-DISTURBANCE AGREEMENT") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
such subordination or non-subordination, attornment and/or non-disturbance
agreement as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's
Page 25
<PAGE>
fees. Such fees may be awarded in the same suit or recovered in a separate
suit, whether or not such action or proceeding is pursued to decision or
judgment. The term, "PREVAILING PARTY" shall include, without limitation, a
Party or Broker who substantially obtains or defeats the relief sought, as the
case may be, whether by compromise settlement, judgment, or the abandonment by
the other Party or Broker of its claim or defense. The attorney fees award
shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorney fees reasonably incurred. Lessor shall
be entitled to attorney fees, costs and expenses incurred in the preparation and
service of notices of Default and consultations in connection therewith, whether
or not a legal action is subsequently commenced in connection with such Default
or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any
time place on or about the Premises or building any ordinary "For Sale" signs
and Lessor may at any time during the last one hundred twenty (120) days of the
term hereof place on or about the Premises any ordinary "For Lease" signs. All
such activities of Lessor shall be without abatement of rent or liability to
Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of sign on the Premises by or for Lessee shall be subject to the
provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade
Fixtures and Alterations). Unless otherwise expressly agreed herein, Lessor
reserves all rights to the use of the roof and right to install, and all
revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of nay such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
Page 26
<PAGE>
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting
of the Premises by Lessee shall not constitute an acknowledgment that no Default
or Breach by Lessee of this Lease exists, not shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
Page 27
<PAGE>
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Deleted.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on its behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
Page 28
<PAGE>
46. OFFER. Preparation of this Lease by Lessor's agent and submission of same
to Lessee shall not be deemed an offer to lease to Lessee. This Lease is not
intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY
THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD
BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Page 29
<PAGE>
Executed at Executed at Huntington Park, CA
-------------------------- --------------------------
on on 11/8/96
----------------------------------- -----------------------------------
by LESSOR: Warner W. Henry by LESSEE: Henry Company
--------------------------- ---------------------------
Living Trust
-------------------------------------- --------------------------------------
Henry Family Trust B
-------------------------------------- --------------------------------------
By /s/ Paul Livadary By /s/ Jeffrey A. Wahba
----------------------------------- -----------------------------------
Name Printed: Paul Livadary Name Printed: Jeffrey A. Wahba
------------------------ ------------------------
Title: Title: Chief Financial Officer
------------------------------- -------------------------------
By /s/ Warner W. Henry By
----------------------------------- -----------------------------------
Name Printed: Warner W. Henry Name Printed:
------------------------ ------------------------
Title: Trustee, Henry Family Trust B Title:
------------------------------- -------------------------------
Address: Address:
----------------------------- -----------------------------
T T
-------------------------------------- --------------------------------------
Page 30
<PAGE>
ADDENDUM TO LEASE
49. SUBORDINATION.
Lessor agrees to subordinate its right to receive rental payments to
Lessee's lenders and to execute a form of subordination agreement provided
by such lenders.
50. RENT.
Rent shall be payable monthly, on the 1st of each month, commencing October
1, 1996, (and the first payment shall include prorated rent for the period
September 5, 1996 through September 30, 1996) in an amount equal to
one-twelfth of the amount determined by multiplying the publicly announced
Prime Rate of the Bank of America N.T. & S.A., by $590,025. The Prime Rate
shall be adjusted annually and shall, for each year, be deemed to the Prime
Rate as of December 31 of the immediately preceding year.
Page 31
<PAGE>
EXHIBIT A: LEGAL DESCRIPTION
THE LAND IN THE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES DESCRIBED AS
FOLLOWS:
THE WEST 95 FEET OF THAT PORTION OF THE RANCHO SAN ANTONIO, IN THE CITY OF
HUNTINGTON PARK, COUNTY OF LOS ANGELES, STATE OF CALFIORNIA, DESCRIBED AS
FOLLOWS:
BEGINNING AT A POINT IN THE NORTHERLY LINE OF THE 30 FOOT STRIP OF LAND
DESCRIBED IN THE DEED TO THE CITY OF HUNTINGTON PARK, RECORDED IN BOOK 17789
PAGE 229 OFFICIAL RECORDS, DISTANT NORTH 89 DEGREES 57 MINUTES __ SECONDS WEST
THEREON 149.41 FEET FROM THE WESTERLY LINE OF BICKE__ STREET, 40 FEET WIDE AS
DESCRIBED IN THE DEED TO CITY OF HUNTINGTON PARK, RECORDED IN BOOK 4594 PAGE 169
OFFICIAL RECORDS OF SAID COUNTY; THENCE NORTH 89 DEGREES 57 MINUTES 01 SECONDS
WEST ALONG SAID NORTHERN LINE, 351.56 FEET TO THE EASTERLY LINE OF THE RIGHT OF
WAY DESCRIBED IN THE DEED TO LOS ANGELES AND SALT LAKE RAILROAD COMPANY, A
CORPORATION RECORDED IN BOOK 6425 PAGE 277 OF DEEDS; THENCE NORTH 0 DEGREES __
MINUTES 56 SECONDS EAST ALONG THE EASTERLY LINE OF SAID RIGHT OF WAY 264.11 FEET
TO THE NORTHERLY LINE OF THE LAND DESCRIBED IN THE DEED OF PUBLIC SERVICE BRASS
CORPORATION, A CORPORATION, RECORDED IN BOOK 2___ PAGE 230 OFFICIAL RECORDS;
THENCE SOUTH 89 DEGREES 57 MINUTES __ SECONDS EAST ALONG SAID LAST MENTIONED
NORTHERLY LINE TO A LINE WHICH PASSES THROUGH THE POINT OF BEGINNING AT RIGHT
ANGLES TO SLAUSON AVENUE; THENCE SOUTHERLY IN A DIRECT LINE TO THE POINT OF
BEGINNING.
Page 32
<PAGE>
GROUND LEASE
THIS LEASE is made and entered into at Huntington Park, California, by
and between FRANCES W. HENRY, as Trustee of Trust A, and FRANCES W. HENRY and
NEWTON F. WHEELER, as Trustees of Trust B, under the WARNER W. HENRY FAMILY
TRUST, dated June 24, 1969, as to an undivided seven-eighths (7/8) interest, and
FRANCES W. HENRY, as Trustee under Declaration of Trust for DOROTHY H. FLOYD,
dated June 24, 1969, as to an undivided one-eighth (1/8) interest, hereinafter
referred to as "Lessors", and the W. W. HENRY COMPANY, a California corporation,
hereinafter referred to as "Lessee".
This Lease is premised as follows:
A. Under date of August 1, 1958, Warner W. Henry, as Lessor, entered into
a lease with Lessee of the premises in Los Angeles County, California commonly
designated as 5731 Bickett Street, Huntington Park, California, and more
particularly described as follows:
Lots 3 and 4 of Tract 11317, as per Map recorded in Book 219, Page 23
of Maps in the Office of the County Recorder of said county.
B. Said lease above referred to was for a term of twenty (20) years,
terminating on July 31, 1978. Subsequent to the execution of said lease, Warner
W. Henry conveyed his interest in said property, in trust, to Lessors.
C. The parties now desire to amend and renew said lease and to restate
its terms.
NOW, THEREFORE, IT IS AGREED, as follows:
Lessors lease to Lessee, and Lessee leases from Lessors, the real
property
-1-
<PAGE>
described in paragraph A hereof, subject to the following terms and conditions:
1. TERM:
The term of the lease is for twenty (20) years commencing on the
lst day May, 1976, and terminating on the 30th day of April, 1996.
2. RENTAL:
The rental for the initial five (5) years of the term shall be
Three Hundred Twenty-four Thousand Dollars ($324,000), payable at the rate of
Five Thousand Four Hundred Dollars ($5,400) per month. The first month's
rental of the initial term shall be paid as of May 1, 1976, and on or before
the 1st day of each succeeding month thereafter so long as this lease is in
force and effect. The rental shall be adjusted either upward or downward for
each subsequent five (5) year period of the term. Ninety (90) days prior to
the termination of such five (5) year term the parties shall confer and
negotiate for the rental of the succeeding five (5) year period of the lease.
If the parties are unable to agree upon such rental within thirty (30) days
prior to the termination date of any term, then the rental for such term
shall be settled by arbitration in accordance with the provisions of the Code
of Civil Procedure of the State of California.
3. USES AND PURPOSES:
The leased premises are to be used by Lessee for the purpose of
carrying on the manufacturing and sale of sealants, coatings and adhesives and
for all other purposes reasonably related thereto, but for no other purpose or
purposes.
4. TAXES AND INSURANCE:
Lessee shall pay when due all property taxes and personal
property taxes for all property upon the demised premises, and shall not permit
such taxes to become
-2-
<PAGE>
delinquent or to become a lien against the real, or any of the personal
property, located upon the demised premises. If, at any time, any such taxes or
assessments are assessed or become a lien against Lessors or the real property
of which the demised premises are a part by reason of the presence in or
installment on or attachment to the premises of any improvements, fixtures,
alterations, additions, or other property by Lessors or Lessee, or by any other
person occupying or using any part of the premises under or through Lessee,
Lessee shall pay to Lessors within ten (10) days after written request therefor
an amount equal to any such taxes or assessments.
Lessee shall keep the real property and the personal property
upon the demised premises insured at not less than ninety (90) per cent of its
full insurable value. Such insurances shall be written in a company or
companies and in an amount or amounts satisfactory to Lessors. Lessors shall be
the named assured in such policies of such insurance and all of such policies
shall be delivered to Lessors and retained by Lessors.
5. UTILITIES:
In addition to the rent herein reserved, Lessee shall pay before
delinquency all charges for utility services received and used by it. In the
event Lessee assigns this lease in the manner hereinafter provided or sublets
all or any portion of the demised premises, such subletting or assignment shall
not relieve Lessee of its obligations hereunder.
6. CONDITION OF THE PREMISES:
Lessee acknowledges that it has examined the premises and that no
statements or representations not herein expressed as to the past, present, or
future condition or repair thereof or any structure of which they are a part
have been made by or on behalf of
-3-
<PAGE>
Lessors. Except as set forth in Paragraph 7 hereof, Lessee expressly waives any
right to require Lessors to make repairs, or to make repairs at the cost of
Lessors which Lessee might have under the provisions of Sections 1941 and 1942
of the Civil Code of California. Lessors shall not be liable to Lessee for or
on account of any injury or damage of any kind whatsoever to persons or property
occasioned in or about the premises resulting from any patent or latent defect,
structural or otherwise, in the condition of the demised premises which under
the terms of this lease Lessee is to keep in repair; or the use, misuse, or
disuse of the building or structures thereupon or any part thereof, or of any
equipment therein, or by any other tenant or occupant, or by or from any act,
omission or neglect of any sublessee or assignee of the Lessee, or by or from
any act of owners or occupants of adjoining or contiguous property. Lessee
indemnifies Lessors against and agrees to hold Lessors harmless from any loss,
damage, claim of damage, liability, or responsibility, including costs of
litigation and reasonable attorneys' fees, arising out of or resulting from any
injury or damage or claim of injury, or damage of any kind whatsoever, to
persons or property occasioned in or about the premises during the term hereof,
and due directly to the use, misuse, or disuse by Lessee or by any person or
persons wholly under or using the premises by license of Lessee, or the
condition of the demised premises or any part thereof which under the terms of
this lease Lessee is to keep in repair.
7. REPAIRS:
Lessee agrees, at its own expense to keep the demised premises in
good condition and repair at all times during the term hereof, to make promptly
all repairs, renewals and replacements which at any time are necessary or proper
to put and keep the premises in as good condition as that in which it was
received by Lessee from Lessors, and that at the end of
-4-
<PAGE>
the term hereof, or upon sooner termination as herein provided, to surrender the
premises to Lessors in as good condition and repair as received, normal wear and
tear and damage by fire, earthquake, the elements or other conditions beyond
Lessee's control excepted.
8. GOVERNMENTAL REGULATIONS:
Lessee at Lessee's own expense, shall conform in every respect to
all laws, statutes, ordinances and regulations now in force, or that are enacted
hereafter which affect the use or occupancy of the demised premises and shall
save Lessors harmless from all penalties, damages, or charges imposed for any
violation of any laws, ordinances, and lawful regulations issued thereunder
whether occasioned by neglect, omission, or willful act of Lessee, or any person
in the premises holding or occupying them, or any part thereof, under or by
license of Lessee, and from and against all expense, including costs of
litigation and reasonable attorneys' fees incurred in the investigating,
resisting or compromising any claim asserted with respect to any of the
foregoing. If Lessee in good faith contests any such law, statute, ordinance or
regulation, Lessee shall not be in default hereunder until a final determination
of said contest, adverse to Lessee.
9. COVENANTS AGAINST ASSIGNMENT AND SUBLETTING:
Lessee agrees not to sublet the premises or any part thereof and
not to transfer, assign, hypothecate or encumber this lease or any part thereof
or any right of interest therein, or to sublet, assign, or license any other
persons to use the demised premises or any part thereof, without first obtaining
Lessors' written consent for any of the above named actions. Any such transfer,
assignment, hypothecation or encumbering, or any subletting or license with
Lessors' consent shall not release Lessee of its obligation to pay the reserved
rentals should any such sublessee, assignee, licensee or other transferee of
Lessee's interest in
-5-
<PAGE>
this lease default in the paying of the reserved rentals. No corporation, firm
or person other than Lessee shall have the right to occupy the premises or any
part thereof by virtue of any transfer or assignment or by virtue of any
bankruptcy or insolvency or reorganization proceeding or any receivership or any
other legal process, either under attachment, execution or otherwise, or in any
manner whatsoever growing out of any proceeding or suit at law or equity.
10. DAMAGES BY CASUALTY:
Should the demised premises be partially damaged or destroyed or
be declared unsafe or unfit for occupancy by any authorized public authority for
any reason other than Lessee's act, use or occupation, and repairs can be made
within ninety (90) days, Lessors, within fifteen (15) days after the happening
of the casualty or declaration, shall elect either to repair the demised
premises or not to repair the same. If Lessors elect to make such repairs, this
lease shall not terminate, but Lessee shall be entitled to proportionate
reduction of rent while such repairs are being made, such proportionate
reduction shall be based upon the portion of the leased premises rendered
untenantable or unusable. If Lessors elect not to make such repairs, this lease
may be terminated at the option of either of the parties. If such repairs
cannot be made within ninety (90) days, this lease may be terminated at the
option of either of the parties. Upon the total destruction (including any
destruction required by any authorized public authority) at any time during the
term of this lease of either the leased premises or the building or structures
of which they are a part, either party shall have the option to terminate this
lease.
1. RESTRICTIONS AGAINST USE:
-6-
<PAGE>
Lessee agrees:
a. Not to use or suffer or permit the premises or any part
thereof to be used for any purpose or use in violation of any law, ordinance, or
lawful regulation of any governmental authority, but if Lessee in good faith
contests any such law, ordinance, or regulation, Lessee shall low not be in
default hereunder until a final determination of such contest if such
determination is adverse to Lessee; or to be used in any manner which will
constitute a nuisance, or that might injure the reputation of the demised
premises or any part thereof, or in any manner that might cause a cancellation
of any policy or policies of insurance covering the building or structures of
which the demised premises are a part, or suspend, avoid, make inoperative or
increase the rate of any fire, rental insurance, or other insurance, at any time
carried on the building or structures or any of its contents. Nothing herein
contained, however, shall prohibit Lessee from using the building for the uses
and purposes set forth in Paragraph 3 hereof.
b. Not to suffer, or permit the premises or any part thereof to
be used in any manner that will injure or impair the structural strength of any
building or structures thereupon;
c. Not to suffer or permit to be installed or used in the
demised premises any machinery or apparatus the weight or vibration of which
would tend to injure or impair the structural strength of any structure or
structures on the demised premises.
11. LESSORS' RIGHT TO ACCESS:
At all times during normal working hours during the term hereof,
Lessee shall allow Lessors free access to the demised premises for purposes of
inspection and for purposes of making such repairs as Lessors are required to
make by the terms of this lease, or
-7-
<PAGE>
which Lessors may deem necessary for their protection or the protection of the
property.
12. LESSORS' RIGHTS ON DEFAULT:
If at any time Lessee defaults for ten (10) days in the payment
of the rent herein provided for, or defaults in the performance of any of
Lessee's agreements contained herein and such default continues after thirty
(30) days' notice in writing to Lessee specifying in reasonable detail the event
of default, Lessors may re-enter the demised premises, either with or without
notice or process of law, and occupy or sublease the whole or any part thereof
for and on account of Lessee at a reasonable rental, and may collect the rent
and apply it towards the amounts due to Lessors from Lessee. Should the subrent
be insufficient to pay the expense of subletting and also rent in the amount
herein agreed to be paid by Lessee, Lessee agrees to pay the deficiency to
Lessors monthly in advance, on the day of each month herein specified for the
payment of rent. Lessors shall not be deemed to have terminated this lease, or
the liability of Lessee to pay the rent thereafter to accrue, or Lessee's
liability for damages, by any re-entry or by any action in unlawful detainer or
otherwise, unless Lessors notify Lessee in writing that Lessors have elected to
terminate this lease. Unless Lessors elect to the contrary at the time of or at
any time subsequent to the re-entry by Lessors, or to the service by Lessors of
any notice pursuant to the unlawful detainer statutes of the State of
California, neither the service of such notice nor the surrender of possession
by Lessee pursuant thereto shall be deemed to be a termination of this lease.
Nothing herein contained shall be construed as obligating Lessors to sublease
the whole or any part of the demised premises. In the event of any re-entry and
taking possession of the demised premises as aforesaid, Lessors shall have the
right, but not the obligation, to remove therefrom all or any personal property
owned by Lessee located therein and place the same in storage in a public
warehouse at the expense and
-8-
<PAGE>
risk of the owners thereof. Should Lessors terminate this lease, however, by
reason of any breach of Lessee, Lessors shall thereupon be entitled to recover
from Lessee the worth at such time of termination of the excess, if any, of the
amount of rent and charges equivalent to rent reserved in the lease for the
balance of the stated term or for any shorter period of time over the then
reasonable rental value of the demised premises for the same period.
13. ATTORNEYS' FEES IN CASE OF LITIGATION:
In the event of any litigation between Lessors and Lessee to
enforce any of the provisions of this lease or any right of either party hereto,
the unsuccessful party to such litigation agrees to pay to the successful party
all costs and expenses, including reasonable attorneys' fees incurred therein by
the successful party, all of which shall be included in and as a part of the
judgment rendered in such litigation. Should Lessors, without fault on Lessors'
part, be made a party to any litigation instituted against Lessee, Lessee
covenants to pay to Lessors all costs and expenses, including reasonable
attorneys' fees, incurred by Lessors in or in connection with such litigation.
14. LESSORS' RIGHTS ARE CUMULATIVE:
The various rights, options, elections, powers and remedies of
Lessors contained in this lease shall be construed as cumulative, and no one of
them as exclusive of any of the others or of any other right or priority allowed
by law. No waiver by Lessors of any breach by Lessee of any term or condition
of this lease shall be construed to be a waiver of any proceeding or succeeding
breach of the same or any other term or condition.
15. NON-LIABILITY OF LESSORS:
-9-
<PAGE>
Notwithstanding any provision contained in this lease, Lessors
shall not be in default and shall not be liable to Lessee or to any other person
whomsoever for damages or otherwise should Lessee be deprived in whole or in
part of any service, or prevented in whole or in part from moving goods, wares,
merchandise, or other property into or out of the building or the demised
premises or be otherwise interfered with or prevented in whole or in part from
operating its business by reason of any act of God, fire, earthquake, casualty,
or by any strike, lockout, labor dispute, or labor controversy, or by any other
condition or cause other than the willful default of Lessors, whether or not
such cause is of the same kind or class as any of those expressly enumerated in
this paragraph, or whether it is of a different kind or class.
16. HOLDING OVER:
Should Lessee hold over and remain in possession of the demised
premises after the term hereof, with the expressed or implied consent of
Lessors, such holding shall be construed as a tenancy from month to month at the
same rental for the last five (5) year term and upon the same conditions as
herein provided, except that Lessors may terminate such month to month tenancy
upon thirty (30) days written notice.
17. EFFECT OF PARAGRAPH HEADINGS:
The titles or headings of the various paragraphs hereof are
intended solely for convenience of reference and are not intended and shall not
be deemed for any purpose whatever to modify, explain or place any construction
upon any of the provisions of this lease.
18. PARTIES BOUND:
-10-
<PAGE>
This lease shall be binding upon and inure to the benefit of, as
the case may require, the parties hereto and their respective heirs, executors,
administrators, successors, and assigns, subject at all times nevertheless to
all agreements and restrictions herein contained with respect to subleasing,
assignment or other transfer of Lessee's interest herein.
19. CONDEMNATION:
If a major portion of the demised premises, "major portion" being
defined as over fifty (50) per cent of the total area initially included within
the demised premises or any part of the structure or structures for which the
cost of replacement exceeds fifty (50) per cent of the original cost of such
structure or structures, shall be condemned or otherwise taken for public use,
either party shall have the right to cancel and terminate this lease effective
on the date when the property is actually taken. If Lessors elect to terminate,
they must notify Lessee of their intention at least twenty (20) days prior to
the date of actual taking. If Lessee elects to terminate, it must notify
Lessors in writing of such election and such notice must be given within twenty
(20) days of receipt of written notice from Lessors that the property has been
condemned. If a portion (less than a major portion) of the demised premises
shall be condemned or otherwise taken for public use, but the taking is such
that the improvements can be moved or replaced or rearranged so as to provide
facilities and a location to the extent that Lessee may carry on its activities
in substantially the same manner in which it carried on such activities prior to
the taking, this lease and all of the provisions thereof shall continue in full
force and effect. In the event of such condemnation or taking, the entire award
for the property taking including the award for damages to the improvements and
Lessors' equipment shall be paid to and belong wholly to Lessors. Lessee shall
not be entitled
-11-
<PAGE>
to take any part of the award or to any damages by reason of the taking, except
that if the award is attributable in part to any machinery or alterations added
by Lessee which Lessee would be entitled to remove upon the termination of the
lease, then Lessee shall be entitled to the portion of the award attributable
thereto. If the taking is such that this lease continues in force or if Lessors
or Lessee did not elect to terminate the lease in case of major taking, lessors,
at their own cost and expense, shall within a reasonable time after such taking,
move, rearrange, repair and reconstruct the improvements so as to leave the
premises in arrangement and location substantially the same, so far as fitness
for use for Lessee's purposes is concerned, as existed before the taking.
20. SUCCESSION:
This lease shall be binding upon the parties hereto, their heirs,
successors, executors, administrators and assigns.
21. NOTICES:
All notices required to be given hereunder, or which the parties
may wish to give, shall be in writing. Such notices shall be transmitted by
United States mail, as registered matter, postage fully prepaid, and described
as follows:
To Lessee:
The W. W. Henry Company
5608 Soto Street
Huntington Park, California 90255
To Lessors:
Frances W. Henry and Newton F. Wheeler,
Trustees
395 North San Rafael Avenue
Pasadena, California 91105
Notices shall be deemed received upon delivery, but in any event shall be deemed
received
-12-
<PAGE>
three days after posting.
Executed in duplicate at Huntington Park, California, April 30,
1976.
FRANCES W. HENRY
as Trustee of Trust A under
the Warner W. Henry Family
Trust dated June 24, 1969
/s/ FRANCES W. HENRY
------------------------------------
FRANCES W. HENRY
FRANCES W. HENRY and
NEWTON F. WHEELER
as Trustees of Trust B under
the Warner W. Henry Family
Trust dated June 24, 1969
/s/ FRANCES W. HENRY
------------------------------------
FRANCES W. HENRY
/s/ NEWTON F. WHEELER
------------------------------------
NEWTON F. WHEELER
FRANCES W. HENRY
as Trustee under Declaration of Trust
for Dorothy H. Floyd,
dated June 24, 1969
/s/ FRANCES W. HENRY
------------------------------------
FRANCES W. HENRY
LESSORS
THE W. W. HENRY COMPANY
-13-
<PAGE>
By /s/ WARNER WHEELER HENRY
---------------------------------
Warner Wheeler Henry
President
By
---------------------------------
Secretary
LESSEE
-14-
<PAGE>
Extension of Ground Lease for Property Located at 5731 Bickett St.
A lease was entered into for the property located at 5731 Bickett St.,
Huntington Park, California for the period from May 1, 1976 to April 30, 1996
(see attached). The parties to this lease, the Lessor, (Warner W. Henry trustee
for the Warner Wheeler Henry Living Trust and Paul J. Livadary trustee for Trust
B) and the Lessee, Henry Company, desire to renew this lease under the same
terms and conditions as the existing lease.
Now therefore, it is agreed, as follows: lessors lease to lessee, the lessee
leases from lessors, the real property described in paragraph A of the attached
lease, subject to the same terms and conditions as exists in the attached lease,
beginning May 1, 1996 and terminating on April 30, 2016.
Executed at Huntington Park, California on December 11, 1996.
Lessors Lessee
Warner W. Henry Henry Company
as Trustee for the Warner W. Henry
Living Trust
/s/ Jeffrey A. Wahba
- ---------------------------------------- -------------------------------------
Jeffrey A. Wahba, CFO & Secretary
Warner W. Henry
Paul J. Livadary
as Trustee for the Henry Family Trust B
- ---------------------------------------
Paul J. Livadary
<PAGE>
MACHINERY LEASE
THIS AGREEMENT made and entered into at Huntington Park, California,
this 1st day of August, 1958, by and between WARNER W. HENRY, hereinafter called
"Henry" and THE W.W. HENRY COMPANY, a California corporation, hereinafter called
"Company."
W I T N E S S E T H:
This Agreement is made with reference to the following facts:
a. Contemporaneously herewith Henry and Company have entered
into an Agreement of Lease (hereinafter called "Ground Lease") by the
terms of which Henry has leased Company and Company has leased from
Henry its certain premises located at 5731 Bickett Street, Huntington
Park, California, and more particularly described in said Ground
Lease.
b. Henry has been engaged in the business of manufacturing and
selling sealants, coatings and adhesives in the property covered by
the Ground Lease. It is the desire of Company to lease from Henry the
machinery, equipment, office furniture and fixtures owned by Henry
located on the Ground Lease so that Company may continue in the
business previously operated by Henry.
NOW, THEREFORE, in consideration of the premises and the mutual
obligations of the parties herein stated, it is agreed:
1. Company leases from Henry and Henry leases to Company that
certain
1
<PAGE>
machinery and equipment and furniture and fixtures located on the Ground Lease.
Said machinery and equipment are described in the schedule thereof, attached
hereto, marked Schedule "A", and by this reference incorporated herein and made
a part hereof.
2. The term hereof is for five (5) years and by agreement of the
parties may be extended for three (3) additional five (5) year terms. The
rental for such machinery and equipment during the initial term shall be Thirty
Thousand Dollars ($30,000), payable Five Hundred Dollars ($500.00) on August 1,
1958, and Five Hundred Dollars ($500.00) on the first day of each succeeding
month of the initial term. Should the parties desire to extend this Agreement
after the expiration of the initial term, or any extended term hereof, they
shall confer at least ninety (90) days prior to the expiration of the initial
term or any extended term and negotiate in good faith to determine the rental
for such machinery and equipment for any extended term hereof. In the event
that parties are unable to agree on the rental for such extended term within
sixty (60) days prior to the expiration of the term, then the rental for the
extended term shall be determined by arbitration conducted in accordance with
the provisions of the Code of Civil Procedure of the State of California. Such
determination shall be binding upon the parties hereto.
3. Company, at its own cost and expense, shall maintain the leased
machinery and equipment in good and operative mechanical condition and shall not
allow the machinery or equipment to be abused or to deteriorate, normal wear and
tear excepted. Should any of the machinery and equipment become unusable
because of obsolescence, but for no other reason, Company shall notify Henry.
If Henry elects to replace such obsolescent machinery and equipment, he may do
so at his own cost and expense. If Henry elects not to place such item or items
of machinery and equipment, the Company may make such replacement or
replacements.
2
<PAGE>
In the event that Company makes such replacement or replacements the rental for
the term shall be reduced by the ratio that the initial cost of the item or
items replaced bears to the total cost of all the items listed in Schedule "A".
As an illustration, if the initial cost of a particular item was Ten Thousand
Dollars ($10,000), and as the total initial cost of all items listed in Schedule
"A" was One Hundred Twenty-Six Thousand One Hundred Five Dollars and Thirteen
Cents ($126,105.13), then the rental commencing with the month subsequent to the
installation of such replacement item shall be reduced by 10,000/126,105.13.
4. Company shall, at its own cost and expense, keep such machinery
and equipment insured against loss or damage by fire and any other casualty and
shall cause said policy to cover both Company and Henry. Such insurance shall
be in an amount equal to the full insurable value of such machinery and
equipment and shall be placed in a company or companies satisfactory to Henry.
Henry shall be the named assured in such policies of such insurance and all of
such policies shall be delivered to Henry and retained by him.
5. At all times during normal working hours during the term hereof,
Company shall allow Henry free access to the demised premises for purposes of
inspection and for purposes of making such repairs as Henry is required to make
by the terms of this lease, or which Henry may deem necessary for his protection
or the protection of the property.
6. In the event that the Ground Lease referred to in Paragraph a. of
the Recitals herein is terminated for any reason whatsoever, this Agreement
shall automatically terminate concurrently with the termination of the Ground
Lease and without further action of the parties.
7. Upon the termination of this Agreement for any reason whatsoever,
Company shall surrender all machinery and equipment herein leased to Henry in as
good
3
<PAGE>
condition as received, normal wear and tear excepted.
8. Company shall not hypothecate or mortgage said machinery or
equipment or any part thereof. Neither shall Company suffer or permit any lien
or liens of whatsoever nature to attach against said machinery or equipment.
Henry shall have the right but not the duty to affix to such machinery and
equipment metal tags or other appropriate markings to show that such machinery
and equipment is the property of Henry and not the property of Company.
9. This Agreement shall not be assigned by Company, whether by
operation of law or otherwise, and any such assignment shall forthwith terminate
this Agreement. Should Company be adjudged insolvent or bankrupt or make a
composition for creditors or make an assignment for the benefit of creditors,
this Agreement shall upon the occurrence of any one or more than one of such
events automatically cease and terminate without further action of the parties.
No creditors' committee, assignee for the benefit of the creditors, referee, or
trustee in bankruptcy shall under any circumstances acquire any interest in this
Agreement, or any interest in such machinery and equipment, or the right to use
the same or any part thereof. In the event of the occurrence of any one or more
than one of such events, Henry shall have the absolute right to enter into and
upon the property covered by the Ground Lease, remove all machinery and
equipment or make such other disposition thereof as he deems expedient. This
latter right in Henry is absolute and Henry will have such right with or without
[REMAINDER OF PARAGRAPH ILLEGIBLE].
10. Should the premises be destroyed by fire or other casualty, then
the parties hereto shall have the same rights as set forth in paragraphs 10 and
15 of the Ground Lease which said paragraphs are incorporated herein by
reference as though set forth in full.
11. Notwithstanding any provisions of this Agreement to the contrary,
and
4
<PAGE>
particularly paragraphs 2 and 3 hereof, should Henry elect to replace a piece of
obsolescent machinery or equipment and should the replacement cost be in excess
of ten percent (10%) of the depreciated value of said equipment, as the same is
shown on the attached Schedule "A", then there shall be added to the total
rental cost for the machinery and equipment an additional rental which shall be
negotiated by the parties and which shall take into consideration the cost of
such new item of equipment in excess of the depreciated cost shown on said
schedule Exhibit "A" and such rental shall provide sufficient return to cover
the depreciation of said equipment at least as rapidly as the depreciation of
said equipment at least as rapidly as the depreciation allowed for income tax
purposes and to return a reasonable profit on the investment over the life of
the equipment. If mutual agreement cannot be reached as to a fair rental value
for such new equipment then each party hereto shall designate an arbitrator to
fix said rental rate and if the two arbitrators cannot agree they in turn will
select a third arbitrator and the decision of any two of the three arbitrators
shall be final and binding on the parties hereto. The cost of the third
arbitrator shall be borne mutually by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
this 1st day of August, 1958.
THE W. W. HENRY COMPANY WARNER W. HENRY,
By /s/ Warner Wheeler Henry /s/ Warner W. Henry
--------------------------- ---------------------------
President
5
<PAGE>
RECAPITULATION
OF
LEASED EQUIPMENT
<TABLE>
<CAPTION>
NUMBER OF
DESCRIPTION ITEMS TOTAL COST VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Office Equipment 61 $8,354.31
Mobile Equipment 4 13,856.35
Factory Machinery & 104 92,404.20
Equipment
Laboratory Equipment 16 11,490.27
--- -----------
185 TOTALS $126,105.13
--- -----------
</TABLE>
Schedule "A" consisting of nine (9) pages
1
<PAGE>
OFFICE EQUIPMENT
<TABLE>
<CAPTION>
NO. OF
------
ITEM UNITS DESCRIPTION
---- ----- -----------
<S> <C> <C> <C>
1. 1 Typewriter, Underwood - #3870415-5 $38.55
2. 1 File, 4 Drawer Steel Letter 25.75
3. 1 Safe, #525885 132.87
4. 1 Cabinet, Storage #4236 25.62
5. 1 Executone - Interoffice Communication - #104827 70.50
6. 1 Table, Small Steel 15.38
7. 2 Chairs, Mahogany Arm 15.38
8. 1 Desk, Mahogany 42" F.T. 30.75
9. 1 Heater, Gas - Model #13 30.95
10. 1 Desk, 60" Walnut - 60" x 32" 45.61
11. 1 Executone - Interoffice Communication - #136140 97.01
12. 1 Table - #6005 Walnut 40.48
13. 1 Table - #27 Walnut - 36" 17.94
14. 2 Heaters - (restrooms) 21.53
15. 1 Desk, FT - #B5785 - Walnut 60"x34" 56.38
16. 1 Cabinet, Counter High Wood Storage - #4236 -14--42x36x21" 25.63
17. 1 Multiplier - Clary #370 218.36
18. 1 Table - Walnut - 60" 38.62
19. 1 File - 4 Drawer Letter 88.58
20. 1 Desk, 60" Walnut 82.40
21. 1 Desk, 60"x34" Walnut FT 95.28
22. 1 Chair, Walnut #7112 - Rotary H/P 24.72
23. 1 Chair, Walnut - Sykes Arm Rotary 35.02
24. 3 Chairs, Walnut - 3 H/P Arm #7111 60.26
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NO. OF
------
ITEM UNITS DESCRIPTION
---- ----- -----------
<S> <C> <C> <C>
25. 1 Typewriter, Royal 11" Elite - #KMM3557018 155.59
26. 1 Duplicator, Multigraph #458065 790.10
27. 1 Typewriter, Remington Rand #J-1608306 176.63
28. 1 Calculator - Friden #ST W10-6922 825.26
29. 1 File, 2 Drawer Letter - Colombia #602-L og. 75.36
30. 1 Heater, Unit - office 259.62
31. 1 Chair, Posture - Steel frame 31.95
32. 1 File, 4 drawer letter - grey 100.00
33. 1 Typewriter, Royal - #KM6 15-4599027 175.00
34. 1 Desk, 60" Walnut 59.50
35. 1 Desk, Executive, Oak (Soft tone) 164.57
36. 1 Chair, Executive, Oak (Soft tone) 81.77
37. 1 Frieden Calculator - #ADF 494978 650.00
38. 1 Memotape 343.23
39. 1 Fan, Electric #12 LA 25.46
40. 1 Desk, Grey Metal 187.30
41. 1 Typewriter, Smith-Corona Portable - #5S-446484 90.52
42. 2 Carpets (wall to wall) 542.58
43. 1 Desk, Executive - Light green metal 237.06
44. 14 Venetian blinds )
) 175.50
45. 6 Cornice boxes )
46. 1 Addressograph - model #30 115.00
47. 1 Cabinet, green file 81.35
48. 1 Desk, Grey steel - single pedestal 103.05
49. 1 Desk, Grey steel - single pedestal 103.05
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NO. OF
------
ITEM UNITS DESCRIPTION
---- ----- -----------
<S> <C> <C> <C>
50. 2 Chairs, Occasional 145.35
51. 2 Chairs, Occasional 263.93
52. 1 Chair, Executive 150.24
53. 1 Chair, Executive 110.07
54. 1 Bookcase, grey 99.80
55. 1 Cabinet, green with base and top 83.10
56. 1 Desk, walnut #6001 89.25
57. 1 Chair, Hipoint swivel 34.00
58. 1 Table, green metal 128.56
59. 1 Table, grey metal 122.40
60. 1 File, Letter - green - # 4 drawer 131.54
61. 1 File, Letter - grey - 2 drawer 113.05
---------
$8,354.31
---------
</TABLE>
4
<PAGE>
MOBILE EQUIPMENT
<TABLE>
<CAPTION>
NO. OF
------
ITEM UNITS DESCRIPTION
---- ----- -----------
<S> <C> <C> <C>
1. 1 Truck, Chevrolet - #N305694CAL $1,704.10
2. 1 Towmotor, #4446473 - Model LT-44 2,725.50
3. 1 Towmotor, #4205198 - Model #420 4,007.50
4. 1 Towmotor, #420580023 - Model #420 5,419.25
----------
TOTAL $13,856.35
----------
</TABLE>
5
<PAGE>
FACTORY MACHINERY AND EQUIPMENT
<TABLE>
<CAPTION>
NO. OF
------
ITEM UNITS DESCRIPTION
---- ----- -----------
<S> <C> <C> <C>
1. 1 Mixer, Linoleum Cement $1,000.00
2. 1 Stencil Machine 65.00
3. 1 20' Section Roller Conveyor )
) 144.91
4. 1 10' Section Roller Conveyor )
5. 1 Mixer, Fiber Coating with coil heater - 1000 gal. capacity 1,511.41
6. 1 #100 Barrel Truck )
) 80.98
7. 1 #100 Barrel Truck )
8. 1 Motor-1/2 HP-Plastic Filler - Motor #429605, Frame #56-5-10 62.53
9. 1 Steel Stand - for mixer )
) 128.32
10. 1 Steel Stand - for mixer )
11. 1 Set Pipe Fitting Tools & Equipment, dies, reamer & cutter 54.30
12. 1 Machine, plastic filling - screw type 230.63
13. 32 Steel Lockers 131.20
14. 1 Truck - American Daisy, Hand 15.07
15. 1 Labeling Machine - 1/4 HP - Burt 563.75
16. 1 Lift Truck - hand operated 173.53
17. 1 Electric Welding Outfit - with accessories 340.30
18. 1 Boston Stitcher & Coils - 14B - #2006 382.79
19. 1 Labeler, Standard Knapp H.D. - 3/4 HP 1,795.27
20. 4 10' Conveyor Sections )
)
21. 2 5' Conveyor Sections )
) 206.10
22. 3 Quick Adjusting Stands - #1800 )
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NO. OF
------
ITEM UNITS DESCRIPTION
---- ----- -----------
<S> <C> <C> <C>
)
23. 2 Quick Adjusting Stands - #1218 )
24. 1 2" Meter #27190 with counter #L2045 )
) 190.96
25. 2 2" E Strainers - #22869 and #22862 )
26. 1 Conveyor, Portable, Motor Driven 6" - 1/4 471.81
27. 1 Motor, 30 HP Electric - Serial #34EM1776 481.38
28. 1 Machine, Foot Closing 45.08
29. 1 Machine, Mixing - gas fired with mixing kettle - 48"x60"x144" 4,046.76
30. 1 Pump, Moyno - Type CDQ Frame B6-6 368.00
31. 1 Tank, Cone Bottom - 1000 gallon 278.39
32. 1 Sterling motor - 1-1/2 HP - #4059F7H 480 195.70
33. 1 Duplex Adjust-o-feeder with electric motor - Model 4Xdl 2,808.50
34. 1 Bowser meter - #7428043 414.54
35. 1 Mixer, type #600 1,133.00
36. 1 Truck, Flat Bed - 58.26
37. 1 Meter, Bronze case for alcohol - #1365484 76.72
38. 1 Scale - Portable - Fairbanks-Morse - #G051319 49.71
39. 1 Multigraph with rail segment - #421084 (Sold 7/1/57. Rent reduced) 2,188.34
40. 1 Scale - Portable - Fairbanks-Morse - #G041056 52.58
41. 1 10' Fr. section of conveyor 74.98
42. 1 Machine, Mixing #1 - 100 gal. #40838 3,555.76
43. 1 Electric drill - #2011293 74.16
44. 1 Mixer, Portable Electric - #RE-158 13 139.73
45. 1 Mixer, Machine #2 - 40837 3,600.54
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NO. OF
------
ITEM UNITS DESCRIPTION
---- ----- -----------
<S> <C> <C> <C>
46 1 Pyrometer 377.78
47 1 Mixer, Machine #3 - #40835 3,933.42
48 1 Filling machine - 2 HP 702.85
49 1 Timer 77.30
50 1 Mixer, Crown Waste - 15 HP 1,520.00
51 1 Closing Machine - #E-1057 41.16
52 1 Closing Machine - #7405-D 35.28
53 1 Closing Machine - #7929-D 33.32
54 1 Closing Machine - #10580-D 33.32
55 1 Closing Machine - #2505-1 HP 784.00
56 1 Automatic closing machine - #12A378 940.80
57 1 Hammer Mill 194.72
58 1 Lot Emulsion Equipment 1,007.91
59 1 Mixing Machine #4 - #15 VI/H BS 4,098.74
60 1 30 HP Plastic Mixer 2,923.82
61 1 Mixer for tile cement cleaner - 1 HP 423.30
62 1 Filter, Can 687.08
63 1 Mixer, Crown Paste - used - 7-1/2 HP 1,015.00
64 1 Motor - #C 910859 - 7-1/2 HP 622.20
65 1 Motor - #C 910860 - 7-1/2 HP 622.20
66 1 Tank, 25,000 gallon U.O. lignon - 7-1/2 HP 2,435.00
67 1 Mixer, 1000 gallon linoleum paste - 15 HP 3,150.00
68 1 Pump, Cutback tank - #66305 700.75
69 1 Pump, Steam refined asphalt tank - #66306 700.75
70 1 Pump, with motor - #917316 - 10 HP 298.00
71 1 Tank, 5000 gallon linoleum paste 934.00
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NO. OF
------
ITEM UNITS DESCRIPTION
---- ----- -----------
<S> <C> <C> <C>
72 1 Tank, 5000 gallon Cone bottom 934.00
73 1 Mixer, Motor #262437 300.00
74 1 Pump, Model #02AVI - Serial #139667 215.10
75 1 Pump, Model #02AVI - Serial #139668 215.10
76 1 Screw conveyor Unit A-5 HP 1,457.34
77 1 Screw conveyor Unit B-3 HP 1,203.33
78 1 Screw conveyor Unit C-3 HP 1,167.33
79 1 Mixer, B-P #5-40 HP 3,564.25
80 1 Miscellaneous piping 3,515.29
81 1 Steam boiler - Model 4 LG 3,795.00
82 1 Sodium Zeolite Softener )
) 380.00
83 1 Blow off tank )
84 1 Pump, Moyno 819.50
85 1 Pump, Moyno 819.50
86 1 Motor, #19181 - 10 HP 185.00
87 1 Motor, #158206 - 10 HP 185.00
88 1 Tank 62.00
89 1 Tank 62.00
90 1 Tank 60.67
91 1 Cutter, Used - 22" 340.00
92 1 Orth-O-Meter - #18387 330.00
93 2 Mixer Tanks 420.00
94 1 Mixer - #931 - Model FGS-1 )
) 1,006.90
95 1 Mixer - #937 - Model FGS-1 )
96 1 Mixer - 50 Gallon 400.00
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NO. OF
------
ITEM UNITS DESCRIPTION
---- ----- -----------
<S> <C> <C> <C>
97 1 Mixer - Used - 7-1/2 HP - S#5251174 250.00
98 1 Portable Pump 125.00
99 1 Shears, 36" foot with blades - used 125.00
100 1 Condensate Preheater assembly - #40393 153.20
101 1 Machine, Extrusion 1,685.00
102 1 Wiring on equipment - lot 12,000.00
103 1 Sweeper, Power with side broom - #V159-A 920.00
104 1 Scale, Toledo fan #1174 225.00
----------
TOTAL $92,404.20
----------
</TABLE>
10
<PAGE>
LABORATORY EQUIPMENT
<TABLE>
<CAPTION>
NO. OF
------
ITEM UNITS DESCRIPTION
---- ----- -----------
<S> <C> <C> <C>
1 1 Laboratory Mixer $1,017.92
2 1 Mixer, Homo #LI-49796 w/ 1/4 HP Motor 185.00
3 1 Laboratory oven and additional shelves #7240 989.93
4 1 Microscope 139.73
5 1 Pump, #54892 - Liquid circulating 30.02
6 1 Viscometer, Model #RVF 308.43
7 1 Machine, Mixing and Kneading #49225 1,218.00
8 1 Furnace, Hoskins Electric Muffle 75.00
9 1 Unit Steel Shelving 24"x36"x84" 20.00
10 3 Work Benches 619.30
11 1 Potentionmeter #1182186 269.00
12 1 Utility Blower #108SM 58.65
13 1 Sink Unit 268.00
14 1 Fume Hood Assembly 998.29
15 1 Laboratory Mill 3,960.00
16 1 Model L Tester 0-5000# Capacity 1,333.00
----------
TOTAL $11,490.27
----------
</TABLE>
11
<PAGE>
AMENDMENT TO MACHINERY LEASE
THIS AMENDMENT TO MACHINERY LEASE, made and entered into at Huntington
Park, California as of the 1st day of August, 1968, by and between WARNER WHITE
HENRY, hereinafter called "Henry", and THE W.W. HENRY COMPANY, a California
corporation, hereinafter called "Company",
W I T N E S S E T H:
1. The parties hereto did, on or about the 1st day of August,
1958, enter into a Machinery Lease, pursuant to which Henry made available by
lease, machinery and equipment owned by him and then in existence and used by
the Company in connection with the business being conducted by it at 5731
Bickett Street, Huntington Park, California.
2. It is provided in paragraph 2 of said Lease that the initial
term is for a period of five years, that the term may be extended for three
additional five year terms, and that at the end of each five year term the
parties to the Lease may meet and negotiate in good faith to determine the fair
rental for said machinery and equipment for such extended term. At the end of
said first five year period, said Lease was renewed for additional five year
period without any change in rental. The parties now desire to extend the Lease
for a third five year term and to agree on a fair rental for such equipment.
3. The appraisal firm of Marshall and Stevens have ascertained
that the fair rental value of said equipment said firm determined that the sum
of $18,000.00 is the fair annual rental for such equipment. The parties hereto
now agree that $18,000.00 does represent
-1-
<PAGE>
the fair annual rental for said equipment.
NOW, THEREFORE, in consideration of the premises and the mutual
obligations of the parties, IT IS AGREED as follows:
1. The term of said Machinery Lease of August 1, 1958 shall be
extended for an additional five (5) year period, with the option to renew the
same for an additional five year period, as provided in paragraph 2 of said
Machinery Lease.
2. The rental for such machinery and equipment during the
ensuring five year term, commencing August 1, 1958, shall be the sum of
$90,000.00, payable monthly at the rate of $1,500.00 a month.
3. Except as herein amended, the Machinery Lease of August 1,
1958 shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
as of the day and year first above written.
----------------------------------
Warner White Henry
THE W.W. HENRY COMPANY
By
--------------------------------
Vice President
-2-
<PAGE>
<TABLE>
<CAPTION>
OFFICE EQUIPMENT
No. Of Original Replacement Value at
Item Units Description Cost Cost 9-12-67
---- ----- ----------- ---- ---- -------
<S> <C> <C> <C> <C> <C>
1. 1 Typewriter, Underwood $38.55 $250.00 $125.00
#3870415-5
2. 1 File, 4 Drawer Steel letter 25.75 55.00 20.00
3. 1 Safe, #525885 132.87 450.00 100.00
4. 1 Cabinet, storage #4236 25.62 40.00 24.00
5. 1 Executone - interoffice 70.50 40.00 24.00
Communication #104827
6. 1 Table, Small Steel 15.38 18.00 11.00
7. 2 Chairs, Mahogany Arm 15.38 48.00 34.00
8. 1 Desk, Mahogany 42" F.T. 30.75 85.00 57.00
9. 1 Heater, Gas - Model #13 30.95 66.00 25.00
10. 1 Desk, 60" Walnut - 60"x32" 45.61 130.00 78.00
11. 1 Executone-Interoffice 97.01 150.00 95.00
Communication - #136140
12. 1 Table - #6005 Walnut 40.48 27.00 18.00
13. 1 Table - #27 Walnut - 36" 17.94 20.00 13.00
14. 2 Heaters - (restrooms) 21.53 22.00 18.00
15. 1 Desk, FT-#85784-Walnut 56.38 125.00 75.00
60"x34"
16. 1 Cabinet, Counter High Wood 25.63 40.00 24.00
Storage -#4236-14-42x36x21"
17. 1 Table - Walnut - 60" 38.62 125.00 75.00
18. 1 File - 4 Drawer letter 88.58 80.00 48.00
19. 1 Desk, 60" Walnut 82.40 125.00 75.00
20. 1 Desk, 60"x34" Walnut FT 95.28 130.00 50.00
21. 1 Chair, Walnut #7112 - Rotary 24.72 45.00 27.00
H/P
-3-
<PAGE>
22. 1 Chair, Walnut sykes Arm 35.02 45.00 20.00
Rotary
23. 3 Chairs, Walnut 3 H/P Arm 60.26 140.00 60.00
#7111
24. 1 File, 2 Drawer letter - 75.36 100.00 70.00
Columbia #602-Log.
25. 1 Heater, Unit-Office 259.62 558.00 100.00
26. 1 Chair, Posture - steel frame 31.95 30.00 23.00
27. 1 File, 4 drawer letter - gray 100.00 90.00 60.00
28. 1 Typewriter, Royal 175.00 250.00 125.00
29. 1 Desk, 60" Walnut 59.50 125.00 50.00
30. 1 Desk, Executive, Oak (soft 164.57 300.00 210.00
tone)
37. 1 Frieden Calculator - #ADF 650.00 880.00 620.00
494973
38. 1 Desk, Grey Metal 187.30 245.00 184.00
39. 2 Carpets (wall to wall) 542.58 320.00 240.00
40. 1 Desk, Executive - light 237.06 350.00 280.00
green metal
41. 14 Venetial blinds )
) 175.50 180.00 157.50
42. 6 Cornice boxes )
43. 1 Addressograph - model #30 115.00 250.00 150.00
44. 1 Cabinet, green file 81.35 180.00 135.00
45. 1 Desk, grey steel-single 103.05 165.00 140.00
pedestal
46. 1 Desk, grey steel-single " 103.05 165.00 115.00
47. 2 Chairs, Occasional 145.35 150.00 112.00
48. 2 Chairs, " 263.93 150.00 120.00
49. 1 Chair, Executive 150.24 140.00 112.00
50. 1 Chair, Executive 110.07 140.00 105.00
51. 1 Bookcase, grey 99.80 66.00 59.00
-4-
<PAGE>
52. 1 Cabinet, green with base and 83.10 180.00 135.00
top
53. 1 Desk, Walnut #6001 89.25 145.00 100.00
54. 1 Chair, Hipoint swivel 34.00 45.00 32.00
55. 1 Table, green metal 128.56 175.00 140.00
56. 1 Table, grey metal 122.40 175.00 130.00
57. 1 File, letter - green - #4 131.54 100.00 67.00
drawer
58. 1 File, letter - grey - 2 113.05 90.00 68.00
drawer --------- --------- ---------
$5,647.39 $8,000.00 $4,935.50
--------- --------- ---------
--------- --------- ---------
</TABLE>
-5-
<PAGE>
MOBILE EQUIPMENT
<TABLE>
<CAPTION>
No. Of Original Replacement Value at
Item Units Description Cost Cost 9-12-67
---- ----- ----------- ---- ---- -------
<S> <C> <C> <C> <C> <C>
1. 1 Towmotor, #4446473 -
Model Lt-44 $2,725.50 $7,200.00 $1,800.00
2. 1 Towmotor, #4205198 -
Model #420 4,007.50 7,400.00 1,800.00
3. 1 Towmotor, #420580023 -
Model #420 5,419.25 7,400.00 3,700.00
---------- ---------- ---------
$12,152.25 $22,000.00 $7,300.00
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
-6-
<PAGE>
LABORATORY EQUIPMENT
<TABLE>
<CAPTION>
No. Of Original Replacement Value at
Item Units Description Cost Cost 9-12-67
---- ----- ----------- ---- ---- -------
<S> <C> <C> <C> <C> <C>
1. 1 Laboratory Mixer #45920 $1,017.92 $2,300.00 $1,610.00
2. 1 Mixer, Homo #LI-49796 185.00 208.00 100.00
W/1/4 HP motor
3. 1 Laboratory oven and 989.93 1,050.00 740.00
additional shelves
#7240
4. 1 Microscope 139.73 635.00 445.00
5. 1 Pump, #54892 - liquid 30.02 34.00 15.00
circulating
6. 1 Brookfield Viscometer, 308.43 390.00 310.00
Model #RVF Serial #5865
7. 1 Machine, Mixing and 1,218.00 2,300.00 1,610.00
Kneading #49225
8. 1 Furnace, Hoskins 75.00 85.00 57.00
Electric Muffle
9. 1 Unit Steel Shelving 20.00 90.00 63.00
24"x36"x84"
10. 3 Work benches 619.30 810.00 607.00
11. 1 Potentionmeter #1182186 269.00 302.00 200.00
12. 1 Utility Blower #108 SM 58.65
13. 1 Sink Unit 268.00 530.00 370.00
14. 1 Fume Hood Assembly 998.29 650.00 455.00
15. 1 Laboratory Mill 3,960.00 6,100.00 4,270.00
16. 1 Model L Tester 0-5000#
Capacity 1,333.00 2,516.00 1,761.00
---------- ---------- ----------
$11,490.27 $18,000.00 $12,613.00
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
-7-
<PAGE>
FACTORY MACHINERY AND EQUIPMENT
<TABLE>
<CAPTION>
No. Of Original Replacement Value at
Item Units Description Cost Cost 9-12-67
---- ----- ----------- ---- ---- -------
<S> <C> <C> <C> <C> <C>
1. 1 Mixer, Linoleum Cement $1,000.00 $14,000.00 $9,800.00
2. 1 20' Section Roller
Conveyor )
) 144.91 Incl. Incl.
3. 1 10' Section Roller )
Conveyor
4. 1 Mixer, Fibre Coating
with Coil Heater - 1000 1,511.41 3,800.00 2,660.00
gal. capacity
5. 1 #100 Barrel Truck ) 80.00 48.00
) 80.98
6. 1 #100 Barrel Truck ) 65.00 45.00
7. 1 Motor - 1/2 HP-Plastic
Filler Motor #429605, 62.53 Incl. Incl.
Frame #56-5-10
8. 1 Steel Stand - for mixer)
) 128.32 Incl. Incl.
9. 1 Steel Stand - for mixer)
10. 1 Set Pipe Fitting Tools &
equipment dies, reamer 54.30 750.00 500.00
and cutter
11. 1 Machine, plastic filling 230.63 1,000.00 700.00
- screw type
12. 32 Steel lockers 131.20 200.00 100.00
13. 1 Truck - American Daisy, 15.07 45.00 30.00
Hand
14. 1 Labeling Machine-1/4 HP- 563.75 3,000.00 2,000.00
Burt
-8-
<PAGE>
FACTORY MACHINERY AND EQUIPMENT
No. Of Original Replacement Value at
Item Units Description Cost Cost 9-12-67
---- ----- ----------- ---- ---- -------
15. 1 Lift Truck - hand 173.53 500.00 330.00
operated
16. 1 Electric Welding Outfit 340.30 525.00 265.00
- with accessories
17. 1 Boston Stitcher & Colls 382.79 650.00 430.00
- 148 - #2006
18. 1 Labeler, Standard Knapp
H.D. - 3/4 HP )
) 1,795.27 7,220.00
19. 4 10' Conveyor Sections )
20. 2 5' Conveyor Sections )
) 206.10 4,817.00
21. 3 Quick Adjusting Stands-)
#1800 )
)
22. 2 Quick Adjusting Stands-)
#1218
23. 1 2" Meter #27190 with )
counter #L2045 )
) 190.96 Incl. Incl.
24. 2 2" E Strainers - #22869)
and #22862 )
25. 1 Convyr. Portable, Motor
driven 6" - 1/4 471.81 Incl. Incl.
26. 1 Motor, 30 HP. Electric-
Serial #34EM1776 481.38 Incl. Incl.
27. 1 Machine, Foot Closing 45.08 Incl. Incl.
28. 1 Machine, Mixing-gas
fired with mixing
kettle- 48"x60"x144" 4,046.76 6,300.00 3,780.00
29. 1 Pump, Moyno-Type CDQ 368.00 Incl. Incl.
Frame B6-6
-9-
<PAGE>
FACTORY MACHINERY AND EQUIPMENT
No. Of Original Replacement Value at
Item Units Description Cost Cost 9-12-67
---- ----- ----------- ---- ---- -------
30. 1 Tank, Cone bottom-1000 278.39 530.00 370.00
gallon
31. 1 Sterling motor - 1-1/2 195.00 Incl. Incl.
HP - #4059F7H 480
32. 1 Duplex Adjust-o-feeder
with electric motor - 2,808.50 4,000.00 2,800.00
model 4Xdl
33. 1 Mixer, type #600 1,133.00 25,063.00 12,542.00
34. 1 Truck, Flat Bed 58.26 125.00 62.00
35. 1 Meter, Bronze case for
alcohol #1365484 76.72 200.00 100.00
36. 1. 10' Fr. section of 74.98 245.00 163.00
conveyor
37. 1 Machine, Mixing #1 - 100
gal. #40838 3,555.76 27,160.00 18,197.00
38. 1 Electric drill - 74.16 Incl. Incl.
#2011293
39. 1 Mixer, Portable Electric
#RE-158 13 139.73 Incl. Incl.
40. 1 Mixer, Machine #2-#40837 3,600.54 27,160.00 18,197.00
41. 1 Pyometer 377.78 Incl. Incl.
42. 1 Mixer, Machine #-#40835 3,933.42 27,160.00 18,197.00
43. 1 Filling Machine - 2 HP 702.85 900.00 600.00
44. 1 Timer 77.30 Incl. Incl.
45. 1 Mixer, Crown Paste - 15 1,520.00 2,000.00 1,330.00
HP
46. 1 Closing Machine - #E- 41.16 220.00 147.00
1057
47. 1 Closing Machine-#7405-D) 35.28
) 440.00 290.00
48. 1 Closing Machine-#7979-D) 33.32
-10-
<PAGE>
FACTORY MACHINERY AND EQUIPMENT
No. Of Original Replacement Value at
Item Units Description Cost Cost 9-12-67
---- ----- ----------- ---- ---- -------
49. 1 Closing Machine-#10580-D 33.32 220.00 147.00
50. 1 Closing Machine-#2505 - 784.00 3,000.00 2,000.00
1 HP
51. 1 Automatic closing 940.80 3,000.00 2,100.00
machine #12A378
52. 1 Hammer Mill 194.72 5,000.00 4,250.00
53. 1 Lot Emulsion Equipment 1,007.91 Incl. Incl.
54. 1 Mixing Machine #4 - #15
VI/H BS 4,098.74 27,160.00 18,197.00
55. 1 30 HP Plastic Mixer 2,923.82 13,000.00 9,100.00
56. 1 Mixer for tile cement
Cleaner 1 HP 423.30 1,250.00 875.00
57. 1 Filler, Can 687.08 900.00 600.00
58. 1 Mixer, Crown Paste -
used 7 1/2 HP 1,015.00 2,000.00 1,330.00
59. 1 Motor - #C 910859 - 7 1/2 622.20 Incl. Incl.
HP
60. 1 Motor - #C 910860 - 7 1/2 622.20 Incl. Incl.
HP
61. 1 Tank, 25,000 gallon U.G.
lignon - 7 1/2 HP 2,435.00 3,850.00 2,700.00
62. 1 Mixer, 1000 gallon
linoleum passe - 15 HP 3,150.00 8,000.00 5,600.00
63. 1 Pump, cutback tank -
#66305 700.75 2,050.00 1,540.00
64. 1 Pump, Steam refined
asphalt tank #66306 700.75 2,050.00 1,540.00
65. 1 Pump, with motor -
#917316 10 HP 298.00 Incl. Incl.
-11-
<PAGE>
FACTORY MACHINERY AND EQUIPMENT
No. Of Original Replacement Value at
Item Units Description Cost Cost 9-12-67
---- ----- ----------- ---- ---- -------
66. 1 Tank, 5000 gallon
linoleum paste 934.00 1,050.00 958.00
67. 1 Tank, 5000 gallon Cone
bottom 934.00 1,550.00 1,090.00
68. 1 Mixer, motor #262437 300.00 Incl. Incl.
69. 1 Pump, Model #02AV1 -
serial #139667 215.10 Incl. Incl.
70. 1 Pump, Model #02AV1 -
Serial #139668 215.10 Incl. Incl.
71. 1 Screw Conveyor Unit A-5
HP 1,457.34 Incl. Incl.
72. 1 Screw Conveyor Unit B- 1,203.33 Incl. Incl.
3HP
73. 1 Screw Conveyor Unit C-3
HP 1,167.33 Incl. Incl.
74. 1 Mixer B-P #5 - 4 HP 3,564.25 27,000.00 18,090.00
75. Miscellaneous piping 3,515.29 Incl. Incl.
76. 1 Steam boiler - model 4 3,795.00 4,900.00 2,500.00
LC
77. 1 Sodium Zeolite Softener)
) 380.00 600.00 360.00
78. 1 Blow Off tank )
79. 1 Pump, Moyno 819.50 Incl. Incl.
80. 1 Pump, Moyno 819.50 Incl. Incl.
81. 1 Motor #19181 - 10 HP 185.00 Incl. Incl.
82. 1 Motor #158206 - 10 HP 185.00 Incl. Incl.
83. 1 Tank 62.00 Incl. Incl.
84. 1 Tank 62.00 Incl. Incl.
-12-
<PAGE>
FACTORY MACHINERY AND EQUIPMENT
No. Of Original Replacement Value at
Item Units Description Cost Cost 9-12-67
---- ----- ----------- ---- ---- -------
85. 1 Tank 60.67 Incl. Incl.
86. 1 Cutter, Used - 22" 340.00 745.00 495.00
87. 1 Ortho-O-Meter - #18387 330.00 Incl. Incl.
88. 2 Mixer Tanks 420.00 500.00 334.00
89. 1 Mixer - #931-Model FGS-1 )
) 1,006.90 2,940.00 2,003.00
90. 1 Mixer - #937-Model FGS-1 )
91. 1 Mixer - 50 Gallon 400.00 1,150.00 800.00
92. 1 Mixer - Used - 7 1/2 HP
#S 5251174 250.00 3,635.00 2,545.00
93. 1 Portable Pump 125.00 310.00 155.00
94. 1 Shears, 36" foot with 125.00 900.00 640.00
blades-used
95. 1 Condensate preheater
assembly #40393 153.20 Incl. Incl.
96. 1 Machine, Extrusion 1,685.00 3,177.00 1,000.00
97. 1 Wiring on equipment - 12,000.00 Incl. Incl.
lot
98. 1 Sweeper, Power with side 920.00 1,500.00 600.00
broom #V159-A
99. 1 Scale, Toledo fan #1174 225.00 225.00 150.00
---------- ---------- -----------
$89,634.03 275,000.00 $180,199.00
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
-13-
<PAGE>
RECAPITULATION
OF
LEASED EQUIPMENT
<TABLE>
<CAPTION>
NO. OF ORIGINAL REPLACEMENT VALUE AT
DESCRIPTION ITEMS COST COST 9-12-67
----------- ----- ---- ---- -------
<S> <C> <C> <C> <C>
Factory Machinery & Equipment 99 $ 89,634.03 $275,000.00 $180,199.00
Laboratory Equipment 16 11,490.27 18,000.00 12,613.00
Mobile Equipment 3 12,152.25 22,000.00 7,300.00
Office Equipment 58 5,647.39 8,000.00 4,935.50
--- ----------- ----------- ----------
TOTAL 176 $118,923.94 $323,000.00 205,047.50
--- ----------- ----------- ----------
--- ----------- ----------- ----------
</TABLE>
-14-
<PAGE>
MACHINERY LEASE
THIS LEASE AGREEMENT is made and entered into by and between FRANCES
W. HENRY as Trustee of Trust A, and FRANCES W. HENRY and NEWTON F. WHEELER, as
Trustees of Trust B, under the WARNER W. HENRY FAMILY TRUST, dated June 24,
1969, hereinafter referred to as "Henry", and THE W.W. HENRY COMPANY, a
California corporation, hereinafter referred to as "Company".
This Lease Agreement is premised as follows:
A. Under date of August 1, 1958, WARNER W. HENRY, as Lessor, entered
into a "Machinery Lease" with Company, covering machinery, equipment, office
furniture and fixtures owned by Warner W. Henry, and which were located on the
premises known as 5731 Bickett Street, Huntington Park, California, owned by
him, which premises were leased on the same day to Company. That lease was
referred to as the "Ground Lease".
B. Said Machinery Lease was for a term of five (5) years, with
renewal privilege of three (3) successive five year terms. Subsequent to the
execution of said lease, Warner W. Henry conveyed his interest in the machinery,
equipment, office furniture and fixtures, in trust, to Henry.
C. During the past year the personal property, the subject of this
lease, was re-appraised by an independent appraisal company to ascertain its
fair rental value, and said company determined the fair rental value on a yearly
basis.
D. The parties now desire to amend and renew said lease and to
restate its terms.
1
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual
obligations of the parties herein stated, IT IS AGREED as follows:
1. Company leases from Henry and Henry leases to Company that
certain machinery and equipment and furniture and fixtures located on the Ground
Lease. Said machinery and equipment are described in the schedule thereof,
attached hereto, marked Schedule "A", which schedule also shows the appraisal
value of each item of machinery and equipment, and its present location. By
this reference said Schedule "A" is incorporated herein and made a part hereof.
2. The term of the lease is for twenty (20) years commencing on the
1st day of May, 1976 and terminating on the 30th day of April, 1996.
3. RENTAL. The rental for the initial five (5) years of the term of
the lease shall be $147,375.00, payable at the rate of $2,456.25 per month. The
first month's rental of the initial term shall be paid as of May 1, 1976, and on
or before the 1st day of each succeeding month thereafter, so long as this lease
is in force and effect. The rental shall be adjusted either upward or downward
for each subsequent five (5) year period of the term. Ninety (90) days prior to
the termination of each five (5) year term the parties shall confer and
negotiate for the rental of the succeeding five (5) year period of the lease.
If the parties are unable to agree upon such rental within thirty (30) days
prior to the termination date of any term, then the rental for such term shall
be settled by arbitration in accordance with the provisions of the Code of Civil
Procedure of the State of California.
4. Company, at its own cost and expense, shall maintain the leased
machinery and equipment in good and operative mechanical condition and shall not
allow the
2
<PAGE>
machinery or equipment to be abused or to deteriorate, normal wear and tear
excepted. Should any of the machinery and equipment become unusable because of
obsolescence, but for no other reason, Company shall notify Henry. If Henry
elects to replace such obsolescent machinery and equipment, he may do so at his
own cost and expense. If Henry elects not to replace such item or items of
machinery and equipment, the Company may make such replacement or replacements.
In the event that Company makes such replacement or replacements the rental for
the term shall be reduced by the ratio that the appraisal value of the item or
items replaced bears to the total appraisal value of all the items listed in
Schedule "A". As an illustration, if the appraised value of a particular item
was Ten Thousand Dollars ($10,000), and as the total appraised value of all
items listed in Schedule "A" was One Hundred Ninety-Six Thousand Five Hundred
Dollars ($196,500.00), then the rental commencing with the month subsequent to
the installation of such replacement item shall be reduced by 10,000/196,500.
5. Company, shall at its own cost and expense, keep such machinery
and equipment insured against loss or damage by fire and any other casualty and
shall cause said policy to cover both Company and Henry. Such insurance shall
be in an amount equal to the full insurable value of such machinery and
equipment and shall be placed in a company or companies satisfactory to Henry.
Henry and Company shall be the named assured in such policies of such insurance
and all of such policies shall be delivered to Henry and retained by him.
6. At all times during normal working hours during the term hereof,
Company shall allow Henry free access to the demised premises for purposes of
inspection and for purposes of making such repairs as Henry is required to make
by the terms of this lease, or which Henry may deem necessary for his protection
or the protection of the property.
3
<PAGE>
7. In the event that the Ground Lease referred to in Paragraph A of
the Recitals herein is terminated for any reason whatsoever, this Agreement
shall automatically terminate concurrently with the termination of the Ground
Lease and without further action of the parties.
8. Upon the termination of this Agreement for any reason whatsoever,
Company shall surrender all machinery and equipment herein leased to Henry in as
good condition as received, normal wear and tear excepted.
9. Company shall not hypothecate or mortgage said machinery or
equipment or any part thereof. Neither shall Company suffer or permit any lien
or liens of whatsoever nature to attach against said machinery or equipment.
Henry shall have the right but not the duty to affix to such machinery and
equipment metal tags or other appropriate markings to show that such machinery
and equipment is the property of Henry and not the property of Company.
10. This Agreement shall not be assigned by the Company, whether by
of law or otherwise, unless Henry should first consent thereto in writing. Any
assignment made without such consent shall be void. Should company be adjudged
insolvent or bankrupt or make a composition for creditors or make an assignment
for the benefit of creditors, this Agreement shall upon the occurrence of any
one or more than one of such events automatically cease and terminate without
further action of the parties. No creditors' committee, assignee for the
benefit of the creditors, referee, or trustee in bankruptcy shall under any
circumstances acquire any interest in this Agreement, or any interest in such
machinery and equipment, or the right to use the same or any part thereof. In
the event of the occurrence of any one or more than one of such events, Henry
shall have the absolute right to enter into and upon the property covered by the
4
<PAGE>
Ground Lease, remove all machinery and equipment or make such other disposition
thereof as he deems expedient. This latter right in Henry is absolute, and
Henry shall have such right with or without any claim or delivery proceedings or
without taking any other legal action.
11. Should the premises be destroyed by fire or other casualty, then
the parties hereto shall have the same rights as set forth in Paragraphs 10 and
16 of the Ground Lease which said paragraphs are incorporated herein by
reference as though set forth in full.
12. Notwithstanding any provisions of this Agreement to the contrary,
and particularly Paragraphs 2 and 3 hereof, should Henry elect to replace a
piece of obsolescent machinery or equipment and should the replacement cost in
writing _______ of the assigned value of said equipment, as the same is shown on
the Schedule "A", then there shall be added to the total rental cost for the
machinery and equipment an additional rental which shall be negotiated by the
parties and which shall take into consideration the cost of such new item of
equipment in excess of the appraisal value shown on said schedule Exhibit "A"
and such rental shall provide sufficient return to cover the depreciation of
said equipment at least as rapidly as the depreciation allowed for income tax
purposes and to return a reasonable profit on the investment over the life of
the equipment. If mutual agreement cannot be reached as to a fair rental value
for such new equipment then each party hereto shall designate an arbitrator to
fix said rental rate and if the two arbitrators cannot agree they in turn will
select a third arbitrator and the decision of any two of the three arbitrators
shall be final and binding on the parties hereto. The cost of the third
arbitrator shall be borne mutually by the parties hereto.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
this 30th day of April, 1976.
FRANCES W. HENRY
As Trustee of Trust A under the Warner
W. Henry Family Trust
Dated June 24, 1969
/s/ Frances W. Henry
--------------------------------------
FRANCES W. HENRY
FRANCES W. HENRY and
NEWTON F. WHEELER
as Trustees of Trust B under the Warner
W. Henry Family Trust
dated June 24, 1969
/s/ Frances W. Henry
--------------------------------------
FRANCES W. HENRY
/s/ Newton F. Wheeler
--------------------------------------
NEWTON F. WHEELER
LESSORS
THE W.W. HENRY COMPANY
By /s/ Warner Wheeler Henry
--------------------------------------
President
By /s/ W. A. Thomas
--------------------------------------
Secretary
6
<PAGE>
LESSEE
7
<PAGE>
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(Do not use this form for Multi-Tenant Property)
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
February 27, 1992, is made by and between Alamo Development Company ("Lessor")
and Henry Company ("Lessee"), collectively the "Parties," or individually a
"Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease and generally
described as (describe briefly the nature of the property) set forth on Exhibit
A ("Premises"). (See Paragraph 2 for further provisions.)
1.3 Term: Ten years and -0- months ("Original Term") commencing
February 28, 1992 ("Commencement Date") and ending February 28, 2002
("Expiration Date"). (See Paragraph 3 for further provisions.)
1.4 Early Possession: N/A ("Early Possession Date"). (See Paragraphs
3.2 and 3.3 for further provisions.)
1.5 Base Rent: $ See Addendum per month ("Base Rent"), payable on the
_______ day of each month commencing _____________. (See Paragraph 4 for
further provisions.)
/ / If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 Base Rent Paid Upon Execution: $ N/A as Base Rent for the period
_______________.
1.7 Security Deposit: $ N/A ("Security Deposit"). (See Paragraph 8 for
further provisions.
1.8 Permitted Use: Parking Lot. (See Paragraph 6 for further
provisions.)
1.9 Insuring Party: Lessee is the "Insuring Party" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes): N/A
___________________ represents / / Lessor exclusively ("Lessor's Broker");
/ / both Lessor and Lessee, and ____________________ represents / / Lessee
exclusively ("Lessee's Broker"); / / both Lessee and Lessor. (See Paragraph 15
for further provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (See Paragraph 37 for further provisions.)
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs ___ through ___ and Exhibits ______ all of which constitute a part of
this Lease.
<PAGE>
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, on the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 [Deleted]
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it
has been advised by the Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law (as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
-2-
<PAGE>
3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of
the Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10 day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when
the term actually commences, if possession is not tendered to Lessee when
required by this Lease and Lessee does not terminate this Lease, as aforesaid,
the period free of the obligation to pay Base Rent, if any, that Lessee would
otherwise have enjoyed shall run from the date of delivery of possession and
continue for a period equal to what Lessee would otherwise have enjoyed under
the terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent
or charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on or
before the day on which it is due under the terms of this Lease. Base Rent and
all other rent and charges for any period during the term hereof which is for
less than one (1) full calendar month shall be prorated based upon the actual
number of days of the calendar month involved. Payment of Base Rent and other
charges shall be made to Lessor at its address stated herein or to such other
persons or at such other addresses as Lessor may from time designate in writing
to Lessee.
5. [Deleted]
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8 or any other use which is comparable thereto, and for
no other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in, on or about the Premises
which constitutes a Reportable Use (as hereinafter defined) of Hazardous
Substances without
-3-
<PAGE>
the express prior written consent of Lessor and compliance in a timely manner
(at Lessee's sole cost and expense) with all Applicable Law (as defined in
Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on, or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance, or a condition involving or
resulting from same, has come to be located in, on, under or about the Premises,
other than as previously consented to by Lessor, Lessee shall immediately give
written notice of such fact to Lessor. Lessee shall also immediately give
Lessor a copy of any statement, report, notice, registration, application,
permit, business plan, license, claim, action or proceeding given to, or
received from, any governmental authority or private party, or persons entering
or occupying the Premises, concerning the presence, spill, release, discharge
of, or exposure to, any Hazardous Substance or contamination in, on, or about
the Premises, including but not limited to all such documents as may be involved
in any Reportable Uses involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if any, and
the Premises, harmless from and against any and all loss of rents and/or
damages, liabilities, judgments, costs, claims, liens, expenses, penalties,
permits and attorney's and consultant's fees arising out of or involving any
Hazardous Substance or storage tank brought onto the Premises by or for Lessee
or under Lessee's control. Lessee's obligations under this Paragraph 6 shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation (including consultant's and attorney's fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances or storage tanks, unless
specifically so agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee shall, at Lessee's sole cost and expense, fully, diligently and in
a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or
-4-
<PAGE>
consultants, relating in any manner to the Premises including but not limited to
matters pertaining to (i) industrial hygiene, (ii) environmental conditions on,
in, under or about the Premises, including soil and groundwater conditions, and
(iii) the use, generation, manufacture, production, installation, maintenance,
removal transportation, storage, spill or release of any Hazardous Substance or
storage tank, now in effect or which may hereafter come into effect, and whether
or not reflecting a change in policy from any previously existing policy.
Lessee shall, within five (5) days after receipt of Lessor's written request,
provide Lessor with copies of all documents and information, including, but not
limited to, permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Law specified
by Lessor, and shall immediately, upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving failure by
Lessee or the Premises to comply with any Applicable Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined
in Paragraph 6.3(a)) shall have the right to enter the Premises at any time, in
the case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's
warranty as to condition), 2.3 (Lessor's warranty as to compliance with
covenants, etc.), 7.2 (Lessor's obligations to repair), 9 (damage and
destruction), and 14 (condemnation), Lessee shall, at Lessee's sole cost and
expense and at all times, keep the Premises and every part thereof in good
order, condition and repair, structural and non-structural (whether or not such
portion of the Premises requiring repair, or the means of repairing the same,
are reasonably or readily accessible to Lessee, and whether or not the need for
such repairs occurs as a result of Lessee's use, any prior use, the elements or
the age of such portion of the Premises, including, without limiting the
generality of the foregoing, all equipment or facilities serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or
standpipe and hose or other automatic fire extinguishing system, including fire
alarm and/or smoke detection systems and equipment, fire hydrants, fixtures,
walls (interior and exterior), foundations, ceilings, roots, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks, and parkways located in, on, about, or
adjacent to the Premises. Lessor shall not cause or permit any Hazardous
Substance to be spilled or released in, on, under or about the Premises
(including through the plumbing or sanitary sewer system) and shall promptly, at
Lessee's expense, take all investigatory and/or remedial action reasonably
recommended, whether or not formally ordered or required, for the cleanup of any
contamination of, and for the maintenance, security and/or monitoring of, the
Premises, the elements surrounding same, or neighboring properties that was
caused or materially contributed to
-5-
<PAGE>
by Lessee, or pertaining to or involving any Hazardous Substance and/or storage
tank brought onto the Premises by or for Lessee or under its control. Lessee,
in keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all improvements thereon or a part thereof in good order, condition and state of
repair. If Lessee occupies the Premises for seven (7) years or more, Lessor may
require Lessee to repaint the exterior of the buildings on the Premises as
reasonably required, but not more frequently than once every seven (7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 Lessor's Obligations. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms
of this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of
any status now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of, any
needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) Consent. Any alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
provided to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent
-6-
<PAGE>
specific consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities, (ii) the furnishing of
copies of such permits together with a copy of the plans and specifications for
the Alteration or Utility Installation to Lessor prior to commencement of the
work thereon, and (iii) the compliance by Lessee with all conditions of said
permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and in compliance
with all Applicable Law. Lessee shall promptly upon completion thereof furnish
Lessor with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) Indemnification. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work, in, on or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall
require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in
an amount equal to one and one-half times the amount of such contractual lien
claim or demand, indemnifying Lessor against liability for the same, as required
by law for the holding of the Premises free from the effect of such lien or
claim. In addition, Lessor may require Lessee to pay Lessor's attorney's fees
and costs in participating in such action if Lessor shall decide it is to its
best interest to do so.
7.4 Ownership; Removal, Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal
or become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor, Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof clean and free of debris and
in good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations
-7-
<PAGE>
under this Lease. Except as otherwise agreed or specified in writing by Lessor,
the Premises, as surrendered, shall include the Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, and Alterations and/or Utility Installations, as well as the removal
of any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Law and/or good practice. Lessee's Trade
Fixtures shall remain the property of Lessee and shall be removed by Lessee
subject to its obligation to repair and restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee
is the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8, except to the extent of the cost attributable to liability
insurance carried by Lessor in excess of $1,000,000 per occurrence. Premiums
for policy periods commencing prior to or extending beyond the Lease term shall
be prorated to correspond to the Lease term. Payment shall be made by Lessee to
Lessor within ten (10) days following receipt of an invoice for any amount due.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance required by this Lease or as
carried by Lessee shall not, however, limit the liability of Lessee nor relieve
Lessee of any obligation hereunder. All insurance to be carried by Lessee shall
be primary to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only.
(b) Carried by Lessor. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a)
above. In addition to and not in lieu of, the insurance required to be
maintained by Lessee, Lessee shall not be named as an additional insured
therein.
8.3 Property Insurance - Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available adjustable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility
-8-
<PAGE>
Installations shall be insured by Lessee under Paragraph 8.4 rather than by
Lessor. If the coverage is available and commercially appropriate, such policy
or policies shall insure against all risks of direct physical loss or damage
(except the parties of flood and/or earthquake unless required by a Lender),
including coverage for any additional costs resulting from debris removal and
reasonable amounts of coverage for the enforcement of any ordinance or law
regulating the reconstruction or replacement of any undamaged sections of the
Premises required to be demolished or removed by reason of the enforcement of
any building, zoning, safety or land use laws as the result of a covered cause
of loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver or subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located. If such insurance coverage has a deductible clause,
the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall
be liable for such deductible amount in the event of an Insured Loss, as defined
in Paragraph 9.1(c).
(b) Rental Value. The Insuring Party shall, in addition, obtain
and keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the
full rental and other charges payable by Lessee to Lessor under this Lease for
one (1) year (including all real estate taxes, insurance costs, and any
scheduled rental increases). Said insurance shall provide that in the event the
Lease is terminated by reason of an insured loss, the period of indemnity for
such coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss.
(c) Adjacent Premises. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) Tenant's Improvements. If the Lessor is the Insuring Party,
the Lessor shall not be required to insure Lessee Owned Alternations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 Lessee's Property Insurance. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property. Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property or the restoration of Lessee Owned
Alterations and Utility Installations. Lessee shall be the Insuring Party with
respect to the insurance required by this Paragraph 8.4 and shall provide Lessor
with written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term
-9-
<PAGE>
a "General Policyholders Rating" of at least A+.V. or such other rating as may
be required by a Lender having a lien on the Premises, as set forth in the most
current issue of "Best's Insurance Guide." Lessee shall not do or permit to be
done anything which shall invalidate the insurance policies referred to in this
Paragraph 8. If Lessee is the Insuring Party, Lessee shall cause to be
delivered to Lender certified copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with the
insureds and loss payable clauses as required by this Lease. No such policy
shall be cancellable or subject to modification except after thirty (30) days
prior written notice of Lessor. Lessee shall at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. If the insuring Party shall fail to procure
and maintain the insurance required to be carried by the Insuring Party under
this Paragraph 8, the other Party may, but shall not be required to, procure and
maintain the same, but at Lessee's expense.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor ("Waiving Party") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach or express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessor, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under the Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not in the
case of claims made against Lessors litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought
against Lessor by reason of any of the foregoing matters, Lessee upon notice
from Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee. Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. Damage or Destruction.
-10-
<PAGE>
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to
the improvements on the Premises, other than Lease Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is 50% or more of
the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 8.2(a), in, on, or under the
Premises.
9.2 Partial Damage--Insured Loss. If a Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect, provided, however, that Lessee shall, at
Lessor's election, make the repair of any damage or destruction the total
cost to repair of which is $10,000 or less, and, in such event, Lessor shall
make the insurance proceeds available to Lessee on a reasonable basis for
that purpose. Notwithstanding the foregoing, if the required insurance was
not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds
(except as to the deductible which is Lessee's responsibility) as and when
required to complete said repairs. In the event, however, the shortage in
proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement
-11-
<PAGE>
cost insurance coverage was not commercially reasonable and available, Lessor
shall have no obligation to pay for the shortage in insurance proceeds or to
fully restore the unique aspects of the Premises unless Lessee provides Lessor
with the funds to cover same, or adequate assurance thereof, within ten (10)
days following receipt of written notice of such shortage and request therefor.
If Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, the party responsible for making the repairs shall complete them as
soon as reasonably possible and this Lease shall remain in full force and
effect. If Lessor does not receive such funds or assurance within said period,
Lessor may nevertheless elect by written notice to Lessee within ten (10) days
thereafter to make such restoration and repair as is commercially reasonable
with Lessor paying any shortage in proceeds, in which case this Lease shall
remain in full force and effect. If in such case Lessor does not so elect, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage--Uninsured Loss. If a Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice, in the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease.
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
repair of such damage totally at Lessee's expense and without reimbursement from
Lessor. Lessee shall provide Lessor with the required funds or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such repairs as soon as reasonably possible and the
required funds are available. If Lessee does not give such notice and provide
the funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any
-12-
<PAGE>
destruction required by any authorized public authority), this Lease shall
terminate sixty (60) days following the date of such Premises Total Destruction,
whether or not the damage or destruction is an Insured Loss or was caused by a
negligent or willful act of Lessee. In the event, however, that the damage or
destruction was caused by Lessee, Lessor shall have the right to recover
Lessor's damages from Lessee except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extent this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option
during said Exercise Period and provides Lessor with funds (or adequate
assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at
Lessor's expense, repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said Exercise Period, then
Lessor may at Lessor's option terminate this Lease as of the expiration of said
sixty (60) day period following the occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in the
grant of option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
-13-
<PAGE>
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 [Deleted]
9.8 Termination--Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
10.1 (a) Payment of Taxes. Lessee shall pay the Real Property Taxes,
as defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period
of time prior to or after the expiration or earlier termination of the term
hereof, Lessee's share of such taxes shall be equitably prorated to cover only
the period of time within the tax fiscal year this Lease is in effect, and
Lessor shall reimburse Lessee for any overpayment after such proration. If
Lessee shall fails to pay any Real Property Taxes required by this Lease to be
paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall
reimburse Lessor therefor upon demand.
-14-
<PAGE>
(b) Advance Payment. In order to insure payment when due and
before delinquency of any or all Real Property Taxes, Lessor reserves the right,
at Lessor's option, to estimate the current Real Property Taxes applicable to
the Premises, and to require such current year's Real Property Taxes to be paid
in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by
Lessee under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 Definition of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
-15-
<PAGE>
10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alternations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any
of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property or, at Lessor's option, as provided in Paragraph
10.1(b).
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessor shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. Assignment and Subletting.
12.1 [Deleted]
12.2 [Deleted]
12.3 [Deleted]
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "Default" is defined as
a failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" is defined as the occurrence of any one or more of the following
Defaults, and, where a grace period or cure after notice is specified herein,
the failure by Lessee to cure such Default prior to the expiration of the
applicable grace period, and shall
-16-
<PAGE>
entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3;
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable Law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
secured under Paragraphs 1, 11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor or Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) and (c) above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The
making by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee becoming a "debtor" as defined in 11 U.S.C. Section 101
or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest
-17-
<PAGE>
in this Lease, where possession is not restored to Lessee within thirty (30)
days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days; provided, however, in the event that any provision of this subparagraph
(e) is contrary to any applicable law, such provision shall be of no force or
effect, and not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given
to lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a guarantor, (ii) the termination of a
guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the
guaranty, or (v) a guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurance or security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the guarantors that existed at the
time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or, in case of an emergency, without notice) Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may required all future payments to be made under this Lease by Lessee to be
made only by cashier's check. In the event of a Breach of this Lease by Lessee,
as defined in Paragraph 13.1, with or without further notice or demand, and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the terms hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event, Lessor shall be entitled to recover from Lessee: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been
-18-
<PAGE>
earned after termination until the time of award exceeds the amount of such
rental loss that the Lessee proves could have been reasonably avoided; (iii) the
worth at the time of award of the amount by which the unpaid rent for the
balance of the term after the time of award exceeds the amount of such rental
loss that the Lessee proves could be reasonably avoided; and (iv) any other
amount necessary to compensate Lessor for all the detriment proximately caused
by the Lessee's failure to perform its obligations under this Lease or which in
the ordinary course of things would be likely to result therefrom, including but
not limited to the cost of recovering possession of the Premises, expenses of
reletting, including necessary renovation and alteration of the Premises,
reasonable attorneys' fees, and that portion of the leasing commission paid by
Lessor applicable to the unexpired term of this Lease. The worth at the time of
award of the amount referred to in provision (iii) of the prior sentence shall
be computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent. Efforts by
Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease
shall not waive Lessor's right to recover damages under this Paragraph. If
termination of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover in such proceeding the unpaid
rent and damages as are recoverable therein, or Lessor may reserve therein the
right to recover all or any part thereof in a separate suit for such rent and/or
damages. If a notice and grace period required under subparagraphs 13.1(b), (c)
or (d) was not previously given, a notice to pay rent or quit, or to perform or
quit, as the case may be, given to Lessee under any statute authorizing the
forfeiture of leases for unlawful detainer shall also constitute the applicable
notice for grace period purposes required by subparagraphs 13.1(b), (c) or (d).
In such case, the applicable grace period under subparagraphs 13.1(b), (c) or
(d) and under the unlawful detainer statute shall run concurrently after the one
such statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful detainer
and a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after Lessee's
Breach and abandonment and recover the rent as it becomes due, provided Lessee
has the right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
-19-
<PAGE>
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture In Event Of Breach. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from the Lease and of
no further force or effect, and any rent, other charge, bonus, inducement or
consideration therefore abated, given or paid by Lessor under such an Inducement
Provision shall be immediately due and payable by Lessee to Lessor, and
recoverable by Lessor as additional rent due under this Lease, notwithstanding
any subsequent cure of such Breach by Lessee. The acceptance by Lessor of rent
or the cure of the Breach which initiated the operation of this Paragraph shall
not be deemed a waiver by Lessor of the provisions of this Paragraph unless
specifically so stated in writing by Lessor at the time of such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment or rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of
such overdue amount. The parties hereby agree that such late charge represents
a fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) consecutive installments
-20-
<PAGE>
of Base Rent then notwithstanding Paragraph 4.1 or any other provision of this
Lease to the contrary, Base Rent shall, at Lessor's option, become due and
payable quarterly in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "Condemnation"), this Lease shall terminate as
of the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by Condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice),
within ten (10) days after the condemning authority shall have taken possession,
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taxing of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
-21-
<PAGE>
reimbursed therefor by the condemning authority, Lessee shall be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repair.
15. Broker's Fee.
15.1 [Deleted]
15.2 [Deleted]
15.3 [Deleted]
15.4 [Deleted]
15.5 Lessee and Lessor each represent and warrant to the other that it
has had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) in connection with the negotiation of
this Lease and/or the consummation of the transaction contemplated hereby, and
that no broker or other person, firm or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the Indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement, in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
-22-
<PAGE>
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Deposit. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains
all agreements between the Parties with respect to any matter mentioned
herein, and no other prior or contemporaneous agreement or understanding
shall be effective. Lessor and Lessee each represents and warrants to the
Brokers that it has made, and is relying solely upon, its own investigation
as to the nature, quality, character and financial responsibility of the
other Party to this Lease and as to the nature, quality and character of the
Premises. Brokers have no responsibility with respect thereto or with
respect to any default or breach hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail with postage prepaid, or by facsimile transmission, and shall be
-23-
<PAGE>
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be
that Party's address for deliver or mailing of notice purposes. Either Party
may by written notice to the other specify a different address for notice
purposes, except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for the purpose of mailing or
delivering notices to Lessee. A copy of all notices required or permitted to be
given to Lessor hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate by
written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier, if any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received
on a Sunday or legal holiday, it shall be deemed received on the next business
day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessor, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any preceding Default or
Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable therein.
-24-
<PAGE>
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. Cumulative Remedies. No remedy or election thereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attainment; Non-Disturbances.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
-25-
<PAGE>
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in
the same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any
time place on or about the Premises or building any ordinary "For Sale" signs
and Lessor may at any time during the last one hundred twenty (120) days of the
term hereof place on or about the Premises any ordinary "For Lease" signs. All
such activities of Lessor shall be without abatement of rent or liability to
Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written
-26-
<PAGE>
consent. Notwithstanding anything to the contrary in this Lease, Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the expected
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser interest in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed, Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(a) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting
of the Premises by Lessee shall not constitute an acknowledgment that no Default
or Breach by Lessee of this Lease
-27-
<PAGE>
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of the
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signatures of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 [Deleted]
39.2 [Deleted]
39.3 [Deleted]
39.4 [Deleted]
-28-
<PAGE>
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an
-29-
<PAGE>
offer to lease to Lessee. This Lease is not intended to be binding until
executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of required financing or refinancing of the
property of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO, THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS
OR HAZARDOUS SUBSTANCES, NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR
THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE,
OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED
SHOULD BE CONSULTED.
-30-
<PAGE>
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at
---------------------------------------------
on
---------------------------------------------------------
by LESSOR:
-------------------------------------------
- --------------------------------------------------------------
- --------------------------------------------------------------
By
---------------------------------------------------------
Name Printed:
----------------------------------------
Title:
-----------------------------------------------------
By:
-------------------------------------------------------
Name Printed:
----------------------------------------
Title:
-----------------------------------------------------
Address:
------------------------------------------------
Tel. No. ( )
----- -----------------------------------------
Fax No. ( )
----- ------------------------------------------
Executed at Huntington Park, CA
on March 6, 1992
by LESSEE:
/s/ Henry Company
- ----------------------------------------------------------
By /s/ Jeffrey Wahba
Name Printed: Jeffrey Wahba
Title: CFO and Secretary
By:
------------------------------------------------------
Name Printed:
------------------------------------------
Title:
------------------------------------------------------
Address: 2911 Slauson Ave.
Huntington Park, CA 90255
Tel. No. (213)583-5000
Fax No. (213)582-6429
-31-
<PAGE>
ADDENDUM TO LEASE
49. Subordination.
Lessor agrees, for the first three years of this Lease, to
subordinate its right to receive rental payments to Lessee's lenders and to
execute a form of subordination agreement provided by such lenders.
50. Rent.
Rent shall be payable monthly, on the 1st of each month,
commencing March 1, 1992, (and the first payment shall include prorated rent for
the period February 26, 1992 through March 1, 1992) in an amount equal to
one-twelfth of the amount determined by multiplying the publicly announced Prime
Rate of the Bank of America N.T.&S.A., by $773,362. The Prime Rate shall be
adjusted annually and shall, for each year, be deemed to the Prime Rate as of
December 31 of the immediately preceding year.
51. Right to Buy.
Lessor grants to Lessee the option to purchase the Property upon
six months written notice. The purchase price of the Property shall be
$773,362, payable in cash at the Closing (defined below). Lessor shall deliver
to Lessee an executed grant deed in recordable form conveying the Property.
Title to the Property shall be conveyed by Lessor to Lessee free and clear of
(i) all liens, encumbrances, covenants, conditions, restrictions, easements, and
rights of way of record, leases or other tenancy agreements and (ii) all other
matters of record or not of record that in any way affects title to the
Property, except (i) current taxes not yet due and payable and (ii) those items
listed in Exhibit B. At the Closing, Lessor must cause to be prepared to be
issued a CLTA standard (owners) coverage policy of title insurance in the amount
of the purchase price insuring title to the Property vested in Lessee. The cost
of the title policy shall be paid by Lessor.
Rents and taxes shall be prorated as of the Closing (which is the
date a grant deed transferring the Property to Lessor is recorded). All real
estate taxes, recording fees and legal fees in connection with transfer of the
Property shall be paid by Lessor.
52. Assignability.
The rights set forth in this Lease, including the option
referenced in Section 51 thereof, may be freely assigned by Lessee to any person
or entity related to or affiliated with
-32-
<PAGE>
Lessee. All other assignments must be made with the consent of Lessor, which
shall not be unreasonably withheld.
-33-
<PAGE>
EXHIBIT 10.7
THIS INDENTURE, Made the 23rd day of December A.D. one thousand nine hundred and
ninety-four BETWEEN SEABOARD SUPPLY CO of the first part, and MONSEY PRODUCTS
CO. of the second part, WITNESSETH, That the said party of the first part has
let, and by these presents does grant, demise and to farm let unto the said
party of the second part, that certain portion of a warehouse set forth in
Exhibit "A" hereto located at 39 S. 20th St., Irvington, NJ 07111 with the
appurtenances from December 31, 1994 to December 31, 1999 unless terminated in
accordance with the provisions set forth in the addendum attached hereto and
made part hereof at the rent or sum of Twenty-eight thousand dollars
($28,000.00) per annum, to be paid as follows: Twenty-three hundred
thirty-three dollars and thirty-three cents ($2,333.33) on the commencement date
of this lease and an equal amount on each monthly anniversary date thereafter
and to continue until termination of lease.
PROVIDED, that if any rent shall be due and unpaid, or if default shall be made
in any of the covenants herein contained, then this lease shall cease and become
void, and it shall be lawful for the said party of the first part, without
notice, and without any demand for said rent, to re-enter the said premises and
remove all persons therefrom, or to proceed by action for the recovery of the
possession thereof, or otherwise howsoever.
AND the said party of the second part does hereby covenant and agree to and with
the said party of the first part, to pay the said rent in the proportions and
upon the conditions aforesaid; and not to assign this lease, and not to underlet
said premises, or any part thereof, nor to permit any person or persons to
occupy the same, or any part thereof, nor use or permit any part thereof to be
used for any other purpose than warehousing nor make or offer to be made any
alterations therein, without the written consent of the said party of the first
part; and also, at the expiration of said term, to yield up and surrender the
possession thereof, with the appurtenances, in as good state and condition as
the same now are, or may be put into by the said party of the first part,
reasonable wear and tear thereof and accidents happening by fire or other
casualties excepted.
See addendum attached hereto consisting of 13 pages.
AND the said party of the first part does covenant that the said party of othe
second part, on paying the said rent and performing the covenants aforesaid,
shall and may, peaceably and quietly have, hold and enjoy the said demised
premises for the term aforesaid.
IN WITNESS WHEREOF, the said parties have interchangeably set their hands and
seals hereto the day and year first abore written.
SIGNED, SEALED AND DELIVERED
In the presence of: SEABOARD SUPPLY CO.
by: /s/ Donald Levitt
- ------------------------------- ---------------------------
Donald Levitt
MONSEY PRODUCTS CO.
-1-
<PAGE>
Addendum To Lease Agreement
dated December ___, 1994
by and between
SEABOARD SUPPLY CO. ("Landlord") and
MONSEY PRODUCTS CO. ("Tenant")
_______________________________________________
1. Landlord shall keep in force at its own expense, public liability
insurance in companies reasonably acceptable to Tenant and naming as insured
both Landlord and Tenant, with minimum limits of $1,000,000 on account of bodily
injuries to or death of one person; $3,000,000 on account of bodily injuries to
or death of more than one person as a result of any one accident or disaster,
and $250,000 on account of damage to property, and Landlord will further deposit
a certificate thereof with Tenant.
2. Tenant shall be responsible to keep in force at its own expense
insurance covering the contents in the leased premises owned by Tenant.
3. Landlord and Tenant waive any and all right of recovery against each
of the other for damage to the demised premises or loss to property therein
occurring from fire or other casualty covered by standard fire insurance
policies with extended coverage, provided that each waiver shall be effective
and binding only to the extent that such insurance covering the damage is in
force permitting such waiver and to the extent actual recovery is had thereon.
Each of the foregoing shall have such waiver in its policies.
4. Landlord at its sole expense shall make available the services of a
warehouseman to the Tenant to perform certain duties for Tenant, which duties
shall not consume more than twenty (20) hours per week. The warehouseman shall
be employed by Landlord and shall not be an employee of Tenant.
5. The cost of utilities (other than telephone) and repairs and
maintenance shall be borne by Landlord, other than those repairs which are
Tenant's responsibility pursuant to addendum paragraph 10.
6. Tenant may terminate this agreement at any time if Landlord is in
default of a certain "Sale of Assets Agreement" dated this date between Landlord
and Tenant. Further, Tenant may terminate this agreement without cause during
the third and subsequent years of the original term of this Lease Agreement by
giving Landlord at least sixty (60) days prior written notice of its intent to
terminate and making the following payments to Landlord as liquidated damages:
-2-
<PAGE>
Termination during third year - $15,000.00
" " fourth year - $10,000.00
" " fifth year - $ 5,000.00
7. Tenant shall have the right to extend the term of this Lease for five
(5) additional consecutive one (1) year option terms:
A. Tenant shall notify Landlord in writing by certified mail, return
receipt requested, of Tenant's election to exercise such right at least ninety
(90) days prior to the expiration of the original Lease term or the then
existing option term.
B. Such option terms shall be under the same terms, covenants and
conditions as in this Lease, except that the annual rent for the option terms
shall be:
December ___, 1999 to December ___, 2000 - $29,400.00
December ___, 2000 to December ___, 2001 - $30,870.00
December ___, 2001 to December ___, 2002 - $32,415.00
December ___, 2002 to December ___, 2003 - $34,035.00
December ___, 2003 to December ___, 2004 - $35,735.00
8. USE
The Tenant warrants and represents that its use and occupancy of the
Demised Premises is for the storage and wholesale distribution of roofing
cements and roof covering products and that no manufacturing of any kind will
occur at the demised premises. Tenant's Standard Industrial Classification
("SLC") number is 5033 as defined in the Standard Classification Manual
published by the Executive Office of the President, The Office of Management and
Budget (1987 ed.) as may, from time to time, be amended or supplemented.
Tenant's or any permitted sub-tenant's use and occupancy of the Demised Premises
during the entire term of this Lease Agreement is restricted to use for the
warehousing and distribution of roofing cements and roof covering products.
9. LATE CHARGES
In the event that Tenant fails to pay base rent, additional rent, or
any other sums
-3-
<PAGE>
due from Tenant under the terms of this Lease Agreement by 4:30 p.m. on the
sixth of the month in which said base rent, additional rent or other sums are
due, then Tenant shall pay Landlord, as additional rent, a late charge equal
to five percent (5%) of all base rent, additional rent and other sums due and
unpaid. Said late charge shall be and become additional rent due and owing on
the first day of the next month.
10. REPAIRS AND MAINTENANCE
a) During the term of this Lease Agreement, Tenant, at its own cost
and expense, shall make all repairs and replacement to the Demised Premises
necessitated by damage to the Demised Premises by Tenant's operations, including
without limitation damage from or caused by Tenant's vehicles and Tenant's
storage or distribution of Tenant's products.
b) Tenant covenants and agrees that it shall not cause or permit any
waste or damage to the Demised Premises. Tenant shall, at the expiration or
earlier termination of the Lease Agreement, deliver up the Demised Premises in
good order and condition, ordinary wear and tear excepted, and excepting repairs
and maintenance which are Landlord's responsibility under Paragraph 5 of this
addendum.
11. COMPLIANCE WITH LAWS
Tenant shall during the term of this Lease Agreement, promptly comply
with all laws, ordinances, rules, regulations, requirements, orders, decrees,
and directives of any and all governmental or public authorities having
jurisdiction over the Demised Premises, applicable to or affecting the Demised
Premises, and/or Tenant's use and occupancy of the Demised Premises.
12. ASSIGNMENT/SUBLETTING
a) The Tenant shall not mortgage or hypothecate this Lease
Agreement. The Tenant shall not occupy or use all or any part of the Demised
Premises, nor permit or suffer the Demised Premises to be occupied or used, for
any purpose other than as provided in the Use paragraph of this Lease Agreement,
nor for any purpose deemed unlawful, disreputable, or extra hazardous, on
account of fire or other casualty.
b) Tenant may not assign this Lease Agreement without the prior
written consent of the Landlord; provided, however, that if this Lease Agreement
is nevertheless assigned to any persons or entity pursuant to the provisions of
the Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"), such
assignee shall be deemed without further act or deed to have assumed all of the
obligations arising under this Lease Agreement on and after the date of such
assignment and shall upon demand execute and deliver to Landlord an instrument
confirming such assignment; and provided further that any and all monies or
other considerations payable or otherwise to be delivered in connection with
such assignment shall be paid or delivered to Landlord, shall be and remain the
exclusive property of Landlord and shall not
-4-
<PAGE>
constitute property of Tenant or of the estate of Tenant within the meaning of
the Bankruptcy Code. Any and all monies or other consideration constituting
Landlord's property under the preceding sentence not paid or delivered to
Landlord shall be held in trust by the assignee for the benefit of Landlord
and be promptly paid or delivered to Landlord.
The written consent of Landlord shall not be required for any
assignment of this Lease Agreement to Tenant's successor or to any wholly owned
subsidiary of Tenant, however, in the event of an assignment of this Lease
Agreement to a wholly owned subsidiary, Tenant and its assignee shall be and
remain liable for the observance and performance of all the covenants,
provisions and obligations of this Lease Agreement, including, but not limited
to the payment of rent reserved herein, through the entire term of this Lease
Agreement, as the same may be renewed, extended or otherwise modified.
c) In any event, the acceptance by the Landlord of any rent from any
subtenant or the failure of the Landlord to insist upon a strict performance of
any of the terms, conditions, and covenants herein shall not release the Tenant
herein, nor any sublessee, from any of the obligations herein during and for the
entire term of this Lease Agreement.
13. ATTORNEY FEES
In the event Tenant shall request the consent of Landlord for any
action that Tenant proposes to undertake, or should Landlord resort to, then
Tenant shall pay, as additional rent, Landlord's attorneys' fees reasonably
incurred in connection therewith. Said attorneys' fees shall be due and payable
as additional rent thirty (30) days after presentation of invoices for same to
Tenant by Landlord.
14. LANDLORD'S ACCESS
a) The Landlord and/or its agents shall have the right to enter the
Demised Premises at all times for emergency purposes. The Landlord shall be
allowed to take all material into and upon the Demised Premises that may be
required therefore without the same constituting an eviction of the Tenant in
whole or in part. Neither Landlord's right of entry or exercise of said right
of entry shall be deemed to impose upon the Landlord any obligation,
responsibility, or liability for the care, supervision, or repair of the Demised
Premises. All costs and expenses incurred by Landlord in response to emergency
conditions caused by Tenant or its invitees shall constitute and be additional
rent due and payable by Tenant to Landlord thirty (30) days after the provision
of written invoices for same to Tenant by Landlord.
b) Landlord and/or its agents shall have the right to enter the
Demised Premises at reasonable hours to inspect same at any time during the term
of this Lease Agreement.
-5-
<PAGE>
15. RIGHT TO EXHIBIT
Landlord and/or Landlord's agents, employees or representatives shall
have the right to show the Demised Premises during the term of this Lease
Agreement to persons wishing to lease or purchase it. Landlord or Landlord's
agents, employees or other representatives shall have the right within the last
six (6) months of the term of this Lease Agreement to show premises to persons
wishing to lease it and to place notices on any part of the Demised Premises,
offering the Demised Premises for lease or for sale, and Tenant shall permit the
signs to remain without hindrance or molestation, provided that such signs do
not inhibit Tenant's normal business activities.
16. NON-LIABILITY OF LANDLORD
It is expressly understood and agreed by and between the parties to
this Lease Agreement that the Tenant shall assume all risk of damage to its
property, equipment and fixtures occurring in or about the Demised Premises,
whatever the cause of such damage or casualty.
17. NOTICES
All notices and exercises of options or rights required or permitted
under this Lease Agreement shall be given in writing and shall be sent by
certified or registered mail, return receipt requested; addressed as follows:
If to Landlord: Seaboard Supply Co.
317 Nye Avenue
Irvington, New Jersey
Attention: Donald Levitt
If to Tenant: Monsey Products Co.
Cold Stream Rd., Box 368
Kimberton, PA 19442-0368
Attention: J. Michael McFadden
The Landlord and Tenant may, by notice given in the same manner set
forth above, designate a further or different address to which subsequent
notices shall be sent. All notices given in the manner designated in this
paragraph shall be deemed given, and the applicable time periods triggered by
any such notice shall be deemed to begin, when said notice is either received or
refused.
18. DEFAULT
a) In the event that Tenant shall fail to pay the base rent or any
additional rent (as such term is defined from time to time herein) herein
reserved at the time and in the
-6-
<PAGE>
manner herein specified, or any part thereof, and if such failure shall
continue for ten (10) days following written notice thereof from Landlord to
Tenant, Tenant shall, without any further specific notice from Landlord to
Tenant, be considered in default of this Lease Agreement, and Landlord shall
have all rights hereinafter provided. Only one written default notice shall
be required in any twelve month period for base rent. In the event of more
than one late payment of base rent during said period, no specific notice
shall be required; and the default shall be considered to have occurred when
the base rent payment is ten (10) days past due.
b) In the event that Tenant shall fail to reasonably perform any
other of the terms and conditions of this Lease Agreement to be performed by
Tenant, or if the Demised Premises shall be deserted or vacated, such occurrence
shall be considered a non-monetary default of this Lease Agreement. In the
event that Tenant has not cured any non-monetary default within thirty (30) days
of Tenant's receipt of written notice of said default from Landlord, Tenant
shall be considered in default of this Lease Agreement and Landlord shall have
all rights hereinafter provided, unless said default cannot be cured within
thirty (30) days and Tenant has commenced to cure same within that thirty (30)
day period and diligently proceeds with the cure to completion.
c) In the event of a default by Tenant as set forth in subparagraphs
(a) and (b) above, then Landlord may terminate this Lease Agreement not less
than ten (10) business days' notice to Tenant, and on the date specified in said
notice, Tenant's right to possession of the Demised Premises shall cease, and
Tenant shall then quit and surrender the Demised Premises to Landlord. If this
Lease Agreement shall have been so terminated by Landlord, Landlord may at any
time thereafter resume possession of the Premises by any lawful means and remove
Tenant or other occupants and their property.
19. INSOLVENCY
In the event that Tenant: (a) ceases to do business as a going
concern; (b) makes an assignment for the benefit of creditors; (c) generally
fails to pay its debts as they become due or admits in writing its inability to
pay its debts as they become due; (d) files a petition commencing a voluntary
case under any chapter of the Bankruptcy Code, 11 U.S.C. Section 101 et seq.
(the "Bankruptcy Code"); (e) is adjudicated an insolvent; (f) files a petition
seeking for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar arrangement under the Bankruptcy Code or any
other present or future statute, law, rule or regulation; (g) files an answer
admitting the material allegations of a petition filed against it in any such
proceeding; (h) consents to the filing of such a petition or acquiesces in the
appointment of a trustee receiver, custodian or other similar official for it or
of all or any substantial part of its assets or properties; or (i) takes any
action in preparation of its dissolution or liquidation; or in the event that a
case, proceeding or other action shall be instituted against Tenant seeking the
entry of an order for relief against Tenant to adjudicate Tenant as a bankrupt
or insolvent, or seeking reorganization, arrangement, readjustment, liquidation,
dissolution or similar relief against Tenant under the Bankruptcy code or any
other present or future statute, law, rule or
-7-
<PAGE>
regulation, which case, proceeding or other action either results in such
entry, adjudication, or issuance or entry of any other order or judgment
having a similar effect or remains undismissed for sixty (60) days, or within
sixty (60) days after the appointment without Tenant's consent or acquiescence
of any trustee, receiver, custodian or other similar official for it or for
all or any substantial part of its assets and properties, such appointment
shall not be vacated; then and in any of such events, Tenant shall be
considered in default of this Lease Agreement, and Landlord may, by notice to
Tenant, terminate this Lease Agreement, and upon such notice, Tenant's right
to possession of the Demised Premises shall cease and Tenant shall then quit
and surrender the Demised Premises.
20. NON-WAIVER OF DEFAULT
No failure by Landlord to insist upon the strict performance of any
covenant, agreement, term or condition of this Lease Agreement, or to exercise
any right or remedy consequent upon a breach thereof, and no acceptance of full
or partial rent during the continuance of any such breach, shall constitute a
waiver of any such breach or of the performance of such covenant, agreement,
term, or condition. No consent or waiver, express or implied, by Landlord to or
of any breach of any covenant, condition, or duty of Tenant shall be construed
as a consent to or waiver of any other breach of the same or any other covenant,
condition or duty, unless in writing signed by Landlord.
21. ESTOPPEL CERTIFICATE
At any time and from time to time but on not less than ten (10) days
prior written request by Landlord, Tenant will execute, acknowledge and deliver
to Landlord, promptly upon request, a certificate certifying:
a) That this Lease Agreement is unmodified and in full force and
effect (or, if there have been any modifications, that this Lease Agreement is
in full force and effect as modified, and stating the date and nature of each
modification);
b) The date, if any, to which base rent and other sums payable
hereunder have been paid;
c) That no notice has been received by Tenant of any default which
has not been cured except as to defaults specified in such certificate;
d) Landlord is not in default hereunder, except as to defaults
certified in such certificate; and
e) Such other matters as may be reasonably requested by Landlord or
any actual or prospective purchaser or mortgage lender. Any such certificate
may be relied upon by any actual or prospective purchaser or mortgagee.
-8-
<PAGE>
22. SURRENDER OF PREMISES
On the last day, or earlier permitted termination of the lease term,
Tenant shall quit and surrender the Demised Premises and shall deliver and
surrender the Demised Premises to the Landlord peaceably, together with all
alterations, additions and improvements in, to or on the Demised Premises made
by Tenant as permitted under this Lease Agreement.
23. HOLDING OVER
If the Tenant shall fail at the expiration or sooner termination of
this Lease Agreement to yield up immediate possession of the Demised Premises to
the Landlord then Tenant shall pay, for the whole time such possession is
withheld, a sum equal to twice the amount of the daily basic rent per day.
Acceptance of any such payment by Landlord shall not be deemed a waiver by
Landlord of any other rights under this Lease Agreement, at law, or equity of
reentry, repossession or ejectment otherwise available to Landlord. Receipt of
payment of any monies by Landlord from Tenant during such holding over shall not
act as an affirmance of a holdover occupancy nor act as a bar or waiver of the
Landlord's right to deem this Lease Agreement terminated and of no further force
and effect and pursue its right to obtain the removal of Tenant from the Demised
Premises.
24. LEASE CLAUSES SEVERABLE
The terms and conditions, covenants and provisions of this Lease
Agreement shall be, and hereby are, deemed to be severable. If any claims
hereunder or provisions herein contained shall be adjudged to be invalid or
unenforceable by a court of competent jurisdiction or by operation of any
applicable law, such invalidity or unenforceability shall not affect the
validity of any other clause or provision herein, but such other clauses and
provisions shall remain in full force and effect.
25. RIGHTS NOT EXCLUSIVE
The foregoing rights and remedies are not intended to be exclusive but
as additional to all rights and remedies Landlord would otherwise have at law or
equity. The rights and remedies of Landlord in this Lease Agreement are
distinct, separate and cumulative remedies, and no one of such remedies whether
or not exercised by Landlord shall be deemed to be an exclusion of any of the
others.
26. NO VERBAL MODIFICATIONS
This Lease Agreement contains the entire agreement between the
parties. No representative, agent or employee of Landlord or Tenant has been
authorized to make any representations or promises with reference to the within
letting or to vary, alter or modify the
-9-
<PAGE>
terms hereof. No additions, changes or modifications, renewals or extensions
hereof shall be binding unless reduced to writing and signed by Landlord and
Tenant.
27. MERGER
There are no oral understandings, terms, covenants or conditions, and
neither party has relied on any other representations, expressed or implied, not
contained in this Lease Agreement. All prior understandings, terms, conditions
or covenants are merged in this Lease Agreement. No representations or promises
shall be binding on the parties hereto, except those representations and
promises contained herein or in some future writing signed by the party making
such representations or promise(s).
28. APPLICABLE LAW
This lease shall be governed by, construed and enforced in accordance
with laws of the State of New Jersey.
29. JURISDICTION
The parties submit to the jurisdiction of the courts of the State of
New Jersey.
30. WAIVER OF TRIAL BY JURY
It is mutually agreed by and between Landlord and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action or proceeding brought by either of the parties hereto against the other
on any matters whatsoever arising out of or in any way connected with this Lease
Agreement, the relationship of Landlord and Tenant, Tenant's use or occupancy of
the Demised Premises, and/or any claim or injury or damage, and any emergency
statute or any other statutory remedy. Should Landlord seek recourse to equity
to enforce any of its rights under this Lease Agreement, Tenant agrees to waiver
any defense which it might otherwise have that Landlord has an adequate remedy
at law. Tenant further agrees that it shall not interpose any counterclaim or
setoff in a summary proceeding or in any action based, in whole or in part, on
nonpayment of rent including base rent and additional rent.
31. BINDING EFFECT
This Lease Agreement is binding upon and shall inure to the benefit of
the parties, their legal representatives, successors and permitted assigns.
-10-
<PAGE>
32. PARAGRAPH HEADINGS
The paragraph headings in this Lease Agreement and the position of its
provisions are intended for convenience only and shall not be taken into
consideration in any construction or interpretation of this Lease Agreement or
any of its provisions.
33. NUMBER AND GENDER
The terms "Landlord" and "Tenant" wherever used herein shall be
applicable to one or more persons, as the case may be, and the singular shall
include the plural, and the neuter shall include the masculine and/or feminine,
and if there be more than one, the obligations hereof shall be joint and
several.
34. CORPORATE AUTHORITY
If Tenant is a corporation, Tenant represents and warrants that this
Lease Agreement and the Tenant's execution of this Lease Agreement has been duly
authorized and approved by the corporation's Board of Directors. The
undersigned officers and representatives of the corporation executing this Lease
Agreement on behalf of the corporation represent and warrant that they are
officers of the corporation with authority to execute this Lease Agreement on
behalf of the corporation, and simultaneous with the execution hereof, Tenant
will provide Landlord with a corporate resolution confirming the aforesaid.
35. RECORDING
It is understood and agreed between the parties hereto that neither
this Lease Agreement nor any other document memorializing this lease will be
recorded.
36. SURVIVAL OF OBLIGATION
It is expressly understood and agreed that in the event there are any
obligations of Tenant with respect to payment or performance as required under
the terms and conditions of this Lease Agreement that shall have not been
performed prior to the expiration or termination of this Lease Agreement in
accordance with its terms, such obligation, including without limitation the
obligation to make rent adjustments and other lease adjustments, shall survive
the expiration or termination of this Lease Agreement and surrender of the
Demised Premises by the Tenant to the Landlord.
37. QUIET ENJOYMENT
Landlord covenants that if, and so long as, Tenant pays the rent
including base rent and additional rent as herein provided, and performs the
covenants hereof, Landlord shall do
-11-
<PAGE>
nothing to affect Tenant's right to peaceably and quietly have, hold, and
enjoy the Demised Premises for the term herein mentioned subject to the
provisions of this Lease Agreement.
38. ENVIRONMENTAL MATTERS
The Tenant hereby agrees to save harmless, defend, and indemnify the
Landlord from and against any and all damages, costs and expenses, including,
without limitation, attorneys' fees, incurred for cleanup and remediation
necessitated by or resulting from a discharge of an "Hazardous Substance or
Waste," within the meaning of the Spill Compensation and Control Act, N.J.S.A.
58:10-23.11, et seq., or a release of any hazardous substance within the meaning
of the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C.A. Section 9601, et seq., occurring at or on the Demised Premises
subsequent to the commencement of this Lease Agreement, resulting from any
activity of Tenant or its invitees.
Attest: SEABOARD SUPPLY CO.
By /s/ Donald Levitt
- ---------------------------- ------------------------------
Donald Levitt
MONSEY PRODUCTS CO.
/s/ John D. O'Keefe By /s/ J. M. McFadden
- ---------------------------- ------------------------------
John D. O'Keefe J. M. McFadden
-12-
<PAGE>
[DUPLICATE ORIGINAL]
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement"), dated as of October 1, 1997
is made by and between Henry Company, a California corporation (the "Company"),
and Warner W. Henry Living Trust (the "Grantee").
WHEREAS, the Company and the Grantee desire to set forth certain terms
and instructions regarding the issuance, division, transfer and exercise of the
Company's warrant to purchase shares of Class A Common Stock, no par value per
share, and shares of Common Stock, no par value per share (the "Capital Stock")
of the Company being granted to the Grantee in consideration of certain loans
made by Grantee to the Company;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. WARRANT.
1.1 GRANT OF WARRANTS. The Company hereby grants to the Grantee
warrants (the "Warrants") to purchase 12,000 shares of Class A Common Stock and
388,000 shares of Common Stock (together, the "Capital Stock"), subject to the
terms and conditions set forth herein. Each Warrant shall give the Grantee the
right to purchase one share of Capital Stock.
1.2 FORM OF CERTIFICATE. The Warrants shall be evidenced by a
certificate substantially in the form of EXHIBIT A hereto (the "Warrant
Certificate"), which shall evidence the right of the holder thereof to purchase
such number of shares of Capital Stock as are stated on the face of such Warrant
Certificate.
1.3 EXECUTION. The Warrant Certificate shall be executed on
behalf of the Company by its Chairman of the Board, President, Executive or
Senior Vice President or Chief Financial Officer, and by its Secretary or an
Assistant Secretary. The signature of any of such officers may be manual or
facsimile. If the Warrant Certificate bears the signatures of individuals who
were at any time the proper officers of the Company, such signatures shall bind
the Company, notwithstanding that any of such individuals shall have ceased to
hold such offices prior to the delivery of the Warrant Certificate or did not
hold such offices on the date of this Agreement.
1.4 LEGEND. So long as required thereunder, the Warrant
Certificate (including each Warrant Certificate issued upon the transfer or
partial exercise of the Warrants) and each certificate for shares of Capital
Stock issued upon exercise of the Warrants or the transfer of any such Capital
Stock, shall be stamped or otherwise imprinted as follows:
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED
OR HYPOTHECATED EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii)
RULE 144 UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM
REGISTRATION UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES.
IN THE CASE OF TRANSFERS OR OTHER DISPOSITIONS MADE OTHERWISE THAN
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, THE
HOLDER SHALL, AT THE COMPANY'S REQUEST, PROVIDE TO THE COMPANY AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
A copy of this Agreement shall be filed with the Secretary of the Company and
shall be kept at its principal executive office.
SECTION 2. OWNERSHIP AND TRANSFERABILITY.
2.1 OWNERSHIP. The Warrant Certificate shall be numbered and
shall be registered in the books of the Company (the "Warrant Register")
maintained at the principal office of the Company at the address specified in
Section 10 hereof. The Company shall be entitled to treat the registered
holder of the Warrant (the "Holder") whose name appears in the Warrant
Register as the owner in fact thereof for all purposes (notwithstanding any
notation of ownership or other writing thereon made by anyone or any notice
to the contrary).
2.2 TRANSFERABILITY. Title to the Warrant Certificate may be
transferred only by endorsement (by the Holder executing the form of assignment
attached hereto as EXHIBIT B) and delivery in the same manner as in the case of
a negotiable instrument transferable by endorsement and delivery. Any attempted
disposition made in violation of the terms of this Agreement shall automatically
be null and void.
SECTION 3. TERM OF WARRANTS; EXERCISE OF WARRANTS.
3.1 TERM OF WARRANTS. Subject to the terms of this Agreement, the
Warrant may be exercised, at any time after the date hereof, in whole and from
time to time in part, at the option of the Holder, until 5:00 p.m., Los Angeles
time, on September 30, 2012 (the "Expiration Date").
3.2 EXERCISE OF WARRANT. Warrants shall be exercised, in whole or
in part, by the Holder surrendering the Warrant Certificate with the form of
election to purchase attached thereto duly executed by such Holder, to the
Company at its principal office,
2
<PAGE>
accompanied by payment, by wire transfer or by certified or cashier's check,
of the purchase price payable in respect of the Capital Stock issuable upon
exercise of the Warrants evidenced by the Warrant Certificate being
purchased. If less than all of the Capital Stock issuable upon exercise of
the Warrants evidenced by the Warrant Certificate is purchased, the Company
will, upon such exercise, execute and deliver to the Holder a new Warrant
Certificate (dated the date of the original Warrant Certificate) evidencing
the number of shares of Capital Stock not so purchased. As soon as
practicable after such exercise and payment of the purchase price, the
Company will cause to be issued in the name of and delivered to the Holder,
or as the Holder may direct, a certificate or certificates representing the
shares of Capital Stock purchased upon such exercise.
3.3 NO FRACTIONAL SHARES. No fractional shares shall be issued
upon exercise of the Warrants. In lieu of any fractional share to which the
Holder would otherwise be entitled, the Company shall pay a cash adjustment in
an amount equal to the same fraction of the Fair Market Value (as defined in
Section 7) per share of Capital Stock on the day of exercise.
SECTION 4. REPLACEMENT OF WARRANT CERTIFICATE. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a Warrant Certificate and, in the case of loss, theft or
destruction, on delivery of an indemnity agreement reasonably satisfactory in
form and substance to the Company or, in the case of mutilation, on surrender
and cancellation of the mutilated Warrant Certificate, the Company at its
expense shall execute and deliver, in lieu of the Warrant Certificate, a new
Warrant Certificate of the same form and amount.
SECTION 5. RESERVATION OF SHARES. A number of shares of Capital Stock
sufficient to provide for the exercise of the Warrants upon the terms of
exercise set forth herein and in the Warrant Certificate shall at all times be
reserved out of the Company's authorized but unissued shares of Capital Stock.
SECTION 6. CANCELLATION OF WARRANT. If the Company purchases or
otherwise acquires a Warrant Certificate, the same shall thereupon be cancelled.
The Company shall cancel any Warrant Certificate surrendered for exchange,
substitution, transfer or exercise in whole or in part. Cancelled Warrant
Certificates shall thereafter be disposed of in a manner satisfactory to the
Company.
SECTION 7. CONVERTED WARRANT. At its option, the Holder may request
pursuant to this Section 7 that the Company exchange the Warrant Certificate for
a particular number of shares of Capital Stock subject to the Warrants (the
"Converted Warrant Shares") by delivering to the Holder, without payment by the
Holder of any cash or other consideration as exercise price, that number of
shares of Capital Stock equal to the quotient obtained by dividing the Net Value
(as hereinafter defined) of the Converted Warrant Shares by the Fair Market
Value (as defined below) of a single share of Capital Stock, determined in each
case as of the close of business on the date of exercise. The "Net Value" of
Converted Warrant Shares shall equal (A) the aggregate Fair Market Value of the
Converted Warrant Shares (i.e.
3
<PAGE>
the Fair Market Value per share for the Converted Warrant Shares times the
number of Converted Warrant Shares) minus (B) the aggregate exercise price
for the Converted Warrant Shares (i.e. the exercise price per share for the
Converted Warrant Shares times the number of Converted Warrant Shares). The
"Fair Market Value" of Converted Warrant Shares shall equal (i) the average
of (X) the daily closing prices per share of Capital Stock for the five
trading days immediately preceding the date of exercise or exchange on the
principal stock exchange or over-the-counter market on which the Capital
Stock is traded or (Y) the average of the closing bid and ask prices per
share of Capital Stock for such five trading days if the Capital Stock is
then traded in a market for which such prices are readily available and daily
closing prices are not readily available, or (ii) that value per share of
Capital Stock determined by the Board of Directors of the Company acting in
good faith if the Capital Stock is not then traded on a stock exchange or
over-the-counter market for which either such prices are readily available.
For purposes of this Section 7, all references to the "Capital Stock" shall
refer to the shares of Class A Common Stock or Common Stock, as applicable,
evidenced by the Warrant Certificate or sought to be delivered by the
Company. All other provisions of the Warrant shall apply to any such
exchange of the Warrant pursuant to the terms of this Section 7.
SECTION 8. ADJUSTMENTS.
8.1 CALCULATION OF ADJUSTMENT.
4
<PAGE>
(a) MERGER, SALE OF ASSETS, ETC. If at any time while these
Warrants, or any portion thereof, are outstanding and unexpired there shall be
(i) a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of Capital Stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash, or otherwise, or (iii) a sale
or transfer of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that the
Holder of Warrants shall thereafter be entitled to receive upon exercise of each
Warrant, during the period specified therein and upon payment of the Exercise
Price then in effect, the number of shares of stock or other securities or
property of the successor corporation resulting from such reorganization,
merger, consolidation, sale or transfer that a holder of the share of Capital
Stock deliverable upon exercise of the Warrant would have received in such
reorganization, consolidation, merger, sale or transfer if the Warrant had been
exercised immediately before such reorganization, merger, consolidation, sale or
transfer, all subject to any further adjustment required by this Section 8.1.
The foregoing provisions of this Section 8.1 shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporation that are at the time receivable upon the
exercise of the Warrants. If the per-share consideration payable to the holders
of Capital Stock in connection with any such transaction is in a form other than
cash or marketable securities, then the value of such consideration shall be
determined in good faith by the Company's Board of Directors. In all events,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of this provision and the other
provisions of the Warrants and Warrant Certificate with respect to the rights
and interests of the Holder after the transaction, to the end that all such
provisions shall be applicable after that event, as near as reasonably may be,
in relation to any shares or other property that may become deliverable after
that event upon exercise of the Warrants.
(b) RECLASSIFICATION, ETC. If, at any time while these Warrants,
or any portion thereof, are outstanding and unexpired, the Company shall change,
by reclassification of securities or otherwise, any of the securities as to
which purchase rights under the Warrants exist into the same or a different
number of securities of any other class or classes, each Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under the Warrant
immediately prior to such reclassification or other change, and the Exercise
Price (as defined in the Warrant Certificate) therefor shall be appropriately
adjusted, all subject to any further adjustment required by this Section 8.1.
(c) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company,
at any time while the Warrants, or any portion thereof, are outstanding and
unexpired, shall split, subdivide or combine the shares of Capital Stock into a
different number of securities of the same class, the Exercise Price shall be
proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination. When any adjustment is
5
<PAGE>
required to be made to the initial or adjusted Exercise Price, the Company shall
forthwith determine the new Exercise Price, prepare and retain on file a
statement describing in reasonable detail the method used in arriving at the new
Exercise Price, and cause a copy of such statement to be mailed to each Holder
of Warrants within ten (10) days of such determination.
(d) ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR
PROPERTY. If, at any time while the Warrants, or any portion hereof, are
outstanding and unexpired, the holders of the securities issuable upon exercise
thereof shall have received, or on or after the record date fixed for the
determination of eligible stockholders shall have become entitled to receive,
without payment therefor, other or additional stock or other securities or
property (other than cash) of the Company, by way of dividend or other
distribution, then and in each case, such Warrant shall thereafter represent the
right to acquire, in addition to the number of shares of the security issuable
upon exercise of such Warrant, and without payment by the Holder of any
additional consideration therefor, the amount of such other or additional stock
or other securities or property (other than cash) of the Company that such
Holder would have held on the date of such exercise had such Holder been the
holder of record of the security receivable upon exercise of such Warrant on the
date of this Agreement and had thereafter, during the period from the date of
this Agreement to and including the date of such exercise, retained such shares
and/or all other additional stock available to it as aforesaid during such
period, giving effect to all adjustments called for during such period by the
provisions of this Section 8.1.
8.2 STATEMENT ON WARRANT. Irrespective of any adjustments in the
Exercise Price, the Warrant Certificate theretofore or thereafter issued may
continue to express the same price and number and kind of shares as are stated
in the Warrant Certificate initially issuable pursuant to this Agreement.
SECTION 9. NO RIGHTS AS SHAREHOLDERS. Neither the Warrants nor any
Warrant Certificate shall confer upon the Grantee, the Holder, or any transferee
thereof, as holder of Warrants, the right to vote, to receive dividends or other
distributions, to consent or to receive notice as a shareholder in respect of
any meeting of shareholders, or any other rights whatsoever as a shareholder of
the Company. Nothing in this Section affects the rights of any person as a
holder of Capital Stock.
SECTION 10. NOTICES. All notices or communications hereunder shall be
in writing, addressed as follows:
6
<PAGE>
if to the Company:
Henry Company
2911 Slauson Avenue
Huntington Park, California 90255
Attention: Jeffrey A. Wahba
Fax No.: (213) 581-7764
if to the Grantee:
Warner W. Henry Living Trust
c/o Henry Group of Companies
2911 Slauson Avenue
Huntington Park, California 90255
Attention:
Fax No.: (213 ) 581-7764
Any such notice or communication shall be deemed given (i) when made,
if made by hand delivery or by fax with confirmation of transmission, (ii) one
business day after being deposited with a next-day courier, postage prepaid, or
(iii) three business days after being sent certified or registered mail, return
receipt requested, postage prepaid, in each case addressed as above (or to such
other address as such party may designate in writing from time to time).
SECTION 11. AMENDMENT. The Company may from time to time supplement,
modify or amend this Agreement, and waivers or consents to departures from the
provisions hereof may be given, without the approval of any Holder, in order to
cure any ambiguity or to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company may deem necessary or desirable and which shall not adversely
affect the interest of the Holder. Except as provided above, this Agreement may
not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, without the written consent of the
Holder and the Company.
SECTION 12. MERGER OR CONSOLIDATION OF THE COMPANY. The Company will
not merge or consolidate with or into any other corporation unless the
corporation resulting from such merger or consolidation (if not the Company)
shall expressly assume, by supplemental agreement, the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by the Company.
7
<PAGE>
SECTION 13. GOVERNING LAW. This Agreement shall be construed,
interpreted and governed in accordance with the laws of the State of California
without regard to its conflicts-of-law provisions.
SECTION 14. ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns, subject to the restrictions upon
transfer and assignment as set forth herein or in the Shareholders Agreement
referred to herein.
SECTION 15. SEVERABILITY. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
SECTION 16. ENTIRE AGREEMENT. This Agreement represents the entire
agreement of the parties and shall supersede any and all previous contracts,
agreements or understandings between the parties hereto with respect to the
subject matter hereof.
SECTION 17. INTERPRETATION. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other party.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed it on the
day and year first above written.
HENRY COMPANY, a California corporation
/s/ Jeffrey A. Wahba
--------------------------------------
By: Jeffrey A. Wahba
-------------------------------------
Its: Secretary and Chief Financial Officer
-------------------------------------
Attest:
WARNER W. HENRY LIVING TRUST
Secretary
By: /s/ Warner W. Henry
----------------------------------
Warner W. Henry
Its:
----------------------------------
9
<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE OFFERED,
SOLD, OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
SUCH ACT, (ii) RULE 144 UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM
REGISTRATION UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES. IN THE
CASE OF TRANSFERS OR OTHER DISPOSITIONS MADE OTHERWISE THAN PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, THE HOLDER SHALL, AT THE
COMPANY'S REQUEST, PROVIDE TO THE COMPANY AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS AND
ENTITLED TO THE BENEFITS OF A WARRANT AGREEMENT, DATED AS OF OCTOBER 1, 1997. A
COPY OF SUCH AGREEMENT IS ON FILE AT THE OFFICES OF THE COMPANY.
No. ______________________ Warrant to Purchase _________ Shares
of Common Stock
_________ Shares
of Class A Common Stock
THIS CERTIFIES that ___________________________ or registered
assigns is the registered holder (the "Holder") of warrants (the "Warrants")
to purchase _______ shares of Class A Common stock, ___ par value per share,
and _______ shares of Common stock, ___ par value per share (together, the
"Capital Stock"), of Henry Company, a California corporation (the "Company"),
on the terms set forth in that certain Warrant Agreement, dated as of October
1, 1997 (the "Warrant Agreement"), between the Company and
__________________, at any time on or before the Expiration Date (defined
below), by surrendering this Warrant Certificate, with the form of election
to purchase set forth hereon duly executed, at the principal office of the
Company, and by paying in full a price per share set forth on Exhibit A (as
adjusted in accordance with the terms of the Warrant Agreement) (the
"Exercise Price").
Payment of the Exercise Price may be made by the Holder hereof in
United States currency by certified or cashier's check or by wire transfer to
the Company or by the exchange of shares of Capital Stock valued at the Fair
Market Value thereof (determined in accordance with the terms of the Warrant
Agreement).
<PAGE>
Subject to the terms contained in the Warrant Agreement, this Warrant
may be exercised, at any time after October 1, 1997, in whole and from time to
time in part, at the option of the Holder hereof, until 5:00 p.m., Los Angeles
time on, October 1, 2012 (the "Expiration Date"). The Warrant may not be
exercised after the Expiration Date and shall thereafter become void.
Upon the purchase of less than all of the shares of Capital Stock
purchasable upon exercise of all of the Warrants evidenced by this Warrant
Certificate, there shall be issued to the Holder a new Warrant Certificate
representing Warrants to purchase the shares of Capital Stock not purchased.
Prior to the Expiration Date, the Holder shall be entitled to exchange
this Warrant Certificate, with or without other Warrant Certificates, for
another Warrant Certificate or Warrant Certificates representing the right to
purchase the same number of shares, upon surrender of this Warrant Certificate
at the principal office of the Company.
Upon certain events provided for in the Warrant Agreement, the
Exercise Price and the kind and amount of securities purchasable upon the
exercise of Warrants are required to be adjusted.
No fractional shares will be issued upon the exercise of Warrants. As
to any final fraction of a share that the Holder of one or more Warrant
Certificates, the rights under which are exercised in the same transaction,
would otherwise be entitled to purchase upon such exercise, the Company shall
pay the cash value thereof determined as provided in the Warrant Agreement.
This Warrant Certificate is issued under and in accordance with the
Warrant Agreement and is subject to the terms and provisions contained in said
Warrant Agreement, to all of which terms and provisions the Holder consents by
acceptance hereof. Capitalized terms not otherwise defined in this Warrant
Certificate shall have the meaning given thereto in the Warrant Agreement.
This Warrant Certificate shall not entitle the Holder to any of the
rights of a shareholder of the Company, including, without limitation, the right
to vote, to receive dividends and other distributions, or to attend or receive
any notice of meetings of shareholders or any other proceedings of the Company.
This Warrant Certificate shall be construed, interpreted and governed
by the laws of the State of California without regard to its conflicts-of-law
provisions.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed.
Attest: By:________________________________________
Name:_________________________________
Title:________________________________
_________________________
Secretary
<PAGE>
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise Warrants
represented by this Warrant Certificate and to purchase shares of
Class A Common Stock and / or
shares of Common Stock issuable upon such exercise, and requests
that Certificates for such shares be issued and delivered as follows:
ISSUE TO: __________________________________________
(Name)
(Address, Including Zip Code)
(Social Security or Tax Identification Number)
DELIVER TO: __________________________________________
(Name)
(Address, Including Zip Code)
In payment of the purchase price with respect to Warrants exercised
the undersigned hereby tenders payment of $__________ in accordance with the
terms of the Warrant Agreement. If the number of shares purchased hereby is
fewer than all the shares purchasable upon exercise of all of the Warrants
represented by this Warrant Certificate, the undersigned requests that a new
Warrant Certificate representing the remaining number of shares purchasable upon
exercise of the remaining Warrants be issued and delivered as set forth below:
Name of Warrantholder or Assignee:____________________
(Please Print)
Address:_____________________________________
Signature:_____________________________________ Dated:_______________
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate.)
Signature Guaranteed:___________________
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
To assign Warrants, fill in the form below: (I) or (we) assign and
transfer this Warrant to
______________________________________________________________________________
(Insert Assignee's social security or Tax ID number)
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _____________________________ to transfer such Warrants
on the books of the Company. The agent may substitute another to act for him.
__________________________________________
Signature(s)
__________________________________________
Note: The above signature(s) must
correspond with the name written upon
the face of this Warrant Certificate in
every particular, without alteration or
enlargement or any change whatsoever.
If this Warrant Certificate is held of
record by two or more joint owners, all
such owners must sign.
___________________
Date
___________________________________
Signature Guaranteed*
*Note: The signature must be guaranteed by an institution which is a member
or one of the following recognized signature guarantee programs:
(1) The Securities Transfer Agent Medallion Program
<PAGE>
(STAMP);
(2) The New York Stock Exchange Medallion Program
(MSP); or
(3) The Stock Exchange Medallion Program (SEMP).
<PAGE>
WARRANT CERTIFICATE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE OFFERED,
SOLD, OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
SUCH ACT, (ii) RULE 144 UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM
REGISTRATION UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES. IN THE
CASE OF TRANSFERS OR OTHER DISPOSITIONS MADE OTHERWISE THAN PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, THE HOLDER SHALL, AT THE
COMPANY'S REQUEST, PROVIDE TO THE COMPANY AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS AND
ENTITLED TO THE BENEFITS OF A WARRANT AGREEMENT, DATED AS OF OCTOBER 1, 1997. A
COPY OF SUCH AGREEMENT IS ON FILE AT THE OFFICES OF THE COMPANY.
No. 1 Warrant to Purchase 12,000 Shares
___________ Common Stock
388,000 Shares
of Class A Common Stock
THIS CERTIFIES that the Warner W. Henry Living Trust or registered
assigns is the registered holder (the "Holder") of warrants (the "Warrants") to
purchase 12,000 shares of Class A Common Stock, no par value per share, and
388,000 shares of Common Stock, no par value per share (together, the "Capital
Stock"), of Henry Company, a California corporation (the "Company"), on the
terms set forth in that certain Warrant Agreement, dated as of October 1, 1997
(the "Warrant Agreement"), between the Company and the Holder, at any time on or
before the Expiration Date (defined below), by surrendering this Warrant
Certificate, with the form of election to purchase set forth hereon duly
executed, at the principal office of the Company, and by paying the applicable
price per share for such Capital Stock (depending on the date of exercise) as
set forth on Exhibit A hereto (as adjusted in accordance with the terms of the
Warrant Agreement) (the "Exercise Price").
Payment of the Exercise Price may be made by the Holder hereof in
United States currency by certified or cashier's check or by wire transfer to
the Company or by the exchange of shares of Capital Stock valued at the Fair
Market Value thereof (determined in accordance with the terms of the Warrant
Agreement).
<PAGE>
Subject to the terms contained in the Warrant Agreement, this Warrant
may be exercised, at any time after October 1, 1997, in whole and from time to
time in part, at the option of the Holder hereof, until 5:00 p.m., Los Angeles
time on, September 30, 2012 (the "Expiration Date"). The Warrant may not be
exercised after the Expiration Date and shall thereafter become void.
Upon the purchase of less than all of the shares of Capital Stock
purchasable upon exercise of all of the Warrants evidenced by this Warrant
Certificate, there shall be issued to the Holder a new Warrant Certificate
representing Warrants to purchase the shares of Capital Stock not purchased.
Prior to the Expiration Date, the Holder shall be entitled to exchange
this Warrant Certificate, with or without other Warrant Certificates, for
another Warrant Certificate or Warrant Certificates representing the right to
purchase the same number of shares, upon surrender of this Warrant Certificate
at the principal office of the Company.
Upon certain events provided for in the Warrant Agreement, the
Exercise Price and the kind and amount of securities purchasable upon the
exercise of Warrants are required to be adjusted.
No fractional shares will be issued upon the exercise of Warrants. As
to any final fraction of a share that the Holder of one or more Warrant
Certificates, the rights under which are exercised in the same transaction,
would otherwise be entitled to purchase upon such exercise, the Company shall
pay the cash value thereof determined as provided in the Warrant Agreement.
This Warrant Certificate is issued under and in accordance with the
Warrant Agreement and is subject to the terms and provisions contained in said
Warrant Agreement, to all of which terms and provisions the Holder consents by
acceptance hereof. Capitalized terms not otherwise defined in this Warrant
Certificate shall have the meaning given thereto in the Warrant Agreement.
This Warrant Certificate shall not entitle the Holder to any of the
rights of a shareholder of the Company, including, without limitation, the right
to vote, to receive dividends and other distributions, or to attend or receive
any notice of meetings of shareholders or any other proceedings of the Company.
This Warrant Certificate shall be construed, interpreted and governed
by the laws of the State of California without regard to its conflicts-of-law
provisions.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed.
HENRY COMPANY, a California
corporation
Attest: By: _____________________________________
Name: ______________________________
Title: ______________________________
_________________________
Secretary
<PAGE>
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise Warrants
represented by this Warrant Certificate and to purchase shares of
Class A Common Stock and / or
shares of Common Stock issuable upon such exercise, and requests
that Certificates for such shares be issued and delivered as follows:
ISSUE TO: _____________________________________
(Name)
(Address, Including Zip Code)
(Social Security or Tax Identification Number)
DELIVER TO: _____________________________________
(Name)
(Address, Including Zip Code)
In payment of the purchase price with respect to Warrants exercised
the undersigned hereby tenders payment of $__________ in accordance with the
terms of the Warrant Agreement. If the number of shares purchased hereby is
fewer than all the shares purchasable upon exercise of all of the Warrants
represented by this Warrant Certificate, the undersigned requests that a new
Warrant Certificate representing the remaining number of shares purchasable upon
exercise of the remaining Warrants be issued and delivered as set forth below:
Name of Warrantholder or Assignee:___________________
(Please Print)
Address:_______________________________________
Signature:___________________________________ Dated:________________
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate.)
Signature Guaranteed:_________________
<PAGE>
EXHIBIT A
HENRY COMPANY
SHARES AVAILABLE FOR PURCHASE
UPON EXERCISE OF WARRANTS:
CLASS A COMMON STOCK 12,000
COMMON STOCK 388,000
<TABLE>
<CAPTION>
PRICE PER SHARE
---------------
DATE OF CLASS A
WARRANT EXERCISE COMMON STOCK - $ COMMON STOCK - $
----------------- ---------------- ----------------
<S> <C> <C>
October 1, 1997 to September 30, 2002 12.94 12.94
October 1, 2002 to September 30, 2003 15.53 15.53
October 1, 2003 to September 30, 2004 18.12 18.12
October 1, 2004 to September 30, 2005 20.71 20.71
October 1, 2005 to September 30, 2006 23.29 23.29
October 1, 2006 to September 30, 2007 25.88 25.88
October 1, 2007 to September 30, 2008 28.47 28.47
October 1, 2008 to September 30, 2009 31.06 31.06
October 1, 2009 to September 30, 2010 33.65 33.65
October 1, 2010 to September 30, 2011 36.24 36.24
October 1, 2011 to September 30, 2012 38.82 38.82
</TABLE>
<PAGE>
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This Convertible Preferred Stock Purchase Agreement (this
"Agreement") is made and entered into as of April 22, 1998 by and among HENRY
COMPANY, a California corporation (the "Company"), and JOSEPH T. MOONEY, JR.
("Investor").
R E C I T A L S
1. It is a condition to each of the Company's and Investor's
obligations to the consummation of the Stock Purchase Agreement dated as of
February 27, 1998, by and among Company and the Selling Shareholders named
therein ("Stock Purchase Agreement") that the Company and Investor execute
and enter into this Agreement as of the Closing, as such term is defined in
the Stock Purchase Agreement (the "Stock Closing").
In consideration of the foregoing and the representations,
warranties, conditions and covenants contained herein, the Company and
Investor hereby agree as follows:
ARTICLE I
THE SECURITIES PURCHASE
1.1 PURCHASE AND SALE OF THE SECURITIES. Subject to and upon the
terms and conditions contained herein, the Company shall sell to Investor,
and Investor shall purchase from the Company, 22,500 shares of Series A
Convertible Preferred Stock, no par value per share (the "Preferred Stock").
The Preferred Stock is convertible into shares of the Company's Common Stock,
no par value (the "Common Stock").
1.2 CONSIDERATION. The purchase price (the "Purchase Price") for
the Securities shall equal an aggregate of Six Hundred Thousand Dollars
(US$600,000).
1.3 CLOSING. The consummation of the transactions contemplated by
this Agreement (the "Closing") shall take place at or be directed from the
offices of Munger, Tolles & Olson LLP, 355 South Grand Avenue, Los Angeles,
California 90071, on the day the Stock Closing occurs, or at such other date
and place as the Company and Investor shall agree in writing. The day on
which the Closing occurs is herein referred to as the "Closing Date."
1.4 EXECUTION AND DELIVERIES AT CLOSING. At the Closing, (i)
Investor shall deliver the Purchase Price, by wire transfer or certified or
cashier's check, to the Company, (ii)
<PAGE>
the Company shall deliver to Investor certificates evidencing the Securities
and (iii) the Company and Investor shall execute and deliver each agreement
and instrument required or contemplated by this Agreement to be so executed
and delivered and not theretofore executed and delivered. All actions taken
at the Closing shall be deemed to occur simultaneously.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Investor as follows:
2.1 ORGANIZATION. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of California, has the
requisite corporate power and authority to own and operate its properties and
assets and to carry on its business as it is presently being conducted, to
execute and deliver this Agreement and any other agreement or instrument to
which the Company is or is to be a party the execution and delivery of which is
contemplated by this Agreement (such other agreements or instruments, together
with this Agreement, being the "Transaction Documents"), and to carry out the
provisions of the Transaction Documents.
2.2 AUTHORIZATION. All corporate action on the part of the Company
and its shareholders necessary for the authorization, execution and delivery of
the Transaction Documents, the performance of all obligations of the Company
thereunder at the Closing, and the authorization, issuance (or reservation for
issuance), sale, and delivery of the Securities has been taken or will be taken
prior to the Closing, and the Transaction Documents constitute valid and legally
binding obligations of the Company, enforceable in accordance with their
respective terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general applicability affecting
creditors' rights generally, and (ii) as limited by laws relating to the
availability of specific performance and other equitable remedies.
2.3 VALID ISSUANCE. The shares of Preferred Stock being purchased by
Investor under this Agreement, when issued, sold, and delivered in accordance
with the terms and conditions of this Agreement for the Purchase Price, will be
duly and validly issued, fully paid, and nonassessable, and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and applicable provisions of federal or state securities laws. The
shares of Common Stock issuable upon conversion of such shares of Preferred
Stock (the "Common Conversion Shares") have been duly reserved, and upon
issuance in accordance with the terms of the Certificate of Determination (as
hereinafter defined), will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, and applicable provisions of
federal or state securities laws (the Preferred Stock and the Common Conversion
Shares are together referred to as the "Securities").
2
<PAGE>
2.4 CAPITALIZATION. The authorized capital stock of the Company
consists of 1,000,000 shares of common stock, no par value per share, 30,000
shares of Class A Common Stock, no par value per share, and 100,000 shares of
preferred stock, no par value per share, 22,500 shares of which have been
designated Series A Convertible Preferred Stock. The rights, preferences and
privileges of the Preferred Stock are as set forth in the Amended and Restated
Articles of Incorporation, attached hereto as Exhibit A, which has been filed
with the Secretary of State of California. As of the date of Closing, there
will be: 221,500 shares of Common Stock issued and outstanding and 6,000 shares
of Class A Common Stock outstanding, (ii) 22,500 shares of Series A Convertible
Preferred Stock issued and outstanding and 22,500 Conversion Common Shares
reserved for issuance upon the conversion of such shares, (iii) 388,000 and
12,000 shares of Common Stock and Class A Common Stock, respectively, reserved
for issuance upon the exercise of warrants, dated October 1, 1997, issued by the
Company to Warner H. Henry (the "Warner Warrants"), and (iv) 55,000 and 45,000
shares of Common Stock reserved for issuance to Mr. Ted Muhs and Investor,
respectively, upon exercise of their rights to acquire additional shares of
Common Stock upon exercise of the Warner Warrants (the "Muhs Rights" and
"Investor Rights", respectively). All of the issued and outstanding shares of
Common Stock have been duly and validly issued and are fully paid and
nonassessable and free of any preemptive rights. Other than the Warner
Warrants, the Muhs Rights and the Investor Rights, there is, at the date hereof,
no outstanding security issued by the Company other than the Common Stock and no
outstanding right or option of any kind to purchase, and no outstanding security
issued by the Company convertible or exchangeable into, any security issued by
the Company, and no agreement of the Company to issue any such right, option, or
convertible or exchangeable security.
2.5 NO CONTRAVENTION. The execution, delivery, and performance by
the Company of the Transaction Documents, and the consummation of the
transactions contemplated thereby will not (a) conflict with the Company's
Articles of Incorporation or bylaws, (b) violate laws, orders or regulations
applicable to the Company or any of its material properties; (c) conflict with
or result in a breach of any judgment, order, decree, or ruling to which the
Company is a party or by which it or any material portion of its properties is
bound, or any material agreement to which the Company is a party or by which any
material portion of its properties is bound; or (d) require the approval of any
governmental or nongovernmental third party.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor hereby severally represents and warrants to the Company as
follows:
3.1 AUTHORITY RELATIVE TO THIS AGREEMENT. Investor has the requisite
power and authority to enter into the Transaction Documents and to perform
Investor's obligations thereunder. Each of the Transaction Agreements has been
duly and validly executed and delivered by Investor and the Transaction
Documents constitute valid and legally binding
3
<PAGE>
obligations of Investor enforceable against Investor in accordance with their
respective terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general applicability affecting
creditors' rights generally and (ii) as limited by laws relating to the
availability of specific performance and other equitable remedies.
3.2 NO CONTRAVENTION. The execution, delivery, and performance by
Investor of the Transaction Documents, and the consummation of the transactions
contemplated thereby will not (a) violate laws, orders or regulations applicable
to Investor; (b) conflict with or result in a breach of any judgment, order,
decrees, or ruling to which Investor is a party or any material agreement to
which Investor is a party; or (c) require the approval of any governmental or
nongovernmental third party.
3.3 INVESTMENT INTENTION. The Securities will be acquired for
investment for Investor's own account, and not with a view to the resale or
distribution of any part thereof; Investor has no present intention of selling,
transferring, granting any participation in, or otherwise distributing any of
the Securities, and has no contract, undertaking, agreement, or arrangement with
any person to sell, transfer, or grant any participation with respect to any of
the Securities.
3.4 RELIANCE ON REPRESENTATIONS. Investor understands that the
Securities are not registered under the Securities Act of 1933, as amended (the
"Securities Act"), on the ground that the offer and sale provided for in this
Agreement is exempt from registration under such Act by virtue of an exemption
therefrom, and that the Company's reliance on such exemption is predicated on
Investor's representations set forth herein. Investor realizes that the basis
for an exemption may not be present if, notwithstanding such representations,
Investor has in mind merely acquiring the Securities for a fixed or determinable
period of time, or for a market rise, or for sale if the market does rise; and
Investor has no such intention.
3.5 FINANCIAL CONDITION. Investor's financial situation is such that
Investor can afford to bear the economic risk of holding the Securities for an
indefinite period of time; Investor has adequate means for providing for
Investor's current and reasonably foreseeable needs and contingencies, and
Investor can afford to suffer a complete loss of Investor's investment in the
Securities.
3.6 ACCREDITATION AND SOPHISTICATION. Investor is an "accredited
investor" as such term is defined in Rule 501(a) of Regulation D under the
Securities Act. Investor's knowledge and experience in financial and business
matters are such that Investor is capable of evaluating the merits and risks of
the investment in the Securities.
3.7 SPECULATIVE INVESTMENT. Investor understands that the Company
has no business operations or assets other than those described or referred to
in the Offering Memorandum, that the Securities are a speculative investment
involving a high degree of risk of loss of investment, and that there are
substantial restrictions on the transferability of the Securities.
4
<PAGE>
3.8 RECEIPT OF INFORMATION. Investor has received the Offering
Memorandum dated April 15, 1998 ("Offering Memorandum") and all other
information that Investor considers necessary or appropriate for deciding
whether to purchase the Securities. Investor has been given the opportunity to
examine all documents and to ask questions of, and to receive answers from, the
Company and its representatives concerning the Offering Memorandum, the Company,
and the terms and conditions of the Securities, and to obtain any additional
information which Investor deems necessary. Investor acknowledges that the
Offering Memorandum consists of forward-looking statements that are based on
numerous assumptions, including among others assumptions as to general economic
conditions, the condition and competitive environment of the business in which
the Company plans to operate, and other factors that are beyond the Company's
control; that any projections included in the Offering Memorandum were not
prepared in accordance with generally accepted accounting principles; and that
there can be no assurance that the Offering Memorandum, such assumptions, or any
such projections will prove to be accurate or that actual results may not vary
materially, including materially to the detriment, from projected or assumed
results.
ARTICLE IV
ANTIDILUTION RIGHTS
4.1 Upon each exercise of the Warner Warrants, Investor shall have
the right to purchase from the Company, on the terms set forth herein, for cash,
.1125 shares of Common Stock for each share of Class A Common Stock or Common
Stock of the Company acquired upon the exercise of the Warner Warrants at a
purchase price per share equal to the exercise price of such Warner Warrant
("Purchase Price"); provided, however, that if the Muhs Rights are no longer
outstanding at the time of exercise of the Warner Warrants, Investor shall have
the right to purchase shares of Common Stock equal to 9/91 of the shares of
Class A Common Stock or Common Stock acquired upon exercise of the Warner
Warrants.
4.2 The Company shall notify Investor by written notice not later
than thirty (30) business days after an issuance of Class A Common Stock or
Common Stock arising out of an exercise of Warner Warrants and, subject to
Section 4.3 below, if Investor notifies Company in writing within five (5) years
of such notice of his desire to exercise his rights hereunder, the Company shall
upon such notice and the receipt in cash of the purchase price promptly effect
the sale of Common Stock to Investor as set forth herein. In the event Investor
fails to provide the Company with timely notice of his desire to exercise his
rights hereunder, he shall be deemed to have forfeited his rights with respect
to that particular exercise of the Warner Warrant, but not as to any subsequent
exercise.
4.3 Notwithstanding the foregoing, Investor's rights under Section
4.1 and 4.2 hereunder shall cease (i) upon the termination or expiration of the
Warner Warrants and (ii) upon the consummation of an IPO or Sale as to any
rights with respect to previously exercised Warner Warrants (or Warner Warrants
to be exercised in connection with an IPO or Sale). With respect
5
<PAGE>
to clause (ii), Company shall give Investor notice thirty (30) days in
advance of the effective date of the IPO or Sale (as well as notice of any
planned exercise of the Warner Warrant upon consummation of the IPO or Sale)
and unless Investor notifies the Company of his intent to exercise his rights
hereunder within the first twenty (20) days of such thirty (30) day period
and pays the purchase price prior or on the consummation of the IPO or Sale,
the Company shall be under no obligation to sell Common Stock to Investor
under this Article IV as a result of any exercise of the Warner Warrant.
4.4 The rights of Investor under this Article IV shall terminate upon
Investor's death and the resulting redemption of the Securities.
4.5 For purposes of this Agreement, (i) an IPO shall mean a public
offering of the Company's equity securities having aggregate proceeds to the
Company and/or any selling shareholders (prior to deduction for underwriting
discount and other expenses) of at least Ten Million Dollars ($10,000,000), and
(ii) a Sale shall mean sale of all or substantially all of the Company's assets
or a merger or consolidation of the Company in a transaction in which the
Company is not the surviving entity or a transaction or related series of
transactions in which in excess of 50% of the voting power of the Company is
transferred.
4.6 If the Company shall (i) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (ii) subdivide
or reclassify the outstanding shares of Common Stock into a greater number of
shares, or (iii) combine or reclassify the outstanding Common Stock into a
smaller number of shares, the Investor rights in effect at the time of the
record date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be proportionately adjusted
so that the Investor shall be entitled to receive the number of shares of
Common Stock which he would have owned or been entitled to receive had the
rights been exercised immediately prior to such date.
ARTICLE V
REDEMPTIONS
5.1 MANDATORY REDEMPTION. Upon the death of Investor, the Company
shall redeem (i) all the outstanding shares of the Preferred Stock, or any
Conversion Common Shares issued upon conversion of the Preferred Stock, at price
per share of $133.33 per share (or an aggregate purchase price of Three Million
Dollars ($3,000,000)), less amounts previously redeemed under Section 5.2 or
otherwise and (ii) all outstanding shares of Common Stock acquired pursuant to
Article IV hereof (the "Warrant Shares") at a price equal to their purchase
price per share (in each case subject to adjustment for stock dividends, stock
splits or reclassification) ("Mandatory Redemption Price"). Such repurchase
shall occur on the Redemption Date (defined below).
6
<PAGE>
5.2 VOLUNTARY REDEMPTION. During each of the following periods:
<TABLE>
<CAPTION>
<S> <C> <C>
January 1, 2004 -- February 1, 2004
January 1, 2005 -- February 1, 2005
January 1, 2006 -- February 1, 2006
January 1, 2007 -- February 1, 2007
January 1, 2008 -- February 1, 2008
July 1, 2008 -- August 1, 2008
</TABLE>
(each a "Redemption Election Period"), Investor may elect to have the Company
redeem one-sixth of his Securities by delivery of a written request to the
Company. On the Redemption Date (as defined below), the Company shall redeem
the number of shares of Preferred Stock held by Investors that is specified in
the written request by paying in cash the amount $133.33 per share, (subject to
adjustment for stock dividends, stock splits, or reclassification) not to exceed
Five Hundred Thousand Dollars ($500,000) with respect to any Redemption Election
Period.
5.3 MECHANICS OF REDEMPTION.
(a) A "Redemption Date" shall occur within thirty (30) days
after Investor's death, with respect to Section 5.1, and within sixty (60) days
after the Company's receipt of Investor's request with respect to Section 5.2.
At least five (5) business days prior to a Redemption Date, written notice shall
be mailed by certified mail, to Investor, calling upon Investor to surrender to
the Company, in the manner and at the place designated, his certificate or
certificates representing the securities to be redeemed (the "Redemption
Notice"). In the event less than all securities represented by any such
certificate are redeemed, a new certificate(s) shall be issued representing the
unredeemed securities.
(b) From and after the Redemption Date, unless there shall have
been a default in payment of the Mandatory or Voluntary Redemption Price, as the
case may be, all rights of the holders of shares of Securities designated for
redemption (except the right to receive such Redemption Price, without interest,
upon surrender of their certificates) shall cease with respect to such shares,
and such shares shall not thereafter be transferred on the books of the Company
or be deemed to be outstanding for any purpose whatsoever. If the funds of the
Company legally available for redemption are insufficient to redeem the total
number of shares of securities to be redeemed on such date, those funds which
are legally available will be used to redeem the maximum possible number of such
shares ratably among the holders of such shares to be redeemed based upon their
respective holdings of securities to be redeemed. The shares of securities not
redeemed shall remain outstanding and entitled to all the rights and preferences
provided herein. At any time thereafter when additional funds of the Company
are legally available for the redemption of shares of securities such funds will
immediately be used to redeem the balance of the shares which the Company has
become obligated to redeem on any Redemption Date, but which it has not
redeemed.
7
<PAGE>
5.4 TERMINATION OF RIGHTS. The redemption provisions of (a) Section
5.1 shall terminate upon an IPO or Sale and (b) Section 5.2 shall terminate upon
Investor's death or an IPO or Sale.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 INSURANCE PROCEEDS. Until Investor's death, the Company, for the
benefit of the Company, shall maintain at its expense, a life insurance policy
("Insurance Policy") for Investor in the principal amount of at least Three
Million Dollars ($3,000,000) for the purposes of funding the redemption of the
Securities upon Investor's death as set forth in Section 5.1 above. Investor
agrees to cooperate with Company in all respects in order to obtain and maintain
the Life Insurance Policy, including without limitation submission to medical
exams.
6.2 LEGEND. So long as required under applicable federal or state
securities laws or any of the Transaction Documents, each certificate evidencing
shares of Preferred Stock purchased hereunder and each certificate evidencing
shares of Common Conversion Shares (including any certificate issued upon the
transfer of such shares) shall be stamped or otherwise imprinted as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED
OR HYPOTHECATED EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii)
RULE 144 UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM
REGISTRATION UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES.
IN THE CASE OF TRANSFERS OR OTHER DISPOSITIONS MADE OTHERWISE THAN
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, THE
HOLDER SHALL, AT THE COMPANY'S REQUEST, PROVIDE TO THE COMPANY AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS AND ENTITLED TO THE BENEFITS OF A CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT, DATED AS OF ___________, 1998. A COPY OF
SUCH AGREEMENT IS ON FILE AT THE OFFICES OF THE COMPANY.
8
<PAGE>
A copy of the Transaction Documents shall be filed with the Secretary of the
Company and shall be kept at its principal executive office.
6.3 EXPENSES. Whether or not the Closing is consummated, all costs
and expenses incurred in connection with any of the Transactional Documents and
the transactions contemplated hereby and thereby shall be paid by the party
incurring such expenses.
6.4 BEST EFFORTS. Each of the Company and Investor agrees to use its
best efforts to take, or cause to be taken, all reasonable actions and to do, or
cause to be done, all reasonable things necessary, proper or advisable under
applicable laws and regulations to consummate the transactions contemplated
hereby.
6.5 BROKERS AND FINDERS. Each of the Company and Investor represents
and warrants to the other that no broker, finder, or other financial consultant,
banker, or adviser has acted on its behalf in connection with this Agreement or
the transactions contemplated hereby in such a way as to create any liability
upon either the Company or Investor.
6.6 NO TRANSFER. Investor may not Transfer any Preferred Stock,
Conversion Common Shares or Warrant Shares without the Company's express prior
written consent; provided, however, that Investor shall be permitted, without
the consent of the Company, to Transfer such securities to his children (a
"Permitted Transfer"). (Investor's children, however, shall not be permitted to
Transfer such securities.) Any Transfer without such prior written consent
(other than a Permitted Transfer) shall be null and void and the provisions of
Article IV and Section 5.2 shall terminate upon such Transfer. The provisions
of Articles IV and V hereof shall continue to apply to any shares of Preferred
Stock, Conversion Common Shares or Warrant Shares Transferred pursuant to a
Permitted Transfer.
For purposes of this Agreement, "Transfer" shall mean to issue, grant,
sell, transfer, assign or otherwise dispose of; the act of Transferring is a
"Transfer." The restrictions of this Section 6.6 shall terminate upon an IPO or
Sale.
ARTICLE VII
GENERAL PROVISIONS
7.1 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given upon delivery if delivered personally, upon
the third business day thereafter if mailed by registered or certified mail
(return receipt requested), or upon the day of transmission if faxed with
confirmation of transmission, to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
9
<PAGE>
(a) If to Investor:
Mr. Joseph T. Mooney, Jr.
P. O. Box 877
Kimberton, PA 19442
(b) If to the Company:
Henry Company
2911 Slauson Avenue
Huntington Park, California 90255
Attention: Chief Financial Officer
Fax: (213) 581-1542
7.2 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by Investor and the Company.
7.3 SEVERABILITY. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
7.4 MISCELLANEOUS. This Agreement (including all Exhibits hereto)
(a) constitutes the entire agreement and supersedes all other prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof; (b) is not intended to confer upon any other person
any rights or remedies hereunder; (c) shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
provided, however, that this Agreement shall not be assigned, in whole or in
part, by operation of law or otherwise, without the prior written consent of the
other party; and (d) shall be governed by and interpreted under the laws of the
State of California, without regard to its conflicts-of-laws provisions. This
Agreement may be executed in counterparts which together shall constitute a
single agreement.
10
<PAGE>
IN WITNESS WHEREOF, the Company and Investor have signed this
Agreement, or caused this Agreement to be signed by their respective officers
thereunto duly authorized, as of the date first written above.
The Company
HENRY COMPANY, a California corporation
/s/ Richard B. Gordinier
----------------------------------------
By Richard B. Gordinier
----------------------------------------
Its President
---------------------------------------
Investor
/s/ Joseph Mooney, Jr.
-------------------------------------------
Joseph T. Mooney, Jr.
11
<PAGE>
EXHIBIT 10.10
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made and
entered into as of April 22, 1998 by and among HENRY COMPANY, a California
corporation (the "Company"), and Frederick Muhs ("Investor").
The Company and Investor hereby agree as follows:
ARTICLE I
THE SECURITIES PURCHASE
1.1 PURCHASE AND SALE OF THE SECURITIES. Subject to and upon the
terms and conditions contained herein, the Company shall sell to Investor,
and Investor shall purchase from the Company, Twenty-seven Thousand Five
Hundred (27,500) shares of Common Stock, no par value per share (the "Common
Stock").
1.2 CONSIDERATION. The purchase price (the "Purchase Price") for
the Common Stock shall equal an aggregate of Two Million Dollars
($2,000,000).
1.3 CLOSING. The consummation of the transactions contemplated by
this Agreement (the "Closing") shall take place at or be directed from the
offices of Munger, Tolles & Olson LLP, 355 South Grand Avenue, Los Angeles,
California 90071, on April 22, 1998, or at such other date and place as the
Company and Investor shall agree in writing. The day on which the Closing
occurs is herein referred to as the "Closing Date."
1.4 EXECUTION AND DELIVERIES AT CLOSING. At the Closing, (i)
Investor shall deliver the Purchase Price, by wire transfer or certified or
cashier's check, to the Company, (ii) the Company shall deliver to Investor
certificates evidencing the Common Stock and (iii) the Company and Investor
shall execute and deliver each agreement and instrument required or
contemplated by this Agreement to be so executed and delivered and not
theretofore executed and delivered. All actions taken at the Closing shall
be deemed to occur simultaneously.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Investor as follows:
2.1 ORGANIZATION. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of California, has the
requisite corporate power and authority to own and operate its properties and
assets and to carry on its business as it is presently being conducted, to
execute and deliver this Agreement and any other agreement or instrument to
which the Company is or is to be a party the execution and delivery of which
is contemplated by this Agreement.
2.2 AUTHORIZATION. All corporate action on the part of the
Company and its shareholders necessary for the authorization, execution and
delivery of this Agreement, the performance of all obligations of the Company
and Mr. Warner W. Henry ("Mr. Henry") or members of his family ("Henry
Family") thereunder at the Closing, and the authorization, issuance (or
reservation for issuance), sale, and delivery of the Common Stock have been
taken or will be taken prior to the Closing, and this Agreement constitutes a
valid and legally binding obligation of the Company and the Henry Family,
enforceable in accordance with its terms except (i) as limited by
1
<PAGE>
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws
of general applicability affecting creditors' rights generally, and (ii) as
limited by laws relating to the availability of specific performance and
other equitable remedies.
2.3 VALID ISSUANCE. The shares of Common Stock being purchased by
Investor under this Agreement, when issued, sold, and delivered in accordance
with the terms and conditions of this Agreement for the Purchase Price, will
be duly and validly issued, fully paid, and nonassessable, and will be free
of restrictions on transfer other than restrictions on transfer under this
Agreement and applicable provisions of federal or state securities laws.
2.4 CAPITALIZATION. As of the Closing, the authorized capital
stock of the Company consists of 1,000,000 shares of common stock, no par
value per share, 30,000 shares of Class A Common Stock, no par value per
share, and 100,000 shares of preferred stock, no par value per share,
Twenty-two Thousand Five Hundred (22,500) shares of which have been
designated Series A Convertible Preferred Stock. As of the date of Closing,
there will be: Two Hundred Twenty-one Thousand Five Hundred (221,500) shares
of Common Stock issued and outstanding and Six Thousand (6,000) shares of
Class A Common Stock outstanding, (ii) Twenty-two Thousand Five Hundred
(22,500) shares of Series A Convertible Preferred Stock issued and
outstanding and Twenty-two thousand Five Hundred (22,500) shares of Common
Stock reserved for issuance upon the conversion of such shares, (iii) 388,000
and 12,000 shares of Common Stock and Class A Common Stock, respectively,
reserved for issuance upon the exercise of warrants, dated October 1, 1997,
issued by the Company to Warner W. Henry (the "Warner Warrants"), and (iv)
Forty-five Thousand (45,000) and Fifty-five Thousand (55,000) shares of
Common Stock reserved for issuance to Mr. Joseph T. Mooney, Jr. and Investor,
respectively, upon exercise of their rights to acquire additional shares of
Common Stock upon exercise of the Warner Warrants (the "Mooney Rights" and
"Investor Rights", respectively). All of the issued and outstanding shares
of Common Stock have been duly and validly issued and are fully paid and
nonassessable and free of any preemptive rights. Other than the Warner
Warrants, the Mooney Rights and the Investor Rights, there is, at the date
hereof, no outstanding security issued by the Company other than the Common
Stock and no outstanding right or option of any kind to purchase, and no
outstanding security issued by the Company convertible or exchangeable into,
any security issued by the Company, and no agreement of the Company to issue
any such right, option, or convertible or exchangeable security.
2.5 NO CONTRAVENTION. The execution, delivery, and performance by
the Company of this Agreement, and the consummation of the transactions
contemplated hereby will not (a) conflict with the Company's Articles of
Incorporation or bylaws, (b) violate laws, orders or regulations applicable
to the Company or any of its material properties; (c) conflict with or result
in a breach of any judgment, order, decree, or ruling to which the Company is
a party or by which it or any material portion of its properties is bound, or
any material agreement to which the Company is a party or by which any
material portion of its properties is bound; or (d) require the approval of
any governmental or nongovernmental third party.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor hereby severally represents and warrants to the Company as
follows:
3.1 AUTHORITY RELATIVE TO THIS AGREEMENT. Investor has the
requisite power and authority to enter into this Agreement and to perform
Investor's obligations thereunder. This Agreement has been duly and validly
executed and delivered by Investor and this Agreement constitutes a valid and
legally binding obligation of Investor
2
<PAGE>
enforceable against Investor in accordance with its terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general applicability affecting creditors' rights generally and
(ii) as limited by laws relating to the availability of specific performance
and other equitable remedies.
3.2 NO CONTRAVENTION. The execution, delivery, and performance by
Investor of this Agreement, and the consummation of the transactions
contemplated hereby will not (a) violate laws, orders or regulations
applicable to Investor; (b) conflict with or result in a breach of any
judgment, order, decrees, or ruling to which Investor is a party or any
material agreement to which Investor is a party; or (c) require the approval
of any governmental or nongovernmental third party.
3.3 INVESTMENT INTENTION. The Common Stock will be acquired for
investment for Investor's own account, and not with a view to the resale or
distribution of any part thereof; Investor has no present intention of
selling, transferring, granting any participation in, or otherwise
distributing any of the Common Stock, and has no contract, undertaking,
agreement, or arrangement with any person to sell, transfer, or grant any
participation with respect to any of the Common Stock.
3.4 RELIANCE ON REPRESENTATIONS. Investor understands that the
Common Stock is not registered under the Securities Act of 1933, as amended
(the "Securities Act"), on the ground that the offer and sale provided for in
this Agreement is exempt from registration under such Act by virtue of an
exemption therefrom, and that the Company's reliance on such exemption is
predicated on Investor's representations set forth herein. Investor realizes
that the basis for an exemption may not be present if, notwithstanding such
representations, Investor has in mind merely acquiring the Common Stock for a
fixed or determinable period of time, or for a market rise, or for sale if
the market does rise; and Investor has no such intention.
3.5 FINANCIAL CONDITION. Investor's financial situation is such
that Investor can afford to bear the economic risk of holding the Common
Stock for an indefinite period of time; Investor has adequate means for
providing for Investor's current and reasonably foreseeable needs and
contingencies, and Investor can afford to suffer a complete loss of
Investor's investment in the Common Stock.
3.6 ACCREDITATION AND SOPHISTICATION. Investor is an "accredited
investor" as such term is defined in Rule 501(a) of Regulation D under the
Securities Act. Investor's knowledge and experience in financial and
business matters are such that Investor is capable of evaluating the merits
and risks of the investment in the Common Stock.
3.7 SPECULATIVE INVESTMENT. Investor understands that the Company
has no business operations or assets other than those described or referred
to in the Offering Memorandum, that the Common Stock is a speculative
investment involving a high degree of risk of loss of investment, and that
there are substantial restrictions on the transferability of the Common Stock.
3.8 RECEIPT OF INFORMATION. Investor has received the Offering
Memorandum dated April 15, 1998 ("Offering Memorandum") and all other
information that Investor considers necessary or appropriate for deciding
whether to purchase the Common Stock. Investor has been given the
opportunity to examine all documents and to ask questions of, and to receive
answers from, the Company and its representatives concerning the Offering
Memorandum, the Company, and the terms and conditions of the Common Stock,
and to obtain any additional information which Investor deems necessary.
Investor acknowledges that the Offering Memorandum consists of
forward-looking statements that are based on numerous assumptions, including
among others assumptions as to general economic conditions, the condition and
competitive environment of the business in which the Company plans to
operate, and other factors that are beyond the Company's control; that any
projections included in the Offering
3
<PAGE>
Memorandum were not prepared in accordance with generally accepted accounting
principles; and that there can be no assurance that the Offering Memorandum,
such assumptions, or any such projections will prove to be accurate or that
actual results may not vary materially, including materially to the
detriment, from projected or assumed results.
ARTICLE IV
ANTIDILUTION RIGHTS
4.1 Upon each exercise of the Warner Warrants, Investor shall have
the right to purchase from the Company, on the terms set forth herein, for
cash, .1375 shares of Common Stock for each share of Class A Common Stock or
Common Stock of the Company acquired upon the exercise of the Warner Warrants
at a purchase price per share equal to the exercise price of such Warner
Warrant ("Purchase Price").
4.2 The Company shall notify Investor by written notice not later
than thirty (30) business days after an issuance of Class A Common Stock or
Common Stock arising out of an exercise of Warner Warrants and, subject to
Section 4.3 below, if Investor notifies Company in writing within five (5)
years of such notice of his desire to exercise his rights hereunder, the
Company shall upon such notice and the receipt in cash of the purchase price
promptly effect the sale of Common Stock to Investor as set forth herein. In
the event Investor fails to provide the Company with timely notice of his
desire to exercise his rights hereunder, he shall be deemed to have forfeited
his rights with respect to that particular exercise of the Warner Warrant,
but not as to any subsequent exercise.
4.3 Notwithstanding the foregoing, Investor's rights under Section
4.1 and 4.2 hereunder shall cease (i) upon the termination or expiration of
the Warner Warrants and (ii) upon the consummation of an IPO or Sale as to
any rights with respect to previously exercised Warner Warrants (or Warner
Warrants to be exercised in connection with an IPO or Sale). With respect to
clause (ii), Company shall give Investor notice thirty (30) days in advance
of the effective date of the IPO or Sale (as well as notice of any planned
exercise of the Warner Warrant upon consummation of the IPO or Sale) and
unless Investor notifies the Company of his intent to exercise his rights
hereunder within the first twenty (20) days of such thirty (30) day period
and pays the purchase price prior or on the consummation of the IPO or Sale,
the Company shall be under no obligation to sell Common Stock to Investor
under this Article IV as a result of any exercise of the Warner Warrant.
4.4 For purposes of this Agreement, (i) an IPO shall mean a public
offering of the Company's equity securities having aggregate proceeds to the
Company and/or any selling shareholders (prior to deduction for underwriting
discount and other expenses) of at least Ten Million Dollars ($10,000,000)
and (ii) a Sale shall mean a sale of all or substantially all of the
Company's assets or a merger or consolidation of the Company in a transaction
in which the Company is not the surviving entity or a transaction or related
series of transactions in which in excess of 50% of the voting power of the
Company is transferred.
4.5 If the Company shall (i) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (ii)
subdivide or reclassify the outstanding shares of Common Stock into a greater
number of shares, or (iii) combine or reclassify the outstanding Common Stock
into a smaller number of shares, the Investor rights in effect at the time of
the record date for such dividend or distribution or the effective date of
such subdivision, combination or reclassification shall be proportionately
adjusted so that the Investor shall be entitled to receive the number of
shares of Common Stock which he would have been entitled to receive had the
Investor rights been exercised immediately prior to such date. These
antidilution provisions are intended to be equivalent to the antidilution
provisions applicable to the
4
<PAGE>
Warner Warrants.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 DRAG-ALONG RIGHTS.
(a) In the event that Mr. Henry or the Henry Family (the
"OFFEROR") shall propose to enter into a BONA FIDE agreement to sell or
transfer ("TRANSFER"), other than a BONA FIDE pledge of shares as security
for a loan, or Transfer to any person or group (other than to members of the
Henry Family) all of their economic and voting interest(s) in the Company (an
"EXIT TRANSFER"), then subject to the terms of this Section, such Offeror may
elect to require Investor to sell all his shares of Common Stock owned by him
concurrently with such Exit Transfer to such person or group on terms
(including without limitation, the form and amount of, and the time of
receipt of, consideration therefor) identical to those applicable to the Exit
Transfer. The Offeror may require Investor to sell all his economic and
voting interests beneficially owned by him concurrently with the Exit
Transfer on terms identical to those of such Exit Transfer by giving written
notice to Investor setting forth in detail the terms of the proposed Exit
Transfer and the proposed closing date of the Exit Transfer, which proposed
date shall not be less than ten (10) days or more than sixty (60) days after
the date such notice is delivered to the Offerees.
5.2 TAG-ALONG RIGHTS.
(a) Mr. Henry or the Henry Family shall not enter into a contract
for the sale or transfer ("Transfer") of their economic or voting interests
in the Company to any person or group other than to members of the Henry
Family (the "transferee"), directly or indirectly or through one or more
intermediaries, in a single transaction or a series of transactions, if such
Transfer will result in the transferee of such shares holding more than 50%
of the economic or voting interest in the Company UNLESS Investor is given
the opportunity to Transfer all (or, at his option, a proportionate amount)
of his shares of Common Stock then owned by him concurrently with the
aforementioned Transfer to any such transferee on terms (including, without
limitation, the form and amount of, and the time of receipt of, consideration
therefor) identical to those applicable to such aforementioned Transfer. Mr.
Henry or the Henry Family shall not enter into a Transfer, other than to
members of the Henry Family, of (i) any portion of their economic or voting
interests in the Company if the Transfer is to the Company or (ii) any
portion of the Warner Warrants unless Investor is given the opportunity to
transfer his proportionate interest of his shares of Common Stock then owned
by him concurrently with the aforementioned Transfer to any such transferee
on terms (including, without limitation, the form and amount of, and the time
of receipt of, consideration therefor) identical to those applicable to such
aforementioned Transfer.
(b) No opportunity shall be deemed given to Investor for purposes
of the preceding paragraph of this Section 5.2 unless (i) Investor shall have
been given written notice by Mr. Henry or the Henry Family setting forth in
detail the terms of the applicable proposed Transfer, and shall have been
given at least twenty (20) days after such notice is given within which to
exercise his rights contained in this Section 5.2 by written notice thereof
given to Mr. Henry or the Henry Family, (ii) the terms on which Mr. Henry or
the Henry Family actually sells their shares are no more favorable to Mr.
Henry, than the terms set forth in the notice given by them pursuant to
clause (i) of this sentence, (iii) the transferee to which the applicable
Transfer is proposed to be made makes an offer to purchase any or all
outstanding capital stock beneficially owned by Investor and such offer (A)
is open for acceptance by Investor for a period of at least twenty (20)
business days after such distribution, and (B) provides for per share
consideration identical to that being paid in the Transfer to each holder who
accepts
5
<PAGE>
such offer, and (iv) the person or group to which Mr. Henry or the Henry
Family actually Transfers their shares actually purchases, at or prior to the
time of purchase of such shares, from Investor at least the number of shares
as Investor shall specify in the notice given by Investor pursuant to clause
(i) of this sentence.
5.3 RIGHT OF FIRST REFUSAL. For so long as such Investor owns any
Common Stock, the Investor will not sell, assign, transfer, pledge,
hypothecate or otherwise dispose of any such shares, except for transfers by
way of devise or intestate succession or to entities controlled by, under
common control with or controlling such Investor (a "Permitted Transferee"),
without first offering to sell, assign or transfer such shares to the Company
on the same terms and conditions as such shares are to be acquired by the
proposed transferee. Such offer shall be made by way of written notice to
the Company given no later than thirty (30) days prior to the proposed date
of transfer, setting forth the identity of the proposed transferee and the
material terms of such sale, assignment, transfer or other disposition. The
Company shall thereupon have the right to acquire all (but not part) of the
shares included in such offer, on the terms set forth therein, by giving the
Investor written notice of acceptance within twenty (20) days after receipt
of the Investor's offer. In that event, the Company's acquisition of said
shares in accordance with the terms of such offer shall occur within thirty
(30) days after the giving of such notice of acceptance. If the Investor's
offer is not so accepted, or if the Company's acquisition of such shares is
not so consummated, then the Investor shall thereafter have the right to
sell, assign, transfer or otherwise dispose of such shares within ninety (90)
days after the date of the Investor's offer to the Company, on the terms and
conditions, and to the proposed transferee, stated therein, and such
transferee shall acquire such securities free of the restrictions contained
in this Section 5.3.
5.4 PROXY. Investor hereby irrevocably grants to Warner W. Henry
his proxy with respect to vote all of Investor's shares of Common Stock on
all matters requiring or calling for a shareholder vote at any shareholder
meeting or any action by written consent. This proxy is coupled with an
interest and is irrevocable for a period of 10 years pursuant to Section
705(e)(2) of the California General Corporate Code, unless earlier terminated
pursuant to Section 5.8 below. The proxy shall also terminate upon Mr.
Henry's death and upon any Transfer of Investor's interest after compliance
with Section 5.3 above, but shall continue with respect to a Permitted
Transferee.
5.5 BOARD OF DIRECTORS. The Henry Family hereby agrees to vote
its shares of Class A Common Stock and Common Stock to elect Investor to the
Company's Board of Directors so long as Investor remains a shareholder of the
Company.
5.6 INFORMATION. Investor shall be entitled to receive the same
information, and at the same time, that the holders of the Company's
outstanding 10% Senior Notes due 2008 are entitled to receive under the terms
of the Indenture dated April 22, 1998 with respect to such Senior Notes, and
such obligation shall survive repayment of the Senior Notes.
5.7 ADDITIONAL ISSUANCE OF CLASS A COMMON STOCK. The Company
agrees that it will not issue any additional shares of Class A Common Stock
to any person other than Mr. Henry, other than upon exercise of the Warner
Warrants.
5.8 TERMINATION. All of the agreements and covenants contained in
this Article V shall terminate upon an IPO.
ARTICLE VI
REGISTRATION RIGHTS
6.1 DEFINITIONS. Terms used in this Article have the following
meanings:
6
<PAGE>
"Commission" means the Securities and Exchange Commission.
"Demand Registration" means a Demand Registration as defined in
Section 6.1.
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Piggyback Registration" means a Piggyback Registration as defined
in Section 6.2.
"Registrable Securities" means all shares of Common Stock owned by
Investor from time to time.
"Underwriter" means a securities dealer who purchases any
Registrable Securities as principal and not as part of such dealer's
market-making activities.
6.2 DEMAND REGISTRATION. (a) At any time after one year of an
IPO, Investor may make a written request for registration under the 1933 Act
of all or part of his Registrable Securities (a "Demand Registration");
PROVIDED that the Company shall not be obligated to effect more than one
Demand Registration and that the Company qualifies for registration on Form
S-3. Such request will specify the number of shares of Registrable
Securities proposed to be sold and will also specify the intended method of
disposition thereof. A registration will not count as a Demand Registration
until it has become effective.
(b) If Investor so elects, the offering of such Registrable
Securities pursuant to such Demand Registration shall be in the form of an
underwritten offering. Investor shall select the managing Underwriter(s) and
any additional participants in connection with the offering; PROVIDED that
such managing Underwriter(s) must be reasonably satisfactory to the Company.
6.3 PIGGYBACK REGISTRATION. If the Company proposes to file a
registration statement under the 1933 Act with respect to an offering of
Common Stock (i) for the Company's own account (other than a registration
statement on Form S-4 or S-8 (or any substitute form that may be adopted by
the Commission)) or (ii) for the account of any of its holders of Common
Stock or Class A Common Stock, then the Company shall give written notice of
such proposed filing to Investor as soon as practicable (but in no event less
than 10 days before the anticipated filing date), and such notice shall offer
Investor the opportunity to register such number of shares of Registrable
Securities as Investor may request on the same terms and conditions as the
Company or the holder, as the case may be (a "Piggyback Registration").
6.4 REDUCTION OF OFFERING. Notwithstanding anything contained
herein, if the managing Underwriter of an offering described in Section 2.1
or Section 2.2 advises the Company in writing that the success of the
offering would be adversely affected by the inclusion of all or any of the
securities requested to be included, then the number of shares to be
registered by Investor shall be excluded or reduced to the extent necessary
to reduce the total amount of securities to be included in such offering to
the amount recommended by such managing Underwriter; PROVIDED that in the
case of a Demand Registration, the amount of Registrable Securities to be
offered for the account of Investor shall be reduced only after the amount of
securities to be offered for the account of the Company and any other persons
has been reduced to zero.
6.5 FILINGS; INFORMATION. Whenever Investor requests that any
Registrable Securities be registered pursuant to Section 2.1 hereof, the
Company will use its reasonable efforts to effect the registration of such
Registrable Securities as promptly as is practicable, and in connection with
any such request:
7
<PAGE>
(a) The Company will as expeditiously as possible prepare and file
with the Commission a registration statement on any form for which the
Company then qualifies and which counsel for the Company shall deem
appropriate and available for the sale of the Registrable Securities to
be registered thereunder in accordance with the intended method of
distribution thereof, and use its reasonable efforts to cause such filed
registration statement to become and remain effective for a period of
not less than 90 days; PROVIDED that if the Company shall furnish to
Investor a certificate signed by the Company's Chairman, President or
any Vice-President stating that in his good faith judgment it would be
detrimental or otherwise disadvantageous to the Company or its
shareholders for such a registration statement to be filed as
expeditiously as possible, the Company shall have a period of not more
than 120 days within which to file such registration statement measured
from the date of the Company's receipt of Investor's request for
registration in accordance with Section 2.1.
(b) The Company will, if requested, prior to filing such
registration statement or any amendment or supplement thereto, furnish
to Investor and each applicable managing Underwriter, if any, copies
thereof, and thereafter furnish to Investor and each such Underwriter,
if any, such number of copies of such registration statement, amendment
and supplement thereto (in each case including all exhibits thereto and
documents incorporated by reference therein) and the prospectus included
in such registration statement (including each preliminary prospectus)
as Investor or each such Underwriter may reasonably request in order to
facilitate the sale of the Registrable Securities.
(c) After the filing of the registration statement, the Company
will promptly notify Investor of any stop order issued or, to the
Company's knowledge, threatened to be issued by the Commission and take
all reasonable actions required to prevent the entry of such stop order
or to remove it if entered.
(d) The Company will endeavor to qualify the Registrable Securities
for offer and sale under such other securities or blue sky laws of such
jurisdictions in the United States as Investor reasonably requests;
PROVIDED that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be
required to qualify but for this paragraph (d), (ii) subject itself to
taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction.
(e) The Company will as promptly as is practicable notify Investor,
at any time when a prospectus relating to the sale of the Registrable
Securities is required by law to be delivered in connection with sales
by an Underwriter or dealer, of the occurrence of any event requiring
the preparation of a supplement or amendment to such prospectus so that,
as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an untrue statement of a
material fact or omit to state any material facts required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading and promptly
make available to Investor and the Under writers any such supplement or
amendment. Investor agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in the
preceding sentence, Investor will forthwith discontinue the offer and
sale of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until receipt by Investor and the
Underwriters of the copies of such supplemented or amended prospectus
and, if so directed by the Company, Investor will deliver to the Company
all copies, other than permanent file copies then in Investor's
possession, of the most recent prospectus covering such Registrable
Securities at the time of receipt of such notice. In the event the
Company shall give such
8
<PAGE>
notice, the Company shall extend the period maintained effective as
provided in Section 3.1(a) hereof by the number of days during the
period from and including the date of the giving of such notice to the
date when the Company shall make available to Investor such supplemented
or amended prospectus.
(f) The Company will enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as
are reasonably required in order to expedite or facilitate the sale of
such Registrable Securities.
(g) The Company will use its reasonable efforts to cause all such
Registrable Securities to be listed on each securities exchange on which
similar securities issued by the Company are then listed or, if not so
listed, on a national securities exchange.
The Company may require Investor promptly to furnish in writing to
the Company such information regarding Investor, the plan of distribution of
the Registrable Securities and other information as the Company may from time
to time reasonably request or as may be legally required in connection with
such registration.
6.6 REGISTRATION EXPENSES. The Company shall pay, the following
expenses incurred in connection with any registration pursuant to this
Article Six: (i) registration and filing fees with the Commission, (ii) fees
and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of a qualified independent underwriter, if
any, counsel in connection therewith and the reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), (iii) printing expenses, (iv) fees and expenses
incurred in connection with the listing of the Registrable Securities, (v)
fees and expenses of counsel and independent certified public accountants for
the Company, (vi) fees and expenses of any additional experts retained by the
Company in connection with such registration, (vii) reasonable fees and
expenses of counsel for Investor, (viii) rating agency fees, (ix)
out-of-pocket expenses of the Company and (x) transfer taxes. Investor shall
pay any underwriting fees, discounts or commissions attributable to the sale
of Registrable Securities.
6.7 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. Investor may not
participate in any underwritten registered offering contemplated hereunder
unless Investor (a) agrees to sell its securities on the basis provided in
any underwriting arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably and customarily required under the terms of such
underwriting arrangements and this Article Six.
6.8 RULE 144. The Company covenants that it will file any reports
required to be filed by it under the 1933 Act and the 1934 Act and that it
will take such further action as Investor may reasonably request to the
extent required from time to time to enable Investor to sell Registrable
Securities without registration under the 1933 Act within the limitation of
the exemptions provided by Rule 144 under the 1933 Act, as such Rule may be
amended from time to time, or other appropriate rule or regulation adopted by
the Commission. Upon the request of Investor, the Company will deliver to
Investor a written statement as to whether it has complied with such
reporting requirements.
6.9 HOLDBACK AGREEMENTS. If requested by the Company, Investor
agrees not to offer, sell, contract to sell or otherwise dispose of any
Registrable Securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the 14 days prior to, and during the
180-day period beginning on, the effective date of such registration
statement other than the Registrable Securities to be sold pursuant to such
registration statement.
9
<PAGE>
6.10 TRANSFER. The rights granted to Investor hereunder may not be
transferred or assigned, except to a Permitted Transferee.
ARTICLE VII
MISCELLANEOUS
7.1 LEGEND. So long as required under applicable federal or state
securities laws or this Agreement, each certificate evidencing shares of
Common Stock purchased hereunder (including any certificate issued upon the
transfer of such shares) shall be stamped or otherwise imprinted as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED
OR HYPOTHECATED EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii)
RULE 144 UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM
REGISTRATION UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES.
IN THE CASE OF TRANSFERS OR OTHER DISPOSITIONS MADE OTHERWISE THAN
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, THE
HOLDER SHALL, AT THE COMPANY'S REQUEST, PROVIDE TO THE COMPANY AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS AND ENTITLED TO THE BENEFITS OF A STOCK PURCHASE AGREEMENT,
DATED AS OF APRIL 22, 1998. A COPY OF SUCH AGREEMENT IS ON FILE AT
THE OFFICES OF THE COMPANY.
A copy of this Agreement shall be filed with the Secretary of the Company and
shall be kept at its principal executive office.
7.2 EXPENSES. Whether or not the Closing is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses.
7.3 BEST EFFORTS. Each of the Company and Investor agrees to use
its best efforts to take, or cause to be taken, all reasonable actions and to
do, or cause to be done, all reasonable things necessary, proper or advisable
under applicable laws and regulations to consummate the transactions
contemplated hereby.
7.4 BROKERS AND FINDERS. Each of the Company and Investor
represents and warrants to the other that no broker, finder, or other
financial consultant, banker, or adviser has acted on its behalf in
connection with this Agreement or the transactions contemplated hereby in
such a way as to create any liability upon either the Company or Investor.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given upon delivery if delivered
personally, upon the third business day thereafter if mailed by registered or
certified mail (return receipt requested), or upon the day of transmission if
faxed with confirmation of transmission, to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
10
<PAGE>
(a) If to Investor:
Mr. Frederick Muhs
P. O. Box 8
Edgewater, NJ 07020
(b) If to the Company:
Henry Company
2911 Slauson Avenue
Huntington Park, California 90255
Attention: Chief Financial Officer
Fax: (213) 581-1542
8.2 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by Investor and the Company.
8.3 SEVERABILITY. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity
or unenforceability shall not affect the remaining provisions hereof which
shall remain in full force and effect.
8.4 MISCELLANEOUS. This Agreement (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof; (b) is not intended to confer upon any other person any rights or
remedies hereunder; (c) shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns (including any
executors or administrators of any estate), provided, however, that this
Agreement shall not be assigned, in whole or in part, by operation of law or
otherwise, without the prior written consent of the other party; and (d)
shall be governed by and interpreted under the laws of the State of
California, without regard to its conflicts-of-laws provisions. This
Agreement may be executed in counterparts which together shall constitute a
single agreement.
8.5 HENRY FAMILY. Mr. Henry and the Company agree to use best
efforts to cause members of the Henry Family to join in this agreement.
IN WITNESS WHEREOF, the Company and Investor have signed this
Agreement, or caused this Agreement to be signed by their respective officers
thereunto duly authorized, as of the date first written above.
The Company
HENRY COMPANY, a California corporation
/s/ W. W. Henry
------------------------------------
By W. W. Henry
------------------------------------
Its Chairman and CEO
-----------------------------------
/s/ Frederick H. Muhs
-----------------------------------
Investor
Ted Muhs
/s/ Warner W. Henry
-----------------------------------
Warner W. Henry
11
<PAGE>
Henry Company
Executive Deferral Plan (EDP)
_________________________________________________________________
July 1, 1992
Amended Plan
Effective January 1, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Purpose...................................................... 1
Article 1 Definitions...................................... 1
Article 2 Eligibility...................................... 3
2.1 Selection by Committee........................... 3
2.2 Enrollment Requirements.......................... 3
Article 3 Deferral Commitments/Interest Crediting.......... 4
3.1 Minimum Deferral................................. 4
3.2 Maximum Deferral................................. 4
3.3 Withholding of Deferral Amounts.................. 4
3.4 FICA Taxes....................................... 4
3.5 Interest Crediting Prior to Distribution......... 4
3.6 Company Contribution............................. 4
Article 4 Short Term Payout/Unforeseeable Financial
Emergencies/Withdrawal Election.................. 5
4.1 Eligibility for Short Term Payout................ 5
4.2 Amount of Distribution........................... 5
4.3 Withdrawal Payout/Suspensions for
Unforeseeable Financial Emergencies.............. 5
4.4 Withdrawal Election.............................. 5
4.5 Applicability of Other Sections.................. 6
Article 5 Retirement Benefit............................... 6
5.1 Eligibility for Retirement Benefit............... 6
5.2 Retirement Benefit - Method of Payment .......... 6
Article 6 Survivor's Benefit............................... 6
6.1 Eligibility for Survivor's Benefit............... 6
6.2 Survivor's Benefit - Method of Payment........... 6
Article 7 Termination of Benefit........................... 6
7.1 Eligibility for Termination...................... 6
7.2 Termination Benefit.............................. 6
7.3 Termination Benefit - Method of Payment.......... 7
Article 8 Disability Waiver and Benefit.................... 7
8.1 Disability Waiver................................ 7
8.2 Disability Benefit............................... 7
Article 9 Beneficiary...................................... 7
9.1 Beneficiary...................................... 7
9.2 Beneficiary Designation; Change; Spousal Consent. 8
9.3 Acknowledgment................................... 8
9.4 No Beneficiary Designation....................... 8
9.5 Doubt as to Beneficiary.......................... 8
9.6 Discharge of Obligations......................... 8
Article 10 Leave of Absence................................. 8
10.1 Paid Leave of Absence............................ 8
10.2 Unpaid Leave of Absence.......................... 8
-i-
<PAGE>
Article 11 Company/Participant Liability.................. 8
11.1 General Assets................................. 9
11.2 Company's Liability............................ 9
11.3 Limitation of Obligation....................... 9
11.4 Participant Cooperation........................ 9
11.5 Unsecured General Creditor..................... 9
Article 12 No Guarantee of Employment..................... 9
12.1 No Guarantee of Employment..................... 9
Article 13 Termination, Amendment or Modification
of the Plan.................................... 9
13.1 Termination.................................... 9
13.2 Amendment...................................... 10
13.3 Charge in Control.............................. 10
13.4 Effect of Payment.............................. 10
Article 14 Other Benefits and Agreements.................. 10
14.1 Coordination with Other Benefits............... 11
Article 15 Restrictions on Alienation of Benefits......... 11
15.1 Nonassignability............................... 11
Article 16 Administration of the Plan..................... 11
16.1 Committee Administration....................... 11
16.2 Committee Authority............................ 11
16.3 Committee Indemnity............................ 11
16.4 Company's Obligations to the Committee......... 11
16.5 Agents......................................... 11
Article 17 Claims Procedures.............................. 12
17.1 Presentation of Claim.......................... 12
17.2 Notification of Decision....................... 12
17.3 Review of a Denied Claim....................... 12
17.4 Decision on Review............................. 12
Article 18 Miscellaneous.................................. 13
18.1 Notice......................................... 13
18.2 Successors..................................... 13
18.3 Spouse's Interest.............................. 13
18.4 Guardian....................................... 13
18.5 Governing Law.................................. 13
18.6 Pronouns....................................... 13
18.7 Headings....................................... 13
18.8 Validity....................................... 13
</TABLE>
-ii-
<PAGE>
EXECUTIVE DEFERRAL PLAN
OF
HENRY COMPANY
Purpose
The purpose of this plan is to provide specified benefits to a select group of
highly compensated employees who contribute materially to the continued growth,
development and future business success of Henry Company.
Article 1
Definitions
For purposes hereof, unless otherwise clearly apparent from the context, the
following phrases or terms shall have the following indicated meanings.
1.1 "Account Balance" shall mean the sum of the Primary Account Balance and
Secondary Account Balance, reduced by all distributions made in
accordance with the Plan. This account shall be a bookkeeping entry
only and shall be utilized solely as a device for the measurement and
determination of the amounts to be paid to the Participant pursuant to
this Plan.
1.2 "Annual Bonus" shall mean any compensation, in addition to Base Annual
Salary, paid annually to a Participant as an employee under the
Company's bonus and incentive plans.
1.3 "Annual Deferral Amount" shall mean that portion of a Participant's Base
Annual Salary, and/or Annual Bonus payable in any one year, that a
Participant elects to have and is deferred in accordance with Article 3,
in that one Plan Year.
1.4 "Base Annual Salary" shall mean the annual compensation that is to be
paid to a Participant for each Plan Year for employment services
rendered to the Company, determined as of the first day of the Plan
Year, excluding bonuses, commissions, overtime and nonmonetary awards,
before reduction for compensation deferred pursuant to all nonqualified
deferred compensation plans of the Company.
1.5 "Beneficiary" shall mean the persons, trusts, estates, or other entities
designated in accordance with Article 9, who is entitled to receive
benefits under this Plan upon the death of a Participant.
1.6 "Beneficiary Designation Form" shall mean the form established from time
to time by the Committee that a Participant completes, signs and returns
to the Committee to designate one or more Beneficiaries.
1.7 "Board" shall mean the Board of Directors of the Company.
1.8 "Change in Control" shall have the meaning set forth in Article 13.3.
1.9 "Claimant" shall have the meaning set forth in Article 17.1.
1.10 "Committee" shall mean the administrative committee appointed to manage
and administer the Plan in accordance with the provisions of Article 16.
1.11 "Company" shall mean Henry Company, a California corporation.
1
<PAGE>
1.12 "Company Contribution" shall mean a contribution which may be made to a
Participant's Account Balance each Plan Year, at the sole discretion of
the Committee.
1.13 "Deferral Amount" shall be the sum of all of a Participant's Annual
Deferral Amounts.
1.14 "Disability" shall mean a period during which a Participant qualifies
for disability benefits under the Company's long-term disability plan.
If a Participant does not participate in such a plan, "Disability" shall
mean a period in which the Participant would have qualified for
disability benefits under such plan, as determined at the sole
discretion of the Committee, had the Participant been in such a plan.
1.15 "Disability Benefit" shall mean the benefit set forth in Article 8.
1.16 "Election Form" shall mean the form established from time to time by the
Committee that a Participant completes, signs and returns to the
Committee each Plan Year to make an election under the Plan.
1.17 "Interest Rate" shall mean, for each Plan Year, an interest rate
determined by the Committee that is equal to the September "Moody's
Seasoned Corporate Bond" rate that is published prior to the end of the
Plan Year that precedes the Plan Year for which the rate is used. The
"Moody's Corporate Bond" rate is an arithmetic average of yields of
representative bonds including industrials, public utilities, Aaa, Aa, A
and Baa bonds, published by Moody's Investors Service, Inc., or any
successor to that service.
1.18 "Participant" shall mean any employee of the Company (i) who is selected
to participate in the Plan, (ii) who elects to participate in the Plan,
(iii) who signs a Plan Agreement, an Election Form and a Beneficiary
Designation Form are returned to an accepted by the Committee and (v)
whose Plan Agreement has not terminated.
1.19 "Permanent Disability" shall be determined by the Committee.
1.20 "Plan" shall mean the Executive Deferral Plan of Henry Company which
shall be evidenced by this instrument and by each Plan Agreement.
1.21 "Plan Agreement" shall mean the form of written agreement, as amended
from time to time, which is entered into by and between the Company and
a Participant. Each Plan Agreement executed by a Participant shall
provide for the entire benefit to which such Participant is entitled to
under the Plan, and the Plan Agreement bearing the latest date of
acceptance by the Committee shall govern such entitlement.
1.22 The "Plan Year" shall, for the first Plan Year, begin on July 1, 1992
and end on December 31, 1992. For each Plan Year thereafter, the Plan
Year shall begin on January 1 and continue through December 31 of the
same year.
1.23 "Preretirement Distribution" shall mean the distribution provided for in
Article 4.
1.24 "Primary Account Balance' shall mean the portion of the Account Balance
attributed to the sum of all Deferral Amounts and interest credited
thereon.
1.25 "Retirement Benefit" shall mean the Retirement Benefit provided for in
Article 5.
2
<PAGE>
1.26 "Retirement" and "Retires" shall mean severance from employment with the
Company for any reason other than a leave of absence, death, Termination
of Employment, on or after the attainment of (i) age sixty-five (65) and
the completion of seven (7) Years of Service, or (ii) the attainment of
age sixty (60) and the completion of ten (10) Years of Service.
1.27 "Secondary Account Balance" shall mean the portion of the Account
Balance attributed to the sum of all Company Contributions and interest
credited thereon.
1.28 "Survivor's Benefit" shall mean the benefit provided for in Article 6.
1.29 "Termination Benefit" shall mean the benefit provided for in Article 7.
1.30 "Termination of Employment" shall mean the cessation of employment,
voluntarily or involuntarily, and, except as provided in Article 8 and
Article 10, shall exclude cessation as a result of an authorized leave
of absence, Retirement, Disability or death.
1.31 "Unforeseeable Financial Emergency" shall mean an unexpected need for
cash arising from an illness, casualty loss, sudden financial reversal,
or other such unforeseeable occurrence, all as determined in the sole
discretion of the Committee.
1.32 "Years of Service" shall mean the total number of years that a
Participant is an employee including, without limitation, periods of
Disability and leaves of absences prior to Termination of Employment, as
provided under Article 8 and Article 10.
1.33 "Short Term Payout" shall mean the payout set forth in Article 4.5
Article 2
Eligibility
2.1 Selection by Committee. The Committee, in its sole discretion, shall
establish eligibility qualifications for participation in the Plan.
Participation shall be limited to a select group of management and
highly compensated employees of the Company. All selected employees
shall be entitled to participate in the Plan for the Plan Year in which
they are selected, provided they deliver to the Committee and the
Committee accepts, within 30 days of selection, all documents required
by the Committee for acceptance into the Plan. Any elected employee who
does not meet this 30 day time period shall become a Participant in the
Plan commencing with the first day of the plan Year following the
delivery to and acceptance by the Committee of the required documents.
2.2 Enrollment Requirements. As a condition of participation, each
Participant so selected shall complete, sign and return to the Committee
a Plan Agreement, an Election Form and a Beneficiary Designation Form,
and shall comply with all further conditions that may be established by
the Committee.
Article 3
Deferral Commitments/Interest Crediting
3
<PAGE>
3.1 Minimum Deferral. A Participant must defer each Plan Year at least
$2,000.00 of his or her Base Annual Salary and/or Annual Bonus. If no
election is made, the amount deferred shall be zero.
3.2 Maximum Deferral. Foe each Plan Year, a Participant may defer up to one
hundred percent (100%) of his or her Base Annual Salary less payroll
taxes expressed as a fixed dollar amount on the Election Form and one
hundred percent (100%) of his or her Annual Bonus less payroll taxes
expressed as a percentage on the Election Form.
3.3 Withholding of Deferral Amounts. The Base Annual Salary elected to be
deferred annually shall be withheld in each payroll period in equal
amounts over the plan Year. The portion of Annual Bonus being deferred
shall be withheld at the time the Annual Bonus would otherwise be paid
to the Participant.
3.4 FICA Taxes. For each Plan Year in which an Annual Deferral Amount is
being withheld, the Company shall ratably withhold form that portion of
the Participant's Base Annual Salary and Annual Bonus that is not being
deferred, the Participant's share of FICA taxes based on an amount equal
to the Base Annual Salary and Annual Bonus before reduction by the
Annual Deferral Amount. If necessary, the Committee shall reduce the
Annual Deferral Amount in order to comply with this Article 3.4
3.5 Interest Crediting Prior to Distribution.
(a) Except as provided in Article 3.5(b) below, prior to any
distribution of benefits, interest shall be credited and
compounded annually on a Participant's Account Balance, at the
Interest Rate for the Plan Year, as though the Annual Deferral
Amount of Salary and Bonus, which would have been payable in that
Plan Year, was withheld at the beginning of the Plan Year or, in
the case of the first year of Plan participation, was withheld on
the date that the Participant commenced participation in the
Plan. The basis for that Plan Year's interest crediting will be
a fraction of the full Plan Year's interest based on the number
of full months that the Participant was employed with the Company
during the Plan Year. If one or more Preretirement Distributions
are made, for purposes of crediting interest, the Account Balance
shall be reduced as of the first day of the month that each
distribution is made.
(b) In the event of a Termination of Employment, interest shall be
credited in the manner provided in Article 3.5(a), but using the
vesting schedule provided for in Article 7.2.
(c) Whenever a distribution is made to a Participant during a Plan
Year, interest will be credited on the amount of the distribution
at the Interest Rate for the Plan Year, for the portion of the
year prior to the distribution. Such amount will be distributed
to the Participant as soon as possible after the end of the Plan
Year.
3.6 Company Contribution. For each Plan Year, the Company may contribute to
each Participant's Account Balance a Company Contribution. For purposes
of interest crediting and compounding prior to any distribution of
benefits, Company Contribution amounts contributed during the Plan Year
will be subject to Article 3.5.
Article 4
Short Term Payout; Unforeseeable Financial Emergencies
Withdrawal Election
4
<PAGE>
4.1 Eligibility for Short Term Payout. In connection with each election to
defer an Annual Deferral Amount, a Participant may elect to receive a
future Short Term Payout from the Plan with respect to that Annual
Deferral Amount. This election shall be irrevocable and shall be made
on the election form that is to be delivered to the Committee prior to
the commencement of each Plan Year.
4.2 Amount of Distribution. The amount of the Short Term Payout shall be a
lump sum payment that is equal to:
(a) The Deferred Base Annual Salary and/or Annual Bonus, plus all
interest thereon,
and/or
(b) The Company Contribution, if any, made during the same Plan Year
as the Annual Deferral Amount, plus interest thereon, credited at
the Interest Rate.
The Short Term Payout may not be paid prior to the sixth (6th) Plan Year
following each Annual Deferral Amount.
Short Term Payouts elected to be received prior to completing seven (7)
Years of Service with the Company will be subject to vesting as
described in Article 7, with respect to the Company Contribution and
interest credited thereon. Any unvested amount of the Company
Contribution, plus interest credited thereon, will be distributed to the
Participant as soon as it is vested or will be forfeited to the Company
if the Participant terminates employment before it is vested.
The Short Term Payout shall be paid within 30 days of the January 1 of
the year elected by the Participant on the Election Form.
4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies.
If the Participant experiences an Unforeseeable Financial Emergency, the
Participant any petition the Committee to (i) suspend any deferrals
required to be made by a Participant and/or (ii) receive a partial or
full payout from the Plan. The payout shall not exceed the lesser of
the Participant's Account Balance, calculated as if such Participant
were receiving a Termination Benefit, or the amount reasonably needed to
satisfy the Unforeseeable Financial Emergency. If, subject to the sole
discretion of the Committee, the petition for a suspension and/or payout
is approved, suspension shall take effect upon the date of approval and
any payout shall be made within 30 days of the date of approval.
4.4 Withdrawal Election. A Participant may elect, at any time, to withdraw
all of his or her Account Balance less a 10% withdrawal penalty (the net
amount shall be referred to as the "Withdrawal Amount"). No partial
withdrawals of the Account Balance shall be allowed. The Participant
shall make this election by giving the Committee advance written notice
of the election in a form determined from time to time by the Committee.
The penalty shall be equal to 10% of the Participant's Account Balance
determined immediately prior to the withdrawal. The Participant shall
be paid the Withdrawal Amount within 60 days of his or her election.
Once the Withdrawal Amount is paid, the Participant's participation in
the plan shall terminate and the Participant shall not be eligible to
participate in the Plan in the future. This election is subject to
vesting as described in Article 7, with respect to the Company
Contribution and interest credited thereon. Any unvested amount of the
Company contribution, plus interest credited thereon, will be
5
<PAGE>
distributed to the Participant as soon as it is vested or will be
forfeited to the Company if the Participant terminates employment before
it is vested.
4.5 Applicability of Other Sections. If a Participant dies, Retires,
experiences a Termination of Employment or is determined to have a
Permanent Disability as provided under Article 8, the Participant or
Participant's Beneficiary shall not be entitled to a Preretirement
Distribution, but shall instead receive the applicable Retirement
Benefit, Termination Benefit, Survivor's Benefit or Disability Benefit.
Article 5
Retirement Benefit
5.1 Eligibility for Retirement Benefit. A participant who Retires shall
receive as a Retirement Benefit, in accordance with this Article, his
Account Balance.
5.2 Retirement Benefit - Method of Payment. The Retirement Benefit shall be
paid as a lump sum payment. The lump sum payment shall be made within
thirty (30) days of the date the Participant retires.
Article 6
Survivor's Benefit
6.1 Eligibility for Survivor's Benefit. If a Participant dies before
Retirement, Termination of Employment or Permanent Disability pursuant
to Article 8, the Participant's Beneficiary shall receive a Survivor's
Benefit equal to the Participant's Account Balance.
6.2 Survivor's Benefit - Method of Payment. The Survivor's Benefit shall be
paid in a lump sum. The lump sum payment shall be made within thirty
(30) says of the date the Committee receives proof of the Participant's
death, in such form as is acceptable to the Committee.
Article 7
Termination Benefit
7.1 Eligibility for Termination Benefit. If a Participant experiences a
Termination of Employment prior to Retirement, Death, or Permanent
Disability pursuant to Article 8, the Participant shall receive the
Termination Benefit described in this Article 7.
7.2 Termination Benefit. The Termination Benefit shall be equal to (a) the
Participant's entire Primary Account Balance, with interest calculated
in the manner provided in Article 3.5(a) above, plus (b) the
Participant's Secondary Account Balance, with interest calculated in the
manner provided in Article 3.5(a), but using the applicable vested
percentage as set forth in the following schedule:
<TABLE>
<CAPTION>
<S> <C>
Percentage of
Number of Completed Secondary Account
Years of Service Balance Available
6
<PAGE>
Year 1 0%
Year 2 10%
Year 3 20%
Year 4 40%
Year 5 60%
Year 6 80%
Year 7 100%
</TABLE>
Unvested portions of the Secondary Account Balance will be forfeited to
the Company upon Termination of Employment. Unvested portions of the
Secondary Account Balance, upon payment of a Preretirement Distribution,
will remain in the Account Balance to be paid out as the portions become
vested while the Participant continues in employment.
7.3 Termination Benefit. Method of Payment. The Termination Benefit shall
be paid in a lump sum within thirty (30) days following the Termination
of Employment.
Article 8
Disability Waiver and Benefit
8.1 Disability Waiver.
(a) Eligibility. By participating in the Plan, all Participants are
eligible for this waiver.
(b) Waiver of Deferral. A Participant who is determined by the
Committee to be suffering from a Disability shall be excused from
fulfilling that portion of the Annual Deferral Amount, if any,
that would otherwise have been withheld from a Participant's Base
Annual Salary and/or Annual Bonus for the period during which the
Participant suffers a Disability.
(c) Termination of Disability and Return to Employment. If the
Participant returns to employment with the Company during that
Plan Year, the Participant shall be obligated to complete the
remaining portion of the Annual Deferral Amount commitment for
that Plan Year, commencing with the month he or she returns to
work.
8.2 Disability Benefit. A Participant suffering a Disability shall continue
to be considered to be employed and shall be eligible for the benefits
provided for in Articles 4,5, 6, or 7 in accordance with the provisions
of those Articles. Notwithstanding the above, the Committee shall have
the right, in its sole and absolute discretion, to declare a Termination
of Employment, or a Retirement at any time after the Participant is
determined to have a Permanent Disability.
Article 9
Beneficiary
9.1 Beneficiary. Each Participant shall have the right, at any time, to
designate any person or persons as his or her Beneficiary or
Beneficiaries (both primary as well as contingent) to receive any
benefits payable under the Plan to a Beneficiary upon the death of a
Participant.
9.2 Beneficiary Designation; Change; Spousal Consent. A Participant shall
designate his or her Beneficiary or Beneficiaries by completing and
signing the Beneficiary Designation Form, and returning it to the
7
<PAGE>
Committee or its designated agent. A participant shall have the right
to change a Beneficiary by completing, signing and otherwise complying
with the terms of the Beneficiary Designation Form and the Committee's
rules and procedures, as in effect from time to time. If the
Participant names someone other than his or her spouse as a Beneficiary,
a spousal consent, in the form designated by the Committee, must be
signed by that Participant's spouse and returned to the Committee. Upon
the acceptance by the Committee of a new Beneficiary Designation Form,
all Beneficiary designations previously filed shall be cancelled. The
Committee shall be entitled to rely on the last Beneficiary Designation
Form filed by the Participant and accepted by the Committee prior to his
or her death.
9.3 Acknowledgment. No designation or change in designation of a
Beneficiary shall be effective until received, accepted and acknowledged
in writing by the Committee.
9.4 No Beneficiary Designation. If a Participant fails to designate a
Beneficiary as provided above, or if all designated Beneficiaries
predecease the Participant or die prior to complete distribution of the
Participant's benefits, then the Participant's designated Beneficiary
shall be deemed to be his or her surviving spouse. If the Participant
has no surviving spouse, the benefits remaining under the Plan to be
paid to a beneficiary shall be to the Participant's estate.
9.5 Doubt as to Beneficiary. If the Committee has any doubt as to the
proper Beneficiary to receive payments pursuant to this Plan, the
Committee shall have the right to withhold such payments until this
matter is resolved to the Committee's satisfaction.
9.6 Discharge of Obligations. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge the Company from all
further obligations under this Plan with respect to the deceased
Participant and all of his or her Beneficiaries.
Article 10
Leave of Absence
10.1 Paid Leave of Absence. If a Participant is authorized by the Company
for any reason to take a paid leave of absence from the employment of
the Company, the Participant shall continue to be considered employed by
the Company and the Annual Deferral Amount shall continue to be withheld
during such paid leave of absence.
10.2 Unpaid Leave of Absence. If a Participant is authorized by the Company
for any reason to take an unpaid leave of absence from the employment of
the Company, the Participant shall continue to be considered employed by
the Company and the Participant shall be excused from making deferrals
until the earlier of the date the leave of absence expires or the
Participant returns to a paid employment status.
Article 11
Company/Participant Liability
11.1 General Assets. Amounts payable to a Participant shall be paid from the
general assets of the Participant's Company exclusively.
11.2 Company's Liability. The Company's liability for the payment of
benefits shall be defined only by this Plan, as entered into between the
Company and a Participant.
11.3 Limitation of Obligation. The Company shall have no obligation to a
8
<PAGE>
Participant under the Plan, except as expressly provided for in the
Plan.
11.4 Participant Cooperation. The Participant must cooperate with the
Company and the Committee in furnishing all information requested by the
Company and/or Committee in order to facilitate the payment of benefits,
and the administration and operations of this Plan. Such information
may include taking a physical examination, or other actions, and such
cooperation shall extend beyond the termination of the Plan Agreement
and the Participant's participation in the Plan.
11.5 Unsecured General Creditor. Participants, their Beneficiaries and their
permitted heirs, successors and assigns shall have no legal or equitable
rights, interest or claims in any property or assets of the Company.
Any and all of the Company's assets shall be, and remain, the general,
unpledged unrestricted assets of the Company. The Company's obligations
under the Plan shall be that of an unfunded and unsecured promise to pay
money in the future.
Article 12
No Guarantee of Employment
12.1 No Guarantee of Employment. Nothing in this Agreement shall be
construed as creating a contract of employment or altering in any manner
the employment relationship with a Participant which is hereby
acknowledged to be an "at will" employment relationship that can be
terminated at any time for any reason, with or without cause, unless
otherwise expressly provided in a written employment agreement. All
terms and conditions of a Participant's current employment shall remain
the same. Nothing in this Plan creates, or is meant to create, any
obligation on the part of the Company to keep a Participant employed by
the Company or not to terminate a Participant at any time and for any
reason.
Article 13
Termination, Amendment or Modification of the Plan
13.1 Termination. The Company reserves the right to terminate the Plan at
any time with respect to Participants employed by the Company. Upon the
termination of the Plan, all Plan Agreements shall terminate and a
Participant's Account Balance shall be paid out in accordance with the
benefits that the Participant would have received if the Participant had
experienced a Termination of Employment on the date of Plan termination
or, if Plan termination occurs after the date upon which the Participant
was eligible to Retire, the Participant had Retired on the date of Plan
termination. Prior to a Change in Control, the Company shall have the
right, as its sole discretion and notwithstanding any elections made by
the Participant, to pay such benefits in a lump sum, with interest
credited as provided in Article 3.5. After a Change in Control, the
Company shall be required to pay such benefits in a lump sum. The
termination of the Plan shall not adversely affect any Participant or
Beneficiary who has become entitled to the payment of any benefits under
the Plan as of the date of termination.
13.2 Amendment. The Company may, at any time, amend or modify the Plan in
whole or in part, provided, however, that no amendment or modification
shall be effective to decrease or restrict the present value equivalent,
using the Interest Rate for the Plan Year of the amendment or
modification as the discount rate, of a Participant's Account Balance in
existence at the time the amendment or modification is made, calculated
as if the Participant had experienced a Termination of Employment as of
the effective date of the amendment or modification, or, if the
amendment or modification occurs after the date upon which the
9
<PAGE>
Participant was eligible to Retire, the Participant had Retired as of
the effective date of the amendment or modification. The amendment or
modification of the Plan shall not affect any Participant or Beneficiary
who has become entitled to the payment of benefits under the Plan as of
the date of the amendment or modification.
13.3 Change in Control.
(a) Interest Rate. After a Change in Control of the Company, the
applicable interest rate to be used in determining a
Participant's Termination Benefit in connection with a
Termination of Employment under Article 7.1, or a Plan
termination, amendment or modification under Articles 13.1 and
13.2, shall be the Interest Rate. The Interest Rate for the Plan
Year in which the Change in Control occurs shall be used as the
discount rate for determining present value.
(b) Change in Control. A "Change in Control" shall be deemed to
occur if:
(i) any "person" (as that term is used in Section 13 and
14(d)(2) of the Securities Exchange Act of 1934 ("Exchange
Act")) is or becomes the beneficial owner (as that term is
used in Section 13(d) of the Exchange Act), directly or
indirectly, of 25% or more of the Company's capital stock
entitled to vote in the election of directors;
(ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority
thereof, unless the election or the nomination for
election by the Company's shareholders of each new
director was approved by a vote of at least three-quarters
of the directors still in office who were directors at the
beginning of the period;
(iii) the Company is liquidated or consummates a merger or
consolidation in which it is not the survivor;
(iv) substantially all of the assets of the Company and its
subsidiaries, in the aggregate, are sold or otherwise
transferred to parties that are not within a "controlled
group of corporations" (as defined in the Section 1563 of
the Internal Revenue Code of 1986, as amended), in which
the Company is a member.
13.4 Effect of Payment. The full payment of the applicable benefit under
Articles 5, 6, 7 or 8 of the Plan shall completely discharge all
obligations to a Participant under this Plan and the Participant's Plan
Agreement shall terminate.
Article 14
Other Benefits and Agreements
14.1 Coordination with Other Benefits. The benefits provided for a
Participant and Participant's Beneficiary under the Plan are in addition
to any other benefits available to such Participant under any other plan
or program for employees of the Company. The Plan shall supplement and
shall not supersede, modify or amend any other such plan or program
except as may otherwise be expressly provided.
10
<PAGE>
Article 15
Restrictions on Alienation of Benefits
15.1 Nonassignability. Neither a Participant nor any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, transfer, hypothecate or convey in
advance of actual receipt, the amounts if any, payable hereunder, or any
part thereof. No part of the amounts payable shall, prior to actual
payment, be subject to any claims of creditors and, in particular, they
shall not be subject to attachment, garnishment, seizure or
sequestration by any creditor for the payment of any debts, judgments,
obligations, alimony or separate maintenance owed by a Participant or
any other person nor be transferable by operation of law in the event of
a Participant's or any other person's bankruptcy or insolvency.
Article 16
Administration of the Plan
16.1 Committee Administration. The general administration of this Plan, as
well as construction and interpretation thereof, shall be the
responsibility of the Committee, the number of members of which shall be
designated and appointed from time to time by, and shall serve at the
pleasure of the Board.
16.2 Committee Authority. Subject to the Plan, the Committee shall from time
to time establish rules, forms and procedures for the administration of
the Plan. Except as otherwise expressly provided, the Committee shall
have the discretion and exclusive right to interpret the Plan and to
decide any and all matters arising thereunder. The Committee's
decisions shall be conclusive and binding upon all persons having or
claiming to have any right or interest under the Plan.
16.3 Committee Indemnity. No member of the Committee shall be liable for any
act or omission of any other member of the Committee, nor for any act or
omission on his own part, excepting his or her own willful misconduct.
The Company shall indemnify and save harmless each member of the
Committee against any and all expenses and liabilities arising out of
his or her membership on the Committee, with the exception of expenses
and liabilities arising out of his or her own willful misconduct.
16.4 Company's Obligations to the Committee. To enable the Committee to
perform its functions, the Company shall supply full and timely
information to the Committee on all matters relating to the compensation
of all Participants, their retirement, death, Disability or Termination
of Employment, and such other pertinent facts as the Committee may
require.
16.5 Agents. In the administration of this Plan, the Committee may, from
time to time, employ agents and delegate to them such administrative
duties as it sees fit and may, from time to time, consult with counsel
who may be counsel to the Company.
Article 17
Claims Procedures
17.1 Presentation of Claim. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as
a "Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts (i) credited to (or deducted
from) such Claimant's Participant's Account Balance, or (ii)
distributable to such Claimant from the Plan. If such a claim relates
to the contents of a notice received by the Claimant, the claim must be
made within 60 days after such notice was received by the Claimant. The
11
<PAGE>
claim must state with particularity the determination desired by the
Claimant.
17.2 Notification of Decision. The Committee shall consider a Claimant's
claim within a reasonable time, and shall notify the Claimant in
writing:
(a) that the Claimant's requested determination has been made, and
that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole or
in part, to the Claimant's requested determination, and such
notice must set forth in a manner calculated to be understood by
the Claimant:
(i) the specific reason(s) for the denial of the claim, or any
part of it;
(ii) specific reference(s) to pertinent provisions of the Plan
upon which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is
necessary; and
(iv) an explanation of the claim review procedure set forth in
Article 17.3.
17.3 Review of a Denied Claim. Within sixty (60) days after receiving a
notice from the Committee that a claim has been denied, in whole or in
part, a Claimant (or the Claimant's duly authorized representative) may
file with the Committee a written request for a review of the denial of
the claim. Thereafter, but not later than thirty (30) days after the
review procedure began, the Claimant (or the Claimant's duly authorized
representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole
discretion, may grant.
17.4 Decision on Review. The Committee shall render its decision on review
promptly, and not later than sixty (60) days after the filing of a
written request for review of the denial, unless a hearing is held or
other special circumstances require additional time, in which case the
Committee's decision must be rendered within 120 days after such date.
Such decision must be written in a manner calculated to be understood by
the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which
the decision was based; and
(c) such other matters as the Committee deems relevant.
Article 18
Miscellaneous
12
<PAGE>
18.1 Notice. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail to:
Henry Company
Administrative Committee
Executive Deferral Plan
2911 Slauson Avenue
Huntington Park, California 90255
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
18.2 Successors. The Plan shall be binding upon, and inure to the benefit
of, the Company and its respective successors or assigns, and upon a
Participant, the Participant's Beneficiaries and the Participant's
permitted successors, assigns, heirs, executors and administrators.
18.3 Spouse's Interest. The interest in the benefits hereunder of a spouse
of a Participant who has predeceased the Participant shall automatically
pass to the Participant and shall not be transferable by such spouse in
any manner including but not limited to such spouse's will, nor shall
such interest pass under the laws of intestate succession.
18.4 Guardian. If a benefit under this Plan is to be paid to a minor, a
person declared incompetent or to a person incapable of handling the
disposition of that person's property, the Committee may direct payment
of such benefit to the guardian, legal representative or person having
the care and custody of such minor, incompetent or incapable person
appropriate indemnification of the Company and the Committee. The
Committee may require proof of minority, incompetency, incapacity or
guardianship, as it may deem appropriate prior to distribution of the
benefit.
18.5 Governing Law. The Plan and Plan Agreement shall be governed by and
construed under the laws of the State of California, as in effect at the
time of their adoptions and executions, respectively.
18.6 Pronouns. Masculine pronouns wherever used shall include feminine
pronouns and the singular shall include the plural.
18.7 Headings. The headings of the articles, sections and paragraphs of the
Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
18.8 Validity. In the event any provision of this Plan shall be illegal or
invalid for any reason, the illegality or invalidity of that provision
shall not affect the remaining parts hereof, but this Plan shall be
construed and enforced as if such illegal and invalid provision had
never been inserted herein.
IN WITNESS WHEREOF Henry Company has signed this Plan document this ___
day of ________________, 19__.
"Company"
_________________________________________
13
<PAGE>
By: _____________________________________
Title: __________________________________
(Officer of the Company)
14
<PAGE>
EXHIBIT 10.12
EXPLOYMENT AND INCENTIVE AGREEMENT
THIS AGREEMENT is made and entered into as of September 30, 1992 between
HENRY COMPANY, a California corporation ("Henry"), HENRY II, a California
corporation ("Henry II"), and WARNER DEVELOPMENT COMPANY OF TEXAS, a Texas
corporation ("WDC") (collectively, Henry, Henry II and WDC shall be referred to
hereinafter as the "Companies"), and RICHARD B. GORDINIER ("Executive").
RECITALS
A. Executive is presently employed by Companies, pursuant to an
employment agreement entitled "Amended and Restated Employment and Incentive
Bonus Agreement", dated March 1, 1989. The parties desire to cancel said
agreement and by this Agreement establish a new employment contract between
Companies and Executive.
B. Executive's employment with Companies started in January, 1988. In
his capacity as Chief Operating Officer of Companies he has contributed
substantially to the success and growth of Companies. As Companies are family
owned, the incentive of stock options is not considered to be feasible, yet it
is the desire of Companies that recognition of Executive's services be afforded
him through the participation program hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, the parties agree as follows:
1. EMPLOYMENT
Companies hereby employ Executive and Executive hereby accepts
employment under the terms and conditions hereinafter set forth.
2. DUTIES
Subject to the authority of the Board of Directors of Henry and Warner
W. Henry, or his successor, who is Chairman of the Board and Chief Executive
Officer of Companies, Executive, as the President and Chief Operating Officer of
Companies, shall have direct and general supervision, direction and control of
the management, other officers, business and affairs of Companies, including the
power and authority to make decisions of policy which relate to Companies' goals
and plans or which have a substantial effect on the operation of Companies, its
financial position or results, or its relations with governmental bodies,
consumers or the public generally. Executive, as President and Chief Operating
Officer, shall also be responsible for Companies' marketing, operations,
financial performance and compliance with all applicable laws or regulations.
<PAGE>
3. SERVICES
For the term of his employment, Executive shall perform his duties
hereunder in a diligent manner; shall devote his entire business time, attention
and effort to the affairs of Companies within the scope of his employment as is
reasonably necessary for the proper rendition of said services; shall use his
best efforts to promote the interests of Companies; and shall be just and
faithful in carrying out his duties. Subject to the provisions set forth in
Section 2. Executive's services shall be rendered when and as required by
Companies' Boards of Directors and in accordance with their instructions,
directions and control. Companies understand and agree that, notwithstanding
the foregoing, Executive may serve during the term of this Agreement as a
director on the boards of directors of businesses, civic or community
corporations or entities other than Companies, if he shall obtain the prior
approval of Companies' Executive Committee of the Board of Directors, which may
be withheld if any Executive Committee member reasonably determines that
Executive's so serving as a director for any such corporation or entity would
interfere with the performance of Executive's duties hereunder or would conflict
with the best interests of any of the Companies.
4. TERM
The term of this Agreement shall begin on the date of this Agreement
and will continue to December 31, 1992, at which date and on each December 31
thereafter, this Agreement will automatically renew for another one (1) year
term, unless this Agreement is earlier terminated as hereinafter provided in
Paragraph 6.
5. COMPENSATION
A. BASE SALARY. For the remainder of 1992 and for the year 1992,
Companies shall pay Executive a base salary of $200,000 per year, payable
semi-monthly, less income tax withholdings and other normal employee
deductions. The base salary will be subject to review for each successive
year after December 31, 1992 by the Executive Committee of the Board of
Directors during the preceding month of December of each such year.
B. GUARANTEED BONUS. In addition to the base salary, Companies
shall pay to Executive for the employment year of 1992 a guaranteed bonus of
$100,000. The guaranteed bonus will be subject to review for each succeeding
year after December 31, 1992 by the Executive Committee of the Board of
Directors, during the preceding month of December of each such year.
C. OTHER BENEFITS. Executive shall be entitled to the following
benefits in addition to his salary:
(a) Paid vacation and sick leave as made generally available to
the senior executives of Henry;
(b) Participation in Henry's medical and dental plans and
long-term
2
<PAGE>
disability and life insurance programs, as made generally available to the
senior executives of Henry, at no charge to Executive. Family coverage under
Henry's medical and dental plans shall be made available to Executive at a
nominal charge;
(c) An automobile allowance or the use of an automobile, in
accordance with the general practice of Henry for its senior executives; and
(d) Reimbursement for periodic dues for the World Presidents
Organization, the Annandale Country Club and the California Club.
D. EXECUTIVE LOANS. As further compensation for the services of
Executive, Henry has loaned Executive a total of $175,000 during his employment.
Such loans (the "Executive Loans") shall bear no interest. The Executive Loans
shall be repaid in the following manner:
(a) If Executive becomes entitled to receive any of the Participation
and Termination Awards provided in the following subparagraph E and paragraph
6C, then the Executive Loans shall be repaid first by application of the
Reduction Amount [defined in paragraph 5E (d)(2)] which application will reduce
the amount of Participation Award otherwise payable; and then
(b) If a balance remains outstanding with respect to Executive Loans
after Executive's employment hereunder is terminated, Executive shall repay the
balance of such loans in four equal annual installments, the first of such
installments to be paid within ninety (90) days after termination of employment.
Each of the next installments shall be made on the three succeeding anniversary
dates of the first installment; the unpaid balance of the Executive loans shall
bear no interest.
E. PARTICIPATION AWARD.
(a) In the event there is a distribution of money or assets made
to the shareholders of Companies either of profits or from the sale of assets or
of stock, or as a return of capital, Executive shall be entitled to participate
in any such distribution (a "Participation Award").
(b) The Participation Award shall be calculated as follows:
In the event any distribution is made as described in
Paragraph E (a) above, if Executive is employed by Companies at the time of such
occurrence and has been employed for less than five employment years, Companies
shall pay to Executive a Participation Award mutually agreed upon between
Companies and Executive, but in no event shall the Participation Award be less
than ten percent (10%) of the distribution being made to the shareholders. If
Executive's employment is more than five years, the Participation Bonus shall
not be less than Twenty Percent (20%) of the distribution being made.
(c) In the event a distribution is made to the shareholders of
3
<PAGE>
Companies, which is a consequence of the sale of Henry, in determining the
Participation Award to Executive, only that portion of the money received that
exceeds $5,895,559.00 shall be subject to the distribution Participation Award
formula set forth in Paragraph E (b) above.
(d) Provisions applicable to the Participation Award:
(1) Any stock sale must be to a party that is not one of
the shareholders of any of the Companies. For the purpose of this Agreement,
the term "shareholder" shall mean any of the following who are owners of common
stock, namely, Warner W. Henry, his spouse, his lineal descendants or any trust
established for the benefit of any of them.
(2) Any Participation Award that is payable shall be
reduced by $200,000 plus the outstanding balance of the Executive Loan (the
"Reduction Amount"). If more than one Participation Award is made, the
Reduction Amount to be applied shall be the balance of any then outstanding
loan, plus any portion remaining of the $200,000 deduction that was not utilized
with reference to any previous Participation Awards that were made.
(3) In computing sale proceeds, proceeds shall be reduced
by all expenses incurred by such shareholders or any of the Companies in
effecting such sale or transfer, including but not limited to the fees and
expenses incurred in employing brokers, investment bankers, appraisers,
attorneys and accountants. If sale proceeds consist of non-cash consideration
(for example notes or stock), the value of such non-cash consideration shall be
agreed to by the Companies and Executive and, if the Companies and Executive
cannot agree as to such value, the value of the non-cash consideration shall be
determined by appraisal, as hereinafter provided.
6. TERMINATION
A. EVENTS AND CONSEQUENCES OF TERMINATION. The employment of
Executive hereunder shall cease and terminate upon the occurrence of any one of
the following events:
(a) By Executive, upon ninety (90) days' advance written notice
to Companies;
(b) Upon the death of Executive;
(c) Upon the permanent disability of Executive upon thirty (30)
days' notice by Companies. For the purposes of this Agreement, Executive shall
be deemed permanently disabled if the Board of Directors of Henry shall
determine in good faith that any ailment, illness or other incapacity prevents
Executive from engaging in his regular occupation and employment as contemplated
by this Agreement for a period of three (3) consecutive months;
4
<PAGE>
(d) Immediately after Companies gives Executive written notice
of termination for cause. For purposes of this Agreement, "cause" shall be
defined and limited to mean: (i) Executive's conviction of or plea of guilty to
a felony or a crime involving moral turpitude, (ii) Executive's material breach
of any provision of this Agreement, or (iii) Executive's willful breach or
habitual neglect of his duty in the course of his employment.
(e) Thirty (30) days after Executive gives Companies written
notice that Companies has materially breached any provision of this Agreement,
if Companies has materially breached this Agreement and such breach continues
unremedied for 30 days after Executive gives such written notice.
B. If Executive's employment hereunder is terminated for cause
pursuant to subparagraph (d) above, Executive shall be entitled to receive no
compensation after the date of termination of Executive's employment
hereunder other than the portion of his salary and bonus provided for in
Sections 5A and 5B accrued prior to the effective date of termination of
Executive's employment hereunder. If Executive's employment hereunder is
terminated pursuant to subparagraphs (a), (b), (c), or (e) above,
Executive shall be entitled to receive (i) the portion of his salary and
bonus provided for in Section 5A and 5B accrued prior to the effective date
of termination; (ii) such salary and bonus as is provided for in Sections 5A
and 5B for a twelve month period determined as though Executive had continued
to be employed during the twelve-month period commencing on such effective
date of termination and (iii) any Additional Termination Award to which the
Executive is entitled as hereinafter provided.
Notwithstanding anything to the contrary herein, Section 9
herein shall survive the termination of Executive's employment hereunder
regardless of the reason for termination of Executive's employment hereunder.
Further Companies may, at their option, after giving Executive notice of
termination for cause, or after receipt of notice of termination given by
Executive, remove or suspend Executive from performance of any or all of his
offices or duties under this Agreement.
C. ADDITIONAL TERMINATION AWARD. Upon the termination of
Executive's employment, if the termination is for any reason other than for
cause, as described in paragraph 6A (d), in addition to the payments provided
for in paragraph 6B, the Companies shall collectively pay to Executive a
Termination Award, in the aggregate, calculated as follows:
(a) First, a "termination percentage" is to be determined
using the following table:
5
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF YEARS TERMINATION PERCENTAGE
--------------- ----------------------
OF EMPLOYMENT (NOT TO EXCEED 20%)
------------- -------------------
<S> <C>
4 but less than 5 8%
5 but less than 6 10%
6 but less than 7 12%
7 but less than 8 14%
8 but less than 9 16%
9 but less than 10 18%
10 or more 20%
</TABLE>
(b) Second, determine the "termination value" of each of the
Companies: (a) termination value as to Henry is the amount by which the fair
market value of Henry's outstanding shares of common stock exceeds $5,895,595,
(b) termination value as to Henry II and WDC is the fair market value of the
outstanding common stock of each Company. If the fair market value cannot be
agreed upon by Executive and Companies, such value will be determined by
appraisal, as hereinafter provided.
(c) Then, multiply the applicable termination percentage (First
above), by the termination value (Second above). From the product so
determined, subtract the then outstanding balance in the Reduction Amount, if
any. The Termination Award as calculated above is termed the Employment Year
Calculation.
(d) Should the termination of Executive be the consequence of
his death or permanent disability [Paragraph 6A (b) or (c)] in determining the
Termination Award, rather than using the table above set forth for determination
of the termination percentage, if Executive has been employed by Henry less than
5 years, the Termination Award shall be computed using a termination percentage
of 10% and if Executive has been employed more than 5 years, the termination
percentage figure shall be 20%. The Termination Award calculated by this
paragraph is termed the "Alternative Calculation".
(e) Companies have acquired life insurance on the life of
Executive in the amount of $2,000,000.00, to assist in funding the obligations
under Paragraphs 6A (b) and 6A (c).
(f) In the event Executive's employment has terminated because
of permanent disability [Paragraph 6A (c)] and he dies before reaching age 65,
Executive shall be
6
<PAGE>
entitled to receive the Additional Termination Awards, as provided in
Paragraph 6C.
D. PAYMENT OF TERMINATION AWARD
A Termination Award payable under Section 6C shall be paid in
four equal annual installments, the first of such installments to be paid within
thirty (30) days after final determination of the Termination Value under
Section 6C. Each of the next installments shall be made on the three succeeding
anniversary dates of the first installment; the unpaid balance of the award
shall bear interest at the prime rate of Bank of America existing on the due
date of the first installment. Notwithstanding any other provision of this
Section 6, any Termination Award payable under Section 6 initially totaling less
than Two Hundred Thousand Dollars ($200,000) shall be paid in one lump sum,
such payment to be made within thirty (30) days after final determination of the
amount.
E. EXCLUSIVITY OF TERMINATION PROVISIONS. In the event that
Companies shall terminate Executive's employment hereunder whether or not in
accordance with this Article 6, Executive's sole remedy for such termination
shall be to receive the compensation to which he would have been entitled had
Companies terminated this Agreement in accordance with the provisions of this
Article 6, such compensation being in lieu of any other damages, compensatory or
punitive, or other relief to which Executive might otherwise have been
entitled,.
7. APPRAISAL
A. In the event Participation or Termination values as referenced
above cannot be mutually agreed upon, the valuation shall be determined by an
appraiser acceptable to both parties, and such appraiser shall appraise the
shares as of the date of the event causing the valuation. If the parties are
unable to agree on an appraiser within 60 days following the event causing
valuation, each party shall name his own appraiser. If the lower of the two
resulting evaluations is less than 85% percent of the higher evaluation, the
original appraisers shall appoint a third, whose determination of the valuation
shall be final. Otherwise, the valuation shall be the average between the two
valuations originally determined. The parties shall share equally the fees and
expenses of any appraiser named jointly and each party shall bear the fees and
costs of any appraiser named solely by such party. Each party shall bear his
own expenses in presenting evidence to the two appraisers.
B. In determining this valuation, the appraisers appointed under
this Agreement shall consider all opinions and relevant evidence submitted to
them by the parties, or otherwise obtained by them, and shall set forth their
determination in writing together with their opinions and the considerations on
which the opinions are based, with a signed counterpart to be delivered to each
party, within 90 days of commencing appraisal.
C. Each of the Companies and Executive agree to cooperate fully with
the appraiser(s) determining Termination Values and further agree to provide
such financial information, background data and documentation which is
reasonably requested by such appraiser(s).
7
<PAGE>
8. EXPENSES
The Companies during the term shall reimburse Executive for
reasonable and necessary business expenses incurred by Executive in the
course of his employment, upon presentation by Executive to the Companies of
reasonably detailed statements of expenses for which reimbursement is claimed.
9. EMPLOYMENT COVENANTS AND AGREEMENTS
A. EMPLOYEE'S KNOWLEDGE. Executive agrees that he will not,
during the term hereof or hereafter, make use of, divulge or otherwise
disclose, directly or indirectly, any trade or business secret (including,
without limitation, any customer list, data, records or financial information
constituting a trade or business secret) concerning the business or policies
of the Companies which he may have learned as a result of his employment
during the term, except to the extent such use or disclosure is necessary to
the performance of this Agreement. The provisions of this Section 9.A shall
survive the expiration or termination, for any reason, of this Agreement. In
addition, Executive shall not during the term hereof make use of, develop or
otherwise disclose, directly or indirectly, any confidential information
concerning the business or policies of the Companies which he may have
learned while an employee, officer or director of the Companies.
B. EXCLUSIVITY OF EMPLOYMENT. During the period of Executive's
employment under this Agreement, Executive's services shall be exclusive to
the Companies during ordinary working hours or at such other times as may be
required by the Companies and Executive shall not directly or indirectly
render services of a business, professional or commercial nature to any other
person or firm, whether for compensation or otherwise (except to the extent
set forth in the final sentence of Section 3 of this Agreement), or engage in
any activity competitive with or adverse to the Companies' business or
welfare.
10. NOTICES
All notices required or desired to be given hereunder shall be in
writing and shall be delivered in person or by registered or certified mail,
telex, telecopier, telegraph or cable, first-class postage or toll prepaid,
return receipt requested and addressed to the parties at their respective
addresses set forth below, unless by such notice a different address shall
have been designated:
8
<PAGE>
To any of the Companies: Henry Company
2911 Slauson Avenue
Huntington Park, CA 90255
Attention: Warner W. Henry
To Executive: Richard B. Gordinier
645 Allen Avenue
San Marino, CA 91108
All notices properly sent by mail, stamped and addressed as
aforesaid, shall be deemed given five days after being deposited in the mail.
All other notices shall be deemed given on the date of service, if served
personally on the party to whom notice is to be given, or the date of
transmission, if sent by telex, telecopier or telegraph.
11. MISCELLANEOUS
A. TERMINATION OF FORMER EMPLOYMENT AGREEMENT. By the execution of
this Agreement, the parties hereto mutually agree that the "Amended and Restated
Employment and Incentive Bonus Agreement" dated March 1, 1989 is terminated and
of no further force or effect.
B. HEADINGS. The headings and titles to the articles, sections and
paragraphs of this Agreement are inserted for convenience only and shall not be
deemed a part of or affect the construction or interpretation of any provision
hereof.
C. MODIFICATIONS AND WAIVER. No cancellation, modification,
amendment, deletion, addition or other change in this Agreement, or any
provision hereof, or waiver of any right or remedy herein provided, shall be
effective for any purpose unless specifically set forth in a writing signed by
the party to be bound thereby. No waiver of any right or remedy in respect of
any occurrence or event on one occasion shall be deemed a waiver of such right
or remedy in respect of such occurrence or event on any other occasion.
D. ENTIRE AGREEMENT. This Agreement supersedes all other
agreements, oral or written, heretofore made with respect to the subject hereof
and the transactions contemplated hereby, and contains the entire agreement of
the parties with respect to the subject matter hereof. Executive acknowledges
that this Agreement only provides for compensation for employment and neither
confers upon Executive any rights as a shareholder of any of the Companies nor
gives Executive any rights to acquire any shares in any of the Companies.
E. SEVERABILITY. Any provision hereof prohibited by or unlawful or
unenforceable under any applicable law of any jurisdiction shall as to such
jurisdiction be ineffective without affecting any other provision of this
Agreement. To the full extent, however, that the provisions of such applicable
law may be waived, they are hereby waived, to the end that
9
<PAGE>
this Agreement be deemed to be a valid and binding agreement enforceable in
accordance with its terms.
F. CONTROLLING LAW. All questions concerning the validity and
operation of this Agreement and the performance of the obligations imposed upon
the parties hereunder shall be governed by the laws of the State of California.
G. ASSIGNMENTS. Henry shall have the right to assign this Agreement
and to delegate all rights, duties and obligations hereunder, either in whole or
in part, to any affiliate, successor or other subsidiary of Henry. Executive
agrees that this Agreement is personal to him and his rights and interests
hereunder may not be assigned, nor may his obligations and duties hereunder be
delegated.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
HENRY COMPANY
By /s/ Warner W. Henry /s/ Richard B. Gordinier
------------------------------- ----------------------------
Warner W. Henry RICHARD B. GORDINIER
Chairman of the Board
HENRY II
By /s/ Warner W. Henry
-------------------------------
Warner W. Henry
Chairman of the Board
WARNER DEVELOPMENT COMPANY OF TEXAS
By /s/ Warner W. Henry
-------------------------------
Warner W. Henry
Chairman of the Board
10
<PAGE>
October 16, 1997
Mr. Richard B. Gordinier
President
HENRY COMPANY
2911 Slauson Avenue
Huntington Park, CA 90255
Dear Rich:
In connection with the proposed acquisition of or merger with Monsey
Products Company ("Monsey Bakor"), this letter will amend the Employment and
Incentive Agreement of September 30, 1992 (the "1992 Agreement") between Henry
Company, a California corporation ("Henry"), Henry II, a California corporation
("Henry II") and Warner Development Company of Texas, a Texas corporation
("WDC") (collectively, Henry, Henry II and WDC shall be referred to hereinafter
as the "Companies") and Richard B. Gordinier ("Executive"), as follows:
In consideration of the mutual covenants and promises contained herein, we
agree to amend the following provisions of the 1992 Agreement:
1. The Participation Award percentage is hereby amended from 20% in paragraphs
5.E(b) and 6.C(d) and 18% going to 20% in 1998 in paragraph 6.C(a) to:
(A) 10% of any sale or valuation of all or part of the Industrial Group
plus
(B) 4% for any sale or valuation of all or part of the Wine Group.
2. Executive to receive a $100,000 bonus at closing.
3. No Participation Award or adjustment in the Participation Award formula is
to be made in connection with the retirement of debt or purchase or sale of
stock by Companies or a distribution to shareholders of Companies at the
closing of the Monsey Bakor transaction.
This amendment will take full force and effect at the closing time of the
acquisition or merger. If the acquisition or merger does not take place, the
amendments are not agreed to.
<PAGE>
If the foregoing amendments to the 1992 Agreement in the event of the
acquisition of or merger with Monsey Bakor are acceptable to you, please execute
this letter, and this letter agreement will be binding upon each of us.
Very truly yours,
HENRY COMPANY
/s/ Warner W. Henry
----------------------------
By: Warner W. Henry
----------------------------
Title: Chairman, CEO
-------------------------
THE ABOVE IS ACCEPTED
AND AGREED TO:
/s/ Richard B. Gordinier
- ------------------------
Richard B. Gordinier
Date: October 17, 1997
<PAGE>
With respect to the letter agreement dated October 16, 1997, amending the
Employment and Incentive Agreement of September 30, 1992, I hereby waive the
$100,000 bonus referenced in Section 2 of such letter.
Dated: April 21, 1998
/s/ Richard B. Gordinier
---------------------------------
Richard B. Gordinier
<PAGE>
EXHIBIT 10.15
NON-NEGOTIABLE PROMISSORY NOTE
$209,245 Huntington Park, CA
August 24, 1997
FOR VALUE RECEIVED, Richard G. Gordinier hereby promises to pay to HENRY
COMPANY, or its successors or designees, at Huntington Park, California, in
lawful money of the United States, the sum of $209,245, plus interest on the
unpaid balance, at a rate equal to Bank of America's FIRST rate.
Payment may be made in lump sum or installments at the option of the
borrower, covering interest and principal, up to and including August 23, 1998,
on which date the final payment of principal and interest shall be due and
payable. This note may be renewed at the mutual agreement of both parties.
Richard B. Gordinier may prepay any part or all of such principal sum,
with accrued interest to the date of such prepayment, without penalty or
premium.
In the event of a default in the payment of principal or interest
hereunder, which default shall not be cured within 30 days after written
notice, payee shall be entitled at its option to receive payment in full of
the entire unpaid principal balance, together with any accrued interest, in
addition to any other remedy at law or in equity.
If action is instituted on this note by holder, and holder prevails in
such action, Richard B. Gordinier promises to pay all the expenses incurred
by holder in connection with such action, including attorney's fees.
Presentation for payment, demand, notice of dishonor, protest and
notices of protest are hereby expressly waived.
This note shall be deemed to have been made under, and shall in all
respects be governed by the laws of the State of California.
/s/ Richard B. Gordinier
--------------------------------------
Richard B. Gordinier
For Henry Company
/s/ Warner W. Henry
--------------------------------------
Warner W. Henry
mjo
<PAGE>
EXHIBIT 10.15
(CONTINUED)
NON-NEGOTIABLE PROMISSORY NOTE
$150,000 Huntington Park, CA
December 15, 1997
FOR VALUE RECEIVED, Richard G. Gordinier hereby promises to pay to HENRY
COMPANY, or its successors or designees, at Huntington Park, California, in
lawful money of the United States, the sum of $150,000, plus interest on the
unpaid balance, at a rate equal to Bank of America's FIRST rate.
Payment may be made in lump sum or installments at the option of the
borrower, covering interest and principal, up to and including December 14,
1998, on which date the final payment of principal and interest shall be due
and payable. This note may be renewed at the mutual agreement of both parties.
Richard B. Gordinier may prepay any part or all of such principal sum,
with accrued interest to the date of such prepayment, without penalty or
premium.
In the event of a default in the payment of principal or interest
hereunder, which default shall not be cured within 30 days after written
notice, payee shall be entitled at its option to receive payment in full of
the entire unpaid principal balance, together with any accrued interest, in
addition to any other remedy at law or in equity.
If action is instituted on this note by holder, and holder prevails in
such action, Richard B. Gordinier promises to pay all the expenses incurred
by holder in connection with such action, including attorney's fees.
Presentation for payment, demand, notice of dishonor, protest and
notices of protest are hereby expressly waived.
This note shall be deemed to have been made under, and shall in all
respects be governed by the laws of the State of California.
/s/ Richard B. Gordinier
--------------------------------------
Richard B. Gordinier
For Henry Company
/s/ Warner W. Henry
--------------------------------------
Warner W. Henry
mjo
<PAGE>
EXHIBIT 10.15
(CONTINUED)
RICHARD B. GORDINIER LOAN
8.5% INTEREST PER ANNUM
<TABLE>
<CAPTION>
DATE INTEREST BALANCE
- -------- -------- ----------
<C> <C> <C>
06/19/91 150,000.00
06/31/91 419.13 150,419.10
08/30/91 1,047.95 151,487.13
10/31/91 1,062.55 152,550.61
11/30/91 1,047.95 153,597.96
12/31/91 1,082.88 154,680.54
01/31/92 1,082.88 155,880.54
02/29/92 1,013.01 156,776.73
03/31/92 1,082.88 167,859.61
04/30/92 1,047.96 158,807.56
05/31/92 1,082.88 159,990.44
06/30/92 1,047.95 161,008.30
07/31/92 1,082.88 162,121.27
08/31/92 1,082.88 163,204.16
09/30/92 1,047.95 164,252.10
10/31/92 1,082.88 165,334.95
11/30/92 1,047.95 166,382.83
12/31/92 1,052.88 167,465.51
01/31/93 1,082.88 186,648.69
02/28/93 978.08 169,626.77
03/31/93 1,082.88 170,609.65
04/30/93 1,047.95 171,657.60
05/31/93 1,082.88 172,140.46
06/30/93 1,047.85 173,788.43
07/31/93 1,082.00 174,071.31
08/31/93 1,082.88 175,954.19
09/30/93 1,047.95 177,002.14
10/31/93 1,082.88 175,065.02
11/30/93 1,047.95 179,132.97
12/31/93 1,082.88 180,216.86
01/31/94 1,082.88 181,296.73
02/28/94 978.08 162,276.51
03/31/94 1,082.88 183,369.69
04/30/94 1,047.96 184,407.84
05/31/94 1,082.88 135,490.62
06/30/94 1,047.96 188,638.47
07/31/94 1,082.88 187,621.36
08/31/94 1,062.88 188,704.23
09/30/94 1,047.95 189,752.10
10/31/94 1,052.65 190,835.06
11/30/94 1,047.95 101,683,01
12/31/94 1,082.68 182,805.59
01/31/95 1,082.68 194,048.77
02/28/95 978.09 195,028.85
03/31/95 1,062.55 196,109.73
04/30/95 1,047.96 197,157.88
05/31/95 1,082.88 198,240.58
06/30/95 1,047.95 199,288.51
07/31/95 1,082.56 200,371.39
08/31/95 1,082.88 201,454.27
09/30/95 1,047.95 202,602.22
10/31/95 1,082.88 203,686.10
11/30/95 1,047.86 204,035.05
12/31/95 1,082.88 206,716.93
01/31/96 1,486.10 207,201.03
02/28/96 1,388.32 208,600.35
03/31/96 1,508.92 210,106.27
04/30/96 1,487.87 211,574.14
05/31/96 1,627.38 213,101.53
06/30/96 1,488.78 214,090,32
07/01/96 (17,600.00) 197,096.32
07/31/96 1,376.83 198,467.25
08/31/96 1,432.77 199,800.02
09/30/96 1,396.54 201,288.68
10/31/96 1,453.20 202,749.78
11/30/96 1,416.47 204,168.25
12/31/96 1,473.31 206,640.16
01/31/97 1,484.56 203,124.71
02/28/97 1,360.57 203,476.38
03/31/97 1,506.02 209,980.30
04/30/97 1,455.89 271,447.28
05/31/97 1,626.48 212,673.77
06/30/97 1,487.90 214,461.87
07/01/97 (17,937.60) 196,524.87
07/31/97 1,372.96 197,507.86
08/24/97 1,106.06 199,003.71
08/31/97 322.60 190,326.31
09/30/97 1,306.66 205,718.88
10/31/97 1,448.03 202,167.39
11/30/97 1,412.41 203,580.30
12/31/97 1,469.68 205,048.98
</TABLE>
<PAGE>
HENRY COMPANY
Loan Agreement
EXHIBIT 10.15
Continued
Huntington Park, CA
August 24, 1997
FOR VALUE RECEIVED, Richard B. Gordinier (Gordinier) promises to pay to
the order of Henry Company, ("Henry") the sum of Twenty Thousand and no/100
dollars ($20,000).
Said principal shall be payable to Henry Company on July 31, 1998.
interest will accrue on the unpaid principal as of the first date above.
Interest will be calculated at a rate equal to Bank of America's FIRST rate
and will be payable on July 31, 1998 with the principal payment.
Gordinier shall have the right to prepay without penalty. In the event
payment due hereunder is not made when due, or if the undersigned should
leave the employment of Henry Company for any reason, the entire balance
shall be immediately due at the option of Henry Company.
If action is instituted on this note by holder, and holder prevails in such
action. Gordinier promises to pay all the expenses incurred by holder in
connection with such action, including attorney's fees.
Presentation for payment, demand, notice of dishonor, protest and
notices of protest are hereby expressly waived.
This note shall be deemed to have been made under, and shall in all
respects be governed by the laws of the State of California.
/s/ Richard B. Gordinier 7/10/97
- ------------------------ ----------------
Richard B. Gordinier
/s/ Jeffrey A. Wahba 7/10/97
- ------------------------- -----------------
Jeffrey A. Wahba Date
Henry Company
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of April 22, 1998, between Henry Company, a
California corporation (the "Company"), and Joseph T. Mooney, Jr. (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Executive is a principal executive officer and a
principal shareholder in Monsey Products Co., a Pennsylvania corporation
("Monsey");
WHEREAS, concurrently with the execution of this Agreement, Company
(the "Buyer") is purchasing from the Executive and the other shareholders of
Monsey all of Monsey's issued and outstanding capital stock, purchase to a
Stock Purchase Agreement dated February 27, 1998 (the "Stock Purchase
Agreement"); and
WHEREAS, it is a condition to consummation of the Stock Purchase
Agreement that the Company and Executive execute this Employment Agreement;
WHEREAS, the Company desires to retain the Executive's continued
employment in an executive capacity and the Executive desires to accept such
continued employment upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the agreements herein
contained, the parties hereto agree as follows:
1. EMPLOYMENT. Pursuant to the terms and conditions set forth in
this Agreement, the Company hereby employs the Executive, and the Executive
hereby accepts such employment, as the Vice Chairman of Henry Company. The
Executive shall report to the Chairman of the Henry Group of Companies or his
authorized designee, and shall have such powers and duties consistent with
the duties and office of a Vice Chairman as shall from time to time be
assigned to him by the Board of Directors of the Company. The Executive
agrees to use his best efforts to promote the interests of the Company and
its subsidiaries and to devote his full business time and energies during
normal business hours to the business and affairs of the Company during the
Employment Period (as hereinafter defined); it being understood that the
level of business activity engaged in by Executive over the last twelve (12)
months shall be deemed to constitute "full business time". The Executive
will not engage in any other business or professional activity, with or
without compensation, if such business or professional activity may in any
way hinder the Executive's ability, or infringe on the time necessary, to
perform his duties hereunder.
2. TERM OF EMPLOYMENT. The employment hereunder will be for a two
(2) year period commencing on April 22, 1998 and will end on the second
anniversary of such date,
-1-
<PAGE>
unless earlier terminated pursuant to the provisions of Section 5 hereof (the
term of such employment hereunder, the "Employment Period").
3. REPRESENTATIONS OF EXECUTIVE. The Executive hereby represents
to the Company that (i) he is not subject to any restrictions on his ability
to enter into this Agreement, including but not limited to any applicable
covenant not to compete or similar agreement entered into in connection with
any previous employment, and (ii) he will not disclose or make use of any
confidential information that is the property of any third party (including,
without limitation, any trade secrets) in connection with his employment by
the Company pursuant to this Agreement.
4. COMPENSATION.
(a) BASE SALARY. As compensation for services hereunder
during the Employment Period, the Company will pay the Executive an annual
salary of Three Hundred Fifty Thousand Dollars ($350,000) ("Base Salary"),
payable in appropriate bi-weekly installments to conform to the regular
payroll dates for the Company's salaried personnel. The Executive's salary
level shall be reviewed annually, but in no event less than the Base Salary
stated herein.
(b) BENEFITS. Executive will receive the benefits he
currently receives pursuant to his employment with Monsey, subject to the
same terms and conditions of those benefits.
5. TERMINATION.
(a) CAUSE. The Company may terminate the Executive's
employment hereunder for Cause. For the purposes of this Agreement,
termination for Cause shall mean:
(i) The Executive's willful failure or refusal, after
written notice thereof, to perform specific directives of the Chairman
of the Henry Group of Companies or his authorized designee, when such
directives are reasonable and consistent with the scope and nature of
the Executive's duties and responsibilities as determined by the Board
of Directors of the Company;
(ii) Dishonesty of the Executive affecting the Company, its
subsidiaries or affiliates;
(iii) Drunkenness or use of drugs which interferes with the
performance of the Executive's obligations under this Agreement, or
puts the Company, its subsidiaries or affiliates at risk of any
potential liability;
(iv) The Executive's conviction of, or the entering of a
guilty plea or plea of no contest with respect to, a felony or of any
crime involving moral turpitude or fraud;
-2-
<PAGE>
(v) Any gross or willful misconduct of the Executive
resulting in substantial damage to the Company's reputation or theft
or defalcation from the Company or its subsidiaries; and
(vi) Any material breach (not covered by any of the clauses
(i) through (v)) of any of the provisions of this Agreement entered
into on the date hereof between Henry Company and the Executive if
such breach is not cured within 15 days after written notice thereof
to the Executive by the Company.
(b) Intentionally left blank.
(c) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company
may terminate the Executive's employment hereunder for any reason or no
reason at any time by giving a Notice of Termination (as defined below) to
the Executive.
(d) TERMINATION BY THE EXECUTIVE. The Executive may
terminate his employment hereunder for any reason by giving a Notice of
Termination (as defined below) to the Company.
(e) DEATH. The Executive's employment hereunder shall
terminate upon his death.
(f) DISABILITY. If, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from his duties hereunder on a full-time basis for one hundred eighty
(180) consecutive days, and, within thirty (30) days after a Notice of
Termination is given by the Company, the Executive shall not have returned to
the performance of his duties hereunder on a full-time basis, the Company may
terminate the Executive's employment hereunder. The Company may provide such
Notice of Termination on or after the date on which the Executive has been
absent for one hundred fifty (150) consecutive days.
(g) NOTICE OF TERMINATION. Any termination by the Company
pursuant to subparagraphs (a), (c) or (f) above or by the Executive pursuant
to subparagraph (d) above shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice indicating the specific
termination provision in this Agreement relied upon and setting forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
(h) DATE OF TERMINATION. Date of Termination shall mean (i)
if the Executive's employment is terminated by his death, the day after his
death; (ii) if the Executive's employment is terminated pursuant to
subparagraph (c) or (f) above, thirty (30) days after Notice of Termination
is given (provided that, in the case of termination under subparagraph (f),
the Executive shall not have returned to the performance of his duties on a
full-time basis during such thirty day period); (iii) if the Executive's
employment is terminated pursuant to subparagraph (d)
-3-
<PAGE>
above, thirty (30) days after Notice of Termination is given; and (iv) if the
Executive's employment is terminated pursuant to subparagraph (a) above, the
date specified in the Notice of Termination.
6. COMPENSATION UPON TERMINATION.
(a) TERMINATION FOR CAUSE. If the Executive's employment is
terminated for Cause, the Company shall pay the Executive his full Base
Salary, Bonus and benefits through the Date of Termination at the rate in
effect at the time Notice of Termination is given, and the Company shall have
no further obligations to the Executive under this Agreement.
(c) TERMINATION BY THE COMPANY WITHOUT CAUSE. If the
Executive's employment is terminated without cause pursuant to Section 5(c)
of this Agreement, the Company shall continue to pay the Executive's Base
Salary as provided in this Agreement, and shall continue to provide the
benefits provided for in Section 4(c) of this Agreement, for the lesser of
(i) the remaining term of the Employment Period; provided, however, that at
least one (1) year of health benefits shall be provided, or (ii) the date the
Executive enters into an employment, consulting, advisory or similar
relationship with another company or business.
(d) VOLUNTARY TERMINATION. If the Executive terminates his
employment hereunder pursuant to Section 5(d) hereof, the Company will pay
the Executive, through the Date of Termination, his full Base Salary, Bonus
and benefits at the rate in effect at the time Notice of Termination is
given, and the Company will have no further obligations to the Executive
under this Agreement.
(e) TERMINATION UPON DEATH. If this Agreement terminates as
a result of the Executive's death, the Company's obligations to the Executive
will cease, including the obligation to pay any Base Salary, Bonus and
benefits (other than health benefits for Executive's spouse, which shall
continue for one (1) year after Executive's death), on the Date of
Termination.
(f) TERMINATION UPON DISABILITY. During any period that the
Executive fails to perform his duties hereunder as a result of incapacity due
to physical or mental illness, the Executive shall continue to be paid his
Base Salary, Bonus and benefits, except that after termination of employment
pursuant to Section 5(f) hereto, the Company's obligations to the Executive
shall cease, including the obligation to pay Base Salary, Bonus and benefits.
7. INTELLECTUAL PROPERTY; CONFIDENTIALITY.
(a) INTELLECTUAL PROPERTY. The Executive expressly agrees
that during the Employment Period, to the extent the Executive discovers or
creates any inventions, formulas, techniques, processes, improvements or
other rights constituting a trade secret (cumulatively, a "Trade Secret"),
all such Trade Secrets and any patent, copyright or licensing relating
thereto or arising therefrom shall be the sole and exclusive rights of the
Company.
-4-
<PAGE>
(b) CONFIDENTIALITY. The Executive agrees that he will not,
during the Employment Period or subsequent thereto, divulge to anyone (other
than the Company or any persons employed or designated by the Company) any
knowledge or information of any type whatsoever of a confidential nature
relating to the business of the Company or any of its subsidiaries or
affiliates, including, without limitation, all types of trade secrets (unless
readily ascertainable from public or published information or trade sources
other than as a result of a disclosure by the Executive). The Executive
further agrees that he will not, during the Employment Period or subsequent
thereto, disclose, publish or make use of any such knowledge or information
of a confidential nature without the prior written consent of the Company.
8. NON-COMPETE AGREEMENT
(a) ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive
acknowledges that: (a) the services to be performed by him under this
Agreement are of a special, unique, unusual, extraordinary, and intellectual
character; (b) the Company's business is international in scope and its
products are marketed throughout the United States and Canada; (c) The
Company competes with other businesses that are or could be located in any
part of the United States or Canada; (d) the Buyer has required that the
Executive make the covenants set forth in this Section 8 as a condition to
the Buyer's purchase of the Executive's stock in the Company; and (e) the
provisions of this Section 8 are reasonable and necessary to protect the
Company's business.
(b) COVENANTS OF THE EXECUTIVE. In consideration of the
acknowledgments by the Executive, and in consideration of the compensation
and benefits to be paid or provided to the Executive by the Company, the
Executive covenants that he will not, directly or indirectly:
(i) during the Period (as defined), except in the course of
his employment hereunder, engage or invest in, own, manage, operate,
finance, control, or participate in the ownership, management,
operation, financing, or control of, be employed by, associated with,
or lend the Executive's name or any similar name to, or render
services or advice to, any business whose products or activities
compete in whole or in part with (a) the products or activities of the
Company anywhere within the United States or Canada (the "Company
Business") or (b) the manufacture and sale of building envelope
systems and related products, roofing membranes (modified bitumen and
other related roofing products), asphalt or wax based industrial
emulsions, roof and driveway coatings and cement, and paving sealers
(the "Monsey Business"); PROVIDED, HOWEVER, that the Executive may
purchase or otherwise acquire up to (but not more than) one percent of
any class of securities of any such enterprise (but without otherwise
participating in the activities of such enterprise) if such securities
are listed on any national or regional securities exchange or have
been registered under Section 12(g) of the Securities Exchange Act of
1934; and provided further, that Executive may, with the prior written
consent of the Company (which consent shall not be unreasonably
withheld), provide financing and advice only to members of his
immediate family (which shall mean his sons, daughters and
sons-in-law) to activities not directly competitive with the Company
or
-5-
<PAGE>
Monsey business. For the purposes of the immediately prior clause,
the parties agree that a non-directly competitive business shall mean
the retailing and wholesaling of building materials generally, so long
as the business does not primarily involve the sale of products of the
type sold by the Company or Monsey;
(ii) whether for the Executive's own account or for the
account of any other person, at any time during the Period, solicit
business of the same or similar type being carried on by the Company
or Monsey from any person known by the Executive to be a customer of
the Company or Monsey, whether or not the Executive had personal
contact with such person during and by reason of the Executive's
employment with the Company or Monsey;
(iii) whether for the Executive's own account or the account
of any other person at any time during the Period, (a) solicit,
employ, or otherwise engage as an employee, independent contractor, or
otherwise, any person who is an employee of the Company or Monsey at
any time during the Period or in any manner induce or attempt to
induce any employee of the Company or Monsey to terminate his
employment with the Company or Monsey; or (b) interfere with the
Company's relationship with any person, including any person who at
any time during the Period was an employee, contractor, supplier, or
customer of the Company; or
(iv) at any time during or after the Period, disparage the
Company or its shareholders or affiliates, directors, officers,
employees, or agents.
For purposes of this Section 8(b), the term "Period" means five (5)
years from the date hereof with respect to the Company's Business and ten
(10) years from the date hereof with respect to Monsey Business.
If any covenant in this Section 8(b) is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section 8(b)
will be extended by the duration of any violation by the Executive of such
covenant.
9. REMEDIES If Executive breaches the terms of this Agreement
(including the covenants set forth in Sections 7 and 8), the Company will
be entitled to the following remedies:
(1) Damages from Executive;
-6-
<PAGE>
(2) In addition to its right to damages and any other rights it may
have, to obtain injunctive or other equitable relief to restrain any breach
or threatened breach or otherwise to specifically enforce the provisions of
this Agreement (including Sections 7 and 8, which are independent covenants
and essential elements of this Agreement), it being agreed that money damages
alone would be inadequate to compensate the Company and would be an
inadequate remedy for such breach; and
(3) The rights and remedies of the parties to this Agreement are
cumulative and not alternative.
10. ASSIGNMENT; SUCCESSORS AND ASSIGNS. Executive agrees that he
will not assign, sell, transfer, delegate or otherwise dispose of, whether
voluntarily or involuntarily, or by operation of law, any rights or
obligations under this Agreement, nor shall the Executive's rights be subject
to encumbrance or the claims of creditors and any purported assignment,
transfer or delegation shall be null and void. Nothing in this Agreement
shall prevent the consolidation of the Company with, or its merger into, any
other corporation, or the sale by the Company of all or substantially all of
its properties or assets or the assignment of this Agreement by the Company
and the performance of its obligations hereunder to any successor in interest
or any affiliated company. Subject to the foregoing, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, successors and permitted assigns. In the event of any
attempted assignment or transfer of rights hereunder by the Executive
contrary to the provisions hereof, the Company shall have no further
liability for payments hereunder.
11. GOVERNING LAW; CAPTIONS. This Agreement shall be governed by
the laws of the State of Pennsylvania. This Agreement may not be changed
orally, but only by agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this
Agreement. Paragraph headings are for convenience of reference only and
shall not be considered a part of this Agreement.
12. COMPLETE AGREEMENT. This Agreement terminated all prior
agreements between the parties relating to the subject matter herein
addressed and constitutes the entire agreement between the parties as to the
employment relation between the parties. In the event of termination of
employment under any of the circumstances described herein, the arrangements
provided for by this Agreement will constitute the entire obligation of the
Company to the Executive and performance thereof by the Company will
constitute full settlement of any claim that the Executive might otherwise
assert against the Company or its affiliates for breach of this Agreement.
13. NOTICES. Any notices or other communications required or
permitted hereunder shall be in writing and will be deemed effective when
delivered in person (in the Company's case, to the President of the Henry
Group of Companies and in the Executive's case,
-7-
<PAGE>
to Joseph T. Mooney, Jr. or, if mailed, on the date of deposit in the mail,
postage prepaid, addressed as follows:
If to the Company:
The Henry Group of Companies
2911 East Slauson Avenue
Huntington Park, CA 90255
If to Executive:
Mr. Joseph T. Mooney, Jr.
P. O. Box 877
Kimberton, PA 19442
or to such other address as shall have been specified in writing by any party
to the other parties.
14. ARBITRATION OF DISPUTES. Any dispute over the interpretation
or enforcement of any provision of this Agreement or any controversy or claim
arising out of or relating to this Agreement or the Executive's employment
with the Company, including statutory claims, shall be settled by arbitration
administered by the American Arbitration Association. The parties expressly
waive all rights to a jury trial.
The arbitration shall be conducted before a single arbitrator and
shall occur in the Commonwealth of Pennsylvania. Judgment upon the award
rendered by the arbitrator may be entered in any court of competent
jurisdiction. The Arbitrator shall have the authority to determine who
should bear the costs and expenses (including attorneys' fees) of
arbitration.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but together shall
constitute one and the same document.
IN WITNESS WHEREOF, the Company has by its appropriate officer
signed this Agreement and the Executive has signed this Agreement, as of the
day and year first above written.
HENRY COMPANY
/s/ Richard B. Gordinier
-----------------------------------
By: Richard B. Gordinier
-----------------------------------
Its: President
----------------------------------
-8-
<PAGE>
/s/ Joseph Mooney, Jr.
--------------------------------------
JOSEPH T. MOONEY, JR.
-9-
<PAGE>
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of April 22, 1998, between Henry Company, a
California corporation (the "Company"), and Larry A. Karasiuk (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Executive is a principal executive officer and a
principal shareholder in Monsey Products Co., a Pennsylvania corporation
("Monsey");
WHEREAS, the Company desires to retain the Executive's continued
employment in an executive capacity and the Executive desires to accept such
continued employment upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the agreements herein
contained, the parties hereto agree as follows:
1. EMPLOYMENT. Pursuant to the terms and conditions set forth in
this Agreement, the Company hereby employs the Executive, and the Executive
hereby accepts such employment, as the President of Monsey Bakor Holdings,
Inc. The Executive shall report to Richard Gordinier, President of the Henry
Group of Companies or his authorized designee, and shall have such powers and
duties consistent with the duties and office of a President of a Subsidiary
as shall from time to time be assigned to him by the Board of Directors of
the Company. The Executive agrees to use his best efforts to promote the
interests of the Company and its subsidiaries and to devote his full business
time and energies during normal business hours to the business and affairs of
the Company during the Employment Period (as hereinafter defined). The
Executive will not engage in any other business or professional activity,
with or without compensation, if such business or professional activity may
in any way hinder the Executive's ability, or infringe on the time necessary,
to perform his duties hereunder.
2. TERM OF EMPLOYMENT. The employment hereunder will be for the
three (3) year period commencing on February 22, 1998 and will end on the third
anniversary of such date, unless earlier terminated pursuant to the provisions
of Section 5 hereof (the term of such employment hereunder, the "Employment
Period").
3. REPRESENTATIONS OF EXECUTIVE. The Executive hereby represents
to the Company that (i) he is not subject to any restrictions on his ability
to enter into this Agreement, including but not limited to any applicable
covenant not to compete or similar
-1-
<PAGE>
agreement entered into in connection with any previous employment, and (ii)
he will not disclose or make use of any confidential information that is the
property of any third party (including, without limitation, any trade
secrets) in connection with his employment by the Company pursuant to this
Agreement.
4. COMPENSATION.
(a) BASE SALARY. As compensation for services hereunder
during the Employment Period, the Company will pay the Executive an annual
salary of $250,000 Canadian dollars ("Base Salary"), payable in appropriate
bi-weekly installments to conform to the regular payroll dates for the
Company's salaried personnel. The Executive's salary level shall be reviewed
annually, but in no event less than the Base Salary stated herein.
(b) BONUS. Executive may receive an annual bonus in the
amount of 0% to 50% of his Base Salary in the discretion of the Company
(c) BENEFITS. Executive will receive the benefits he
currently receives pursuant to his employment with Monsey, subject to the
same terms and conditions of those benefits.
5. TERMINATION.
(a) CAUSE. The Company may terminate the Executive's
employment hereunder for Cause. For the purposes of this Agreement,
termination for Cause shall mean:
(i) The Executive's willful failure or refusal, after
written notice thereof, to perform specific directives of the
President of the Henry Group of Companies or his authorized designee,
when such directives are reasonable and consistent with the scope and
nature of the Executive's duties and responsibilities as determined by
the Board of Directors of the Company;
(ii) Dishonesty of the Executive affecting the Company, its
subsidiaries or affiliates;
(iii) Drunkenness or use of drugs which interferes with the
performance of the Executive's obligations under this Agreement, or
puts the Company, its subsidiaries or affiliates at risk of any
potential liability;
(iv) The Executive's conviction of, the indictment for (or
its procedural equivalent) or the entering of a guilty plea or plea of
no contest with respect to a felony or of any crime involving moral
turpitude, fraud or misrepresentation;
-2-
<PAGE>
(v) Any gross or willful misconduct of the Executive
resulting in substantial damage to the Company's reputation or theft
or defalcation from the Company or its subsidiaries; and
(vi) Any material breach (not covered by any of the clauses
(i) through (v)) of any of the provisions of this Agreement or the
Noncompetition Agreement entered into on the date hereof between Henry
Company and the Executive if such breach is not cured within 15 days
after written notice thereof to the Executive by the Company.
(b) Intentionally left blank.
(c) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company
may terminate the Executive's employment hereunder for any reason or no
reason at any time by giving a Notice of Termination (as defined below) to
the Executive.
(d) TERMINATION BY THE EXECUTIVE. The Executive may
terminate his employment hereunder for any reason by giving a Notice of
Termination (as defined below) to the Company.
(e) DEATH. The Executive's employment hereunder shall
terminate upon his death.
(f) DISABILITY. If, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from his duties hereunder on a full-time basis for 180 consecutive
days, and, within thirty (30) days after a Notice of Termination is given by
the Company, the Executive shall not have returned to the performance of his
duties hereunder on a full-time basis, the Company may terminate the
Executive's employment hereunder. The Company may provide such Notice of
Termination on or after the date on which the Executive has been absent for
150 consecutive days.
(g) NOTICE OF TERMINATION. Any termination by the Company
pursuant to subparagraphs (a), (c) or (f) above or by the Executive pursuant
to subparagraph (d) above shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice indicating the specific
termination provision in this Agreement relied upon and setting forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
(h) DATE OF TERMINATION. Date of Termination shall mean (i)
if the Executive's employment is terminated by his death, the day after his
death; (ii) if the
-3-
<PAGE>
Executive's employment is terminated pursuant to subparagraph (c) or (f)
above, thirty (30) days after Notice of Termination is given (provided that,
in the case of termination under subparagraph (f), the Executive shall not
have returned to the performance of his duties on a full-time basis during
such thirty day period); (iii) if the Executive's employment is terminated
pursuant to subparagraph (d) above, thirty (30) days after Notice of
Termination is given; and (iv) if the Executive's employment is terminated
pursuant to subparagraph (a) above, the date specified in the Notice of
Termination.
6. COMPENSATION UPON TERMINATION.
(a) TERMINATION FOR CAUSE. If the Executive's employment is
terminated for Cause, the Company shall pay the Executive his full Base
Salary, Bonus and benefits through the Date of Termination at the rate in
effect at the time Notice of Termination is given, and the Company shall have
no further obligations to the Executive under this Agreement.
(c) TERMINATION BY THE COMPANY WITHOUT CAUSE. If the
Executive's employment is terminated without cause pursuant to Section 5(c)
of this Agreement, the Company shall continue to pay the Executive's Base
Salary as provided in this Agreement, and shall continue to provide the
benefits provided for in Section 4(c) of this Agreement, for the lesser of
(i) [six (6)] months from the Date of Termination, or (ii) the date the
Executive enters into an employment, consulting, advisory or similar
relationship with another company or business.
(d) VOLUNTARY TERMINATION. If the Executive terminates his
employment hereunder pursuant to Section 5(d) hereof, the Company will pay
the Executive, through the Date of Termination, his full Base Salary, Bonus
and benefits at the rate in effect at the time Notice of Termination is
given, and the Company will have no further obligations to the Executive
under this Agreement.
(e) TERMINATION UPON DEATH. If this Agreement terminates as
a result of the Executive's death, the Company's obligations to the Executive
will cease, including the obligation to pay any Base Salary, Bonus and
benefits, on the Date of Termination.
(f) TERMINATION UPON DISABILITY. During any period that the
Executive fails to perform his duties hereunder as a result of incapacity due
to physical or mental illness, the Executive shall continue to be paid his
Base Salary, Bonus and benefits, except that after termination of employment
pursuant to Section 5(f) hereto, the Company's obligations to the Executive
shall cease, including the obligation to pay Base Salary, Bonus and benefits.
7. INTELLECTUAL PROPERTY; CONFIDENTIALITY.
-4-
<PAGE>
(a) INTELLECTUAL PROPERTY. The Executive expressly agrees
that during the Employment Period, to the extent the Executive discovers or
creates any inventions, formulas, techniques, processes, improvements or
other rights constituting a trade secret (cumulatively, a "Trade Secret"),
all such Trade Secrets and any patent, copyright or licensing relating
thereto or arising therefrom shall be the sole and exclusive rights of the
Company.
(b) CONFIDENTIALITY. The Executive agrees that he will not,
during the Employment Period or subsequent thereto, divulge to anyone (other
than the Company or any persons employed or designated by the Company) any
knowledge or information of any type whatsoever of a confidential nature
relating to the business of the Company or any of its subsidiaries or
affiliates, including, without limitation, all types of trade secrets (unless
readily ascertainable from public or published information or trade sources
other than as a result of a disclosure by the Executive). The Executive
further agrees that he will not, during the Employment Period or subsequent
thereto, disclose, publish or make use of any such knowledge or information
of a confidential nature without the prior written consent of the Company.
8. BREACH. In the event of the Executive's breach of this
Agreement, the Company may institute and prosecute proceedings in any court
of competent jurisdiction, either in law or in equity (a) to obtain damages
for any such breach, (b) to obtain specific performance of this Agreement by
the Executive or (c) to enjoin the Executive from performing services for any
such other person, firm or corporation.
9. ASSIGNMENT; SUCCESSORS AND ASSIGNS. Executive agrees that he
will not assign, sell, transfer, delegate or otherwise dispose of, whether
voluntarily or involuntarily, or by operation of law, any rights or
obligations under this Agreement, nor shall the Executive's rights be subject
to encumbrance or the claims of creditors and any purported assignment,
transfer or delegation shall be null and void. Nothing in this Agreement
shall prevent the consolidation of the Company with, or its merger into, any
other corporation, or the sale by the Company of all or substantially all of
its properties or assets or the assignment of this Agreement by the Company
and the performance of its obligations hereunder to any successor in interest
or any affiliated company. Subject to the foregoing, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, successors and permitted assigns. In the event of any
attempted assignment or transfer of rights hereunder by the Executive
contrary to the provisions hereof, the Company shall have no further
liability for payments hereunder.
10. GOVERNING LAW; CAPTIONS. This Agreement shall be governed by
the laws of the Province of Ontario. This Agreement may not be changed
orally, but only by agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this
-5-
<PAGE>
Agreement. Paragraph headings are for convenience of reference only and
shall not be considered a part of this Agreement.
11. COMPLETE AGREEMENT. This Agreement terminated all prior
agreements between the parties relating to the subject matter herein
addressed and, together with the Non-Competition Agreement, constitutes the
entire agreement between the parties as to the employment relation between
the parties. In the event of termination of employment under any of the
circumstances described herein, the arrangements provided for by this
Agreement will constitute the entire obligation of the Company to the
Executive and performance thereof by the Company will constitute full
settlement of any claim that the Executive might otherwise assert against the
Company or its affiliates on account of such termination.
12. NOTICES. Any notices or other communications required or
permitted hereunder shall be in writing and will be deemed effective when
delivered in person (in the Company's case, to the President of the Henry
Group of Companies and in the Executive's case, to Larry A. Karasiuk or, if
mailed, on the date of deposit in the mail, postage prepaid, addressed as
follows:
If to the Company:
The Henry Group of Companies
2911 East Slauson Avenue
Huntington Park, CA 90255
If to Executive:
Larry A. Karasiuk
Monsey Bakor
284 Watline Avenue
Mississauga, Ontario, Canada L4Z 1P4
or to such other address as shall have been specified in writing by any party
to the other parties.
13. ARBITRATION OF DISPUTES. Any dispute over the interpretation
or enforcement of any provision of this Agreement or any controversy or claim
arising out of or relating to this Agreement or the Executive's employment
with the Company shall be settled by arbitration administered by the Canadian
Arbitration Association under its National Rules for the Resolution of
Employment Disputes. The parties expressly waive all rights to a jury trial.
-6-
<PAGE>
The arbitration shall be conducted before a single arbitrator and
shall occur in the Province of Ontario. Judgment upon the award rendered by
the arbitrator may be entered in any court of competent jurisdiction. The
Arbitrator shall have the authority to determine who should bear the costs
and expenses (including attorneys' fees) of arbitration.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but together shall
constitute one and the same document.
IN WITNESS WHEREOF, the Company has by its appropriate officer
signed this Agreement and the Executive has signed this Agreement, as of the
day and year first above written.
Company:
HENRY COMPANY
/s/ Richard B. Gordinier
---------------------------------
By: Richard B. Gordinier
---------------------------------
Its: President
---------------------------------
Executive:
/s/ Larry A. Karasiuk
-------------------------------------
LARRY A. KARASIUK
-7-
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of July, 1993, between HENRY COMPANY,
a California corporation (hereinafter called the "Company"), and JOHN R. ENRIGHT
(hereinafter called the "Executive").
WHEREAS, the Company desires to employ the Executive in an executive
capacity and to compensate him therefor; and
WHEREAS, the Executive is desirous of committing himself to serve the
Company on the terms and conditions herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein contained, the parties
hereto, intending to be legally bound hereby, agree as follows:
1. EMPLOYMENT. The Company agrees to employ the Executive, and the
Executive hereby agrees to serve the Company, for a term of three (3) years
commencing as of July 1, 1993, and ending on the third anniversary thereof;
provided, however, that unless the Company or the Executive gives written notice
to the contrary at least ninety (90) days prior to July 1, 1996 or any
subsequent anniversary of the date hereof, the term of this Agreement shall
automatically be extended for an additional term of one (1) year on each
anniversary date of the date hereof commencing July 1, 1996. The term of this
Agreement is hereinafter called the "Employment Period" or the "full term of the
Employment Period." Each year of the Employment Period shall be deemed to
commence on July 1.
2. POSITION AND DUTIES. The Executive shall serve as the President
of K.T. Snyder Co., a division of the Company ("Snyder Division"), reporting to
the President of the Company. The Executive shall have supervision and control
over, and responsibility for, the day-to-day operations of the Snyder Division
and shall have such other powers and duties as determined by the President of
the Company.
3. ACCEPTANCE OF EMPLOYMENT. The Executive hereby accepts such
employment for the compensation and upon the other terms and conditions provided
for in this Agreement and agrees to devote his best efforts to such employment
for as long as he shall be employed hereunder. During the Employment Period,
the Executive shall devote substantially full time and efforts to the business
and affairs of the Company (including its subsidiaries and affiliates) and the
promotion of its interests (except for reasonable vacations and absences
resulting from sickness or
<PAGE>
accident) and shall not be actively engaged in any other business activities
or duties except for activities approved in advance in each case by the Board
of Directors of the Company.
4. COMPENSATION. The Executive shall receive the following
compensation for his services hereunder:
(a) BASE SALARY AND INCENTIVE COMPENSATION.
(i) The Company shall pay to the Executive during the
Employment Period a base salary at the rate of One hundred thirty thousand
dollars ($130,000.00) per year ("Base Salary"), which shall be paid in equal
semi-monthly installments on or before the fifteenth and last days of each
calendar month of each such year or portion thereof during the Employment
Period. The Board of Directors of the Company shall review the Base Salary at
the beginning of each year of the Employment Period and may increase such Base
Salary in an amount to be determined in the discretion of the Board of Directors
of the Company. Upon any increase in the rate of Base Salary pursuant to the
foregoing sentence, such increased rate of Base Salary shall thereafter
constitute the Executive's Base Salary for all purposes of this Agreement.
(ii) In addition to Base Salary, the Executive shall be
entitled to receive, in respect of each preceding year of the Employment Period,
a lump sum cash bonus (the "Incentive Bonus") to be paid during the first
calendar quarter of each year in an amount to be determined by the Board of the
Company, based upon the Executive's performance against objectives to be
mutually agreed upon by the Executive and the Board of Directors of the Company.
The amount of the Incentive Bonus may range from zero (0) to fifty percent (50%)
of Base Salary, with a target level of twenty-five percent (25%) of Base Salary
if such agreed-upon objectives are met. Provided, however, that in any event,
the Executive shall receive an Incentive Bonus of at least $20,000 for the first
six months of the Employment Period, to be paid in the first calendar quarter of
1994.
(b) AUTOMOBILE ALLOWANCE. During the Employment Period, at the
Executive's option, either (1) the Company shall provide the Executive, for the
Executive's sole use, an automobile, and the Company shall promptly reimburse
all of the Executive's operating expenses with regard to such automobile,
provided the Executive properly accounts therefor in accordance with Company
policy, or (2) the Executive shall be entitled to receive an allowance of $625
per month to be applied to the cost of purchasing or leasing an automobile for
use by the Executive in his performance of services hereunder, and the Company
shall promptly reimburse all operating expenses with regard to such automobile
up to a maximum of $125 per month, provided that the
-2-
<PAGE>
Executive properly accounts therefor in accordance with Company policy.
(c) EMPLOYEE BENEFITS. The Executive shall be entitled to
participate in and receive benefits under all of the Company's executive life
insurance, disability and deferred compensation plans in effect on the date
hereof, or any such plans or arrangements made available by the Company in the
future to its executive employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
The Executive shall be entitled to participate in and receive benefits under the
Company's company-wide employee benefits plans for medical and dental benefits
on a basis consistent with the terms, conditions and overall administration of
such plans, and in addition shall be entitled to obtain, at the Company's
expense, one annual physical examination each year during the Employment Period,
at a cost not to exceed $1,000 per examination.
(d) 401(K) PLAN. The Executive shall be entitled to participate
in and receive benefits under the Company's 401(K) Plan, a copy of which is
attached hereto as Exhibit A and incorporated herein by reference.
(e) CLUB MEMBERSHIP. The Company shall pay the initiation fee
(the "Initiation Fee"), up to a maximum of $15,000.00, for the membership of
Executive in a club of the Executive's choice located in the Houston, Texas
area. During the Employment Period, the Executive shall be entitled to
reimbursement of the cost of the monthly dues at such club, so long as the
Executive is a member of such club. In the event that the Executive's
employment is terminated by the Company for Cause, or is terminated by the
Executive whether for Good Reason or any other reason, the Executive shall
reimburse to the Company that portion of the Initiation Fee that is equal to the
product of the Initiation Fee multiplied by a fraction, the numerator of which
is equal to thirty-six (36) minus the number of months which the Employment
Period lasted prior to the Executive's termination, and the denominator of which
is equal to thirty-six (36).
(f) EQUIPMENT. Executive shall be entitled to the use of a
personal computer in his home, along with the use of a car phone, both of which
shall be purchased by the Company through its capital request process.
Executive shall be entitled to receive prompt reimbursement for all reasonable
phone-line charges incurred by him while using the personal computer or car
phone to perform services hereunder, provided that the Executive properly
accounts therefor in accordance with Company policy. Any car phone expenses
which are reimbursed by the Company shall be in addition to, and shall not
constitute a part of, the car allowance reimbursements provided in paragraph (b)
above.
-3-
<PAGE>
(g) RELOCATION EXPENSES. Executive shall be entitled to receive
prompt reimbursement for the following relocation costs and expenses incurred as
a result of Executive's acceptance of employment with the Company:
(i) Standard closing costs (including broker fees, mortgage
points and title expenses) incurred by Executive in the sale of his current
primary residence located in Plano, Texas and the purchase of a primary
residence in Houston, Texas.
(ii) Costs and expenses incurred to move Executive's
household goods and pets from Plano, Texas to Houston, Texas, along with such
insurance as is reasonable and necessary with respect thereto.
(iii) Reasonable expenses incurred by Executive as
necessary to locate a primary residence in Houston, Texas, along with either
(a) reasonable expenses incurred by Executive in maintaining a temporary
residence in Houston, as necessary, for a period of time not to exceed two (2)
months, while Executive is searching for or waiting to complete the purchase of
a permanent residence in Houston or (b) reasonable expenses, including rental
and related utility charges, incurred by Executive to rent a furnished apartment
in Houston for up to eighteen (18) months.
(iv) In addition, upon Executive's relocation to Houston,
as demonstrated by Executive's establishment of a permanent primary residence in
Houston through the purchase of a primary residence or the execution of a
long-term lease in Houston, Executive shall be entitled to receive a payment of
five thousand dollars ($5,000) to cover incidental costs.
5. TERMINATION.
(a) CAUSE. The Company may terminate the Executive's employment
hereunder for Cause. For the purposes of this Agreement, termination for Cause
shall mean termination because of the Executive's personal dishonesty, willful
misconduct, breach of fiduciary duty involving personal profit, intentional or
recklessly negligent failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of this
Agreement.
(b) TERMINATION OTHER THAN FOR CAUSE. The Company may terminate
the Executive's employment hereunder without Cause, if the Company shall
determine that such termination is in the best interests of the Company and the
-4-
<PAGE>
Company shall have delivered to the Executive a Notice of Termination hereunder.
(c) TERMINATION BY THE EXECUTIVE. The Executive may terminate
his employment hereunder (i) for Good Reason or (ii) for any other reason, by
giving a Notice of Termination hereunder to the Company. For purposes of this
Agreement, "Good Reason" shall mean the Executive's termination of employment
within six (6) months of a significant change in the nature or scope of the
Executive's authorities or duties from those described in Section 2, a reduction
in total compensation from that provided in Section 4, any transfer requiring
the Executive to relocate from the Houston area, or the breach by the Company of
any other provision of this Agreement.
(d) DEATH. The Executive's employment hereunder shall terminate
upon his death.
(e) DISABILITY. If, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall have been absent from his
duties hereunder on a full-time basis for 180 consecutive days and, within
thirty (30) days after a Notice of Termination (as hereinafter defined) is given
by the Company, the Executive shall not have returned to the performance of his
duties hereunder on a full-time basis, the Company may terminate the Executive's
employment hereunder.
(f) NOTICE OF TERMINATION. Any termination by the Company
pursuant to subparagraphs (a), (b) or (e) above or by the Executive pursuant to
subparagraph (c) above shall be communicated by written Notice of Termination to
the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
(g) DATE OF TERMINATION. Date of Termination shall mean (i) if
the Executive's employment is terminated by his death, the day after his death;
(ii) if the Executive's employment is terminated pursuant to subparagraph (b) or
(e) above, thirty (30) days after Notice of Termination is given (provided that,
in the case of termination under subparagraph (e), the Executive shall not have
returned to the performance of his duties on a full-time basis during such
thirty day period), and (iii) if the Executive's employment is terminated
pursuant to subparagraph (a) or (c) above, the date specified in the Notice of
Termination.
-5-
<PAGE>
6. COMPENSATION UPON TERMINATION.
(a) TERMINATION FOR CAUSE. If the Executive's employment shall
be terminated for Cause, the Company shall pay the Executive the pro rata
portion of his Base Salary earned through the Date of Termination at the rate in
effect at the time Notice of Termination is given, and the Company shall have no
further obligations to the Executive under this Agreement.
(b) TERMINATION BY THE COMPANY OR EXECUTIVE UNDER CERTAIN
CIRCUMSTANCES. If the Company shall terminate the Executive's employment
pursuant to Section 5(b) or 5(e) hereof, or if the Executive shall terminate his
employment for Good Reason under Section 5(c)(i) hereof, the following
provisions shall apply:
(i) The Company shall continue to pay to the Executive
the Base Salary provided for in Section 4(a)(i) hereof at the rate in effect at
the time Notice of Termination is given, for a period of twelve months after the
date that the Notice of Termination is given, less amounts earned during such
period by Executive with respect to other employment.
(ii) With respect to the Company's 401(K) Plan, or any
incentive plan, all rights granted to the Executive shall fully vest and be
exercisable by the Executive to the extent provided by such plan.
(iii) The Executive shall be entitled to participate in and
receive for a period of twelve (12) months after the date that the Notice of
Termination is given (i) benefits under the Company's company-wide employee
benefit plans for medical and dental benefits on a basis consistent with the
terms, conditions and overall administration of such plans, (ii) benefits under
Section 4(b) hereof, in the form provided to the Executive at the date that the
Notice of Termination is given and (iii) reasonable office accommodations.
(c) VOLUNTARY TERMINATION. If the Executive shall terminate his
employment hereunder other than for Good Reason pursuant to Section 4(c)(ii)
hereof, the Company shall pay the Executive, through the Date of Termination,
his full Base Salary at the rate in effect at the time Notice of Termination is
given, and the Company shall have no further obligations to the Executive under
this Agreement.
(d) TERMINATION UPON DEATH. If this Agreement terminates as a
result of the Executive's death, the Company shall pay to the survivors of the
Executive his full Base Salary at the rate in effect at the time of death,
through the date of death.
-6-
<PAGE>
7. CONFIDENTIALITY. The Executive agrees not to divulge,
communicate, use to the detriment of the Company or for the benefit of any other
person or persons, or misuse in any way any confidential or proprietary
information or trade secrets of the Company, including without limitation any
copyrights, ideas, knowledge, trade secrets, know-how, customer lists, cost
information, or technical data arising out of the business of the Company,
without the express written permission of the Company. The Executive agrees
that the remedy at law for any breach by the Executive of the foregoing covenant
will be inadequate, and that the Company shall be entitled to injunctive relief
to restrain the Executive from breaching further any of such covenants.
8. COVENANT NOT TO COMPETE. In order to induce the Company to enter
into this Agreement, the Executive agrees that during the term of his employment
by the Company and for twelve (12) months thereafter he will not, directly or
indirectly, serve as an employee or consultant for, or otherwise engage in or
have any ownership interest in (except for an interest in the Company and except
for the ownership, solely for investment purposes of less than five percent (5%)
of the common stock of a publicly traded company), any person, firm,
corporation, partnership, association, agency or business (whether as a
principal, agent, holder of any equity security or other instrument convertible
into an equity security, employee, consultant or otherwise) that engages in the
United States in any business that is the same as, similar to, or competitive
with the business engaged in by the Company so long as the Company shall engage
in such business, including but not limited to, manufacturing and distribution
of coatings, sealants, polyurethane foam and any future business of the Company.
The parties agree that the period provided for, and the area encompassed, in
this paragraph are necessary and reasonable in order to protect the parties and
the Company in the conduct of the Company's business.
The parties intend that the foregoing covenant shall be construed as a
series of separate covenants, one for each geographic area of the country. If,
in any judicial proceedings, the court shall refuse to enforce any of the
separate covenants with respect to a particular geographic area, then such
unenforceable covenant shall be deemed eliminated to the extent necessary to
permit the remaining separate covenants to be enforced, and the remaining
covenants, to the extent required, shall be modified to preserve their validity.
The parties agree that the remedies at law for any breach by the
Executive of the foregoing covenant will be inadequate, and that the Company
shall be entitled to injunctive relief to restrain the Executive from further
breaching such covenant. Furthermore, in the event the Executive does breach
the foregoing covenant, the Company and Executive agree that the Company shall
have no further obligations to the Executive
-7-
<PAGE>
hereunder and the Executive shall forfeit all rights to any payments or other
benefits to which he would otherwise have been entitled hereunder.
9. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by the voluntary or
involuntary dissolution of the Company or by any merger or consolidation in
which the Company is not the surviving or resulting corporation, or upon any
transfer of all or substantially all of the assets of the Company. In the event
of any such merger, consolidation or transfer of assets, the provisions of this
Agreement shall bind and inure to the benefit of the surviving or resulting
corporation, or the corporation to which such assets shall have been
transferred, as the case may be.
(b) This Agreement and all rights of the Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him hereunder if he had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
10. MISCELLANEOUS.
(a) NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States or registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
-8-
<PAGE>
If to the Executive:
John R. Enright
----------------------------------------
----------------------------------------
If to the Company:
Henry Company
2911 Slauson Avenue
Huntington Park, CA 20255
Attention: Jeffrey A. Wahba
Chief Financial Officer
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
(b) WAIVER. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer or agent as may be
specifically designated by the Board of Directors of the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
(c) GOVERNING LAW. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
Texas.
(d) VALIDITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
-9-
<PAGE>
(f) ENTIRE AGREEMENT. This Agreement embodies the entire
Agreement of the parties respecting the employment of the Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY"
HENRY COMPANY
/s/ Richard B. Gordinier
--------------------------------
By: Richard B. Gordinier
--------------------------------
Its: President
-------------------------------
"EXECUTIVE"
/s/ John R. Enright
-----------------------------------
JOHN R. ENRIGHT
-10-
<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT made and entered into by and
between HENRY COMPANY, a California corporation, hereinafter called "Henry"
or the "Employer," and JAMES F. DOOSE, hereinafter called the "Employee."
RECITALS
A. Employer and Employee have previously entered into an
Employment Agreement dated August 31, 1988 (the "1988 Agreement") with
respect to Employee's employment with Resin Technology, a division of
Employer (the "Division").
B. Employer and Employee now agree to amend, modify and restate
in its entirety the 1988 Agreement to reflect, among other things, Employee's
appointment as President of the Division.
TERMS AND CONDITIONS
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT: The Employer hereby employs the Employee, and the
Employee hereby accepts employment upon the terms and conditions hereinafter
set forth.
2. TERM. The term of the Agreement shall terminate January 1, 2004.
3. COMPENSATION. For all services rendered by the Employee under
this Agreement, the Employee shall accept an annual base compensation for each
fiscal year, payable in accordance with Employer's salary payment policies, at
an annual rate of $209,880.00 for the period from the date hereof through
December 31, 1994, such amount to be increased as of January 1, 1995, and
annually thereafter by a percentage amount equal to the average of (i) any
percentage increases in the Consumer Price Index for all urban Consumers, Los
Angeles-Long Beach-Anaheim during the preceding year and (ii) any percentage
increase in base compensation as a result of Employee's performance during the
preceding year, if any, as determined in the sole discretion of the President of
Henry and the Board of Directors. All reviews of Employee's performance shall
be held at least annually within 10 days of January 1 of each year, commencing
January, 1995.
In addition, the Employee shall be paid bonus compensation in the
amount equal to 2-1/2% of net operating profits of the Division, up to a maximum
of $100,000 per annum, calculated in accordance with generally accepted
accounting principles (and as calculated in accordance with the 1988 Agreement)
before any reduction for federal corporate income taxes and state income taxes,
non-cash reserves and depreciation/amortization of plant and equipment and
expenses and expenses attributable to other divisions of the Employer. Net
operating profits
<PAGE>
shall include any product rebates attributable to this Division. The 2-1/2%
of net operating profits of the Division as defined above shall be paid
annually after a determination of said amount at the end of each fiscal year.
This bonus amount shall be paid within 30 days after the close of the fiscal
year.
The Employee shall also be paid an additional annual bonus
based on Return on Capital Employed ("ROCE") during the preceeding fiscal
year, as calculated in accordance with Exhibit A, up to a maximum of 15% of
Employee's base compensation for such year. The parameters of such bonus
shall be subject to change annually in the sole discretion of the President
of Henry and the Board of Directors. This bonus amount, if any, shall be
paid during the first thirty days after the close of the fiscal year.
Additionally, Employer shall provide, entirely at Employer's
expense, a comprehensive medical, dental, and mental health care benefit
program under the Henry Group of Companies medical benefits plan on a basis
consistent with the terms, conditions and overall administration of such plan
as made generally available to other employees of Employer; provided,
however, that if Employee elects dependent or family coverage, Employee shall
pay no more than $80 per month toward such coverage.
4. DUTIES. The Employee is engaged as President of the Division,
to be directly responsible for all activities of the Division.
5. EXTENT OF SERVICES. The Employee shall devote his best
efforts, attention, and energies to the business of the Employer, and shall
not, during the term of this Agreement, be engaged in any other similar
business activity. This shall not be construed as preventing Employee from
investing his assets, except to the extent that such interests detract from
the performance of all of Employee's duties; provided, however, that in no
event shall Employee directly or indirectly own, manage, operate, control, be
employed by, participate in, or be connected in any manner with the
ownership, management, operation, or control of any business similar to the
type of business conducted by the Employer or its affiliates, at any time
during the term of this Agreement.
6. DISCLOSURE OF INFORMATION. Employee recognizes and
acknowledges that a list of the Employer's customers or clients, as it may
exist from time to time, and the names of customers' employers and addresses
thereof are valuable, special, and unique assets of the Employer's business.
Employee will not, during the term of his employment or at any time
thereafter, disclose or in any way whatsoever use the Employer's customers,
or any part thereof, for any separate business, interest, or personal gain;
or disclose any or all of the said customers' and candidates' names and
addresses, or either of them to any person, firm, corporation, association,
or other entity whatsoever, for any reason or purpose.
In the event of a breach, or threatened breach, of the
provisions of this paragraph by the Employee, the Employer shall be entitled
to an injunction restraining the Employee from disclosing, in whole or in
part, the list of the Employer's customers, and any or all of the clients'
names and/or either of them, or from rendering any services to any such
person, client, firm, association, or other entity to whom such information,
in whole or in part, has been
-2-
<PAGE>
disclosed or threatened to be disclosed. Nothing herein contained shall be
construed as prohibiting the Employer from pursuing any other remedies
available to the Employer for such breach or threatened breach, including the
recovery of damages from the Employee.
7. EXPENSES. The Employee is authorized to incur reasonable
expenses for promoting the business of the Employer including expenses for
entertainment, travel, and similar items. The employer will reimburse the
Employee for all such expenses upon the presentation by the Employee, from
time to time, of an itemized account of such expenditures.
The parties hereto acknowledge that an automobile is required
by the Employee for the ordinary discharge of his duties pursuant to the
Agreement. For this purpose the Employer shall provide an automobile for the
use by the Employee of a quality commensurate with the office and state of
the Employee to be used only within the course and scope of the Employer's
business and pursuant to the discharge of the duties of this Agreement, and
in addition to pay any expenses associated with the driving, ownership and
maintenance of said vehicle within said course and scope. The Employer may
at its direction discharge its obligation with regard to the provision of an
automobile and associated expenses pursuant to this paragraph by the payment
on a monthly basis of an automobile reimbursement expense allowance, the
amount of which is to be negotiated from time to time between the Employee
and the Board of Directors of the Employer.
8. VACATIONS. The Employee shall be entitled each year to a
vacation of not less than two weeks after one year of service, three weeks
after five years of service, four weeks after ten years of service, and five
weeks after twenty years of service, during which time his compensation shall
be paid in full. Fur purposes of this paragraph, the Employee's years of
service shall include all such years from and after April 1, 1982.
9. DISABILITY. If the Employee is unable to perform his services
by reason of illness or incapacity for a period of more than six months, the
compensation otherwise payable to him during the continued period of such
illness or incapacity after such six months shall be reduced by 25%;
provided, however, that the aforementioned 2-1/2% of net operating profits
shall continue to be paid to the Employee and shall not be reduced as a
result of said illness or incapacity for a period of one year (including said
six months). In the event the Employee is unable to return to work after one
year of illness, his compensation shall stay in force at 75% of his
established compensation level for one (1) additional year, after which no
further compensation shall be payable to Employee hereunder. The 2-1/2%
compensation for net operating profits shall be discontinued following the
first year of disability. The Employee's full compensation shall be
reinstated upon his return to employment and the discharge of his full duties
hereunder.
10. TERMINATION. the Employer may terminate this Agreement at any
time by written notice to the Employee. In such event, and unless the
Employee is terminated for cause, the Employee shall be paid on the date of
termination a severance amount equal to the base compensation due for the
remaining term hereof at the full base compensation rate set forth in
Paragraph 3 above, excluding the 2-1/2% of net operating profits. The
Employee may terminate this Agreement upon ninety (90) days written notice to
the Employer. In such event, the
-3-
<PAGE>
Employee shall continue to render his services and shall be paid his regular
compensation up to the date of termination, but no severance allowance shall
be due or paid to him.
11. DEATH DURING EMPLOYMENT. If the Employee dies during the term
of this employment, the Employer shall pay to the estate of the Employee the
compensation which would otherwise be payable to the Employee up to the date
of death, including a pro rata portion of the aforementioned 2-1/2% of net
operating profits for that part of the Employer's fiscal year prior to the
date of Employee's death. In addition, the Employer shall pay a sum
equivalent to one year of full pay as a lump sum death benefit within thirty
(30) days after the death of the Employee, to the widow of the Employee or,
if Employee is not then survived by such widow, to the Employee's estate;
provided, however, that if a life insurance policy is in force with respect
to the life of Employee at the time of death, such lump sum payment shall be
paid and funded from the proceeds of such policy, but in no event shall such
sum be an amount less than one year of full pay. No provision herein shall
replace or supplement any other executive life insurance benefit plan to
which Employee is entitled by virtue of his executive employment status.
12. RESTRICTIVE COVENANT. If the Employee's employment with the
Employer is terminated for any reason, then for a period of two years after
said event, the Employee will not, within a radius of 500 miles from any then
existing place of business of the Employer or any of its affiliates, directly
or indirectly, own, manage, operate, control, be employed by, participate in,
or be connected in any manner with the ownership, management, operating, or
control of any business similar to the type of business conducted by the
Employer or any of its affiliates, at the time of termination. In the event
of an actual or threatened breach by the Employee of the provisions of this
paragraph, the Employer shall be entitled to an injunction restraining the
Employee from owning, managing, operating, controlling, being employed by,
participating in, or being in any way so connected with any business similar
to the type of business conducted by the Employer or any of its affiliates,
at the time of termination of this Agreement. Nothing herein stated shall be
construed as prohibiting the Employer from pursuing any other remedies
available to the Employer for such breach or threatened breach, including the
recovery of damages from the Employee.
13. LIFE INSURANCE. The Employer may in its discretion at any
time after the execution of this Agreement apply for and procure as owner and
for its own benefit insurance on the life of the Employee, in such amounts
and in such form or forms as the Employer may choose. The Employee shall
have no interest whatsoever in any such policy or policies, but he shall, at
the request of the Employer, submit to such medical examinations, supply such
information, and execute such documents as may be required by the insurance
company or companies to whom the Employer has applied for such insurance.
Upon termination of this Agreement, insurance policies on the life of the
Employee shall be transferred to the Employee and premiums paid to the date
of transfer shall be borne by the Employer. Premiums to maintain the
insurance upon termination shall be borne by the Employee immediately upon
the date of termination.
14. NOTICES. Any notices required or permitted to be given under
this Agreement shall be sufficient, if in writing and if sent by registered mail
to his residence, in the case of the Employee, or to its principal office at
2911 Slauson Avenue, Huntington Park,
-4-
<PAGE>
California 90255, in the case of the Employer.
15. WAIVER OF BREACH, COSTS. The waiver by any party of a breach
of any provision of this Agreement by the other shall not operate or be
construed as waiver of any subsequent breach by the other. In the event of
any legal action arising out of any breach of any provision of this
Agreement, the breaching party shall pay all reasonable costs of such action,
including attorney fees, which are attributable to such breach or the
enforcement of this Agreement.
16. ASSIGNMENT. The rights and obligations of the Employer under
this Agreement shall inure to the benefit of, and shall be binding upon, the
successors and assigns of Employer.
17. HOLIDAYS. Employee shall be entitled to time off work with
pay for eleven holidays each year. Any additional days off during the year,
leaves of absence, etc., shall be in accordance with the Employer's policy.
18. ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties. It may not be changed orally, but only by an
agreement n writing, signed by the party against whom enforcement of any
waiver, change, modification, or extension of discharge is sought.
19. SEVERABILITY. If any portion, phrase, or any other party or
portion whatsoever of this Agreement shall be declared or held illegal, void,
voidable, or unenforceable, the remaining portions of this Agreement shall
continue to be valid and remain in full force and effect.
NOW, IN WITNESS WHEREOF, the parties have executed and entered into
this Agreement on the 27th day of May, 1994.
EMPLOYER:
HENRY COMPANY
By: /s/ Richard B. Gordinier
-----------------------------
Richard B. Gordinier
President
EMPLOYEE:
/s/ James F. Doose
-----------------------------
James F. Doose
-5-
<PAGE>
INCENTIVE COMPENSATION AGREEMENT
THIS INCENTIVE COMPENSATION AGREEMENT ("Agreement") is made and entered
into this lst day of August 1994 by and between HENRY COMPANY, a California
corporation which has its principal executive offices located in Los Angeles
California ("Company"), and JEFFREY A. WAHBA, an individual ("Employee").
RECITALS
A. The Company and the Employee are parties to an Incentive Share
Agreement dated as of December 22, 1988 ("Incentive Share Agreement") and now
desire to amend and restate such agreement in its entirety.
B. The Company and the Employee desire to enter into this Agreement
for the purpose of providing a substantial incentive for the Employee to
exert high levels of performance and/or unusual efforts to increase the
earnings of the Divisions and to contribute to the long-term success of the
Divisions.
TERMS AND CONDITIONS
NOW THEREFORE, in consideration of the foregoing recitals and the
covenants, agreements, representations and warranties set forth herein, the
parties hereto agree as follows:
1. DEFINITIONS. In addition to the terms defined elsewhere herein,
the following terms shall have the following meanings when used in this
Agreement, unless the context clearly requires otherwise:
1.1 BENEFICIARY. 'The term "Beneficiary" shall mean the person or
persons designated by the Employee in a writing delivered to the Company to
receive any payments otherwise due the Employee under this Agreement in the
event of the Employee's death while employed by the Company or in the event
of the Employee's death after the Employee's Termination Date but before all
payments otherwise due the Employee under this Agreement shall have been
paid. The Employee shall be entitled to change his Beneficiary from time to
time; provided, however, that any such change shall not become effective
until actually received by the Company in writing from the Employee.
<PAGE>
1.2 DIVISIONS. The term "Division" shall mean each of the K.T.
Snyder Company, Resin Technology and GEO Industries divisions of the Company.
1.3 OPERATING PROFIT. The term "Operating Profit" shall mean each
Division's Operating Profit as reflected (i) on the Division's
internally-prepared financial statements prepared in accordance with
generally accepted accounting principles consistently applied or (ii) in the
event the Company has prepared audited financial statements for the Division,
on such audited financial statements if as of a Termination Date. In the
absence of manifest error or the Company's lack of good faith in preparing
each Division's financial statements. such Division's Operating Profit as of
any date in question as reflected on the Division's internally-prepared
financial statements as of such date shall be binding upon both the Company
and the Employee.
1.4 STARTING DATE VALUE. The term "Starting Date Value" for each
Division shall mean the Book Value of each Division as set forth on Schedule
A hereto.
1.5 TERMINATION Date. The term "Termination Date" shall mean the
date (i) that the Employee's employment with the Company is terminated by
reason of: (i) the Employee's death, total disability, retirement, voluntary
termination, involuntary termination or any other reason; (ii) of the
Company's liquidation or other cessation of business operations, (iii) of the
sale or transfer of all or substantially all of the Company's assets to, or
its merger or consolidation with, any person other than Warner H. Henry or
any entity in which Warner H. Henry does not have at least 51 % of the voting
power or (iv) of the sale or transfer of the equity interests of the Company
to any person other than Warner H. Henry or any entity in which Warner H.
Henry does not have at least 51 % of the voting power (excluding any transfer
to the estate or heirs of Warner H. Henry).
2. EMPLOYEE'S ENTITLEMENT TO DEFERRED COMPENSATION BENEFITS. In
consideration of the Employee's employment, the Company hereby agrees that
upon the Termination Date the Employee shall be entitled to receive, as
additional consideration for his managerial efforts to be exerted on behalf
of the Company, a "Deferred Benefit Amount."
<PAGE>
With respect to the Resin Technology division, the Deferred Benefit
Amount shall be an amount equal to two and one-half percent (2.5%) of the
division's cumulative Operating Profit from September 1, 1988 through the end
of the month immediately preceding the Employee's Termination Date.
With respect to the K. T. Snyder division, the Deferred Benefit
Amount shall be an amount equal to two and one-half percent (2.5%) of such
division's cumulative Operating Profit from September 20, 1990 through
December 31, 1993, and three percent (3%) of such division's cumulative
Operating Profit for the period from December 31, 1993 through the end of the
month immediately preceding the Employee's Termination Date.
The parties agree that Deferred Benefit Amount with respect to the
GEO Industries division shall be and remain fixed at $3,550.
3. PAYMENT OF DEFERRED COMPENSATION BENEFITS.
3.1 PAYMENT TERMS.
(a) If the Deferred Benefit Amount due the Employee is equal
to or less than $200,000, the Company shall pay the Employee or his
Beneficiary, as the case may be, the entire amount due in cash within no more
than 30 days following the Employee's Termination Date.
(b) If such amount exceeds $200.000, the Company shall pay
the Employee or his Beneficiary, as the case may be, the sum of $200,000
within no more than 30 days following the Employee's Termination Date, and
shall pay the excess of such aggregate amount over $200,000, without
interest. to the Employee or his Beneficiary, as the case may be, in three
substantially equal annual installments commencing on the date which is one
year and three months after the Employee's Termination Date and continuing on
the same day of each year thereafter for the next two years or until the
excess of such aggregate amount over $50,000 shall have been paid in full;
provided, however, that the minimum payment in any year shall be $50,000 or
the balance owing, whichever is less.
3.2 RIGHT TO ACCELERATE. Notwithstanding the foregoing
provisions, the Company may, in its sole and absolute discretion, accelerate
the payment of the Deferred Benefit Amount under this Agreement to the
Employee or his Beneficiary, as the case may be, in the event of the
Employee's death or total disability.
-3-
<PAGE>
3.3 WITHHOLDING. Under all circumstances, the Company shall be
entitled to deduct all federal, state and local taxes required to be withheld
by it under applicable law from any benefits otherwise payable hereunder to
the Employee or his Beneficiary, as the case may be.
3.4 VESTING. Anything to the contrary herein notwithstanding,
Employee's entitlement to the Deferred Benefit Amount payable hereunder with
respect to each Division shall vest at the rate of twenty-five percent (25%)
per year for each year from September 20, 1990 for KT Snyder Company,
November 1, 1988 for GEO Industries and September 1, 1988 for Resin
Technology, respectively, and shall be fully vested following the end of the
fourth year of such respective years. There is no partial vesting for any
period of less than a full year.
3.5 PAYMENT OF PORTIONS OF DEFERRED BENEFIT AMOUNT. Commencing
one month after the Company's fiscal year ending December 31, 1993, the
Company shall pay Employee twenty-five percent (25%) of the Deferred Benefit
Amount the Employee would have received had the Termination Date occurred as
of the end of such fiscal year.
Within one month of the end of each of the Company's succeeding
fiscal years, the Company shall notify Employee of the Deferred Benefit
Amount the Employee would have received had the Termination Date occurred as
of the end of such fiscal year. If the Employee, as of such date, had been
paid an amount equal to less than 25 % of such Deferred Benefit Amount, the
Company shall pay Employee an amount equal to the difference between such
Deferred Benefit Amount and the aggregate amount previously paid.
To the extent Employee is paid a portion of the Deferred Benefit
Amount pursuant to this Section 3.5, such amounts shall be offset against the
amounts otherwise payable pursuant to Sections 2, 3 and 4 hereof.
4. SALE OF DIVISION. In the event the Company sells all or
substantially all of the assets of a Division (a "Sale"), while the Employee
is employed by the Company, the Company shall terminate this Agreement as to
such Division, and the Employee's interest hereunder, in which event the
Employee will be entitled to receive, in cash, the amount equal to the
greater of (i) the Deferred Benefit Amount as of the end of the month
preceding the Sale or (ii) an amount equal to two and one-half percent
(2-1/2%) of the amount, if any, by which the "Sale Value" of Resin
Technology, or three percent (3%) of the amount, if any, by which the Sale
Value of K.T. Snyder Company,
-4-
<PAGE>
exceeds the Starting Date Value of such Division, as the case may be,
irrespective of any vesting requirements. Notwithstanding the foregoing, if,
at the time of Sale of a division, any remaining division has a negative
cumulative Operating Profit for the periods referenced in paragraph 2 hereof,
the amounts payable under the preceding sentence shall be reduced by such
negative amount and the cumulative Operating Profit of each such division
shall be increased to zero.
For purposes of this paragraph 4, "Sale Value" shall mean the
amount of the cash and non-cash proceeds received upon the sale of the
Division. In computing Sale Value, proceeds shall be reduced by all expenses
incurred in effecting such Sale, including but not limited to the fees and
expenses incurred in employing brokers, investment bankers, appraisers,
attorneys and accountants and if sales proceeds consist of non-cash
consideration (for example, notes or stock), the value of such non-cash
consideration shall be agreed to by the Company and the Employee; if the
Company and the Employee do not agree as to such value, the value of the
non-cash consideration shall be determined by a third party arbitrator
acceptable to both the Company and the Employee. (Regardless of the value of
such non-cash consideration, the Company may elect to pay the Employee the
cash equivalent of such non-cash consideration or pay to the Employee, in
kind, the non-cash consideration, when, as and if paid to the Company.)
All cash and non-cash consideration shall be paid within 30 days of
the Sale.
The Sale of a Division does not constitute a liquidation or
cessation of the Company's business pursuant to Section 1.5 hereof.
5. RIGHT OF COMPANY TO TERMINATE EMPLOYMENT.
Nothing contained in this Agreement shall confer upon the Employee
any right to be continued in the employ of the Company or shall interfere in
any way with the right of the Company to terminate the employment of the
Employee.
6. NONALIENATION OF BENEFITS. No right or benefit under this
Agreement shall be subject to anticipation, alienation, sale, assignment,
pledge, encumbrance or charge by the Employee, and any attempt to anticipate,
alienate, sell, assign, pledge, encumber or charge the same shall be null and
void. No right or benefit under this Agreement shall in any manner be liable
for or subject to the debts contracts, liabilities or torts of the Employee
or
-5-
<PAGE>
his Beneficiary, as the case may be. If the Employee or any Beneficiary
hereunder shall become bankrupt or attempt to anticipate, alienate, sell,
assign, pledge, encumber or charge any right or benefit hereunder, then such
right or benefit shall, in the sole and absolute discretion of the Company,
cease and terminate and, in such event, the Company may hold or apply the
same or any part thereof to the benefit of such Employee or Beneficiary in
such manner and in such proportion as the Company may deem proper in its sole
and absolute discretion.
7. GENERAL PROVISIONS.
7.1 NOTICES. All notices or other written communication required or
permitted to be given by this Agreement shall be deemed given if personally
delivered or two days after it has been sent (the date of posting shall be
considered as the first day and there shall be excluded any Sundays, legal
holidays or other days upon which the United States mail generally is not
delivered) by United States registered or certified mail, postage prepaid,
properly addressed to the party to receive the notice at the following address
or at any other address given to the other party in the manner provided by this
Section 7. 1:
If to the Company: Henry Company
2911 Slauson Avenue
Huntington Park. CA 90255
Attn: Richard A. Gordinier
If to the Employee: Jeffrey A. Wahba
3105 Poinsettia Avenue
Manhattan Beach. CA 90266
7.2 SEVERABILITY. If any provision or part of any provision of
this Agreement is determined to be invalid or unenforceable, the provision or
part thereof shall be deemed to be severable from the remainder of this
Agreement and shall not cause the invalidity or unenforceability of the
remainder of this Agreement and the remainder of this Agreement shall be
interpreted as if such provision or part thereof were so excluded and shall
be enforceable in accordance with its terms.
7.3 ASSIGNMENT. The parties acknowledge that this Agreement
constitutes a personal contract with the Employee. The Employee may not
transfer, assign or delegate any of his rights, duties or obligations
hereunder without the prior written consent of the Company. Subject to the
foregoing,
-6-
<PAGE>
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their heirs, personal representatives, successors and
assigns.
7.4 NO IMPLIED WAIVERS. The failure of either party at any time
to require performance by the other party of any provision hereof shall not
affect in any way the right to require such performance at any later time nor
shall the waiver by either party of a breach of any provision hereof be taken
or held to be a waiver.
7.5 GOVERNING LAW. This Agreement has been entered into in the
State of California and all questions with respect to the construction of
this Agreement and the rights and liabilities of the parties shall be
governed by and construed and interpreted in the State of California.
7.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original. but all of which
together shall constitute one and the same instrument.
7.7 CAPTIONS. The captions of the sections and subsections of
this Agreement are included for reference purposes only and are not intended
to be a part of the Agreement or in any way to define. limit or describe the
scope or intent of the particular provision to which they refer.
7.8 ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the
entire understanding between the parties hereto with respect to the subject
matter hereof and supersede any and all prior and contemporaneous written or
oral negotiations and agreements between them regarding the subject matter
hereof. This Agreement may be amended only in a writing signed by both of the
parties.
8. UNSECURED OBLIGATION. The Employee will not, by virtue of this
Agreement, have any interest in any fund or specific assets of the Company.
No trust fund will be created in connection with this Agreement and there
shall be no required funding of amounts which may become payable to Employee
hereunder.
9. AMENDED AGREEMENT. This Agreement amends and restates in its
entirety the Incentive Share Agreement and all provisions of this Agreement
supersede all provisions of the Incentive Share Agreement.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above mentioned.
"Company"
HENRY COMPANY
/s/ Richard B. Gordinier
-----------------------------
By: Richard B. Gordinier
-----------------------------
Its: President
-----------------------------
"Employee"
/s/ Jeffrey A. Wahba
--------------------------------
JEFFREY A. WAHBA
-9-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Specified Division Book Value
------------------ ----------
<S> <C>
Resin Technology $1,899,704
GEO Industries $ 105,633
K.T. Snyder Company $1,880,100
</TABLE>
-9-
<PAGE>
INCENTIVE COMPENSATION AGREEMENT
THIS INCENTIVE COMPENSATION AGREEMENT ("Agreement") is made and entered
into this 1st day of July 1993 by and between HENRY COMPANY, a California
corporation which has its principal executive offices located in Los Angeles
California ("Company"), and JOHN R. ENRIGHT, an individual ("Employee").
RECITALS
A. The Company and the Employee are parties to an Employment Agreement (as
hereinafter defined) pursuant to which the Company has hired the Employee to act
as President of the Division (as hereinafter defined).
B. The Company and the Employee desire to enter into this Agreement for the
purpose of providing a substantial incentive for the Employee to exert high
levels of performance and/or unusual efforts to increase the earnings of the
Division and to contribute to the long-terms success of the Division.
TERMS AND CONDITIONS
NOW THEREFORE, in consideration of the foregoing recitals and the
covenants, agreements representations and warranties set forth herein, the
parties hereto agree as follows:
1. DEFINITIONS. In addition to the terms defined elsewhere herein,
the following terms shall have the following meanings when used in this
Agreement, unless the context clearly requires otherwise:
1.1 BENEFICIARY. The term "Beneficiary" shall mean the person or
persons designated by the Employee in a writing delivered to the Company to
receive any payments otherwise due the Employee under this Agreement in the
event of the Employee's death while employed by the Company or in the event
of the Employee's death after the Employee's Termination Date but before all
payments otherwise due the Employee under this Agreement shall have been
paid. The Employee shall be entitled to change his Beneficiary from time to
time; provided, however, that any such change shall not become effective
until actually received by the Company in writing from the Employee.
1.2 DIVISION. The term "Division" shall mean the K.T. Snyder
Company, a division of the Company.
1.3 EMPLOYMENT AGREEMENT. The term "Employment Agreement" shall
mean that certain Employment Agreement of even date herewith, between the
Company and the Employee.
<PAGE>
1.4 NET BOOK VALUE. The term "Net Book Value" shall mean the
Division's shareholder's equity as of any date in question as reflected on
the Division's internally-prepared financial statements prepared in
accordance with generally accepted accounting principles consistently applied
and under the assumptions that: (i) all net working capital or other
advances by the Company to the Division are accounted for as loans by the
Company to the Division bearing interest on unpaid principal at the same
fluctuating rate as the Company pays from time to time to its institutional
lender for its borrowings; (ii) all net advances by the Division to the
Company are accounted for as interest-free loans by the Division to the
Company; and (iii) all of the Division's pre-tax income during any fiscal
period in question is subject to federal, state and local income taxation at
the then applicable rates for corporations which have not elected "S
Corporation" status under the Internal Revenue Code of 1986, as amended, and
any similar state or local income tax laws. In the absence of manifest error
or the Company's lack of good faith in preparing the Division's financial
statements, the Division's Net Book Value as of any date in question as
reflected on the Division's internally-prepared financial statements as of
such date shall be binding upon both the Company and the Employee.
1.5 STARTING DATE VALUE. The term "Starting Date Value" shall
mean the Division's Net Book Value as of July 1, 1993.
1.6 TERMINATION DATE. The term "Termination Date" shall mean the
date that the Employee's employment with the Division is terminated by reason
of: (i) the Employee's death, total disability, retirement, voluntary
termination, involuntary termination or any other reason; or (ii) the
Division's liquidation or other cessation of business operations.
1.7 TERMINATION DATE VALUE. The term "Termination Date Value"
shall mean the Division's Net Book Value as of the end of the month
immediately preceding the Employee's Termination Date.
2. EMPLOYEE'S ENTITLEMENT TO DEFERRED COMPENSATION BENEFITS. In
further consideration of the Employee's execution and delivery of the
Employment Agreement, the Company hereby agrees that the Employee shall be
entitled to receive, as additional consideration for his managerial efforts
to be exerted on behalf of the Division, an amount equal to five percent (5%)
of the amount, if any, by which the Termination Date Value of the Division
exceeds the Starting Date Value of the Division (THE "DEFERRED BENEFIT
AMOUNT"), subject to the provisions of Section 3 hereof.
2
<PAGE>
3. PAYMENT OF DEFERRED COMPENSATION BENEFITS.
3.1 PAYMENT TERMS.
(a) If the Deferred Benefit Amount due the Employee is equal
to or less than $50,000, the Company shall pay the Employee or his
Beneficiary, as the case may be, the entire amount due in cash within no more
than 90 days following the Employee's Termination Date.
(b) If such amount exceeds $50,000, the Company shall pay the
Employee or his Beneficiary, as the case may be, the sum of $50,000 within no
more than 90 days following the Employee's Termination Date, and shall pay
the excess of such aggregate amount over $50,000, without interest, to the
Employee or his Beneficiary, as the case may be, in three substantially equal
annual installments commencing on the date which is one year and three months
after the Employee's Termination Date and continuing on the same day of each
year thereafter for the next two years or until the excess of such aggregate
amount over $50,000 shall have been paid in full; provided, however, that the
minimum payment in any year shall be $50,000 or the balance owing, whichever
is less.
3.2 RIGHT TO ACCELERATE. Notwithstanding the foregoing
provisions, the Company may, in its sole and absolute discretion, accelerate
the payment of the Deferred Benefit Amount under this Agreement to the
Employee or his Beneficiary, as the case may be, in the event of the
Employee's death or total disability.
3.3 WITHHOLDING. Under all circumstances, the Company shall be
entitled to deduct all federal, state and local taxes required to be withheld
by it under applicable law from any benefits otherwise payable hereunder to
the Employee or his Beneficiary, as the case may be.
3.4 VESTING. Anything to the contrary herein notwithstanding,
Employee's entitlement to the Deferred Benefit Amount payable hereunder shall
vest at the rate of twenty-five (25%) per year for each year of Employee's
employment by the Division, and shall be fully vested following the end of
the fourth year of such employment. By way of example of the forgoing, in
the event that Employee ceases to be an employee of the Company after three
years, Employee shall be entitled to receive seventy-five percent (75%) of
the total Deferred Benefit Amount provided for herein. There is no partial
vesting for any period of employment less than a full year.
3.5 PAYMENT OF PORTIONS OF DEFERRED BENEFIT AMOUNT. Commencing
one month after the Company's first fiscal year ending after July 1, 1997
(assuming Employee is employed by the Division at that time), the Company
shall pay Employee twenty-five percent (25%) of the Deferred Benefit Amount
the Employee would have
3
<PAGE>
received had the Termination Date occurred as of the end of such immediately
preceding fiscal year.
Within one month of the end of each of the Company's succeeding
fiscal years, the Company shall notify Employee of the Deferred Benefit
Amount the Employee would have received had the Termination Date occurred as
of the end of such fiscal year. If the Employee, as of such date, had been
paid an amount equal to less than 25% of such Deferred Benefit Amount, the
Company shall pay Employee an amount equal to the difference between such
Deferred Benefit Amount and the aggregate amount previously paid.
To the extent Employee is paid a portion of the Deferred Benefit
Amount pursuant to this Section 3.5, such amounts shall be offset against the
Deferred Benefit Amount otherwise payable pursuant to Sections 2 and 3 hereof.
4. SALE OF DIVISION. In the event the Company sells all or
substantially all of the assets of the Division (a "Sale"), while the
Employee is employed by the Division, the Company shall terminate this
Agreement, and the Employee's interest hereunder, in which event the Employee
will be entitled to receive, in cash, the amount equal to the greater of (i)
the Deferred Benefit Amount as of the end of the month preceding the Sale or
(ii) an amount equal to five percent (5%) of the amount, if any, by which the
"Sale Value" of the Division exceeds the Starting Date Value of the Division
irrespective of any vesting requirements. For purposes of this paragraph 4,
"Sale Value" shall mean the amount of the cash and non-cash proceeds received
upon the sale of the Division. In computing Sale Value, proceeds shall be
reduced by all expenses incurred in effecting such Sale, including but not
limited to the fees and expenses incurred in employing brokers, investment
bankers, appraisers, attorneys and accountants and if sales proceeds consist
of non-cash consideration (for example, notes or stock), the value of such
non-cash consideration shall be agreed to by the Company and the Employee; if
the Company and the Employee do not agree as to such value, the value of the
non-cash consideration shall be determined by a third party arbitrator
acceptable to both the Company and the Employee. (Regardless of the value of
such non-cash consideration, the Company may elect to pay the Employee the
cash equivalent of such non-cash consideration or pay to the Employee, in
kind, the non-cash consideration, when, as and if paid to the Company.) The
Sale of the Division does not constitute a liquidation or cessation of the
Division's business pursuant to Section 1.6 hereof.
5. RIGHT OF COMPANY TO TERMINATE EMPLOYMENT.
(a) Nothing contained in this Agreement shall confer upon the
Employee any right to be continued in the employ of the Company or shall
interfere in any way with the right of the Company to terminate the
employment of the Employee pursuant to the applicable provisions of the
Employment Agreement.
4
<PAGE>
(b) Notwithstanding anything to the contrary contained herein, no
Deferred Benefit Amount nor Sale Value shall be paid if the Employee is
terminated by the Company for "Cause" within the meaning of Employee's
Employment Agreement.
6. NONALIENATION OF BENEFITS. No right or benefit under this
Agreement shall be subject to anticipation, alienation, sale, assignment,
pledge, encumbrance or charge by the Employee, and any attempt to anticipate
alienate, sell, assign, pledge, encumber or charge the same shall be null and
void. No right or benefit under this Agreement shall in any manner be liable
for or subject to the debts contracts, liabilities or torts of the Employee
or his Beneficiary, as the case may be. If the Employee or any Beneficiary
hereunder shall become bankrupt or attempt to anticipate, alienate, sell,
assign, pledge, encumber or charge any right or benefit hereunder, then such
right or benefit shall, in the sole and absolute discretion of the Company,
cease and terminate and, in such event, the Company may hold or apply the
same or any part thereof to the benefit of such Employee or Beneficiary in
such manner and in such proportion as the Company may deem proper in its sole
and absolute discretion.
7. GENERAL PROVISIONS.
7.1 NOTICES. All notices or other written communication required
or permitted to be given by this Agreement shall be deemed given if
personally delivered or two days after it has been sent (the date of posting
shall be considered as the first day and there shall be excluded any Sundays,
legal holidays or other days upon which the United States mail generally is
not delivered) by United States registered or certified mail, postage
prepaid, properly addressed to the party to receive the notice at the
following address or at any other address given to the other party in the
manner provided by this Section 7.1:
If to the Company: Henry Company
2911 Slauson Avenue
Huntington Park, CA 90255
Attn: Jeffrey A. Wahba,
Chief Financial Officer
If to the Employee: John R. Enright
___________________________
___________________________
___________________________
7.2 SEVERABILITY. If any provision or part of any provision of
this Agreement is determined to be invalid or unenforceable, the provision or
part thereof shall be deemed to be severable from the remainder of this
Agreement and shall not cause the invalidity or unenforceability of the
remainder of hits Agreement and the remainder of this Agreement shall be
5
<PAGE>
interpreted as if such provision or part thereof were so excluded and shall
be enforceable in accordance with its terms.
7.3 ASSIGNMENT. The parties acknowledge that this Agreement
constitutes a personal contract with the Employee. The Employee may not
transfer, assign or delegate any of his rights, duties or obligations
hereunder without the prior written consent of the Company. Subject to the
foregoing, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their heirs, personal representatives,
successors and assigns.
7.4 NO IMPLIED WAIVERS. The failure of either party at any time
to require performance by the other party of any provision hereof shall not
affect in any way the right to require such performance at any later time nor
shall the waiver by either party of a breach of any provision hereof be taken
or held to be a waiver
7.5 GOVERNING LAW. This Agreement has been entered into in the
State of Texas and all questions with respect to the construction of this
Agreement and the rights and liabilities of the parties shall be governed by
and construed and interpreted in the State of Texas.
7.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.7 CAPTIONS. The captions of the sections and subsections of
this Agreement are included for reference purposes only and are not intended
to be a part of the Agreement or in any way to define, limit or describe the
scope or intent of the particular provision to which they refer.
7.8 ENTIRE AGREEMENT; AMENDMENT.
This Agreement and the Employment Agreement contain the entire
understanding between the parties hereto with respect to the subject matter
hereof and supersede any and all prior and contemporaneous written or oral
negotiations and agreements between them regarding the subject matter hereof.
This Agreement may be amended only in a writing signed by both of the parties.
6
<PAGE>
8. UNSECURED OBLIGATION. The Employee will not, by virtue of this
Agreement, have any interest in any fund or specific assets of the Company.
No trust fund will be created in connection with this Agreement and there
shall be no required funding of amounts which may become payable to Employee
hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above mentioned.
"Company"
HENRY COMPANY
/s/ Richard B. Gordinier
-----------------------------
By: Richard B. Gordinier
-----------------------------
Its: President
-----------------------------
"Employee"
/s/ John R. Enright
--------------------------------
JOHN R. ENRIGHT
7
<PAGE>
NONCOMPETITION AGREEMENT
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is made as of February
27, 1998, by and between Henry Company, a California corporation("Henry"),
and James F. C. Stewart ("Executive") a Principal Executive and Shareholder
of Monsey Products Co., a Pennsylvania corporation (Monsey Products Co.,
together with its subsidiaries, the "Company").
The parties, intending to be legally bound, agree as follows:
ARTICLE 1.
ACKNOWLEDGMENTS BY EXECUTIVE
Executive acknowledges that (a) Executive has occupied a position of
trust and confidence with the Company prior to the date hereof, is highly
knowledgeable with respect to the business of the Company, and has become
familiar with the following, any and all of which constitute confidential
information of the Company, (collectively the "Confidential Information"):
(i) any and all trade secrets concerning the business and affairs of the
Company, product specifications, data, know-how, formulae, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples,
inventions and ideas, past, current and planned research and development,
current and planned manufacturing and distribution methods and processes,
customer lists, current and anticipated customer requirements, price lists,
market studies, business plans, computer software and programs (including
object code and source code), computer software and database technologies,
systems, structures and architectures (and related processes, formulae,
compositions, improvements, devices, know-how, inventions, discoveries,
concepts, ideas, designs, methods and information, of the Company and any
other information, however documented, of the Company that may constitute a
trade secret unde applicable; (ii) any and all information concerning the
business and affairs of the Company (including historical financial
statements, financial projections and budgets, historical and projected
sales, capital spending budgets and plans, the names and backgrounds of key
personnel, personnel training and techniques and materials, however
documented; and (iii) any and all notes, analysis, studies and other material
prepared by or for the Company containing or based, in whole or in part, on
any information included in the foregoing; (b) the business of the Company is
international in scope; (c) its products and services are marketed throughout
the United States and Canada; (d) the Company competes with other businesses
that are or could be located in any part of the United States or Canada; (e)
the provisions of Sections 2 and 3 of this Agreement are reasonable and
necessary to protect and preserve the Company' business, and (g) the Company
would be irreparably damaged if Executive were to breach the covenants set
forth in Sections 2 and 3 of this Agreement.
-1-
<PAGE>
ARTICLE 2.
CONFIDENTIAL INFORMATION
Executive acknowledges and agrees that all Confidential Information
known or obtained by Executive, whether before or after the date hereof, is
the property of the Company. Therefore, Executive agrees that Executive will
not, at any time, disclose to any unauthorized Persons or use for his own
account or for the benefit of any third party any Confidential Information,
whether Executive has such information in Executives' memory or embodied in
writing or other physical form, without Henry's written consent, unless and
to the extent that the Confidential Information is or becomes generally known
to and available for use by the public other than as a result of Executives'
fault or the fault of any other Person bound by a duty of confidentiality to
Henry or the Company.
ARTICLE 3.
NONCOMPETITION
For the consideration to be under this Agreement, Executive agrees that:
(1) For a period of ten (10) years from the date hereon (the "Period");
(a) Executive will not, directly or indirectly, engage or invest
in, own, manage, operate, finance, control, or participate in the ownership,
management, operation, financing, or control of, be employed by, associated
with, or in any manner connected with, lend Executives' name or any similar
name to, or render services or advice to, any business whose products or
activities compete in whole or in part with the products or activities of the
Company, which business is the manufacture and sale of building envelope
systems and related products, modified bitumen (roofing and building
materials and compounds), industrial emulsions, roof and driveway coatings
and cement, and paving sealers, provided, however, that Executive may
purchase or otherwise acquire up to (but not more than) five percent (5%) of
any class of securities of any enterprise (but without otherwise
participating in the activities of such enterprise) if such securities are
listed on any national or regional securities exchange or have been
registered under Section 12(g) of the Securities Exchange Act of 1934.
Executive agrees that this covenant is reasonable with respect to its
duration, geographical area, and scope.
(b) Executive will not, directly or indirectly, either for himself
or any other Person, (A) induce or attempt to induce any employee of the
Company or the Company's parent entity to leave the employ of such company,
(B) in any way interfere with the relationship between the Company or the
Company's parent entity and any employee of the Company or the
-2-
<PAGE>
Company's parent entity, (C) employ, or otherwise engage as an employee,
independent contractor, or otherwise, any employee of the Company or the
Company's parent entity, or (D) induce or attempt to induce any customer,
supplier, licensee, or business relation of the Company or the Company's
parent entity to cease doing business with such company, or in any way
interfere with the relationship between any customer, supplier, licensee, or
business relation of any such company.
(c) Executive will not, directly or indirectly, either for himself
or any other Person, solicit the business of any Person known to Executive to
be a customer of the Company or the Company's parent entity, whether or not
Executive had personal contact with such Person;
(2) If Executive breaches any covenant set forth in Subsection 3(1) of
this Agreement, the term of such covenant will be extended by the period of
the duration of such breach;
(3) Executive will not, at any time during or after the Period,
disparage Henry, the Company or the Company's parent entity, or any of their
shareholders, directors, officers, employees, or agents; and
ARTICLE 4.
COMPENSATION
As consideration for the covenants in Section 3 of this Agreement, the
Company will pay Executive the sum of $1,184,000 on the date hereof.
ARTICLE 5.
REMEDIES
If Executive breaches the covenants set forth in Sections 2 or 3 of this
Agreement, Henry and the Company will be entitled to the following remedies:
(1) Damages from Executive;
(2) In addition to its right to damages and any other rights it may
have, to obtain injunctive or other equitable relief to restrain any breach
or threatened breach or otherwise to specifically enforce the provisions of
Sections 2 and 3 of this Agreement, it being agreed that money damages alone
would be inadequate to compensate Henry or the Company and would be an
inadequate remedy for such breach.
-3-
<PAGE>
(3) The rights and remedies of the parties to this Agreement are
cumulative and not alternative.
ARTICLE 6.
SUCCESSORS AND ASSIGNS
This Agreement will be binding upon Henry and Executive and will inure
to the benefit of Henry and the Company and its affiliates, successors and
assigns and Executive and Executives' assigns, heirs and legal
representatives.
ARTICLE 7.
WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement will operate
as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any
other right, power, or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of
the claim or right unless in writing signed by the other party; (b) no waiver
that may be given by a party will be applicable except in the specific
instance for which it is given; and (c) no notice to or demand on one party
will be deemed to be a waiver of any obligation of such party or of the right
of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement.
ARTICLE 8.
GOVERNING LAW
This Agreement will be governed by the laws of the State of Delaware
without regard to conflicts of laws principles.
ARTICLE 9.
JURISDICTION; SERVICE OF PROCESS
-4-
<PAGE>
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement shall be brought against any of
the parties in the federal and state courts of the State of Delaware, each of
the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred
to in the preceding sentence may be served on any party anywhere in the world.
ARTICLE 10.
SEVERABILITY
Whenever possible each provision and term of this Agreement will be
interpreted in a manner to be effective and valid but if any provision or
term of this Agreement is held to be prohibited by or invalid, then such
provision or term will be ineffective only to the extent of such prohibition
or invalidity, without invalidating or affecting in any manner whatsoever the
remainder of such provision or term or the remaining provisions or terms of
this Agreement. If any of the covenants set forth in Section 3 of this
Agreement are held to be unreasonable, arbitrary, or against public policy,
such covenants will be considered divisible with respect to scope, time, and
geographic area, and in such lesser scope, time and geographic area, will be
effective, binding and enforceable against Executive.
ARTICLE 11.
COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of
which, when taken together, will be deemed to constitute one and the same
agreement.
ARTICLE 12.
SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references
to "Section" or "Sections" refer to the corresponding Section or Sections of
this Agreement unless otherwise specified. All words used in this Agreement
will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
-5-
<PAGE>
ARTICLE 13.
NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when
(a) delivered by hand (with written confirmation of receipt), (b) sent by
facsimile (with written confirmation of receipt), provided that a copy is
mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as
a party may designate by notice to the other parties):
Executive: James Stewart
929 Crozier Court
Mississauga, Ontario, Canada L5H 2T2
Facsimile No.: 905/278-0486
Henry: Henry Group of Companies
2911 Slauson Avenue
Huntington Park, California 90255
Attention: Warner Henry
Facsimile No.: 213/583-8582\
ARTICLE 14.
ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter of this Agreement and supersede all prior
written and oral agreements and understandings between Henry and Executive
with respect to the subject matter of this
-6-
<PAGE>
Agreement. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
HENRY COMPANY Executive:
/s/ Richard B. Gordinier /s/ James Stewart
--------------------------- ------------------------
By: Richard B. Gordinier
---------------------------
________________________
JAMES F. C. STEWART
Its: President
---------------------------
-7-
<PAGE>
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is made as of April 22,
1998, by and between Henry Company, a California corporation ("Henry"), and
Edward P. Mooney ("Executive") a Principal Executive and Shareholder of
Monsey Products Co., a Pennsylvania corporation (Monsey Products Co.,
together with its subsidiaries, the "Company").
RECITALS
Concurrently with the execution and delivery of this Agreement, Buyer is
purchasing from Seller and the other shareholders of the Company all of the
Company's issued and outstanding shares (the "Shares") of capital stock
pursuant to a stock purchase agreement dated as of February 27, 1998 (the
"Stock Purchase Agreement"). Section 2.4(a)(iii) of the Stock Purchase
Agreement requires that certain of the Principal Executives execute and
deliver to Buyer a noncompetition agreement as a condition to the Buyer's
purchase of the Shares.
The parties, intending to be legally bound, agree as follows:
ARTICLE I.
DEFINITIONS
Capitalized terms not expressly defined in this Agreement shall have the
meanings ascribed to them in the Stock Purchase Agreement.
ARTICLE II.
ACKNOWLEDGMENTS BY EXECUTIVE
Executive acknowledges that (a) Executive has occupied a position of
trust and confidence with the Company prior to the date hereof, is highly
knowledgeable with respect to the business of the Company, and has become
familiar with the following, any and all of which constitute confidential
information of the Company, (collectively the "Confidential Information"):
(i) any and all trade secrets concerning the business and affairs of the
Company, product specifications, data, know-how, formulae, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples,
inventions and ideas, past, current and planned research and development,
current and planned manufacturing and distribution methods and processes,
customer lists, current and anticipated customer requirements, price lists,
market studies, business plans, computer
-1-
<PAGE>
software and programs (including object code and source code), computer
software and database technologies, systems, structures and architectures
(and related processes, formulae, compositions, improvements, devices,
know-how, inventions, discoveries, concepts, ideas, designs, methods and
information, of the Company and any other information, however documented, of
the Company that may constitute a trade secret unde applicable; (ii) any and
all information concerning the business and affairs of the Company (including
historical financial statements, financial projections and budgets,
historical and projected sales, capital spending budgets and plans, the names
and backgrounds of key personnel, personnel training and techniques and
materials, however documented; and (iii) any and all notes, analysis, studies
and other material prepared by or for the Company containing or based, in
whole or in part, on any information included in the foregoing; (b) the
business of the Company is international in scope; (c) its products and
services are marketed throughout the United States and Canada; (d) the
Company competes with other businesses that are or could be located in any
part of the United States or Canada; (e) the provisions of Sections 3 and 4
of this Agreement are reasonable and necessary to protect and preserve the
Company' business, and (g) the Company would be irreparably damaged if
Executive were to breach the covenants set forth in Sections 3 and 4 of this
Agreement.
ARTICLE III.
CONFIDENTIAL INFORMATION
Executive acknowledges and agrees that all Confidential Information known
or obtained by Executive, whether before or after the date hereof, is the
property of the Company. Therefore, Executive agrees that Executive will not,
at any time, disclose to any unauthorized Persons or use for his own account or
for the benefit of any third party any Confidential Information, whether
Executive has such information in Executives' memory or embodied in writing or
other physical form, without Henry's written consent, unless and to the extent
that the Confidential Information is or becomes generally known to and available
for use by the public other than as a result of Executives' fault or the fault
of any other Person bound by a duty of confidentiality to Henry or the Company.
ARTICLE IV.
NONCOMPETITION
For the consideration to be under this Agreement, Executive agrees that:
(1) For a period of ten (10) years from the date hereon (the "Period");
(a) Executive will not, directly or indirectly, engage or invest in,
own, manage, operate, finance, control, or participate in the ownership,
management, operation, financing, or
-2-
<PAGE>
control of, be employed by, associated with, or lend Executives' name
or any similar name to, or render services or advice to, any business whose
products or activities compete in whole or in part with the current products
or activities of the Company, which business is the manufacture and sale of
building envelope systems and related products, roofing membranes (modified
bitumen and other related roofing products), asphalt or wax based industrial
emulsions, roof and driveway coatings and cement, and paving sealers,
provided, however, that Executive may purchase or otherwise acquire up to
(but not more than) one percent (1%) of any class of securities of any
enterprise (but without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or regional
securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934. Executive agrees that this covenant is
reasonable with respect to its duration, geographical area, and scope;
provided, further, that the Period with respect to the manufacture and sale
of building envelope systems shall be five (5) years.
(b) Executive will not, directly or indirectly, either for himself
or any other Person, (A) induce or attempt to induce any employee of the
Company or the Company's parent entity to leave the employ of such company,
(B) in any way interfere with the relationship between the Company or the
Company's parent entity and any employee of the Company or the Company's
parent entity, (C) employ, or otherwise engage as an employee, independent
contractor, or otherwise, any employee of the Company or the Company's parent
entity, or (D) induce or attempt to induce any customer, supplier, licensee,
or business relation of the Company or the Company's parent entity to cease
doing business with such company, or in any way interfere with the
relationship between any customer, supplier, licensee, or business relation
of any such company.
(c) Executive will not, directly or indirectly, either for himself
or any other Person, solicit the business of any Person known to Executive to
be a customer of the Company or the Company's parent entity, whether or not
Executive had personal contact with such Person;
(2) If Executive breaches any covenant set forth in Subsection 3(1) of
this Agreement, the term of such covenant will be extended by the period of
the duration of such breach;
(3) Executive will not, at any time during or after the Period,
disparage Henry, the Company or the Company's parent entity, or any of their
shareholders, directors, officers, employees, or agents; and
ARTICLE V.
COMPENSATION
As consideration for the covenants in Section 4 of this Agreement, the
Company will pay Executive the sum of One Million Two Hundred Ninety-Six
Thousand Dollars ($1,296,000) on the date hereof.
-3-
<PAGE>
ARTICLE VI.
REMEDIES
If Executive breaches the covenants set forth in Sections 4 or 5 of this
Agreement, Henry and the Company will be entitled to the following remedies:
(1) Damages from Executive;
(2) In addition to its right to damages and any other rights it may
have, to obtain injunctive or other equitable relief to restrain any breach
or threatened breach or otherwise to specifically enforce the provisions of
Sections 4 and 5 of this Agreement, it being agreed that money damages alone
would be inadequate to compensate Henry or the Company and would be an
inadequate remedy for such breach.
(3) The rights and remedies of the parties to this Agreement are
cumulative and not alternative.
ARTICLE VII.
SUCCESSORS AND ASSIGNS
This Agreement will be binding upon Henry and Executive and will inure
to the benefit of Henry and the Company and its affiliates, successors and
assigns and Executive and Executives' assigns, heirs and legal
representatives.
ARTICLE VIII.
WAIVER
The rights and remedies of the parties to this Agreement are cumulative and
not alternative. Neither the failure nor any delay by any party in exercising
any right, power, or privilege under this Agreement will operate as a waiver of
such right, power, or privilege, and no single or partial exercise of any such
right, power, or privilege will preclude any other or further exercise of such
right, power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (a) no claim or
right arising out of this Agreement can be discharged by one party, in whole or
in part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any obligation
of such party or of the right of the party giving such
-4-
<PAGE>
notice or demand to take further action without notice or demand as provided
in this Agreement.
ARTICLE IX.
GOVERNING LAW
This Agreement will be governed by the laws of the State of Delaware
without regard to conflicts of laws principles.
ARTICLE X.
JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement shall be brought against any of
the parties in the federal and state courts of the State of Delaware, each of
the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any party anywhere in the world.
ARTICLE XI.
SEVERABILITY
Whenever possible each provision and term of this Agreement will be
interpreted in a manner to be effective and valid but if any provision or
term of this Agreement is held to be prohibited by or invalid, then such
provision or term will be ineffective only to the extent of such prohibition
or invalidity, without invalidating or affecting in any manner whatsoever the
remainder of such provision or term or the remaining provisions or terms of
this Agreement. If any of the covenants set forth in Sections 3 and 4 of this
Agreement are held to be unreasonable, arbitrary, or against public policy,
such covenants will be considered divisible with respect to scope, time, and
geographic area, and in such lesser scope, time and geographic area, will be
effective, binding and enforceable against Executive.
ARTICLE XII.
COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of
which, when taken together, will be deemed to
-5-
<PAGE>
constitute one and the same agreement.
ARTICLE XII.
SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references
to "Section" or "Sections" refer to the corresponding Section or Sections of
this Agreement unless otherwise specified. All words used in this Agreement
will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
ARTICLE XIV.
NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when
(a) delivered by hand (with written confirmation of receipt), (b) sent by
facsimile (with written confirmation of receipt), provided that a copy is
mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as
a party may designate by notice to the other parties):
Executive: Edward P. Mooney
Monsey Bakor
Cold Stream Road
Kimberton, Pennsylvania 19442
Facsimile No.: 610/933-4598
Henry: Henry Group of Companies
2911 Slauson Avenue
Huntington Park, California 90255
Attention: Warner Henry
Facsimile No.: 213/583-8582
ARTICLE XV.
-6-
<PAGE>
ENTIRE AGREEMENT
This Agreement and the Stock Purchase Agreement constitute the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersede all prior written and oral agreements and
understandings between Henry and Executive with respect to the subject matter
of this Agreement. This Agreement may not be amended except by a written
agreement executed by the party to be charged with the amendment.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
HENRY COMPANY Executive:
/s/ Richard Gordinier
--------------------------
By: Richard Gordinier
--------------------------
/s/ E. P. Mooney
------------------------
------------------------
Edward P. Mooney
Its: President
---------------------------
-7-
<PAGE>
NONCOMPETITION AGREEMENT
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is made as of February 22,
1998, by and between Henry Company, a California corporation("Henry"), and Larry
Karasiuk ("Executive") a Principal Executive and Shareholder of Monsey Products
Co., a Pennsylvania corporation (Monsey Products Co., together with its
subsidiaries, the "Company").
The parties, intending to be legally bound, agree as follows:
ARTICLE 1.
ACKNOWLEDGMENTS BY EXECUTIVE
Executive acknowledges that (a) Executive has occupied a position of
trust and confidence with the Company prior to the date hereof, is highly
knowledgeable with respect to the business of the Company, and has become
familiar with the following, any and all of which constitute confidential
information of the Company, (collectively the "Confidential Information"):
(i) any and all trade secrets concerning the business and affairs of the
Company, product specifications, data, know-how, formulae, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples,
inventions and ideas, past, current and planned research and development,
current and planned manufacturing and distribution methods and processes,
customer lists, current and anticipated customer requirements, price lists,
market studies, business plans, computer software and programs (including
object code and source code), computer software and database technologies,
systems, structures and architectures (and related processes, formulae,
compositions, improvements, devices, know-how, inventions, discoveries,
concepts, ideas, designs, methods and information, of the Company and any
other information, however documented, of the Company that may constitute a
trade secret unde applicable; (ii) any and all information concerning the
business and affairs of the Company (including historical financial
statements, financial projections and budgets, historical and projected
sales, capital spending budgets and plans, the names and backgrounds of key
personnel, personnel training and techniques and materials, however
documented; and (iii) any and all notes, analysis, studies and other material
prepared by or for the Company containing or based, in whole or in part, on
any information included in the foregoing; (b) the business of the Company is
international in scope; (c) its products and services are marketed throughout
the United States and Canada; (d) the Company competes with other businesses
that are or could be located in any part of the United States or Canada; (e)
the provisions of Sections 2 and 3 of this Agreement are reasonable and
necessary to protect and preserve the Company' business, and (g) the Company
would be irreparably damaged if Executive were to breach the covenants set
forth in Sections 2 and 3 of this Agreement.
-1-
<PAGE>
ARTICLE 2.
CONFIDENTIAL INFORMATION
Executive acknowledges and agrees that all Confidential Information
known or obtained by Executive, whether before or after the date hereof, is
the property of the Company. Therefore, Executive agrees that Executive will
not, at any time, disclose to any unauthorized Persons or use for his own
account or for the benefit of any third party any Confidential Information,
whether Executive has such information in Executives' memory or embodied in
writing or other physical form, without Henry's written consent, unless and
to the extent that the Confidential Information is or becomes generally known
to and available for use by the public other than as a result of Executives'
fault or the fault of any other Person bound by a duty of confidentiality to
Henry or the Company.
ARTICLE 3.
NONCOMPETITION
For the consideration to be under this Agreement, Executive agrees that:
(1) For a period of five (5) years from the date of termination of
employment with the Company (the "Period");
(a) Executive will not, directly or indirectly, engage or invest
in, own, manage, operate, finance, control, or participate in the ownership,
management, operation, financing, or control of, be employed by, associated
with, or in any manner connected with, lend Executives' name or any similar
name to, or render services or advice to, any business whose products or
activities compete in whole or in part with the products or activities of the
Company, which business is the manufacture and sale of building envelope
systems and related products, modified bitumen (roofing and building
materials and compounds), industrial emulsions, roof and driveway coatings
and cement, and paving sealers (the "Business"), provided, however, that
Executive may purchase or otherwise acquire up to (but not more than) one
percent (1%) of any class of securities of any enterprise (but without
otherwise participating in the activities of such enterprise) if such
securities are listed on any national or regional securities exchange or have
been registered under Section 12(g) of the Securities Exchange Act of 1934.
Executive agrees that this covenant is reasonable with respect to its
duration, geographical area, and scope.
(b) Executive will not, directly or indirectly, either for himself
or any other Person, (A) induce or attempt to induce any employee of the
Company or the Company's parent entity to leave the employ of such company,
(B) in any way interfere with the relationship
-2-
<PAGE>
between the Company or the Company's parent entity and any employee of the
Company or the Company's parent entity, (C) employ, or otherwise engage as an
employee, independent contractor, or otherwise, any employee of the Company
or the Company's parent entity, or (D) induce or attempt to induce any
customer, supplier, licensee, or business relation of the Company or the
Company's parent entity to cease doing business with such company, or in any
way interfere with the relationship between any customer, supplier, licensee,
or business relation of any such company.
(c) Executive will not, directly or indirectly, either for himself
or any other Person, solicit the Business of any Person known to Executive to
be a customer of the Company or the Company's parent entity, whether or not
Executive had personal contact with such Person;
(2) If Executive breaches any covenant set forth in Subsection 3(1) of
this Agreement, the term of such covenant will be extended by the period of
the duration of such breach;
(3) Executive will not, at any time during or after the Period,
disparage Henry, the Company or the Company's parent entity, or any of their
shareholders, directors, officers, employees, or agents; and
ARTICLE 4.
COMPENSATION
As consideration for the covenants in Section 3 of this Agreement, the
Company will pay Executive the sum of U.S.$747,000 on the date hereof.
ARTICLE 5.
REMEDIES
If Executive breaches the covenants set forth in Sections 2 or 3 of this
Agreement, Henry and the Company will be entitled to the following remedies:
(1) Damages from Executive;
(2) In addition to its right to damages and any other rights it may
have, to obtain injunctive or other equitable relief to restrain any breach
or threatened breach or otherwise to specifically enforce the provisions of
Sections 2 and 3 of this Agreement, it being agreed that money damages alone
would be inadequate to compensate Henry or the Company and would be an
inadequate remedy for such breach.
-3-
<PAGE>
(3) The rights and remedies of the parties to this Agreement are
cumulative and not alternative.
ARTICLE 6.
SUCCESSORS AND ASSIGNS
This Agreement will be binding upon Henry and Executive and will inure
to the benefit of Henry and the Company and its affiliates, successors and
assigns and Executive and Executives' assigns, heirs and legal
representatives.
ARTICLE 7.
WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement will operate
as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any
other right, power, or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of
the claim or right unless in writing signed by the other party; (b) no waiver
that may be given by a party will be applicable except in the specific
instance for which it is given; and (c) no notice to or demand on one party
will be deemed to be a waiver of any obligation of such party or of the right
of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement.
ARTICLE 8.
GOVERNING LAW
This Agreement will be governed by the laws of the State of Delaware
without regard to conflicts of laws principles.
ARTICLE 9.
JURISDICTION; SERVICE OF PROCESS
-4-
<PAGE>
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement shall be brought against any of
the parties in the federal and state courts of the State of Delaware, each of
the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred
to in the preceding sentence may be served on any party anywhere in the world.
ARTICLE 10.
SEVERABILITY
Whenever possible each provision and term of this Agreement will be
interpreted in a manner to be effective and valid but if any provision or
term of this Agreement is held to be prohibited by or invalid, then such
provision or term will be ineffective only to the extent of such prohibition
or invalidity, without invalidating or affecting in any manner whatsoever the
remainder of such provision or term or the remaining provisions or terms of
this Agreement. If any of the covenants set forth in Section 3 of this
Agreement are held to be unreasonable, arbitrary, or against public policy,
such covenants will be considered divisible with respect to scope, time, and
geographic area, and in such lesser scope, time and geographic area, will be
effective, binding and enforceable against Executive.
ARTICLE 11.
COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of
which, when taken together, will be deemed to constitute one and the same
agreement.
ARTICLE 12.
SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references
to "Section" or "Sections" refer to the corresponding Section or Sections of
this Agreement unless otherwise specified. All words used in this Agreement
will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
-5-
<PAGE>
ARTICLE 13.
NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when
(a) delivered by hand (with written confirmation of receipt), (b) sent by
facsimile (with written confirmation of receipt), provided that a copy is
mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as
a party may designate by notice to the other parties):
Executive: Larry Karasiuk
Monsey Bakor
284 Watline Avenue
Mississauga, Ontario, Canada L4Z 1P4
Facsimile No.: 905/890-4866
Henry: Henry Group of Companies
2911 Slauson Avenue
Huntington Park, California 90255
Attention: Warner Henry
Facsimile No.: 213/583-8582
ARTICLE 14.
ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter of this Agreement and supersede all prior
written and oral agreements and understandings between Henry and Executive
with respect to the subject matter of this
-6-
<PAGE>
Agreement. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
HENRY COMPANY Executive:
By:/s/ Richard B. Gordinier /s/ Larry Karasiuk
------------------------ -------------------------
Richard B. Gordinier Larry Karasiuk
Its: President
----------------------
-7-
<PAGE>
AGREEMENT
THIS AGREEMENT is made and entered into this 24th day of November, 1993
by and between HENRY COMPANY, a California Corporation ("Henry"), and PAUL H.
BEEMER ("Beemer").
Recitals
A. Effective as of January 1, 1987, the parties to this Agreement
entered into a Retainer Agreement, which Agreement was for a term of seven
(7) years, ending on December 31, 1993.
B. Henry desires that the retainer services of Beemer continue to be
available and Beemer is agreeable to Henry's request.
C. Henry and Beemer, by this Agreement, desire to restate the basis
upon which Beemer will continue for the term of this Agreement to make his
services available to Henry.
NOW, THEREFORE, it is mutually agreed as follows:
1. Beemer shall hold himself available to Henry, for the term of this
Agreement, to render advisory services with the status of an independent
contractor.
2. Beemer shall not accept employment as an officer, director,
employee, advisor or in any other capacity with any business entity which is
engaged in substantially the same business as Henry and which would be
considered competition to Henry within the marketing areas presently occupied
or which may hereafter be occupied by Henry.
3. This Agreement is for an initial term of three (3) years, starting
on the 1st day of January, 1994 and shall continue thereafter on a
year-to-year basis, subject to being terminated on the end of any year by
Henry or Beemer by giving written notice to the other at least ninety (90)
days prior to the end of the year.
4. Henry agrees to pay Beemer Eight Thousand Three Hundred
Thirty-Three and Thirty-Three One-Hundredths Dollars ($8,333.33) per month.
It is mutually understood that one-half of said monthly payment is
compensation for services to be rendered by Beemer and one-half is
consideration for his covenant not to compete.
Any out-of-pocket expenses incurred by Beemer in connection with
any service rendered by Beemer shall be reimbursed by Henry.
5. During the term of this Agreement, upon reasonable prior notice,
Beemer will make himself available for consulting at such time, such place
and with such persons as Henry may designate. Any consultation services
shall not require more than 118 hours in any quarter. Nothing in this
Agreement shall be deemed to limit the right of Beemer to travel or
<PAGE>
to require him to reside at any particular place.
Henry shall have the right to request Beemer to render consulting
work in excess of 118 hours per quarter, for which Beemer shall be
compensated at the rate of Two Hundred Ten Dollars ($210.00) per hour for
such services, with the understanding that if Beemer should work less than
118 hours in any one quarter, he would not receive overtime compensation in a
succeeding quarter until he had made up the deficiency in hours in the
preceding quarter or quarters.
6. This Agreement will terminate on the death or physical or mental
disability of Beemer. Physical or mental disability shall be determined by a
physician selected by Henry and Beemer shall make himself available for such
an examination on reasonable notice. In the event Beemer or Henry should
question the determination by the physician selected by Henry, either, on
written notice to the other, may request a second examination by a physician
selected by Beemer. If the determinations of the two physicians differ as to
the physical or mental disability of Beemer as it affects his ability to
render services as a consultant, then the two physicians shall select a third
physician to examine Beemer and the decision as to disability of any two of
the physicians shall be determinate of the issue. If the physician appointed
by Henry and the physician appointed by Beemer cannot agree on the selection
of a third physician, the selection shall be made by the presiding judge of
the Superior Court of the State of California in and for the County of Los
Angeles. In the event no decision as to disability can be reached by the
three physicians, then a new physician will be selected following the
procedures for the selection of physicians as outlined above.
7. This Agreement may be terminated by Henry on written notice to
Beemer for failure on the part of Beemer to render services within a
reasonable time on requests that are within his capabilities and are in
compliance with the provisions of paragraph 5 hereof. In the event Henry
should seek to terminate this Agreement by reason of the failure of Beemer to
perform the services called for under this Agreement, Henry must first give
Beemer WRITTEN NOTICE THEREOF and Beemer shall have thirty (30) days in which
to cure any default specified in such notice. On Beemer's failure to cure
such default or defaults within said thirty-day period, Henry may terminate
this Agreement and shall have no further obligations to Beemer.
8. It is understood that Henry can request that Beemer continue as a
member of Henry's Board of Directors and its executive committee.
9. During the term of this Agreement, Beemer agrees with Henry that
Beemer will not, unless authorized in writing by Henry, use for himself or
for others, or publish or disclose to any third party any information,
knowledge or data which is of a confidential nature, or any "trade secrets"
of Henry. For the purpose of this Agreement, the term "trade secrets"
includes all discoveries, inventions, improvements and ideas relating to any
process, formula, machine, device, manufacture, composition of matter, plan
or design, whether patentable or not, which Henry discloses to Beemer or of
which Beemer is made aware during the term of this Agreement and which relate
to Henry's coating, sealing and polyurethane foam business, or in which Henry
is interested. It is agreed that it would be difficult to fully
<PAGE>
compensate Henry for damages for breach of the obligations of Beemer under
this paragraph. Accordingly, Beemer specifically agrees that Henry, and any
of its subsidiaries or successors, shall be entitled to temporary and
permanent injunctive relief to enforce such obligations and that such relief
may be granted without the necessity of proving actual damages. This
provision with respect to injunctive relief shall not, however, diminish the
right of Henry or any of its subsidiaries or successors to claim and recover
damages in addition to injunctive relief. Nothing contained in this
paragraph shall restrict the right of Beemer to consult with others in
matters involved in the adhesive business.
10. Neither party to this Agreement shall have the right to assign the
same, without the consent of the other first being had. Notwithstanding the
foregoing, Beemer shall have the right to assign the payments provided herein
to a trust created by him for the benefit of his spouse and children. Such
an assignment of payments shall not relieve Beemer in any respect from the
performance of his obligations under this Agreement.
11. In the event of any litigation between the parties for breach of or
to enforce any provision or right hereunder, the prevailing party shall be
entitled to recover its attorneys' and expert witnesses' fees and costs, in
addition to such other relief as the court may award.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
HENRY COMPANY
by /s/ WARNER W. HENRY /s/ PAUL H. BEEMER
---------------------------- -------------------------
Warner W. Henry PAUL H. BEEMER
Chairman and Chief Executive
Officer
<PAGE>
To: Paul H. Beemer
From: Jeffrey A. Wahba
Date: July 29, 1996
Re: Extension of Consulting Agreement
This letter is to confirm the agreement reached by the Henry Company
Executive Committee and yourself at the June 19, 1996 Executive Committee
Meeting regarding the extension of your consulting agreement.
The consulting agreement dated November 24, 1993 and amended June 1, 1995
expires on December 31, 1996. Both parties have agreed to extend this
agreement by one year with expiration now on December 31, 1997. All other
terms and conditions of the agreement remain the same.
Could you please sign below where indicated, acknowledging your agreement to
this extension. Upon signing please return this letter to me, while
retaining a copy for your files.
Acknowledgment to the Date:
agreement above:
/s/ Paul H. Beemer 7/30/96
- ---------------------------- -------------
Paul H. Beemer
/s/ Warner W. Henry
- ----------------------------
Warner W. Henry
cc: Richard B. Gordinier
Warner W. Henry
<PAGE>
AMENDMENT
This AMENDMENT to the AGREEMENT dated November 24, 1993 between HENRY
COMPANY (Henry) and PAUL H. BEEMER (Beemer) is entered into this day June 1,
1995.
Recitals
A. In the first year operating under this agreement misunderstandings
emerged relative to compensation Beemer received for overtime as covered in
Article 5.
B. It has been agreed that changes should be made to reflect a
reduction in the applicable hourly rate and to limit (in the absence of
special arrangment) [sic]) the use of overtime in excess of 25% of normal
hours.
C. Henry and Beemer by this AMENDMENT desire to restate certain
details of Article 5. of the Agreement and it is this basis upon which Beemer
will continue for the term of this Agreement to make his services available
to Henry.
Now, THEREFORE, it is mutually agreed as follows:
1. The second paragraph of Article 5. will be changed as follows
(New or changed wording is underlined):
Henry shall have the right to request Beemer to render consulting
work in excess of 118 hours per quarter, for which Beemer shall be
compensated at the rate of One Hundred Five Dollars ($105.00) per hour for
such services, with the understanding that if Beemer should work less than
118 hours in any one quarter, he would not receive overtime compensation in a
succeeding quarter until he had made up the deficiency in hours in the
preceding quarter or quarters. In no quarter will Beemer be authorized to
render overtime billing in excess of 25% of regular time, that is to say,
29.5 hours. Should special situations arise, this provision can be waived by
Richard Gordinier or Warner Henry.
2. This Amendment shall be implemented retroactively to January
1, 1995.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the day and year first above written.
HENRY COMPANY
by /s/ Warner W. Henry /s/ Paul H. Beemer
------------------------ -------------------------
Warner W. Henry Paul H. Beemer
Chairman and Chief
Executive Officer
by /s/ Richard B. Gordinier
------------------------
Richard B. Gordinier
President
<PAGE>
EXHIBIT 10.26(A)
AMENDMENT
This AMENDMENT to the AGREEMENT dated November 24, 1993 between HENRY
COMPANY (Henry) and PAUL H. BEEMER (Beemer) is entered into this day June 01,
1995.
RECITALS
A. In the first year operating under this agreement misunderstandings
emerged relative to compensation Beemer received for overtime as covered in
Article 5.
B. It has been agreed that changes should be made to reflect a
reduction in the applicable hourly rate and to limit (in the absence of
special arrangement) the use of overtime in excess of 25% of normal hours.
C. Henry and Beemer by this AMENDMENT desire to restate certain
details of Article 5. of the Agreement and it is this basis upon which Beemer
will continue for the term of this Agreement to make his services available
to Henry.
Now, THEREFORE, it is mutually agreed as follows:
1. The second paragraph of Article 5. will be changed as follows
(New or changed wording is underlined):
Henry shall have the right to request Beemer to render consulting
work in excess of 118 hours per quarter, for which Beemer shall be
compensated at the rate of ONE HUNDRED FIVE DOLLARS ($105.00) per hour for
such services, with the understanding that if Beemer should work less than
118 hours in any one quarter, he would not receive overtime compensation in a
succeeding quarter until he had made up the deficiency in hours in the
preceding quarter or quarters. IN NO QUARTER
<PAGE>
WILL BEEMER BE AUTHORIZED TO RENDER OVERTIME BILLING IN EXCESS OF 25% OF
REGULAR TIME, THAT IS TO SAY, 29.5 HOURS. SHOULD SPECIAL SITUATIONS ARISE,
THIS PROVISION CAN BE WAIVED BY RICHARD GORDINIER OR WARNER HENRY.
2. This Amendment shall be implemented retroactively to January
1, 1995.
IN WITNESS WHEREOF, the parties hereto have executed
this Amendment as of the day and year first above written.
HENRY COMPANY
by /s/ WARNER W. HENRY /s/ PAUL H. BEEMER
------------------------------------- -----------------------------
Warner W. Henry Paul H. Beemer
Chairman and Chief Executive Officer
by /s/ RICHARD B. GORDINIER
------------------------------------
Richard B. Gordinier
President
2
<PAGE>
CUSTODIAL AGREEMENT
This Custodial Agreement (this "Custodial Agreement"), dated as of April
22, 1998, is entered into by and among Henry Company, a California
corporation ("Buyer"), the Sellers (as defined in the Agreement referred to
in the Recital A below) of Monsey Products Co., a Pennsylvania corporation
("Company"), Edward P. Mooney, as Sellers' representative (the
"Representative") and PNC Bank, National Association, as custodian (the
"Custodian").
RECITALS:
A. Buyer and the Sellers have entered into that certain Stock Purchase
Agreement dated February 22, 1998 (the "Agreement"); and
B. Pursuant to the Agreement, Buyer will acquire all of the stock of
the Company; and
C. Pursuant to the Agreement, Buyer and the Sellers have agreed that,
at a closing held thereunder (the "Closing"), Buyer will cause to be
deposited into a custodial account (the "Account") Two Million Dollars
($2,000,000) to secure the indemnification provided for Sellers
(collectively, the "Indemnitee") as specified in Section 10 of the Agreement
and each claim thereunder (a "Claim"); and
D. It is a condition to the consummation of the transactions
contemplated by the Agreement that at or prior to the Closing, this Custodial
Agreement be entered into by the parties hereto; and
E. A copy of the Agreement has been delivered to the Custodian, and
the Custodian is willing to act as Custodian hereunder. It is understood
that the Custodian is not a party to the Agreement and will execute its
duties in accordance with the Custodial Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and
valuable consideration, the parties hereto agree as follows:
TERMS AND CONDITIONS
1. ESCROW. At the Closing, Buyer shall cause to be delivered to the
Custodian an aggregate of Two Million Dollars ($2,000,000) (the "Assets").
The Custodian hereby acknowledges receipt of the Assets and agrees to hold
the same in escrow pursuant to the terms of this Custodial Agreement. The
Custodian shall open an account for the benefit of the Sellers, to be
entitled the Henry Co./Monsey Products Custodial A/C (the "Account"), into
which the Assets shall be deposited. The Custodian shall hold the Assets,
not as an agent of any
-1-
<PAGE>
of the Sellers, but rather as a pledgeholder with respect to the pledge of
the Assets pursuant to this Custodial Agreement.
The Custodian will hold the Assets in the name of the Custodian or
in the name of its nominee, or, as to securities eligible or to be held by
the Depository Trust Company or other depository, in the name of its nominee.
2. CLAIMS AND DISTRIBUTIONS.
a. The Assets held in the Account and pledged to the
Indemnitee shall serve to secure the indemnification provided for in Section
10.2 of the Agreement. There shall be no indemnity hereunder with respect to
any notice of claim (a "Notice of Claim") delivered by Buyer to the
Representative more than two (2) years from and after the date of the
Closing. Any Notice of Claim shall be deemed effective only when delivered
to both the Representative and the Custodian.
b. Any Notice of Claim filed by Buyer to Custodian and
Representative shall specify in reasonable detail the facts and circumstances
of the claim; the basis on which the Sellers are believed to have liability
therefor; and the estimated amount of loss alleged to have been suffered or
liability incurred by Buyer as a result thereof. Such estimates of loss or
liability (while not binding on Buyer) shall be prepared by Buyer on a
reasoned basis consistent with the facts and circumstances out of which the
claim arose.
c. If the Custodian is furnished by the Indemnitee with a
Notice of Claim against the Sellers, and no notice of objection to such claim
(a "Notice of Objection") is furnished by the Representative to the Custodian
and Buyer within thirty (30) days of the date of receipt of the Notice of
Claim by the Custodian (which the Custodian may assume to be the same as the
date of receipt of the Notice of Claim by the Representative), the Claim will
be deemed to be non-disputed (the "Non-Disputed Claims");
d. If the Custodian is furnished by Representative with a
Notice of Objection within thirty (30) days of the date of receipt of the
Notice of Claim by the Custodian, the Claim will be deemed disputed (the
"Disputed Claim");
e. Assets may be released from the Account as follows:
-2-
<PAGE>
(1) On the first anniversary date of the Closing, the
Custodian shall release from the Account and deliver to the Representative
One Million Dollars ($1,000,000), less the amount of any unresolved Notices
of Claim and less the Assets that have been applied by the Custodian to the
satisfaction of Claims to date.
(2) On the second anniversary date of the Closing, the
Custodian shall release from the Account and shall deliver to the
Representative all of the Assets held hereunder, less the amount of any
unresolved Notices of Claim and less the Assets that have been applied by
Custodian to the satisfaction of claims, and such Assets shall thereupon
cease to be subject to the Pledge and this Custodial Agreement.
(3) As to Non-Disputed Claims, the Custodian shall distribute
to Buyer the amount of the Claim.
(4) As to Disputed Claims resolved by Buyer and
Representative, the Custodian shall, upon receipt of joint written
instructions which appear on their face to be executed by the
Representative and Buyer, distribute the Assets in accordance with such
instructions.
(5) As to Disputed or non-resolved Claims, the Custodian shall,
upon receipt of a document which appears on its face to be a written order
from an arbitrator declaring that the Assets are to be distributed, or upon
receipt of a document which appears on its face to be a written court order
or judgment declaring that the Assets are to be distributed, distribute the
Assets in accordance with such order or judgment.
(6) Upon receipt of written instructions from the Buyer
certifying that (i) Buyer has suffered Damages in respect of Taxes for
which it is to be indemnified under the Agreement, and (ii) that such Taxes
are due or otherwise payable as a result of a decision to pay the Taxes and
sue for refund, accompanied by a copy of a Notice of Deficiency from the
Internal Revenue Service or a notice of proposed assessment from any state
taxing agency requiring payment of taxes with respect to a period on or
prior to the date of this Agreement (a "Tax Statement"), the Custodian
shall distribute to Buyer the amount specified in the Tax Statement.
In the event a controversy arises between the Representative and
Buyer under this Agreement with respect to the distribution of the Assets under
-3-
<PAGE>
this Agreement, the Custodian shall not be required to resolve such
controversy or take any action but shall be entitled to await resolution of
the controversy by joint written instructions from the Representative and
Buyer. In the event the Sellers' Representative and Buyer are unable to
resolve such controversy, the Custodian shall have the right to join the
Sellers, the Representative and Buyer in an action for interpleader to
resolve such controversy.
3. SERVICES; INVESTMENT OF ASSETS. The Custodian is hereby authorized
to perform the following services in connection with the Assets in the
Account:
a. So long as the Assets are held by the Custodian, they shall be
invested by the Custodian as specifically directed in writing by (i)
Representative, in obligations of or guaranteed by the United States of
America or any state or local subdivision thereof to the extent such
obligation is insured, in commercial paper obligations rated A-1 or P-1 or
better by Moody's Investors Service, Inc. or Standard & Poor's Ratings
Service, respectively, or in certificates of deposit, bank repurchase
agreements or banker's acceptances of commercial banks with capital exceeding
$500,000,000 (Five Hundred Million Dollars), or (ii) as otherwise directed by
Representative or his designee with the prior written consent of Buyer, which
consent shall not be unreasonably withhold, conditioned or delayed. Absent
written direction, the Assets will be invested in the Provident Institutional
T-Fund Dollar Shares Portfolio, a AAAm-rated fund. Neither the Custodian,
Buyer nor the Representative shall be liable or responsible for any loss
resulting from any investment or reinvestment made pursuant to this Section 3.
The Assets shall be increased from time to time by any and all interest
accrued and paid thereon (after payment of expenses incurred in connection
with the investment, reinvestment or sale thereof) pursuant to this Section 3.
b. On a monthly basis until the termination of this Agreement,
the Custodian shall deliver to Buyer and the Representative a report
outlining (i) the principal amount of the Account as of such date and the
interest earned thereon during the preceding monthly period and (ii) a copy
of or a description of each notice pursuant to which payments from the
Account have been made, and a description of all other payments made from
this Account, during the preceding one-year period, and all pending notices
as of such date;
c. All interest earned pursuant to this Section 3 shall be deemed
as income of the Sellers and not the Account or Buyer for federal, state and
local income tax purposes, and the Sellers shall pay any federal, state and
local income taxes attributable to such income. Prior to April 15, 1999 and
April 15, 2000, as the case may be, the Custodian shall distribute to each of
the Sellers its
-4-
<PAGE>
proportionate share of any interest or other earnings on the Account earned
during the prior taxable year.
4. THE REPRESENTATIVE.
a. For so long as this Custodial Agreement is in effect, with
regard to any claims for indemnification, the Sellers shall act through the
Representative, who shall be deemed authorized to act on behalf of all of the
Sellers in the manner set forth in this paragraph 5. As used herein, the
term "Representative" shall include the plural when more than one
Representative has been appointed to act herein by the Sellers. The Sellers
have appointed Edward P. Mooney as their initial Representative.
b. A Representative may resign at any time effective upon giving
written notice to each of the parties hereto. In the event of the
resignation, refusal or inability to act of any Representative, the Sellers
who owned a majority of the shares of the Company's Common Stock before the
Closing may by written election appoint any number of successor
Representatives and shall so appoint a successor if the Representative in
question was the only Representative in office. The Representative shall
promptly notify Buyer and the Custodian in writing of the resignation of any
Representative and of the appointment of any successor Representative.
c. The Custodian may rely conclusively upon any written
instruction or action of the Representative. The Custodian may rely
conclusively on the authority of a Representative designated herein or by the
Sellers, as herein provided, until the Custodian receives a written
instruction naming one or more other or additional Representatives to succeed
to that position in the place of or in addition to any other Representative,
which instruction shall be signed by Sellers who owned a majority of the
Company common stock before the Merger.
d. The Representative may take any action which it deems
appropriate to take with respect to any Notice of Claim received by it
hereunder.
e. The Representative may at any time and without regard to
whether or not proceedings for the resolution or determination thereof have
commenced, agree upon, resolve, send Notices of Objection, settle, or
compromise any claim against Assets held hereunder, whether or not specified
in a Notice of Claim, in the sole and absolute discretion of the
Representative.
-5-
<PAGE>
f. The Representative may, in its sole and absolute discretion,
pursue, elect not to pursue, or terminate the pursuit of any claim or issue
involving the Assets held hereunder, whether or not evidenced by a Notice of
Claim, including the conduct of arbitration of and litigation of third party
claims, as provided herein and in the Agreement.
g. Under no circumstances shall the Representative be liable to
any Seller for any act it may take in its capacity as Representative, or for
the failure to take any action, or for the actions of any other
Representative or shareholder, or for any damage, loss or expense suffered or
incurred resulting from the exercise of the Representative's sole and
absolute discretion in acting hereunder, except only for acts of gross
negligence or willful misconduct.
h. The Representative shall be and hereby is authorized to retain
counsel, accountants, or other professional assistants to assist in
determining the validity of claims or in otherwise acting hereunder as a
Representative.
i. The Representative shall not be liable for any expense
incurred on behalf of the Sellers or any of them in protesting, analyzing,
resisting, arbitrating, litigating, negotiating with respect to, or defending
any claim made against the Assets, or for any amounts otherwise expended in
acting hereunder.
j. On demand by the Representative, each Seller shall contribute
all sums demanded to pay the fees and expense incurred by the Representative
on behalf of the Sellers in acting hereunder.
k. The Representative shall keep the Sellers reasonably informed
of actions taken by it in acting hereunder.
l. This Agreement shall be binding on and shall inure to the
benefit of the heirs, legatees, personal representatives, successors and
assigns of the respective Sellers.
5. CONCERNING THE CUSTODIAN.
a. Under no circumstances shall the Custodian be liable to Buyer,
the Representative or any Seller for any act it may take in its capacity as
Custodian, or for the failure to take any action, or for any error of
judgment, or for any damage, loss or expenses suffered or incurred resulting
therefrom or in acting hereunder, except only for acts of gross negligence or
willful misconduct.
-6-
<PAGE>
b. Buyer hereby agrees to indemnify and hold the Custodian
harmless in respect of any and all losses, costs, expenses, liabilities,
judgments, assessments, penalties, damages, deficiencies, suits, actions,
proceedings, or demands, and reasonable attorneys' fees and expenses incident
thereto resulting from any action or refusal to act by the Custodian taken in
accordance with the instructions of Buyer. The Custodian shall promptly
notify Buyer of any asserted liability for which the Custodian would be
entitled to indemnification by Buyer, and Buyer and its legal representatives
shall have, at Buyer's election, a right to compromise or defend any such
matter involving asserted liability, through counsel of its own choosing, at
its expense; provided, however, that Buyer shall indemnify the Custodian
against any damage resulting from the failure to pay any claims on all such
litigation pending. In the event Buyer undertakes to compromise and defend
any such liability, Buyer shall notify the Custodian in writing promptly of
its intention to do so, and the Custodian shall cooperate with Buyer and its
counsel in the compromising of or the defending against any such liabilities
or claims, at the expense of Buyer. The indemnification shall survive the
resignation or termination of the Custodian.
c. The Sellers, jointly and severally, hereby agree to indemnify
and hold the Custodian harmless in respect of any and all losses, costs,
expenses, liabilities, judgments, assessments, penalties, damages,
deficiencies, suits, actions, proceedings or demands, and reasonable
attorneys' fees and expenses incident thereto resulting from any action or
refusal to act by the Custodian in accordance with the instructions of any
Seller or Representative. The Custodian shall promptly notify the
Representative of any asserted liability for which the Custodian would be
entitled to indemnification by the Sellers, and the Sellers and their legal
representatives shall have, at the election of the Representative, a right to
compromise or defend any such matter involving asserted liability, through
counsel of their own choosing, at their expense; provided, however, that the
Sellers shall indemnify the Custodian against any damage resulting from the
failure to pay any claims on all such litigation pending. In the event the
Sellers undertake to compromise or defend any such liability, the
Representative shall notify the Custodian in writing promptly of their
intention to do so, and the Custodian shall cooperate with the Sellers and
their counsel in the compromising of or the defending against any such
liabilities or claims, at the expense of the Sellers. The indemnification
shall survive the resignation or termination of the Custodian.
d. The Escrow Agent may resign at any time by giving thirty (30)
days written notice of such resignation to Buyer and Representative. If no
successor Escrow Agent has been named at the expiration of the thirty (30) day
-7-
<PAGE>
period, the Escrow Agent shall have no further obligation hereunder except to
hold the Escrow Fund as a depository. Upon notification by Buyer of the
appointment of the successor, the Escrow Agent shall promptly deliver the
Escrow Fund and all materials in its possession relating to the Escrow Fund
to such successor, and the duties of the resigning Escrow Agent shall
thereupon in all respects terminate, and it shall be released and discharged
from all further obligations hereunder.
Similarly, the Escrow Agent may be discharged from its duties
as Escrow Agent under this Agreement upon thirty (30) days written notice
from Buyer and Representative and upon payment of any and all fees due to
Escrow Agent. In such event, the Escrow Agent shall be entitled to rely on
instructions from Buyer as to the disposition and delivery of the Escrow Fund.
6. FEES OF THE CUSTODIAN. The fees and expenses of the Custodian,
including counsel fees, for acting hereunder shall be paid by Sellers and
Buyer, as set forth thereto in Exhibit A. The Custodian shall have a lien on
the Assets to secure payment of fees and expenses.
7. MISCELLANEOUS.
a. SUCCESSORS. This Agreement shall be binding upon and shall
inure to the benefit of the parties herein and their respective heirs,
executors, successors and assigns.
b. INTEGRATION, ETC. This Custodial Agreement and the Agreement
shall supersede all previous negotiations, commitments and writings with
respect to the subject matter hereof or thereof. This Custodial Agreement
may not be released, discharged, abandoned, changed or modified in any
manner, except by an instrument in writing signed on behalf of each of the
parties hereto by their duly authorized officers or representatives. The
failure of any party hereto to enforce at any time any provision of this
Custodial Agreement shall in no way be construed to be a waiver of such
provision, nor in any way to affect the validity of this Custodial Agreement
or any part thereof or the right of any party thereafter to enforce each and
every such provision. No waiver of any breach of this Custodial Agreement
shall be held to be a waiver of any other or subsequent breach.
c. NOTICES. All notices, objections and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed as provided herein by first class mail,
registered and return receipt requested, addressed to:
-8-
<PAGE>
If to Buyer:
Warner W. Henry
HENRY GROUP OF COMPANIES
2911 Slauson Avenue
Huntington Park, California 90255
If to Representative:
Edward P. Mooney
MONSEY PRODUCTS COMPANY (dba MONSEY BAKOR)
Cold Stream Road
Kimberton, Pennsylvania 19442
If to Custodian:
PNC Bank, National Association
1600 Market Street, 30th Floor
Philadelphia, PA 19103
Attention: Corporate Trust Department
Fax: (215) 585-8872
d. DEFINED TERMS. The capitalized terms used herein without
definition which are defined in the Agreement shall have the respective
meanings as defined.
e. CAPTIONS. The captions appearing in this Custodial Agreement
are inserted only as a matter of convenience and as a reference and in no way
define, limit or describe the scope or intent of this Custodial Agreement or
any of the provisions hereof.
f. GOVERNING LAW. This Custodial Agreement shall be construed
and the rights of the parties hereafter shall be governed by the laws of the
State of Delaware.
g. COUNTERPARTS. This Custodial Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
-9-
<PAGE>
h. DISTRIBUTION BY CONSENT. Any other provision of this
Custodial Agreement to the contrary notwithstanding, the Custodian shall
distribute any assets held in Escrow in such manner at such time or times as
Buyer and the Representative may, in writing, jointly direct.
i. SECURITY AGREEMENT. This Custodial Agreement shall constitute
a Security Agreement within the meaning of Division 9 of the Delaware Uniform
Commercial Code.
j. TERMINATION. This Custodial Agreement shall terminate when
all Assets have ceased to be subject to this Custodial Agreement. Upon
termination of this Custodian Agreement, and upon the delivery of all or a
portion of the Assets held by the Custodian, in accordance with the terms
hereof, the Custodian shall be relieved of any and all further obligations
hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth herein.
BUYER SELLER
/s/ Henry Company
- ------------------------- ---------------------------
a California corporation a Delaware Corporation
By: /s/ Richard B. Gordinier /s/ Joseph Mooney, Jr.
- ------------------------- ---------------------------
Joseph T. Mooney, Jr.
/s/ E. P. Mooney
---------------------------
Edward P. Mooney
*
---------------------------
James F. Stewart
*
---------------------------
Larry A. Karasiuk
*
---------------------------
-10-
<PAGE>
Joseph T. Mooney III
*
---------------------------
Charles J. Mooney
*
---------------------------
Stephen E. Mooney
*
---------------------------
James E. Mooney
*
---------------------------
Lisa M. Brock
*
---------------------------
Patricia A. Dever
*
---------------------------
Edward P. Mooney, Jr.
*
---------------------------
Susan S. Bruce
*
---------------------------
Michael J. Mooney
*
---------------------------
Maureen Mooney
*
---------------------------
Luke A. Mooney
-11-
<PAGE>
Canadian Venture Capital
By: *
---------------------------
*
---------------------------
Kathleen A. Stewart
*
---------------------------
James R. M. Stewart
*
---------------------------
Mark J. C. Stewart
*
---------------------------
Barbara Karasiuk
*
---------------------------
Yves Pare
*
---------------------------
Lionel Borenstein
*
---------------------------
Manfred Sassner
Waywell Management
BY: *
------------------------
*
---------------------------
Robert S. Zalkowitz
-12-
<PAGE>
___________________________
as attorney in fact
___________________________
as attorney in fact
PNC BANK, NATIONAL ASSOCIATION
By: ____________________________
Title: ____________________________
EXHIBIT A
FEES OF THE CUSTODIAN
To cover the acceptance of the appointment; the review and negotiation of the
Custodial Agreement; establishment of the Custody Agreement on the corporate
trust system; receipt of materials required to be filed with the Custodian;
and communication with the working party.
$2,500.00
(Payable upon the Closing Date and in advance of the Annual Anniversary Date)
-13-
<PAGE>
EXHIBIT 12.1
HENRY COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED PRO FORMA
DECEMBER 31, THREE MONTHS ENDED THREE MONTHS ENDED
1995 1996 1997 MARCH 31, 1997 MARCH 31, 1998 MARCH 31, 1998
---- ---- ---- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Earnings (loss) before taxes $ (504) $ 72 $ 2,221 $ (386) $ 605 $(2,098)
Add: Fixed Charges* 1,691 1,706 2,361 576 546 2,437
-------- ------- ------- ---------- ---------- ----------
$ 1,187 $ 1,778 $ 4,582 $ 190 $ 1,151 $ 339
*FIXED CHARGES:
Interest expense $ 1,454 $ 1,475 $ 1,465 $ 352 $ 322 $ 2,162
Interest on rent 237 231 896 224 224 275
------- ------- ------- ---------- ---------- ----------
$ 1,691 $ 1,706 $ 2,361 $ 576 $ 546 $ 2,437
------- ------- ------- ---------- ---------- ----------
------- ------- ------- ---------- ---------- ----------
Ratio of Earnings
to Fixed Charges --(1) 1.0 1.9 -- (1) 2.1 -- (1)
------- ------- ------- ---------- ---------- ----------
------- ------- ------- ---------- ---------- ----------
</TABLE>
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, "earnings" consist of earnings before
taxes plus fixed charges and "fixed charges" consist of interest expense and
the portion of rents representative of an interest factor.
(1) Earnings were insufficient to cover fixed charges for these periods.
<PAGE>
EXHIBIT 21.1
<TABLE>
<CAPTION>
Name of Subsidiary State or Other Jurisdiction Name(s) under which
of Incorporation subsidiary is doing business
<S> <C> <C>
Monsey Products Co. Pennsylvania Monsey Bakor
Kimberton Enterprises, Inc. Delaware n/a
Monsey Products of Arizona, Arizona n/a
LLC
Monsey Bakor Holdings Inc. Ontario, Canada n/a
Monsey Bakor Inc. Ontario, Canada n/a
Bakor Quebec Ltd. Ontario, Canada n/a
Globe-Vedag Holdings Inc.. Ontario, Canada n/a
Globe-Vedag Corp. Ontario, Canada n/a
</TABLE>
<PAGE>
July 15, 1998
Henry Company
2911 Slauson Ave
Huntington Park, CA 90255
We hereby consent to the filing of our opinion, dated April 22, 1998
and addressed to BT Alex.Brown Incorporated, as Exhibit 5.1 to the Registration
Statement to be filed by Henry Company with respect to the registration of its
10% Series B Senior Notes due 2008. We also consent to the reference of our
firm under the heading "Legal Matters" in the Registration Statement. In giving
this consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ Munger, Tolles & Olson LLP
------------------------------
Munger, Tolles & Olson LLP
<PAGE>
JOHN D. O'KEEFE
ATTORNEY AT LAW
SUITE 113 ROBINSON BUILDING
15TH AND CHESTNUT STREETS
PHILADELPHIA, PENNSYLVANIA 19102
____
(215) 564 - 2564
FAX (215) 564 - 2565
Henry Company
2911 Slauson Ave.
Huntington Park, CA 90255
I hereby consent to the filing of my opinion, dated April 22, 1998 and
addressed to BT Alex.Brown Incorporated, as Exhibit 5.2 to the Registration
Statement to be filed by Henry Company with respect to the registration of its
10% Series B Senior Notes due 2008. I also consent to the reference to myself
under the heading "Legal Matters" in the Registration Statement. In giving this
consent, I do not thereby admit that I am in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ John D. O'Keefe
John D. O'Keefe, Esq.
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated February 9, 1998, on our audits of the combined financial
statements of Henry Company. We also consent to the reference to our firm
under the caption "Experts".
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
July 20, 1998
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary Historical
and Unaudited Pro Forma Combined Financial Data," "Selected Historical
Consolidated Financial Data of Monsey Bakor," and "Experts" and to the use of
our report dated February 6, 1998, with respect to the financial statements of
Monsey Products Co., T/A Monsey Bakor included in the Registration Statement
(Form S-4 No. 333-00000) and related Prospectus of Henry Company for the
registration of $85,000,000 of its 10% Series B Senior Notes due 2008.
/s/ Ernst & Young LLP
Philadelphia, PA
July 17, 1998
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
_________________________
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)_
_________________________
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
515 South Flower Street, Suite 2700 95-4311476
Los Angeles, CA 90071 (I.R.S. employer
(Address of principal (Zip Code) identification No.)
executive offices)
DWIGHT LIU
515 South Flower Street, Suite 2700
Los Angeles, California 90071
(213) 861-5000
(Name, address, including zip code and telephone number of agent for
service)
____________________________
Henry Company
(Exact name of obligor as specified in its charter)
CALIFORNIA 95-3618402
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
<PAGE>
2911 Slauson Avenue
Huntington Park, CA 90255
(Address of principal chief executive offices)
Monsey Products Company
(Exact name of guarantor as specified in its charter)
PENNSYLVANIA 23-0887819
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Kimberton Enterprises
(Exact name of guarantor as specified in its charter)
DELAWARE 51-0341834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Monsey Products of Arizona, LLC
(Exact name of guarantor as specified in its charter)
ARIZONA 86-0781792
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10% Senior Notes due 2008
(Title of indenture securities)
<PAGE>
GENERAL
1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency
490 L'Enfant Plaza East, S.W.
Washington, D.C. 20219
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Federal Reserve Bank (12th District)
San Francisco, California
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15.
The obligor currently is not in default under any of its outstanding
securities for which U.S. Trust Company, National Association Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and
15 of Form T-1 are not required under General Instruction B.
<PAGE>
16. LIST OF EXHIBITS
T-1.1 - A copy of the Articles of Association of U.S. Trust Company,
National Association currently in effect.
T-1.2 - A copy of the Certificate of Authority of the Trustee to
Commence Business; incorporated by reference to Exhibit T-1.1 filed with Form
T-1 Statement, Registration No. 33-33031.
T-1.3 - A copy of the Authorization of the Trustee to exercise
Corporate Trust Powers; incorporated by reference to Exhibit T-1.1 filed with
Form T-1 Statement, Registration No. 33-33031.
T-1.4 - A copy of the By-Laws of U.S. Trust Company, National
Association.
T-1.6 - The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939; incorporated by reference to Exhibit T-1.6 filed
with Form T-1 Statement, Registration No. 33-33031.
T-1.7 - A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising or examining
authority.
NOTE
As of July 1, 1998 the Trustee had 20,000 shares of Capital Stock
outstanding, all of which are owned by U.S. Trust Corporation
The responses to Items 2, 5, 6, 7, 8, 9, 10, 11 and 14 set forth the
information requested as though U. S. Trust Company, National Association,
and U.S. Trust Corporation were the "trustee."
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information
to be furnished by the obligor and the trustee disclaims responsibility for
the accuracy or completeness of such information.
<PAGE>
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
ARTICLES OF ASSOCIATION
For the purpose of organizing an association to perform any lawful activities of
national banks, the undersigned do enter into the following Articles of
Association:
ARTICLE FIRST.
The title of this Association shall be U.S. Trust Company, National Association.
ARTICLE SECOND.
The main office of the Association shall be in Los Angeles, county of Los
Angeles, State of California. The general business of the Association shall be
conducted at its main office and its branches.
ARTICLE THIRD.
The Board of Directors of this Association shall consist of not less than five
nor more than twenty-five persons, the exact number to be fixed and determined
from time to time by resolution of a majority of the full Board of Directors or
by resolution of a majority of the shareholders at any annual or special meeting
thereof. Each director, during the full term of his directorship, shall own
common or preferred stock of the association with an aggregate par value of not
less than $1,000, or common or preferred stock of a bank holding company owning
the Association with an aggregate par value or fair market value of not less
than $1,000, as of either (i) the date of purchase, (ii) the date the person
became a director or (iii) the date of that person's most recent election to the
Board of Directors, whichever is greater. Any combination of common or
preferred stock of the Association or holding company can be used.
Any vacancy in the Board of Directors may be filled by action of a majority of
the Board of Directors.
Terms of directors, including directors selected to fill vacancies, shall expire
at the next regular meeting of shareholders at which directors are elected,
unless the directors resign or are removed from office.
Despite the expiration of a director's term, the director shall continue to
serve until his or her successor is elected and qualifies or until there is a
decrease in the number of directors and his or her position is eliminated.
<PAGE>
ARTICLE FOURTH.
There shall be an annual meeting of the shareholders to elect directors and
transact whatever other business may be brought before the meeting. It shall be
held at the main office or any other convenient place the Board of Directors may
designate, on the day of each year specified therefor in the bylaws, or if that
day falls on a legal holiday in the state in which the Association is located,
on the next following banking day. If no election is held on the day fixed or
in the event of a legal holiday, an election may be held on any subsequent day
within 60 days of the day fixed, to be designated by the Board of Directors, or,
if the directors fail to fix the day, by shareholders representing two-thirds of
the shares issued and outstanding. In all cases at least 10 days advance notice
of the meeting shall be given to shareholders by first class mail.
Nominations for election to the Board of Directors may be made by the Board of
Directors or by any stockholder or any outstanding class of capital stock of the
Association entitled to vote for election of directors. Nominations other than
those made by or on behalf of the existing management shall be made in writing
and be delivered or mailed to the President of the Association and to the
Comptroller of the Currency, Washington, D.C., not less than 14 days nor more
than 50 days prior to any meeting of shareholders called for the election of
directors, provided, however, that if less than 21 days notice of the meeting is
given to shareholders, such nominations shall be mailed or delivered to the
President of the Association and to the Comptroller of the Currency not later
than the close of business on the seventh day following the day on which the
notice of meeting was mailed. Such notification shall contain the following
information to the extent known to the notifying shareholder.
1) The name and address of each proposed nominee.
2) The principal occupation of each proposed nominee.
3) The total number of shares of capital stock of the Association that
will be voted for each proposed nominee.
4) The name and resident address of the notifying shareholder.
5) The number of shares of capital stock of the Association owned by the
notifying shareholder.
Nominations not made in accordance herewith may, in his/her discretion, be
disregarded by the chairperson of the meeting, and the vote tellers may
disregard all votes cast for each such nominee. No bylaw may unreasonably
restrict the nomination of directors by shareholders.
A director may resign at any time by delivering written notice to the Board of
Directors, its chairperson, or to the Association, which resignation shall be
effective when the notice is delivered unless the notice specifies a later
effective date.
-2-
<PAGE>
A director may be removed by shareholders at a meeting called to remove him or
her, when notice of the meeting stating that the purpose or one of the purposes
is to remove him or her is provided, if there is a failure to fulfill one of the
affirmative requirements for qualification, or for cause, provided, however,
that a director may not be removed if the number of votes sufficient to elect
him or her under cumulative voting is voted against his or her removal.
ARTICLE FIFTH.
CAPITAL
The total authorized capital stock of the Association shall be 150,000 shares,
consisting of 50,000 shares or common stock par value One Hundred Dollars ($100)
("Common Stock") and 100,000 shares of preferred stock par value Fifty Dollars
($50) ("Preferred Stock").
COMMON STOCK
Holders of Common Stock shall have the exclusive right to vote on all issues
presented to the shareholders, including the election of members of the Board of
Directors, except as otherwise provided by law or in these Articles of
Association. Each share of Common Stock shall be entitled to one vote.
PREFERRED STOCK
On redemption or other reacquisition of any of the Preferred Stock, the
reacquired shares shall be canceled and shall become part of the authorized and
unissued Preferred Stock. The rights, preferences and limitations of the
Preferred Stock are as follows.
DIVIDEND RATE AND NONCUMULATIVE RIGHTS
Holders of shares of Preferred Stock shall be entitled to receive dividends to
the extent that funds are legally available for the declaration and payment of
dividends and the Board of Directors declare a dividend. Dividends, if declared
by the Board of Directors, shall be declared and paid at the rate of seven
percent (7%) a year of the par value of the shares. Dividends for each year
shall be payable in preference and priority to any payment of any dividend on
Common Stock for such year and shall be payable quarterly on the last day of
January, April, July and October in each year for the quarterly period ending on
the respective payment date or otherwise as the Board of Directors may from time
to time determine. The first dividend on the shares shall be payable on
issuance of the shares. The right to the dividends on these shares shall not be
cumulative. For noncumulative dividends, the dividends omitted in any year
shall not accumulate and do not need to be made up in the subsequent year, even
if profits are earned by the Association for the year in which the dividend was
omitted. No right shall accrue to the holders of these shares by reason of the
Board of Directors' failure to pay or declare and set apart dividends for the
shares for any given period stated in this Subparagraph (a). If
-3-
<PAGE>
dividends could legally have been paid in any year but were not, the amount that
could have been paid shall be fully paid, declared, or set aside for payment
without interest before any distribution of dividends or otherwise shall be made
or declared for the holders of Common Stock with respect to such year.
PREFERENCES ON DISSOLUTION, LIQUIDATION OR WINDING UP
On any voluntary or involuntary dissolution, liquidation, or winding up of the
affairs of the Association, before any payment or other distribution, whether in
cash, property, or otherwise, shall be made to the holders of the Common Stock,
the holders of the Preferred Stock shall be entitled to receive for each share
of Preferred Stock they hold the sum equal to par value and no more. The merger
or consolidation of the association into or with any other entity, the merger of
any other entity into the Association, or the sale, lease, or conveyance of all
or substantially all of the property or business of the Association shall not be
deemed to be a dissolution, liquidation, or winding up for purposes of this
Subparagraph (b). If, on any voluntary or involuntary liquidation, dissolution,
or winding up of the affairs of the Association, the assets of the Association
are insufficient to permit full payment to the holders of the Preferred Stock as
provided in this Subparagraph (b), then the holders of the Preferred Stock shall
share ratably in any distribution of assets in proportion to the full amount to
which they would otherwise be respectively entitled.
REDEMPTION
The Association shall have the right to redeem the Preferred Stock at its
option. The Association shall not redeem or repurchase any Common Stock unless
and until all shares of the Preferred Stock have been redeemed. The shares of
the Preferred Stock may be redeemed at any time or periodically, in whole, or,
with consent of the holder of the shares to be redeemed, in part, at the option
of the Association by the vote of its Board of Directors. The shares of the
Preferred Stock shall be redeemed on the following conditions:
REDEMPTION PRICE
The redemption price of each share of Preferred Stock shall be equal to the par
value of the share.
PARTIAL REDEMPTION
If the Association redeems less than all of the outstanding shares of the
Preferred Stock, the redemption may be PRO RATA, by lot, or in any equitable
manner that the Board of Directors in its discretion shall determine.
-4-
<PAGE>
NOTICE
Written notice of redemption shall be given to each holder of record of the
shares of Preferred Stock to be redeemed. The notice of redemption shall be
given by first class mail to each holder's address as it shall appear on the
stock books of the Association. Notice of redemption shall be given at least
thirty (30) days and not more than sixty (60) days before the date fixed for
redemption, the place for payment of the redemption price and for surrender of
the certificate representing the shares to be redeemed, and, if less than all of
the shares of the holder are to be redeemed, the number of the holder's shares
to be redeemed. No defect in the notice nor any defect in the mailing of it
shall alone affect the validity of the proceedings for redemption except as to
any holder to whom the Association has failed to mail the notice or to whom the
notice was defective.
DEPOSIT
On or before the date fixed for the redemption of any shares of Preferred Stock,
the Association may deposit sums sufficient to redeem the shares as a trust fund
for the benefit of the respective holders of the shares. This deposit shall be
made with one or more banks or trust companies. The deposit shall be
accompanied by irrevocable instructions authorizing the banks or trust companies
to (a) deliver in the Association's name the notice of redemption, or to
complete the delivery if previously commenced, and (b) pay on or after the date
fixed for redemption to the holders of the shares being redeemed the redemption
price of the shares on surrender of the certificates representing those shares.
From and after the time of the deposit those shares shall be considered
redeemed. The holders who are entitled to payment for the redemption of their
shares shall be evidenced by a list certified by an officer of the Association.
The deposit shall constitute full payment of the redemption price to the holders
of the shares being redeemed. Those shares shall no longer be considered
outstanding, and the holders of them shall cease to be shareholders with respect
to those shares. The holders of the shares being redeemed shall have no rights
with respect to the shares expect the right to receive from any bank or trust
company in which the deposit was made payment of the redemption price of the
shares, without interest, on surrender of the certificates representing those
shares.
CERTIFICATE FOR UNREDEEMED SHARES
If less than all of the shares of the Preferred Stock are redeemed, the
Association shall issue a new certificate representing the unretired shares of
that class.
NO SINKING FUND
The Association shall not be obligated to make payments into or to maintain any
sinking fund for the Preferred Stock.
-5-
<PAGE>
CONVERSION RIGHTS
The holders of Preferred Stock shall have no conversion rights.
VOTING RIGHTS
The holders of Preferred Stock shall have no voting rights except that the
holders of Preferred Stock shall have the right to vote upon the following
actions which require the affirmative vote of at least two-thirds (2/3) of any
outstanding shares of Preferred Stock.
Any amendment of any provision of this Article Fifth, Paragraph Three, except
amendments relating to a stock split or a reduction in the authorized shares of
Preferred Stock.
Any amendment to the Articles of Association that requires shareholder approval
and that increases the authorized shares of the Association. However, except as
otherwise provided by law, the holders of the Preferred Stock shall not be
entitled to vote on the amendment if the proceeds of the sale of the newly
authorized shares are to be used for the retirement of the Preferred Stock, as
provided in these Articles of Association.
Any merger or consolidation of the Association that by law requires shareholder
approval.
Any sale, lease, exchange, or other disposition of all or substantially all the
assets of the Association that by law requires shareholder approval.
Any acquisition in which this Association proposes to acquire directly or
through a subsidiary in exchange for its shares, obligations, or other
securities some or all of the outstanding shares of another entity, or some or
all of the assets of another entity, business trust, business proprietorship, or
business partnership, that by law requires shareholder approval.
Any voluntary dissolution of this Association pursuant to a shareholder vote.
PREEMPTIVE RIGHTS
No holder of shares of the capital stock of any class of the Association shall
have any preemptive or preferential right of subscription to any shares of any
class of stock of the Association, whether now or hereafter authorized, or to
any obligations convertible into stock of the Association, issued, or sold, nor
any right of subscription to any thereof other than such, if any, as the Board
of Directors, in its discretion, may from time to time determine and at such
price as the Board of Directors may from time to time fix.
-6-
<PAGE>
ISSUANCE OF SHARES AS DIVIDENDS
Shares of the same class or series may be issued as a dividend on a PRO RATA
basis and without consideration. Shares of another class or series may be
issued as a share dividend in respect of a class or series of stock if approved
by a majority of the votes entitled to be cast by the class or series to be
issued unless there are no outstanding shares of the class or series to be
issued. Unless otherwise provided by the Board of Directors, the record date
for determining shareholders entitled to a share dividend shall be the date the
Board of Directors authorizes the share dividend.
SHAREHOLDER OF RECORD
Unless otherwise provided in the bylaws, the record date for determining
shareholders entitled to notice of and to vote at any meeting is the close of
business on the day before the first notice is mailed or otherwise sent to the
shareholders, provided that in no event may a record date be more than 70 days
before the meeting.
FRACTIONAL SHARES
If a shareholder is entitled to fractional shares pursuant to a stock dividend,
consolidation or merger, reverse stock split or otherwise, the Association may
(a) issue fractional shares, or (b) in lieu of the issuance of fractional
shares, issue scrip or warrants entitling the holder to receive a full share
upon surrendering enough scrip or warrants to equal a full share, (c) if there
is an established and active market in the Association's stock, make reasonable
arrangements to provide the shareholder with an opportunity to realize a fair
price through sale of the fraction, or purchase of the additional fraction
required for a full share, (d) remit the cash equivalent of the fraction to the
shareholder, or (e) sell full shares representing all the fractions at public
auction or to the highest bidder after having solicited and received sealed bids
from at least three licensed stock brokers, and distribute the proceeds PRO RATA
to shareholders who otherwise would be entitled to the fractional shares.
Subject to these Articles of Association, the holder of a fractional share is
entitled to exercise the rights of a shareholder, including the right to vote,
to receive dividends, and to participate in the assets of the Association upon
liquidation, in proportion to the fractional interest. The holder of scrip or
warrants is not entitled to any of these rights unless the scrip or warrants
explicitly provide for such rights. The scrip or warrants may be subject to
additional conditions such as (1) that the scrip or warrants will become void if
not exchanged for full shares before a specified date and (2) that the shares
for which the scrip or warrants are exchangeable may be sold at the option of
the Association and the proceeds paid to scripholders.
-7-
<PAGE>
ISSUANCE OF DEBT OBLIGATIONS
The Association, at any time and from time to time, may authorize and issue debt
obligations, whether or not subordinated, without the approval of the
shareholders. Obligations classified as debt, whether or not subordinated,
which may be issued by the Association without the approval of shareholders, do
not carry voting rights on any issue, including an increase or decrease in the
aggregate number of the securities, or the exchange or reclassification of all
or part of the securities into securities of another class or series.
ARTICLE SIXTH.
The Board of Directors shall appoint one of its members President of this
Association, who shall be Chairperson of the Board of Directors unless the Board
of Directors appoints another director to be the Chairperson. The Board of
Directors shall have the power to appoint one or more vice presidents, a
secretary who shall keep minutes of the directors' and shareholders' meetings
and be responsible for authenticating the records of the Association, and such
other officers and employees as may be required to transact the business of this
Association. A duly appointed officer may appoint one or more officers or
assistant officers if authorized by the Board of Directors in accordance with
the bylaws. The Board of Directors shall have the power to:
1) Define the duties of the officers, employees and agents of the Association;
2) Delegate the performance of its duties, but not the responsibility for its
duties, to the officers, employees, and agents of the Association;
3) Fix the compensation and enter into employment contracts with its officers
and employees upon reasonable terms and conditions consistent with
applicable law;
4) Dismiss officers and employees;
5) Require bonds from officers and employees and to fix the penalty thereof;
6) Ratify written policies authorized by the Association's management or
committees of the board;
7) Regulate the manner in which any increase or decrease of the capital of the
Association shall be made, provided that nothing therein shall restrict the
power of shareholders to increase or decrease the capital of the
Association in accordance with law, and nothing shall raise or lower from
two-thirds the percentage required for shareholder approval to increase or
reduce the capital;
8) Manage and administer the business and affairs of the Association;
-8-
<PAGE>
9) Adopt initial bylaws, not inconsistent with law or the Articles of
Association, for managing the business and regulating the affairs of the
Association;
10) Amend or repeal bylaws, except to the extent that the Articles of
Association reserve this power in whole or in part to shareholders;
11) Make contracts; and
12) Generally to perform all acts that are legal for a Board of Directors to
perform.
ARTICLE SEVENTH.
The Board of Directors shall have the power to change the location of the main
office to any other place within the limits of Los Angeles, California, without
the approval of the shareholders, and shall have the power to establish or
change the location of any branch or branches of the Association to any other
location permitted under applicable law, without the approval of the
shareholders, subject to approval by the Office of the Comptroller of the
Currency.
ARTICLE EIGHTH.
The corporate existence of this Association shall continue until terminated
according to the laws of the United States.
ARTICLE NINTH.
The Board of Directors of this Association, or any 1 or more shareholders
owning, in the aggregate, not less than 50 percent of the stock of this
Association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the bylaws or the laws of the United States, or waived by
the shareholders, a notice of the time, place, and purpose of every annual and
special meeting of the shareholders shall be given by first-class mail, postage
prepaid, mailed at least 10, and no more than 60, days prior to the date of the
meeting to each shareholder of record at his/her address as shown upon the books
of this Association. Unless otherwise provided by the bylaws, any action
requiring approval of shareholders must be effected at a duly called annual or
special meeting.
ARTICLE TENTH.
Subject to the following provisions of this Article Tenth, the liability of the
directors of this Association for monetary damages shall be eliminated to the
fullest extent permissible under California law and the laws of the United
States.
-9-
<PAGE>
The Association may make or agree to make indemnification payments to an
institution-affiliated party (as defined in 12 U.S.C. 1813(u)) for an
administrative proceeding or civil action initiated by any federal banking
agency, that are reasonable and consistent with the requirements of 12 U.S.C.
1828(k) and the implementing regulations thereunder.
The Association may indemnify an institution-affiliated party (as defined in 12
U.S.C. 1813(u)) for damages and expenses, including the advancement of expenses
and legal fees, in cases involving an administrative proceeding or civil action
not initiated by a federal banking agency, in accordance with the relevant
provisions of the California General Corporation Law, as they may be amended,
PROVIDED that such payments are consistent with safe and sound banking
practices.
The Association may, upon the affirmative vote of a majority of its Board of
Directors, purchase insurance for the purpose of indemnifying an
institution-affiliated party (as defined in 12 U.S.C. 1813(u)) to the extent
that such indemnification is allowed in the immediate preceding paragraph. Such
insurance may, but need not, be for the benefit of all institution-affiliated
parties (as defined in 12 U.S.C. 1813(u)).
ARTICLE ELEVENTH.
These Articles of Association may be amended at any regular or special meeting
of the shareholders by the affirmative vote of the holders of a majority of the
stock of this Association, unless the vote of the holders of a greater amount of
stock is required by law, and in that case by the vote of the holders of such
greater amount. The Association's Board of Directors may propose one or more
amendments to the Articles of Association for submission to the shareholders.
-10-
<PAGE>
BYLAWS
OF
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
ARTICLE 1
MEETINGS OF SHAREHOLDERS
Section 1.1 ANNUAL MEETING. The regular annual meeting of the shareholders
to elect directors and transact whatever other business may properly come before
the meeting, shall be held at the main office of the Association, 515 South
Flower Street, City of Los Angeles, State of California or such other place as
the Board of Directors may designate, at 10:00 o'clock, on the second Tuesday of
April of each year, or if that date falls on a legal holiday in the State in
which the Association is located, on the next following banking day. Notice of
the meeting shall be mailed, postage prepaid, at least 10 days and no more than
60 days prior to the date thereof, addressed to each shareholder at his or her
address appearing on the books of the Association. If, for any cause, an
election of directors is not made on that date, or in the event of a legal
holiday, on the next following banking day, an election may be held on any
subsequent day within 60 days of the date fixed, to be designated by the Board
of Directors, or, if the directors fail to fix the date, by shareholders
representing two-thirds of the shares.
Section 1.2 SPECIAL MEETINGS. Except as otherwise specifically provided by
statute, special meetings of the shareholders may be called for any purpose at
any time by the Board of Directors or by any one or more shareholders owning, in
the aggregate, not less than ten (10) percent of the stock of the Association.
Every such special meeting, unless otherwise provided by law, shall be called by
mailing, postage prepaid, not less than 10 days nor more than 60 days prior to
the date fixed for the meeting, to each shareholder at the address appearing on
the books of the Association, a notice stating the purpose of the meeting.
The Board of Directors may fix a record date for determining shareholders
entitled to notice and to vote at any meeting, in reasonable proximity to the
date of giving notice to the shareholders of such meeting. The record date for
determining shareholders entitled to demand a special meeting is the date the
first shareholder signs a demand for the meeting describing the purpose or
purposes for which it is to be held.
A special meeting may be called by shareholders or the Board of Directors to
amend the Articles of Association or Bylaws, whether or not such Bylaws may be
amended by the Board in the absence of shareholder approval.
If an annual or special shareholders' meeting is adjourned to a different date,
time, or place, notice need not be given of the new date, time or place, if the
new date, time, or place is announced at the meeting before adjournment, unless
any additional items of business are to be considered, or the Association
becomes aware of an intervening event materially affecting any matter to be
voted on more than 10 days prior to the date to which the meeting is adjourned.
If a new record date for the adjourned meeting is fixed, however, notice of the
adjourned meeting must be given to persons who are shareholders as of the new
record date.
Section 1.3 NOMINATIONS OF DIRECTORS. Nominations for election to the Board
of Directors may be made by the Board of Directors or by any stockholder of any
outstanding class of capital stock of the Association entitled to vote for the
election of directors. Nominations, other than those made by or on behalf of
the
1
<PAGE>
existing management of the Association, shall be made in writing and shall be
delivered or mailed to the President of the Association not less than 14 days
nor more than 50 days prior to any meeting of shareholders called for the
election of directors, provided, however, that if less than 21 days' notice of
the meeting is given to shareholders, such nomination shall be mailed or
delivered to the President of the Association no later than the close of
business on the seventh day following the day on which the notice of meeting was
mailed. Such notification shall contain the following information to the extent
known to the notifying shareholder:
1) The name and address of each proposed nominee.
2) The principal occupation of each proposed nominee.
3) The total number of shares of capital stock of the Association
that will be voted for each proposed nominee.
4) The name and resident address of the notifying shareholder.
5) The number of shares of capital stock of the Association owned by
the notifying shareholder.
Nominations not made in accordance herewith may, in his/her discretion, be
disregarded by the chairperson of the meeting, and upon his/her instructions,
the vote tellers may disregard all votes cast for each such nominee.
Section 1.4 PROXIES. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing, but no officer or employee
of the Association shall act as proxy. Proxies shall be valid only for one
meeting, to be specified therein, and any adjournments of such meeting. Proxies
shall be dated and filed with the records of the meeting. Proxies with
facsimile signatures may be used and unexecuted proxies may be counted upon
receipt of a written confirmation from the shareholder. Proxies meeting the
above requirements submitted at any time during a meeting shall be accepted.
Section 1.5 QUORUM. A majority of the outstanding capital stock, represented
in person or by proxy, shall constitute a quorum at any meeting of shareholders,
unless otherwise provided by law, or by the shareholders or directors pursuant
to Section 10.2, but less than a quorum may adjourn any meeting, from time to
time, and the meeting may be held, as adjourned, without further notice. A
majority of the votes cast shall decide every question or matter submitted to
the shareholders at any meeting, unless otherwise provided by law or by the
Articles of Association, or by the shareholders or directors pursuant to Section
10.2.
Section 1.6 ACTION WITHOUT MEETING. Any action required by law, these
Bylaws, or the Articles of Association of the Association to be taken at any
annual or special meeting of the shareholders of the Association, or any action
which may be taken at any annual or special meeting of such shareholders, may be
taken without a meeting, without prior notice, and without a vote, if a consent
signed in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock, having not less than the minimum number of votes
it would be necessary to authorize or take such action at a meeting at which all
2
<PAGE>
shares entitled to vote thereon were present and voted. If any class of shares
is entitled to vote thereon as a class, such written consent shall be required
of the holders of a majority of the shares of each class of shares entitled to
vote as a class thereon, and if the total shares entitled to vote therein.
ARTICLE 2
DIRECTORS
Section 2.1 BOARD OF DIRECTORS. The Board of Directors shall have the power
to manage and administer the business and affairs of the Association. Except as
expressly limited by law, all corporate powers of the Association shall be
vested in and may be exercised by the Board of Directors.
Section 2.2 NUMBER. The Board shall consist of no less than five nor more
than twenty-five persons, the exact number within such minimum and maximum
limits to be fixed and determined from time to time by resolution of a majority
of the full Board or by resolution of a majority of the shareholders at any
meeting thereof.
Section 2.3 ORGANIZATION MEETING. The cashier or secretary, upon receiving
the certificate of the judges, of the result of any election, shall notify the
directors-elect of their election and of the time at which they are required to
meet at the main office of the Association to organize the new Board and elect
and appoint officers of the Association for the succeeding year. Such meeting
shall be held on the day of the election or as soon thereafter as practicable,
and, in any event, within 30 days thereof. If, at the time fixed for such
meeting, there shall not be a quorum, the directors present may adjourn the
meeting, from time to time, until a quorum is obtained.
Section 2.4 REGULAR MEETINGS. The regular meetings of the Board of Directors
shall be held, without notice, immediately following the annual meeting of the
Shareholders, and at least one regular meeting is to be held in each calendar
quarter upon notice. Written notice of the time and place of such regular
meeting of the Board of Directors shall be given to each director by either
personal delivery or telegram at least two (2) days before the meeting or by
notice mailed to the director at least five (5) days before each meeting. When
any regular meeting of the Board falls upon a holiday, the meeting shall be held
on the next banking business day unless the Board shall designate another day.
Section 2.5 SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the President of the Association, or at the request of two or more
directors. Each member of the Board of Directors shall be given notice stating
the time and place by telegram, first class mail, or in person, of each such
special meeting.
Section 2.6 QUORUM. A majority of the director positions on the Board shall
constitute a quorum at any meeting, except when otherwise provided by law, or
the Bylaws, but a lesser number may adjourn any meeting, from time to time, and
the meeting may be held, as adjourned, without further notice. If the number of
directors is reduced below the number that would constitute a quorum, no
business may be transacted, except selecting directors to fill vacancies in
conformance with section 2.7. Members of the Board of Directors or any
committee thereof may participate in the meeting of such Board or committee by
means of a conference, telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time. Participating by such means shall constitute presence in person at a
meeting.
3
<PAGE>
If a quorum is present, the Board of Directors may take action through the vote
of a majority of the directors who are in attendance.
Section 2.7 VACANCIES. When any vacancy occurs among the directors, a
majority of the remaining members of the Board, according to the laws of the
United States, may appoint a director to fill such vacancy at any regular
meeting of the Board, or at a special meeting called for that purpose at which a
quorum is present, or if the directors remaining in office constitute fewer than
a quorum of the Board, by the affirmative vote of a majority of all the
directors remaining in office, or by shareholders at a special meeting called
for that purpose, in conformance with Section 2.2 of this Article. At any such
shareholder meeting, each shareholder entitled to vote shall have the right to
multiply the number of votes he or she is entitled to cast by the number of
vacancies being filled and cast the product for a single candidate or distribute
the product among two or more candidates.
A vacancy that will occur at a specific later date (by reason of a resignation
effective at a later date) may be filled before the vacancy occurs, but the new
director may not take office until the vacancy occurs.
Section 2.8 ACTION WITHOUT MEETING. Any action required to be taken at a
meeting of the Board of Directors of the Association, or any action which may be
taken at a meeting of the Board of Directors or committee thereof, may be taken
without a meeting if a consent in writing, sets forth the actions to be taken,
sought by all of the directors, or all the members of the committee, as the case
may be, is filed in the Minutes of the proceedings of the Board of Directors or
of the committee. Such consent shall have the same effect as a unanimous vote.
ARTICLE 3
COMMITTEES OF THE BOARD
Section 3.1 LOAN COMMITTEE. There shall be a Loan Committee composed of two
or more directors, appointed by the Board annually or more often. The Loan
Committee shall have power to discount and purchase bills, notes and other
evidences of debt, to buy and sell bills of exchange, to examine and approve
loans and discounts, to exercise authority regarding loans and discounts, and to
exercise, when the Board is not in session, all other powers of the Board that
may be delegated lawfully. The Loan Committee shall keep minutes of its
meetings, and such minutes shall be submitted at the next regular meeting of the
Board of Directors at which a quorum is present, and any action taken by the
Board with respect thereto shall be entered in the minutes of the Board.
Section 3.2 INVESTMENT AND ASSET/LIABILITY MANAGEMENT COMMITTEE. There shall
be an Investment and Asset/Liability Management Committee composed of two or
more directors, appointed by the Board of Directors annually or more often. The
Investment and Asset/Liability Management Committee shall have the power to
ensure adherence to the investment policy, to recommend amendments thereto, to
purchase and sell securities, to exercise authority regarding investments, and
to exercise, when the Board of Directors is not in session, all other powers of
the Board of Directors regarding investment securities that may be lawfully
delegated. The Investment and Asset/Liability Management Committee shall keep
minutes of its meetings, and such minutes shall be submitted at the next regular
meeting of the Board of Directors at which a quorum is present, and any action
taken by the Board with respect thereto shall be entered in the minutes of the
Board.
Section 3.3 EXAMINING COMMITTEE. There shall be an Examining Committee
composed of no less than two directors appointed by the Board annually or more
often. The duty of the Committee shall be to examine at
4
<PAGE>
least once during each calendar year and within 15 months of the last
examination the affairs of the Association or cause suitable examinations to be
made by auditors responsible only to the Board and to report the result of such
examinations in writing to the Board. Such report shall state whether the
Association is in a sound condition, and whether adequate internal controls and
procedures are being maintained and shall recommend to the Board such changes in
the manner of conducting the affairs of the Association as shall be deemed
advisable. The Committee shall also arrange for a suitable audit by internal or
external auditors of all significant fiduciary activities at least once during
each calendar year. The Committee shall report the results of the audit of the
fiduciary activities, including significant actions taken as a result of the
audit, to the Board.
Section 3.4 EXECUTIVE COMMITTEE. There shall be an Executive Committee
composed of two or more directors which shall have the responsibility of
approving all new lines of business and may exercise all the authority of the
Board of the Directors when the Board of the Directors is not in session,
subject to the limitations as stated below. The Executive Committee shall keep
minutes of its meetings, and such minutes shall be submitted at the next regular
meeting of the Board of Directors at which a quorum is present, and any action
taken by the Board with respect thereto, shall be entered in the minutes of the
Board of Directors.
Section 3.5 OTHER COMMITTEES. The Board of Directors may appoint from time
to time from its own members, compensation, special litigation and other
committees of one or more persons, for such purposes and with such powers as the
Board of Directors may determine. The Board of Directors may appoint to any
committee from time to time one or more persons who are not Board members.
However, a committee may not:
1) Authorize distributions of assets or dividends.
2) Approve action required to be approved by shareholders.
3) Fill vacancies on the Board of Directors or any of its committees.
4) Amend the Articles of Association.
5) Adopt, amend, or repeal the Bylaws.
6) Authorize or approve the issuance or sale, or contract for sale, of
shares or determine the designation and relative rights, preferences,
and limitations of a class or series of shares.
ARTICLE 4
OFFICERS AND EMPLOYEES
Section 4.1 CHAIRPERSON OF THE BOARD. The Board of Directors shall appoint
one of its members to be the Chairperson of the Board to serve at its pleasure.
Such person shall preside at all meetings of the Board of Directors. The
Chairperson of the Board shall supervise the carrying out of the policies
adopted or approved by the Board; shall have general executive powers, as well
as the specific powers conferred by these Bylaws; and shall also have and may
exercise such further powers and duties as from time to time may be conferred
upon, or assigned by the Board of Directors.
5
<PAGE>
Section 4.2 PRESIDENT. The Board of Directors shall appoint one of its
members to be the President of the Association. In the absence of the
Chairperson, the President shall preside at any meeting of the Board. The
President shall have general executive powers, and shall have and may exercise
any and all other powers and duties pertaining by law, regulation, or practice,
to the office of President, or imposed by these Bylaws. The President shall
also have and may exercise such further powers and duties as from time to time
may be conferred, or assigned by the Board of Directors.
Section 4.3. VICE PRESIDENT. The Board of Directors may appoint one or more
vice presidents. Each vice president shall have such powers and duties as may
be assigned by the Board of Directors. One vice president may be designated by
the Board of Directors, in the absence of the President, to perform all the
duties of the President.
Section 4.4 SECRETARY. The Board of Directors shall appoint a secretary,
cashier, or other designated officer who shall be secretary of the Board and of
the Association, and shall keep accurate minutes of all meetings. The Secretary
shall attend to the giving of all notices required by these Bylaws; shall be
custodian of the corporate seal, records, documents, and papers of the
Association; shall provide for the keeping of proper records of all transactions
of the Association; shall have and may exercise any and all other powers and
duties pertaining by law, regulation, or practice, to the office of cashier, or
imposed by these Bylaws; and shall also perform such other duties as may be
assigned from time to time, by the Board of Directors.
Section 4.5 OTHER OFFICERS. The Board of Directors may appoint one or more
assistant vice presidents, one or more trust officers, one or more assistant
secretaries, one or more assistant cashiers, one or more managers and assistant
managers of branches and such other officers and attorneys in fact as from time
to time appear to the Board of Directors to be required or desirable to transact
the business of the Association. Such officers shall respectively exercise such
powers and perform such duties as pertain to their several offices, or as may be
conferred upon, or assigned to, them by the Board of Directors, the Chairperson
of the Board, or the President. The Board of Directors may authorize an officer
to appoint one or more officers or assistant officers.
Section 4.6 TENURE OF OFFICE. The President and all other officers shall
hold office for the current year for which the Board was elected, unless they
shall resign, become disqualified, or be removed; and any vacancy occurring in
the office of President shall be filled promptly by the Board of Directors.
Section 4.7 RESIGNATION. An officer may resign at any time by delivering
notice to the Association. A resignation is effective when the notice is given
unless the notice specifies a later effective date.
ARTICLE 5
FIDUCIARY ACTIVITIES
Section 5.1 TRUST OFFICER. There shall be a Trust Officer of this
Association whose duties shall be to manage, supervise, and direct all fiduciary
activities. Such persons shall do or cause to be done all things necessary or
proper in carrying on the fiduciary business of the Association according to
provisions of law and applicable regulations; and shall act pursuant to opinion
of counsel where such opinion is deemed necessary. Opinions of counsel shall be
retained on file in connection with all important matters pertaining to
fiduciary activities. The Trust Officer shall be responsible for all assets and
documents held by the Association in connection with fiduciary matters.
6
<PAGE>
The Board of Directors may appoint other trust officers as it may deem
necessary, with such duties as may be assigned.
Section 5.2 ACCOUNT REVIEW COMMITTEE. There shall be an Account Review
Committee of this Association composed of two or more members, who shall be
capable and experienced officers or directors of the Association. The Account
Review Committee shall keep minutes of all its meetings, showing the disposition
of all matters considered and passed upon by it. The Account Review Committee
shall, promptly after the acceptance of an account for which the Association has
investment responsibilities, review the assets thereof, to determine the
advisability of retaining or disposing of such assets. The committee shall
conduct a similar review at least once during each calendar year thereafter and
within 15 months of the last such review. A report of all such reviews,
together with the action taken as a result thereof, shall be noted in the
minutes of the committee.
Section 5.3 FIDUCIARY FILES. There shall be maintained by the Association
all fiduciary records necessary to assure that its fiduciary responsibilities
have been properly undertaken and discharged.
Section 5.4 TRUST INVESTMENTS. Funds held in a fiduciary capacity shall be
invested according to the instrument establishing the fiduciary relationship and
local law. Where such instrument does not specify the character and class of
investments to be made and does not vest in the Association a discretion in the
matter, funds held pursuant to such instrument shall be invested in investments
in which corporate fiduciaries may invest under local law.
ARTICLE 6
STOCK AND STOCK CERTIFICATES
Section 6.1 TRANSFERS. Shares of stock shall be transferable on the books of
the Association, and a transfer book shall be kept in which all transfers of
stock shall be recorded. Every person becoming a shareholder by such transfer
of stock shall in proportion to his or her shares, succeed to all rights of the
prior holder of such shares. The Board of Directors may impose conditions upon
the transfer of the stock reasonably calculated to simplify the work of the
Association for stock transfers, voting at shareholder meetings, and related
matters, and to protect it against fraudulent transfers.
Section 6.2 STOCK CERTIFICATES. Certificates of stock shall bear the
signature of the President (which may be engraved, printed or impressed), and
shall be signed manually or by facsimile process by the secretary, assistant
secretary, cashier, assistant cashier, or any other officer appointed by the
Board of Directors for that purpose, to be known as an authorization officer,
and the seal of the Association shall be engraved thereon. Each certificate
shall recite on its face that the stock represented thereby is transferable only
upon the books of the Association properly endorsed.
The Board of Directors may adopt or utilize procedures for replacing lost,
stolen, or destroyed stock certificates as permitted by law.
7
<PAGE>
The Association may establish a procedure through which the beneficial owner of
shares that are registered in the name of a nominee may be recognized by the
Association as the shareholder. The procedure may set forth:
1) The types of nominees to which it applies.
2) The rights or privileges that the Association recognizes in a
beneficial owner.
3) How the nominee may request the Association to recognize the
beneficial owner as the shareholder.
4) The information that must be provided when the procedure is selected.
5) The period over which the Association will continue to recognize the
beneficial owner as the shareholder.
6) Other aspects of the rights and duties created.
ARTICLE 7
CORPORATE SEAL
The President, the secretary, or any assistant cashier or assistant secretary,
or other officer thereunto designated by the Board of Directors, shall have
authority to affix the corporate seal to any document requiring such seal, and
to attest to the same. Such seal shall be substantially in the following form:
ARTICLE 8
MISCELLANEOUS PROVISIONS
Section 8.1 FISCAL YEAR. The fiscal year of the Association shall be the
calendar year.
Section 8.2 EXECUTION OF INSTRUMENTS. All agreements, indentures, mortgages,
deeds, conveyances, transfers, certificates, declarations, receipts, discharges,
releases, satisfactions, settlements, petitions, schedules, accounts,
affidavits, bonds, undertakings, proxies and other instruments or documents may
be
8
<PAGE>
signed, executed, acknowledged, verified, delivered, or accepted on behalf of
the Association by the Chairperson of the Board, or the President, or any vice
president, or the secretary, or the cashier, or, if in connection with the
exercise of fiduciary powers of the Association, by any of those officers or by
any trust officer. Any such instruments may also be executed, acknowledged,
verified, delivered, or accepted on behalf of the Association in such manner and
by such other officers as the Board of Directors may from time to time direct.
The provision of this Section 8.2 are supplementary to any other provisions of
these Bylaws.
Section 8.3 RECORDS. The Articles of Association, the Bylaws and the
proceedings of all meetings of the shareholders, the Board of Directors, and
standing committees of the Board, shall be recorded in appropriate minute books
provided for that purpose. The minutes of each meeting shall be signed by the
secretary, cashier, or other officer appointed to act as secretary of the
meeting.
9
<PAGE>
ARTICLE 9
INDEMNIFICATION
Section 9.1 INDEMNIFICATION. In the case of any individual who in the
opinion of the Chairman of the Board or the President appears to be reasonably
entitled to indemnification under Article 10 of the Articles of Association,
reasonable expenses, including attorneys' fees, incurred in defending any action
or proceeding, whether threatened or pending, shall be paid or reimbursed by the
Association in advance of the final disposition thereof upon receipt of an
undertaking by or on behalf of the person seeking indemnification to repay such
amount to the Association to the extent, if any, such person is ultimately found
not to be entitled to indemnification.
The Association is hereby authorized, but shall not be required, to enter into
agreements with any of its Directors, officers, or employees providing for
rights to indemnification and advancement and reimbursement of reasonable
expenses, including attorneys' fees, to the extent permitted by law, but the
Association's failure to do so shall not in any manner affect or limit the
rights provided for by this Article 9 or otherwise.
For purposes of this Article 9 and Article 10 of the Articles of Association,
the term "Association" shall include any legal successor to the Association,
including any corporation which acquires all or substantially all of the assets
of the Association in one or more transactions. The Association shall be deemed
to have requested a person to serve an employee benefit plan where the
performance by such person of his duties to the Association or any subsidiary
thereof also imposes duties on, or otherwise involves services by, such person
to the plan or participants or beneficiaries of the plan, and excise taxes
assessed on a person with respect to an employee benefit plan pursuant to
applicable law shall be considered fines.
The rights granted pursuant to or provided by the foregoing provision of Article
9 and Article 10 of the Articles of Association shall be in addition to and
shall not be exclusive of any other right to indemnification and expenses to
which any person may otherwise be entitled under any statute, rule, regulation,
certificate of incorporation or other organization certificate, bylaw,
agreement, or otherwise.
ARTICLE 10
BYLAWS
Section 10.1 INSPECTION. A copy of the Bylaws, with all amendments, shall at
all times be kept in a convenient place at the main office of the Association,
and shall be open for inspection to all shareholders during banking hours.
Section 10.2 AMENDMENTS. The Bylaws may be amended, altered or repealed, at
any regular meeting of the Board of Directors, by a vote of a majority of the
total number of the directors except as provided below. The Association's
shareholders may amend or repeal the Bylaws even though the Bylaws also may be
amended by the Board of Directors.
10
<PAGE>
_________________________
Pursuant to the requirements of the Trust Indenture of Act of 1939, the
trustee, U.S. Trust Company, National Association, a corporation organized
and existing under the laws of the State of California, has duly caused this
statement of eligibility and qualification to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Los Angeles, and
State of California, on the 1st day of July, 1998.
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
Trustee
By:
------------------------------------------
Lawrence E. Gerquest
Authorized Signatory
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
U.S. TRUST COMPANY OF CALIFORNIA, N.A. Call Date: 13/31/98 ST-BK: 06-0784 FFIEC 033
515 SOUTH FLOWER STREET, SUITE 2700 Vendor ID: D Cert #: 33332 Page RC-1
LOS ANGELES, CA 90071 Transit #: 12204024
/9/
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC - BALANCE SHEET
<TABLE>
<CAPTION>
C200
DOLLAR AMOUNTS IN THOUSANDS
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C>
1. Cash and balances due from depository institutions (from Schedule RC-A) RCON
a. Noninterest-bearing balances and currency and coin (1)_________________ ______ _______ 0081 7,317 1.a
b. Interest bearing balances (2)__________________________________________ ______ _______ 0071 141 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)_____________ ______ _______ 1754 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D)___________ ______ _______ 1773 176,441 2.b
3. Federal funds sold and securities purchased under agreements to resell_____ ______ _______ 1350 62,000 3.
4. Loans and lease financing receivables: RCON
a. Loans and leases, net of unearned income (from Schedule RC-C)__________ 2122 56,321 4.a
b. LESS: Allowance for loan and lease losses_____________________________ 3123 979 4.b
c. LESS: Allocated transfer risk reserve_________________________________ 3128 0 4.c
d. Loans and leases, net of unearned income, allowance, and reserve RCON 55,432
(item 4.a minus 4.b and 4.c)___________________________________________ ______ _______ 2125 4.d
5. Trading assets_____________________________________________________________ ______ _______ 3545 0 5.
6. Premises and fixed assets (including capitalized leases)___________________ ______ _______ 2145 8,213 6.
7. Other real estate owned (from Schedule RC-M)_______________________________ ______ _______ 2150 0 7.
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M)_______________________________________________________ ______ _______ 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding_______________ ______ _______ 2155 0 9.
10. Intangible assets (from Schedule RC-M)_____________________________________ ______ _______ 2143 2,331 10.
11. Other assets (from Schedule RC-F)__________________________________________ ______ _______ 2160 5,418 11.
12. Total assets (sum of items 1 through 11)___________________________________ ______ _______ 2170 317,203 12.
- ---------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
U.S. TRUST COMPANY OF CALIFORNIA, N.A. Call Date: 13/31/98 ST-BK: 06-0784 FFIEC 033
515 SOUTH FLOWER STREET, SUITE 2700 Vendor ID: D Cert #: 33332 Page RC-2
LOS ANGELES, CA 90071 Transit #: 12204024
/10/
</TABLE>
SCHEDULE RC - CONTINUED
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN THOUSANDS
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
<S> <C> <C> <C> <C> <C>
13. Deposits:
a. In domestic offices (sum of totals of RCON
columns A and C from Schedule RC-E)____________________________________ 2200 277,776 13.a
RCON
(1) Noninterest-bearing (1)____________________________________________ 6631 32,591 13.a.1
(2) Interest-bearing __________________________________________________ 6636 245,185
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing________________________________________________
(2) Interest-bearing___________________________________________________
14. Federal funds purchased(2) and securities sold under agreements to repurchase: RCON 0 14
2800
15. a. Demand notes issued to the U.S. Treasury________________________________ ______ _______ 2840 0 15.a
b. Trading liabilities_____________________________________________________ ______ _______ 3548 0 15.b
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
A. WITH A REMAINING MATURITY OF ONE YEAR OR LESS___________________________ ______ _______ 2332 0 16.a
B. WITH A REMAINING MATURITY OF MORE THAN ONE YEAR THROUGH THREE 0
YEARS_______________________________________________________________________ ______ _______ A547 16.b
C. WITH A REMAINING MATURITY OF MORE THAN THREE YEARS______________________ ______ _______ A548 0 16.c
17. Not applicable
18. Bank's liability on acceptances executed and outstanding____________________ ______ _______ 2920 0 18.
19. Subordinated notes and debentures___________________________________________ ______ _______ 3200 0 19.
20. Other liabilities (from Schedule RC-G)______________________________________ ______ _______ 2930 7,486 20.
21. Total liabilities (sum of items 13 through 20)______________________________ ______ _______ 2948 285,262 21.
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus________________________________ ______ ______ 3838 5,000 23.
24. Common stock_________________________________________________________________ ______ ______ 3230 2,000 24.
25. Surplus (exclude all surplus related to preferred stock)_____________________ ______ ______ 3839 12,745 25.
26. a. Undivided profits and capital reserves___________________________________ ______ ______ 3632 11,096 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities___ ______ ______ 8434 1,100 26.b
27. Cumulative foreign currency translation adjustments__________________________
28. a. Total equity capital (sum of items 23 through 27)________________________ ______ ______ 3210 31,941 28.
29. Total liabilities and equity capital (sum of items 21and 28)_________________ ______ ______ 3300 317,203 29.
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that best
describes the most comprehensive level of auditing work performed for the
bank by independent external auditors as of any date during 1997______________________________ RCON
6724 1 M.1
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by
submits a report on the consolidated holding company (but external auditors
not on the bank separately) 7 = Other audit procedures (excluding tax preparation
3 = Directors' examination of the bank conducted in accordance work)
with generally accepted auditing standards by a certified 8 = No external audit work
public accounting firm (may be required by state chartering
authority)
</TABLE>
- ---------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited life preferred stock and related surplus.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
HENRY COMPANY'S DECEMBER 31, 1997 AUDITED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000046916
<NAME> HENRY COMPANY
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 118,857
<SECURITIES> 0
<RECEIVABLES> 10,530,269
<ALLOWANCES> 161,365
<INVENTORY> 5,882,262
<CURRENT-ASSETS> 20,280,252
<PP&E> 18,690,358
<DEPRECIATION> 13,207,170
<TOTAL-ASSETS> 30,417,647
<CURRENT-LIABILITIES> 13,076,722
<BONDS> 0
0
0
<COMMON> 2,853,669
<OTHER-SE> 2,268,689
<TOTAL-LIABILITY-AND-EQUITY> 30,417,647
<SALES> 67,423,603
<TOTAL-REVENUES> 67,423,603
<CGS> 46,412,828
<TOTAL-COSTS> 63,741,562
<OTHER-EXPENSES> 137,241
<LOSS-PROVISION> 179,374
<INTEREST-EXPENSE> 1,144,118
<INCOME-PRETAX> 2,221,308
<INCOME-TAX> 33,320
<INCOME-CONTINUING> 2,187,988
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,187,988
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
