<PAGE> 1
Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 15, 1998
Hercules Incorporated
(Exact name of registrant as specified in its charter)
Delaware 001-00496 51-0023450
(State of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
Hercules Plaza
1313 North Market Street
Wilmington, Delaware 19894-0001
(Address of principal executive offices) (Zip Code)
(302) 594-5000
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On October 15, 1998, Hercules Incorporated, a Delaware
corporation ("Hercules"), consummated the transactions contemplated by the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of July 30,
1998, among Hercules, Water Acquisition Co., a Pennsylvania corporation and a
wholly owned subsidiary of Hercules ("Merger Sub"), and BetzDearborn Inc., a
Pennsylvania corporation ("BetzDearborn"), pursuant to which, among other
things, Merger Sub was merged with and into BetzDearborn, with BetzDearborn
continuing as the surviving corporation and a wholly owned subsidiary of
Hercules (the "Merger").
Upon the consummation of the Merger, each outstanding Common
Share, par value $.10 per share, of BetzDearborn ("Common Shares") was converted
into the right to receive $72 in cash, without interest thereon (the "Merger
Consideration"). Under BetzDearborn's Articles of Incorporation, shares of
Series A ESOP Convertible Preferred Shares, par value $.10 per share, of
BetzDearborn were automatically converted into Common Shares prior to the
Merger, with each such Common Share converted into the right to receive the
Merger Consideration. As a result of the Merger, the former shareholders of
BetzDearborn are entitled to receive from Hercules cash payments totaling an
aggregate of approximately $2.4 billion. Additionally, Hercules assumed or
refinanced approximately $700 million in BetzDearborn debt. The Merger
Consideration is to be paid with borrowings under a $3.65 billion credit
facility which was syndicated by NationsBank, N.A., and which was consummated on
October 15, 1998. Under such credit facility, Hercules, and certain of its
subsidiaries designated as borrowers, can borrow up to $900 million under
revolving credit loans and up to $2.75 billion as term loans, due at various
times ending December 31, 2003. Hercules has the option to prepay the revolving
credit loans or term loans in whole or in part pursuant to the provisions of
the credit facility and is obligated to make mandatory prepayments (i) if the
revolving credit loan obligations exceed the maximum aggregate principal amount,
(ii) upon certain asset dispositions, (iii) upon the receipt of proceeds from
any permitted receivables financings, and (iv) upon certain equity issuances as
long as any term loan is outstanding. For more information with respect to the
credit facility, reference is made to the provisions of the Credit Agreement
dated October 15, 1998, among Hercules, NationsBank, N.A., as Administrative
Agent and the lenders party thereto attached hereto as an exhibit to this
Current Report on Form 8-K and incorporated by reference herein.
In connection with the Merger, Hercules increased the size of
its Board of Directors (the "Board of Directors") to fourteen members and
elected four current directors of BetzDearborn, including William R. Cook, John
G. Drosdick, Alan R. Hirsig and John A. H. Shober, to fill the vacancies
created. Additionally, Hercules created an "Office of the Chairman" with R.
Keith Elliott serving as Chairman and Co-Chief Executive Officer, William R.
Cook serving as Vice Chairman and Co-Chief Executive Officer and Vincent J.
Corbo serving as President and Chief Operating Officer, of Hercules. Moreover,
George MacKenzie will continue to serve as Senior Vice President and Chief
Financial Officer of Hercules, Larry V. Rankin was appointed Senior Vice
President (Company Non-Paper Operations) and Dominick Di Donna was appointed
Senior Vice President (Paper Operations).
BetzDearborn is a leading global manufacturer and supplier of
specialty chemicals used in industrial, commercial, and institutional accounts
for the treatment of water, wastewater and process systems.
Copies of the following press releases issued by Hercules are
attached hereto as exhibits to this Current Report on Form 8-K and are
incorporated herein by reference: (i) a press release dated October 15, 1998
announcing the consummation of the Merger and (ii) a press release, dated
October 19, 1998 announcing the appointment of certain BetzDearborn directors to
the Board of Directors.
Item 5. Other Events.
In 1980, Hercules, along with UniRoyal Standard Chlorine, the
Department of Defense (the "DoD") and others, was identified as a potentially
responsible party by the United States Environmental Protection Agency for
environmental cleanup at a site in Jacksonville, Arkansas. Litigation over
liability at this site has been pending since that time on the District Court
for the Eastern District of Arkansas (the "Court").
As a result of a pretrial court ruling in October 1993,
Hercules was held jointly and severally liable for costs incurred, and for
future remediation costs, at the Jacksonville site. Hercules has reported on
the status of this litigation in certain of its prior Annual Reports on Form
10-K and Quarterly Reports on Form 10-Q, with the most recent update being in
its Quarterly Report on Form 10-Q for the period ended June 30, 1998. Other
defendants in this litigation have either settled with the government or, in
the case of the DoD, have not been held liable. Hercules appealed the Court's
order finding the DoD not liable. On January 31, 1995, the Eighth Circuit Court
of Appeals upheld the Court's order. Hercules filed a petition to the U.S.
Supreme Court requesting review and reversal of the Eighth Circuit's ruling.
The petition was denied on June 26, 1995, and the case was remanded to the
Court for further proceedings.
On May 21, 1997, the Court issued a ruling that Uniroyal was
liable to Hercules for contribution and that Standard Chlorine was not liable to
Hercules for contribution. A trial on allocation and damages among Hercules,
Uniroyal and the United States was scheduled to begin in October 1998. Through
the filing of separate summary judgment motions, Hercules and Uniroyal raised a
number of defenses to the United States' costs.
On October 23, 1998, the Court denied the above-referenced
motions and granted the United States' summary judgment motion, ordering
Hercules and Uniroyal to pay the United States $102,878,641.35 plus any
additional response costs incurred or to be incurred after July 31, 1997.
Hercules expects that this amount will be reduced by approximately $7 million,
the amounts received by the United States in previous settlements with other
parties. The trial on allocation of damages between Hercules and Uniroyal is
scheduled to begin on November 2, 1998. After a final judgment has been entered
in such trial, Hercules expects to appeal, among other things, the Court's
determination with respect to Hercules' liability, the order granting the
United States' costs, the issues related to the divisibility of harm and the
ruling with respect to Standard Chlorine's liability.
Hercules does not anticipate that its financial condition
will be materially affected by the outcome of this litigation.
2
<PAGE> 3
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(a) Financial Statements
INDEX TO FINANCIAL STATEMENTS
OF
BETZDEARBORN INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the years ended December 31, 1997,
1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Balance Sheets as of December 31, 1997 and 1996. . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Common Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . F-9
Consolidated Statements of Operations for the six months ended June 30, 1998
and 1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-32
Consolidated Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997. . . . .F-33
Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997
(unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-35
Notes to Consolidated Financial Statements (unaudited). . . . . . . . . . . . . . . . . . F-36
</TABLE>
F-1
<PAGE> 4
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
BetzDearborn Inc.
We have audited the accompanying consolidated balance sheets of BetzDearborn
Inc. as of December 31, 1997 and 1996, and the related consolidated statements
of operations, common 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 BetzDearborn Inc.
at December 31, 1997 and 1996, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, at October 1,
1997, the Company changed its method of accounting for certain business process
reengineering costs.
/S/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 2, 1998
F-2
<PAGE> 5
CONSOLIDATED STATEMENTS OF OPERATIONS
BetzDearborn Inc.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Year Ended December 31
---------------------------------------
(in millions, except per share amounts) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,294.8 $1,037.0 $ 752.5
Operating Costs and Expenses:
Cost of products sold 518.7 409.3 273.7
Selling, research and administration 570.6 472.0 353.2
Integration/restructuring 15.6 30.0 15.6
-------- -------- -------
1,104.9 911.3 642.5
-------- -------- -------
OPERATING EARNINGS 189.9 125.7 110.0
Other Income (Expense):
Interest (45.5) (25.7) (1.1)
Investment and other income, net (1.5) (0.3) 2.7
-------- -------- -------
(47.0) (26.0) 1.6
-------- -------- -------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 142.9 99.7 111.6
Income Taxes 50.7 35.4 43.3
-------- -------- -------
EARNINGS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 92.2 64.3 68.3
Cumulative effect of change in accounting for
business process reengineering, net of
$3.3 income taxes (6.0) -- --
-------- -------- -------
NET EARNINGS $ 86.2 $ 64.3 $ 68.3
======== ======== =======
Basic Earnings per Common Share:
Before cumulative effect of accounting change $ 3.02 $ 2.13 $ 2.30
Accounting change (.21) -- --
-------- -------- -------
Basic earnings per Common Share $ 2.81 $ 2.13 $ 2.30
======== ======== =======
Diluted Earnings per Common Share:
Before cumulative effect of accounting change $ 2.80 $ 2.01 $ 2.16
Accounting change (.19) -- --
-------- -------- -------
Diluted earnings per Common Share $ 2.61 $ 2.01 $ 2.16
======== ======== =======
Average Number of Common Shares:
(in thousands)
Basic 28,734 27,651 27,574
======== ======== =======
Diluted 31,992 30,736 30,592
======== ======== =======
</TABLE>
1996 and 1995 earnings per share and average number of common shares have been
restated to comply with Statement of Financial Accounting Standards No. 128,
"Earnings per Share."
See notes to consolidated financial statements.
F-3
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
BetzDearborn Inc.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
December 31
------------------------
(in millions, except share amounts) 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 36.9 $ 38.2
Trade accounts receivable, less allowances:
1997 - $7.2; 1996 - $7.6 293.0 243.2
Inventories:
Finished products and goods purchased for resale 49.2 54.5
Raw materials 45.1 42.2
-------- --------
94.3 96.7
Income taxes 19.6 31.1
Prepaid expenses and other 36.2 29.5
-------- --------
TOTAL CURRENT ASSETS 480.0 438.7
PROPERTY, PLANT AND EQUIPMENT --- at cost
Land 33.6 38.9
Buildings 214.3 221.9
Machinery and equipment 562.4 531.0
Construction in progress
(estimated cost to complete - $48.4) 15.8 11.9
-------- --------
826.1 803.7
Less allowance for depreciation (424.3) (374.7)
-------- --------
401.8 429.0
OTHER ASSETS
Investments and other 22.8 16.6
Goodwill - net of accumulated amortization:
1997 - $17.8; 1996 - $7.1 447.7 449.9
Other intangibles - net of accumulated amortization:
1997 - $8.8; 1996 - $4.3 81.3 84.1
-------- --------
551.8 550.6
-------- --------
$1,433.6 $1,418.3
======== ========
</TABLE>
F-4
<PAGE> 7
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
December 31
----------------------------
1997 1996
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 77.7 $ 68.9
Payroll and related taxes 47.7 47.8
Notes payable 26.6 0.8
Accrued restructuring costs 15.9 30.9
Other accrued liabilities 43.7 67.5
Income taxes 7.4 -
Dividends payable 11.2 10.6
Current portion of long-term debt 1.3 1.0
--------- --------
TOTAL CURRENT LIABILITIES 231.5 227.5
LONG-TERM DEBT - less portion classified as current 678.2 744.5
OTHER LONG-TERM LIABILITIES
Income taxes 14.3 12.4
Employee benefit plans 54.5 44.3
Other 2.7 4.1
--------- --------
71.5 60.8
SHAREHOLDERS' EQUITY
Preferred shares, $.10 par value: authorized 1,000,000 shares;
issued 1997 - 475,371 shares; 1996 - 481,780 shares 95.0 96.4
Guarantee of related ESOP debt (88.6) (90.0)
Common shares, $.10 par value: authorized - 90,000,000 shares;
issued 1997 - 33,631,330 shares; 1996 - 33,637,359 shares 3.4 3.4
Capital in excess of par value of shares 131.6 93.8
Retained earnings 501.1 463.9
Cost of common shares in treasury: 1997 - 4,181,807 shares;
1996 - 5,509,124 shares (155.0) (188.0)
Unearned compensation (3.9) (4.2)
Foreign currency translation adjustments (31.2) 10.2
--------- --------
TOTAL SHAREHOLDERS' EQUITY 452.4 385.5
--------- --------
$ 1,433.6 $1,418.3
========= ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
BetzDearborn Inc.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year Ended December 31
-------------------------------
(in millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 86.2 $ 64.3 $ 68.3
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 67.8 61.0 48.5
Amortization 15.7 7.8 0.7
Compensation and employee benefit plans 10.6 12.6 10.5
Income taxes 6.4 7.4 (0.2)
Provision for restructuring -- 9.6 15.6
Changes in operating assets and liabilities, net of business
acquisitions:
Accounts receivable (59.8) (24.2) (13.0)
Inventories (2.2) (2.7) (8.0)
Prepaid expenses and other (7.1) (1.0) (10.0)
Accounts payable and accrued expenses (4.1) 7.5 (2.7)
------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 113.5 142.3 109.7
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (78.0) (64.9) (64.1)
Proceeds from sales of long-term assets 9.6 3.5 2.0
Purchases of businesses and long-term investments -- (6.6) (34.6)
Purchase of Dearborn, net of cash equivalents acquired -- (549.4) --
Other, net (0.5) 1.0 (0.6)
------ ------ ------
NET CASH USED IN INVESTING ACTIVITIES (68.9) (616.4) (97.3)
FINANCING ACTIVITIES
Repayments of long-term debt (462.5) (17.0) (1.0)
Borrowings classified as long-term debt 401.1 566.0 --
Net short-term borrowings (repayments) 24.0 (17.7) 17.4
Dividends paid (50.9) (48.9) (48.4)
Proceeds from issuance of common shares, including treasury shares 42.3 14.8 1.0
Purchase of treasury shares -- -- (12.6)
------ ------ ------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (46.0) 497.2 (43.6)
Effect of exchange rate changes on cash 0.1 1.2 1.2
------ ------ ------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1.3) 24.3 (30.0)
Cash and Cash Equivalents at Beginning of Year 38.2 13.9 43.9
------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 36.9 $ 38.2 $ 13.9
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 9
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
BetzDearborn Inc.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Capital in
Number of Shares Excess of
-------------------------- Common Par Value Retained
(dollars in millions, except per share amounts) Common Treasury Stock of Stock Earnings
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 33,649,527 5,784,899 $ 3.4 $ 81.8 $ 423.5
Net earnings 68.3
Dividends on preferred shares ($16.00 per share) (7.8)
Tax benefit on preferred shares dividend 2.9
Dividends on common shares ($1.47 per share) (40.7)
Reacquired common shares 300,000
Impact of shares issued under employee stock plans,
net of tax of $.3 million (5,546) (94,074) 0.8
Currency translation adjustments (0.1)
---------- --------- ----- ------- -------
Balance at December 31, 1995 33,643,981 5,990,825 3.4 82.6 446.1
Net earnings 64.3
Dividends on preferred shares ($16.00 per share) (7.7)
Tax benefit on preferred shares dividend 2.7
Dividends on common shares ($1.49 per share) (41.5)
Impact of shares issued under employee stock plans,
net of tax of $2.1 million (6,622) (481,701) 11.2
Currency translation adjustments
---------- --------- ----- ------- -------
Balance at December 31, 1996 33,637,359 5,509,124 3.4 93.8 463.9
Net earnings 86.2
Dividends on preferred shares ($16.00 per share) (7.7)
Tax benefit on preferred shares dividend 2.6
Dividends on common shares ($1.51 per share) (43.9)
Impact of shares issued under employee stock plans,
net of tax of $6.6 million (6,029) (1,074,717) 28.9
Stock issued for acquisition (252,600) 8.9
Currency translation adjustments
---------- --------- ----- ------- -------
Balance at December 31, 1997 33,631,330 4,181,807 $ 3.4 $ 131.6 $ 501.1
========== ========== ===== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 10
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
BetzDearborn Inc.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Foreign
Unearned Currency
Treasury Compen- Translation
(dollars in millions, except per share amounts) Stock sation Adjustments
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1995 $(187.5) $ (5.5) $ 2.7
Net earnings
Dividends on preferred shares ($16.00 per share)
Tax benefit on preferred shares dividend
Dividends on common shares ($1.47 per share)
Reacquired common shares (12.6)
Impact of shares issued under employee stock plans,
net of tax of $.3 million 1.9 2.2
Currency translation adjustments 3.5
------- ------ -------
Balance at December 31, 1995 (198.2) (3.3) 6.2
Net earnings
Dividends on preferred shares ($16.00 per share)
Tax benefit on preferred shares dividend
Dividends on common shares ($1.49 per share)
Impact of shares issued under employee stock plans,
net of tax of $2.1 million 10.2 (0.9)
Currency translation adjustments 4.0
------- ------ -------
Balance at December 31, 1996 (188.0) (4.2) 10.2
Net earnings
Dividends on preferred shares ($16.00 per share)
Tax benefit on preferred shares dividend
Dividends on common shares ($1.51 per share)
Impact of shares issued under employee stock plans,
net of tax of $6.6 million 25.9 0.3
Stock issued for acquisition 7.1
Currency translation adjustments (41.4)
------- ------ -------
Balance at December 31, 1997 $(155.0) $ (3.9) $ (31.2)
======= ====== =======
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BetzDearborn Inc.
- --------------------------------------------------------------------------------
1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - The Company is engaged in the engineered specialty chemical
treatment of water and industrial process systems operating in a wide variety of
industrial and commercial applications with particular emphasis on the chemical,
petroleum refining, paper, food processing, automotive, steel and power
industries. The Company develops, produces and markets a wide range of specialty
chemical products for use in boilers, cooling systems, heat exchangers, paper
and petroleum process streams and both influent and effluent systems. The
Company monitors changing water, process and plant operating conditions so as to
prescribe the appropriate treatment programs to solve problems such as
corrosion, scale, deposit formation and a variety of process problems.
Operations are conducted primarily in the United States, Canada and Europe, and
also in Asia-Pacific and Latin America.
Concentration of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
accounts receivable and interest rate swap agreements. Concentrations of credit
risk with respect to accounts receivable are limited because of the large number
of customers comprising the Company's customer base and their dispersion across
many different industries and geographies. The Company generally does not
require collateral or other security to support customer receivables. The
counterparties to the interest rate swaps are major international financial
institutions. The Company continually monitors the credit ratings of its
counterparties, has established policies for counterparty credit rating
requirements and has limited the amount of agreements with any one party. The
Company believes these procedures minimize the risk of credit losses in the
event of nonperformance by these counterparties.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and all subsidiaries. All significant intercompany
items and transactions are eliminated from the consolidated statements. The
Company follows the practice of using a November 30 fiscal year for all non-U.S.
subsidiaries, excluding Canada, in order to expedite the year-end closing.
Revenue Recognition - Primarily, the Company recognizes revenue upon
shipment and passage of title without right of return. For consignment sales,
revenue is recognized when material is used.
F-9
<PAGE> 12
Cash Equivalents - The Company considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents. The
carrying value of these investments approximates their fair value at December
31, 1997.
Inventories - Inventories are stated at the lower of cost or market. Cost
of approximately 41 percent of the inventory is determined by the last-in,
first-out (LIFO) method, the balance by the first-in, first-out (FIFO) method.
If the FIFO method of inventory accounting had been used for all inventory,
amounts would have been approximately $10.6 million and $10.9 million higher
than reported at December 31, 1997 and December 31, 1996, respectively.
Property, Plant and Equipment - Property, plant and equipment is recorded
at cost. Depreciation is computed principally by the straight-line method over
the estimated useful lives of the related assets. The estimated useful lives of
depreciable assets are as follows: buildings - 20 to 40 years; computer
equipment and software - 3 to 8 years; other machinery and equipment - 5 to 15
years.
Accounting Change - On November 20, 1997, the FASB Emerging Issues Task
Force ("EITF") announced a consensus on Issue No. 97-13, "Accounting for Costs
Incurred in Connection with a Consulting Contract or an Internal Project That
Combines Business Process Reengineering and Information Technology
Transformation." This issue addressed how an entity should account for
third-party or internally generated costs associated with projects that combine
business process reengineering activities and information technology
transformation and how the total costs of a business process reengineering
consulting contract performed by a third party should be allocated to the
project's various individual activities. The EITF reached a consensus that the
cost of business process reengineering activities, whether done internally or by
third parties, is to be expensed as incurred. Also, the EITF reached a consensus
that any unamortized portion of those identifiable costs should be written off
as a cumulative effect type adjustment in the quarter that contains November 20,
1997.
The Company is engaged in a major project that combines business process
reengineering activities and information technology transformation. The business
process reengineering activities are being performed by both internal staff and
by third parties. The amount of business process reengineering activities
capitalized as of September 30, 1997 was $9.3 million, of which approximately
$4.1 million was capitalized prior to 1997. Consequently, the Company recorded a
write-off in the fourth quarter of 1997 for the cumulative effect of this change
in accounting and will prospectively include the continuing costs of business
process reengineering activities as operating expenses.
Investments - Marketable equity securities are recorded at fair value. All
other investments are generally carried at cost, which does not exceed estimated
fair value.
Goodwill and Other Intangible Assets - Goodwill amortization is computed by
the straight-line method mainly over 40 years. Other intangible assets are
F-10
<PAGE> 13
amortized on a straight-line basis ranging between 3 and 40 years in accordance
with the nature of the asset. Goodwill and other intangible assets relate
primarily to the Dearborn acquisition (see Note 2). For all such assets, the
Company evaluates carrying values for impairment by considering the operating
performance and expected future undiscounted cash flows of the underlying
businesses.
Foreign Currency - The Company is exposed to the effect of foreign exchange
rate fluctuations on the U.S. dollar value of the income of its non-U.S.
subsidiaries (see Note 4). Occasionally, the Company enters into foreign
currency forward contracts to minimize the effect of fluctuating foreign
currencies on its cash flow and current unremitted income from certain non-U.S.
subsidiaries. The forward contracts generally are marked to market and resulting
adjustments are recorded directly in income. These adjustments had no material
impact on the results of operations for 1997, 1996 and 1995. There were no open
contracts at the end of 1997. Assets and liabilities of non-U.S. operations
where the functional currency is the local currency are translated into U.S.
dollars at the fiscal year-end exchange rates. The related translation
adjustments are recorded as cumulative translation adjustments, a separate
component of shareholders' equity. Revenues and expenses are translated using
average exchange rates prevailing during the year. Foreign currency transaction
gains and losses, as well as translation adjustments for assets and liabilities
of non-U.S. operations where the functional currency is the U.S. dollar, are
included in the results of operations. A foreign currency transaction loss of
$5.6 million was incurred in 1997 and is included in other income, net in the
Consolidated Statements of Operations; such adjustments were not material in
1996 and 1995.
Research and Development - Research and development costs ($38.8 million in
1997, $35.7 million in 1996 and $32.2 million in 1995) are charged to expense as
incurred.
Earnings Per Share - In 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings Per Share." Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Basic earnings per Common Share is computed by
dividing net income available to common shareholders by the weighted average
number of shares outstanding. In computing basic earnings per Common Share,
preferred stock dividends, net of related income tax benefits, reduce income
available to common shareholders. In computing diluted earnings per Common
Share, conversion of the Series A ESOP Convertible Preferred Shares is assumed
and the dilutive effect of stock options during the periods presented as well as
the effect of contingently issuable shares also increase the weighted average
number of shares (see Note 5). All earnings per share amounts for all periods
have been presented and, where appropriate, restated to conform to the Statement
128 requirement.
Stock-Based Compensation - The Company follows Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee stock-based compensation (see
Note 9).
<PAGE> 14
Impact of Pending Accounting Pronouncements - In June 1997, the
Financial Accounting Standards Board issued Statement No. 130, "Reporting
Comprehensive Income," and Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information," both of which are required to be adopted
for fiscal years beginning after December 15, 1997. Statement 130 will require
the Company to report in its financial statements all non-owner related changes
in equity for the periods being reported. Statement 131 will require the Company
to disclose revenues, earnings, and other financial information pertaining to
the business segments by which the Company is managed, as well as what factors
management used to determine these segments. The Company is currently evaluating
the requirements of Statements 130 and 131 to determine how to present the
required information in its financial statements and related disclosures.
F-11
<PAGE> 15
2: ACQUISITIONS
Dearborn - On June 28, 1996, pursuant to the Grace Dearborn Worldwide
Purchase and Sale Agreement (the "Agreement"), the Company acquired the Dearborn
business unit ("Dearborn") of W.R. Grace & Co. - Conn. ("Grace") for $632
million, subject to certain adjustments. Dearborn was a global supplier of
industrial water and process treatment chemicals with 1995 annual net revenues
of $399.1 million. This acquisition was financed by a $750 million Credit
Agreement among the Company and a syndicate of banks (see Note 6).
The Dearborn acquisition is accounted for using the purchase method of
accounting and is included in the Consolidated Statements of Operations since
the date of acquisition. The Company adopted a November 30 fiscal year-end for
non-U.S. Dearborn units except Canada to align the fiscal year-end with the
remainder of the Company's operations. Consequently, Dearborn units except
Canada and the U.S. reported five months of results of operations in 1996. The
Company subsequently integrated Betz and Dearborn, which makes it impractical to
report the results of Dearborn separately from the remainder of the Company's
results of operations.
The Company finalized its Dearborn purchase price allocation during 1997
and increased goodwill by $20.4 million to $440.7 million. Goodwill is
determined as follows (in millions):
<TABLE>
<S> <C>
Cash paid to Grace $ 640.9
Adjustments:
Restructuring provision (see Note 12) 38.8
Transition services cancellation fees 10.0
Professional fees and transaction costs 13.4
Tax effects, net (23.7)
----------
679.4
Less: Fair value of net tangible assets acquired 156.1
Fair value of identifiable intangible assets acquired 82.6
----------
Dearborn goodwill as of the acquisition date $ 440.7
==========
</TABLE>
The $38.8 million restructuring provision (see Note 12) is primarily for
closure of Dearborn facilities and severance costs for Dearborn employees.
During the second quarter of 1997, the Company announced the planned closure of
the Lake Zurich, Illinois plant. The increase in restructuring liabilities and
fixed asset writedowns, as a result of this announcement, are the principal
reasons for the 1997 increase in goodwill. The Company incurred costs of
approximately $10.0 million in accordance with the Agreement relating to the
cancellation of transition services previously provided to the Company,
principally in its Latin American and European regions. Professional fees and
transaction costs amounting to $13.4 million are primarily for acquisition
F-12
<PAGE> 16
consulting, legal and accounting fees. The tax effects, which reduce the
adjusted purchase price, are comprised of the estimated tax effects resulting
from the purchase price adjustments and for the net deferred tax effects of
differences in the allocation of purchase price for financial reporting and tax
purposes.
In accordance with the purchase method of accounting, the adjusted purchase
price was allocated to the estimated fair value of net assets acquired, with the
excess recorded as goodwill, which is amortized on a straight-line basis over 40
years. The $82.6 million allocated to identifiable intangibles is the
independently appraised value of the trademarks, trade names and patents of
Dearborn. Patents are amortized on a straight-line basis over 13 to 15 years and
unlimited-life trademarks and trade names are amortized over 40 years. Total
Dearborn intangible amortization expense of $14.6 million and $6.7 million is
included in the 1997 and 1996 results of operations, respectively.
Had the Acquisition occurred as of January 1, 1995, unaudited pro forma
results would have been (in millions, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1995
-------- --------
<S> <C> <C>
Net Sales $1,261.6 $1,151.6
Net Earnings 50.0 25.5
Net Earnings per Common Share:
Basic 1.61 .75
Diluted 1.54 --
</TABLE>
The pro forma results reflect adjustments primarily for the increased
amortization and interest expense attributable to the Dearborn acquisition and
the related tax effects. Potential cost savings, however, from combining
Dearborn with the Company's operations are not reflected. Therefore, the pro
forma results are not indicative of the results that would have occurred had the
acquisition actually been consummated on January 1, 1995, and are not intended
to be a projection of future results or trends. The historical financial results
of operations of Dearborn reflect the "carve out" of Dearborn from Grace.
Certain selling, research and administrative expenses of Grace have been
allocated to Dearborn on various bases which, in the opinion of Grace's
management, are reasonable. However, such expenses are not necessarily
indicative of, and it is not practicable for management to estimate, the nature
and level of expenses which might have been incurred if Dearborn had been
operating as a separate independent company.
Argo Scientific - In November 1997, the Company acquired all the
outstanding common stock of D.W. Walker & Associates, Inc., d.b.a. Argo
Scientific, in exchange for 252,600 of the Company's Common Shares. Argo
Scientific is a leading supplier of highly specialized chemical treatments,
services and technology for membrane separation systems, which are used in the
production of "pure" water from fresh water and sea water.
F-13
<PAGE> 17
The Argo Scientific acquisition is accounted for using the purchase method
of accounting. The goodwill recorded as a result of this acquisition amounted to
$15.7 million, which is amortized on a straight-line basis over 40 years. The
Argo Scientific results of operations are included with the Company's effective
November 1997. This acquisition did not have a material impact on the Company's
1997 results of operations nor its capital resources and liquidity. The pro
forma consolidated results of operations, as if the acquisition had taken place
at the beginning of fiscal 1996, would not have been materially different from
the reported amounts for fiscal 1996 and 1997.
Misan Group and Taiwan Peitz - On May 1, 1995, the Company acquired Taiwan
Peitz Company, Ltd., a water, paper process and refinery process treatment
business, which had been a licensee of the Company's products since 1974. On
November 7, 1995, the Company acquired the Misan Group, an industrial water,
paper process and fuel oil treatment company with headquarters in Naples, Italy
and subsidiaries in Spain and Portugal.
The Taiwan Peitz and Misan acquisitions have also been accounted for using
the purchase method of accounting. The combined purchase price for these
acquisitions was $43.4 million consisting of $32.5 million in cash paid in 1995,
$7.3 million paid in 1996 and $3.6 million paid in 1997. The goodwill resulting
from both acquisitions totaled approximately $25 million, which is amortized on
a straight-line basis over 40 years.
The operating results of these acquired businesses have been included in
the Consolidated Statements of Operations since the dates of acquisition. The
pro forma consolidated results of operations, as if the acquisitions had taken
place at the beginning of fiscal 1995, would not have been materially different
from the reported amounts.
F-14
<PAGE> 18
3: INCOME TAXES
The components of earnings before income taxes and cumulative effect of
accounting change are (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U.S. $106.2 $85.1 $ 75.6
Non-U.S 36.7 14.6 36.0
------ ---- ------
$142.9 $99.7 $111.6
====== ===== ======
</TABLE>
The provision for income taxes consists of the following (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Current:
<S> <C> <C> <C>
Federal $34.6 $22.4 $31.8
State 2.9 4.3 4.4
Foreign 14.5 5.1 10.4
----- ----- -----
Total Current 52.0 31.8 46.6
Deferred:
Federal 0.5 2.9 (4.7)
State 0.1 0.5 (1.0)
Foreign (1.9) 0.2 2.4
----- ----- -----
Total Deferred (1.3) 3.6 (3.3)
----- ----- -----
Total Taxes $50.7 $35.4 $43.3
===== ===== =====
</TABLE>
A reconciliation of the effective income tax rate with the statutory
federal income tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal tax rate 35.0% 35.0% 35.0%
State and local taxes, net of
federal income taxes 1.4 3.1 2.0
Foreign tax credits (4.0) (4.8) --
Other items 3.1 2.2 1.8
---- ---- ----
Effective income tax rate 35.5% 35.5% 38.8%
==== ==== ====
</TABLE>
F-15
<PAGE> 19
Deferred income taxes reflect the estimated future tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities as of December
31 are as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
Deferred Tax Assets:
<S> <C> <C>
Stock and benefit plans $ 20.0 $ 15.3
Operating loss carryforwards 9.1 4.2
Accrued liabilities not deducted until paid 17.1 19.3
------ ------
Total Deferred Tax Assets 46.2 38.8
Deferred Tax Liabilities:
Tax over book depreciation, net (24.7) (21.7)
Other (11.6) (6.8)
------ ------
Total Deferred Tax Liabilities (36.3) (28.5)
------ ------
Net Deferred Tax Assets $ 9.9 $ 10.3
====== ======
</TABLE>
In 1997, income taxes classified as current and non-current liabilities
include deferred tax liabilities of $0.6 million and $14.3 million,
respectively. In addition, income taxes classified as current assets include
deferred tax assets of $19.6 million and income taxes classified as non-current
assets, which are included within investments and other on the Consolidated
Balance Sheets, include deferred tax assets of $5.1 million. In 1996, income
taxes classified as current assets include deferred tax assets of $22.7 million,
with the remaining deferred tax balance of $12.4 million classified as
non-current liabilities. Included in deferred tax assets are foreign operating
loss carryforwards, which mainly have an unlimited life.
The Company made income tax payments of $36.2 million, $45.8 million and
$46.0 million during the years 1997, 1996 and 1995, respectively.
The Company has not provided United States income taxes on $52.7 million of
unremitted earnings of foreign subsidiaries because management views such
earnings as being indefinitely invested.
F-16
<PAGE> 20
4: GEOGRAPHIC INFORMATION
The Company operates principally in one industry segment which includes the
development, manufacture and sale of specialty chemical products.
The Company's areas of operation outside of the United States and Europe
principally include Canada, Latin America and Asia-Pacific. No single non-U.S.
country in which the Company produces or markets its products comprises more
than 10 percent of the Company's net sales, operating earnings or identifiable
assets. No single customer accounts for more than 10 percent of the Company's
revenues.
Information about the Company's operations in different geographic
locations is (in millions):
<TABLE>
<CAPTION>
United Other
1997 States Europe Foreign Consolidated
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 711.2 $ 319.6 $ 264.0 $ 1,294.8
Operating earnings 120.3 39.4 30.2 189.9
Identifiable assets 706.9 417.9 308.8 1,433.6
- - ------------------------------------------------------------------------------
1996
- - ------------------------------------------------------------------------------
Net sales $ 641.1 $ 218.9 $ 177.0 $ 1,037.0
Operating earnings 90.4 12.2 23.1 125.7
Identifiable assets 702.0 412.8 303.5 1,418.3
- - ------------------------------------------------------------------------------
1995
- - ------------------------------------------------------------------------------
Net sales $ 555.9 $ 111.6 $ 85.0 $ 752.5
Operating earnings 78.6 15.2 16.2 110.0
Identifiable assets 395.7 142.7 92.1 630.5
- - ------------------------------------------------------------------------------
</TABLE>
At December 31, 1997, the local currency is the functional currency of
non-U.S. operations representing 45% of consolidated identifiable assets. For
operations in highly inflationary economies, the U.S. dollar is the functional
currency. Identifiable assets of such operations were 6% of consolidated
identifiable assets at December 31, 1997.
United States identifiable assets include $0.3 million, $2.6 million and
$0.8 million of cash and cash equivalents and other investments at December 31,
1997, 1996 and 1995, respectively, that are available for general corporate
purposes.
Direct export sales of $14.2 million, $11.2 million and $10.8 million for
the years 1997, 1996 and 1995, respectively, are included in United States net
sales.
F-17
<PAGE> 21
5: EARNINGS PER SHARE
In compliance with Financial Accounting Standards Board Statement No. 128,
"Earnings per Share," issued in February 1997, the Company has changed its
method of computing earnings per share effective with the fourth quarter 1997.
All prior periods presented have been restated to conform to the new
requirements which exclude contingently issuable shares and the dilutive effect
of stock options from the number of weighted average shares used in the
computation of basic earnings per share. The effect of Statement 128 on diluted
earnings per share is immaterial compared to previously disclosed fully diluted
earnings per share. Basic and diluted earnings per share are calculated as
follows (in millions, except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Basic Earnings per Share:
Net earnings before cumulative effect
of accounting change $ 92.2 $ 64.3 $ 68.3
Effect of preferred stock dividends, net of taxes (5.6) (5.3) (4.9)
-------- -------- --------
86.6 59.0 63.4
Cumulative effect of accounting change, net of taxes (6.0) -- --
-------- -------- --------
Net earnings available to common shareholders $ 80.6 $ 59.0 $ 63.4
======== ======== ========
Average Common Shares outstanding - basic 28.7 27.7 27.6
======== ======== ========
Basic Earnings per Common Share:
Before cumulative effect of accounting change $ 3.02 $ 2.13 $ 2.30
Cumulative effect of accounting change (0.21) -- --
-------- -------- --------
Basic earnings per Common Share $ 2.81 $ 2.13 $ 2.30
======== ======== ========
Diluted Earnings per Share:
Net earnings before cumulative effect
of accounting change $ 92.2 $ 64.3 $ 68.3
Effect of ESOP charge to operations assuming
conversion of Series A ESOP Convertible
Preferred Shares, net of taxes (2.7) (2.6) (2.1)
-------- -------- --------
89.5 61.7 66.2
Cumulative effect of accounting change, net of taxes (6.0) -- --
-------- -------- --------
Net earnings available to common shareholders $ 83.5 $ 61.7 $ 66.2
======== ======== ========
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average Common Shares outstanding - basic 28.7 27.7 27.6
Effect of dilutive securities:
Contingently issuable shares 0.2 0.1 0.1
Employee stock options 0.4 0.2 0.1
Assumed conversion of Series A ESOP
Convertible Preferred Shares 2.7 2.7 2.8
-------- -------- --------
Average Common Shares outstanding - diluted 32.0 30.7 30.6
======== ======== ========
Diluted Earnings per Common Share:
Before cumulative effect of accounting change $ 2.80 $ 2.01 $ 2.16
Cumulative effect of accounting change (0.19) -- --
-------- -------- --------
Diluted earnings per Common Share $ 2.61 $ 2.01 $ 2.16
======== ======== ========
</TABLE>
Note 9 contains further disclosures regarding the Company's outstanding
stock options and contingently issuable shares (Incentive Plan). Note 8
describes the conversion provision of the Company's preferred stock in the ESOP.
F-18
<PAGE> 23
6: LONG-TERM DEBT
Long-term debt at December 31 consisted of (in millions):
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
Rate(1) Amount Rate(1) Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revolving credit agreement 5.83% $ 581.9 5.98% $ 548.0
Promissory note to Grace -- -- 5.87 100.0
ESOP debt 8.56 94.5 8.56 95.5
Other indebtedness 6.30 3.1 6.36 2.0
-------- --------
Total debt 679.5 745.5
Less current maturities 1.3 1.0
-------- --------
Long-term debt $ 678.2 $ 744.5
======== ========
</TABLE>
(1) Weighted average interest rate for the year ended December 31.
On October 20, 1997, the Company entered into a Credit Agreement with a
syndicate of banks which provides for a five-year unsecured revolving credit
agreement in an amount of $750 million. The commitments made under the Credit
Agreement expire in October 2002. The Credit Agreement requires the Company,
among other things, to meet certain net worth and indebtedness tests.
Approximately $168.1 million of the Credit Agreement was unused at December 31,
1997.
Borrowings under the Credit Agreement bear interest at various rates based
on the types of borrowings used by the Company. Each type of borrowing bears
interest at a variable rate based on an index plus a margin. The borrowings
outstanding at year end for U.S. dollar loans bear interest at LIBOR plus a
margin and for Canadian dollar loans at market rates for Canadian bankers'
acceptances plus a margin. Margin pricing is dependent on the Company's selected
pricing option of either a specific financial ratio test or the Company's public
debt rating. The Company pays a facility fee based upon the selected pricing
option. At December 31, 1997, the Company is paying a facility fee of .08% of
the total commitment of funds provided by the banks. Commitment fees to maintain
the Credit Agreement totaled $1.3 million and $0.7 million during fiscal years
1997 and 1996, respectively, and are included in interest expense.
In 1989, the Company guaranteed a loan of $100 million to the ESOP Trust,
the proceeds of which were used by the trust for the purchase of the Company's
preferred stock (see Note 8). The loan and guarantee, which mature on June 19,
2009, are recorded in the Company's Consolidated Balance Sheets as long-term
debt and a reduction of shareholders' equity. With respect to the ESOP loan, the
Company is obligated, among other things, to maintain certain financial ratios
and meet certain net worth and indebtedness tests.
F-19
<PAGE> 24
Scheduled maturities of long-term debt are as follows (in millions): 1998
- - $1.3; 1999 - $3.2; 2000 - $1.7; 2001 - $2.8; 2002 - $586.0; and 2003 through
2009 - $84.5.
Interest Rate Swaps - During the second quarter of 1996, the Company
entered into interest rate swap agreements, with maturities ranging from 1.5 to
5.5 years, to effectively convert $400 million of the Company's variable-rate
long-term debt to fixed interest rate obligations, thereby reducing the
Company's exposure to rising interest rates. Over the term of each swap
agreement, the Company exchanges interest payments with the swap counterparty
without exchanging the notional amount upon which the payments are based. The
differential to be paid or received is accrued and recognized as an adjustment
to interest expense. The related amount payable to such counterparties is
included in accrued liabilities.
The Company has designated the series of swaps as hedges against future
interest rate exposure on its variable-rate debt outstanding. The series of
swaps will hedge no more than the aggregate amount of variable-rate debt
outstanding. The Company may also designate individual swaps included in this
series as both a hedge against interest rate exposure and a hedge of the fair
value of future fixed-rate term debt replacing outstanding variable-rate debt.
In the event future fixed-rate term debt is issued, the Company intends to
terminate the designated swaps and amortize the gain or loss on such termination
over the remainder of the hedged period. In the event fixed-rate debt is not
issued for the entire remaining hedged period, a portion of the termination gain
or loss will be included in net earnings.
Fair Value of Debt and Interest Rate Swaps - The fair value of the
Company's short-term notes payable, long-term debt and interest rate swaps, all
of which are held for purposes other than trading, at December 31 is summarized
below (in millions):
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Notes payable $ 26.6 $ 26.6 $ 0.8 $ 0.8
Long-term debt 679.5 692.7 745.5 753.3
Interest rate swap payable 0.5 7.2 0.7 5.6
</TABLE>
The estimated fair values of these financial instruments are generally
based on quoted market prices or on current rates available to the Company for
financial instruments of similar remaining maturities and do not include
potential tax effects or possible expenses incurred in settling the transactions
to terminate the related agreements.
Notes payable are borrowings under uncommitted lines of credit with an
average interest rate of 5.76% at December 31, 1997.
<PAGE> 25
Interest Expense - Net ESOP expense (see Note 8) is characterized as
interest expense in the accompanying financial statements. The effect of the
interest rate swap agreements referred to above was to increase interest expense
by $3.3 million and $2.0 million in 1997 and 1996, respectively. Cash payments
for interest amounted to $50.4 million, $17.8 million and $1.6 million for the
years 1997, 1996 and 1995, respectively. Interest expense is capitalized on
major construction projects. Interest expense components for the years ending
December 31 are as follows (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross interest expense $45.9 $26.1 $ 1.6
Capitalized interest (0.4) (0.4) (0.5)
----- ----- -----
Interest expense $45.5 $25.7 $ 1.1
===== ===== =====
</TABLE>
F-20
<PAGE> 26
7: LONG-TERM LEASES
Total rental expense for all leases amounted to $23.2 million, $18.8
million and $14.9 million in 1997, 1996 and 1995, respectively. The future
rental commitments, primarily for automobiles, as of December 31, 1997 for all
noncancelable long-term leases are (in millions): 1998 - $12.1; 1999 - $7.0;
2000 - $3.7; 2001 - $1.4; 2002 - $1.1; and $0.2 thereafter.
8: EMPLOYEE STOCK OWNERSHIP (ESOP) AND 401(k) PLAN
In 1989, the Company established an ESOP and a related trust as a
long-term benefit for substantially all of its U.S. employees. This plan
supplements the Company's employee retirement plan. Under this plan, the Company
sold 500,000 shares of a new Series A ESOP Convertible Preferred Stock to the
trust for $100 million. This series of preferred stock has one vote per share
with cumulative dividends at a rate of 8% and is stated at the aggregate
liquidation preference on the Consolidated Balance Sheets. The Company arranged
for and guaranteed a loan of $100 million (see Note 6) to the trust for the
purchase of the preferred stock. Proceeds of the loan were primarily used for
the purchase of common treasury stock to be used for future conversion and
redemption of the preferred stock, which is presently convertible into 2,648,671
shares of common stock. The loan and guarantee are recorded in the Company's
Consolidated Balance Sheets as long-term debt and a reduction in shareholders'
equity.
Effective January 1, 1990, the Company's 401(k) program was integrated
into the Employee Stock Ownership Plan. Employees may invest 2 to 15 percent of
eligible compensation. Company matches, equal to 25 percent of the first 4
percent of employees' investments, fully vest to employees upon the completion
of 5 years of service. The Company's matching contributions, which are included
in ESOP expense, are made in the form of the ESOP Convertible Preferred Stock.
The value of such matching contributions amounted to $1.7 million in 1997, $1.5
million in 1996 and $1.4 million in 1995.
After satisfying the 401(k) matching contributions, the remaining shares
of ESOP stock are allocated to each participant based on the ratio of the
participant's compensation to total compensation of all participants. During
1997, 6,409 shares of the Preferred Stock were converted to Common Shares by
plan participants and permanently retired. The number of shares allocated and
unallocated at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Allocated 134,355 121,911
Unallocated 341,016 359,869
------- -------
Total shares held by ESOP 475,371 481,780
======= =======
</TABLE>
The Company is required to make quarterly contributions to the Plan which
enable the trust to service its indebtedness. Net ESOP cost for the Company is
comprised of the following elements (in millions):
F-21
<PAGE> 27
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
ESOP expense $ 9.5 $ 9.3 $ 9.2
Preferred dividends
(charged to retained earnings) (7.7) (7.7) (7.8)
----- ----- -----
ESOP expense charged to earnings $ 1.8 $ 1.6 $ 1.4
===== ===== =====
ESOP contributions $ 9.1 $ 9.0 $ 8.8
===== ===== =====
</TABLE>
The ESOP expense is calculated using the 80-percent-of-shares-allocated
method. To the extent that this expense exceeds the ESOP's annual debt service
requirements, an adjustment is made to the shareholders' equity reduction to
reflect the cumulative effect of the excess charges.
F-22
<PAGE> 28
9: STOCK-BASED COMPENSATION AND SHAREHOLDER RIGHTS PLANS
The Company accounts for its stock-based compensation plans in accordance
with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," which results in no compensation expense being recognized
for its stock option plans or its stock purchase plan.
As required by Statement 123, pro forma information regarding net income
and earnings per share has been determined as if the Company had accounted for
its stock options under the fair value method. A weighted average fair value of
$16.96 for options granted in 1997, $9.63 for those granted in 1996 and $9.78
for those granted in 1995 was estimated as of the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for option grants in 1997, 1996 and 1995, respectively:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Dividend yield 2.36% 3.4% 3.4%
Volatility .226 .203 .203
Risk-free interest rate 5.77% 6.22% 6.22%
Weighted average expected life, in years 6.65 6.75 6.75
</TABLE>
Option valuation models use highly subjective assumptions to determine the
fair value of traded options with no vesting or trading restrictions. Because
options granted under the Company's Stock Option Plans have vesting requirements
and cannot be traded, and because changes in the assumptions can materially
affect the fair value estimate, in management's opinion, the existing valuation
models do not necessarily provide a reliable measure of the fair value of its
employee stock options.
For purposes of the pro forma disclosures required by Statement 123, the
estimated fair value of the options is amortized to expense over the options'
vesting period. Statement 123 requires only that the income effects of options
granted subsequent to December 31, 1994 be included in the pro forma
disclosures. Since a portion of the Company's stock options vest over one- and
two-year periods, and additional options are granted each year, the pro forma
effect on 1995 and 1996 net income reported below is not representative of the
effect of fair value stock option expense on future years' pro forma net income.
For purposes of the pro forma disclosures, compensation expense is recognized
under the stock purchase plan for the difference in price paid by employees and
the fair value of the Company's stock at the date of purchase. The Company's pro
forma information follows (in millions, except for per share information):
F-23
<PAGE> 29
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Pro forma net income $78.9 $60.5 $64.2
Pro forma earnings per share:
Basic
Before cumulative effect of accounting change 2.76 2.00 2.15
Net earnings 2.55 2.00 2.15
Diluted
Before cumulative effect of accounting change 2.59 1.89 2.03
Net earnings 2.40 1.89 2.03
</TABLE>
Option Plans - Options granted under the Company's Stock Option Plans are
at the fair value at the date of grant. The period during which these options
become exercisable ranges from date of grant to two years after date of grant.
Unexercised options expire ten years after date of grant. No individual may
receive an option if that individual owns (or would own if options were
exercised) stock possessing five percent of the voting power or value of all
classes of stock of the Company.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Price per Share
---------- ----------------
<S> <C> <C>
Outstanding at January 1, 1995 2,564,269 $48.126
Granted 967,688 43.749
Canceled (40,998) 52.916
Forfeited (5,006) 44.875
Exercised (47,730) 21.606
--------- ---------
Outstanding at December 31, 1995 3,438,223 47.210
Granted 493,841 43.493
Canceled (44,715) 51.838
Forfeited (12,727) 44.450
Exercised (378,120) 39.501
--------- ---------
Outstanding at December 31, 1996 3,496,502 47.470
Granted 687,425 62.676
Canceled (8,191) 57.238
Forfeited (15,773) 50.083
Exercised (965,542) 44.404
--------- ---------
Outstanding at December 31, 1997 3,194,421 51.631
========= =========
Exercisable at December 31, 1997 2,659,399 50.442
========= =========
</TABLE>
F-24
<PAGE> 30
The exercise prices for options outstanding as of December 31, 1997 ranged
from $23.375 to $62.75. The options outstanding and exercisable at December 31,
1997 are segregated into groups based on ranges of exercise price below:
<TABLE>
<CAPTION>
Wtd. Avg. Wtd. Avg.
Exercise Remaining
Shares Outstanding at 12/31/97: Range of Prices Price Life
------------------- -------- ---------
<S> <C> <C> <C>
31,214 $23.375 - $29.125 $23.688 .47 yrs
134,494 33.500 - 39.250 38.517 6.94 yrs
1,467,208 40.500 - 49.625 45.065 6.90 yrs
789,042 50.250 - 59.813 56.668 4.62 yrs
772,463 60.000 - 62.750 62.363 6.56 yrs
---------
3,194,421 $23.375 - $62.750 $51.631 6.68 yrs
=========
<CAPTION>
Wtd. Avg.
Exercise
Shares Exercisable at 12/31/97: Range of Prices Price
------------------ ---------
<S> <C> <C>
31,214 $23.375 - $29.125 $23.688
134,494 33.500 - 39.250 38.517
1,325,518 40.500 - 49.625 45.255
781,506 50.250 - 59.813 56.638
386,667 60.000 - 62.750 62.007
---------
2,659,399 $23.375 - $62.750 $50.442
=========
</TABLE>
At December 31, 1997, the Company had remaining an aggregate of 5,067,205
Common Shares reserved for issuance under its Stock Option Plans.
Employee Stock Purchase Plan - Effective July 1, 1997, the Company
established an Employee Stock Purchase Plan for all employees meeting certain
eligibility criteria. Under the Plan, eligible employees may purchase through a
series of semiannual offerings, each July and January, shares of the Company's
Common Stock, subject to certain limitations. The purchase price of each share
is 85 percent of the lesser of its fair market value on the grant date or on the
exercise date. The aggregate number of whole shares of Common Stock purchasable
under the option shall not exceed 10 percent of the employee's base
compensation. At December 31, 1997, 400,000 shares were available for purchase
under the plan. Based on the market price of common stock on the exercise date,
the Company issued approximately 47,215 shares in January 1998.
F-25
<PAGE> 31
Incentive Plan - The Employee Stock Incentive Plan provides that up to
2,500,000 shares of common stock may be granted through April 13, 2005, at the
discretion of the Board of Directors, to key employees and non-employee
Directors at no cost to the employees or Directors. The Company granted 81,326
shares and 72,407 shares during 1997 and 1996, respectively, at a weighted
average value of $62.64 in 1997 and $43.58 in 1996. Key employees receiving
grants are entitled to receive dividends, but assumption of full beneficial
ownership is contingent at the time of grant. In the event the employee does not
remain in continuous employment for the periods stipulated, the shares are
canceled and revert to the Company for reissuance under the Plan.
The aggregate fair market value of the shares granted under this Plan is
considered unearned compensation at the time of grant and compensation is earned
ratably over the stipulated period. Compensation cost included in net income is
$1.8 million in 1997, $1.9 million in 1996, and $2.5 million in 1995.
At December 31, 1997, the Company had remaining an aggregate of 488,070
Common Shares available for issuance under its Employee Stock Incentive Plan.
Common Stock Shareholder Rights Plan - On September 8, 1988, the Board of
Directors declared a distribution of one Stock Purchase Right for each Common
Share outstanding. Each right will entitle the holder to buy from the Company a
unit consisting of one Common Share at an exercise price of $75 per unit. The
rights become exercisable ten days after a public announcement that a person or
group has acquired 20 percent or more of the Company's Common Shares or has
commenced a tender offer for 20 percent or more of the Common Shares. The rights
may be redeemed prior to becoming exercisable by action of the Board of
Directors at a redemption price of $.01 per right. If more than 20 percent of
the Company's Common Shares become held by a beneficial owner, other than
pursuant to an offer deemed in the best interests of the shareholders by the
Company's independent directors, each right may be exercised for Common Shares,
or other property, of the Company having a value of twice the exercise price of
each right. If the Company is acquired by any person after the rights become
exercisable, each right will entitle its holder to receive common shares of the
acquiring company having a market value of twice the exercise price of each
right. The rights expire on September 19, 1998.
In February 1998, the Board of Directors approved a new Shareholder Rights
Plan having a 10-year term which expires on September 19, 2008 which provides
for the declaration of a distribution of one Share Purchase Right for each
Common Share outstanding effective September 19, 1998. The exercise price of
each new right will be $250.00. This new plan is substantially the same as the
1988 plan.
F-26
<PAGE> 32
10: EMPLOYEE RETIREMENT PLANS
The Company has defined benefit plans to provide pension benefits to
substantially all of its U.S. employees and for employees of several non-U.S.
operations. The benefits are primarily based on years of service and the
employee's final average compensation. The Company's funding policy is to
contribute an amount annually based upon actuarial and economic assumptions
designed to achieve adequate funding of projected benefit obligations. Plan
assets are principally invested in listed common stocks, bonds and common trust
funds.
U.S. Plans
The salary scale assumption is graded by age with an underlying inflation
assumption of 4% for U.S. plans. Other primary assumptions used to develop the
Company's U.S. net periodic pension expense and the actuarial present value of
the benefit obligations are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.25% 7.5% 7.0%
Long-term rate of return on plan assets 9.5% 9.25% 9.25%
</TABLE>
Net periodic pension expense for the Company's U.S. defined benefit plans
consists of the following (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- -------
<S> <C> <C> <C>
Service cost $ 7.3 $ 7.6 $ 5.5
Interest cost 14.0 12.8 11.4
Return on plan assets (37.0) (27.1) (31.2)
Net amortization and deferral 22.8 14.8 20.1
--------- --------- -------
Net periodic pension expense $ 7.1 $ 8.1 $ 5.8
========= ========= =======
</TABLE>
F-27
<PAGE> 33
The following table sets forth the actuarial present value of benefit
obligations and funded status at December 31 for the Company's U.S. plans (in
millions):
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $(168.6) $(148.4)
Nonvested benefits (9.0) (8.5)
------- --------
Accumulated benefit obligation (177.6) (156.9)
Effect of projected future salary increases (27.9) (25.1)
------- --------
Projected benefit obligation (205.5) (182.0)
Plan assets at fair value 205.3 176.4
------- --------
Projected benefit obligation in excess of plan assets (0.2) (5.6)
Unrecognized net gain (36.7) (25.6)
Unrecognized prior service cost 5.2 6.0
Other (2.8) (2.3)
------- --------
Net pension liability included in the Consolidated Balance Sheets $ (34.5) $ (27.5)
======== ========
</TABLE>
Non-U.S. Plans
Primary assumptions used to develop the Company's non-U.S. net periodic
pension expense and the actuarial present value of the benefit obligations are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Salary increase 3.0-6.5% 3.0-7.0% 4.0-6.5%
Discount rate 6.0-8.5% 6.0-9.0% 6.5-8.5%
Long-term rate of return on plan assets 6.0-9.0% 6.0-9.0% 7.0-9.0%
</TABLE>
Net periodic pension expense for the Company's non-U.S. defined benefit
plans consists of the following (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost $ 3.2 $ 2.2 $ 1.3
Interest cost 4.5 2.8 1.6
Return on plan assets (4.6) (2.8) (2.1)
Net amortization and deferral -- -- 0.5
------- ------- -------
Net periodic pension expense $ 3.1 $ 2.2 $ 1.3
======= ======= =======
</TABLE>
<PAGE> 34
The following table sets forth the actuarial present value of benefit
obligations and funded status at December 31 for the Company's non-U.S. plans
(in millions):
<TABLE>
<CAPTION>
Assets Exceed Accumulated
Accumulated Benefits Ex-
Benefits ceed Assets
--------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ (40.7) $ (32.4) $ (4.5) $ (8.3)
Nonvested benefits (4.5) (3.6) (3.3) --
-------- -------- -------- ---------
Accumulated benefit obligation (45.2) (36.0) (7.8) (8.3)
Effect of projected future salary increases (13.8) (14.7) (4.2) (2.6)
-------- -------- -------- ---------
Projected benefit obligation (59.0) (50.7) (12.0) (10.9)
Plan assets at fair value 62.6 55.9 1.7 1.7
-------- -------- -------- ---------
Projected benefit obligation in excess of plan assets 3.6 5.2 (10.3) (9.2)
Unrecognized net gain (1.3) (2.6) 0.8 (0.1)
Unrecognized prior service cost -- -- 0.3 0.4
Other 1.3 1.5 -- 0.1
-------- -------- -------- ---------
Net pension asset (liability) included in the
Consolidated Balance Sheets $ 3.6 $ 4.1 $ (9.2) $ (8.8)
======== ======== ======== =========
</TABLE>
F-28
<PAGE> 35
11: POSTRETIREMENT BENEFITS
The Company pays limited medical and dental insurance premiums on behalf
of certain early retirees as well as providing a small life insurance benefit
for certain retirees.
Employee benefit plans at December 31, 1997 and 1996 include $8.5 million
and $7.8 million, respectively, representing the actuarially determined
liability for these benefits. The actuarially determined expense was $1.7
million, $1.5 million and $1.1 million in 1997, 1996 and 1995, respectively.
12: INTEGRATION/RESTRUCTURING
To achieve reductions in operating costs and to integrate the operations
of the former Betz Laboratories, Inc. (Betz) and the former Dearborn business
(Dearborn), the Company has incurred incremental and non-recurring expenses that
are reported as Integration/Restructuring operating expenses.
Integration expenses are incremental and non-recurring costs necessary to
integrate Dearborn and Betz. Integration expenses amounted to $16.6 million and
$20.4 million for 1997 and 1996, respectively. These expenses are associated
with the activities of integration teams responsible for merging the two
companies for the benefit of future operations and include items such as
consulting and legal fees, integration bonuses, training, travel and Betz
employee relocation expenses. These costs are expensed as incurred. Such
integration activities were completed in 1997.
The provision for restructuring is for estimated exit costs associated
with the decisions to close Betz facilities and severance costs for Betz
employees. These costs are accrued when the decisions are made and announced and
exit costs can be reasonably estimated. A $9.6 million provision for
restructuring, net of the 1995 provision reversal noted below, was recorded in
1996 for the closure of Betz facilities and the severance of Betz employees
located throughout the world. Additionally, $26.0 million and $12.8 million
restructuring provisions for the closure of Dearborn facilities and severance
and relocation costs for worldwide Dearborn employees were also recorded in 1996
and 1997, respectively, which are part of the overall purchase price allocation.
These combined actions include employee termination benefits for approximately
550 technical, production, administrative and support employees, as well as
office consolidations and asset dispositions. All restructuring plans were
completed in 1997.
In connection with the Dearborn acquisition and restructuring decisions,
at December 31, 1997, approximately $11.9 million of assets are held for sale.
These assets, included in property, plant and equipment, are primarily
production facilities of Dearborn. The Company estimates it will complete the
sale of such facilities by 1999.
The $15.6 million provision for restructuring recorded in 1995 was for a
series of actions to reduce operating costs. The provision included the
writedown associated with the closure of two blending plants and other asset
dispositions, and employee termination benefits covering approximately 150
technical, production, administrative and support employees located primarily in
the United States. As a result of the completion of these restructuring actions,
$3.5 million of the 1995 restructuring provision was reversed in 1996. The lower
than anticipated cost resulted from fewer than planned terminations and higher
than planned attrition, along with lower than estimated losses on the closure of
a blending plant.
F-29
<PAGE> 36
A reconciliation of activity with respect to the restructuring accruals is
as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Balance at beginning of year $ 30.9 $ 7.5
Provision:
Included in Goodwill (see Note 2) 12.8 26.0
Charged to Consolidated Statements of
Operations - net (1.0) 9.6
Cash Payments (23.5) (11.4)
Noncash - Fixed asset writedowns and
foreign exchange translation (3.3) (0.8)
------ ------
Balance at end of year $ 15.9 $ 30.9
====== ======
</TABLE>
The remaining reserve at December 31, 1997 is expected to be sufficient to
complete these actions. Cash flows from operations and available financing
sources are expected to be sufficient to meet restructuring liabilities.
F-30
<PAGE> 37
13: QUARTERLY FINANCIAL INFORMATION (unaudited)
The following is a summary of quarterly financial information for the
years ended December 31, 1997 and 1996 (in millions, except for per share data):
<TABLE>
<CAPTION>
1997 Quarter Ended
-----------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales $ 306.4 $ 322.4 $ 331.8 $ 334.2
Gross Profit 184.2 193.5 199.0 199.4
Earnings Before Income Taxes
and Cumulative Effect of
Accounting Change (Note 1) 28.8 32.8 41.4 39.9
Earnings Before
Cumulative Effect of
Accounting Change 18.6 21.1 26.7 25.8
Net Earnings 18.6 21.1 26.7 19.8
Net Earnings Per Common Share:
Basic
Before Cumulative Effect
of Accounting Change .61 .69 .88 .84
Net Earnings .61 .69 .88 .63
Diluted
Before Cumulative Effect
of Accounting Change .57 .64 .81 .78
Net Earnings .57 .64 .81 .59
Cash Dividends Declared
Per Common Share .375 .375 .38 .38
Common Share Market
Prices:
High Price 67-1/4 67-3/8 71 70-1/8
Low Price 55-1/4 61-1/4 59-11/16 57-11/16
<CAPTION>
1996 Quarter Ended
-------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales $ 199.5 $ 210.1 $ 304.2 $ 323.2
Gross Profit 122.6 129.3 183.8 192.0
Earnings Before Income Taxes
and Cumulative Effect of
Accounting Change (Note 1) 31.5 34.9 16.3 17.0
Earnings Before
Cumulative Effect of
Accounting Change 19.7 22.3 10.9 11.4
Net Earnings 19.7 22.3 10.9 11.4
Net Earnings Per Common Share:
Basic
Before Cumulative Effect
of Accounting Change .67 .76 .34 .36
Net Earnings .67 .76 .34 .36
Diluted
Before Cumulative Effect
of Accounting Change .62 .71 .34 .34
Net Earnings .62 .71 .34 .34
Cash Dividends Declared
Per Common Share .37 .37 .375 .375
Common Share Market
Prices:
High Price 47-1/4 48 53-1/2 60-1/8
Low Price 40-1/8 41-3/4 43-1/8 50
</TABLE>
The 1996 and first three quarters of 1997 earnings per share amounts have
been restated to comply with Statement of Financial Accounting Standards No.
128, "Earnings per Share." The common stock of the Company is traded on the New
York Stock Exchange under the symbol BTL. The approximate number of record
holders of Common Shares as of January 30, 1998, was 3,466.
F-31
<PAGE> 38
BETZDEARBORN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Net Sales $ 619.3 $ 628.8
Operating Costs and Expenses:
Cost of products sold 254.3 251.1
Selling, research and administrative 292.6 277.7
Integration/restructuring - 15.3
--------- ---------
546.9 544.1
OPERATING EARNINGS 72.4 84.7
Other Income (Expense):
Interest (19.7) (23.0)
Investment and other (0.2) (0.2)
--------- ---------
(19.9) (23.2)
--------- ---------
EARNINGS BEFORE INCOME TAXES 52.5 61.5
Income Taxes 18.6 21.8
--------- ---------
NET EARNINGS $ 33.9 $ 39.7
========= =========
Net earnings per Common Share:
Basic $ 1.06 $ 1.30
========= =========
Diluted $ 1.01 $ 1.21
========= =========
Cash dividends declared per Common Share $ .76 $ .75
========= =========
Average number of Common Shares:
Basic 29.4 28.5
========= =========
Diluted 32.4 31.8
========= =========
</TABLE>
See notes to consolidated financial statements.
F-32
<PAGE> 39
BETZDEARBORN INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 22.7 $ 36.9
Trade accounts receivable, less allowances:
1998 -- $7.0; 1997 -- $7.2 272.9 293.0
Inventories:
Finished products and goods purchased for resale 48.1 49.2
Raw materials 47.6 45.1
---------- ----------
95.7 94.3
Income taxes 20.5 19.6
Prepaid expenses and other 29.6 36.2
---------- ----------
TOTAL CURRENT ASSETS 441.4 480.0
PROPERTY, PLANT AND EQUIPMENT -- at cost
Land 50.3 48.9
Buildings 194.6 199.0
Machinery and equipment 578.6 562.4
Construction in progress 38.6 15.8
---------- ----------
862.1 826.1
Less allowance for depreciation (453.5) (424.3)
---------- ----------
408.6 401.8
OTHER ASSETS
Investments and other 20.9 22.8
Goodwill -- net of accumulated amortization:
1998 -- $23.7; 1997 -- $17.8 441.8 447.7
Other intangibles -- net of accumulated amortization:
1998 -- $10.2; 1997 -- $8.8 80.4 81.3
---------- ----------
543.1 551.8
---------- ----------
TOTAL ASSETS $ 1,393.1 $ 1,433.6
========== ==========
</TABLE>
F-33
<PAGE> 40
BETZDEARBORN INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(In millions, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 64.6 $ 77.7
Payroll and related taxes 34.9 47.7
Notes payable 4.7 26.6
Accrued restructuring costs 12.0 15.9
Other accrued liabilities 38.7 43.7
Income taxes 6.8 7.4
Dividends payable 11.3 11.2
Current portion of long-term debt 1.3 1.3
---------- ----------
TOTAL CURRENT LIABILITIES 174.3 231.5
LONG-TERM DEBT -- less portion classified as current 680.1 678.2
OTHER LONG-TERM LIABILITIES
Income taxes 16.4 14.3
Employee benefit plans 57.4 54.5
Other 4.1 2.7
---------- ----------
77.9 71.5
SHAREHOLDERS' EQUITY
Preferred shares, $.10 par value: authorized 1,000,000 shares;
issued 1998 -- 471,751 shares; 1997 -- 475,371 shares 94.4 95.0
Guarantee of related ESOP debt (88.0) (88.6)
Common shares, $.10 par value: authorized -- 250,000,000 shares;
issued 1998 -- 33,630,831 shares; 1997 -- 33,631,330 shares 3.4 3.4
Capital in excess of par value of shares 135.8 131.6
Retained earnings 508.7 501.1
Cost of common shares in treasury: 1998 -- 3,976,208 shares;
1997 -- 4,181,807 shares (149.2) (155.0)
Unearned compensation (4.6) (3.9)
Foreign currency translation adjustments (39.7) (31.2)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 460.8 452.4
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,393.1 $ 1,433.6
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-34
<PAGE> 41
BETZDEARBORN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 33.9 $ 39.7
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 33.2 32.8
Amortization 7.9 7.5
Compensation and employee benefit plans 4.6 5.4
Changes in operating assets and liabilities, net of business
acquisitions:
Accounts receivable 17.6 (41.9)
Inventories (2.8) (9.0)
Prepaid expenses and other 5.1 (6.2)
Accounts payable and accrued expenses (28.7) (16.2)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 70.8 12.1
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (46.0) (30.8)
Proceeds from sales of long-term assets 3.2 6.0
Purchases of businesses and long-term investments (3.5) 0.2
Other, net - (1.0)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (46.3) (25.6)
FINANCING ACTIVITIES
Borrowings under credit facilities 5.8 9.8
Net short-term repayments (21.8) -
Dividends paid (26.3) (25.2)
Proceeds from issuance of common shares,
including treasury shares 5.4 29.5
------- -------
NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES (36.9) 14.1
Effect of exchange rate changes on cash (1.8) (1.6)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (14.2) (1.0)
Cash and Cash Equivalents at Beginning of Year 36.9 38.2
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 22.7 $ 37.2
======= =======
</TABLE>
See notes to consolidated financial statements.
F-35
<PAGE> 42
BETZDEARBORN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
JUNE 30, 1998 AND 1997
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements of
BetzDearborn Inc. (the "Company") for the six-month periods ended June 30, 1998
and 1997 have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Certain amounts in the financial statements for
the year ended December 31, 1997 have been reclassified to conform with 1998
classifications. Operating results for the six-month period ended June 30, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the audited
consolidated financial statements and footnotes thereto of the Company included
elsewhere in this Registration Statement and Prospectus of Hercules Incorporated
and Hercules Trust I, Hercules Trust II, Hercules Trust III, and Hercules Trust
IV.
The Company is required starting in 1998 to report information about
comprehensive income in its annual and interim financial statements. Financial
Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income,"
requires companies to disclose in their annual reports the total, as well as the
components, of comprehensive income and in their interim reports the total
amount. The Company's components of comprehensive income are net income and
foreign currency translation adjustments which totaled to a gain of $25.4
million and $10.5 million for the first six months of 1998 and 1997,
respectively.
In the fourth quarter of 1997, the Company changed its method of
accounting for business process reengineering costs incurred in connection with
its ongoing major project that combines business process reengineering and
information technology transformation. This accounting change was mandated by
the consensus position of the Financial Accounting Standards Board's Emerging
Issues Task Force (Issue No. 97-13). Effective October 1, 1997, the Company's
policy is that all such costs are expensed as incurred, whereas previously such
costs were capitalized and amortized subsequently. In the fourth quarter of
1997, business process reengineering costs capitalized through September 30,
1997 were written off as a cumulative-effect-type adjustment.
Note 2 - Common Shares Reserved for Stock Plans
At June 30, 1998, 4,986,186 and 425,599 Common Shares were reserved for
possible issuance pursuant to the exercise of stock options and grants under
the Company's Stock Option and Incentive Plans, respectively. An additional
352,785 Common Shares were reserved for purchase through payroll deductions
under the terms of the Employee Stock Purchase Plan. Further, 2,639,000 Common
Shares were reserved for possible conversion of the Series A ESOP Convertible
preferred stock.
Note 3 - Earnings per Share
In compliance with Financial Accounting Standards Board Statement No. 128,
"Earnings per Share," the Company has changed its method of computing earnings
per share and has restated the prior year to conform to the new requirements.
Basic and diluted earnings per share as calculated under Statement 128 are as
follows (in millions, except per share amounts):
F-36
<PAGE> 43
BETZDEARBORN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Six months ended
June 30, June 30,
-------- --------
1998 1997
-------- --------
<S> <C> <C>
Basic Earnings per Share:
Net earnings $ 33.9 $ 39.7
Effect of preferred stock dividends, net of taxes (2.8) (2.8)
-------- --------
Net earnings available to common shareholders $ 31.1 $ 36.9
======== ========
Average Common Shares outstanding - basic 29.4 28.5
======== ========
Basic Earnings per Common Share $ 1.06 $ 1.30
======== ========
Diluted Earnings per Share:
Net earnings $ 33.9 $ 39.7
Effect of ESOP charge to operations assuming
conversion of Series A ESOP Convertible
Preferred Shares, net of taxes (1.4) (1.3)
-------- --------
Net earnings available to common shareholders $ 32.5 $ 38.4
======== ========
Average Common Shares outstanding - basic 29.4 28.5
Effect of dilutive securities:
Contingently issuable shares 0.2 0.1
Employee stock options 0.2 0.5
Assumed conversion of Series A ESOP Convertible
Preferred Shares 2.6 2.7
-------- --------
Average Common Shares outstanding - diluted 32.4 31.8
======== ========
Diluted Earnings per Common Share $ 1.01 $ 1.21
======== ========
</TABLE>
Note 4 - Pending Accounting Changes
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which is required to be adopted for fiscal years beginning after December 15,
1997. Statement 131 will require the Company to disclose revenues and other
financial information pertaining to the business segments by which the Company
is managed, as well as the factors management used to determine these segments.
The Company is currently evaluating the requirements of Statement 131 to
determine how to present the required information in its financial statements
and expects to implement this statement in the fourth quarter of 1998.
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," was issued by the Financial Accounting
Standards Board in June 1998. The Standard will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
the derivatives will either be offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through earnings, or recognized
in other comprehensive income until the hedged item is recognized in earnings.
The change in a derivative's fair value related to the ineffective portion of a
hedge, if any, will be immediately recognized in earnings. The Company expects
to adopt this Standard on or before the beginning of its fiscal year 2000. The
effect of adopting the Standard is currently being evaluated, but is not
expected to have a material effect on the Company's financial position or
results of operations.
Note 5 - Subsequent Event - Hercules Merger Agreement
On July 30, 1998, the Company and Hercules Incorporated ("Hercules")
announced that they had entered into an Agreement and Plan of Merger, dated as
of July 30, 1998 (the "Merger Agreement"), pursuant to which a wholly owned
subsidiary of Hercules would be merged with and into the Company (the
"Merger"), with the Company surviving the Merger as a wholly owned subsidiary
of Hercules. In the Merger, all of the Company's Common Shares (including
Company Common Shares received upon conversion of the Company's Series A
ESOP Convertible Preferred Shares) would be converted into the right to receive
$72 per share in cash. In addition, outstanding employee stock options would be
cashed out in the Merger. As a result of the Merger, Hercules will assume all of
the Company's outstanding debt, which is estimated to be approximately $700
million. The Merger is subject to certain conditions, including
F-37
<PAGE> 44
BETZDEARBORN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998 AND 1997
approval of the Merger Agreement and the Merger by the Company's shareholders,
and receipt of regulatory approvals. The Merger is currently expected to be
consummated on or about October 15, 1998.
F-38
<PAGE> 45
(b) Pro Forma Financial Information
Hercules Incorporated
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements
reflect the acquisition by merger of all of the outstanding equity securities of
BetzDearborn Inc. ("BetzDearborn") by Hercules Incorporated ("Hercules").
The following Unaudited Pro Forma Financial Statements are attached to this
report:
Unaudited Pro Forma Condensed Combined Balance Sheet
at June 30, 1998........................................................ PF-2
Unaudited Pro Forma Condensed Combined Statement of
Income for the year ended December 31, 1997............................. PF-3
Unaudited Pro Forma Condensed Combined Statement of
Income for the six months ended June 30, 1998........................... PF-4
Notes to Unaudited Pro Forma Condensed Combined
Financial Statements.................................................... PF-5
The Unaudited Pro Forma Condensed Combined Balance Sheet reflects the
acquisition as if it had occurred on June 30, 1998. The Unaudited Pro Forma
Condensed Combined Statements of Income for the year ended December 31, 1997 and
for the six months ended June 30, 1998 reflect the acquisition as if it had
occurred at the beginning of the year ended December 31, 1997. The pro forma
information is based on the historical financial statements of Hercules and
BetzDearborn after giving effect to the acquisition using the purchase method of
accounting. Under this method of accounting, the aggregate purchase price is
allocated to assets acquired and liabilities assumed based on their estimated
fair values. For purposes of the Unaudited Pro Forma Condensed Combined
Financial Statements, the excess of the purchase price over the book value of
the net assets of BetzDearborn has been recorded as goodwill. The actual
allocation of the purchase price will be determined within a reasonable time
after consummation of such transaction and will be based on a complete
evaluation of the assets acquired and liabilities assumed. Accordingly, the
information presented herein may differ from the final purchase price
allocation. The Unaudited Pro Forma Condensed Combined Financial Statements also
reflect assumptions and adjustments deemed appropriate by Hercules, which are
described in the accompanying notes to the Unaudited Pro Forma Condensed
Combined Financial Statements. Cost savings benefits from synergies to be
derived from the acquisition, which may be significant, are not reflected in the
Unaudited Pro Forma Condensed Combined Financial Statements.
The Unaudited Pro Forma Condensed Combined Financial Statements do not purport
to be indicative of Hercules' financial position or results of operations had
the acquisition actually occurred on the dates presented nor is it necessarily
indicative of Hercules' future financial position or future operating results.
The Unaudited Pro Forma Condensed Combined Financial Statements should be read
in conjunction with the separate audited historical consolidated financial
statements of Hercules and the notes thereto set forth in Hercules' 1997 Annual
Report on Form 10-K and the unaudited financial statements of Hercules for the
periods ended March 31, 1998 and June 30, 1998, as set forth in its Quarterly
Reports on Form 10-Q for these periods, and the historical consolidated
financial statements of BetzDearborn and the notes thereto which are included in
this Current Report on Form 8-K.
In the opinion of Hercules' management, subject to finalization of the purchase
price allocation, all adjustments have been made that are necessary to present
fairly the pro forma data.
PF-1
<PAGE> 46
HERCULES INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HERCULES BETZDEARBORN ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 32 $ 23 $ 55
Accounts and notes receivable, net 420 273 693
Inventories 267 96 363
Income Taxes 49 20 69
Other Current Assets/Prepaid Expenses 0 29 29
---------------------------------------------------------
Total Current Assets 768 441 1,209
Property, Plant, and Equipment, net 725 409 1,134
Investments and other 602 21 623
Other Assets 555 522 $ 1,826 (A) 2,963
60 (B)
---------------------------------------------------------
Total Assets $ 2,650 $ 1,393 $ 1,886 $ 5,929
===== ===== ===== =====
LIABILITIES
Current Liabilities:
Short-term Debt $ 474 $ 6 $ (480)(C) $ 0
Accounts Payable 128 65 193
Accrued expenses 352 96 25 (A) 473
Income taxes payable 80 7 87
---------------------------------------------------------
Total Current Liabilities 1,034 174 (455) 753
Long-Term Debt 461 680 2,269 (D) 3,890
480 (C)
Accrued Postretirement Benefits 338 57 395
Deferred Income Taxes 169 17 186
Other Liabilities/ Deferred Credits 0 4 4
SHAREHOLDERS' EQUITY 648 461 (461)(A) 701
53 (E)
---------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,650 $ 1,393 $ 1,886 $ 5,929
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed
Combined Financial Statements.
PF-2
<PAGE> 47
HERCULES INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HERCULES BETZDEARBORN ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Net sales $ 1,866 $ 1,295 $ 3,161
Cost of sales 1,169 519 1,688
Selling, general and administrative expenses 251 531 $ 57 (F) 828
(11)(G)
Research and development 53 39 92
Other operating expenses (income), net 165 16 181
-------- -------- ------- --------
Profit from operations 228 190 (46) 372
Equity in income of affiliated companies 30 - 30
Interest and debt expense 39 46 187 (H) 272
Other income (expense), net 374 (1) 373
-------- -------- ------- --------
Income before income taxes and effect of
change in accounting principle 593 143 (233) 503
Income tax expense (benefit) 269 51 (66)(I) 254
-------- -------- ------- --------
Income before effect of change in accounting
principle $ 324 $ 92 $ (167) $ 249
======== ======== ======= ========
Basic earnings per common share before effect
of change in accounting principle $ 3.27 $ 2.34
Diluted earnings per common share before effect
of change in accounting principle $ 3.18 $ 2.30
Average common shares outstanding - basic 99.2 106.2
Average common shares outstanding - diluted 102.4 109.4
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed
Combined Financial Statements.
PF-3
<PAGE> 48
HERCULES INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HERCULES BETZDEARBORN ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Net sales $ 875 $ 619 $ 1,494
Cost of sales 529 254 783
Selling, general and administrative expenses 129 271 $ 28 (F) 422
(6)(G)
Research and development 25 21 46
Other operating expenses (income), net (3) 0 (3)
-------- -------- -------- --------
Profit from operations 195 73 (28) 240
Equity in income of affiliated companies 10 0 10
Interest and debt expense 24 20 92 (H) 136
Other income (expense), net (28) 0 (28)
-------- -------- -------- --------
Income before income taxes 153 53 (120) 86
Income tax expense (benefit) 51 19 (32)(I) 38
-------- -------- -------- --------
Net Income $ 102 $ 34 $ (88) $ 48
======== ======== ======== ========
Basic earnings per common share $ 1.07 $ 0.47
Diluted earnings per common share $ 1.06 $ 0.46
Average common shares outstanding - basic 95.3 102.3
Average common shares outstanding - diluted 96.7 103.7
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed
Combined Financial Statements.
PF-4
<PAGE> 49
HERCULES INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE DATA)
A) The aggregate purchase price as determined by the offer price of $72 per
share is approximately $2,400, plus estimated direct acquisition costs of $25
and assumed debt of $680. The excess of the purchase price over the book value
of the BetzDearborn net assets of $461, plus the fair value of the unearned ESOP
compensation of $138 (see footnote J) is $1,826. This amount has been allocated
to goodwill ($2,400 + $25 - ($461 + $138)).
B) To record estimated debt issuance costs of $60 which will be capitalized.
C) To record refinancing of short term debt of $480 as long term debt.
D) To record debt to finance the purchase price of $2,400, plus estimated debt
issuance costs of $60, less estimated proceeds from the ESOP purchase of
Hercules common stock of $191 (see footnote J).
E) To record additional equity resulting from the purchase of Hercules common
stock by the ESOP. This amount is equal to the total estimated proceeds of $191
from the sale of Hercules shares to the ESOP less unearned compensation of $138,
representing unallocated shares (see footnote J).
F) To record amortization of goodwill of $2,268 ($1,826 of incremental
goodwill, plus $442 of pre-existing goodwill) over its estimated useful life of
40 years.
G) To eliminate historical goodwill amortization of BetzDearborn.
H) To record interest expense on incremental debt of $3,445 (including
refinanced debt of $1,176) at an assumed interest rate of 7.00%, the
approximate borrowing rate for Hercules, plus amortization of debt issuance
costs of $3 and $1.5 for the periods ended December 31, 1997 and June 30, 1998,
respectively.
I) To record the tax effect of the pro forma adjustments at the statutory rate
of 35% for the periods presented. The amortization of goodwill is substantially
non-deductible and accordingly has not been tax affected.
J) Under the terms of the merger between Hercules and BetzDearborn, the shares
in the BetzDearborn ESOP were automatically converted into common shares of
BetzDearborn immediately prior to the merger. Upon consummation of the merger,
the ESOP utilized the cash proceeds from the sale of BetzDearborn stock at $72
per share to purchase Hercules common shares. This treatment was applied to
allocated and unallocated shares. The value of the allocated shares was
approximately $53 and the value of the unallocated shares was approximately
$138. For the EPS calculations, the total approximate amount of 7 million ESOP
shares (allocated and unallocated) are considered outstanding.
PF-5
<PAGE> 50
(c) Exhibits
2.1 Agreement and Plan of Merger, dated as of
July 30, 1998, among Hercules Incorporated,
Water Acquisition Co. and BetzDearborn Inc.
(previously filed with the Commission on
July 30, 1998 as Exhibit 2.1 to the Current
Report on Form 8-K of BetzDearborn,
Commission File No. 001-11558, and
incorporated by reference
herein).
10.1 Credit Agreement, dated October 15, 1998, by
and among Hercules Incorporated,
NationsBank, N.A., as Administrative Agent
and the lenders party thereto.
99.1 Press Release, dated October 15, 1998, of
Hercules Incorporated.
99.2 Press Release, dated October 19, 1998, of
Hercules Incorporated.
99.3 Item 1. Description of Business included on
pages 2 through 8 and Pending Legal
Proceedings included on pages 12 through 13
in the Annual Report on Form 10-K of
BetzDearborn for the fiscal year ended
December 31, 1997 (previously filed with the
Commission on March 9, 1998, as amended on
March 30, 1998, Commission File No.
000-2085, and incorporated by reference
herein) and Part II, Item 1, Legal
Proceedings included on Form 10-Q of
BetzDearborn, for the quarter ended March
31, 1998 (previously filed with the
Commission on May 15, 1998, Commission File
No. 000-2085, and incorporated herein by
reference).
3
<PAGE> 51
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
HERCULES INCORPORATED
By: /s/ Israel J. Floyd
____________________
October 29, 1998 Israel J. Floyd
Corporate Secretary
4
<PAGE> 52
EXHIBIT INDEX
Number Exhibit
- ------ -------
2.1 Agreement and Plan of Merger, dated as of July 30,
1998, among Hercules Incorporated, Water Acquisition
Co. and BetzDearborn Inc. (previously filed with the
Commission on July 30, 1998 as Exhibit 2.1 to the
Current Report on Form 8-K of BetzDearborn,
Commission File No. 001-11558, and incorporated by
reference herein).
10.1 Credit Agreement, dated October 15, 1998, by and
among Hercules Incorporated, NationsBank, N.A., as
Administrative Agent and the lenders party thereto.
99.1 Press Release, dated October 15, 1998, of Hercules
Incorporated.
99.2 Press Release, dated October 19, 1998, of Hercules
Incorporated.
99.3 Item 1. Description of Business included on pages 2
through 8 and Pending Legal Proceedings included on
pages 12 through 13 in the Annual Report on Form 10-K
of BetzDearborn for the fiscal year ended December
31, 1997 (previously filed with the Commission on
March 9, 1998, as amended on March 30, 1998,
Commission File No. 000-2085, and incorporated by
reference herein) and Part II, Item 1, Legal
Proceedings included on Form 10-Q of BetzDearborn,
for the quarter ended March 31, 1998 (previously
filed with the Commission on May 15, 1998, Commission
File No. 000-2085, and incorporated herein by
reference).
5
<PAGE> 1
================================================================================
CREDIT AGREEMENT
AMONG
HERCULES INCORPORATED
THE SUBSIDIARIES OF HERCULES INCORPORATED
FROM TIME TO TIME PARTIES HERETO
THE SEVERAL LENDERS
FROM TIME TO TIME PARTIES HERETO,
NATIONSBANK, N.A.,
AS ADMINISTRATIVE AGENT
AND
THE CHASE MANHATTAN BANK,
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
AND
CITIBANK, N.A.,
AS CO-SYNDICATION AGENTS
DATED AS OF OCTOBER 15, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. Representations and Warranties of the Company.................................................1
1.1. Corporate Authority........................................................................1
1.2. Financial Statements.......................................................................2
1.3. Validity of Documents......................................................................2
1.4. No Events of Default.......................................................................3
1.5. Litigation.................................................................................3
1.6. Use of Proceeds............................................................................3
1.7. No Change..................................................................................4
1.8. Federal Regulations........................................................................4
1.9. ERISA......................................................................................4
1.10. Investment Company Act; Other Regulations.................................................4
1.11. Compliance with Law.......................................................................5
1.12. Taxes.....................................................................................5
1.13. Material Subsidiaries.....................................................................5
1.14. Environmental Matters.....................................................................6
1.15. Solvency..................................................................................7
1.16. Disclosure................................................................................7
1.17. No Burdensome Restrictions................................................................7
1.18. Representations and Warranties from Merger Agreement......................................7
1.19. Year 2000 Compliance......................................................................8
SECTION 2. Amount and Terms of Commitments...............................................................8
2.1. Revolving Credit Commitments...............................................................8
2.2. Revolving Credit Notes.....................................................................8
2.3. Procedure for Revolving Credit Borrowing...................................................9
2.4. Fees.......................................................................................9
2.5. Termination or Reduction of Revolving Committed Amount....................................10
2.6. Prepayments...............................................................................10
2.7. Conversion and Continuation Options.......................................................12
2.8. Minimum Amounts of Tranches and Maximum Number of Eurodollar Loans........................13
2.9. Interest Rates and Payment Dates..........................................................13
2.10. Computation of Interest and Fees.........................................................14
2.11. Pro Rata Treatment and Payments..........................................................14
2.12. Taxes....................................................................................15
2.13 Designated Borrowers......................................................................17
2.14. Several Liability of Borrowers...........................................................18
2.15 Swingline Loan Subfacility................................................................18
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
2.16 Letter of Credit Subfacility..............................................................20
2.17 Term Loan Tranches........................................................................25
SECTION 3. Change in Circumstances Affecting Loans......................................................27
3.1. Basis for Determining Interest Rate Inadequate or Unfair..................................27
3.2. Illegality................................................................................28
3.3. Increased Cost............................................................................28
3.4. Effect on Obligation to Convert...........................................................29
3.5. Funding Losses............................................................................29
SECTION 3A. Guaranty ...................................................................................30
3A.1 Guaranty of Payment ......................................................................30
3A.2 Obligations Unconditional ................................................................30
3A.3 Modifications ............................................................................31
3A.4 Waiver of Rights .........................................................................31
3A.5 Reinstatement ............................................................................32
3A.6 Remedies .................................................................................32
3A.7 Limitation of Guaranty ...................................................................32
3A.8 Rights of Contribution....................................................................33
3A.9 Releases of Certain Guarantors ...........................................................33
SECTION 4. Conditions Precedent.........................................................................33
4.1. Effectiveness of this Agreement...........................................................33
4.2. Conditions to all Borrowings..............................................................34
SECTION 5. Covenants....................................................................................35
5.1. Affirmative Covenants.....................................................................35
5.2. Negative Covenants........................................................................39
SECTION 6. Defaults.....................................................................................44
SECTION 7. Definitions..................................................................................47
SECTION 8. The Agent....................................................................................65
8.1. Appointment...............................................................................65
8.2. Delegation of Duties......................................................................66
8.3 Exculpatory Provisions.....................................................................66
8.4 Reliance by Agent..........................................................................66
8.5. Notice of Default.........................................................................67
8.6. Non-Reliance on Agent and Other Lenders...................................................67
8.7. Indemnification...........................................................................68
8.8. Agent in Its Individual Capacity..........................................................68
8.9. Successor Agent...........................................................................68
SECTION 9. Miscellaneous................................................................................69
9.1. Amendments and Waivers....................................................................69
9.2. Notices...................................................................................70
9.3. No Waiver; Cumulative Remedies............................................................70
9.4. Survival of Representations and Warranties................................................71
9.5. Payment of Expenses and Taxes.............................................................71
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
9.6 Successors and Assigns; Participations and Assignments.....................................72
9.7. Adjustments; Set-off......................................................................74
9.8. Counterparts..............................................................................75
9.9. Adjustments for Changes in GAAP...........................................................75
9.10. Severability; Section Headings...........................................................75
9.11. Integration..............................................................................75
9.12. Governing Law............................................................................76
9.13. Submission To Jurisdiction; Waivers......................................................76
9.14. Acknowledgments..........................................................................76
9.15. Waiver of Jury Trial.....................................................................77
9.16. Termination of Collateral Period.........................................................77
9.17. Confidentiality..........................................................................77
9.18. Prudential Intercreditor Agreement.......................................................78
</TABLE>
EXHIBITS
Exhibit A - Form of Revolving Credit Note
Exhibit B - Form of Swingline Note
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Borrower Joinder Agreement
Exhibit E - Form of Guarantor Joinder Agreement
Exhibit F - Form of Notice of Borrowing for Revolving Credit Loans
Exhibit G - Form of Notice of Borrowing for Term Loans
Exhibit H - Form of Term Loan Note
Exhibit I - Form of Pledge Agreement
Exhibit J - Form of Prudential Intercreditor Agreement
SCHEDULES
SCHEDULE I - Commitments; Notice Addresses
SCHEDULE II - Material Subsidiaries
SCHEDULE III - Required Consents, Authorizations, Notices and Filings
SCHEDULE IV - Existing Indebtedness of the Material Subsidiaries
SCHEDULE V - Representation Regarding Collateral Documents
SCHEDULE VI - Existing Letters of Credit
iii
<PAGE> 5
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of October 15, 1998 (as amended,
supplemented or otherwise modified from time to time pursuant to the applicable
provisions hereof, the "Agreement"), among HERCULES INCORPORATED, a Delaware
corporation (the "Company"), such subsidiaries of the Company as may from time
to time be Borrowers and/or Guarantors hereunder in accordance with the
provisions hereof (collectively with the Company, the "Credit Parties"), the
several banks and other financial institutions from time to time parties to this
Agreement (the "Lenders"), NATIONSBANK, N.A., a national banking association, as
administrative agent (in such capacity, the "Agent") for the Lenders, and THE
CHASE MANHATTAN BANK, MORGAN GUARANTY TRUST COMPANY OF NEW YORK and CITIBANK,
N.A., as Co-Syndication Agents (in such capacity, the "Co-Agents").
The parties hereto agree to as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
In order to induce the Lenders and the Agent to enter into this
Agreement and to make the Loans (as that term and other capitalized terms not
otherwise defined herein are hereinafter defined in Section 7) and other
extensions of credit hereunder, the Credit Parties make the following
representations, covenants and warranties which shall survive the execution and
delivery of the Credit Documents:
1.1. CORPORATE AUTHORITY.
(a) Each Credit Party is a duly and validly existing corporation, and
is in good standing under the laws of the State of its incorporation. The
execution, delivery and performance of the Credit Documents are within each
Credit Party's corporate authority and have been duly authorized by proper
corporate proceedings. This Agreement has been, and each of the other Credit
Documents required to be executed and delivered by a Credit Party will be, duly
executed and delivered by each Credit Party that is a party thereto.
(b) Each Credit Party (i) has the corporate or other necessary power
and authority, and the legal right, to own and operate its property, to lease
the property it operates as lessee and to conduct the business in which it is
currently engaged and (ii) is duly qualified as a foreign entity and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, other than in such jurisdictions where the failure to be so
qualified and in good standing could not reasonably be expected to have a
Material Adverse Effect.
1
<PAGE> 6
1.2. FINANCIAL STATEMENTS.
(a) The consolidated balance sheet of the Company and its Consolidated
Subsidiaries as of December 31, 1997, and the related consolidated statements of
income, stockholders' equity and cash flow (including the notes thereto) for the
fiscal year ended on such date, reported upon by Coopers & Lybrand, present
fairly in all material respects the consolidated financial position of the
Company and its Consolidated Subsidiaries as of said date and the consolidated
results of their operations for such fiscal year, in conformity with GAAP.
(b) The consolidated balance sheets of the Company and its Consolidated
Subsidiaries as of June 30, 1998, and the related consolidated statements of
income and cash flows for the quarterly period ended on such date, present
fairly in all material respects the consolidated financial position of the
Company and its Consolidated Subsidiaries as of said date and the consolidated
results of their operations for such quarterly period, in conformity with GAAP;
provided, however, that such financial statements are subject to year-end
adjustments and are presented without footnotes.
(c) The pro forma consolidated balance sheet of the Company and its
Consolidated Subsidiaries as of the Closing Date giving effect to the
Acquisition in accordance with the terms of the Merger Agreement and reflecting
estimated purchase price accounting adjustments, has heretofore been furnished
to each Lender. Such pro forma balance sheet is based upon reasonable
assumptions made known to the Lenders and upon information not known to be
incorrect or misleading in any material respect.
(d) The financial statements delivered to the Lenders pursuant to
subsection 5.1(a)(i)(A) and (B), (i) have been prepared in accordance with GAAP
(except as may otherwise be permitted hereunder) and (ii) present fairly (on the
basis disclosed in the footnotes to such financial statements) the consolidated
financial condition, results of operations and cash flows of the Company and its
Consolidated Subsidiaries as of such date and for such periods.
1.3. VALIDITY OF DOCUMENTS.
(a) This Agreement constitutes, and the other Credit Documents when
duly executed and delivered by each Credit Party that is a party thereto in
accordance with this Agreement will constitute, legal, valid and binding
obligations of each Credit Party, each enforceable in accordance with its terms
except as the enforceability of such Credit Document may be limited (x) by
general principles of equity and conflicts of laws or (y) by bankruptcy,
reorganization, insolvency, moratorium or other laws of general application
relating to or affecting the enforcement, of creditors' rights. Neither the
execution, delivery or performance of this Agreement or the other Credit
Documents, nor compliance with the terms and provisions hereof and thereof, will
(i) conflict with, or result in a breach of any provisions of, any Requirement
of Law applicable to the Credit Parties, specifically including the certificate
of incorporation or the by-laws of a Credit Party, or any agreement or
instrument to which a Credit Party is a party, or by which it or its properties
is bound,
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or constitute a default thereunder, except where such conflict, breach or
default would not reasonably be expected to have a Material Adverse Effect or
(ii) result in or require the creation of any Lien (other than those
contemplated in or created in connection with the Credit Documents) upon a
Credit Party or with respect to its properties.
(b) No consent or authorization of, filing with, notice to or other
similar act by or in respect of, any Governmental Authority or any other Person
is required to be obtained or made by or on behalf of any Credit Party in
connection with the borrowings or other extensions of credit hereunder or with
the execution, delivery, performance, validity or enforceability of the Credit
Documents to which such Credit Party is a party, except for (i) consents,
authorizations, notices and filings described in Schedule III, all of which have
been obtained or made or have the status described in such Schedule III and (ii)
filings to perfect the Liens created by the Collateral Documents.
1.4. NO EVENTS OF DEFAULT.
No Event of Default specified in Section 6 of this Agreement and no
event of default specified in any other agreement evidencing indebtedness of the
Company or any of its Material Subsidiaries for borrowed money in excess of
$25,000,000, and no event which, with the giving of notice or lapse of time, or
both, could become such an Event of Default or event of default, has occurred
and is continuing.
1.5. LITIGATION.
Except as set forth on the Company's Form 10-Q filed with the
Securities and Exchange Commission for the quarterly period ended June 30, 1998,
there are no actions, suits or proceedings pending or, to the knowledge of a
Credit Party, threatened against or affecting the Company or any Consolidated
Subsidiary before any court or before any governmental or administrative body or
agency, which could reasonably be expected to have a Material Adverse Effect.
1.6. USE OF PROCEEDS.
The proceeds of the Loans shall be used (a) to fund the Acquisition
(including, without limitation, through loans, advances or equity contributions
made to Subsidiaries of the Company) and (b) for working capital, capital
expenditures, repayment of Indebtedness of the Company, BetzDearborn and their
Subsidiaries and other general corporate purposes. The Letters of Credit shall
be used only for or in connection with appeal bonds, reimbursement obligations
arising in connection with surety and reclamation bonds, reinsurance, domestic
or international trade transactions and obligations not otherwise aforementioned
relating to transactions entered into by the applicable account party in the
ordinary course of business.
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1.7. NO CHANGE.
Since June 30, 1998, there has been no development or event which has
had or could reasonably be expected to have a Material Adverse Effect.
1.8. FEDERAL REGULATIONS.
No part of the Letters of Credit or the proceeds of any Loans will be
used for "purchasing" or "carrying" any "margin stock", within the respective
meanings of each of the quoted terms under Regulation U of the Board of
Governors of the Federal Reserve System as now and from time to time hereafter
in effect or for any purpose which violates the provisions of the Regulations of
such Board of Governors. If requested by any Lender or the Agent, each Borrower
will furnish to the Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form U-1 referred to in said Regulation
U.
1.9. ERISA.
Each of the following statements is true, except to the extent that the
events or conditions causing such statements to be untrue, either individually
or in the aggregate, would not be reasonably likely to result in any liability
having a Material Adverse Effect: Neither a Reportable Event nor an "accumulated
funding deficiency" (within the meaning of Section 412 of the Code or Section
302 of ERISA) has occurred during the five-year period prior to the date on
which this representation is made or deemed made with respect to any Plan, and
each Plan has complied in all material respects with the applicable provisions
of ERISA and the Code. No termination of a Single Employer Plan has occurred,
and no Lien in favor of the PBGC or a Plan has arisen, during such five-year
period. The present value of all accrued benefits under each Single Employer
Plan (based on those assumptions used to fund such Plans) did not, as of the
last annual valuation date prior to the date on which this representation is
made or deemed made, exceed the value of the assets of such Plan allocable to
such accrued benefits. Neither a Credit Party nor any Commonly Controlled Entity
has had a complete or partial withdrawal from any Multiemployer Plan, and
neither a Credit Party nor any Commonly Controlled Entity would become subject
to any liability under ERISA if such Credit Party or any such Commonly
Controlled Entity were to withdraw completely from all Multiemployer Plans as of
the valuation date most closely preceding the date on which this representation
is made or deemed made. No such Multiemployer Plan is in Reorganization or
Insolvent.
1.10. INVESTMENT COMPANY ACT; OTHER REGULATIONS.
No Credit Party is an "investment company", or a company "controlled"
by an "investment company", within the meaning of the Investment Company Act of
1940, as amended. No Credit Party is subject to regulation under any Federal or
State statute or regulation which limits its ability to incur Indebtedness. No
director, executive officer or principal shareholder of a Credit Party or any of
its Subsidiaries is a director, executive officer or principal shareholder of
any Lender. For the purposes
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hereof the terms "director", "executive officer" and "principal shareholder"
(when used with reference to any Lender) have the respective meanings assigned
thereto in Regulation O issued by the Board of Governors of the Federal Reserve
System. None of the transactions contemplated by this Agreement (including,
without limitation, the direct or indirect use of the proceeds of the Loans)
will violate or result in a violation of the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, or regulations issued
pursuant thereto.
1.11. COMPLIANCE WITH LAW.
Each of the Company and its Consolidated Subsidiaries is in compliance
with all Requirements of Law except to the extent that the failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
1.12. TAXES.
Each of the Company and its Consolidated Subsidiaries has filed, or
caused to be filed, all tax returns (federal, state, local and foreign) required
to be filed and paid (a) all amounts of taxes shown thereon to be due (including
interest and penalties) and (b) all other taxes, fees, assessments and other
governmental charges (including mortgage recording taxes, documentary stamp
taxes and intangibles taxes) owing by it, except for such taxes (i) which are
not yet delinquent or (ii) that are being contested in good faith and by proper
proceedings, and against which adequate reserves are being maintained in
accordance with GAAP (if such reserves are required pursuant to GAAP). No Credit
Party is aware as of the Closing Date of any proposed tax assessments against
any of the Company and its Consolidated Subsidiaries, which could reasonably be
expected to have a Material Adverse Effect and against which adequate reserves
are not being maintained in accordance with GAAP (if such reserves are required
pursuant to GAAP).
1.13. MATERIAL SUBSIDIARIES.
Set forth on Schedule II is a complete and accurate list of all
Material Subsidiaries of the Company. Information on Schedule II includes
jurisdiction of incorporation, the number of shares of each class of Capital
Stock outstanding, the number and percentage of outstanding shares of each class
owned (directly or indirectly) by a Credit Party; and the number and effect, if
exercised, of all outstanding options, warrants, rights of conversion or
purchase and all other similar rights with respect thereto. The outstanding
Capital Stock of all such Material Subsidiaries is validly issued, fully paid
and non-assessable and is owned by each such Credit Party, directly or
indirectly, free and clear of all Liens (other than those arising under or
contemplated in connection with the Credit Documents). Other than as set forth
in Schedule II, no Material Subsidiary has outstanding any securities
convertible into or exchangeable for its Capital Stock nor does any such Person
have outstanding any rights to subscribe for or to purchase or any options for
the purchase of, or any agreements providing for the issuance
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(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to its Capital Stock. Schedule II may be updated from time to
time by the Company by giving written notice thereof to the Agent.
1.14. ENVIRONMENTAL MATTERS.
(a) Except as would not have or be reasonably expected to have a
Material Adverse Effect:
(i) Each of the real properties owned by the Credit Parties
(the "Real Properties") and all operations at the Real Properties are
in compliance with all applicable Environmental Laws, and there is no
violation of any Environmental Law with respect to the Real Properties
or the businesses operated by the Company or any of its Material
Subsidiaries (the "Businesses"), and there are no conditions relating
to the Businesses or Real Properties that would be reasonably expected
to give rise to liability under any applicable Environmental Laws.
(ii) No Credit Party has received any written notice of, or
inquiry from any Governmental Authority regarding, any violation,
alleged violation, non-compliance, liability or potential liability
regarding Hazardous Materials or compliance with Environmental Laws
with regard to any of the Real Properties or the Businesses, nor does
any Credit Party have knowledge or reason to believe that any such
notice is being threatened.
(iii) Hazardous Materials have not been transported or
disposed of from the Real Properties, or generated, treated, stored or
disposed of at, on or under any of the Real Properties or any other
location, in each case by, or on behalf or with the permission of, the
Company or any of its Material Subsidiaries.
(iv) No judicial proceeding or governmental or administrative
action is pending or, to the knowledge of any Credit Party, threatened,
under any Environmental Law to which any Credit Party is or, to the
best knowledge of such Credit Party, will be named as a party, nor are
there any consent decrees or other decrees, consent orders,
administrative orders or other orders, or other administrative or
judicial requirements outstanding under any Environmental Law with
respect to the Company or any of its Material Subsidiaries, the Real
Properties or the Businesses.
(v) There has been no release or, to the best knowledge of any
Credit Party, threat of release of Hazardous Materials at or from the
Real Properties, or arising from or related to the operations
(including, without limitation, disposal) of the Company or any of its
Material Subsidiaries in connection with the Real Properties or
otherwise in connection with the Businesses, in violation of, or in
amounts or in a manner that could give rise to liability under,
Environmental Laws.
(vi) None of the Real Properties contains, or has previously
contained, any Hazardous Materials at, on or under the Real Properties
in amounts or concentrations that, if released, constitute or
constituted a violation of, or would give rise to liability under,
Environmental Laws.
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(vii) No Credit Party, nor any of its Subsidiaries, has
assumed any liability of any Person (other than another Credit Party,
or one of its Subsidiaries) under any Environmental Law.
(b) The Company has adopted procedures that are designed to (i) ensure
that each Credit Party, each of its operations and each of the properties owned
or leased by each Credit Party remains in compliance with applicable
Environmental Laws, to the extent that the failure to comply with such
Environmental Laws would have or would be reasonably expected to have a Material
Adverse Effect, and (ii) manage, to the same extent as and in accordance with
the practices of companies engaged in the same or a similar business, any
liabilities or potential liabilities that each Credit Party, any of its
operations and each of the properties owned or leased by each Credit Party may
have under applicable Environmental Laws.
1.15. SOLVENCY.
Each Credit Party is and, after consummation of the transactions
contemplated by this Agreement (including without limitation the Acquisition),
will be Solvent.
1.16. DISCLOSURE.
Neither this Agreement nor any financial statements delivered to the
Lenders nor any other document, certificate or statement furnished to the
Lenders by or on behalf of the Company or any of its Consolidated Subsidiaries
in connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein or herein not misleading.
1.17. NO BURDENSOME RESTRICTIONS.
Neither the Company nor any of its Material Subsidiaries is a party to
any agreement or instrument or subject to any other obligation or any charter or
corporate restriction or any provision of any applicable law, rule or regulation
which, individually or in the aggregate, could have a Material Adverse Effect.
1.18. REPRESENTATIONS AND WARRANTIES FROM MERGER AGREEMENT.
As of the Closing Date, each of the representations and warranties made
in the Merger Agreement by each of the parties thereto is true and correct in
all material respects.
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1.19. YEAR 2000 COMPLIANCE.
Each of the Credit Parties has (i) initiated a review and assessment of
all areas within its and each of its Subsidiaries' businesses and operations
(including those affected by suppliers, vendors and customers) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications may not be able to recognize and properly perform date-sensitive
functions after December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan in accordance with that timetable. Based on the foregoing,
each Credit Party believes that all computer applications that are material to
its or any of its Subsidiaries' business and operations are reasonably expected
on a timely basis to be able to perform properly date-sensitive functions for
all dates before and after January 1, 2000 (that is, be "Year 2000 Compliant"),
except to the extent that a failure to do so could not reasonably be expected to
have a Material Adverse Effect.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS.
2.1. REVOLVING CREDIT COMMITMENTS.
(a) Subject to the terms and conditions hereof, each Lender severally
agrees, on the terms and conditions hereinafter set forth, to make revolving
credit loans ("Revolving Credit Loans") to a Borrower, in Dollars, from time to
time during the Commitment Period in an aggregate principal amount at any one
time outstanding not to exceed the amount of such Lender's Commitment Percentage
of NINE HUNDRED MILLION DOLLARS ($900,000,000) (as such amount may be reduced
pursuant to subsection 2.5 or subsection 2.6(b)(v)(E), the "Revolving Committed
Amount"). During the Commitment Period each Borrower may use the Revolving
Committed Amount by borrowing, prepaying the Revolving Credit Loans in whole or
in part, and reborrowing, all in accordance with the terms and conditions
hereof; provided that in no event shall the aggregate amount with respect to
principal of all Revolving Credit Loans plus all Swingline Loans plus all LOC
Obligations at any one time outstanding exceed the Revolving Committed Amount.
(b) The Revolving Credit Loans may from time to time be (i) Eurodollar
Loans, (ii) ABR Loans or (iii) a combination thereof, as determined by the
Company and notified to the Agent on behalf of the respective Borrower in
accordance with subsections 2.3 and 2.7, provided that no Revolving Credit Loan
shall be made as a Eurodollar Loan after the day that is one month prior to the
Termination Date.
2.2. REVOLVING CREDIT NOTES.
The Revolving Credit Loans made by each Lender shall be evidenced by
promissory notes of the Borrowers, each substantially in the form of Exhibit A,
with appropriate insertions as to payee (each, a "Revolving Credit Note"),
payable to the order of such Lender and each in a principal amount equal to the
aggregate unpaid principal amount of all Revolving Credit Loans made by such
Lender to such Borrower. Each Lender is hereby authorized to record the date,
Type and amount
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of each Revolving Credit Loan made by such Lender, each continuation thereof,
each conversion of all or a portion thereof to another Type, the date and amount
of each payment or prepayment of principal thereof and, in the case of
Eurodollar Loans, the length of each Interest Period with respect thereto, on a
schedule annexed to and constituting a part of its Revolving Credit Note and any
such recordation shall constitute prima facie evidence of the accuracy of the
information so recorded; provided, however, that the failure to make any such
recordation or an error in any such recordation shall not affect the liability
of a Borrower hereunder or under any Revolving Credit Note. Each Revolving
Credit Note shall (x) be dated the Closing Date, (y) be stated to mature on the
Termination Date and (z) provide for the payment of interest in accordance with
subsection 2.9.
2.3. PROCEDURE FOR REVOLVING CREDIT BORROWING.
(a) A Borrower may borrow under the Revolving Committed Amount during
the Commitment Period on any Business Day, provided that the Company shall give
the Agent irrevocable notice (which notice must be received by the Agent prior
to 11:00 A.M., Charlotte, North Carolina time, (a) three Business Days prior to
the requested Borrowing Date, if all or any part of the requested Revolving
Credit Loans are to be initially Eurodollar Loans or (b) one Business Day prior
to the requested Borrowing Date, otherwise), substantially in the form of
Exhibit F, on behalf of the respective Borrower, specifying (i) the amount to be
borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to
be of Eurodollar Loans, ABR Loans or a combination thereof, (iv) if the
borrowing is to be entirely or partly of Eurodollar Loans, the respective
amounts of each such Type of Loan and the respective lengths of the initial
Interest Periods therefor and (v) the applicable Borrower. Each borrowing under
the Revolving Committed Amount shall be in an amount equal to (x) in the case of
ABR Loans, $5,000,000 or whole multiples of $1,000,000 in excess thereof (or, if
the then available amount under the Revolving Committed Amount is less than
$5,000,000, such lesser amount) and (y) in the case of Eurodollar Loans,
$5,000,000 or whole multiples of $1,000,000 in excess thereof. Upon receipt of
any such notice from the Company, the Agent shall promptly notify each Lender
thereof. Each Lender will make the amount of its pro rata share of each
borrowing available to the Agent for the account of the applicable Borrower at
the office of the Agent specified in subsection 9.2 prior to 11:00 A.M.,
Charlotte, North Carolina time, on the Borrowing Date requested by the Company
in funds immediately available to the Agent. Such borrowing will then be made
available to the applicable Borrower by the Agent crediting the account of the
applicable Borrower on the books of such office with the aggregate of the
amounts made available to the Agent by the Lenders and in like funds as received
by the Agent.
2.4. FEES.
(a) Commitment Fee. The Company agrees to pay to the Agent for the
account of each Lender a commitment fee (the "Commitment Fee") for the period
from and including the first day of the Commitment Period to the Termination
Date, computed at the Applicable Margin for Commitment Fee on the average daily
unused amount of the Revolving Committed Amount during
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the period for which payment is made, payable quarterly in arrears on the last
day of each March, June, September and December and on the Termination Date or
such earlier date as the Revolving Committed Amount shall terminate as provided
herein, commencing on the first of such date to occur after the date hereof. For
purposes of computation of the Commitment Fee, Swingline Loans shall not be
counted toward or considered usage under the Revolving Committed Amount.
(b) Agent's Fees. The Company agrees to pay to the Agent, for its own
account, an annual administrative fee and such other fees, if any, referred to
in one or more letter agreements executed by the Agent and the Company in
connection with this Agreement.
(c) Letter of Credit Fees. In consideration of the issuance of Letters
of Credit hereunder, the Company promises to pay to the Agent for the account of
each Lender a fee (the "Letter of Credit Fee") on such Lender's Commitment
Percentage of the average daily maximum amount available to be drawn under each
such standby or trade Letter of Credit computed at a per annum rate for each day
from the date of issuance to the date of expiration equal to the Applicable
Margin for Eurodollar Loans. The Letter of Credit Fee will be payable quarterly
in arrears on the last Business Day of each March, June, September and December
for the immediately preceding quarter (or a portion thereof). In addition to the
Letter of Credit Fee, the Company promises to pay to the Issuing Lender for its
own account without sharing by the other Lenders (i) a fronting fee of .125% per
annum on the aggregate stated amount of each Letter of Credit for the stated
duration thereof, payable quarterly in arrears on the last Business Day of each
March, June, September and December for the immediately preceding quarter (or a
portion thereof) and (ii) the customary charges from time to time of the Issuing
Lender with respect to the amendment, transfer, administration, cancellation and
conversion of, and drawings under, such Letters of Credit.
2.5. TERMINATION OR REDUCTION OF REVOLVING COMMITTED AMOUNT.
The Company shall have the right, upon not less than five Business
Days' notice to the Agent, to terminate the Revolving Committed Amount or, from
time to time, to reduce the amount of the Revolving Committed Amount. Any such
reduction shall be in an amount equal to $5,000,000 (or, if the then available
amount of the Revolving Committed Amount is less than $5,000,000, such lesser
amount) or whole multiples of $1,000,000 in excess thereof and shall reduce
permanently the Revolving Committed Amount then in effect.
2.6. PREPAYMENTS.
(a) Optional Prepayments. A Borrower may on the last day of any
Interest Period with respect thereto, in the case of Eurodollar Loans, or at any
time and from time to time, in the case of ABR Loans, prepay the Revolving
Credit Loans or Term Loans, in whole or in part, without premium or penalty,
upon irrevocable notice to the Agent (which notice must be received by the Agent
prior to 11:00 A.M., Charlotte, North Carolina time, (i) four Business Days
prior to the prepayment date if all or any part of the Loans to be prepaid
consists of Eurodollar Loans and (ii) one Business Day prior to the prepayment
date, otherwise), specifying the date and amount of prepayment and whether the
prepayment is of Eurodollar Loans, ABR Loans or a combination
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thereof, and, if of a combination thereof, the amount allocable to each. Upon
receipt of any such notice the Agent shall promptly notify each Lender thereof.
If any such notice is given, the amount specified in such notice shall be due
and payable on the date specified therein, together with any amounts payable
pursuant to subsection 3.5. Partial prepayments of Loans shall be in an
aggregate principal amount of $5,000,000 or whole multiples of $1,000,000 in
excess thereof.
(b) Mandatory Prepayments.
(i) Commitment Limitations. If at any time, (A) the aggregate
principal amount of Revolving Credit Loans plus Swingline Loans plus
LOC obligations shall exceed the Revolving Committed Amount at such
time, (B) the aggregate amount of Swingline Loans shall exceed the
Swingline Committed Amount or (C) the aggregate amount of LOC
Obligations shall exceed the LOC Committed Amount, the Borrowers shall
immediately make payment on the Revolving Credit Loans, Swingline Loans
and/or to a cash collateral account in respect of the LOC Obligations,
in an amount sufficient to eliminate the excess.
(ii) Asset Dispositions. For so long as any Term Loan is
outstanding, within 180 days of any Asset Disposition in excess of
$35,000,000 (whether in a single transaction or in a series of related
transactions), the Borrowers shall prepay the Term Loans in an
aggregate amount equal to the Net Cash Proceeds of the related Asset
Disposition not applied (or caused to be applied) by the Company and
its Consolidated Subsidiaries during such 180 day period to make
Eligible Reinvestments (such prepayment to be applied as set forth in
clause (v) below).
(iii) Receivables Financings/Debt Issuances.
(A) Immediately upon receipt by the Company or any
Consolidated Subsidiary of proceeds from any Permitted
Receivables Financing, the Borrowers shall prepay the Loans in
an aggregate amount equal to 100% of the Net Cash Proceeds of
such Permitted Receivables Financing to the Lenders (such
prepayment to be applied as set forth in clause (v) below).
(B) For so long as any Term Loan is outstanding,
immediately upon receipt by the Company or any Consolidated
Subsidiary of proceeds from any Debt Issuance in excess of
$25,000,000 (whether in a single transaction or in a series of
related transactions), the Borrowers shall prepay the Term
Loans in an aggregate amount equal to 100% of the Net
Cash Proceeds of such Debt Issuance to the Lenders (such
prepayment to be applied as set forth in clause (v) below).
(iv) Issuances of Equity. For so long as any Term Loan is
outstanding, immediately upon receipt by the Company or any
Consolidated Subsidiary of proceeds from any Equity
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Issuance other than the Initial Hybrid Equity Transaction, the
Borrowers shall prepay the Term Loans in an aggregate amount equal to
100% of the Net Cash Proceeds of such Equity Issuance to the Lenders
(such prepayment to be applied as set forth in clause (v) below).
(v) Application of Mandatory Prepayments. All amounts required
to be paid pursuant to this subsection 2.6 shall be applied as follows:
(A) with respect to all amounts prepaid pursuant to subsection
2.6(b)(i)(A), to Revolving Credit Loans and/or Swingline Loans and
(after all such Loans have been repaid) to a cash collateral account in
respect of LOC Obligations, (B) with respect to all amounts prepaid
pursuant to subsection 2.6(b)(i)(B), to Swingline Loans, (C) with
respect to all amounts prepaid pursuant to subsection 2.6(b)(i)(C), to
a cash collateral account in respect of LOC Obligations, (D) with
respect to all amounts prepaid pursuant to subsections 2.6(b)(ii),
2.6(b)(iii)(B) and 2.6(b)(iv), first to reduce the Tranche B Term Loan,
second to reduce the Tranche C Term Loan and third to reduce the
Tranche A Term Loan (such reduction of the Tranche A Term Loan to be
pro rata across amortization payment maturities), and (E) with respect
to all amounts prepaid pursuant to subsection 2.6(b)(iii)(A), first to
Revolving Credit Loans and to permanently reduce the Revolving
Committed Amount, second to reduce the Tranche B Term Loan, third to
reduce the Tranche C Term Loan and fourth to reduce the Tranche A Term
Loan (such reduction of the Tranche A Term Loan to be pro rata across
amortization payment maturities). Within the parameters of the
applications set forth above, prepayments shall be applied first to ABR
Loans and then to Eurodollar Loans in direct order of Interest Period
maturities. All prepayments under this subsection 2.6(b) shall be
subject to subsection 3.5 and be accompanied by interest on the
principal amount prepaid through the date of prepayment.
2.7. CONVERSION AND CONTINUATION OPTIONS.
(a) A Borrower may elect from time to time to convert Eurodollar Loans
to ABR Loans by the Company giving the Agent at least three Business Days' prior
irrevocable notice of such election on behalf of the respective Borrower,
provided that any such conversion of Eurodollar Loans may only be made on the
last day of an Interest Period with respect thereto. A Borrower may elect from
time to time to convert Revolving Credit Loans or Term Loans that are ABR Loans
to Eurodollar Loans by the Company giving the Agent at least three Business
Days' prior irrevocable notice of such election on behalf of the respective
Borrower. Any such notice of conversion to Eurodollar Loans shall specify the
length of the initial Interest Period or Interest Periods therefor. Upon receipt
of any such notice the Agent shall promptly notify each Lender thereof. All or
any part of outstanding Eurodollar Loans and ABR Loans may be converted as
provided herein, provided that (i) no ABR Loan may be converted into a
Eurodollar Loan when any Event of Default has occurred and is continuing and
(ii) no ABR Loan may be converted into a Eurodollar Loan after the date that is
one month prior to the Termination Date.
(b) Any Eurodollar Loan may be continued as a Eurodollar Loan upon the
expiration of the then current Interest Period with respect thereto by the
Company giving notice to the Agent on behalf of the respective Borrower, in
accordance with the applicable provisions of the term "Interest
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Period" set forth in Section 7, of the length of the next Interest Period to be
applicable to such Loans, provided that no Eurodollar Loan may be continued as
such (i) when any Event of Default has occurred and is continuing or (ii) after
the date that is one month prior to the Termination Date and provided, further,
that if the Company shall fail to give any required notice as described above in
this paragraph or if such continuation is not permitted pursuant to the
preceding proviso, such Loans shall be automatically converted to ABR Loans on
the last day of such then expiring Interest Period.
2.8. MINIMUM AMOUNTS OF TRANCHES AND MAXIMUM NUMBER OF EURODOLLAR
LOANS.
All borrowings, conversions and continuations of Eurodollar Loans
hereunder and all selections of Interest Periods hereunder shall be in such
amounts and be made pursuant to such elections so that, after giving effect
thereto, the aggregate principal amount of the Eurodollar Loans comprising each
Eurodollar Tranche shall be equal to $5,000,000 or a whole multiple of
$1,000,000 in excess thereof. Notwithstanding anything in this Agreement to the
contrary, no more than ten (10) Eurodollar Loans shall be outstanding hereunder
at any time (it being understood that, for purposes hereof, Eurodollar Loans
with different Interest Periods shall be considered as separate Eurodollar
Loans, even if they begin on the same date, although borrowings, extensions and
conversions may, in accordance with the provisions hereof, be combined at the
end of existing Interest Periods to constitute a new Eurodollar Loan with a
single Interest Period).
2.9. INTEREST RATES AND PAYMENT DATES.
(a) Each Eurodollar Loan shall bear interest for each Interest Period
with respect thereto at a rate per annum equal to the Eurodollar Rate determined
for such Interest Period plus the Applicable Margin for Eurodollar Loans.
(b) Each ABR Loan shall bear interest at a rate per annum equal to the
ABR plus the Applicable Margin for ABR Loans.
(c) If all or a portion of (i) the principal amount of any Loan, (ii)
any interest payable thereon or (iii) any Commitment Fee or other amount payable
hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue amount shall bear interest at a rate
per annum which is (x) in the case of overdue principal, the rate that would
otherwise be applicable thereto pursuant to the foregoing provisions of this
subsection plus 2% or (y) in the case of any overdue interest, Commitment Fee or
other amount, the rate described in paragraph (b) of this subsection plus 2%, in
each case from the date of such non-payment until such amount is paid in full
(as well after as before judgment).
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(d) Interest on the Revolving Credit Loans and the Term Loans shall be
payable in arrears on each Interest Payment Date, provided that interest
accruing pursuant to paragraph (c) of this subsection shall be payable from time
to time on demand.
(e) The principal amount of, and any unpaid interest on, all Loans
shall be due and payable in full on the Termination Date, unless accelerated
sooner pursuant to Section 6.
(f) The Swingline Loans shall bear interest, and such interest shall be
payable, as specified in subsection 2.15(c).
2.10. COMPUTATION OF INTEREST AND FEES.
(a) Unless otherwise specifically provided herein, Commitment Fees and
interest shall be calculated on the basis of a 360-day year for the actual days
elapsed, except with respect to computation of interest on ABR Loans determined
by reference to the Prime Rate which shall be calculated based on a year of 365
or 366 days, as appropriate. The Agent shall as soon as practicable notify the
Company and the Lenders of each determination of a Eurodollar Rate. Any change
in the interest rate on a Loan resulting from a change in the ABR or the
Eurocurrency Reserve Requirements shall become effective as of the opening of
business on the day on which such change becomes effective. The Agent shall as
soon as practicable notify the Company and the Lenders of the effective date and
the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Agent pursuant to any
provision of this Agreement shall be conclusive and binding on the Credit
Parties and the Lenders in the absence of manifest error. The Agent shall, at
the request of the Company, deliver to the Company a statement showing the
quotations used by the Agent in determining any interest rate pursuant to
subsection 2.9(a).
2.11. PRO RATA TREATMENT AND PAYMENTS.
(a) Each borrowing of Revolving Credit Loans or Term Loans by a
Borrower from the Lenders hereunder, each payment by the Company on account of
the Commitment Fee and the Letter of Credit Fee hereunder and any reduction of
the Commitments of the Lenders shall be made pro rata according to the
respective Commitment Percentages of the Lenders. Each payment (including each
prepayment) by a Borrower or another Credit Party on account of principal of and
interest on the Revolving Credit Loans or Term Loans shall be made pro rata
according to the respective amounts of principal and interest then due and owing
to the respective Lenders. All payments (including prepayments) to be made by a
Borrower or another Credit Party hereunder and under the Notes, whether on
account of principal, interest, fees or otherwise, shall be made without set off
or counterclaim and shall be made prior to 11:00 A.M., Charlotte, North Carolina
time, on the due date thereof to the Agent, for the account of the Lenders, at
the Agent's office specified in subsection 9.2, in Dollars and in immediately
available funds. The Agent shall distribute such payments to the Lenders
promptly upon receipt in like funds as received. If any payment hereunder (other
than
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payments on the Eurodollar Loans) becomes due and payable on a day other than a
Business Day, such payment shall be extended to the next succeeding Business
Day, and, with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension. If any payment on a
Eurodollar Loan becomes due and payable on a day other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day unless
the result of such extension would be to extend such payment into another
calendar month, in which event such payment shall be made on the immediately
preceding Business Day.
(b) Unless the Agent shall have been notified in writing by any Lender
prior to a borrowing that such Lender will not make the amount that would
constitute its portion of such borrowing available to the Agent, the Agent may
assume that such Lender is making such amount available to the Agent, and the
Agent may, in reliance upon such assumption, make available to the respective
Borrower a corresponding amount. If the Agent, in such circumstances, makes
available to such Borrower such corresponding amount and such Lender does not
make available such ratable portion of such borrowing to the Agent by the
required time on the Borrowing Date therefor, such Lender shall pay to the
Agent, on demand, its portion of such borrowing with interest thereon at a rate
equal to the Federal Funds Effective Rate (as defined in the definition of
"ABR") for the period until such Lender makes such amount immediately available
to the Agent. A certificate of the Agent submitted to any Lender with respect to
any amounts owing under this subsection shall be conclusive in the absence of
manifest error. If such Lender's portion of such borrowing is not made available
to the Agent by such Lender within three Business Days of such Borrowing Date,
the Agent, having made available to the respective Borrower a corresponding
amount, shall also be entitled to recover such corresponding amount with
interest thereon at the rate per annum applicable to ABR Loans hereunder, on
demand, from such Borrower. Nothing contained in this subsection 2.11(b) shall
relieve any Lender which has failed to make available its portion of any
borrowing hereunder from its obligation to do so in accordance with the terms
hereof.
2.12. TAXES.
(a) All payments made by a Credit Party under this Agreement and the
Notes shall be made free and clear of, and without deduction or withholding for
or on account of, any present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any Governmental Authority,
excluding net income taxes and franchise taxes (imposed in lieu of net income
taxes) imposed on the Agent or any Lender as a result of a present or former
connection between the Agent or such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than to the extent any such connection arose
from the Agent or such Lender having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement or the
Notes). If any such non-excluded taxes, levies, imposts, duties, charges, fees,
deductions or withholdings ("Non-Excluded Taxes") are required to be withheld
from any amounts payable to the Agent or any Lender hereunder
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<PAGE> 20
or under the Notes, the amounts so payable to the Agent or such Lender shall be
increased to the extent necessary to yield to the Agent or such Lender (after
payment of all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement and the
Notes; provided, however, that no Credit Party shall be required to increase any
such amounts payable to any Lender that is not organized under the laws of the
United States of America or a state thereof if such Lender fails to comply with
the requirements of paragraph (b) of this subsection. Whenever any Non-Excluded
Taxes are payable by a Credit Party, as promptly as possible thereafter such
Credit Party shall send to the Agent for its own account or for the account of
such Lender, as the case may be, a certified copy of an original official
receipt received by such Credit Party showing payment thereof. If a Credit Party
fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority
or fails to remit to the Agent the required receipts or other required
documentary evidence, such Credit Party shall indemnify the Agent and the
Lenders for any incremental taxes, interest or penalties that may become payable
by the Agent or any Lender as a result of any such failure. The agreements in
this subsection shall survive the termination of this Agreement and the payment
of the Notes and all other amounts payable hereunder.
(b) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof shall:
(i) deliver to the Company and the Agent (A) two duly
completed copies of United States Internal Revenue Service Form 1001 or
4224, or successor applicable form, as the case may be, and (B) an
Internal Revenue Service Form W-8 or W-9 or successor applicable form,
as the case may be;
(ii) deliver to the Company and the Agent two further copies
of any such form or certification on or before the date that any such
form or certification expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recent form
previously delivered by it to the Company;
(iii) obtain such extensions of time for filing and complete
such forms or certifications as may reasonably be requested by the
Company or the Agent; and
(iv) otherwise cooperate, to the extent not detrimental to its
own interests, with the Company in reducing or eliminating withholding
or deducting with respect to any Non-Excluded Taxes;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Company and the Agent.
Such Lender shall certify (i) in the case of a Form 4224, that the payments it
receives from the Company under this Agreement are effectively connected with a
trade or business in the United States and, in the case of a Form 1001, that it
is entitled to receive payments under this
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<PAGE> 21
Agreement without deduction or withholding of any United States federal income
taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an
exemption from United States backup withholding tax. Each Person that shall
become a Lender or a Participant pursuant to subsection 9.6 shall, upon the
effectiveness of the related transfer, be required to provide all of the forms
and statements required pursuant to this subsection, provided that in the case
of a Participant such Participant shall furnish all such required forms and
statements to the Lender from which the related participation shall have been
purchased.
(c) No Credit Party shall be required to indemnify any non-U.S. Lender
or to pay any additional amounts to any non-U.S. lender in respect of United
States Federal withholding tax pursuant to paragraph (a) or (b) above to the
extent that the obligation to withhold amounts with respect to United States
Federal withholding tax existed on the date such non-U.S. Lender became a party
to this Agreement and such Credit Party was on such date a party to this
Agreement.
2.13 DESIGNATED BORROWERS.
(a) Addition of Designated Borrowers. BetzDearborn Canada, Inc., an
Ontario corporation and a wholly-owned Subsidiary of the Company, shall be a
Designated Borrower commencing on the Closing Date. The Company may request
designation of any of its other wholly-owned Material Subsidiaries (an
"Applicant Borrower") as a Designated Borrower hereunder by delivery of such a
request to the Agent together with an executed copy of a Borrower Joinder
Agreement in substantially the form attached as Exhibit D. The Agent will
promptly notify the Lenders of any such request together with a copy of the
Borrower Joinder Agreement executed by the Applicant Borrower. The joinder of
each Applicant Borrower as a Designated Borrower will be subject to delivery of
executed promissory notes, if any, required in connection therewith, and
supporting resolutions, articles of incorporation, incumbency certificates,
opinions of counsel of the type required pursuant to subsection 4.1 and such
other items as the Agent and the Required Lenders may reasonably request. Any
such addition of a Designated Borrower shall be effective five Business Days
after receipt by the Agent of the items required by the Agent and the Required
Lenders in connection therewith. Such Designated Borrower shall thereupon become
a party thereto and a Designated Borrower hereunder and shall be (i) entitled to
all rights and benefits of a Borrower hereunder and under each instrument
executed pursuant hereto and (ii) subject to all obligations of a Borrower
hereunder and thereunder.
(b) Removal of a Borrower. The Company may request that any of its
Subsidiaries which is a Borrower hereunder cease to be a Borrower by delivering
to the Agent (which shall promptly deliver copies thereof to each Lender) a
written notice to such effect. Such Borrower shall cease to be a Borrower
hereunder on the later to occur of (i) the date the Agent receives such request
and (ii) the date such Borrower has paid all of its Loans and all accrued and
unpaid interest, fees and other obligations hereunder or in connection herewith.
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2.14. SEVERAL LIABILITY OF BORROWERS.
The obligations of the Borrowers, as Borrowers, are several and not
joint obligations of each of the Borrowers.
2.15 SWINGLINE LOAN SUBFACILITY.
(a) Swingline Commitment. Subject to the terms and conditions hereof
and in reliance upon the representations and warranties set forth herein, the
Swingline Lender, in its individual capacity, agrees to make certain revolving
credit loans requested by the Company in Dollars to the Company (each a
"Swingline Loan" and, collectively, the "Swingline Loans") from time to time
during the Commitment Period for the purposes hereinafter set forth; provided,
however, (i) the aggregate principal amount of Swingline Loans outstanding at
any time shall not exceed FIFTY MILLION DOLLARS ($50,000,000) (the "Swingline
Committed Amount"), and (ii) the aggregate principal amount of outstanding
Revolving Credit Loans plus the aggregate principal amount of outstanding
Swingline Loans plus all LOC Obligations shall not exceed the Revolving
Committed Amount. Swingline Loans hereunder shall be made as ABR Loans in
accordance with the provisions of this subsection 2.15, and may be repaid and
reborrowed in accordance with the provisions hereof.
(b) Swingline Loan Advances.
(i) Notices; Disbursement. Whenever the Company desires a
Swingline Loan advance hereunder it shall give written notice (or
telephonic notice promptly confirmed in writing) to the Swingline
Lender not later than 1:00 P.M. (Charlotte, North Carolina time) on the
Business Day of the requested Swingline Loan advance. Each such notice
shall be irrevocable and shall specify (A) that a Swingline Loan
advance is requested, (B) the date of the requested Swingline Loan
advance (which shall be a Business Day) and (C) the principal amount of
the Swingline Loan advance requested. Each Swingline Loan shall be made
as an ABR Loan and shall have such maturity date as the Swingline
Lender and the Company shall agree upon receipt by the Swingline Lender
of any such notice from the Company. The Swingline Lender shall
initiate the transfer of funds representing the Swingline Loan advance
to the Company by 3:00 P.M. (Charlotte, North Carolina time) on the
Business Day of the requested borrowing.
(ii) Minimum Amounts. Each Swingline Loan advance shall be in
a minimum principal amount of $1,000,000 and in integral multiples of
$500,000 in excess thereof (or the remaining amount of the Swingline
Committed Amount, if less).
(iii) Repayment of Swingline Loans. The principal amount of
all Swingline Loans shall be due and payable on the earlier of (A) the
maturity date agreed to by the Swingline Lender and the Company with
respect to such Loan (which maturity date shall not be a date more than
fourteen (14) Business Days from the date of advance thereof) or (B)
the Termination Date. The Swingline Lender may, at any time, in its
sole discretion, by written notice to the Company and the Lenders,
demand repayment of its Swingline Loans advanced in accordance with the
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terms hereof by way of a Revolving Credit Loan advance on the Business
Day following the date of such notice, in which case the Company shall
be deemed to have requested a Revolving Credit Loan advance comprised
solely of ABR Loans in the amount of such Swingline Loans; provided,
however, that any such demand shall be deemed to have been given one
Business Day prior to the Termination Date and on the date of the
occurrence of any Event of Default described in subsection 6(f) or
subsection 6(g) and upon acceleration of the indebtedness hereunder and
the exercise of remedies in accordance with the provisions of Section
6. Each Lender hereby irrevocably agrees to make its pro rata share of
each such Revolving Credit Loan in the amount, in the manner and on the
date specified in the preceding sentence notwithstanding (I) the amount
of such borrowing may not comply with the minimum amount for advances
of Revolving Credit Loans otherwise required hereunder, (II) whether
any conditions specified in subsection 4.2 are then satisfied, (III)
whether a Default or an Event of Default then exists, (IV) failure of
any such request or deemed request for Revolving Credit Loan to be made
by the time otherwise required hereunder, (V) whether the date of such
borrowing is a date on which Revolving Credit Loans are otherwise
permitted to be made hereunder or (VI) any termination of the
Commitments relating thereto immediately prior to or contemporaneously
with such borrowing. In the event that any Revolving Credit Loan cannot
for any reason be made on the date otherwise required above (including,
without limitation, as a result of the commencement of a proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect) with
respect to the Company or any other Borrower), then each Lender hereby
agrees that it shall forthwith purchase (as of the date such borrowing
would otherwise have occurred, but adjusted for any payments received
from the Company on or after such date and prior to such purchase) from
the Swingline Lender such Participation Interest in the outstanding
Swingline Loans as shall be necessary to cause each such Lender to
share in such Swingline Loans ratably based upon its respective
Commitment Percentage (determined before giving effect to any
termination of the Commitments pursuant to subsection 2.5), provided
that (A) all interest payable on the Swingline Loans shall be for the
account of the Swingline Lender until the date as of which the
respective Participation Interest is purchased and (B) at the time any
purchase of Participation Interests pursuant to this sentence is
actually made, the purchasing Lender shall be required to pay to the
Swingline Lender, to the extent not paid to the Swingline Lender by the
Company in accordance with the terms of subsection (c)(ii) below,
interest on the principal amount of Participation Interests purchased
for each day from and including the day upon which such purchase of
Participation Interests would otherwise have occurred to but excluding
the date of actual payment for the purchase of such Participation
Interests, at the rate equal to the Federal Funds Effective Rate (as
defined in the definition of "ABR").
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(c) Interest on Swingline Loans.
(i) Subject to the provisions of subsection 2.9(c)(ii), each
Swingline Loan shall bear interest at a per annum rate (computed on the
basis of the actual number of days elapsed over a year of 360 or
365/366 days, as appropriate in accordance with the provisions of
subsection 2.10(a)) equal to the ABR plus the Applicable Margin for ABR
Loans.
(ii) Payment of Interest. Interest on Swingline Loans shall be
payable in arrears on each applicable Interest Payment Date (or at such
other times as may be specified herein), unless accelerated sooner
pursuant to Section 6.
(d) Swingline Note. The Swingline Loans shall be evidenced by a duly
executed promissory note of the Company to the Swingline Lender in an original
principal amount equal to the Swingline Committed Amount substantially in the
form of Exhibit B.
2.16 LETTER OF CREDIT SUBFACILITY.
(a) Issuance. The Issuing Lender has heretofore issued the Existing
Letters of Credit. Subject to the terms and conditions hereof and of the LOC
Documents, if any, and any other terms and conditions which the Issuing Lender
may reasonably require and in reliance upon the representations and warranties
set forth herein, the Issuing Lender agrees to issue, and each Lender severally
agrees to participate in the issuance by the Issuing Lender of, standby and
trade Letters of Credit in Dollars from time to time during the Commitment
Period as the Company may request, in a form acceptable to the Issuing Lender;
provided, however, that (i) the LOC Obligations outstanding shall not at any
time exceed ONE HUNDRED MILLION DOLLARS ($100,000,000) (the "LOC Committed
Amount") and (ii) the sum of the aggregate outstanding principal amount of
Revolving Credit Loans plus Swingline Loans plus LOC Obligations shall not at
any time exceed the Revolving Committed Amount. No Letter of Credit shall (x)
have an original expiry date more than one year from the date of issuance (other
than an Existing Letter of Credit) or (y) as originally issued or as extended,
have an expiry date extending beyond the Termination Date. Each Letter of Credit
shall comply with the related LOC Documents. The issuance and expiry dates of
each Letter of Credit shall be a Business Day.
(b) Notice and Reports. The request for the issuance of a Letter of
Credit shall be submitted by the Company to the Issuing Lender at least three
(3) Business Days prior to the requested date of issuance. The Issuing Lender
will, at least quarterly and more frequently upon request, disseminate to each
of the Lenders a detailed report specifying the Letters of Credit which are then
issued and outstanding and any activity with respect thereto which may have
occurred since the date of the prior report, and including therein, among other
things, the beneficiary, the face amount and the expiry date, as well as any
payment or expirations which may have occurred.
(c) Participation. Each Lender, upon issuance of a Letter of Credit,
shall be deemed to have purchased without recourse a Participation Interest from
the Issuing Lender in such Letter of Credit and the obligations arising
thereunder and any collateral relating thereto, in each case in an amount equal
to
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its pro rata share of the obligations under such Letter of Credit (based on
the respective Commitment Percentages of the Lenders) and shall absolutely,
unconditionally and irrevocably assume and be obligated to pay to the Issuing
Lender and discharge when due, its pro rata share of the obligations arising
under such Letter of Credit in accordance with subsection 2.16(d) below. Without
limiting the scope and nature of each Lender's Participation Interest in any
Letter of Credit, to the extent that the Issuing Lender has not been reimbursed
as required hereunder or under any such Letter of Credit, each such Lender shall
pay to the Issuing Lender its pro rata share of such unreimbursed drawing in
same day funds on the day of notification by the Issuing Lender of an
unreimbursed drawing pursuant to the provisions of subsection (d) below. The
obligation of each Lender to so reimburse the Issuing Lender shall be absolute
and unconditional and shall not be affected by the occurrence of a Default, an
Event of Default or any other occurrence or event. Any such reimbursement shall
not relieve or otherwise impair the obligation of the Company to reimburse the
Issuing Lender under any Letter of Credit, together with interest as hereinafter
provided.
(d) Reimbursement. In the event of any drawing under any Letter of
Credit, the Issuing Lender will promptly notify the Company. Unless the Company
shall immediately notify the Issuing Lender that the Company intends to
otherwise reimburse the Issuing Lender for such drawing, the Company shall be
deemed to have requested that the Lenders make a Revolving Credit Loan in the
amount of the drawing as provided in subsection (e) below on the related Letter
of Credit, the proceeds of which will be used to satisfy the related
reimbursement obligations. The Company promises to reimburse the Issuing Lender
on the day of drawing under any Letter of Credit (either with the proceeds of a
Revolving Credit Loan obtained hereunder or otherwise) in same day funds. If the
Company shall fail to reimburse the Issuing Lender as provided hereinabove, the
unreimbursed amount of such drawing shall bear interest at a per annum rate
equal to the ABR plus the Applicable Margin for ABR Loans plus 2%. The Company's
reimbursement obligations hereunder shall be absolute and unconditional under
all circumstances irrespective of any rights of setoff, counterclaim or defense
to payment the Company may claim or have against the Issuing Lender, the Agent,
the Lenders, the beneficiary of the Letter of Credit drawn upon or any other
Person, including without limitation any defense based on any failure of the
Company or any of its Consolidated Subsidiaries to receive consideration or the
legality, validity, regularity or unenforceability of the Letter of Credit. The
Issuing Lender will promptly notify the other Lenders of the amount of any
unreimbursed drawing and each Lender shall promptly pay to the Agent for the
account of the Issuing Lender in Dollars and in immediately available funds, the
amount of such Lender's pro rata share of such unreimbursed drawing. Such
payment shall be made on the day such notice is received by such Lender from the
Issuing Lender if such notice is received at or before 2:00 P.M. (Charlotte,
North Carolina time) otherwise such payment shall be made at or before 12:00
Noon (Charlotte, North Carolina time) on the Business Day next succeeding the
day such notice is received. If such Lender does not pay such amount to the
Issuing Lender in full upon such request, such Lender shall, on demand, pay to
the Agent for the account of the Issuing Lender interest on the unpaid amount
during the period from the date of such drawing until such Lender pays such
amount to the Issuing Lender in full at a rate per annum equal to, if paid
within two (2) Business Days of the date that such Lender is required to make
payments of such amount pursuant to the preceding sentence, the Federal
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<PAGE> 26
Funds Effective Rate (as defined in the definition of "ABR") and thereafter at a
rate equal to the ABR. Each Lender's obligation to make such payment to the
Issuing Lender, and the right of the Issuing Lender to receive the same, shall
be absolute and unconditional, shall not be affected by any circumstance
whatsoever and without regard to the termination of this Agreement or the
Commitments hereunder, the existence of a Default or Event of Default or the
acceleration of the obligations of the Company hereunder and shall be made
without any offset, abatement, withholding or reduction whatsoever.
Simultaneously with the making of each such payment by a Lender to the Issuing
Lender, such Lender shall, automatically and without any further action on the
part of the Issuing Lender or such Lender, acquire a Participation Interest in
an amount equal to such payment (excluding the portion of such payment
constituting interest owing to the Issuing Lender) in the related unreimbursed
drawing portion of the LOC Obligation and in the interest thereon and in the
related LOC Documents, and shall have a claim against the Company with respect
thereto.
(e) Repayment with Revolving Credit Loans. On any day on which the
Company shall have requested, or been deemed to have requested, a Revolving
Credit Loan advance to reimburse a drawing under a Letter of Credit, the Agent
shall give notice to the Lenders that a Revolving Credit Loan has been requested
or deemed requested by the Company to be made in connection with a drawing under
a Letter of Credit, in which case a Revolving Credit Loan advance comprised of
ABR Loans (or Eurodollar Loans to the extent the Company has complied with the
procedures of subsection 2.3(a) with respect thereto) shall be immediately made
to the Company by all Lenders (notwithstanding any termination of the
Commitments pursuant to Section 6) pro rata based on the respective Commitment
Percentages of the Lenders (determined before giving effect to any termination
of the Commitments pursuant to Section 6) and the proceeds thereof shall be paid
directly to the Issuing Lender for application to the respective LOC
Obligations. Each such Lender hereby irrevocably agrees to make its pro rata
share of each such Revolving Credit Loan immediately upon any such request or
deemed request in the amount, in the manner and on the date specified in the
preceding sentence notwithstanding (i) the amount of such borrowing may not
comply with the minimum amount for advances of Revolving Credit Loans otherwise
required hereunder, (ii) whether any conditions specified in Section 4.2 are
then satisfied, (iii) whether a Default or an Event of Default then exists, (iv)
failure for any such request or deemed request for Revolving Credit Loan to be
made by the time otherwise required hereunder, (v) whether the date of such
borrowing is a date on which Revolving Credit Loans are otherwise permitted to
be made hereunder or (vi) any termination of the Commitments relating thereto
immediately prior to or contemporaneously with such borrowing. In the event that
any Revolving Credit Loan cannot for any reason be made on the date otherwise
required above (including, without limitation, as a result of the commencement
of a proceeding under the Bankruptcy Code with respect to the Company or any of
its Consolidated Subsidiaries), then each such Lender hereby agrees that it
shall forthwith purchase (as of the date such borrowing would otherwise have
occurred, but adjusted for any payments received from the Company on or after
such date and prior to such purchase) from the Issuing Lender such Participation
Interests in the outstanding LOC Obligations as shall be necessary to cause each
such Lender to share in such LOC Obligations ratably (based upon the respective
Commitment Percentages of the Lenders (determined before giving effect to any
termination of the Commitments pursuant to Section 6)), provided that at the
time any purchase of Participation Interests pursuant to this sentence is
actually made, the purchasing Lender shall be required to pay to the Issuing
Lender, to the extent not paid to the Issuer by the Company in accordance with
the terms of subsection (d) above, interest on the principal amount of
Participation Interests purchased for
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each day from and including the day upon which such borrowing would otherwise
have occurred to but excluding the date of payment for such Participation
Interests, at the rate equal to, if paid within two (2) Business Days of the
date of the Revolving Credit Loan advance, the Federal Funds Effective Rate (as
defined in the definition of "ABR"), and thereafter at a rate equal to the ABR.
(f) Designation of Consolidated Subsidiaries as Account Parties.
Notwithstanding anything to the contrary set forth in this Agreement, including
without limitation subsection 2.16(a), a Letter of Credit issued hereunder may
contain a statement to the effect that such Letter of Credit is issued for the
account of a Consolidated Subsidiary of the Company, provided that
notwithstanding such statement, the Company shall be the actual account party
for all purposes of this Agreement for such Letter of Credit and such statement
shall not affect the Company's reimbursement obligations hereunder with respect
to such Letter of Credit.
(g) Renewal, Extension. The renewal or extension of any Letter of
Credit shall, for purposes hereof, be treated in all respects the same as the
issuance of a new Letter of Credit hereunder.
(h) Uniform Customs and Practices. The Issuing Lender may have the
Letters of Credit be subject to The Uniform Customs and Practice for Documentary
Credits, as published as of the date of issue by the International Chamber of
Commerce (the "UCP"), in which case the UCP may be incorporated therein and
deemed in all respects to be a part thereof.
(i) Indemnification; Nature of Issuing Lender's Duties.
(i) In addition to its other obligations under this subsection
2.16, the Company hereby agrees to pay, and protect, indemnify and save
each Lender harmless from and against, any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including
reasonable attorneys' fees and expenses) that such Lender may incur or
be subject to as a consequence, direct or indirect, of (A) the issuance
of any Letter of Credit or (B) the failure of such Lender or the
Issuing Lender to honor a drawing under a Letter of Credit as a result
of any act or omission, whether rightful or wrongful, of any present or
future de jure or de facto government or Governmental Authority (all
such acts or omissions, herein called "Government Acts").
(ii) As between the Company and the Lenders (including the
Issuing Lender), the Company shall assume all risks of the acts,
omissions or misuse of any Letter of Credit by the beneficiary thereof.
No Lender (including the Issuing Lender) shall be responsible: (A) for
the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document submitted by any party in connection with the
application for and issuance of any Letter of Credit, even if it should
in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (B) for the validity or sufficiency
of any instrument transferring or assigning or purporting
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to transfer or assign any Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, that may prove to
be invalid or ineffective for any reason; (C) for errors, omissions,
interruptions or delays in transmission or delivery of any messages, by
mail, cable, telegraph, telex or otherwise, whether or not they be in
cipher; (D) for any loss or delay in the transmission or otherwise of
any document required in order to make a drawing under a Letter of
Credit or of the proceeds thereof; and (E) for any consequences arising
from causes beyond the control of such Lender, including, without
limitation, any Government Acts. None of the above shall affect,
impair, or prevent the vesting of the Issuing Lender's rights or powers
hereunder.
(iii) In furtherance and extension and not in limitation of
the specific provisions hereinabove set forth, any action taken or
omitted by any Lender (including the Issuing Lender), under or in
connection with any Letter of Credit or the related certificates, if
taken or omitted in good faith, shall not put such Lender under any
resulting liability to the Company. It is the intention of the parties
that this Agreement shall be construed and applied to protect and
indemnify each Lender (including the Issuing Lender) against any and
all risks involved in the issuance of the Letters of Credit, all of
which risks are hereby assumed by the Company (on behalf of itself and
each of its Consolidated Subsidiaries), including, without limitation,
any and all Government Acts. No Lender (including the Issuing Lender)
shall, in any way, be liable for any failure by such Lender or anyone
else to pay any drawing under any Letter of Credit as a result of any
Government Acts or any other cause beyond the control of such Lender.
(iv) Nothing in this subsection (i) is intended to limit the
reimbursement obligations of the Company contained in subsection (d)
above. The obligations of the Company under this subsection (i) shall
survive the termination of this Agreement. No act or omission of any
current or prior beneficiary of a Letter of Credit shall in any way
affect or impair the rights of the Lenders (including the Issuing
Lender) to enforce any right, power or benefit under this Agreement.
(v) Notwithstanding anything to the contrary contained in this
subsection (i), the Company shall have no obligation to indemnify any
Lender (including the Issuing Lender) in respect of any liability
incurred by such Lender (A) to the extent such liability arose out of
the gross negligence or willful misconduct of such Lender, as
determined by a court of competent jurisdiction, or (B) caused by such
Lender's failure to pay under any Letter of Credit after presentation
to it of a request strictly complying with the terms and conditions of
such Letter of Credit, as determined by a court of competent
jurisdiction, unless such payment is prohibited by any law, regulation,
court order or decree.
(j) Responsibility of Issuing Lender. It is expressly understood and
agreed that the obligations of the Issuing Lender hereunder to the Lenders are
only those expressly set forth in this Agreement and that the Issuing Lender
shall be entitled to assume that the conditions precedent set forth in Section
4.2 have been satisfied unless it shall have acquired actual knowledge that any
such condition precedent has not been satisfied; provided, however, that nothing
set forth in this subsection 2.16 shall be deemed to prejudice the right of any
Lender to recover from the Issuing Lender any amounts made
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available by such Lender to the Issuing Lender pursuant to this subsection 2.16
in the event that it is determined by a court of competent jurisdiction that the
payment with respect to a Letter of Credit constituted gross negligence or
willful misconduct on the part of the Issuing Lender.
(k) Conflict with LOC Documents. In the event of any conflict between
this Agreement and any LOC Document (including any letter of credit
application), this Agreement shall control.
2.17 TERM LOAN TRANCHES.
(a) Term Loan Commitments. Subject to the terms and conditions hereof
and in reliance upon the representations and warranties set forth herein, each
Lender severally agrees to make available to the Company in Dollars on the
Closing Date such Lender's Commitment Percentage of each of the following term
loan tranches (each a "Term Loan Tranche"):
(i) a term loan in the aggregate principal amount of ONE
BILLION TWO HUNDRED FIFTY MILLION DOLLARS ($1,250,000,000) (the
"Tranche A Term Loan");
(ii) a term loan in the aggregate principal amount of FIVE
HUNDRED MILLION DOLLARS ($500,000,000) (the "Tranche B Term Loan"); and
(iii) a term loan in the aggregate principal amount of ONE
BILLION DOLLARS ($1,000,000,000) (the "Tranche C Term Loan").
Each Term Loan Tranche may consist of ABR Loans or Eurodollar Loans, or a
combination thereof, as the Company may request. Amounts repaid on a Term Loan
Tranche may not be reborrowed.
(b) Borrowing Procedures. The Company shall submit an appropriate
notice of borrowing, substantially in the form of Exhibit G, to the Agent not
later than 11:00 A.M. (Charlotte, North Carolina time) on the Closing Date, with
respect to the portion of each Term Loan Tranche initially consisting of an ABR
Loan, or on the third Business Day prior to the Closing Date, with respect to
the portion of each Term Loan Tranche initially consisting of one or more
Eurodollar Loans, which notice of borrowing shall be irrevocable and shall
specify (i) that the funding of a Term Loan Tranche is requested and (ii)
whether the funding of such Term Loan Tranche shall be comprised of ABR Loans,
Eurodollar Loans or a combination thereof, and if Eurodollar Loans are
requested, the Interest Period(s) therefor. If the Company shall fail to deliver
such notice of borrowing to the Agent by 11:00 A.M. (Charlotte, North Carolina
time) on the third Business Day prior to the Closing Date, then the full amount
of each Term Loan Tranche shall be disbursed on the Closing Date as an ABR Loan.
Each Lender shall make its Commitment Percentage of each Term Loan Tranche
available to the Agent for the account of the Company at the office of the Agent
specified in subsection 2.3(b), or at such other office as the Agent may
designate in writing, by 1:00 P.M. (Charlotte, North Carolina time) on the
Closing Date in Dollars
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and in funds immediately available to the Agent. Each Term Loan Tranche will
then be made available to the Company by the Agent crediting the account of the
Company on the books of such office with the aggregate of the amounts made
available to the Agent by the Lenders and in like funds as received by the
Agent.
(c) Minimum Amounts. Each Eurodollar Loan or ABR Loan that is part of a
Term Loan Tranche shall be in an aggregate principal amount that is not less
than $5,000,000 and integral multiples of $1,000,000 (or the then remaining
principal balance of a Term Loan Tranche, if less).
(d) Repayment of Term Loan Tranches. The principal amount of each Term
Loan Tranche shall be repaid on the date(s) set forth below, unless accelerated
sooner pursuant to Section 6:
(i) The principal amount of the Tranche A Term Loan shall be
repaid in quarterly payments on the dates set forth below:
<TABLE>
<CAPTION>
Principle Amortization Tranche A Term Loan
Payment Dates Amortization Payment
------------- --------------------
<S> <C>
March 31, 2000 $50,000,000
June 30, 2000 $50,000,000
September 30, 2000 $50,000,000
December 31, 2000 $50,000,000
March 31, 2001 $75,000,000
June 30, 2001 $75,000,000
September 30, 2001 $75,000,000
December 31, 2001 $75,000,000
March 31, 2002 $87,500,000
June 30, 2002 $87,500,000
September 30, 2002 $87,500,000
December 31, 2002 $87,500,000
March 31, 2003 $100,000,000
June 30, 2003 $100,000,000
September 30, 2003 $100,000,000
October 15, 2003 $100,000,000
</TABLE>
(ii) The principal amount of the Tranche B Term Loan shall be
repaid in full on December 31, 1999.
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(iii) The principal amount of the Tranche C Term Loan shall be
repaid in full on December 31, 2000.
(e) Interest. Each Term Loan Tranche shall bear interest, and such
interest shall be payable, as specified in subsection 2.9.
(f) Term Notes. The portion of each Term Loan Tranche made by each
Lender shall be evidenced by a duly executed promissory note of the Company to
such Lender in an original principal amount equal to such Lender's Commitment
Percentage of such Term Loan Tranche and substantially in the form of Exhibit H.
SECTION 3. CHANGE IN CIRCUMSTANCES AFFECTING LOANS.
3.1. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR.
If before the beginning of any Interest Period applicable to a
Eurodollar Loan:
(a) by reason of circumstances affecting the interbank
eurodollar market generally, deposits in Dollars (in the applicable
amounts) are not being offered by the Agent in the interbank eurodollar
market for such Interest Period;
(b) the Required Lenders shall determine that the Eurodollar
Rate determined or to be determined for such Interest Period will not
adequately and fairly reflect the cost to such Lenders of maintaining
or funding, for such Interest Period, its Eurodollar Loans to which
such Interest Period applies; or
(c) the Agent is unable to determine the London Interbank
Offered Rate;
the Agent (upon receipt of notice from the Required Lenders in the case of
clause (b) above) shall forthwith give notice thereof to the Company whereupon
until the Agent notifies the Company that the circumstances giving rise to such
suspension no longer exist (a) the obligations of the Lenders to make the
affected Eurodollar Loans shall be suspended and (b) each Borrower shall repay
in full the then outstanding principal amount of each affected Eurodollar Loan
received by it, together with accrued interest thereon, on the last day of the
then current Interest Period applicable to such Loan or convert the then
outstanding principal amount of each Eurodollar Loan on the last day of the then
current Interest Period applicable to such Loan to an ABR Loan.
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<PAGE> 32
3.2. ILLEGALITY.
If, after the date of this Agreement, the introduction of, or any
change in, any applicable law, rule or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof or compliance by any Lender with any
request or directive (whether or not having the force of law) of any such
Governmental Authority shall make it unlawful or impossible for any Lender to
make, maintain or fund its Eurodollar Loans, such Lender forthwith shall so
notify the Company. Upon receipt of such notice, each Borrower shall prepay in
full the then outstanding principal amount of each Eurodollar Loan of such
Lender received by it, together with accrued interest thereon, or convert the
then outstanding principal amount of each such Eurodollar Loan to an ABR Loan,
in either case, on either (a) the last day of the then current Interest Period
applicable to such Eurodollar Loan if such Lender may lawfully continue to
maintain and fund such Loan to such day or (b) immediately if such Lender may
not lawfully continue to fund and maintain such Loan to such day.
3.3. INCREASED COST.
(a) If, after the date of this Agreement, the introduction of, or any
change in, any applicable law, rule or regulation or in the interpretation or
administration thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof or compliance
by any Lender with any request or directive of any such Governmental Authority,
central bank or comparable agency (whether or not having the force of law):
(i) shall subject any Lender to any tax, duty or other charge
with respect to its obligation to make Eurodollar Loans, or its
Eurodollar Loans or its respective Notes, or shall change the basis of
taxation of payments to such Lender of the principal of or interest on
its Eurodollar Loans or in respect of any other amounts due under this
Agreement in respect of its obligation to make Eurodollar Loans, or its
Eurodollar Loans (except for changes in the rate of tax on the overall
net income of such Lender imposed by the jurisdiction, at any level, in
which the principal executive office of such Lender is located); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any reserve imposed by the Board of
Governors of the Federal Reserve System), special deposit or similar
requirement against assets of, deposits with or for the account of, or
credit extended by, any Lender or shall impose on any Lender or the
interbank eurodollar market any other condition affecting its
Eurodollar Loans or its respective Notes;
and the result of any of the foregoing is to increase the cost to such Lender of
making or maintaining its Eurodollar Loans, or to reduce the amount of any sum
received or receivable by such Lender under this Agreement or under its Notes in
respect of its Eurodollar Loans, by any amount deemed by such Lender to be
material, then, within fifteen (15) days after receipt of written demand from
such Lender, the Borrowers agree to pay to such Lender such additional amount or
amounts as will
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<PAGE> 33
compensate such Lender for such increased cost or reduction. A certificate of
such Lender setting forth in reasonable detail the basis for determining such
additional amount or amounts necessary to compensate such Lender shall be
conclusive in the absence of manifest error.
(b) If any Lender shall have determined that the introduction of any
applicable law, rule, regulation or guideline regarding capital adequacy, or any
change therein or any change in the interpretation or administration thereof by
any Governmental Authority or compliance by such Lender or any corporation
controlling such Lender with any request, guideline or directive regarding
capital adequacy (whether or not have the force of law) of any such Governmental
Authority, central bank or comparable agency, affects or would affect the amount
of capital required or expected to be maintained by such Lender or any
corporation controlling such Lender and such Lender (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy
and such Lender's desired return on capital) determines that the amount of such
capital is increased as a consequence of such Lender's obligations under this
Agreement, then, upon demand of such Lender, each Borrower shall immediately pay
to such Lender, from time to time as specified by such Lender, additional
amounts sufficient to compensate such Lender for such increase, to the extent
related to the Loans made to such Borrower. A certificate of such Lender setting
forth in reasonable detail the basis for determining any such additional amounts
payable pursuant to the preceding sentence shall be submitted by such Lender
through the Agent to the Company and shall be conclusive in the absence of
manifest error.
3.4. EFFECT ON OBLIGATION TO CONVERT.
If notice has been given pursuant to subsection 3.1 or 3.2 hereof
requiring the Eurodollar Loans of any Lender to be prepaid or converted, then,
unless and until such Lender notifies the Company that the circumstances giving
rise to such prepayment or conversion no longer apply, the obligation of such
Lender to make or convert to Eurodollar Loans shall be suspended.
3.5. FUNDING LOSSES.
Each Borrower shall pay to each Lender, upon written request, such
amount or amounts as shall compensate such Lender for any loss or expense
incurred by such Lender (including, without limitation, any loss or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such Lender to fund or maintain its Eurodollar Loans made to such
Borrower) as a result of (i) any payment or prepayment or conversion of a
Eurodollar Loan on a date other than a date which is the last day of an Interest
Period for such Eurodollar Loan or any payment in respect of increased costs to
such Lender, whether pursuant to subsection 3.2 or subsection 3.3 (except when
such payment or prepayment pursuant to subsection 3.2 or subsection 3.3 is
required due to a request or directive which does not have the force of law) or
Section 6 hereof or otherwise or (ii) any failure by such Borrower to borrow or
prepay a Eurodollar Loan or to convert an ABR Loan into a Eurodollar Loan on the
date scheduled for such borrowing, prepayment or conversion.
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<PAGE> 34
Each Lender shall furnish the Company with a reasonably detailed statement
explaining the amount of any such loss or expense, which statement shall be
conclusive absent manifest error.
SECTION 3A. GUARANTY.
3A.1 GUARANTY OF PAYMENT.
Subject to subsection 3A.7 below, each of the Guarantors hereby,
jointly and severally, unconditionally guarantees to each Lender, each Affiliate
of a Lender that enters into a Hedging Agreement and the Agent the prompt
payment of the Guaranteed Obligations in full when due (whether at stated
maturity, as a mandatory prepayment, by acceleration or otherwise). This
guaranty is a guaranty of payment and not merely of collection and is a
continuing guaranty and shall apply to all Guaranteed Obligations whenever
arising.
3A.2 OBLIGATIONS UNCONDITIONAL.
The obligations of the Guarantors hereunder are absolute and
unconditional, irrespective of the value, genuineness, validity, regularity or
enforceability of the Credit Documents or the Hedging Agreements, or any other
agreement or instrument referred to herein, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor. Each Guarantor agrees that this guaranty may be enforced by the
Lenders without the necessity at any time of resorting to or exhausting any
security or collateral and without the necessity at any time of having recourse
to the Notes, the Agreement or any other Credit Documents or any collateral, if
any, hereafter securing the Guaranteed Obligations or otherwise and each
Guarantor hereby waives the right to require the Lenders to proceed against a
Borrower or any other Person (including a co-guarantor) or to require the
Lenders to pursue any other remedy or enforce any other right. Each Guarantor
further agrees that it shall have no right of subrogation, indemnity,
reimbursement or contribution against a Borrower or any other guarantor of the
Guaranteed Obligations for amounts paid under this guaranty until such time as
the Lenders (and any Affiliates of Lenders entering into Hedging Agreements)
have been paid in full, all Commitments under the Agreement have been terminated
and no Person or Governmental Authority shall have any right to request any
return or reimbursement of funds from the Lenders in connection with monies
received under the Agreement. Each Guarantor further agrees that nothing
contained herein shall prevent the Lenders from suing on the Notes, the
Agreement or any other Credit Document or any of the Hedging Agreements or
foreclosing its security interest in or Lien on any collateral, if any, securing
the Guaranteed Obligations or from exercising any other rights available to it
under this Agreement, the Notes, or any other instrument of security, if any,
and the exercise of any of the aforesaid rights and the completion of any
foreclosure proceedings shall not constitute a discharge of any of a Guarantor's
obligations hereunder; it being the purpose and intent of each Guarantor that
its obligations hereunder shall be absolute, independent and unconditional under
any and all circumstances. Neither a Guarantor's obligations under this guaranty
nor any remedy for the enforcement thereof shall be impaired, modified, changed
or released in any manner whatsoever by an impairment, modification, change,
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<PAGE> 35
release or limitation of the liability of a Borrower or by reason of the
bankruptcy or insolvency of a Borrower. Each Guarantor waives any and all notice
of the creation, renewal, extension or accrual of any of the Guaranteed
Obligations and notice of or proof of reliance of by the Agent or any Lender
upon this guaranty or acceptance of this guaranty. The Guaranteed Obligations,
and any of them, shall conclusively be deemed to have been created, contracted
or incurred, or renewed, extended, amended or waived, in reliance upon this
guaranty. All dealings between the Borrowers and any of the Guarantors, on the
one hand, and the Agent and the Lenders, on the other hand, likewise shall be
conclusively presumed to have been had or consummated in reliance upon this
guaranty.
3A.3 MODIFICATIONS.
Each Guarantor agrees that (a) all or any part of the security which
hereafter may be held for the Guaranteed Obligations, if any, may be exchanged,
compromised or surrendered from time to time; (b) the Lenders shall not have any
obligation to protect, perfect, secure or insure any such security interests,
liens or encumbrances which hereafter may be held, if any, for the Guaranteed
Obligations or the properties subject thereto; (c) the time or place of payment
of the Guaranteed Obligations may be changed or extended, in whole or in part,
to a time certain or otherwise, and may be renewed or accelerated, in whole or
in part; (d) a Borrower and any other party liable for payment under the
Agreement may be granted indulgences generally; (e) any of the provisions of the
Notes, the Agreement or any other Credit Document may be modified, amended or
waived; (f) any party (including any co-guarantor) liable for the payment
thereof may be granted indulgences or be released; and (g) any deposit balance
for the credit of a Borrower or any other party liable for the payment of the
Guaranteed Obligations or liable upon any security therefor may be released, in
whole or in part, at, before or after the stated, extended or accelerated
maturity of the Guaranteed Obligations, all without notice to or further assent
by such Guarantor, which shall remain bound thereon, notwithstanding any such
exchange, compromise, surrender, extension, renewal, acceleration, modification,
indulgence or release.
3A.4 WAIVER OF RIGHTS.
Each Guarantor expressly waives to the fullest extent permitted by
applicable law: (a) notice of acceptance of this guaranty by the Lenders and of
all extensions of credit to a Borrower by the Lenders; (b) presentment and
demand for payment or performance of any of the Guaranteed Obligations; (c)
protest and notice of dishonor or of default (except as specifically required in
the Agreement) with respect to the Guaranteed Obligations or with respect to any
security therefor; (d) notice of the Lenders obtaining, amending, substituting
for, releasing, waiving or modifying any security interest, lien or encumbrance,
if any, hereafter securing the Guaranteed Obligations, or the Lenders
subordinating, compromising, discharging or releasing such security interests,
liens or encumbrances, if any; (e) all other notices to which such
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<PAGE> 36
Guarantor might otherwise be entitled in connection with the guaranty evidenced
by this Section 3A; and (f) demand for payment under this guaranty.
3A.5 REINSTATEMENT.
The obligations of the Guarantors under this Section 3A shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of any Person in respect of the Guaranteed Obligations is rescinded
or must be otherwise restored by any holder of any of the Guaranteed
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each Guarantor agrees that it will indemnify
the Agent and each Lender on demand for all reasonable, documented costs and
expenses (including, without limitation, reasonable, documented fees of counsel)
incurred by the Agent or such Lender in connection with such rescission or
restoration, including any such costs and expenses incurred in defending against
any claim alleging that such payment constituted a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law.
3A.6 REMEDIES.
Each Guarantor agrees that, as between the Guarantors, on the one hand,
and the Agent and the Lenders, on the other hand, the Guaranteed Obligations may
be declared to be forthwith due and payable as provided in Section 6 (and shall
be deemed to have become automatically due and payable in the circumstances
provided in Section 6) notwithstanding any stay, injunction or other prohibition
preventing such declaration (or preventing such Guaranteed Obligations from
becoming automatically due and payable) as against any other Person and that, in
the event of such declaration (or such Guaranteed Obligations being deemed to
have become automatically due and payable), such Guaranteed Obligations (whether
or not due and payable by any other Person) shall forthwith become due and
payable by the Guarantors. The Guarantors acknowledge and agree that, during the
Collateral Period, their obligations hereunder shall be secured in accordance
with the terms of the Collateral Documents and that, during the Collateral
Period, the Lenders may exercise their rights and remedies thereunder in
accordance with the terms thereof.
3A.7 LIMITATION OF GUARANTY.
Notwithstanding any provision to the contrary contained herein, to the
extent the obligations of any Guarantor shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of any
applicable state or federal law relating to fraudulent conveyances or transfers)
then the obligations of such Guarantor hereunder shall be limited to the maximum
amount that is permissible under applicable law (whether federal or state and
including, without limitation, the Federal Bankruptcy Code (as now or
hereinafter in effect)).
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3A.8 RIGHTS OF CONTRIBUTION.
The Guarantors agree among themselves that, in connection with payments
made hereunder, each Guarantor shall have contribution rights against the other
Guarantors as permitted under applicable law. Such contribution rights shall be
subordinate and subject in right of payment to the obligations of the Guarantors
under the Credit Documents and no Guarantor shall exercise such rights of
contribution until all Guaranteed Obligations have been paid in full and the
Commitments terminated.
3A.9 RELEASES OF CERTAIN GUARANTORS.
Upon the occurrence of a Credit Improvement Date, the Company may by
written notice to the Agent request that any Material Domestic Subsidiary or
Additional Credit Party be released from its guaranty pursuant to this Section
3A. Promptly upon receipt of such written request, the Agent shall, at the
expense of the Company, execute and deliver a release acknowledging the
termination of the guaranties of the Material Domestic Subsidiaries and/or
Additional Credit Parties specified in such request.
SECTION 4. CONDITIONS PRECEDENT.
4.1. EFFECTIVENESS OF THIS AGREEMENT.
The effectiveness of this Agreement is subject to the satisfaction of
the following conditions precedent on the date hereof:
(a) the Agent shall have received a copy of this Agreement, the Notes,
the Pledge Agreements and each of the other Credit Documents, each duly executed
and delivered by the parties thereto, together with a certificate of the
Secretary or Assistant Secretary of the Company and each other Credit Party as
to the incumbency and specimen signatures of the officers of the Company and
each other Credit Party who are authorized to execute this Agreement, the Notes
and each other document to be executed and delivered by the Company and each
other Credit Party pursuant hereto;
(b) the Agent shall have received a certified copy of the resolutions
of the Board of Directors of the Company and each other Credit Party evidencing
its approval of this Agreement, the Notes and the other matters contemplated
hereby, and a certified copy of all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to this
Agreement, the Notes and the other Credit Documents;
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(c) the Agent shall have received an opinion of the Assistant General
Counsel of the Company, acting as counsel to each of the Credit Parties, in a
form agreed to by such counsel for the Company and counsel for the Agent;
(d) the Agent shall have received all documents it may reasonably
request relating to the existence and good standing of the Credit Parties and to
the authorization, execution and delivery of this Agreement and the other Credit
Documents and other matters relevant hereto, all in form and substance
satisfactory to the Agent and its counsel in their reasonable discretion;
(e) the Agent shall have received (with a copy for each Lender) each of
the financial statements referred to in subsection 1.2;
(f) the Agent shall have received from a Responsible Officer of the
Company a certificate to the effect that as of the date hereof (i) all
representations and warranties made by the Company and each other Credit Party
in this Agreement and each other Credit Document are true and correct in all
material respects and (ii) the transactions contemplated in the Merger Agreement
have been consummated in accordance with the terms thereof;
(g) the Agent shall have received evidence satisfactory to the Agent
that the Credit Parties have terminated, and paid in full any amounts
outstanding under, the Existing Credit Agreements or will terminate and pay in
full such amounts with the proceeds of the initial borrowing hereunder;
(h) no Default or Event of Default shall have occurred and be
continuing; and
(i) (i) The Acquisition shall have been consummated in accordance with
the terms of the Merger Agreement and in compliance with applicable law and
regulatory approvals, and all conditions precedent to the consummation of the
transaction described in the Merger Agreement shall have been satisfied, (ii)
the Merger Agreement shall not have been altered, amended or otherwise changed
or supplemented or any condition therein waived, without the prior written
consent of the Co-Agents, (iii) the Company shall not have paid more than
$2,500,000,000 (net of option proceeds and excluding the assumption of
Indebtedness) in the aggregate in connection with the Acquisition and (iv) at
least $180,000,000 of the purchase price paid in connection with the Acquisition
shall have been funded by the Company issuing common stock out of its treasury
stock account to the BetzDearborn Employee Stock Option Plan ("BetzDearborn
ESOP") to purchase the BetzDearborn convertible preferred shares held by, or in
trust for, the BetzDearborn ESOP.
4.2. CONDITIONS TO ALL BORROWINGS.
In the case of all borrowings or issuances or extensions of Letters of
Credit hereunder (including, without limitation, the initial borrowing and the
initial Letter of Credit), the obligation of each Lender (including the
Swingline Lender) to make, or participate in, each Loan,
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<PAGE> 39
and of the Issuing Lender to issue or extend, and the obligation of the Lenders
to participate in, a Letter of Credit, is subject to the satisfaction of the
following conditions:
(i) with respect to the first such borrowing or Letter of
Credit, satisfaction of each of the conditions precedent set forth in
Section 4.1;
(ii) on and as of the Borrowing Date of such Loan or Letter of
Credit no Default or Event of Default shall have occurred and be
continuing or would exist after giving effect to the making of such
Loan or the issuance or extension of such Letter of Credit;
(iii) on and as of the Borrowing Date of such Loan or Letter
of Credit the representations and warranties of each Credit Party
contained in Section 1 hereof and in each other Credit Document shall
be true and correct in all material respects; and
(iv) receipt by the Agent of any applicable notice(s) from the
Company required by Section 2 hereof.
Each borrowing by a Borrower hereunder or request for the issuance or
extension of a Letter of Credit by the Company hereunder shall constitute a
representation and warranty by such Borrower to the Agent and the Lenders to the
effect that the representations and warranties of the Company and the other
Credit Parties contained in Section 1 hereof and in each other Credit Document
are true in all material respects on and as of the Borrowing Date of the
applicable Loan or Letter of Credit and that, on and as of such Borrowing Date,
no Default or Event of Default has occurred and is continuing or would exist
after giving effect to the making of such Loan or to the issuance or extension
of such Letter of Credit.
SECTION 5. COVENANTS.
5.1. AFFIRMATIVE COVENANTS.
So long as this Agreement, any of the Notes, any LOC Obligations or any
other Credit Document shall remain in effect or any of the principal of or
interest on any of the Notes or any other amount payable by a Credit Party to
the Agent or any of the Lenders pursuant to this Agreement, any of the Notes,
any LOC Obligations or any other Credit Document shall remain unpaid, unless
compliance shall have been waived in writing by the Required Lenders, each
Credit Party covenants and agrees that:
(a) Financial Statements. (i) The Company will deliver to the Agent and
each Lender:
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(A) within ninety (90) days after the end of each of its
fiscal years, the consolidated statement of financial position of the Company
and its Consolidated Subsidiaries as of the end of such year, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended, accompanied by a certificate of independent public accountants
of recognized standing satisfactory to the Agent as to such statements, which
certificate will contain no material exceptions or qualifications except such as
are acceptable to the Required Lenders;
(B) within sixty (60) days after the end of each of the first
three (3) quarters of each of its fiscal years, the consolidated statement of
financial position of the Company and its Consolidated Subsidiaries as at the
end of such quarters, and the related consolidated statements of income and cash
flows for such quarters and the portion of the fiscal year then ended;
(C) promptly upon the filing thereof, copies of all Form
8-K,10-K, and 10-Q reports, if any, which the Company shall have filed with the
Securities and Exchange Commission;
(D) from time to time such additional information regarding
the financial position or business of the Company as the Agent or any Lender may
reasonably request; and
(E) simultaneously with the delivery of each set of financial
statements referred to in paragraphs (A) and (B) above, a certificate of a
Responsible Officer of the Company (1) stating that in the course of the
performance of his duties he would normally obtain knowledge of any condition or
event which constitutes, or which after notice or lapse of time or both would
constitute, an Event of Default specified in Section 6, (2) stating whether or
not he has obtained knowledge of any such condition or event and, if so,
specifying each such condition or event of which he has knowledge and the nature
and period of existence thereof and the action the Company is taking and
proposes to take with respect thereto and (3) setting forth the calculations
required to establish compliance with subsection 5.2(d).
(ii) The Company shall promptly give notice to the Agent and
the Lenders of (A) the occurrence of any Default or Event of Default,
accompanied by a certificate specifying the nature of such Default or
Event of Default, the period of existence thereof and the action that
the Company has taken or proposes to take with respect thereto and (B)
the occurrence of any of the following with respect to the Company or
any of its Consolidated Subsidiaries (x) the pendency or commencement
of any litigation, arbitral or governmental proceeding against such
Person which if adversely determined could reasonably be expected to
have a Material Adverse Effect or (y) the institution of any
proceedings against such Person with respect to, or the receipt of
notice by such Person of potential liability or responsibility for
violation, or alleged violation of any federal, state or local law,
rule or regulation, including but not limited to, Environmental Laws,
the violation of which could reasonably be expected to have a Material
Adverse Effect.
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(b) Payment of Obligations. It will, and will cause each of its
Subsidiaries to, pay, discharge or otherwise satisfy at or before maturity or
before they become delinquent, as the case may be, all its obligations of
whatever nature, except where the amount or validity thereof is currently being
contested in good faith by appropriate proceedings and reserves in conformity
with GAAP with respect thereto have been provided on the books of the Company or
its Subsidiaries, as the case may be.
(c) Conduct of Business and Maintenance of Existence. It will, and will
cause each of the Material Subsidiaries to, (i) continue to engage in business
of the same general type as now conducted by it and preserve, renew and keep in
full force and effect its corporate existence (except in connection with mergers
or consolidations permitted under subsection 5.2(b)) and take all reasonable
action to maintain all rights, privileges and franchises necessary or desirable
in the normal conduct of its business and (ii) comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, be reasonably expected to have a Material
Adverse Effect.
(d) Maintenance of Property; Insurance. It will, and will cause each of
the Material Subsidiaries to, (i) keep all property useful and necessary in its
business in good working order and condition, except where the failure to keep
such property in good working order could not reasonably be expected to have a
Material Adverse Effect and (ii) maintain with financially sound and reputable
insurance companies insurance on all its property in at least such amount and
against at least such risks as are usually insured against in the same general
area by companies engaged in the same or a similar business (it being understood
that the Company may maintain self-insurance to a similar extent as is commonly
maintained by companies engaged in the same or a similar business).
(e) Books and Records. It will, and will cause each of the Material
Subsidiaries to, keep proper books of records and account in which full, true
and correct entries in conformity with generally accepted accounting principles
in effect with respect to such Person (meaning GAAP for the Company and its
Domestic Subsidiaries) and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities.
(f) Material Subsidiaries. The Company and the Material Subsidiaries
shall at all times collectively account for 90% or more of the net income and
assets, respectively, of the Company and its Consolidated Subsidiaries.
(g) Year 2000 Compliance. The Company will promptly notify the Agent in
the event any Credit Party discovers or determines that any computer application
that is material to its or any of its Subsidiaries' business and operations will
not be Year 2000 Compliant (as defined in subsection 1.19), except to the extent
that such failure could not reasonably be expected to have a Material Adverse
Effect.
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(h) Use of Proceeds. It will use (i) the proceeds of the Loans solely
in accordance with subsection 1.6 and (ii) the Letters of Credit solely for the
purposes set forth in subsection 1.6.
(i) Audits/Inspections. Upon reasonable notice and during normal
business hours, each Credit Party will permit representatives appointed by the
Agent, including, without limitation, independent accountants, agents, attorneys
and appraisers, to visit and inspect such Credit Party's property, including its
books and records, its accounts receivable and inventory, its facilities and its
other business assets, and to make photocopies or photographs thereof and to
write down and record any information such representative obtains and shall
permit such Agent or its representatives to investigate and verify the accuracy
of information provided to the Lenders, and to discuss all such matters with the
executive officers, pertinent employees and representatives of the Credit
Parties; provided, however, that so long as neither (x) an Event of Default
shall have occurred and be continuing nor (y) the Collateral Period shall have
begun and be continuing, (i) no verification of accuracy of information shall
include contacting the account debtors under any accounts receivable of any
Credit Party and (ii) such visits and inspections shall not (A) disrupt the
normal business operations of any Credit Party, (B) be conducted by more than 5
Persons at any one time or (C) occur more frequently than annually. The Agent
agrees to keep confidential the information obtained from any such audit or
inspection in accordance with the provisions of subsection 9.17.
(j) Additional Credit Parties. At the time any Person becomes a
Material Domestic Subsidiary (other than a Receivables Financing SPC or a
Preferred Stock SPC) prior to a Credit Improvement Date, the Company shall so
notify the Agent and promptly thereafter (but in any event within 30 days after
the date thereof) shall (a) cause such Person to execute a Guarantor Joinder
Agreement in substantially the same form as Exhibit E, (b) execute an
appropriate pledge agreement in substantially the form of the Pledge Agreements
and otherwise in a form reasonably acceptable to the Collateral Agent, which
pledge agreement will be effective only during the Collateral Period and which
will obligate the Company to, upon the occurrence of the Collateral Effective
Date (or within 30 days of the notice referred to above if the Collateral Period
shall have begun and shall then be continuing), cause all of the capital stock
of such Person to be delivered to the Collateral Agent (together with undated
stock powers, if applicable, signed in blank) and pledged to the Collateral
Agent, (c) if such Person has any Subsidiaries, cause such Person to execute a
pledge agreement in substantially the form of the Pledge Agreements and
otherwise in a form reasonably acceptable to the Collateral Agent, which pledge
agreement will be effective only during the Collateral Period and which will
obligate such Person to, upon the occurrence of the Collateral Effective Date
(or within 30 days of the notice referred to above if the Collateral Period
shall have begun and shall then be continuing), cause all of the capital stock
of its Domestic Subsidiaries and 65% of the capital stock of its Material First
Tier Foreign Subsidiaries to be delivered to the Collateral Agent (together with
undated stock powers, if applicable, signed in blank) and pledged to the
Collateral Agent, and (d) deliver, or cause such Person to deliver, such other
documentation as the Collateral Agent may reasonably request in connection with
the foregoing, including, without limitation, certified resolutions and other
organizational and authorizing documents of such Person, favorable opinions of
counsel to such Person (which shall cover, among other things, the legality,
validity, binding effect and enforceability of the documentation referred to
above) and, if the Collateral Period shall have
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begun and shall then be continuing, appropriate UCC-1 financing statements, all
in form, content and scope reasonably satisfactory to the Collateral Agent.
(k) Collateral Effective Date. Upon the occurrence of the Collateral
Effective Date and during the ensuing Collateral Period, the Pledge Agreements
shall be in full force and effect and the Collateral Agent, on behalf of the
Lenders, shall have a Lien on the Collateral described in the Pledge Agreements
and there shall be added to Section 1 a new representation and warranty in the
form set forth on Schedule V attached hereto. Within ten Business Days following
the Collateral Effective Date, the Company shall deliver to the Collateral
Agent, in form and substance reasonably satisfactory to the Collateral Agent:
(i) all stock certificates evidencing the stock pledged to the
Collateral Agent pursuant to the Pledge Agreements, together with duly
executed in blank undated stock powers attached thereto;
(ii) duly executed UCC financing statements for each
appropriate jurisdiction as is necessary, in the Collateral Agent's
sole discretion, to perfect the Lenders' security interest in the
Collateral; and
(iii) an opinion of counsel addressed to the Collateral Agent,
on behalf of the Lenders, covering such issues as reasonably requested
by the Collateral Agent, including the attachment and perfection of the
liens.
(l) Initial Hybrid Equity Transaction. No later than the date that is
three (3) months following the Closing Date, the Company shall complete the
Initial Hybrid Equity Transaction.
5.2. NEGATIVE COVENANTS.
So long as this Agreement, any of the Notes, any LOC Obligations or any
other Credit Document shall remain in effect or any of the principal of or
interest on any of the Notes or any other amount payable by a Credit Party to
the Agent or any of the Lenders pursuant to this Agreement, any of the Notes,
any LOC Obligations or any other Credit Document shall remain unpaid, unless
waived in writing by the Required Lenders, each Credit Party covenants and
agrees that:
(a) Limitation on Liens. It will not, and will not permit any of the
Material Subsidiaries to, create, incur, assume or suffer to exist any Lien on
any Property owned by such Person or on any capital stock of any Material
Subsidiary now or hereafter owned by such Person to secure Indebtedness, or
acquire any such Property subject to any conditional sale or title retention
agreement, except: (i) purchase money security arrangements upon Property
acquired
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subsequent to the date of this Agreement, provided that each such security
arrangement does not exceed 80% of the cost or fair value of the Property
acquired and is a lien only on such Property, or renewals or extensions of any
such security arrangement upon the same Property and not in a greater amount;
(ii) Liens on Property in favor of, or any conditional sale or title retention
agreement relating to any Property with, the United States of America or any
State thereof, or any department, agency or instrumentality or political
subdivision of the United States of America or any such political subdivision,
or any agent or trustee acting on behalf of any of the foregoing, or any agent
or trustee acting on behalf of the holders of obligations issued by any of the
foregoing, to secure partial, progress, advance or other payments pursuant to
any agreement, understanding, contract, lease or statute (including, but not
limited to, agreements, understandings, contracts, leases or statutes that
require the construction of Property and sale thereof to any of the named
departments, agencies or political divisions, as a part of the lease or
installment purchase of such Property by the Company or any Material Subsidiary)
or to secure any indebtedness incurred for the purpose of financing all or any
part of the purchase price or the cost of construction of the Property subject
to such Liens; (iii) any reservation or exception contained in any instrument
under which the Company or any Material Subsidiary owns or shall acquire any
Property and under the terms of which any vendor, lessor or assignor reserves or
excepts an interest in oil, gas or any other mineral or the proceeds thereof;
(iv) any conveyance or assignment under the terms of which the Company or any
Material Subsidiary conveys or assigns an interest in oil, gas or any, other
mineral or the proceeds thereof whether or not such conveyance or assignment is
in connection with or substantially simultaneous with an extension of credit to
the grantee or assignee thereunder on a basis providing for repayment of all or
substantially all of such advance out of such proceeds or out of production from
such interest; (v) any lien upon any Property owned by the Company or any
Material Subsidiary or in which the Company or any Material Subsidiary owns an
interest to secure payment of its proportionate part of the expenses of
developing or conducting operations for the recovery, storage, transportation or
sale of the mineral resources of such Property (or Property with which it is
unitized); (vi) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case materially
detract from the value of the property subject thereto or materially interfere
with the ordinary conduct of the business of the Company or such Material
Subsidiary; (vii) Liens (not otherwise permitted hereunder) which secure
indebtedness for borrowed money not exceeding (as to the Company and all
Material Subsidiaries) $60,000,000 in aggregate amount at any time outstanding;
(viii) any Liens securing indebtedness for borrowed money of a wholly-owned
Material Subsidiary of the Company, to the Company or to another wholly-owned
Material Subsidiary of the Company; (ix) Liens for taxes not yet due or that are
being contested in good faith and by appropriate proceedings; (x) carriers',
warehousemen's, mechanic's, materialmen's, repairmen's or other like Liens
arising in the ordinary course of business; (xi) pledges and deposits made in
the ordinary course of business in compliance with workmen's compensation,
unemployment insurance and other social security laws or regulations; (xii)
deposits to secure the performance of bids, trade contracts, leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of
a like nature incurred in the ordinary course of business; (xiii) Liens in favor
of customs revenue authorities arising as a matter of law to secure payment of
customs duties; (xiv) any extension, renewal or replacement
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(or successive extensions, renewals or replacements), in whole or in part of any
lien referred to in the foregoing clauses (i) to (v), inclusive, provided that
the obligation secured thereby shall not exceed the obligation so secured at the
time of such extension, renewal or replacement, and that such extension, renewal
or replacement shall be limited to that portion of the Property which secured
the lien so extended, renewed or replaced (plus improvements on such Property);
and (xv) Liens in favor of the Collateral Agent to secure the Pledgor
Obligations (as defined in the Pledge Agreements).
(b) Limitations on Mergers, Asset Sales and Asset Purchases. It will
not, and will not permit any of its Subsidiaries to, (i) merge or consolidate
with or into any other Person or (ii) sell, lease or otherwise dispose of any of
its assets or purchase another Person or the assets of another Person, in any
case described in this clause (ii) in a transaction or series of related
transactions that is a Covered Transaction, unless (A) in the case of clause (i)
above, if a Credit Party is a party to such transaction the resulting or
surviving corporation shall be such Credit Party (or, if such merger or
consolidation involves two Credit Parties, a Credit Party) and, if the Company
is a party to such a transaction with another Credit Party, the Company shall be
the resulting or surviving corporation, (B) in the case of clause (i) and clause
(ii) above, after giving effect on a Pro Forma Basis to any such merger,
consolidation, sale, lease or other disposition or any such purchase, no Default
or Event of Default shall have occurred or be continuing, (C) in the case of a
purchase covered by clause (ii) above, such purchase either is an intercompany
purchase or does not require a cash purchase price in excess of $75,000,000 in
the aggregate in cash consideration and (D) in the case of an Asset Disposition
covered by clause (ii) above and while any Term Loan is outstanding, no later
than two (2) Business Days prior to such Asset Disposition, the Agent and the
Lenders shall have received a certificate of a Responsible Officer of the
Company specifying the anticipated or actual date of such Asset Disposition,
briefly describing the assets to be sold or otherwise disposed of and setting
forth the net book value of such assets, the aggregate consideration and the Net
Cash Proceeds to be received for such assets in connection with such Asset
Disposition, and thereafter the Credit Parties shall, within the period of 180
days following the consummation of such Asset Disposition, apply (or cause to be
applied) an amount equal to the Net Cash Proceeds of such Asset Disposition to
(A) make Eligible Reinvestments or (B) prepay the Term Loans in accordance with
the terms of subsection 2.6(b)(ii).
Upon the sale of Capital Stock of a Material Domestic Subsidiary or
Material First Tier Foreign Subsidiary permitted by this subsection 5.2(b), the
Agent shall (to the extent applicable) deliver to the Credit Parties, upon the
Credit Parties' request and at the Credit Parties' expense, such documentation
as is reasonably necessary to evidence the release of the Agent's security
interest, if any, in such Capital Stock, including, without limitation,
amendments or terminations of UCC financing statements, if any, the return of
stock certificates, if any, and the release of such Subsidiary from all of its
obligations, if any, under the Credit Documents.
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(c) Limitations on Sale/Leaseback Transactions. It will not, and will
not permit any of the Material Subsidiaries to, sell or transfer any
manufacturing Properties to anyone (other than the Company or to a Material
Subsidiary in which the Company owns 50% or more of the voting stock) with the
intention of taking back a lease of such Property or any similar Property,
except in connection with a lease for a temporary period during or at the end of
which it is intended that the use by the Company or its Material Subsidiary of
such Property will be discontinued.
(d) Financial Covenants.
(i) Leverage Ratio. It will not permit, as of the last day of
any fiscal quarter, the Leverage Ratio to exceed the ratio set forth
below for the applicable period:
<TABLE>
<CAPTION>
Period Maximum Leverage Ratio
------ ----------------------
<S> <C>
Closing Date through March 31, 1999 5.0 to 1.0
April 1, 1999 through September 30, 1999 4.5 to 1.0
October 1, 1999 through September 30, 2000 3.5 to 1.0
October 1, 2000 through Termination Date 3.0 to 1.0
</TABLE>
(ii) Minimum Net Worth. It will not permit at any time
Consolidated Net Worth to be less than $520,000,000, increased on a
cumulative basis as of the last day of each fiscal quarter (commencing
on December 31, 1998) by an amount equal to the sum of (x) 40% of
Consolidated Net Income, if positive, for such fiscal quarter and (y)
80% of any Equity Issuances (including an issuance of hybrid equity
securities (e.g., trust preferred capital securities), but only if such
issuance increases Consolidated Net Worth) commenced in such fiscal
quarter.
(iii) Interest Coverage Ratio. It will not permit, as of the
last day of any fiscal quarter, the Interest Coverage Ratio to be less
than the ratio set forth below for the applicable period:
<TABLE>
<CAPTION>
Period Minimum Interest Coverage Ratio
------ -------------------------------
<S> <C>
Closing Date through September 30, 1999 2.5 to 1.0
October 1, 1999 through Termination Date 3.0 to 1.0
</TABLE>
(e) Limitations on Transactions with Affiliates. It will not, and will
not permit any of its Subsidiaries to, enter into any transaction, including,
without limitation, any purchase, sale, lease or exchange of property or the
rendering of any service, with any Affiliate unless such transaction is (a)
otherwise permitted under this Agreement, (b) in the ordinary course of its or
such Subsidiary's business (or is a transaction among wholly-owned Subsidiaries
of the Company) and (c) upon fair and reasonable terms no less favorable to it
or such Subsidiary, as the case may be, than it would obtain in a comparable
arm's length transaction with a Person which is not an Affiliate; provided that
it shall not be a breach of this covenant to the extent that
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the failure of the Company or any of its Subsidiaries to comply with the
foregoing would not, individually or in the aggregate, be reasonably likely to
have a Material Adverse Effect.
(f) Limitations on Indebtedness of the Material Subsidiaries. It will
not permit any of the Material Subsidiaries to contract, create, incur, assume
or permit to exist any Indebtedness, except:
(i) Indebtedness arising under this Credit Agreement and the
other Credit Documents;
(ii) Indebtedness of the Material Subsidiaries set forth in
Schedule IV (but not including any renewals, refinancings or extensions
thereof);
(iii) obligations of the Material Subsidiaries in respect of
Hedging Agreements entered into in order to manage existing or
anticipated interest rate or exchange rate risks and not for
speculative purposes;
(iv) obligations of the Material Subsidiaries in connection
with any Permitted Receivables Financing, to the extent such
obligations constitute Indebtedness;
(v) unsecured intercompany Indebtedness owing by a Material
Subsidiary to a Credit Party or a Subsidiary of a Credit Party; and
(vi) in addition to the Indebtedness otherwise permitted by
this subsection 5.2(f), other Indebtedness hereafter incurred by the
Material Subsidiaries provided that (A) the aggregate outstanding
principal amount of such Indebtedness shall not exceed $150,000,000 at
any time and (B) such Indebtedness shall not cause the Company and the
Material Subsidiaries to violate the provisions of subsection
5.2(a)(vii).
(g) Fiscal Year; Organizational Documents. It will not, and will not
permit any of the Material Subsidiaries to, change its fiscal year or amend,
modify or change its articles of incorporation (or corporate charter or other
similar organizational document) or bylaws (or other similar document) without
the prior written consent of the Required Lenders.
(h) Limitation on Restricted Actions. It will not, and will not permit
any of the Material Subsidiaries (other than a Receivables Financing SPC in
connection with a Permitted Receivables Financing) to, directly or indirectly,
create or otherwise cause, incur, assume, suffer or permit to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any such Person to (i) pay dividends or make any other distribution on any of
such Person's capital stock, (ii) pay any Indebtedness owed to the Company or
any other Credit Party, (iii) make
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loans or advances to any other Credit Party or (iv) transfer any of its property
to any other Credit Party, except for encumbrances or restrictions existing
under or by reason of (A) customary non-assignment or net worth provisions in
any lease governing a leasehold interest, (B) any agreement or other instrument
of a Person existing at the time it becomes a Subsidiary of the Borrower;
provided that such encumbrance or restriction is not applicable to any other
Person, or any property of any other Person, other than such Person becoming a
Subsidiary of the Borrower and was not entered into in contemplation of such
Person becoming a Subsidiary of the Borrower, and (C) this Credit Agreement and
the other Credit Documents.
(i) No Other Negative Pledges. It will not, and will not permit any of
the Material Subsidiaries to, enter into, assume or become subject to any
agreement prohibiting or otherwise restricting the creation or assumption of any
Lien upon its properties or assets, whether now owned or hereafter acquired, or
requiring the grant of any security for such obligation if security is given for
some other obligation, except pursuant to the documents executed in connection
with any Permitted Receivables Financing (but only to the extent that the
related prohibitions against other encumbrances pertain to the applicable
transferred assets actually sold, contributed, financed or otherwise conveyed or
pledged pursuant to such Permitted Receivables Financing).
SECTION 6. DEFAULTS.
If any of the following events shall occur and be continuing:
(a) any Borrower shall fail to pay the principal amount of any Note or
any LOC Obligation when due and payable in accordance with the terms thereof or
hereof; or any Credit Party shall fail to pay any installment of interest on any
Note or any Commitment Fee or other amount payable hereunder or under any of the
other Credit Documents and such amount is not paid within three (3) days after
the due date thereof;
(b) any Credit Party shall (i) fail to perform or observe any covenant
contained in subsections 5.1(e), (h), (i) or (j) or subsection 5.2 hereof or
(ii) fail to perform or observe any covenant contained in subsections
5.1(a)(i)(A), (B) or (E) or subsection 5.1(a)(ii) hereof and such failure
referred to in this subsection 6(b)(ii) shall continue unremedied for a period
of five (5) days after the earlier of a Responsible Officer of the Company
becoming aware of such failure or written notice specifying such failure and
stating that such notice is a "Notice of Default" hereunder is given, by
registered or certified mail or by courier, to the Company on behalf of the
Credit Parties by the Agent or any Lender;
(c) any Credit Party shall fail to perform or observe (i) any term,
covenant or agreement contained herein or in any Note (other than those
specified in clauses (a) or (b) above) and such failure shall continue
unremedied for a period of thirty (30) days after the earlier of a Responsible
Officer of the Company becoming aware of such failure or written notice
specifying such failure and stating that such notice is a "Notice of Default"
hereunder is given, by registered or certified mail or by courier, to the
Company on behalf of the Credit Parties by the Agent or
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<PAGE> 49
any Lender or (ii) any term, covenant or agreement contained in any other Credit
Document and such failure shall continue unremedied beyond any applicable grace
or cure period;
(d) any representation or warranty made or deemed made by a Credit
Party pursuant to this Agreement or in any other Credit Document or in any other
document or certificate delivered pursuant hereto shall prove to have been
incorrect or misleading in any material respect as of the date made or deemed
made;
(e) the Company or any Material Subsidiary shall fail to pay at
maturity, or within any applicable period of grace, any Indebtedness (other than
the Indebtedness referred to in clause (a) above) or any obligations under
Hedging Agreements, in each case with an outstanding principal or notional
amount in excess of $25,000,000, or fail to observe or perform any term,
covenant or agreement contained in any agreement by which it is bound evidencing
or securing Indebtedness or any obligations under Hedging Agreements, in each
case with an outstanding principal or notional amount in excess of $25,000,000
for such period of time as would permit, or would have permitted (assuming the
giving of appropriate notice if required) the holder or holders thereof or of
any obligations issued thereunder (or a trustee or agent on behalf of such
holder or holders), to accelerate the maturity thereof, or of any such
obligation; provided, however, that if any such failure shall be cured by the
Company or such Material Subsidiary or waived by the requisite holders of the
defaulted obligations, then the default hereunder by reason of such failure
shall be deemed to have been cured and waived by the Required Lenders unless
prior thereto the Loans shall have been declared to be or shall have become
immediately due and payable hereunder; or
(f) the Company or any Material Subsidiary shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
administrator, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) admit in writing its inability, or be
generally unable, to pay its debts as they become due, (iii) make a general
assignment for the benefit of its creditors, (iv) commence a voluntary case
under the Federal Bankruptcy Code (as now or hereafter in effect), (v) be
adjudicated as bankrupt or insolvent, (vi) file a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency, administration,
reorganization, winding-up or composition or adjustment of debts, (vii) fail to
controvert in a timely and appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under such Bankruptcy Code, or
(viii) be authorized by its Board of Directors to take any of the foregoing
actions; or
(g) a proceeding or case shall be commenced, without the application or
consent of the Company or any Material Subsidiary, in any court of competent
jurisdiction, seeking (i) the liquidation, administration, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of the
Company or any Material Subsidiary, (ii) the appointment of a trustee, receiver,
administrator, custodian, liquidator or the like of the Company or any Material
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<PAGE> 50
Subsidiary, or of all or any substantial part of its assets or (iii) similar
relief in respect of the Company or any Material Subsidiary, under any law
relating to bankruptcy, insolvency, administration, reorganization, winding-up
or composition or adjustment of debts, and such proceeding or case shall
continue undismissed, or an order, judgment or decree approving or ordering any
of the foregoing shall be entered and continue unstayed and in effect, in any
such case for a period of sixty (60) consecutive days, or an order for relief
against the Company or any Material Subsidiary, shall be entered in an
involuntary case under the Federal Bankruptcy Code (as now or hereafter in
effect); or
(h) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan or any Lien in favor
of the PBGC or a Plan shall arise on the assets of the Company, any Material
Subsidiary or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate, any
Single Employer Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Required Lenders,
likely to result in the termination of such Plan for purposes of Title IV of
ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of
ERISA, (v) the Company, any Material Subsidiary or any Commonly Controlled
Entity shall, or in the reasonable opinion of the Required Lenders is likely to,
incur any liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi) any other event or condition
shall occur or exist with respect to a Plan; and in each case in clauses (i)
through (vi) above, such event or condition, together with all other such events
or conditions, if any, could reasonably be expected to have a Material Adverse
Effect; or
(i) One or more judgments or decrees shall be entered against the
Company or any Material Subsidiary, involving in the aggregate a liability (not
paid or fully covered by insurance) of $50,000,000 or more, and all such
judgments or decrees shall not have been vacated, discharged, stayed or bonded
pending appeal within 60 days from the entry thereof; or
(j) This Agreement, any of the Notes or any other Credit Document shall
cease, for any reason, to be in full force and effect, or any Credit Party shall
so assert or any Credit Party shall disaffirm or deny any of its obligations
thereunder; or
(k) Either (i) any "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of more than 30% of then outstanding voting stock of the Company or
(ii) the Company shall merge or consolidate with any Person other than in a
transaction permitted under subsection 5.2(b);
then, and in any such event, (A) if such event is an Event of Default specified
in paragraph (f) or (g) above, automatically (i) the Commitments shall
immediately terminate and the Loans
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<PAGE> 51
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement, the Notes and the other Credit Documents shall immediately become due
and payable and (ii) the Credit Parties shall immediately be required to pay to
the Agent additional cash, to be held by the Agent, for the benefit of the
Lenders, in a cash collateral account as additional security for the LOC
Obligations in respect of subsequent drawings under all then outstanding Letters
of Credit in an amount equal to the maximum aggregate amount which may be drawn
under all Letters of Credits then outstanding, and (B) if such event is any
other Event of Default, any or all of the following actions may, with the
consent of the Required Lenders, or shall, upon the request of the Required
Lenders, be taken by the Agent: (i) the Agent may or shall, as applicable, by
notice to the Company declare the Commitments to be terminated forthwith,
whereupon the Commitments shall immediately terminate; (ii) the Agent may or
shall, as applicable, declare the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement, the Notes and the
other Credit Documents to be due and payable forthwith, whereupon the same shall
immediately become due and payable; (iii) the Agent may or shall, as applicable,
direct the Credit Parties to pay (and the Credit Parties agree that upon receipt
of such notice they will immediately pay) to the Agent additional cash, to be
held by the Agent, for the benefit of the Lenders, in a cash collateral account
as additional security for the LOC Obligations in respect of subsequent drawings
under all then outstanding Letters of Credit in an amount equal to the maximum
aggregate amount which may be drawn under all Letters of Credits then
outstanding; and (iv) the Agent may or shall, as applicable, enforce any and all
rights and interests created and existing under the Credit Documents including,
without limitation, all rights and remedies existing under the Collateral
Documents, all rights and remedies against a Guarantor and all rights of
set-off. Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
SECTION 7. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings (and including the plural as well as the singular):
"ABR": for any day, a rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on
such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2
of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per
annum publicly announced from time to time by the Agent as its prime rate in
effect at its principal office in Charlotte, North Carolina (the Prime Rate not
being intended to be the lowest rate of interest charged by NationsBank, N.A. in
connection with extensions of credit to debtors); and "Federal Funds Effective
Rate", shall mean, for any day, the weighted average of the rates on overnight
federal funds transactions with members of the Federal Reserve System arranged
by federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for the day of
such transactions
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<PAGE> 52
received by the Agent from three federal funds brokers of recognized standing
selected by it. If for any reason the Agent shall have determined (which
determination shall be conclusive absent manifest error) that it is unable to
ascertain the Federal Funds Effective Rate for any reason, including the
inability or failure of the Agent to obtain sufficient quotations in accordance
with the terms thereof, the ABR shall be determined without regard to clause (b)
of the first sentence of this definition until the circumstances giving rise to
such inability no longer exist. Any change in the ABR due to a change in the
Prime Rate or the Federal Funds Effective Rate shall be effective as of the
opening of business on the effective day of such change in the Prime Rate or the
Federal Funds Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which
is based upon the ABR.
"Acquisition": the acquisition by the Company and/or any of
its Subsidiaries of the Capital Stock of BetzDearborn pursuant to
the Merger Agreement.
"Additional Credit Party": each Person that becomes a
Guarantor after the Closing Date, as provided in subsection 5.1(j).
"Affiliate": as to any specified Person, any other Person (other than
a Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with, such Person. For purposes of this definition,
"control" of a specified Person means the power, directly or indirectly, either
to (a) vote 20% or more of the securities having ordinary voting power for the
election of directors of such Person or (b) direct or cause the direction of the
management and policies of such Person whether through the ownership of voting
securities, by contract or otherwise.
"Agreement": this Agreement, as amended, supplemented or modified from
time to time.
"Applicable Margin": with respect to Eurodollar Loans and ABR Loans and
with respect to the Commitment Fee, the rate per annum applicable on any date
determined based upon the ratings applicable on such date to the Company's
long-term senior unsecured non-credit-enhanced debt securities (the "Index
Debt") by Moody's and S&P as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Applicable Applicable Applicable
Margin for Margin for Margin for
Eurodollar Commitment ABR
Clause Rating Loans Fee Loans
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
(1) >/= BBB from S&P and >/= .550% .175% 0%
Baa2 from Moody's
(2) BBB from S&P or Baa2 .625% .200% 0%
from Moody's (but not both)
(3) BBB- from S&P and Baa3 .750% .225% 0%
from Moody's
</TABLE>
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<PAGE> 53
<TABLE>
<C> <S> <C> <C> <C>
(4) BBB- from S&P or Baa3 1.000% .250% 0%
from Moody's (but not
both)
(5) BB+ from S&P and Ba1 1.250% .300% 0%
from Moody's
(6) BB+ from S&P or Ba1 1.750% .350% .500%
from Moody's
(but not both)
(7) </= BB from S&P and </= Ba2 2.000% .500% .750%
from Moody's
- -----------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of the foregoing, (i) if neither Moody's nor S&P shall have in
effect a rating for the Index Debt (other than by reason of the circumstances
referred to in the last sentence of this definition), then both such rating
agencies will be deemed to have established the ratings referred to in clause
(7) above for the Index Debt; (ii) if only one of Moody's or S&P shall have in
effect a rating for the Index Debt, the Company and the Lenders will negotiate
in good faith to agree upon another rating agency to be substituted by an
amendment to this Agreement for the rating agency which shall not have a rating
in effect, and in the absence of such amendment the Applicable Margin will be
determined by reference to the available rating; (iii) if the ratings
established by Moody's and S&P shall indicate different clauses specified above,
the Applicable Margin shall be determined by reference to the numerically lower
clause, unless such numerically lower clause is more than one numeral lower than
the clause indicated by the other rating, in which case the clause which is one
number lower than such higher numbered clause shall apply (thus, by way of
example, if the Company's Index Debt is rated BBB by S&P and Ba1 by Moody's, the
clauses indicated are (2) and (5), respectively, resulting in the Applicable
Margin being determined by reference to clause (4), which clause is one number
lower than such higher numbered clause); provided, however, that the Applicable
Margin shall be determined by reference to clause (7) if the Company's Index
Debt is rated worse than BB by S&P or worse than Ba2 by Moody's; (iv) if any
rating established by Moody's or S&P shall be changed (other than as a result of
a change in the rating system of either Moody's or S&P) such change shall be
effective as of the date on which such change is first announced by the rating
agency making such change; and (v) notwithstanding anything in this definition
of "Applicable Margin" to the contrary, (a) from the Closing Date until the
Tranche B Term Loan has been fully repaid, the Applicable Margin will be
determined by reference to clause (7) above and (b) in no event shall (1) the
Applicable Margin for Eurodollar Loans be less than 1.500%, (2) the Applicable
Margin for ABR Loans be less than .500% or (3) the Applicable Margin for
Commitment Fee be less than .350%, in each case prior to the date that is six
(6) months from the Closing Date. Each change in the Applicable Margin shall
apply during the period commencing on the effective date of such change and
ending on the date immediately preceding the effective date of the next such
change. If the rating system of either Moody's or S&P shall change prior to the
Termination
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<PAGE> 54
Date, the Company and the Lenders shall negotiate in good faith to amend the
references to specific ratings in this definition to reflect such changed rating
system. If both Moody's and S&P shall cease to be in the business of rating
corporate debt obligations, the Company and the Lenders shall negotiate in good
faith to agree upon a substitute rating agency and to amend the references to
specific ratings in this definition to reflect the ratings used by such
substitute rating agency.
"Applicant Borrower": as defined in subsection 2.13.
"Asset Disposition": the disposition of any or all of the assets
(including without limitation the Capital Stock of a Subsidiary) of the Company
or any of its Consolidated Subsidiaries whether by sale, lease, transfer or
otherwise (including a disposition pursuant to any casualty or condemnation
event, but excluding a disposition pursuant to a Permitted Receivables
Financing). The term "Asset Disposition" shall not include (i) the sale of
inventory in the ordinary course of business, (ii) the sale or disposition of
machinery and equipment no longer used or useful in the conduct of such Person's
business or (iii) any Equity Issuance.
"Assignee": as defined in subsection 9.6(c).
"Attributed Principal Amount": on any day, with respect to any
Permitted Receivables Financing entered into by the Company or any of its
Consolidated Subsidiaries, the aggregate amount (with respect to any such
transaction, the "Invested Amount") paid to, or borrowed by, such Person as of
such date under such Permitted Receivables Financing, minus the aggregate amount
received by the applicable Receivables Financier (as defined in the definition
of "Permitted Receivables Financing") and applied to the reduction of the
Invested Amount under such Permitted Receivables Financing.
"BetzDearborn": BetzDearborn, Inc., a Pennsylvania
corporation.
"Borrower": any of the Company and its Subsidiaries that
have become Designated Borrowers pursuant to subsection 2.13.
"Borrower Joinder Agreement": a Borrower Joinder Agreement
for Applicant Borrowers referenced in subsection 2.13, a form of
which is attached as Exhibit D.
"Borrowing Date": any Business Day specified in a notice pursuant to
subsection 2.3, 2.5, 2.15(b)(i) or 2.16(b) as a date on which the Company
requests (i) the Lenders (and/or the Swingline Lender) to make Revolving Credit
Loans and/or Swingline Loans hereunder or (ii) the Issuing Lender to issue or
extend a Letter of Credit hereunder.
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in Charlotte, North Carolina or New York City are
authorized or required by law to close, except that, when used in connection
with a Eurodollar Loan, such day shall also be a day on
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<PAGE> 55
which dealings between banks are carried on in U.S. dollar deposits in the
London interbank market.
"Capital Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"Capital Stock": any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation) and any
and all warrants or options to purchase any of the foregoing.
"Closing Date": the date hereof.
"Code": the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations issued thereunder as in effect from time to
time.
"Collateral": all collateral described in and covered by the Collateral
Documents.
"Collateral Agent": NationsBank, N.A. (or any successor thereto) or any
successor agent appointed pursuant to subsection 8.9.
"Collateral Documents": the Pledge Agreements, and such other documents
executed and delivered in connection with the attachment and perfection of the
Lenders' security interests in the Collateral, including without limitation, UCC
financing statements; provided that it is understood that such Collateral
Documents will be effective only during the Collateral Period.
"Collateral Effective Date": a date subsequent to the Closing Date on
which the Index Debt is rated worse than BB+ by S&P or rated worse than Ba1 by
Moody's.
"Collateral Period": the period in time from the Collateral Effective
Date until a subsequent Credit Improvement Date.
"Commitment": (i) as to any Lender, the obligation of such Lender to
make Revolving Credit Loans to the Borrowers and Term Loans to the Company
hereunder and to purchase Participation Interests in the Swingline Loans in
accordance with the provisions of subsection 2.15 and in LOC Obligations in
accordance with the provisions of subsection 2.16(c), such obligation in an
aggregate amount with respect to principal at any one time outstanding not to
exceed the respective amounts set forth below such Lender's name on Schedule I,
as such amounts may be reduced from time to time in accordance with the
provisions of this Agreement,
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<PAGE> 56
(ii) as to the Swingline Lender, the obligation of the Swingline Lender to make
Swingline Loans hereunder and (iii) as to the Issuing Lender, the obligation of
the Issuing Lender to issue or extend Letters of Credit hereunder.
"Commitment Fee": as defined in subsection 2.4.
"Commitment Percentage": as to any Lender, (i) if in connection with
the Revolving Committed Amount (or a subfacility thereunder) or a particular
Term Loan Tranche, the relevant percentage set forth on Schedule I or (ii)
otherwise, the percentage of the aggregate Commitments of all Lenders
represented by such Lender's Commitment, as the context may require (or, at any
time after the Commitments shall have expired or terminated, the percentage
which the aggregate principal amount of such Lender's Loans and Participation
Interests in Swingline Loans and LOC Obligations then outstanding constitutes of
the aggregate principal amount of the Loans and LOC Obligations then
outstanding).
"Commitment Period": the period from and including the Closing Date to
but not including the Termination Date or such earlier date on which the
Commitments shall terminate as provided herein.
"Commonly Controlled Entity": an entity, whether or not incorporated,
which is under common control with a Credit Party within the meaning of Section
4001 of ERISA or is part of a group which includes a Credit Party and which is
treated as a single employer under Section 414 of the Code.
"Consolidated EBITDA": for any fiscal period, (i) Consolidated Net
Income for such period, plus (ii) Consolidated Interest Expense for such period,
plus (iii) to the extent deducted in computing such Consolidated Net Income, the
sum of (a) taxes, (b) depreciation, (c) amortization, (d) any non-cash charges
and (e) any extraordinary, unusual or non-recurring cash losses or cash charges
incurred in connection with the Acquisition in an amount not to exceed $170
million after taxes in the aggregate for all such add-backs pursuant to this
clause (e), minus (iv) any extraordinary gains and noncash gains.
"Consolidated Interest Expense": for any fiscal period, the amount of
interest expense paid, accrued or capitalized by the Company and its
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP, including imputed interest expense paid in respect of Capital Lease
obligations and any dividends paid on hybrid equity securities that are tax
deductible (such as dividends on trust preferred capital securities) (but, with
respect to such dividends on hybrid equity securities, without duplication to
the extent a comparable amount is taken by the Company as interest expense on
the interest paid on the related subordinated debt to the Preferred Stock SPC).
"Consolidated Net Income": for any fiscal period, net income of the
Company and its Subsidiaries, determined on a consolidated basis in accordance
with GAAP.
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<PAGE> 57
"Consolidated Net Worth": as of the end of the most recently ended
calendar month, the sum of (i) all items that would be included under
stockholders' equity on a consolidated balance sheet of the Company and its
Consolidated Subsidiaries plus (ii) insurance reserves. Consolidated Net Worth
shall be determined in accordance with generally accepted accounting principles
substantially the same as those used by the Company in preparing the financial
statements referred to in subsection 1.2 and on a consolidated basis
substantially the same as that used by the Company in preparing such financial
statements; provided, however, that (A) foreign currency translation adjustments
under Financial Accounting Standards Board Statement No. 52, "Foreign Currency
Translation" and (B) items reported in comprehensive income and accumulated
other comprehensive income under Financial Accounting Standards Statement No.
130 (including but not limited to gains or losses for derivatives designated as
a hedge of exposure to variable cash flows of forecasted transactions and
derivatives designated as a hedge of foreign currency exposure of a net
investment in a foreign operation), shall not in either case be taken into
account in calculating Consolidated Net Worth.
"Consolidated Subsidiary": any Subsidiary the results of whose
operations are, for financial accounting purposes, consolidated with the results
of operations of the Company and its other Consolidated Subsidiaries on the most
recent annual or quarterly financial statements of the Company and its
Consolidated Subsidiaries.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Covered Transaction": the sale, lease, disposition or purchase of
assets by any Person outside the ordinary course of business of such Person and
in a transaction pursuant to which consideration having a fair market value in
excess of $35,000,000 is paid by or received by the Company and its
Subsidiaries.
"Credit Documents": collectively, this Agreement, the Notes, any
Borrower Joinder Agreements or Guarantor Joinder Agreements, the Collateral
Documents, any fee letters, any LOC Documents and all other related agreements
and documents issued, delivered or executed hereunder or thereunder or pursuant
hereto or thereto (in each case, as the same may be amended, modified, restated,
supplemented, extended, renewed or replaced from time to time).
"Credit Improvement Date": a date subsequent to the Closing Date on
which (i) the Company's Index Debt is rated BBB- or better by S&P or rated Baa3
or better by Moody's and (ii) the Leverage Ratio as of the end of the most
recently ended fiscal quarter shall be less than 4.0 to 1.0.
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<PAGE> 58
"Credit Parties": the Borrowers and the Guarantors.
"Debt Issuance": the issuance of any Indebtedness for borrowed money by
the Company or any of its Consolidated Subsidiaries.
"Default": any event specified in Section 6, whether or not any
requirement therein designated for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Designated Borrower": any Applicant Borrower that becomes a Borrower
hereunder in accordance with the provisions of subsection 2.13.
"Dollars" and "$": dollars in lawful currency of the United States of
America.
"Domestic Subsidiaries": each direct and indirect Subsidiary of the
Company that (a) is domiciled, incorporated or organized under the laws of any
State of the United States or the District of Columbia or (b) maintains the
majority of its assets (determined on a consolidated basis) in the United States
of America.
"Eligible Reinvestment": an acquisition of assets that is (i) not
prohibited under subsection 5.2(b)(ii) and (ii) an acquisition of another
business or any substantial part of another business or other long-term assets,
in each case, in, or used or useful in, the same or a similar line of business
as the Company and its Subsidiaries were engaged in on the Closing Date, or any
reasonable extensions or expansions thereof.
"Environmental Laws": any and all lawful and applicable Federal, state,
local and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees, permits, concessions, grants, franchises, licenses, agreements
or other governmental restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"Equity Issuance": any issuance by the Company or any Consolidated
Subsidiary to any Person other than the Company or a Consolidated Subsidiary of
(a) shares of its Capital Stock, specifically including any hybrid equity
securities (e.g., trust preferred capital securities), (b) any shares of its
Capital Stock pursuant to the exercise of options or warrants or (c) any shares
of its Capital Stock pursuant to the conversion of any debt securities to
equity. The term "Equity Issuance" shall not include any Asset Disposition.
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<PAGE> 59
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as
a decimal fraction) of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and emergency reserves under
any regulations of the Board of Governors of the Federal Reserve System or other
Governmental Authority having jurisdiction with respect thereto) dealing with
reserve requirements prescribed for eurocurrency funding (currently referred to
as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a
member bank of such System.
"Eurodollar Loans": Loans the rate of interest applicable to which is
based upon the Eurodollar Rate.
"Eurodollar Rate": for the Interest Period for each Eurodollar Loan
comprising part of the same borrowing (including conversions, extensions and
renewals), a per annum interest rate determined pursuant to the following
formula:
Eurodollar Rate = London Interbank Offered Rate
-------------------------------------
1 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar Loans the
then current Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such Loans shall originally
have been made on the same day).
"Event of Default": any event specified in Section 6, provided that any
requirement therein designated for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Existing Credit Agreements": (a) with respect to the Company, (i) that
certain Amended and Restated $700,000,000 Revolving Credit and Competitive
Advance Facility Agreement, dated as of February 7, 1997 (amending and restating
Revolving Credit and Competitive Advance Facility Agreement dated as of December
17, 1993, as amended by First Amendment, dated as of December 15, 1994 and
Second Amendment, dated as of December 15, 1995), among the Company, the several
financial institutions parties thereto, The Chase Manhattan Bank, formerly known
as Chemical Bank, as agent thereunder, Morgan Guaranty Trust Company of New
York, as documentation agent thereunder, and NationsBank, N.A., as syndication
agent thereunder, and (ii) if still in existence, the credit agreement
evidencing the related 364-day facility, (b) with respect to BetzDearborn, that
certain $750,000,000 Credit Agreement dated as of October 20, 1997 among
BetzDearborn, certain of its affiliates and The Chase Manhattan Bank and
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The Chase Manhattan Bank of Canada, as Administrative Agents and (c) with
respect to FiberVisions Incorporated ("Fibervisions"), a wholly owned Subsidiary
of the Company, that certain $115,000,000 Credit Agreement dated as of June 26,
1997 among FiberVisions, certain of its Affiliates and NationsBank, N.A., as
Agent.
"Existing Letters of Credit": those letters of credit described on
Schedule VI.
"Financing Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"First Tier Foreign Subsidiary": at any date of determination, each
Foreign Subsidiary in which any one or more of the Company and its Material
Domestic Subsidiaries owns more than 50%, in the aggregate, of the voting
Capital Stock of such Foreign Subsidiary.
"Foreign Subsidiaries": all Subsidiaries of the Company that are not
Domestic Subsidiaries.
"GAAP": generally accepted accounting principles in the United States
of America as in effect from time to time.
"Governmental Authority": 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.
"Guaranteed Obligations": without duplication, (a) in the case of the
Company, all of the obligations of the Borrowers (other than the Company) owing
(i) to the Lenders (including the Swingline Lender and the Issuing Lender) and
the Agent, whenever arising, under this Agreement, the Borrower Joinder
Agreements, the Notes, the Collateral Documents or any of the other Credit
Documents to which a Borrower is a party and (ii) to any Lender or any Affiliate
of a Lender arising under Hedging Agreements, and (b) in the case of any other
Guarantor, all of the obligations of the Credit Parties owing (i) to the Lenders
(including the Swingline Lender and the Issuing Lender) and the Agent, whenever
arising, under this Agreement, the Borrower Joinder Agreements, the Guarantor
Joinder Agreements, the Notes, the Collateral Documents or any of the other
Credit Documents to which a Credit Party is a party and (ii) to any Lender or
any Affiliate of a Lender arising under Hedging Agreements, in each of cases (a)
and (b) including, but not limited to, obligations with respect to principal,
interest and fees and including, without limitation (to the extent permitted by
applicable law), any amounts that would have accrued but for the automatic stay
under the Federal Bankruptcy Code (as now or hereafter in effect).
"Guarantor": each of the Company, the Material Domestic Subsidiaries
(other than a Receivables Financing SPC or a Preferred Stock SPC) and each
Additional Credit Party which has
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executed a Guarantor Joinder Agreement, together with its successors and
assigns; provided, however, that following a Credit Improvement Date, the only
"Guarantor" shall be the Company.
"Guarantor Joinder Agreement": a Guarantor Joinder Agreement referenced
in subsection 5.1(j), a form of which is attached as Exhibit E.
"Hazardous Materials": any substance, material or waste defined or
regulated in or under any Environmental Laws.
"Hedging Agreements": collectively, interest rate protection
agreements, foreign currency exchange agreements, commodity purchase or option
agreements or other interest or exchange rate or commodity price hedging
agreements, in each case entered into by the Company or any of its Material
Subsidiaries.
"Indebtedness": with respect to any Person, without duplication, (i)
all indebtedness for borrowed money created, incurred, assumed or guaranteed by
such Person, (ii) all amounts owing by such Person under purchase money
mortgages or other purchase money liens or conditional sales or other title
retention agreements, (iii) all indebtedness secured by mortgages, liens,
security interests, conditional sales or other title retention agreements upon
property owned by such Person (whether or not such Person has assumed or become
liable for the payment of such indebtedness), (iv) all obligations of such
Person in respect of Financing Leases and Synthetic Leases, (v) all guaranty
obligations of such Person with respect to Indebtedness of another Person, (vi)
Indebtedness of any partnership or unincorporated joint venture with respect to
which such Person is legally obligated or has a reasonable expectation of being
liable with respect thereto, (vii) the maximum amount of all standby letters of
credit issued or bankers' acceptances facilities created for the account of such
Person and, without duplication, all drafts drawn thereunder (to the extent
unreimbursed), (viii) the principal amount of subordinated notes or debentures
issued by such Person to a Preferred Stock SPC in connection with hybrid equity
securities (e.g., trust preferred capital securities), and (ix) the outstanding
Attributed Principal Amount under any Permitted Receivables Financing (other
than a securitization of the receivable evidenced by the Tastemaker note, a $500
million five-year note of IMCERA Group, Inc. bearing interest at 6.2% and
classified as "held at maturity").
"Index Debt": as defined in the term "Applicable Margin".
"Initial Hybrid Equity Transaction": the issuance, prior to or within
three (3) months of the Closing Date, of equity-like securities by the Company
and/or any of its Consolidated Subsidiaries in an amount sufficient to raise
$170 million in proceeds for the Company.
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"Insolvency": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Interest Coverage Ratio": with respect to the Company and its
Consolidated Subsidiaries for the twelve month period ending on the last day of
any fiscal quarter of the Company (and after giving effect to the Acquisition on
a Pro Forma Basis), the ratio of (a) Consolidated EBITDA for such period to (b)
Consolidated Interest Expense for such period.
"Interest Payment Date": (a) as to any ABR Loan or Swingline Loan, the
last day of each March, June September and December, (b) as to any Eurodollar
Loan having an Interest Period of three months or less, the last day of such
Interest Period, and (c) as to any such Eurodollar Loan having an Interest
Period longer than three months, each day which is three months after the first
day of such Interest Period and the last day of such Interest Period.
"Interest Period": (i) with respect to any Eurodollar Loan:
(a) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending, subject to availability, one, two, three or six months
thereafter, as selected by the respective Borrower in its notice of
borrowing or notice of conversion, as the case may be, given by the
Company with respect thereto; and
(b) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan and
ending, subject to availability, one, two, three or six months
thereafter, as selected by the respective Borrower through irrevocable
notice from the Company to the Agent not less than three Business Days
prior to the last day of the then current Interest Period with respect
thereto;
and (ii) with respect to any Swingline Loan, a period commencing in each case on
the date of the borrowing and ending on the date agreed to by the Company and
the Swingline Lender in accordance with the provisions of subsection
2.15(b)(iii) (such ending date in any event to be not more than fourteen (14)
Business Days from the date of borrowing).
provided that, all of the foregoing provisions relating to Interest Periods are
subject to the following:
(1) if any Interest Period pertaining to a Loan would
otherwise end on a day that is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day unless the result
of such extension would be to carry a Eurodollar Loan Interest Period
into another calendar month in which event such Interest Period shall
end on the immediately preceding Business Day;
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(2) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date;
(3) any Interest Period pertaining to a Eurodollar Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of a calendar month; and
(4) notwithstanding anything herein or in a notice of
borrowing to the contrary, all Eurodollar Loans requested on the
Closing Date and for the first month following the Closing Date shall
be for interest periods of one week, unless otherwise consented to by
the Agent.
"Issuing Lender": (i) with respect to an Existing Letter of Credit, the
respective Issuing Lender referenced on Schedule VI and (ii) with respect to all
other Letters of Credit, NationsBank, N.A. (or any successor thereto).
"Letter of Credit": any letter of credit issued by the Issuing Lender
for the account of the Company in accordance with the terms of subsection 2.16,
including any Existing Letter of Credit.
"Leverage Ratio": with respect to the Company and its Consolidated
Subsidiaries for the twelve month period ending on the last day of any fiscal
quarter (and after giving effect to the Acquisition on a Pro Forma Basis), the
ratio of (a) Indebtedness of the Company and its Consolidated Subsidiaries on
the last day of such period minus the principal amount of subordinated notes or
debentures issued by the Company to a Preferred Stock SPC in connection with
hybrid equity securities (e.g., trust preferred capital securities) to (b)
Consolidated EBITDA for such period.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other security
interest to any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any Financing Lease
having substantially the same economic effect as any of the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
"LOC Commitment": the commitment of the Issuing Lender to issue Letters
of Credit in an aggregate face amount at any time outstanding (together with the
amounts of any unreimbursed drawings thereon) of up to the excess of (i) the LOC
Committed Amount over (ii) the aggregate outstanding face amount of the Existing
Letters of Credit.
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"LOC Committed Amount" shall have the meaning assigned to such term in
subsection 2.16.
"LOC Documents": with respect to any Letter of Credit, such Letter of
Credit, any amendments thereto, any documents delivered in connection therewith,
any application therefor, and any agreements, instruments, guarantees or other
documents (whether general in application or applicable only to such Letter of
Credit) governing or providing for (i) the rights and obligations of the parties
concerned or at risk or (ii) any collateral security for such obligations.
"LOC Obligations": at any time, the sum of (i) the maximum amount which
is, or at any time thereafter may become, available to be drawn under Letters of
Credit then outstanding, assuming compliance with all requirements for drawings
referred to in such Letters of Credit plus (ii) the aggregate amount of all
drawings under Letters of Credit honored by the Issuing Lender but not
theretofore reimbursed by the Company.
"London Interbank Offered Rate": with respect to any Eurodollar Loan
for the Interest Period applicable thereto, the rate of interest per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Telerate Page 3750 (or any successor page) as the London interbank offered rate
for deposits in Dollars, as appropriate, at approximately 11:00 a.m. (London
time) two Business Days prior to the first day of such Interest Period for a
term comparable to such Interest Period; provided, however, if more than one
rate is specified on Telerate Page 3750, the applicable rate shall be the
arithmetic mean of all such rates. If, for any reason, such rate is not
available, the term "London Interbank Offered Rate" shall mean, with respect to
any Eurodollar Loan for the Interest Period applicable thereto, the rate of
interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Reuters Screen LIBO Page as the London interbank offered rate for
deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days
prior to the first day of such Interest Period for a term comparable to such
Interest Period; provided, however, if more than one rate is specified on
Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of
all such rates.
"Material Adverse Effect": a material adverse effect on (i) the
operations, business, property or assets, or the condition (financial or
otherwise) of the Company and its Consolidated Subsidiaries taken as a whole or
(ii) the validity or enforceability of this Agreement and the other Credit
Documents or the rights and remedies of the Lenders hereunder or thereunder.
"Material Domestic Subsidiary": any Domestic Subsidiary that is also a
Material Subsidiary.
"Material First Tier Foreign Subsidiary": any First Tier Foreign
Subsidiary that is also a Material Subsidiary.
"Material Subsidiary": as of any date of determination, any Domestic
Subsidiary or any Foreign Subsidiary that (a) is a Borrower, (b) is listed on
Schedule II attached hereto, which Schedule may be modified from time to time by
the Company by written notice to the Agent, (c)
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together with its Subsidiaries on a consolidated basis, during the twelve months
preceding such date of determination accounts for (or to which may be
attributed) 5% or more of the net income or assets (determined on a consolidated
basis) of the Company and its Subsidiaries or (d) is otherwise necessary for the
ongoing business operations of the Company and its Subsidiaries taken as a
whole.
"Merger Agreement": that certain Agreement and Plan of Merger dated as
of July 30, 1998 among the Company, Water Acquisition Co. and BetzDearborn.
"Moody's": Moody's Investors Services, Inc.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": the aggregate cash proceeds received by the
Company or any of its Consolidated Subsidiaries in respect of any Asset
Disposition, Equity Issuance, Debt Issuance or Permitted Receivables Financing,
net of (a) direct costs (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and (b) taxes paid or payable as
a result thereof; it being understood that "Net Cash Proceeds" shall include,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received by the Company or any of its Consolidated
Subsidiaries in any Asset Disposition, Equity Issuance, Debt Issuance or
Permitted Receivables Financing.
"Non-Excluded Taxes": as defined in subsection 2.12.
"Notes": the collective reference to the Revolving Credit Notes, the
Swingline Note and the Term Notes.
"Participant": as defined in subsection 9.6(b).
"Participation Interest" a purchase by a Lender of a participation in
Swingline Loans as provided in subsection 2.15 or in LOC Obligations as provided
in subsection 2.16(c).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.
"Permitted Receivables Financing": any one or more receivables
financings in which (i) the Company or any of its Consolidated Subsidiaries (a)
sells (as determined in accordance with GAAP) any accounts receivable, notes
receivable, rights to future lease payments or residuals (collectively, together
with certain related property relating thereto and the right to collections
thereon, being the "Transferred Assets") to any Person that is not a Subsidiary
or Affiliate of the
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Company (with respect to any such transaction, the "Receivables Financier"), (b)
borrows from such Receivables Financier and secures such borrowings by a pledge
of such Transferred Assets and/or (c) otherwise finances its acquisition of such
Transferred Assets and, in connection therewith, conveys an interest in such
Transferred Assets to the Receivables Financier or (ii) the Company or any of
its Consolidated Subsidiaries sells, conveys or otherwise contributes any
Transferred Assets to a Receivables Financing SPC, which Receivables Financing
SPC then (a) sells (as determined in accordance with GAAP) any such receivables
(or an interest therein) to any Receivables Financier, (b) borrows from such
Receivables Financier and secures such borrowings by a pledge of such
receivables or (c) otherwise finances its acquisition of such receivables and,
in connection therewith, conveys an interest in such receivables to the
Receivables Financier, provided that (1) such receivables financing shall not
involve any recourse to the Company or any of its Consolidated Subsidiaries for
any reason other than (A) repurchases of non-eligible receivables or (B)
indemnifications for losses other than credit losses related to the receivables
sold in such financing, (2) such receivables financing shall not include any
guaranty obligations of the Company or any of its Consolidated Subsidiaries, (3)
the Agent shall be reasonably satisfied with the structure of and documentation
for any such transaction and that the terms of such transaction, including the
discount at which receivables are sold, the term of the commitment of the
Receivables Financier thereunder and any termination events, shall be (in the
good faith understanding of the Agent) consistent with those prevailing in the
market for similar transactions involving a receivables originator/servicer of
similar credit quality and a receivables pool of similar characteristics and (4)
the documentation for such transaction shall not be amended or modified without
the prior written approval of the Agent.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Company or a Commonly Controlled
Entity is (or, if such plan were terminated at such time, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pledge Agreements": a collective reference to the Pledge Agreement
dated as of the Closing Date executed by the Company and each of the Material
Domestic Subsidiaries (other than a Receivables Financing SPC or a Preferred
Stock SPC) and substantially in the form of Exhibit I attached hereto and any
and all other pledge agreements executed and delivered by the Credit Parties in
favor of the Collateral Agent, for the benefit of the Lenders and any other
creditors described therein, to secure their obligations under the Credit
Documents and any other loan documents or other agreements described therein, as
amended, modified, extended, renewed or replaced from time to time; provided
that it is understood that the Pledge Agreements will be effective only during
the Collateral Period.
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"Preferred Stock SPC": a special purpose entity that is a Subsidiary or
Affiliate of the Company and that is formed for the sole and exclusive purpose
of engaging in activities in connection with the issuance of hybrid equity
securities (e.g., trust preferred capital securities).
"Pro Forma Basis": means, with respect to any transaction, that such
transaction shall be deemed to have occurred (for purposes of calculating
compliance in respect of such transaction with each of the financial covenants
set forth in subsection 5.2(d)) as of the first day of the four fiscal quarter
period ending as of the last day of the most recent fiscal quarter preceding the
date of such transaction with respect to which the Agent and the Lenders shall
have received the financial statements referred to in subsection 5.1(a). As used
herein, "transaction" means any corporate merger or consolidation or any asset
disposition or purchase as referred to in subsection 5.2(b). Any Indebtedness
incurred or assumed by the Company or any of its Subsidiaries in order to
consummate such transaction (i) shall be deemed to have been incurred or assumed
on the first day of the applicable period and (ii) if such Indebtedness has a
floating or formula rate, then the implied rate of interest for such
Indebtedness for the applicable period for purposes of this definition shall be
determined by utilizing the rate which is or would be in effect with respect to
such Indebtedness as at the relevant date of determination.
"Property": any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Receivables Financing SPC": a special purpose entity that is a
Subsidiary or Affiliate of the Company and that is formed for the sole and
exclusive purpose of engaging in activities in connection with the purchase,
sale and financing of accounts receivable in connection with and pursuant to a
Permitted Receivables Financing.
"Register": as defined in subsection 9.6(d).
"Regulation U": Regulation U of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"Reorganization": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty day notice period is
waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section
2615.
"Required Lenders": at any time, Lenders the Commitment Percentages of
which aggregate at least 51%.
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"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Responsible Officer": when used with respect to the Company, the chief
executive officer or any senior vice president of the Company or, with respect
to financial matters, the vice president and treasurer of the Company.
"Revolving Committed Amount" shall have the meaning assigned to such
term in Section 2.1(a).
"Revolving Credit Loans": as defined in subsection 2.1(a).
"Revolving Credit Note": as defined in subsection 2.2.
"S&P": Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"Single Employer Plan": any Plan which is covered by Title IV of ERISA,
but which is not a Multiemployer Plan.
"Subsidiary": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having ordinary
voting power (other than stock or such other ownership interests having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corporation, partnership or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person. Unless otherwise qualified, all references to a "Subsidiary" or
to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries
of the Company.
"Swingline Committed Amount": as defined in subsection 2.15(a).
"Swingline Lender": NationsBank, N.A. (or any successor thereto).
"Swingline Loan": as defined in subsection 2.15(a).
"Swingline Note": the promissory note of the Company in favor of the
Swingline Lender evidencing the Swingline Loans provided pursuant to subsection
2.15, as such promissory note may be amended, modified, restated, supplemented,
extended, renewed or replaced from time to time.
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"Synthetic Lease": any synthetic lease, tax retention operating lease,
off-balance sheet loan or similar off-balance sheet financing product where such
transaction is considered borrowed money indebtedness for tax purposes but is
classified as an operating lease in accordance with GAAP.
"Termination Date": October 15, 2003.
"Term Loan": any Loan comprising all or a portion of the Tranche A Term
Loan or the Tranche B Term Loan.
"Term Loan Tranche" shall have the meaning assigned to such term in
subsection 2.17(a).
"Term Note" or "Term Notes": the promissory notes of the Company in
favor of each of the Lenders evidencing each Term Loan Tranche provided pursuant
to subsection 2.17(f), individually or collectively, as appropriate, as such
promissory notes may be amended, modified, restated, supplemented, extended,
renewed or replaced from time to time.
"Tranche A Term Loan" shall have the meaning assigned to such term in
subsection 2.17(a).
"Tranche B Term Loan" shall have the meaning assigned to such term in
subsection 2.17(a).
"Tranche C Term Loan" shall have the meaning assigned to such term in
subsection 2.17(a).
"Transferee": as defined in subsection 9.6(f).
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar Loan.
All accounting terms not otherwise defined herein shall have the
meanings assigned to them in accordance with GAAP.
SECTION 8. THE AGENT.
8.1. APPOINTMENT.
Each Lender hereby irrevocably designates and appoints NationsBank,
N.A. as the Agent of such Lender under this Agreement and the other Credit
Documents, and each such Lender irrevocably authorizes NationsBank, N.A., as the
Agent for such Lender, to take such action on its behalf under the provisions of
this Agreement and the other Credit Documents and to exercise
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such powers and perform such duties as are expressly delegated to the Agent by
the terms of this Agreement and the other Credit Documents, together with such
other powers as are reasonably incidental thereto. Notwithstanding any provision
to the contrary elsewhere in this Agreement, the Agent shall not have any duties
or responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Credit Document or otherwise exist against the Agent.
8.2. DELEGATION OF DUTIES.
The Agent may execute any of its duties under this Agreement and the
other Credit Documents by or through agents or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
The Agent shall not be responsible for the negligence or misconduct of any
agents or attorneys-in-fact selected by it with reasonable care.
8.3 EXCULPATORY PROVISIONS.
Neither the Agent nor any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates shall be (i) liable for any action
lawfully taken or omitted to be taken by it or such Person under or in
connection with this Agreement or any other Credit Document (except for its or
such Person's own gross negligence or willful misconduct) or (ii) responsible in
any manner to any of the Lenders for any recitals, statements, representations
or warranties made by the Company, any other Credit Party or any officer thereof
contained in this Agreement or any other Credit Document or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Agent under or in connection with, this Agreement or any other Credit
Document or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or the other Credit Documents or for any
failure of the Company or any other Credit Party to perform its obligations
hereunder or thereunder. The Agent shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any other
Credit Document, or to inspect the properties, books or records of the Credit
Parties.
8.4 RELIANCE BY AGENT.
The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any Credit Document, writing, resolution, notice, consent,
certificate, affidavit, letter, telecopy, telex or teletype message, statement,
order or other document or conversation reasonably believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Credit Parties), independent accountants and other
experts selected by the Agent. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this
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Agreement or any other Credit Document unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Agent shall in all cases be fully protected in acting,
or in refraining from acting, under this Agreement and the other Credit
Documents in accordance with a request of the Required Lenders, and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all the Lenders and all future holders of the Notes.
8.5. NOTICE OF DEFAULT.
The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default hereunder unless the Agent has
received notice from a Lender or the Company referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". In the event that the Agent receives such a notice, the
Agent shall give notice thereof to the Lenders. The Agent shall take such action
with respect to such Default or Event of Default as shall be reasonably directed
by the Required Lenders; provided that unless and until the Agent shall have
received such directions, the Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the
Lenders.
8.6. NON-RELIANCE ON AGENT AND OTHER LENDERS.
Each Lender expressly acknowledges that neither the Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or affiliates has
made any representations or warranties to it and that no act by the Agent
hereinafter taken, including any review of the affairs of the Credit Parties,
shall be deemed to constitute any representation or warranty by the Agent to any
Lender. Each Lender represents to the Agent that it has, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Credit Parties and made its own decision
to make its Loans hereunder and enter into this Agreement and the other Credit
Documents. Each Lender also represents that it will, independently and without
reliance upon the Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Credit Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Credit Parties. Except
for notices, reports and other documents expressly required to be furnished to
the Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
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otherwise), prospects or creditworthiness of the Credit Parties which may come
into the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates.
8.7. INDEMNIFICATION.
The Lenders agree to indemnify the Agent in its capacity as such (to
the extent not reimbursed by the Company or another Credit Party and without
limiting the obligation of the Company or another Credit Party to do so),
ratably according to their respective Commitment Percentages in effect on the
date on which indemnification is sought under this subsection (or, if
indemnification is sought after the date upon which the Commitments shall have
terminated and the Loans shall have been paid in full, ratably in accordance
with their Commitment Percentages immediately prior to such date), from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time (including, without limitation, at any time
following the payment of the Notes) be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of this Agreement, any
of the other Credit Documents or any documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by the Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements to the extent resulting from
the Agent's gross negligence or willful misconduct. The agreements in this
subsection shall survive the payment of the Notes and all other amounts payable
hereunder or under the other Credit Documents.
8.8. AGENT IN ITS INDIVIDUAL CAPACITY.
The Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Credit Parties as though
the Agent were not the Agent hereunder and under the other Credit Documents.
With respect to its Loans made or renewed by it and any Note issued to it, the
Agent shall have the same rights and powers under this Agreement and the Notes
as any Lender and may exercise the same as though it were not the Agent, and the
terms "Lender" and "Lenders" shall include the Agent in its individual capacity.
8.9. SUCCESSOR AGENT.
The Agent may resign as Agent upon 10 days' notice to the Lenders. If
the Agent shall resign as Agent under this Agreement and the other Credit
Documents, then the Required Lenders shall appoint from among the Lenders a
successor agent for the Lenders, which successor agent shall, so long as no
Event of Default exists, be approved by the Company (which approval shall not be
unreasonably withheld), whereupon such successor agent shall succeed to the
rights, powers and duties of the Agent, and the term "Agent" shall mean such
successor agent effective upon such appointment and approval, and the former
Agent's rights, powers and duties
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<PAGE> 73
as Agent shall be terminated, without any other or further act or deed on the
part of such former Agent or any of the parties to this Agreement or any of
the other Credit Documents or any holders of the Notes. After any retiring
Agent's resignation as Agent, the provisions of this subsection shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement and the other Credit Documents.
SECTION 9. MISCELLANEOUS
9.1. AMENDMENTS AND WAIVERS.
Neither this Agreement, any other Credit Document, nor any terms hereof
or thereof may be amended, supplemented or modified except in accordance with
the provisions of this subsection. The Required Lenders may, or, with the
written consent of the Required Lenders, the Agent may, from time to time, (a)
enter into with the Credit Parties written amendments, supplements or
modifications hereto and to the other Credit Documents for the purpose of adding
any provisions to this Agreement or the other Credit Documents or changing in
any manner the rights of the Lenders or of the Credit Parties hereunder or
thereunder or (b) waive, on such terms and conditions as the Required Lenders or
the Agent, as the case may be, may specify in such instrument, any of the
requirements of this Agreement or the other Credit Documents or any Default or
Event of Default and its consequences; provided, however, that no such waiver
and no such amendment, supplement or modification shall (i) reduce the amount or
extend the scheduled date of maturity of any Note, or reduce the stated rate of
any interest or fee payable hereunder or thereunder or extend the scheduled date
of any payment thereof or increase the amount or extend the expiration date of
any Lender's Commitment, in each case without the consent of each Lender
affected thereby, or (ii) amend, modify or waive any provision of this
subsection or reduce the percentage specified in the definition of Required
Lenders or consent to the assignment or transfer by a Credit Party of any of its
rights and obligations under this Agreement and the Notes or, except pursuant to
subsection 9.16 or as the result of or in connection with an Asset Disposition
permitted by subsection 5.2(b), release all or substantially all of the
Collateral or, except as the result of or in connection with a consolidation,
merger or disposition of a Credit Party permitted under subsection 5.2(b),
release the Company or any of the other Credit Parties from its or their
obligations under the Credit Documents, in each case without the written consent
of all the Lenders, or (iii) amend, modify or waive any provision of Section 8
without the written consent of the then Agent. Any such waiver and any such
amendment, supplement or modification shall apply equally to each of the Lenders
and shall be binding upon the Credit Parties, the Lenders, the Agent and all
future holders of the Notes. In the case of any waiver, the Credit Parties, the
Lenders and the Agent shall be restored to their former position and rights
hereunder and under the outstanding Notes, and any Default or Event of Default
waived shall be deemed to be cured and not continuing; but no such waiver shall
extend to any subsequent or other Default or Event of Default, or impair any
right consequent thereon.
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<PAGE> 74
9.2. NOTICES.
All notices, requests and demands to or upon the respective parties
hereto to be effective shall be in writing (including by telecopy), and, unless
otherwise expressly provided herein, shall be deemed to have been duly given or
made when delivered by hand, or 3 days after being deposited in the mail,
postage prepaid, or, in the case of telecopy notice, when received, addressed as
follows in the case of the Company, the Credit Parties and the Agent, and as set
forth in Schedule I in the case of the other parties hereto, or to such other
address as may be hereafter notified by the respective parties hereto and any
future holders of the Notes:
The Company Hercules Incorporated
or any other Hercules Plaza
Credit Party: Wilmington, Delaware 19894
Attention: Stuart Shears
Telephone: (302) 594-5300
Telecopy: (302) 594-5371
The Agent: NationsBank, N.A., as Agent
Independence Center, 15th Floor
NC1-001-15-04
101 North Tryon Street
Charlotte, North Carolina 28255
Attn: Agency Services
Telephone: (704) 386-6837
Telecopy: (704) 388-9436
with a copy to:
BankAmerica
335 Madison Ave.
New York, NY 10017
Attn: David Noda
Telephone: (212) 503-7948
Telecopy: (212) 503-7771
provided that any notice, request or demand to or upon the Agent or the Lenders
pursuant to subsection 2.3, 2.5, 2.6, 2.7, 2.11, 2.13, 2.15, 2.16, 2.17 or 3A.9
shall not be effective until received.
9.3. NO WAIVER; CUMULATIVE REMEDIES.
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<PAGE> 75
No failure to exercise and no delay in exercising, on the part of the
Agent, any Lender or any Credit Party, any right, remedy, power or privilege
hereunder or under the Notes shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
9.4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties made hereunder, in the Notes and in
any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this Agreement,
the Notes and the other Credit Documents and the making of the Loans and the
issuance or extension of Letters of Credit hereunder.
9.5. PAYMENT OF EXPENSES AND TAXES.
The Company agrees (a) to pay or reimburse the Agent for all its
reasonable out-of-pocket costs and expenses incurred in connection with the
development, preparation and execution of, and any amendment, supplement or
modification to, this Agreement, the Notes and the other Credit Documents and
any other documents prepared in connection herewith or therewith, and the
consummation and administration of the transactions contemplated hereby and
thereby, including, without limitation, the reasonable fees and disbursements of
counsel to the Agent, (b) to pay or reimburse each Lender and the Agent for all
its reasonable costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the Notes and any such other
documents, including, without limitation, the reasonable fees and disbursements
of counsel to the Agent and to the several Lenders (including, without
duplication, the allocated costs of in-house counsel to any Lender) , and (c) to
pay, indemnify, and hold each Lender and the Agent harmless from, any and all
recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other taxes, if any, which
may be payable or determined to be payable in connection with the execution and
delivery of, or consummation or administration of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Agreement, the Notes and any such other
documents, and (d) to pay, indemnify, and hold each Lender and the Agent
harmless from and against any and all other liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Agreement, the Notes, the
LOC Documents, the use of proceeds of the Loans and Letters of Credit and any
such other documents, including, without limitation, any of the foregoing
relating to the violation of, noncompliance with or liability under, any
environmental or other law applicable to the
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<PAGE> 76
operations of the Borrowers, any of their Subsidiaries or any of the their
respective properties (all the foregoing in this clause (d), collectively, the
"indemnified liabilities"), provided, that the Company shall have no obligation
hereunder to the Agent or any Lender with respect to indemnified liabilities
arising from (i) the gross negligence or willful misconduct of the Agent or any
such Lender or (ii) legal proceedings commenced against the Agent or any such
Lender by any security holder or creditor thereof arising out of and based upon
rights afforded any such security holder or creditor solely in its capacity as
such. The agreements in this subsection shall survive repayment of the Notes,
the LOC Obligations and all other amounts payable hereunder or under the other
Credit Documents.
9.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS.
(a) This Agreement shall be binding upon and inure to the benefit of
the Credit Parties, the Lenders, the Agent, all future holders of the Notes and
their respective successors and assigns, except that no Credit Party may assign
or transfer any of its rights or obligations under this Agreement without the
prior written consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or more
banks or other entities ("Participants") participating interests in any Loan
owing to such Lender, any Note held by such Lender, any Commitment of such
Lender, any Participation Interest of such Lender or any other interest of such
Lender hereunder, under the Notes or under any other Credit Document. In the
event of any such sale by a Lender of a participating interest to a Participant,
such Lender's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the holder of any such
Note for all purposes under this Agreement and the Notes, and the Credit Parties
and the Agent shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
the Notes. The Credit Parties agree that if amounts outstanding under this
Agreement, the Notes or any other Credit Document are due or unpaid, or shall
have been declared or shall have become due and payable upon the occurrence of
an Event of Default, each Participant shall be deemed to have the right of
setoff in respect of its participating interest in amounts owing under this
Agreement, any Note or any other Credit Document to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under
this Agreement, any Note or any other Credit Document, provided that, in
purchasing such participating interest, such Participant shall be deemed to have
agreed to share with the Lenders the proceeds thereof as provided in subsection
9.7(a) as fully as if it were a Lender hereunder.
(c) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time and from time to
time assign to any Lender or any affiliate thereof or, with the consent of (x)
so long as no Event of Default exists, the Company and (y) the Agent (which in
each case shall not be unreasonably withheld), to any other Person (an
"Assignee") all or any part of its rights and obligations under this Agreement,
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<PAGE> 77
the Notes and the other Credit Documents pursuant to an Assignment and
Acceptance, substantially in the form of Exhibit C, executed by such Assignee,
such assigning Lender (and, in the case of an Assignee that is not then a Lender
or an affiliate thereof, by the Company and the Agent) and delivered to the
Agent for its acceptance and recording in the Register; provided, however, that
the amount of the Commitment (if any) of the assigning Lender being assigned
pursuant to each such assignment (determined as of the date of the Assignment
and Acceptance with respect to such assignment) shall in no event be less than
the lesser of (i) $10,000,000 and (ii) with respect to each assigning Lender,
the amount of such Lender's Commitment and shall be in an integral multiple of
$1,000,000 (or, if less, with respect to each assigning Lender, the amount of
such Lender's Commitment); provided, further, that, in the case of any proposed
assignment pursuant to this subsection 9.6(c) to an Assignee which is not a
Lender or any affiliate of a Lender, if the Company objects to such proposed
Assignee and, no later than 5 Business Days after receipt of notice by the
Company of such proposed Assignee, proposes an alternative Assignee willing to
consummate such assignment with the assigning Lender on the same terms and
conditions as such assigning Lender's proposed Assignee, such assigning Lender
shall not have the right to effect such proposed assignment to its proposed
Assignee. Upon such execution, delivery, acceptance and recording, from and
after the effective date determined pursuant to such Assignment and Acceptance,
(x) the Assignee thereunder shall be a party hereto and, to the extent provided
in such Assignment and Acceptance, have the rights and obligations of a Lender
hereunder with a Commitment as set forth therein, and (y) the assigning Lender
thereunder shall, to the extent provided in such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such assigning Lender
shall cease to be a party hereto).
(d) The Agent shall maintain at its address referred to in subsection
9.2 a copy of each Assignment and Acceptance delivered to it and a register (the
"Register") for the recordation of the names and addresses of the Lenders and
the Commitment of, and principal amount of the Loans owing to, each Lender from
time to time. The entries in the Register shall be conclusive, in the absence of
manifest error, and the Credit Parties, the Agent and the Lenders may treat each
Person whose name is recorded in the Register as the owner of the Loan recorded
therein for all purposes of this Agreement. The Register shall be available for
inspection by the Company or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Company and the Agent), together
with payment by the assigning Lender to the Agent of a registration and
processing fee of $3,500, the Agent shall (i) promptly accept such Assignment
and Acceptance and (ii) on the effective date determined pursuant thereto record
the information contained therein in the Register and give notice of such
acceptance and
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<PAGE> 78
recordation to the Lenders and the Company on behalf of the Borrower. On or
prior to the effective date of any such Assignment and Acceptance, each
Borrower, at its own expense, shall execute and deliver to the Agent (in
exchange for the Note or Notes being assigned by the assigning Lender) a new
Note or Notes to the order of such Assignee in an amount equal to the respective
Commitments assumed by it pursuant to such Assignment and Acceptance, and, if
the assigning Lender has retained a Commitment hereunder, a new Revolving Credit
Note and/or Term Notes, respectively, to the order of the assigning Lender in an
amount equal to the respective Commitments retained by it hereunder. Such new
Notes shall be dated the Closing Date and shall otherwise be in the form of the
Notes replaced thereby.
(f) Each Credit Party authorizes each Lender to disclose to
any Participant or Assignee (each, a "Transferee") and any prospective
Transferee any and all financial information in such Lender's possession
concerning such Credit Party and its affiliates which has been delivered to such
Lender by or on behalf of the Company pursuant to this Agreement or which has
been delivered to such Lender by or on behalf of the Company in connection with
such Lender's credit evaluation of the Company and its affiliates prior to
becoming a party to this Agreement.
(g) Nothing herein shall prohibit any Lender from pledging or
assigning any Note to any Federal Reserve Bank in accordance with applicable
law.
9.7. ADJUSTMENTS; SET-OFF.
(a) If any Lender (a "benefited Lender") shall at any time receive any
payment of all or part of its Loans or Participation Interests, or interest
thereon, or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in subsections 6(f) or (g), or otherwise), in a greater proportion
than any such payment to or collateral received by any other Lender, if any, in
respect of such other Lender's Loans or Participation Interests, or interest
thereon, such benefited Lender shall purchase for cash from the other Lenders a
participating interest in such portion of each such other Lender's Loan, or
shall provide such other Lenders with the benefits of any such collateral, or
the proceeds thereof, as shall be necessary to cause such benefited Lender to
share the excess payment or benefits of such collateral or proceeds ratably with
each of the Lenders; provided, however, that if all or any portion of such
excess payment or benefits is thereafter recovered from such benefited Lender,
such purchase shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to any Credit Party,
any such notice being expressly waived by each Credit Party to the extent
permitted by applicable law, upon any amount becoming due and payable by such
Credit Party hereunder, under the Notes or under any other Credit Document
(whether at the stated maturity, by acceleration or otherwise) to set-off and
appropriate and apply against such amount any and all deposits (general or
special, time or
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<PAGE> 79
demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Lender or any affiliate, branch or agency thereof to or for the
credit or the account of such Credit Party. Each Lender agrees promptly to
notify the Company on behalf of the respective Credit Party and the Agent after
any such set-off and application made by such Lender, provided that the failure
to give such notice shall not affect the validity of such set-off and
application.
9.8. COUNTERPARTS.
This Agreement may be executed by one or more of the parties to this
Agreement on any number of separate counterparts (including by telecopy), and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Company and the Agent.
9.9. ADJUSTMENTS FOR CHANGES IN GAAP.
In the event that a change in GAAP affects the terms of the covenant
contained in subsection 5.2(d) hereof (including the related defined terms used
therein), the Company and the Required Lenders shall negotiate in good faith
such amendments to such covenant and related definitions as are necessary to
reflect such changes in GAAP and as are otherwise reasonably satisfactory to the
Company and the Required Lenders.
9.10. SEVERABILITY; SECTION HEADINGS.
(a) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(b) The Section and subsection headings and the Table of Contents
contained herein are for convenience of reference only and shall not affect the
construction hereof.
9.11. INTEGRATION.
This Agreement, the Notes and the other Credit Documents represent the
agreement of the Company, the other Credit Parties, the Agent and the Lenders
with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties
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by the Agent or any Lender relative to subject matter hereof not expressly set
forth or referred to herein, in the Notes or in the other Credit Documents.
9.12. GOVERNING LAW.
THIS AGREEMENT, THE NOTES AND, UNLESS OTHERWISE SPECIFICALLY PROVIDED
THEREIN, THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES UNDER THIS AGREEMENT, THE NOTES AND SUCH OTHER CREDIT DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NORTH CAROLINA.
9.13. SUBMISSION TO JURISDICTION; WAIVERS.
Each Credit Party hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement, the Notes and the other Credit Documents,
or for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State of North Carolina,
the courts of the United States of America for the Western District of North
Carolina, and appellate courts from any thereof,
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding may
be effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to such Credit Party at
its address set forth in subsection 9.2 or at such other address of which the
Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect service
of process in any other manner permitted by law or shall limit the right to sue
in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to in
this subsection any special, exemplary, punitive or consequential damages.
9.14. ACKNOWLEDGMENTS.
Each Credit Party hereby acknowledges that:
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<PAGE> 81
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement, the Notes and the other Credit Documents;
(b) neither the Agent nor any Lender has any fiduciary relationship
with or duty to such Credit Party arising out of or in connection with this
Agreement, any of the Notes or any of the other Credit Documents, and the
relationship between Agent and Lenders, on one hand, and such Credit Party, on
the other hand, in connection herewith or therewith is solely that of debtor and
creditor; and
(c) no joint venture is created hereby, by the Notes or by any of the
other Credit Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among such Credit Party and the
Lenders.
9.15. WAIVER OF JURY TRIAL.
EACH CREDIT PARTY, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR THE NOTES AND FOR ANY COUNTERCLAIM THEREIN.
9.16. TERMINATION OF COLLATERAL PERIOD.
Upon the occurrence of a Credit Improvement Date that terminates the
Collateral Period:
(a) the pledges and grants of security interests pursuant to the Pledge
Agreements, and the covenants and other agreements contained therein, shall no
longer be effective and shall otherwise cease and be of no further force and
effect;
(b) the Collateral Agent shall, at the expense of the Company, (i)
return all items described in subsection 5.1(k) to the Company or the applicable
Credit Party and (ii) execute and deliver Uniform Commercial Code termination
statements to evidence the termination described in clause (a) above; and
(c) the representation and warranty set forth on Schedule V no longer
shall be deemed to be included in this Agreement.
9.17. CONFIDENTIALITY.
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<PAGE> 82
The Agent and each Lender (each, a "Lending Party") agrees to keep
confidential any information furnished or made available to it by the Credit
Parties pursuant to this Credit Agreement that is marked confidential; provided
that nothing herein shall prevent any Lending Party from disclosing such
information (a) to any other Lending Party or any Affiliate of any Lending
Party, or any officer, director, employee, agent, or advisor of any Lending
Party or Affiliate of any Lending Party, (b) to any other Person if reasonably
incidental to the administration of the credit facility provided herein, (c) as
required by any law, rule, or regulation, (d) upon the order of any court or
administrative agency, (e) upon the request or demand of any regulatory agency
or authority, (f) that is or becomes available to the public or that is or
becomes available to any Lending Party other than as a result of a disclosure by
any Lending Party prohibited by this Credit Agreement, (g) in connection with
any litigation to which such Lending Party or any of its Affiliates may be a
party, (h) to the extent necessary in connection with the exercise of any remedy
under this Credit Agreement or any other Credit Document, (i) to the National
Association of Insurance Commissioners or any similar organization or any
nationally recognized rating agency that requires access to information about a
Lender's investment portfolio in connection with ratings issued with respect to
such Lender, (j) to any direct or indirect contractual counterparty in swap
agreements or such contractual counterparty's professional advisor (so long as
such contractual counterparty or professional advisor to such contractual
counterparty (i) has been approved in writing by the Company and (ii) agrees in
a writing enforceable by the Company to be bound by the provisions of this
subsection 9.17) and (k) subject to provisions substantially similar to those
contained in this subsection 9.17, to any actual or proposed participant or
assignee.
9.18. PRUDENTIAL INTERCREDITOR AGREEMENT.
The Lenders hereby agree that the Agent, on behalf of the Lenders, may
enter into an intercreditor agreement, substantially in the form of Exhibit J,
with The Prudential Insurance Company of American ("Prudential"), as the holder
of the Guaranteed ESOT Notes Due June 19, 2009 of The BetzDearborn Inc. Employee
Stock Ownership and 401(k) Plan currently outstanding in the aggregate principal
amount of $93,500,000, which intercreditor agreement shall provide, among other
things, for the pro rata sharing among the Lenders and Prudential of any
proceeds of the Collateral or the guarantees under Section 3A.
(signature pages follow)
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<PAGE> 83
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
COMPANY: HERCULES INCORPORATED,
a Delaware corporation
By:
Name:
Title:
DESIGNATED
BORROWER/
SUBSIDIARY
GUARANTOR: BETZDEARBORN CANADA, INC.,
an Ontario corporation
By:
Name:
Title:
OTHER SUBSIDIARY
GUARANTORS:
HERCULES CREDIT, INC.,
a Delaware corporation
By:
Name:
Title:
s-1-A
<PAGE> 84
HERCULES FLAVOR, INC.,
a Delaware corporation
By:
Name:
Title:
WSP, INC.,
a Delaware corporation
By:
Name:
Title:
AQUALON COMPANY,
a Delaware corporation
By:
Name:
Title:
HERCULES FINANCE COMPANY,
a Delaware corporation
By:
Name:
Title:
FIBERVISIONS, L.L.C.,
a Delaware limited liability company
By:
Name:
Title:
s-1-B
<PAGE> 85
FIBERVISIONS INCORPORATED,
a Delaware corporation
By:
Name:
Title:
FIBERVISIONS PRODUCTS, INC.,
a Georgia corporation
By:
Name:
Title:
HERCULES INTERNATIONAL LIMITED,
a ___________________ corporation
By:
Name:
Title:
BETZDEARBORN, INC.,
a Pennsylvania corporation
By:
Name:
Title:
BETZDEARBORN EUROPE, INC.,
a Delaware corporation
By:
Name:
Title:
s-1-C
<PAGE> 86
DRC, LTD.,
a Delaware corporation
By:
Name:
Title:
BL TECHNOLOGIES, INC.,
a Delaware corporation
By:
Name:
Title:
BLI HOLDINGS, INC.,
a Delaware corporation
By:
Name:
Title:
BETZDEARBORN PAPER PROCESS
GROUP, INC.,
a Florida corporation
By:
Name:
Title:
BETZDEARBORN HYDROCARBON
PROCESS GROUP, INC.,
a Texas corporation
By:
Name:
Title:
s-1-D
<PAGE> 87
LENDERS: NATIONSBANK, N. A.,
individually in its capacity as a
Lender and in its capacity as Agent
By:
M. Gregory Seaton
Senior Vice President
s-2
<PAGE> 88
THE CHASE MANHATTAN BANK
By:
Name:
Title:
s-3
<PAGE> 89
CITIBANK, N.A.
By:
Name:
Title:
s-4
<PAGE> 90
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
Name:
Title:
s-5
<PAGE> 91
DEUTSCHE BANK A.G., NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By:
Name:
Title:
s-6
<PAGE> 92
UBS AG, NEW YORK BRANCH
By:
Name:
Title:
s-7
<PAGE> 93
THE BANK OF NOVA SCOTIA
By:
Name:
Title:
s-8
<PAGE> 94
BANK OF TOKYO-MITSUBISHI, LTD.,
NEW YORK BRANCH
By:
Name:
Title:
BANK OF TOKYO-MITSUBISHI
TRUST COMPANY
By:
Name:
Title:
s-9
<PAGE> 95
COMMERZBANK AG,
NEW YORK BRANCH
By:
Name:
Title:
By:
Name:
Title:
s-10
<PAGE> 96
DRESDNER BANK AG, NEW YORK
AND GRAND CAYMAN BRANCHES
By:
Name:
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FIRST UNION NATIONAL BANK
By:
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THE INDUSTRIAL BANK OF JAPAN, LIMITED
NEW YORK
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MELLON BANK, N.A.
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PNC BANK, N.A.
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ABN AMRO BANK N.V.
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MARINE MIDLAND BANK
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WACHOVIA BANK, N.A.
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BANKBOSTON, N.A.
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BANK OF MONTREAL IRELAND PIC
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DEN DANSKE BANK AKTIESELSKAB,
CAYMAN ISLANDS BRANCH
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THE NORINCHUKIN BANK,
NEW YORK BRANCH
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THE SUMITOMO BANK, LIMITED,
NEW YORK BRANCH
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BANCA COMMERCIALE ITALIANA,
NEW YORK BRANCH
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COMERICA BANK
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PARIBAS
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NORDDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK/
CAYMAN ISLANDS BRANCH
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<PAGE> 1
Exhibit 99.1
HERCULES COMPLETES ACQUISITION OF BETZDEARBORN
WILMINGTON, DEL, OCTOBER 15, 1998... Hercules Incorporated (NYSE: HPC)
today announced that it has completed the previously announced acquisition of
BetzDearborn Inc. for $72 per share in cash, or approximately $2.4 billion.
Hercules has also assumed approximately $700 million in BetzDearborn debt.
The combination of Hercules and BetzDearborn, which was announced on
July 30, created a global leader in specialty chemicals with a premier paper
chemical business that will provide the most complete offering of products and
services to the pulp and paper industry. BetzDearborn also brings to Hercules a
leading water and industrial process treatment franchise.
"This is a compelling combination that will provide Hercules with
significant growth opportunities," said R. Keith Elliott, Hercules chairman and
co-chief executive officer. "By joining forces, we are creating the world's
premier paper chemical franchise with the unique ability to offer our
customers-who are increasingly demanding integrated, cost-effective
solutions-with complete functional, process, and water treatment chemicals, or
true start-to-finish capabilities. At the same time, this acquisition will
create value for our shareholders."
William R. Cook, Hercules vice chairman and co-chief executive officer,
said, "We have a detailed integration plan in place and expect to move ahead
quickly with the implementation to leverage the strengths of both organizations.
In addition to our significant sales organization, together, we will have the
technology, financial and manufacturing strength to achieve strong, profitable
growth in today's demanding marketplace."
<PAGE> 2
Hercules expects the transaction to be accretive to cash earnings in
the first year and to both cash and reported earnings per share in the second
year, with increasing levels of accretion thereafter. It also expects to achieve
a minimum of $125 million in synergies.
BetzDearborn is the world's premier supplier of engineered chemical
treatment programs for influent water, boiler, cooling, wastewater and process
systems in industrial, commercial and institutional establishments.
Hercules manufactures chemical specialty products for a variety of
markets worldwide. With shareholder value as its guiding focus, the corporation
concentrates on value-added, high-performance products where it has a market or
technology advantage. For more information, visit the Hercules website at
www.herc.com.
# # #
This news release includes forward-looking statements, as defined in the Private
Securities Litigation Reform Act of 1995, reflecting management's current
analysis and expectations, based on reasonable assumptions. Results could differ
materially depending on such factors as business climate, economic and
competitive uncertainties, higher manufacturing costs, reduced level of customer
orders, risks in developing new products and technologies, environmental and
safety regulations and clean-up costs, foreign exchange rates, and adverse
changes in economic and political climates around the world. As appropriate,
additional factors are contained in reports filed with the Securities and
Exchange Commission. This paragraph is included to provide safe harbor for
forward-looking statements, which are not required to be publicly revised as
circumstances change.
Media Contacts:
Claire Lamar Carey (302) 594-6030, [email protected]
Bob Palangio (215) 953-2417, [email protected]
Investor Contacts:
Bob Gallant (302) 594-5254, [email protected]
Bill Drury (215) 953-2355, [email protected]
2
<PAGE> 1
EXHIBIT 99.2
NEWS RELEASE
HERCULES ELECTS FOUR NEW DIRECTORS
WILMINGTON, Del., October 19, 1998... Hercules Incorporated (NYSE: HPC) Monday
announced the elections of four new members to the company's board of directors,
an action related to the recent acquisition of BetzDearborn Inc.
The four former BetzDearborn directors added to the board bring the number of
Hercules directors to 14, 11 of whom are outside, nonemployee directors. The new
directors are William R. Cook, John G. Drosdick, Alan R. Hirsig and John A. H.
Shober.
According to R. Keith Elliott, Hercules chairman and co-chief executive officer,
"We are very fortunate to have these directors join our board. The experience
and vast knowledge in technology and business they bring to the board will be
invaluable as we work to make the 'new Hercules' the world's premier specialty
chemicals company."
Mr. Cook, 55, currently Hercules vice chairman and co-chief executive officer
was the former chairman, president and chief executive officer of BetzDearborn
Incorporated. He joined BetzDearborn in 1972 and held positions in product and
marketing management, engineering services, and senior management of several
subsidiaries.
In 1987, he became a senior vice president of the corporation. He was elected
president and chief operating officer in 1989, president and chief executive
officer in 1993, and, in 1996, to the additional post of chairman.
Mr. Drosdick, 55, is president, chief operating officer, and a director of Sun
Company, Inc., one of the largest independent petroleum refiner-marketers in
the United States selling its products under the principal trade name of SUNOCO.
Prior to joining Sun Company in 1996, Mr. Drosdick was president of Ultramar
Corporation from 1990 to 1996 and president of Tosco Corporation from 1987 to
1990. He began his career with Exxon in 1968.
<PAGE> 2
Mr. Hirsig, 59, is the retired president and chief executive officer of ARCO
Chemical Company. He began his career in 1961 with Sinclair Oil Corporation, an
ARCO predecessor company.
He joined ARCO Chemical in 1969 and held a number of research and managerial
positions including vice president of Research and Development, vice president
of Finance and Planning, vice president of Business Management and Marketing,
and president of the company's European operations.
He was elected an ARCO Chemical senior vice president in 1988 and a board member
in 1989. Mr. Hirsig was elected president and CEO in 1991 and served in that
capacity until his retirement in May, 1998, at which time he was appointed vice
chairman of the board.
Mr. Shober, 65, a private investor and corporate director, had been a director
of BetzDearborn since 1987. He has been a director of Penn Virginia Corporation,
a natural resources company, since 1978, vice chairman of the board of directors
from 1992 to 1996, and president and chief executive officer from 1989 to 1992.
Mr. Shober also serves as chairman of Anker Coal Group, Inc., a director of
Airgas, Inc., and serves as director of several other organizations.
Hercules manufactures chemical specialty products used in a variety of home,
office, and industrial products. Its businesses are Pulp and Paper,
BetzDearborn, Aqualon, Resins, Food Gums and FiberVisions.
The corporation's focus is on sustainable, long-term growth in shareholder
value, driven by concentration on the customer, new product growth, and
continuous improvement in manufacturing costs. For more information, visit the
Hercules website at www.herc.com.
###
Media Contact: Claire LaMar Carey (302) 594-6030, [email protected]
Investor Contact: Bob Gallant (302) 594-5254, [email protected]
2
